University of Santo Tomas

FACULTY OF CIVIL LAW (1734)

TAXATION LAW
Pre-Week Notes 2023
ACADEMICS COMMITTEE

SECRETARY GENERALS: Angela Beatrice S. Peña & Katherine S. Policarpio

EXECUTIVE COMMITTEE FOR TAXATION LAW: Paulinne Stephany G. Santiago
EXECUTIVE COMMITTEE: Ron-Sophia Nicole C. Antonio, Herlene Mae D. Calilung,
Patrisha Louise E. Dumanil, Alexandra Maureen B. Garcia, Hannah Joy C. Ibarra,
Jedidiah R. Padua, Dianne Micah Angela D. Yumang

TAXATION LAW PRE-WEEK COMMITTEE

SUBJECT HEAD FOR TAXATION LAW: Jenelyn D. Galvez

MEMBERS: Stephen Nicole R. Aran, Thea Klarisse S. Balinas, Gemina Dale C.
Borreo, Melvin C. Bumagat, Sharmaine Eliza T. Macasero, Jean Marrielle R.
Manito, Priscilla Lee V. Morales, Jasmin T. Santiago, Kate Nicole D. Talla, Mary
Grace S. Tejada
 SBCA 1611

DISCLAIMER

THE RISK OF USE OF THIS BAR

REVIEW MATERIAL SHALL BE
BORNE BY THE USER

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
form, for distribution or sale, without a written permission.

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.

Released in the Philippines, 2023.

 PRE-WEEK NOTES 2023
As to non-impairment of contracts
I. GENERAL PRINCIPLES
Tax laws
generally do not
impair contracts
A. POWER OF TAXATION AS DISTINGUISHED FROM unless the
POLICE POWER AND EMINENT DOMAIN government is Contracts may Contracts may
party to a be impaired. be impaired.
contract
granting
EMINENT
TAXATION POLICE POWER exemption for a
DOMAIN
consideration.
As to authority who exercises the power
Government or
Government or Government or As to transfer of property rights
public service
its political its political
companies and
subdivision subdivision Expropriated
public utilities
Taxes paid No transfer but private property
As to purpose become part of only restraint on becomes
To raise revenue public funds. its exercise. property of the
in support of the To promote To facilitate the State.
Government; general welfare taking of private
regulation is through property for As to scope
merely regulations. public purpose.
incidental. Private property
All persons, All persons,
upon payment of
As to persons affected property, and property, and
just
Upon the Upon the On an individual excises. excises.
compensation.
community or community or as the owner of a
class of class of particular
individuals. individuals. property. Similarities of the Inherent Powers
As to amount of monetary imposition
Limited to the 1. They are attributes of sovereignty founded on
No imposition; necessity;
cost of
No ceiling except the owner is
regulation,
inherent paid just 2. They are inherent powers of the Government;
issuance of
limitations. compensation
license, or
for his property. 3. They are legislative in nature;
surveillance.
As to benefits received
4. They are ways by which the State interferes with
private rights and property;

5. They exists independently of the Constitution, but

subject to conditions for their exercise as may be
No Direct prescribed or limited by the Constitution;
Benefit –
Maintenance of 6. They presuppose an equivalent compensation received
No Direct
healthy by the persons affected by the exercise of power,
Benefit –
economic whether directly, indirectly, immediate or remote; and
Protection of a Direct Benefit –
standard of
secured The person
society, 7. The exercise by local government units may be limited
organized receives just
intangible by national legislature. (Lim, 2021)
society, benefits compensation.
altruistic feeling
received from
that he has
the government.
contributed to B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF
the general TAXATION
welfare.

Inherent Limitations (S-P-I-N-E)

1. Situs or Territorial;

1 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
2. Public Purpose; d. Non-impairment of obligations of contracts (Sec.
3. International Comity; 10, Art. III, 1987 Constitution)
4. Non-Delegability or Inherently Legislative; and
5. Exemption of government entities, agencies and e. Freedom of the press (Sec. 4, Art. III, 1987
instrumentalities. Constitution)

Constitutional Limitations f. Prohibition on riders (Sec. 25(1) in relation to Sec.

26(1), Art. VI, 1987 Constitution)
1. Provisions directly affecting taxation
INHERENT LIMITATIONS
a. Prohibition against imprisonment for non-
payment of poll tax (Sec. 20, Art. III, 1987 TERRITORIAL
Constitution)
GR: The taxing power of a country is limited to persons and
b. Uniformity and equality of taxation (Sec. 28(1), property within and subject to its jurisdiction.
Art. VI, 1987 Constitution)
XPNs:
c. Grant by Congress of authority to the President to
impose tariff rates (Sec. 28(2), Art. VI, 1987 1. Where tax laws operate outside territorial jurisdiction
Constitution) (e.g., taxation of resident citizens on their incomes
derived abroad)
d. Prohibition against taxation of religious,
2. Where tax laws do not operate within the territorial
charitable entities, and educational entities (Sec.
jurisdiction of the State:
28(3), Art. VI, 1987 Constitution)
a. When exempted by treaty obligations; or
e. Prohibition against taxation of non-stock, non- b. When exempted by international comity.
profit educational institutions (Sec. 4(3), Art. XIV,
1987 Constitution) PUBLIC PURPOSE

f. Majority vote of Congress for grant of tax
exemption (Sec. 28(4), Art. VI, 1987 Constitution)
g. Prohibition on use of tax levied for special
purpose (Sec. 29(3), Art. VI, 1987 Constitution)
h. President’s veto power on appropriation,
revenue, tariff bills (Sec. 27 (2), Art. VI, 1987
Constitution)
i. Non-impairment of jurisdiction of the Supreme
Court (Sec. 30, Art. VI, 1987 Constitution)
j. Grant of power to the LGUs to create its own
sources of revenue (Sec. 5, Art. X, 1987
Constitution)
k. Origin of Revenue and Tariff Bills (Sec. 24, Art. VI,
1987 Constitution)
l. No appropriation or use of public money for
religious purposes (Sec. 29(2), Art. VI, 1987
Constitution)
Tax is Considered for Public Purpose if:
1. It is for the welfare of the nation and/or for the greater
portion of the population;
2. It affects the area as a community rather than as
individuals; and
3. It is designed to support the services of the government
for some of its recognized objects.
Tests in Determining Public Purpose
1. Duty Test – whether the things to be furthered by the
appropriation of public revenue is something which is
the duty of the State, as a government to provide.
2. Promotion of General Welfare Test – whether the
statute enacted providing the tax promotes the welfare
of the community in equal measure.
INTERNATIONAL COMITY
International Comity as a Limitation on the Power to
Tax

2. Provisions indirectly affecting taxation Under International Comity, a state must recognize the
generally accepted tenets of international law, among
a. Due process (Sec. 1, Art. III, 1987 Constitution) which are the principles of sovereign equality among states
and of their freedom from suit without their consent, that
b. Equal protection (Sec. 1, Art. III, 1987 limits that authority of a government to effectively impose
Constitution) taxes in a sovereign state and its instrumentalities, as well
c. Religious freedom (Sec. 5, Art. III, 1987
Constitution)

UNIVERSITY OF SANTO TOMAS 2

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
as in its property held and activities undertaken in that
capacity. (2009 BAR)
INHERENTLY LEGISLATIVE
GR: The power to tax is exclusively vested in the legislative
body, being inherent in nature. Hence, it may not be
delegated. (Delegata potestas non potest delegari)
Non-Delegable Legislative Powers
1. Selection of subject to be taxed;
2. Determination of purposes for which taxes shall be
levied;
3. Fixing of the rate/amount of taxation;
4. Situs of tax; and
5. Kind of tax.
XPNs:
1. Delegation to Local Government – the LGUs have the
power to create their own sources of revenue and to
levy taxes, fees, and charges. (Sec. 5, Art. X, 1987
Constitution)
NOTE: The constitutional provision does not change
the doctrine that municipal corporations do not
possess inherent powers of taxation; what it does is to
confer municipal corporations a general power to levy
taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these
powers. The power of the legislative authority relative
to the fiscal powers of local governments has been
reduced to the authority to impose limitations on
municipal powers. Thus, in interpreting statutory
provisions on municipal fiscal powers, doubts will be
resolved in favor of municipal corporations. (Quezon
City v. ABS-CBN Broadcasting Corporation, G.R. No.
162015, 06 Mar. 2006)
2. Delegation to the President – the authority of the
President to fix tariff rates, import or export quotas,
tonnage and wharfage dues or other duties and
imposts. (Sec. 28(2), Art. VI, 1987 Constitution)
NOTE: When Congress tasks the President or his/her
alter egos to impose safeguard measures under the
delineated conditions, the President or the alter egos
may be properly deemed as agents of Congress to
perform an act that inherently belongs as a matter of
right to the legislature. It is basic agency law that the
agent may not act beyond the specifically delegated
powers or disregard the restrictions imposed by the
principal. (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Phil., G.R. No.
158540, 03 Aug. 2005)
3. Delegation to Administrative Agencies – when the
delegation relates merely to administrative
implementation that may call for some degree of
discretionary powers under sufficient standards
expressed by law or implied from the policy and
3 UNIVERSITY OF SANTO TOMAS
purpose of the act (Cervantes v. Auditor General, G.R. No.
L-4043, 26 May 1952; Maceda v. Macaraig, G.R. No.
88291, 08 June 1993) subject to the following tests:
a. Completeness Test – the law must be complete in
all aspects when it leaves the legislature for it to be
valid. The only thing left to do is to implement the
law.
b. Sufficiently Determinable Standards Test – there
must be a sufficient standard to define the
boundaries of the authority of the delegate. This is
done by defining the legislative policy and the
circumstance under which it is to be pursued and
implemented.
NOTE: Technically, this does not amount to a
delegation of the power to tax because the questions
which should be determined by Congress are already
answered by Congress before the tax law leaves
Congress.
EXEMPTION FROM TAXATION OF GOVERNMENT
ENTITIES
GR: The government is exempt from tax.
XPNs: (L-P-G)
1. Law or Charter creating the agency provides that
they are subject to tax;
2. Performing Proprietary functions; and
3. Government wishes to tax itself.
Since sovereignty is absolute and taxation is an act of high
sovereignty, the State, if so minded, could tax itself,
including its political subdivisions. (Maceda v. Macaraig,
G.R. No. 88291, 08 June 1993)
National Government is Exempt from Local Taxation
If the taxing authority is the LGU, R.A. No. 7160 expressly
prohibits LGUs from levying tax on the National
Government, its agencies, and instrumentalities and other
LGUs.
In MIAA v. CA, the Supreme Court held that MIAA's Airport
Lands and Buildings are exempt from real estate tax
imposed by local governments. Being an instrumentality of
the national government, it is exempt from local taxation.
Also, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax.
NOTE: However, while government instrumentalities are
exempt from real property taxes, government-owned or
controlled corporations (GOCC) are not exempt from real
property taxes. (MIAA v. CA, G.R. No. 155650, 20 July 2006)
Taxability of Government Agencies
1. Performing governmental functions – tax exempt
unless expressly taxed
FACULTY OF CIVIL LAW
 TAXATION LAW
2. Performing proprietary functions – subject to tax
unless expressly exempted
Taxability of Government Instrumentalities
A government instrumentality falls under Sec. 133(o) of the
LGC, which states:
“SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. — Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following: xxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities and local
government units.”
Q: Is PEZA a government instrumentality or a GOCC? Is
it exempt from real property taxation?
A: PEZA is an instrumentality of the government. It is not
integrated within the department framework but is an
agency attached to the Department of Trade and Industry.
PEZA is also vested with special functions or jurisdiction by
law. Congress created the PEZA to operate, administer,
manage, and develop special economic zones in the
Philippines. Although a body corporate vested with some
corporate powers, the PEZA is not a GOCC that is taxable for
real property taxes because it was not organized as a stock
or non-stock corporation.
Being an instrumentality of the National Government, it
cannot be taxed by LGUs. (City of Lapu-Lapu v. PEZA, G.R. No.
184203, 26 Nov. 2014)
Taxability of GOCCs
GOCC are taxable entities, and they are not exempt from BIR
assessment and collection, unless their charter or the law
creating them provides otherwise. (2017 BAR)
NOTE: Upon enactment of the LGC, any exemption from real
property tax given to all persons, whether natural or
juridical, including all GOCCs, were withdrawn. (Sec. 193,
LGC)
However, certain corporations have been granted
exemption under Sec. 27(c) of R.A. No. 8424 (Tax Reform Act
of 1997) as amended, to wit:
1. Government Service Insurance System (GSIS);
2. Social Security System (SSS);
3. Philippine Health Insurance Corporation (PhilHealth);
4. Local Water Districts (LWDs); and
5. Home Development Mutual Fund
NOTE: Philippine Charity Sweepstakes Office (PCSO) was
removed by TRAIN and replaced by LWDs.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
R.A. No. 9337 deleted Philippine Amusement and Gaming
Corporation (PAGCOR) from the list of exempt GOCCs.
(PAGCOR v. BIR, G.R. No. 215427, 10 Dec. 2014)
CONSTITUTIONAL LIMITATIONS
Provisions Directly Affecting Taxation
PROHIBITION AGAINST IMPRISONMENT FOR NON-
PAYMENT OF POLL TAX
No person shall be imprisoned for debt or non-payment of
a poll tax. (Sec. 20, Art. III, 1987 Constitution)
In other words, while a person may not be imprisoned for
non-payment of a cedula or poll tax, he may be imprisoned
for non-payment of other kinds of taxes where the law so
expressly provides. (Dimaampao, 2021)
UNIFORMITY AND EQUALITY OF TAXATION
The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation. (Sec.
28(1), Art. VI, 1987 Constitution)
Q: Explain the following concepts in taxation:
a. Uniformity,
b. Equitability, and
c. Equality.
A:
a. Uniformity – It means that all taxable articles or kinds
of property of the same classes shall be taxed at the
same rate. (CIR v. Lingayen Gulf Elec. Co., G.R. No. L-
23771, 04 Aug. 1988)
A tax is considered uniform when it operates with the
same force and effect in every place where the subject
is found. (Churchill v. Concepcion, G.R. No. 115722, 22
Sept. 1916)
Different articles may be taxed at different amounts
provided that the rate is uniform on the same class
everywhere, with all people at all times. Accordingly,
singling out one particular class for taxation purposes
does not infringe the requirement of uniformity.
b. Equitability – Taxation is said to be equitable when its
burden falls on those better able to pay.
c. Equality – It is accomplished when the burden of the
tax falls equally and impartially upon all the persons
and property subject to it.
Valid and Reasonable Classification
Uniformity does not call for perfect uniformity or perfect
equality. Reasonable classifications do not violate
uniformity and equality of taxation. (Sison v. Ancheta, G.R.
No. L-59431, 25 July 1984)
4
 PRE-WEEK NOTES 2023
However, the classification must be valid and reasonable,
according to the rules of equal protection. If the
classification is unreasonable, then the rule on uniformity
will be violated. (Pepsi-Cola Bottling v. City of Butuan, G.R.
No. L022814, 28 Aug. 1968)
The Constitution is also not violated when a certain tax is
not imposed in other jurisdictions, for the Constitution does
not require that the taxes for the same purpose should be
imposed in different territorial subdivisions at the same
time. (Villanueva v. City of Iloilo, G.R. No. L-26521, 28 Dec.
1968)
For classification to be valid, the following requisites must
concur: (B-A-G-S)
1. It must apply Both to present and future conditions;
2. It must apply to All members of the same class;
3. It must be Germane to the purposes of the law; and
4. It must be based on Substantial distinctions. (Ormoc
Sugar Company, Inc. v. The Treasurer of Ormoc City, G.R.
No. L-23794, 17 Feb. 1968)
Progressive Taxation
Taxation is progressive when tax rate increases as the
income of the taxpayer increases. It is based on the principle
that those who are able to pay more should shoulder the
bigger portion of the tax burden.
Q: Does the Constitution prohibit regressive taxes?
A: NO. The Constitution does not really prohibit the
imposition of regressive taxes. What it simply provides is
that Congress shall evolve a progressive system of taxation.
GRANT BY CONGRESS OF AUTHORITY TO
THE PRESIDENT TO IMPOSE TARIFF RATES
The Congress may, by law, authorize the President to fix
within specified limits and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues and other duties or
imposts within the framework of the national development
program of the Government. (Sec. 28(2), Art. VI, 1987
Constitution)
PROHIBITION AGAINST TAXATION OF RELIGIOUS,
CHARITABLE ENTITIES, AND EDUCATIONAL ENTITIES
Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from
taxation. (Sec. 28(3), Art. VI, 1987 Constitution)
Q: What is the coverage of tax exemption?
A: The exemption only applies to real property tax. (Lladoc
v. CIR, G.R. No. L-19201, 16 June 1965) Accordingly, a
5 UNIVERSITY OF SANTO TOMAS
conveyance of such exempt property can be subject to
transfer taxes.
Meaning of “Actual, Direct and Exclusive Use of the
Property” as Used in the Constitution
It is the direct, immediate, and actual application of the
property itself to the purposes for which the charitable
institution is organized.
“Exclusive” is defined as possessed and enjoyed to the
exclusion of others; debarred from participation or
enjoyment; and “exclusively” is defined, “in a manner to
exclude; as enjoying a privilege exclusively.” If real property
is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject
to taxation. The words “dominant use” or “principal use”
cannot be substituted for the words “used exclusively”
without doing violence to the Constitution and the law.
(Lung Center of the Phil. V. Quezon City, G.R. No. 144104, 29
June 2004)
NOTE: It is the actual use of the property and not the use of
the income from the real property that is determinative of
whether the property is used for tax-exempt purposes.
Rules on Taxation of Non-Stock Corporations for
Charitable and Religious Purposes
1. The income of non-stock corporation or association
organized and operated exclusively for religious and
charitable purposes, no part of which inures to the
benefit of any member, organizer, officer, or any
specific person, shall be exempt from tax. (Sec. 30(E),
NIRC)
However, the income of whatever kind and character
from any of their properties, real or personal, or from
any of their activities for profit regardless of the
disposition made of such income, shall be subject to
tax. (Sec. 30, NIRC)
NOTE: An organization may be considered as non-
profit if it does not distribute any part of its income to
stockholders or members. (CIR v. St. Luke’s Medical
Center, Inc., G.R. No. 195909, 26 Sept. 2012)
2. Donations received by religious, charitable, and
educational institutions are considered as income but
not taxable income as they are items of exclusion. (Sec.
32(B)(3), NIRC)
On the part of the donor, such donations are deductible
expense provided that no part of the income of which
inures to the benefit of any private stockholder or
individual in an amount not exceeding 10% in case of
individual, and 5% in case of a corporation, of the
taxpayer’s taxable income derived from trade or
business or profession. (Sec. 34 (H), NIRC)
NOTE: Donations to accredited non-government
FACULTY OF CIVIL LAW
 TAXATION LAW
organizations, i.e., organized and operated exclusively
for scientific, research, educational, character-building
and youth and sports development, health, social
welfare, cultural or charitable purposes, or a
combination thereof, are deductible in full. (Sec.
34(H)(2)(c), NIRC)
PROHIBITION AGAINST TAXATION OF NON-STOCK,
NON-PROFIT EDUCATIONAL INSTITUTIONS
All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and
duties. (Sec. 4(3), Art. XIV, 1987 Constitution)
Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used actually,
directly, and exclusively for educational purposes shall be
exempt from tax. (Sec. 4(4), Art. XIV, 1987 Constitution)
Sec. 4(3), Art. XIV and Sec. 28(3), Art. VI of the 1987
Constitution Distinguished
SEC. 4(3), ART. XIV SEC. 28(3), ART. VI
As to grantee
Charitable institutions,
churches and parsonages or
convents appurtenant
thereto, mosques, non-
profit cemeteries, and all
Non-stock, non-profit
lands, buildings, and
educational institution
improvements, actually,
directly, and exclusively
used for religious,
charitable, or educational
purposes
As to tax exemption granted
All taxes and duties Real property tax
The tax exemption granted by the Constitution to non-
stock, non-profit educational institutions is conditioned
only on the actual, direct, and exclusive use of their assets,
revenues, and income for educational purposes. A plain
reading of the 1987 Constitution would show that Sec. 4(3),
Art. XIV does not require that the revenues and income
must have also been sourced from educational activities or
activities related to the purposes of an educational
institution. The phrase “all revenues” is unqualified by any
reference to the source of revenues. (CIR vs. De La Salle
University, Inc., G.R. No. 196596, 09 Nov. 2016)
NOTE: The test to determine exemption is the use of both
the revenues and assets. Hence, when the revenues are
actually, directly and exclusively used for educational
purposes, the non-stock, non-profit educational institution
shall be exempt from income tax, VAT, and local business
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
tax. The revenues do not need to come from educational
activities, as long as it used for educational purposes. (La
Sallian Educational Innovators Foundation v. CIR, G.R. No.
202792, 27 Feb. 2019)
And when the assets are actually, directly, and exclusively
used for educational purposes, the non-stock, non-profit
educational institution shall be exempt from real property
tax. (CIR vs. De La Salle University, Inc., G.R. No. 196596, 09
Nov. 2016)
Income from cafeterias, canteens and bookstores located
within the school premises are also exempt if they are
owned and operated by the educational institution. (RMC
76-2003)
Q: San Juan University is a non-stock, non-profit
educational institution. It owns a piece of land in
Caloocan City on which its three 3-storey school
building stood. Two of the buildings are devoted to
classrooms, laboratories, a canteen, a bookstore, and
administrative offices. The third building is reserved as
dormitory for student athletes who are granted
scholarships for a given academic year.
In 2017, San Juan University earned income from
tuition fees and from leasing a portion of its premises
to various concessionaires of food, books, and school
supplies.
a. Can the City Treasurer of Caloocan City collect real
property taxes on the land and building of San Juan
University? Explain your answer.
A: YES. The City Treasurer can collect real property taxes
but on the leased portion. Sec. 4(3), Art. XIV of the 1987
Constitution provides that a non-stock, non-profit
educational institution shall be exempt from taxes and
duties only if the same are used actually, directly, and
exclusively for educational purposes. The test of exemption
from taxation is the use of the property for purposes
mentioned in the Constitution. The leased portion of the
building may be subject to real property tax since such
lease is for commercial purposes, thereby, it removes the
asset from the property tax exemption granted under the
Constitution. (CIR vs. De La Salle University, Inc., G.R. No.
196596, 09 Nov. 2016)
b. Is the income earned by San Juan University for the
year 2017 subject to income tax? Explain your
answer. (2017 BAR)
A: NO. The income earned is not subject to income tax
provided that the revenues are used actually, directly, and
exclusively for educational purposes as provided under
Sec. 4(3), Art. XIV of the 1987 Constitution. The requisites
for availing the tax exemption under Sec. 4(3), Art. XIV are
as follows: (1) the taxpayer falls under the classification
non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used
actually, directly and exclusively for educational purposes;
6
 PRE-WEEK NOTES 2023
thus, so long as the requisites are met, the revenues are
exempt from tax. (Ibid.)
MAJORITY VOTE OF CONGRESS FOR GRANT OF TAX
EXEMPTION
No law granting any tax exemption shall be passed without
the concurrence of a majority of all the members of
Congress. (Sec. 28(4), Art. VI, 1987 Constitution)
The inherent power of the State to impose taxes carries with
it the power to grant tax exemptions.
Granting of Exemptions
Exemptions may be created:
1. By the Constitution; or
2. By statute, subject to limitations as the Constitution
may provide.
Required Vote for Grant of Tax Exemption
LINE-ITEM VETO
The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill but
the veto shall not affect the item or items which he does not
object. (Sec. 27(2), Art. VI, 1987 Constitution)
The item or items vetoed shall be returned to the Lower
House of Congress together with the objections of the
President. If after a reconsideration 2/3 of all the members
of such House shall agree to pass the bill, it shall be sent,
together with the objection, to the other House by which it
shall likewise be reconsidered, and if approved by 2/3 of all
the Members of that House, it shall become a law.
(Dimaampao, 2021)
NOTE: The veto power on particular items only applies to
the following: (R-A-T)
1. Revenue,
2. Appropriation, and
3. Tariff bills.

In granting tax exemptions, the absolute majority vote of all Bills other than appropriation, revenue and tariff bills can
the members of Congress is required. (Sec. 28(4), Art. VI, only be vetoed by the President as a whole.
1987 Constitution)
NON-IMPAIRMENT OF JURISDICTION
It means at least 50% plus 1 of all the members voting OF THE SUPREME COURT
separately.
The Supreme Court shall have the power to review, revise,
NOTE: Hence, an exemption granted by a Presidential
reverse, modify, or affirm on appeal on certiorari as the laws
Proclamation and not by law is invalid. (John Hay Peoples
or the Rules of Court may provide, final judgments or orders
Alternative Coalition v. Lim, G.R. No. 119775, 24 Oct. 2003)
of lower courts in all cases involving the legality of any tax,
impost, assessment, or toll, or any penalty imposed in
Required Vote for Withdrawal of such Grant of Tax
relation thereto. (Sec. 5(2)(b), Art. VIII, 1987 Constitution)
Exemption
NOTE: Sec. 30, Art. VI of the 1987 Constitution provides that
A relative majority or plurality of votes is sufficient, that is,
“no law shall be passed increasing the appellate jurisdiction
majority of a quorum. (Sec. 28(4), Art. VI, 1987 Constitution)
of the Supreme Court without its advice and concurrence.”

PROHIBITION ON USE OF TAX LEVIED FOR SPECIAL

GRANT OF POWER TO THE LGUS TO CREATE ITS OWN
PURPOSE
SOURCES OF REVENUE

All money collected on any tax levied for a special purpose

Each LGU shall have the power to create its own sources of
shall be treated as a special fund and paid out for such
revenues and to levy taxes, fees and charges subject to such
purpose only. If the purpose for which a special fund was
guidelines and limitations as the Congress may provide,
created has been fulfilled or abandoned, the balance, if any,
consistent with the basic policy of local autonomy. Such
shall be transferred to the general funds of the government.
taxes, fees, and charges shall accrue exclusively to the local
(Sec. 29(3), Art. VI, 1987 Constitution)
governments. (Sec. 5, Art. X, 1987 Constitution)

NOTE: In Gaston v. Republic Planters Bank, the Court ruled

Justification in the Delegation of Legislative Taxing
that the “stabilization fees” collected by the State for the
Power to Local Governments
promotion of the sugar industry were in the nature of taxes
and no implied trust was created for the benefit of sugar
Delegation of legislative taxing power to local governments
industries. Thus, the revenues derived therefrom are to be
is justified by the necessary implication that the power to
treated as a special fund to be administered for the purpose
create political corporations for purposes of local self-
intended. No part thereof may be used for the exclusive
government carries with it the power to confer on such local
benefit of any private person or entity but for the benefit of
government agencies the authority to tax.
the entire sugar industry. Once the purpose is achieved, the
balance, if any remaining, is to be transferred to the general
Local government units may, through ordinances duly
funds of the government. (Gaston v. Republic Planters Bank,
approved, grant tax exemptions, incentives or reliefs under
G.R. No. L-77194, 15 Mar. 1988)
such terms and conditions as they may deem necessary.

7 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
(Sec. 192, LGC)
No Power to Grant Franchises
Being mere creatures of the State, LGUs cannot defeat
national policies through enactments of contrary measures.
In the absence of constitutional or legislative authorization,
municipalities have no power to grant franchises.
Consequently, the protection of the constitutional
provision as to impairment of the obligation of a contract
does not extend to privileges, franchises and grants given
by a municipality in excess of its powers, or ultra vires.
(Batangas CATV, Inc. v. Court of Appeals, G.R. No. 138810, 29
Sept. 2004)
ORIGIN OF REVENUE AND TARIFF BILLS
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur
with amendments. (Sec. 24, Art VI, 1987 Constitution)
What is required to originate in the House of
Representatives is not the law but the revenue bill which
must “originate exclusively” in the lower house. The bill
may undergo such extensive changes that the result may be
a rewriting of the whole. The Senate may not only concur
with amendments but also propose amendments. To deny
the Senate's power not only to “concur with amendments”
but also to “propose amendments” would be to violate the
coequality of legislative power of the two houses of
Congress and in fact make the House superior to the Senate.
(Tolentino v. Secretary of Finance, G.R. No. 115873, 25 Aug.
1994)
NO APPROPRIATION OR USE OF PUBLIC MONEY FOR
RELIGIOUS PURPOSES
No public money or property shall be appropriated, applied,
paid, or employed directly or indirectly for the use, benefit,
or support of any sect, church, denomination, sectarian
institution, or system of religion or of any priest, preacher,
minister, or other religious teacher or dignitary as such,
except when such priest, preacher, minister or dignitary is
assigned to the armed forces or to any penal institution, or
government orphanage or leprosarium. (Sec. 29(2), Art. VI,
1987 Constitution)
This is in consonance with the inviolable principle of
separation of the Church and State. (Sec. 6, Art. II, 1987
Constitution)
Provisions Indirectly Affecting Taxation
DUE PROCESS
No person shall be deprived of life, liberty, or property
without due process of law. (Sec. 1, Art. III, 1987
Constitution)
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
Tax laws and their enforcement must comply with
substantive and procedural due process. (Ingles, 2021)
Substantive Due Process
1. The law must be reasonable, and
2. It must be for a public purpose. (Ingles, 2021)
Procedural Due Process
1. There must be no arbitrariness in the assessment and
collection;
2. The prescribed rules must be followed before
assessment and collection. (Ingles, 2021)
EQUAL PROTECTION
No person shall be denied the equal protection of the laws.
(Sec. 1, Art. III, 1987 Constitution)
It means that all persons subjected to such legislation shall
be treated alike, under like circumstances and conditions,
both in the privileges conferred and, in the liabilities,
imposed. (1 Cooley 824-825; Sison Jr. v. Ancheta, G.R. No.
59431, 25 July 1984)
RELIGIOUS FREEDOM
No law shall be made respecting an establishment of
religion or prohibiting the free exercise thereof. The free
exercise and enjoyment of religious profession and
worship, without discrimination or preference, shall
forever be allowed. No religious test shall be required for
the exercise of civil or political rights. (Sec. 5, Art. III, 1987
Constitution)
NON-IMPAIRMENT CLAUSE
No law impairing the obligation of contracts shall be passed.
(Sec. 10, Art. III, 1987 Constitution)
Instances when there is Impairment of the Obligations
of Contract
When the law changes the terms of the contract by:
1. Making new conditions;
2. Changing conditions in the contract; or
3. Dispenses with the conditions expressed therein.
Contractual Tax Exemptions
Contractual tax exemptions are:
1. Those entered into by the taxing authority;
2. Those lawfully entered under enabling laws; and
3. Wherein the government acts in its private capacity
and sheds its cloak of authority and immunity. (Manila
Electric Co. v. Province of Laguna, G.R. No. 131359, 05
May 1999)
8
 PRE-WEEK NOTES 2023
Examples of contractual tax exemptions which are 254102, 07 Dec. 2021)
protected by the non-impairment clause are government
bonds or debentures and perfected mining concession
granted by the Spanish Government. (Casanovas v. Hord, C. REQUISITES OF A VALID TAX
G.R. No. 3473, 22 Mar. 1907)

Rules regarding Non-impairment of Obligation and

Q: Enumerate the requisites of a valid tax.
Contract with respect to the Grant of Tax Exemptions
A: The requisites of a valid tax are: (Uni-J-I-P)
1. Unilaterally granted by law – if the grant of the
exemption is merely a spontaneous concession by the 1. It should be Uniform;
legislature, such exemption may be revoked.
2. The person or property being taxed should be within
NOTE: A license conferring a tax exemption can be the Jurisdiction of the taxing authority;
revoked at any time since it does not confer an absolute
right, even if these were granted as inducement to 3. The tax must not impinge on the Inherent and
invest in the country. (Republic v. Caguioa, G.R. No. constitutional limitations on the power of taxation;
168584, 15 Oct. 2007) and

2. Franchise – if it is without payment of any 4. It should be for a Public purpose;

consideration or the assumption of any new burden by
the grantee, it is a mere gratuity and exemption may be
revoked. D. TAX AS DISTINGUISHED FROM OTHER FORMS OF
EXACTIONS
NOTE: A franchise is likewise subject to amendment,
alteration, or repeal by Congress when the public
interest so requires. (Cagayan Electric Power and Light
Tax and Tariff or Customs Duties Distinguished
Co., Inc. v. CIR, G.R. No. L-60126, 25 Sept. 1985)

3. Bilaterally agreed upon – however, if the tax TARIFF OR

TAX
exemption constitutes a binding contract and for CUSTOMS DUTIES
valuable consideration, the government cannot As to Coverage
unilaterally revoke the tax exemption.
An all-embracing term to
include various kinds of
FREEDOM OF THE PRESS
enforced contributions
imposed upon persons for Only a kind of tax; limited
No law shall be passed abridging the freedom of speech, of
the attainment of public coverage.
expression, or of the press, or the right of the people
purpose.
peaceably to assemble and petition the government for
redress of grievances. (Sec. 4, Art. III, 1987 Constitution)
As to Object
PROHIBITION ON RIDERS

Persons, property, Goods imported or

No provision or enactment shall be embraced in the general
privilege, or transactions. exported.
appropriations bill unless it relates specifically to some
particular appropriation therein. Any such provision or
enactment shall be limited in its operation to the
Tax and Toll Distinguished
appropriation to which it relates. (Sec. 25(1), Art. VI, 1987
Constitution)
TAX TOLL
Sec. 11(f) and (g) of Bayanihan 2 Law are As to Definition
Unconstitutional
An enforced proportional
A consideration paid for
The Supreme Court held that Sec. 11 (f) and (g) of the contribution from persons
the use of a road, bridge or
Bayanihan 2 Law are not germane to the purpose of the law, and property for public
the like, of a public nature.
and therefore, violates the "one subject, one title rule" of the purpose.
Constitution. The imposition of new taxes, camouflaged as
part of a long list of existing taxes, cannot be contemplated As to Basis
as an integral part of a temporary COVID-19 relief measure.
Invariably, Sec. 11 (f) and (g) of the Bayanihan 2 Law are Demand of sovereignty Demand of proprietorship
unconstitutional, in so far as it imposes new taxes on POGO
licensees. (Saint Wealth Ltd. v. BIR, G.R. Nos. 252965 &

9 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW

TAX TOLL property, but regulatory fees imposed by a city for the
activity of building or repairing a structure. Hence, a
As to Amount
foundation which is exempt from taxes cannot claim that it
Amount is limited to the is exempt from the payment of building fees, as these are
Generally, the amount is cost and maintenance of not taxes in the first place. (Angeles University Foundation v.
unlimited. public improvement. City of Angeles, G.R. No. 189999, 27 June 2012)

As to Purpose Tax and Special Assessment Distinguished

For the support of the For the use of another’s

government. property. TAX SPECIAL ASSESSMENT
As to Nature
As to Imposing Authority
May only be imposed by May be imposed by private An enforced An enforced proportional
the State under its individuals or entities, as proportional contribution from owners of
sovereignty authority. an attribute of ownership. contribution from lands especially those who
persons and property are peculiarly benefited by
for public purpose. public improvements.
NOTE: Fees paid by the public to toll way operators for the
use of toll ways are not taxes. These are exactions which end As to Subject
up as earnings of toll way operators, not the government.
(Diaz v. Secretary of Finance, G.R. No. 193007, 19 July 2011) Imposed on persons,
property rights, or Levied on land only
Tax and License Fee Distinguished transactions

As to Person Liable
TAX LICENSE FEE
A personal liability of Not a personal liability of the
As to Purpose
the taxpayer. person assessed.
Imposed to raise revenue For regulation and control As to the Imposing Authority

As to Basis May be imposed by

May only be imposed by the
national or local
Collected under the power Collected under police local government
government
of taxation power
As to Purpose
As to Amount

Limited to the necessary For the support of the Contribution to the cost of
Generally, amount is government public improvement
expenses of regulation and
unlimited
control
As to Scope
As to Subject
Exceptional as to time and
Regular exaction
locality
Imposed on the exercise of
Imposed on persons,
a right or privilege, such as
properties, rights or NOTE: The purpose of special levies or assessments is to
the commencement of a
transactions finance the improvement of particular properties, with the
business or profession
benefits of the improvement accruing or inuring to the
owners thereof who, after all, pay the assessment. (Republic
As to the Effect of Non-Payment
v. Bacolod-Murla Milling Co., G.R. No. L-19824, 09 July 1966)

Non-payment does not Non-payment makes the Tax and Debt Distinguished
make the business illegal. business illegal.

TAX DEBT
As to the Time of Payment
As to Basis
Normally paid before the Obligation based on
Normally paid after the
commencement of the Obligation created by law contract, express or
start of business; post-
business; pre-activity implied
activity imposition.
imposition.
As to Assignability

Not assignable Assignable

NOTE: Building fees are not taxes or impositions upon

UNIVERSITY OF SANTO TOMAS 10

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
As to Mode of Payment as property tax. (e.g., income tax, estate tax, donor’s tax,
VAT)
Generally payable in money; in
Payable in kind or in NOTE: This is different from the excise tax under the NIRC
exceptional instances, it may be
money which is a business tax imposed on items such as tobacco
satisfied in kind
products, alcohol products, mineral products, among
As to Set-off others.

Not subject to set-off Subject to set-off AS TO BURDEN OR INCIDENCE

As to the Effect of Non-Payment
Based on the possibility of shifting the incidence of taxation,
No imprisonment taxes may be classified into:
May result in
except when debt 1. Direct taxes, and
imprisonment
arises from crime 2. Indirect taxes. (CIR v. PLDT, G.R. No. 140230, 15 Dec.
2005)
As to Interest Stipulation Requirement

Q: Distinguish a direct from an indirect tax. Give

No interest unless there shall be
assessed and collected on any
unpaid amount of tax (deficiency
interest or delinquency
interest).
As to Interest Rate to be Imposed
Interest is fixed at the rate of
double the legal interest rate for
loans, or forbearance of any
money in the absence of an
express stipulation as set by the
BSP from the date prescribed
for payment until the amount is
fully paid.
As to Prescription
Governed by the special
prescriptive periods provided
for in the NIRC
No interest shall be examples. (2006, 2001, 2000, 1994 BAR)
due unless it has
been expressly A: Direct taxes are demanded from the very person who, as
stipulated in writing. intended, should pay the tax which he cannot shift to
(Art. 1956, Civil Code) another; while indirect taxes are 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.
Interest depends
88291, 08 June 1993)
upon the written
stipulation of the
Direct taxes are taxes wherein either the incidence (or
parties.
liability for the payment of the tax) as well as the impact or
burden of the tax falls on the same person. Indirect taxes, on
If no written
the other hand, are taxes wherein the incidence of or the
stipulation, as to the
liability of payment of the tax falls on one person but the
rate, legal rate of
burden thereof can be shifted or passed on to another
interest shall be
person. (CIR v. PLDT, G.R. No. 140230, 15 Dec. 2005)
imposed.
Income tax, estate tax, and donor's tax are considered as
direct taxes. On the other hand, value-added tax, excise tax,
Governed by the
other percentage taxes, and documentary stamp tax are
ordinary periods of
indirect taxes.
prescription

AS TO TAX RATE

E. KINDS OF TAXES 1. Specific – tax of a fixed amount imposed by the head or

number, or by some standard of weight or
measurement. (e.g., excise tax on cigar, cigarettes and
AS TO OBJECT liquors)

1. Personal/poll or capitation tax – a fixed amount
imposed upon all persons, or upon all persons of a
certain class or residents within a specified territory,
without regard to their property or occupation. (e.g.,
basic individual community tax)
2. Property tax – tax imposed on property, whether real
or personal, in proportion either to its value, or in
accordance with some other reasonable method of
apportionment. (e.g., real property tax)
3. Privilege/excise tax – a charge upon the performance
of an act, the enjoyment of a privilege, or the engaging
in an occupation. An excise tax is a tax that does not fall
2. Ad valorem – tax based on the value of the property or
transaction with respect to which the tax is assessed
(e.g., real estate tax, income tax, donor’s tax and estate
tax).
3. Mixed – a choice between ad valorem and/or specific
depending on the condition attached.
AS TO PURPOSE
1. General/fiscal or revenue – tax imposed solely for the
general purpose of the government. (e.g., income tax
and donor’s tax)

11 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
2. Special/regulatory or sumptuary – tax levied for
specific purpose, i.e., to achieve some social or
economic ends. (e.g., tariff and certain duties on
imports)
AS TO SCOPE OR AUTHORITY TO IMPOSE
1. National tax – tax levied by the National Government.
(e.g., income tax, estate tax, donor’s tax, VAT, other
percentage taxes and documentary stamp taxes)
2. Local or municipal – tax levied by a local government.
(e.g., real estate tax and community tax)
AS TO GRADUATION
1. Progressive – a tax rate which increases as the tax base
or bracket increases. (e.g., income tax)
2. Regressive – the tax rate decreases as the tax base or
bracket increases.
3. Proportionate – a tax of a fixed percentage of amounts
of the base, which can be the value of the property, or
amount of gross receipts, among others. (e.g., Estate tax
and donor’s tax under TRAIN, VAT, and other
percentage taxes)
F. DOCTRINES IN TAXATION
1. CONSTRUCTION AND INTERPRETATION OF TAX
LAWS, RULES, AND REGULATIONS
Tax Laws
GR: Tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. (MCIAA
v. Marcos, G.R. No. 120082, 11 Sept. 1996) The imposition of
a tax cannot be presumed.
XPN: The statute imposes a tax clearly, expressly, and
unambiguously.
XPN to XPN: The rule that, in case of doubt of legislative
intent, the doubt must be liberally construed in favor of
taxpayer does not extend to cases involving the issue of the
validity of the tax law itself which, in every case, is
presumed valid. (City of Cagayan De Oro v. Cagayan Electric
Power & Light Co., Inc., G.R. No. 224825, 17 Oct. 2018)
Tax Exemptions and Exclusions
GR: Statutes granting tax exemptions are construed in
Strictissimi juris against the taxpayers and liberally in favor
of the taxing authority. (MCIAA v. Marcos, G.R. No. 120082,
11 Sept. 1996)
Tax exclusions (removal of otherwise taxable items from
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
the reach of taxation) are likewise strictly construed
against the taxpayer. (Smart Communications, Inc. v. City of
Davao, G.R. No. 155491, 16 Sept. 2008)
NOTE: Tax refunds are in the nature of tax exemptions
which are construed in Strictissimi juris against the
taxpayer and liberally in favor of the government. (Kepco
Philippines Corporation v. CIR, G.R. No. 179961, 31 Jan. 2011)
It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim
Expressio unius est exclusio alterius. Thus, the omission or
removal of PAGCOR from exemption from the payment of
corporate income tax is to require it to pay corporate
income tax. (PAGCOR v. BIR, G.R. No. 172087, 15 Mar. 2011)
XPNs: (P-E-A)
1. If the grantee of the exemption is a Political subdivision
or instrumentality, the rigid rule of construction does
not apply because the practical effect of the exemption
is merely to reduce the amount of money that has to be
handled by the government in the course of its
operations. (MCIAA v. Marcos, G.R. No. 120082, 11 Sept.
1996)
NOTE: It is a recognized principle that the rule on strict
interpretation does not apply in the case of exemptions
in favor of a government political subdivision or
instrumentality. In the case of property owned by the
state or a city or other public corporations, the express
exemption should not be construed with the same
degree of strictness that applies to exemptions contrary
to the policy of the state, since as to such property
"exemption is the rule and taxation the exception”.
(Maceda v. Macaraig, G.R. No. 88291, 31 May 1991)
2. Erroneous payment of the tax, or
3. Absence of law for the government’s exaction. (CIR v.
Fortune Tobacco Corporation, G.R. Nos. 167274-75, 21
July 2008)
2. PROSPECTIVITY OF TAX LAWS
GR: Tax laws must be applied prospectively.
XPN: If the law expressly provides for retroactive
application.
BIR Rules and Regulations that Revoke, Modify, or
Reverse a Ruling or Circular
GR: Those BIR Rules and Regulations shall not be given
retroactive application if the revocation, modification, or
reversal will be prejudicial to the taxpayers.
XPNs: (MO-M-B-E)
1. It may be given retroactive effect even if such would be
12
 PRE-WEEK NOTES 2023
prejudicial to the taxpayer in the following cases: c. during the same taxing Period;
d. by the same taxing Authority;
a. Where the taxpayer deliberately Misstates or e. the taxes must be of the same kind or Character; and
Omits material facts from his return, or any f. on the same Subject matter. (City of Manila v. Coca
document required of him by the BIR; Cola Bottlers Philippines, G.R. No. 181845, 04 Aug.
2009)
b. Where the facts subsequently gathered by the BIR
are Materially different from the facts on which All the elements must be present in order to apply double
the ruling is based; or taxation in its strict sense.

c. Where the taxpayer acted in Bad faith. (Sec. 246,
NIRC)
2. If the revocation is due to the fact that the regulation is
Erroneous or contrary to law, such revocation shall
have retroactive operation as to affect past
transactions, because a wrong construction of the law
cannot give rise to a vested right that can be invoked
by a taxpayer.
NOTE: Retroactive application of revenue laws may be
allowed if it will not amount to denial of due process. There
is violation of due process when the tax law imposes harsh
and oppressive tax. (Dimaampao, 2021)
3. IMPRESCRIPTIBILITY OF TAXES
GR: Taxes are imprescriptible by reason that it is the
lifeblood of the government.
XPN: Tax laws may provide for statute of limitations. In
particular, the NIRC and LGC provide for the prescriptive
periods for assessment and collection.
Tax laws provide for statute of limitations in the collection
of taxes for the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment.
(CIR v. B.F. Goodrich Phils., G.R. No. 104171, 24 Feb. 1999)
NOTE: Although the NIRC provides for the limitation in the
assessment and collection of taxes imposed, such
prescriptive period will only be applicable to those taxes
that were returnable. The prescriptive period shall start
from the time the taxpayer files the tax return and declares
his liability. (Collector of Internal Revenue v. Bisaya Land
Transportation Co., Inc., G.R. Nos. L-12100 & L-11812, 29 May
1959)
4. DOUBLE TAXATION
DIRECT (STRICT SENSE)
Elements of Direct Double Taxation (Twice-Ju-P2-A-C-S)
1. The same property is taxed Twice when it should be
taxed only once; and
2. Both taxes are imposed:
a. within the same Jurisdiction;
b. for the same Purpose;
NOTE: Imposition of a penalty and a tax on one taxpayer
does not amount to double taxation. (Republic Bank v. CTA,
G.R. No. 62554, 02 Sept. 1992)
INDIRECT (BROAD SENSE)
It is a permissible double taxation wherein some elements
of direct double taxation are absent.
Tax Treaties as Relief from Double Taxation
The purpose is to reconcile the national fiscal legislation of
the contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions (e.g.,
international double taxation). This is to encourage the free
flow of goods and services and the movement of capital,
technology, and persons between countries, conditions
deemed vital in creating robust and dynamic economies.
5. ESCAPE FROM TAXATION
a) SHIFTING OF TAX BURDEN
Definition
Shifting is the transfer of the burden of tax by the original
payer or the one on whom the tax was assessed or imposed
to another or someone else without violating the law. (Lim,
2021)
Examples of taxes when shifting may apply are VAT,
percentage tax, excise tax on excisable articles.
NOTE: Only indirect taxes may be shifted. In case of direct
taxes, the shifting of burden can only be made by
contractual provision.
b) TAX AVOIDANCE
c) TAX EVASION
Tax Avoidance and Tax Evasion Distinguished
TAX AVOIDANCE TAX EVASION
As to Validity
Legal and not subject to Illegal and subject to
criminal penalty criminal penalty

13 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
As to Effect
Almost always results in
Minimization of taxes
absence of tax payment
Elements in Determining Tax Evasion (U-S-E)
1. Course of action or failure of action is Unlawful;
2. Accompanying State of mind, which is “evil”, in “bad
faith”, “willful”, or “deliberate and not accidental”; and
3. End to be achieved, i.e., payment of less than that
known by the taxpayer to be legally due, or non-
payment of tax when it is shown that the tax is due. (CIR
v. Estate of Benigno Toda, G.R. No. 147188, 14 Sept.
2004)
Will Blindness Doctrine
A taxpayer can no longer raise the defense that the errors
on their tax returns are not their responsibility or that it is
the fault of the accountants they hired. (Ingles, 2021)
The only thing that needs to be proven is that the taxpayer
was aware of his obligation to file the tax return, but he
nevertheless voluntarily, knowingly, and intentionally
failed to file the required returns. (People v. Kintanar, CTA
E.B. Criminal Case No. 006, 03 Dec. 2010)
6. EXEMPTION FROM TAXATION
Principles Governing Tax Exemptions
1. Tax exemptions are highly disfavored in law.
2. Tax exemptions are personal and non-transferable.
3. He who claims an exemption must justify that the
legislature intended to exempt him by words too plain
to be mistaken. He must convincingly prove that he is
exempted.
4. It must be strictly construed against the taxpayer.
NOTE: Deductions for income tax purposes partake of
the nature of tax exemptions, hence, they are also
strictly construed against the taxpayer.
5. Constitutional grants of tax exemptions are self-
executing.
6. Tax exemption is generally revocable, unless founded
on contracts which are protected by the non-
impairment clause.
7. In order to be irrevocable, the tax exemption must be
founded on a contract or granted by the Constitution.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
8. The congressional power to grant an exemption
necessarily carries with it the consequent power to
revoke the same.
9. Personal in nature and covers only taxes for which the
grantee is directly liable. It cannot be transferred or
assigned by the person to whom it is given without the
consent of the State.
10. Strictly construed against the taxpayer.
11. Implies a waiver on the part of the government of its
right to collect what otherwise would be due.
12. Exemptions are not presumed. The burden is upon the
claimant to establish right to exemption beyond
reasonable doubt. However, the strict interpretation
does not apply in the case of exemptions running to the
benefit of the government itself or its agencies.
NOTE: Since the power to tax includes the power to exempt
thereof which is essentially a legislative prerogative, it
follows that a municipal mayor who is an executive officer
may not unilaterally withdraw such an expression of a
policy thru the enactment of a tax. (Philippine Petroleum
Corporation v. Municipality of Pililla, G.R. No. 90776, 03 June
1991)
Revocation of Tax Exemption
Since taxation is the rule and exemption is the exception,
the exemption may thus be withdrawn at the pleasure of
the taxing authority. (Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, 11 Sept. 1996)
By granting exemptions, the State does not forever waive
the exercise of its sovereign prerogative. Thus, in
withdrawing the exemption of the press (media) from VAT,
the law merely subjects the same to the same tax burden to
which other businesses have long ago been subject. It is not
discriminatory as the exemptions are granted for a
purpose, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of
the end-user rather than for profit. (Tolentino v. Secretary
of Finance, G.R. No. 115455, 30 Oct. 1995)
7. EQUITABLE RECOUPMENT
Definition
It is a principle which allows a taxpayer, whose claim for
refund has been barred due to prescription, to recover said
tax by setting off the prescribed refund against a tax that
may be due and collectible from him. Under this doctrine,
the taxpayer is allowed to credit such refund to his existing
tax liability.
NOTE: Equitable recoupment is allowed only in common
law countries, not in the Philippines. (CIR v. UST, G.R. No. L-
11274, 28 Nov. 1958)
14
 PRE-WEEK NOTES 2023
8. PROHIBITION ON COMPENSATION AND SET-OFF b. The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax. (Sec. 204(A), NIRC)
GR: No set-off is admissible against the demands for taxes
levied for general or local governmental purposes.
2. Collector of Customs – with respect to customs duties
limited to cases where the legitimate authority is
Taxes cannot be subject to compensation because the
specifically granted such as in the remission of duties.
government and the taxpayer are not creditors and
(Sec. 201, Customs Modernization and Tariff Act)
debtors of each other. (Philex Mining Corporation v. CIR,
G.R. No. 125704, 28 Aug. 1998; CIR v. Toledo Power
3. Customs Commissioner – subject to the approval of the
Company, G.R. No. 196415, 02 Dec. 2015)
Secretary of Finance, in cases involving the imposition
of fines, surcharges, and forfeitures. (Sec. 1131, Customs
NOTE: The prevalent rule in our jurisdiction disfavors set-
Modernization and Tariff Act)
off or legal compensation of tax obligations for the following
reasons:
Tax Cases that may be the Subject Matter of
Compromise (D-A-C3)
1. Taxes are of a distinct kind, essence, and nature, and
these impositions cannot be so classed in merely the
1. Delinquent accounts;
same category as ordinary obligations;

2. Cases under Administrative protest after issuance of

2. The applicable laws and principles governing each are
the Final Assessment Notice to the taxpayer which are
peculiar, not necessarily common to each; and
still pending in the Regional Offices, Revenue District
Offices, Legal Service, Large Taxpayer Service (LTS),
3. Public policy is better subserved if the integrity and
Collection Service, Enforcement Service and other
independence of taxes be maintained under the
offices in the National Office;
Lifeblood Doctrine. The collection of a tax cannot await
the results of a lawsuit against the government.
3. Civil tax cases being disputed before the courts;
(Republic v. Mambulao Lumber Company, G.R. No. L-
177725, 28 Feb. 1962; Francia v. IAC, G.R. No. L-67649,
4. Collection cases filed in courts; and
28 June 1988; Caltex Philippines, Inc. v. Commission on
Audit, G.R. No. 92585, 08 May 1992)
5. Criminal violations, other than those already filed in
court or those involving criminal tax fraud. (Sec. 2, Rev.
XPN: Where both the claims of the government and the
Regs. No. 30-2002)
taxpayer against each other have already become due,
demandable, and fully liquidated, compensation takes
TAX AMNESTY
place by operation of law and both obligations are
extinguished to their concurrent amounts. In the case of
the taxpayer’s claim against the government, the Tax Amnesty and Tax Exemption Distinguished
government must have appropriated the amount thereto.
(Domingo v. Garlitos, G.R. No. L-18994, 29 June 1963) TAX AMNESTY TAX EXEMPTION

As to Scope of Immunity
Offsetting can be allowed only if the determination of the
taxpayer’s liability is intertwined with the resolution of the Immunity from all
claim for tax refund of erroneously or illegally collected criminal, civil and Immunity from civil
taxes under Sec. 229 of the NIRC. However, it will not be administrative obligations liability only
allowed if the period to assess deficiency taxes in the arising from non-payment
excess of the amount claimed for refund had already of taxes
prescribed. (CIR v. Toledo Power Company, G.R. No. 196415, As to Grantee
02 Dec. 2015)
A freedom from a charge
General pardon given to all
or burden to which others
9. COMPROMISE AND TAX AMNESTY erring taxpayers
are subjected
How Applied
COMPROMISE
Applied retroactively Applied prospectively
Persons Allowed to Enter into Compromise of Tax As to the Presence of Actual Revenue Loss
Obligations
None, because there were
There is revenue loss since
1. BIR Commissioner – as expressly authorized by the no actual taxes due as the
there was actually taxes
NIRC, and subject to the following conditions: person or transaction is
due, but collection was
protected by tax
a. When a reasonable doubt as to validity of the waived by the government.
exemption.
claim against the taxpayer exists; or

15 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
books of accounts of the aforementioned domestic
II. NATIONAL TAXATION private juridical entity. (Commission on Audit v. Hon.
Pampilo, Jr., G.R No. 188760, 30 June 2020; Chevron
Philippines, Inc. v. Hon. Pampilo, Jr., G.R. No. 189060, 30
June 2020; Petron Corporation v. Hon. Pampilo, Jr., G.R.
No. 189333, 30 June 2020, J. Hernando)
A. TAXING AUTHORITY
Authority of the CIR

1. JURISDICTION, POWER, AND FUNCTIONS OF THE 1. To terminate taxable period for reasons provided
COMMISSIONER OF INTERNAL REVENUE in the NIRC:

a. Retiring from business subject to tax;

Jurisdiction of the CIR
b. Intending to leave the Philippines or to remove
his property therefrom or to hide or conceal his
1. Exclusive and original jurisdiction to interpret the
property; or
provisions of NIRC and other tax laws, subject to review by
the Secretary of Finance; and
c. Performing any act tending to obstruct the
2. Power to decide disputed assessments, refunds of internal
proceedings for the collection of the tax for the
revenue taxes, fees or other charges, penalties imposed in
past or current quarter or year or to render the
relation thereto, or other matters arising under the NIRC or
same totally or partly ineffective unless such
other laws or portions thereof administered by the BIR,
proceedings are begun immediately;
subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals. (Sec. 4, NIRC)
2. To make or amend return in case taxpayer fails to
file a return or files a false or fraudulent return;
Powers of the CIR (In-O-M-As-S)

3. To examine returns and determine tax due;

1. Power to Interpret tax laws and to decide cases (Sec. 4,
NIRC);
4. To prescribe any additional requirements for the
submission or preparation of financial statements
2. Power to Obtain information and to summon or examine
accompanying tax returns;
and take testimony of persons.; (Sec. 5, NIRC)

5. To inquire into bank deposits of:

3. Power to Make assessments and prescribe additional
a. Decedent to determine his gross income;
requirements for tax administration and enforcement; (Sec.
6, NIRC)
b. A taxpayer who filed application to
compromise payment of tax liability by reason
4. Power to Assign internal revenue officers and other
of financial incapacity; and
employees; and (Secs. 16 and 17, NIRC)

c. A specific taxpayer or taxpayers subject of a

5. Power to Suspend the business operations of a taxpayer for
request for the supply of tax information from
violations of VAT rules. (Sec. 115, NIRC)
a foreign tax authority pursuant to an
international convention or agreement on tax
Q: Can a Regional Trial Court order the Commission on
matters to which the Philippines is a signatory
Audit (COA), Bureau of Internal Revenue (BIR), and the
or a party of. Provided, that the information
Bureau of Customs (BOC) to open and examine the books of
obtained from the banks and other financial
accounts of a domestic private juridical entity?
institutions may be used by the BIR for tax
assessment, verification, audit, and
A: NO. The RTC cannot order COA to open and examine the
enforcement purposes.
books of accounts of a domestic private juridical entity because
its audit jurisdiction generally covers public entities. On the
NOTE: In case of a request from a foreign tax
other hand, the BIR, as allowed by law, can only ascertain the
authority for tax information held by banks
correctness of any return, or in making a return when none was
and financial institutions, the exchange of
made, or in determining the liability of any person for any
information shall be done in a secure manner
internal revenue tax, or in collecting such liability, or evaluating
to ensure confidentiality thereof under such
the person's tax compliance. Lastly, the BOC is authorized to
rules and regulations as may be promulgated
audit or examine all books, records, and documents of importers
by the Secretary of Finance, upon
necessary or relevant for the purpose of collecting the proper
recommendation of the Commissioner.
duties and taxes. In consideration of the fact that there are no
taxes or duties involved in this case, the BIR and the BOC
The Commissioner shall forward the
likewise have no power and authority to open and examine the
information as promptly as possible to the

UNIVERSITY OF SANTO TOMAS 16

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
requesting foreign tax authority. To ensure a prompt
response, the Commissioner shall confirm receipt of a
request in writing to the requesting tax authority and
shall notify the latter of deficiencies in the request, if
any, within sixty (60) days from receipt of the request.
If the Commissioner is unable to obtain and provide the
information within ninety (90) days from receipt of the
request, due to obstacles encountered in furnishing the
information or when the bank or financial institution
refuses to furnish the information, he shall immediately
inform the requesting tax authority of the same,
explaining the nature of the obstacles encountered or
the reasons for refusal.
The term “foreign tax authority,” as used herein, shall
refer to the tax authority or tax administration of the
requesting State under the tax treaty or convention to
which the Philippines is a signatory or a party of;
a) INTERPRETING TAX LAWS AND DECIDING TAX
CASES
b) NON-RETROACTIVITY OF RULINGS
The rulings of the BIR are not retroactive. Any
revocation, modification, or reversal of any of the rules
and regulations promulgated or any of the rulings or
circulars promulgated by the CIR shall not be given
retroactive application if it will be prejudicial to the
taxpayers, except in the following cases: (Mi-Ma-Ba)
1. Where the taxpayer deliberately Misstates or omits
material facts from his return or any document
required of him by the BIR;
2. Where the facts subsequently gathered by the BIR
are Materially different from the facts on which the
ruling is based; or

6. To delegate powers vested upon him to subordinate
officials with rank equivalent to Division Chief or higher,
subject to limitations and restrictions imposed under the
rules and regulations;
7. To prescribe property or zonal values;
8. To take inventory of goods of any taxpayer, and place any
business under observation or surveillance IF there is
reason to believe that such is not declaring his correct
income, sales or receipts for tax purposes; and
9. To accredit and register tax agents based on their
professional competence, integrity and moral fitness,
individuals and general professional partnerships and their
representatives who prepare and file tax returns,
statements, reports, protests, and other papers with or who
appear before, the Bureau for taxpayers. (Sec. 6, NIRC)
3. Where the taxpayer acted in Bad faith (Sec. 246,
NIRC)
NOTE: If the revocation is due to the fact that the
regulation is erroneous or contrary to law, such
revocation shall have retroactive operation as to affect
past transactions, because a wrong construction of the
law cannot give rise to a vested right that can be
invoked by a taxpayer.
2. RULE-MAKING AUTHORITY OF THE SECRETARY
OF FINANCE
The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the
provisions of NIRC. (Sec. 244, NIRC)

Q: What are the powers of the BIR which cannot be

delegated? B. INCOME TAX

A: (R-I-C-A)

1. To Recommend promulgation of rules and regulations by 1. DEFINITION, NATURE, AND

the Secretary of Finance. GENERAL PRINCIPLES

2. To Issue rulings of first impression or to reverse, revoke or a) CRITERIA IN IMPOSING PHILIPPINE INCOME
modify any existing rule of the BIR. TAX

3. To Compromise or abate any tax liability. WITHIN OUTSIDE

THE PH THE PH
XPN: The Regional Evaluation Board may compromise RC ✓ ✓
assessments involving deficiency taxes of P500,000 or less
NRC ✓ X
and minor crime violations.
RA ✓ X
4. To Assign or reassign internal revenue officers to
establishments where articles subject to excise tax are NRA ✓ X
kept. (Sec. 7, NIRC) DC ✓ ✓

FC ✓ X

17 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
b) TYPES OF PHILIPPINE INCOME TAXES c. Special class of individual employees
i. Minimum wage earner
c) TAXABLE PERIOD 2. Corporations

Kinds of Taxable Periods a. Domestic

b. Foreign
1. Calendar period – the 12 consecutive months starting from i. Resident foreign corporation (RFC)
January 1 and ending December 31. ii. Non-resident foreign corporation
(NRFC)
Instances when calendar year shall be the basis for c. Joint venture and consortium
computing net income: d. Partnership

a. When the taxpayer is an individual; 3. Estates

b. When the taxpayer does not keep books of account; 4. Trusts
c. When the taxpayer has no annual accounting period; or
d. When the taxpayer is an estate or a trust. Resident Citizen (RC)

NOTE: Taxpayers other than a corporation are required to
use only the calendar year. The final adjustment return shall
be filed on or before the fifteenth (15th) day of April.
2. Fiscal period – it is a period of 12 months ending on the last
day of any month other than December. (Sec. 22(Q), NIRC)
NOTE: The final adjustment return shall be filed on or
before the fifteenth (15th) day of the fourth (4th) month
following the close of the fiscal year.
3. Short period
GR: The taxable period, whether it is a calendar year or
fiscal year always consists of 12 months.
XPN: Instances when the taxpayer may have a taxable
period of less than 12 months:
a. When the corporation is newly organized and
commenced operations on any day within the year
b. When the corporation changes its accounting period
c. When a corporation is dissolved
d. When the Commissioner of Internal Revenue, by
authority, terminates the taxable period of a taxpayer
(Sec. 6(D), NIRC)
e. In case of final return of the decedent and such period
ends at the time of his death
d) KINDS OF TAXPAYERS
A citizen of the Philippines who stays in the
Philippines without the intention of transferring his
physical presence abroad whether to stay
permanently or temporarily as an overseas contract
worker.
Non-Resident Citizen (NRC)
A citizen of the Philippines who:
1. Establishes to the satisfaction of the CIR the fact of
his physical presence abroad with a definite
intention to reside therein;
2. Leaves the Philippines during the taxable year to
reside abroad, either as an immigrant or for
employment on a permanent basis;
3. Works and derives income from abroad and whose
employment thereat requires him to be physically
present abroad most of the time during the taxable
year;
NOTE: “Most of the time during the taxable year”
has been interpreted to be at least 183 days.
4. Has been previously considered as a non-resident
citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently
in the Philippines.

1. Individuals NOTE: Treated as NRC with respect to income

derived from sources abroad until the date of his
a. Citizen arrival.
i. Resident Citizen (RC)
ii. Non-Resident Citizen (NRC) Taxpayer shall submit proof to the CIR to show his
intention of leaving the Philippines to reside
b. Aliens permanently abroad or to return to and reside in the
i. Resident Alien (RA) Philippines. (Sec. 22(E), NIRC)
ii. Non-Resident Alien (NRA)
(1) Engaged in Trade or Business (NRA-ETB)
(2) Not Engaged in Trade or Business (NRA-NETB)
iii. Special Alien

UNIVERSITY OF SANTO TOMAS 18

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
Non-Resident Alien Engaged in Trade or Business (NRA-
ETB) and Not Engaged in Trade or Business (NRA-NETB)
Distinguished
NRA-ETB NRA-NETB
An alien who stays in the
An alien who stays in the
Philippines for an aggregate
Philippines for 180 days
period of more than 180 days.
or less. (Sec. 25(B), NIRC)
(Sec. 25(A), NIRC)
Minimum Wage Earner
A worker in the private sector paid the statutory minimum wage
or to an employee in the public sector with compensation
income of not more than the statutory minimum wage in the
non-agricultural sector where he is assigned. (Sec. 24(HH),
NIRC)
Special Classes of Aliens
Special aliens are individuals with managerial/highly technical
positions working in: (R-O-P)
1. Regional or area headquarters and regional operating
headquarters of multinational companies established in the
Philippines;
2. Offshore banking units (OBU) established in the
Philippines. OBUs are foreign banks allowed to operate in
the Philippines and to conduct foreign currency
transactions;
3. Petroleum service contractors and sub-contractors in the
Philippines.
NOTE: When a special alien leases a property, he shall be taxed
under NRA-EBT and NRA-NEBT, depending on the number of
stay.
Special aliens are not required to submit ITR because the
obligation to file income ITR rests upon his employer.
Meaning of Seamen as Contemplated by Law
Seafarers or seamen are Filipino citizens who receive
compensation for services rendered abroad as a member of the
complement vessel engaged exclusively for international trade.
To be considered as an OCW or Overseas Filipino Worker
(OFW), they must be duly registered as such with the Philippine
Overseas Employment Administration (POEA) with a valid
Overseas Employment Certificate (OEC) with Seafarers
Identification Record Book (SIRB) or Seaman’s Book issued by
the Maritime Industry Authority (MARINA). (Tabag, 2019)
NOTE: They should be working in a ship engaged exclusively in
international trade or commerce. If engaged only in local trade
or commerce, they are just considered as normal employees.
19
2. INCOME
a) DEFINITION AND NATURE
Income refers to all wealth which flows into the
taxpayer other than as mere return of capital. It
includes the forms of income specifically described as
gains and profits, including gains derived from the sale
or other disposition of capital assets. (Sec. 36, RR No. 2)
b) WHEN INCOME IS TAXABLE
The factors to consider in determining whether or not
there is income for tax purposes:
1. Existence of income – a primary consideration in
income taxation is that there must be income
before there could be income taxation. (Domondon,
2013)
2. Realization of income – under the Realization
Principle, revenue is generally recognized when
both of the following conditions are met:
a. The earning process is complete or virtually
complete.
b. An exchange has taken place. (Manila
Mandarin Hotels, Inc. v. CIR, CTA Case No. 5046,
24 Mar. 1997)
NOTE: Mere increase in the value of property is not
considered as income for tax purposes since it is an
unrealized increase in capital.
3. Recognition of income – when income considered
received for Philippines income tax purposes:
1. If actually or physically received by taxpayer;
or
2. If constructively received by taxpayer.
Q: Petitioner condominium corporation filed a case
seeking to invalidate RMC No. 65-2012, which
subjects condominium association dues,
membership fees and other assessments to income
tax and VAT. Petitioner contends that membership
fees, assessment dues, and other fees of similar
nature only constitute contributions to and/or
replenishment of the funds for the maintenance
and operations of the facilities offered by
recreational clubs to their exclusive members and
thus, they do not constitute profit or gain. Are the
petitioners correct?
A: YES. Condominium corporations are not engaged in
activities that generate profit. The collection of
association dues, membership fees, and other
assessments/charges is purely for the benefit of the
condominium owners. It is a necessary incident to the
purpose of effectively overseeing, maintaining and
governing the common areas of the condominium.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
Therefore, they are not subject to income tax because they do
not constitute profit or gain. Furthermore, they are also not
included as sources of gross income under Sec. 32 of the Tax
Code. Consequently, they are not subject to VAT/Withholding
tax because they neither arise from transactions involving the
sale, barter, or exchange of goods or property nor are generated
by the performance of services. (BIR v. First E-Bank Tower
Condominium Corp., G.R. No. 215801, 15 Jan. 2020; First E-Bank
Tower Condominium Corp. v. BIR, G.R. No. 218924., 15 Jan. 2020)
Q: Bureau of Internal Revenue (BIR) issued RMC No. 35-
2012, entitled "Clarifying the Taxability of Clubs Organized
and Operated Exclusively for Pleasure, Recreation, and
Other Non-Profit Purposes," which was addressed to all
revenue officials, employees, and others concerned for
their guidance regarding the income tax and Value Added
Tax (VAT) liability of the said recreational clubs.
On the income tax component, RMC No. 35-2012 states that
"clubs which are organized and operated exclusively for
pleasure, recreation, and other non-profit purposes are
subject to income tax under the National Internal Revenue
Code (NIRC) of 1997, as amended (1997 NIRC)."
Likewise, on the VAT component, RMC No. 35-2012
provides that "the gross receipts of recreational clubs
including but not limited to membership fees, assessment
dues, rental income, and service fees are subject to VAT."
Association of Non-profit Clubs Inc. (ANPC), on behalf of its
club members, filed a petition for declaratory relief before
the RTC on September 17, 2014, seeking to declare RMC No.
35-2012 invalid, unjust, oppressive, confiscatory, and in
violation of the due process clause of the Constitution. RTC
denied the petition for declaratory relief and upheld the
validity and constitutionality of RMC No. 35-2012. Is the
RTC correct?
A: NO. RMC No. 35-2012 erroneously foisted a sweeping
interpretation that membership fees and assessment dues are
sources of income of recreational clubs from which income tax
liability may accrue. Membership fees, assessment dues, and
other fees of similar nature only constitute contributions to
and/or replenishment of the funds for the maintenance and
operations of the facilities offered by recreational clubs to their
exclusive members. They represent funds “held in trust” by
these clubs to defray their operating and general costs and
hence, only constitute infusion of capital.
In fine, for as long as these membership fees, assessment dues,
and the like are treated as collections by recreational clubs from
their members as an inherent consequence of their
membership, and are, by nature, intended for the maintenance,
preservation, and upkeep of the clubs' general operations and
facilities, then these fees cannot be classified as “the income of
recreational clubs from whatever source” that are “subject to
income tax.” Instead, they only form part of capital from which
no income tax may be collected or imposed.
In the same way, the Court declares as invalid the BIR's
interpretation in RMC No. 35-2012 that membership fees,
UNIVERSITY OF SANTO TOMAS 20
2023 PRE -WEEK NOTES
assessment dues, and the like are part of “the gross
receipts of recreational clubs” that are “subject to VAT.”
As ANPC aptly pointed out, membership fees,
assessment dues, and the like are not subject to VAT
because in collecting such fees, the club is not selling its
service to the members. Conversely, the members are
not buying services from the club when dues are paid;
hence, there is no economic or commercial activity to
speak of as these dues are devoted for the
operations/maintenance of the facilities of the
organization. As such, there could be no “sale, barter or
exchange of goods or properties, or sale of a service” to
speak of, which would then be subject to VAT under the
1997 NIRC. (Association of Non-Profit Clubs, Inc. (ANPC)
v. BIR, G.R. 228539, 26 June 2019)
c) TESTS IN DETERMINING WHETHER INCOME IS
EARNED FOR TAX PURPOSES
(1) REALIZATION TEST
Refer to previous discussion on “When Income is
Taxable” – p. 19
(2) ECONOMIC BENEFIT TEST OR DOCTRINE OF
PROPRIETARY INTEREST
Taking into consideration the pertinent provisions of
law, income realized is taxable only to the extent that
the taxpayer is economically benefited.
(3) SEVERANCE TEST
Income is recognized when there is separation of
something which is of exchangeable value. (Eisner v.
Macomber, 252 US 189)
d) TAX-FREE EXCHANGES
Tax-free Exchange Transactions
The entire amount of the gain or loss shall be
recognized upon the sale or exchange of property,
except as herein provided:
1. No gain or loss shall be recognized on a corporation
or on it stocks or securities if such corporation is a
party to a reorganization and exchanges property
in pursuance of a plan of reorganization solely for
stock or securities in another corporation that is a
party to the reorganization.
2. No gain or loss shall also be recognized if property
is transferred to a corporation by a person, alone or
together with others, not exceeding four (4)
persons, in exchange for stock or unit of
participation in such a corporation of which as a
result of such exchange the transferor or
transferors, collectively, gains or maintains control
 PRE-WEEK NOTES 2023
of said corporation: Provided, That stocks issued for
services shall not be considered as issued in return for Income purely
property. (Sec. 40(C)(2), NIRC as amended) within

Manufacturing:
Requisites for Non-recognition of Gain or Loss
1. Produced in whole
within and sold within
1. Transferee is a corporation; Income purely
2. Produced in whole
2. Transferee exchanges its shares of stock for property/ies of without
without and sold
the transferor;
without
3. The transfer is made by a person, acting alone or together
3. Produced within and
with others, not exceeding four persons; and Income partly
sold without
4. As a result of the exchange the transferor, alone or together within and partly
4. Produced without and
with others, not exceeding four (4), gains control of the without
sold within
transferee. (CIR v. Filinvest Development Corporation, G.R.
Nos. 163653 & 167689, 19 Jul. 2011) Income partly
within and partly
e) SITUS OF INCOME TAXATION without

It is the place or authority that has the right to impose and

collect taxes. (CIR v. Marubeni Corporation, G.R. No. 137377, 18
Dec. 2001) Income within

Dividend income from:

SUMMARY RULES ON DETERMINATION OF SITUS
1. Domestic Corporation
ACCORDING TO KINDS OF INCOME
2. Foreign Corporation –
If for the 3-year period
KINDS OF INCOME TAX SITUS
preceding the
Service or compensation Place of performance of declaration of
income service dividend, the ratio of
such corporation’s Phil
Location of property (real or income to the world
Rent (total) was:
personal)
- Less than 50%
- More than 50%
Royalties Place of use of intangibles
Entirely without
Merchandising Place of sale

Proportionate*
Gain on sale of personal
property purchased and Place of sale *Formula (Proportionate)
not produced
𝑃𝑃ℎ𝑖𝑖𝑖𝑖. 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼
× 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼
Gain on sale of real = 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑖𝑖𝑖𝑖
Location of property
property
3. GROSS INCOME
Mining income Location of the mines

a) DEFINITION
Farming income Place of farming activities
Except when otherwise provided, gross income means
Gain on sale of domestic all income derived from whatever source, including but
Income within the Philippines
stock not limited to the following items: (C-G2I- R2D-A-P3)

Interest Residence of the debtor 1. Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions, and similar items;
2. Gross income derived from the conduct of trade or
Gain on sale of transport Place of activity that business or the exercise of a profession;
document produces the income 3. Gains derived from dealings in property;
4. Interests;
5. Rents;

21 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
6. Royalties;
7. Dividends;
(3) PROFESSIONAL INCOME
8. Annuities;
9. Prizes and winnings;
Compensation Income and Professional Income
10. Pensions; and
Distinguished
11. Partner’s distributive share from the net income of the
general professional partnership (Sec. 32 (A), NIRC)
COMPENSATION PROFESSIONAL
INCOME INCOME
NOTE: The above enumeration of gross income under NIRC is
Definition
not exclusive.
Income derived by self-
employed from trade or
b) CONCEPT OF INCOME FROM WHATEVER SOURCE All remuneration for
business (trading,
DERIVED services rendered by an
manufacturing,
employee for his
merchandising, farming,
Q: Is money received under payment by mistake, income employer unless
and others), and income
subject to income tax? specifically excluded
derived by professionals
under the Tax Code. (RR
from the practice of
A: Income paid or received through mistake may be considered No. 12-1998)
professions.
as “income from whatever source derived” irrespective of the (Dimaampao, 2018)
voluntary or involuntary action of the taxpayer in producing
Entitlement to 8% income tax
income. Moreover, under the Claim of Right Doctrine, the
Not entitled Entitled
recipient even if he has the obligation to return the same has a
Possibility of substituted filing
voidable title to the money received through mistake. (Gutierrez
Yes, the employer files
v. CIR, CTA Case No. 65, 31 Aug. 1955)
the income tax return of
the employee. If the
c) GROSS INCOME VS. NET INCOME VS. TAXABLE INCOME None, should file
amount of tax is
quarterly income tax
correctly withheld by the
Gross Income, Net Income and Taxable Income returns and an annual
employer, the employee
Distinguished return
no longer needs to file an
annual income tax
BASIS DEFINITION return.
Gross All income derived from whatever source (Sec. Rate/amount of withholding
Income 32(A), NIRC) 1. Individual payee –
Net Gross Income less allowable deductions. 5% if gross income
Income (Dimaampao, 2018) for the curreny year
The pertinent items of gross income specified in did not exceed P3
Taxable this Code, less deductions, if any, authorized for million; 10% if it
Income such types of income by this Code or other exceeds P3 million
special laws. (Sec. 31, NIRC) Based on graduated
or VAT-registered
withholding tax rates
regardless of the
ranging from 0% to 35%
d) SOURCES OF INCOME SUBJECT TO TAX amount
on net taxable
Non-individual payee –
compensation.
(1) COMPENSATION INCOME 10% if gross income for
the current year did not
Refer to discussion on “Inclusions and Exclusions for exceed P720,000; 15% if
Taxation on Compensation Income” – p.35 gross income exceeds
P720,000 (Sec. 2.57.2,
RR. NO. 14-2018)
(2) FRINGE BENEFITS
(4) INCOME FROM BUSINESS
Refer to discussion on “Inclusions and Exclusions for
Taxation on Compensation Income” – p. 35 (5) INCOME FROM DEALINGS IN PROPERTY

Types of Properties from which Income may be

Derived (2003 BAR)

1. Ordinary assets – properties held by the taxpayer

used in connection with his trade or business
which includes the following: (S-O-U-R)

UNIVERSITY OF SANTO TOMAS 22

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
a. Stock in trade of the taxpayer or other property of a
kind which would properly be included in the inventory
of the taxpayer if on hand at the close of the taxable
year;
b. Property held by the taxpayer primarily for sale to
customers in the Ordinary course of trade or business;
c. Property Used in the trade or business of a character
which is subject to the allowance for depreciation
provided in the NIRC; or
d. Real property used in trade or business of the taxpayer.
2. Capital assets – include property held by the taxpayer
(whether or not connected with his trade or business) other
than S-O-U-R above.
Construction and Interpretation of Capital Assets
The general rule has been laid down that the codal
definition of a capital asset must be narrowly construed
while the exclusions from such definitions must be
interpreted broadly. (Tuazon v. Lingad, G.R. No. L-24248, 31
July 1974)
3. Holding period rule (long-term capital gain vis-à-
vis short-term capital gain) – Where the taxpayer
held the capital asset sold for more than 12 months,
the gain derived therefrom is taxable only to the
extent of 50%. Consequently, if the taxpayer held the
capital asset sold for a year or less, the whole gain
shall be taxable. The same also applies to capital loss.
It is a form of tax avoidance since the taxpayer can
exploit it in order to reduce his tax due. (Sec. 39(B),
NIRC)
However, holding period does not find
application in the case of disposition of:
a. Shares of stock of a domestic corporation
held as capital asset; and
b. Real property considered as capital asset,
whether the seller is an individual, trust,
estate or a private corporation.
NOTE: Only individual taxpayers can avail of
the holding period rule. It is not allowed to
corporations.

Special Rules on Income or Loss from Dealings in Property Tax Treatment of Capital Gains and Losses
Classified as Capital Asset
SOURCE TAX TREATMENT
1. Loss limitation rule – Losses from sale or exchanges of
capital assets shall be allowed only up to the extent of the 1. Stocks Traded in the Stock
gains from such sales or exchanges. (Sec. 39(C), NIRC) Exchange – subject to six-
tenths of one percent (6/10
Thus, under this capital loss limitation rule, capital loss is of 1%) of the gross selling
deductible only up to the extent of capital gain. The price or gross value in
taxpayer can only deduct capital loss from capital gain. If money of the shares of
there is no capital gain, then no deduction is allowed stock sold, bartered,
because you cannot deduct capital loss from ordinary gain. exchanged or otherwise
disposed which shall be
2. Loss carry-over rule/Net Capital Loss Carry Over (NCLCO) paid by the seller or
– If any taxpayer, other than a corporation, sustains in any transferor (Sec. 127(A),
taxable year a net capital loss, such loss (in an amount not in NIRC)
excess of the net income for such year) shall be treated in the 2. Stocks Not Traded in the
succeeding taxable year as a loss from the sale or exchange of Stock Exchange – subject to
a capital asset held for not more than 12 months. (Sec. 39(D), capital gains tax
From Sale of
NIRC)
Stocks of
NOTE: Under R.A. No. 11534 or
Corporations
Rules on NCLCO CREATE Act, foreign
corporations are now subject to
1. NCLCO is allowed only to individuals, including estates 15% capital gains tax on from
and trusts; the sale, barter, exchange or
other disposition of shares of
2. The net loss carry-over shall not exceed the net income stock in a domestic corporation
for the year sustained and is deductible only for the not traded in the stock
succeeding year; exchange. (Sec. 7, R.A. No. 11534,
amending Sec. 28, NIRC)
3. The capital assets must not be real property or stocks
listed and traded in the stock exchange; and What is controlling is whether
or not the shares of stock are
4. Capital asset must be held for not more than 12 traded in the local stock
months. exchange and not where the
actual sale happened. (Del

23 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
Rosario v. CIR, CTA Case No.
4796, 01 Dec. 1994)
Capital gains tax shall be
imposed based on the higher
amount between:
1. The gross selling price; or
2. Whichever is higher
between the current fair
market value as
determined by:
a. Zonal Value – citizens, alien individuals and
prescribed zonal value
of real properties as
determined by the CIR;
or
b. Assessed Value – the
fair market value as
shown in the schedule
From Sale of of values of the
Real Provincial and City
Properties/Land assessors (NIRC, Sec.
and/or 24(D) (1))
Buildings in the
Philippines NOTE: Actual gain or loss is
immaterial since there is a
conclusive presumption of gain.
As regards transactions affected
by the 6% capital gain tax, the
NIRC speaks of real property
with respect to individual
taxpayers, estate and trust but
also speaks of land and/or
building with respect to
domestic corporations.
CGT on sale or disposition of
real properties shall apply only
to domestic corporations, since
foreign corporations (RFC and
NRFC) cannot own properties in
the Philippines.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
Gains realized from the sale,
exchange or other disposition of
real property not located in the
Philippines by resident citizens
or domestic corporations shall
From Sale of be subject to ordinary income
Real taxation (Sec. 4(F), RR No. 7-
Properties/Land 2003) but subject to foreign tax
and/or credits.
Buildings
outside the Such income may be exempt in
Philippines the case of non-resident
foreign corporations (Sec. 4(F),
RR No. 7-2003)
The taxpayer has the option to
either:
1. Include as part of gross
income subject allowable
deductions and personal
From Sale of
exemptions, then subject
Real Property
to the schedular tax; or
held as Capital
Asset to the
NOTE: This is not available
Government
to a corporate taxpayer.
2. Subject to final tax of 6%
on capital gains (Sec.
24(D), NIRC)
Included in gross income
subject to the graduated rates
for individuals and the normal
From Sale of
corporate income tax for
Other Capital
corporations, and not subject to
Assets
capital gains tax
Sale of Principal Residence
Principal residence refers to the dwelling house,
including the land on which it is situated, where the
individual and members of his family reside, and
whenever absent, the said individual intends to return.
Actual occupancy is not considered interrupted or
abandoned by reason of temporary absence due to
travel or studies or work abroad or such other similar
circumstances. (RR No. 14-2000)
NOTE: The address shown in the ITR is conclusively
presumed as the principal residence. If the taxpayer is
not required to file a return, certification from
Barangay Chairman or Building Administrator (for
Condominium units) shall suffice.
Sale of Principal Residence by an Individual
A sale of principal residence by an individual is exempt
from capital gains tax provided the following requisites
are present:
24
 PRE-WEEK NOTES 2023
1. Sale or disposition of the old actual principal residence;
2. By a citizen or resident alien;
3. Proceeds from which is fully utilized in acquiring or
constructing a new principal residence within 18 calendar
months from the date of sale or disposition;
4. Notify the CIR within 30 days from the date of sale or
disposition through a prescribed return of his intention to
avail the tax exemption;
5. Can be availed of once every 10 years;
6. The historical cost or adjusted basis of his old principal
residence shall be carried over to the cost basis of his new
principal residence;
7. If there is no full utilization, the portion of the gains
presumed to have been realized shall be subject to capital
gains tax; and
8. The 6% capital gains tax due shall be deposited with an
authorized agent bank subject to release upon certification
by the RDO that the proceeds of the sale have been utilized.
(RR No. 14-2000)
(6) PASSIVE INVESTMENT INCOME
Tax-exempt Interest Income (R-I-L2-D)
2.
1. Regional or international financing institutions established
by foreign government (Sec. 25(A)(2), NIRC);
2. On bonds, debentures, and other certificate of
Indebtedness received by any of the above-mentioned
entities;
NOTE: The recipient must be a non-resident alien or non-
resident foreign corporation. Otherwise, it is subject to final
tax of 15%.
3. From Long term investment or deposit with a maturity
period of 5 years or more.
NOTE: The recipient must an individual taxpayer.
4. On Loans extended by any of the above-mentioned entities;
and
5. From bank Deposits. The recipient must be any following
tax-exempt recipients:
a. Foreign government
Financing institutions owned, controlled, or financed
by foreign government
Tax Treatment of Inter-corporate Dividends
There is inter-corporate dividend when a dividend is declared
by one corporation and received by another corporation which
is a stockholder to the former. The following rules shall apply:
1. Dividends received from a domestic corporation
25
a. Dividends received by a DC and RFC from a
domestic corporation shall not be subject to
tax (Sec. 27(D)(4), Sec. 28(A)(7)(d), NIRC);
b. Dividends received by a NRFC from a DC shall
be subject to 15% FWT. This is known as the
Tax Sparing Rule. (Sec. 28(B)(5)(b), NIRC)
Tax Sparing Rule
Under this rule, the dividends received shall be
subject to 15% FWT, provided, that the
country in which the corporation is domiciled
either (i) allows a tax credit of 15% against the
taxes due from the foreign corporation for
taxes deemed paid; or (ii) does not impose
income tax on such dividends. (CIR v. Wander
Philippines Inc., G.R. No. L-68375, 15 Apr. 1988);
otherwise, the dividend shall be subject to
30%.
The phrase “deemed paid” “tax credit” does not
mean tax credit actually granted by the foreign
country. There is no statutory provision or
revenue regulation requiring “actual grant”.
The 15% represents the difference between
the NCIT of 30% on corporations and the 15%
tax on dividends.
Dividends received from a foreign corporation
a. Dividends received by a DC from a foreign
corporation shall be subject to 25% NCIT;
XPN: Foreign-sourced dividends received by
domestic corporations shall be exempt when
the following requisites are present:
1. Such dividends are reinvested in the
business operations of the DC in the
Philippines within the next taxable year
from receipt thereof;
2. The use thereof shall be limited to funding
the working capital requirements, capital
expenditures, dividend payments,
investment in domestic subsidiaries, and
infrastructure projects; and
3. The domestic corporation directly holds at
least 20% in value of the outstanding
shares of the foreign corporation, and has
held the same uninterruptedly for a
minimum of 2 years at the time of the
dividend’s distribution. (Sec. 27(D)(4),
NIRC as amended; RR No. 5-2021)
b. Dividends received by RFC and NRFC from a
foreign corporation shall be subject to 25%
NCIT, if the income of the foreign corporation
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
is derived from sources within the Philippines; IF the
said income is derived from sources outside the
Philippines, the dividends received shall be exempt
from tax.
NOTE: In determining whether income is derived from
sources within or without the Philippines, the ratio of
the foreign corporation’s Philippine gross income to the
world gross income within the 3-year period preceding
the declaration of such dividend should be considered.
Tax Treatment of Security Deposits
GR: Security deposits are not taxable as these are refundable in
nature.
Security deposit applied to the rental of terminal month or
period of contract must be recognized as income at the time it is
applied. The purpose of security deposit is to ensure contract
compliance. It is not income to the lessor until the lessee violates
any provision of the contract.
(7) ANNUITIES, PROCEEDS FROM LIFE INSURANCE OR
OTHER TYPES OF INSURANCE
Proceeds of Life Insurance
GR: Amounts received under a life insurance, endowment, or
annuity contact, whether in a single sum or in installments, paid
to the beneficiaries upon the death of the insured are excluded
from the gross income of the beneficiary.
XPNs:
1. If such amounts, when added to amounts already received
before the taxable year under such contract, exceed the
aggregate premiums or considerations paid, the excess shall
be included in the gross income.
NOTE: However, in the case of a transfer for a valuable
consideration by assignment or otherwise, of a life
insurance, endowment or annuity contract or any interest
therein, only the actual value of such consideration and the
amount of the premiums and other sums subsequently paid
by the transferee are exempt from taxation.
2. Interest payments thereon if such amounts are held by the
insurer under an agreement to pay interest shall be taxable.
If paid to a transferee for a valuable consideration, the
proceeds are not exempt.
NOTE: The life insurance proceeds must be paid by reason
of the death of the insured. Payments for reasons other than
death are subject to tax up to the excess of the premiums
paid.
Any policy loans or borrowings made on the policy shall be
deducted as advances from the life insurance proceeds received
upon death.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
(8) PRIZES AND AWARDS
Tax Treatment for Prizes and Winnings
Generally, prizes exceeding P10,000 and other
winnings from sources within the Philippines shall be
subject to 20% final withholding tax, if received by a
citizen, resident alien or non-resident engaged in trade
or business in the Philippines. If the recipient is a non-
resident alien not engaged in trade or business in the
Philippines, the prizes and other winnings shall be
subject to 25% final withholding tax. If the recipient is
a corporation (domestic or foreign), the prizes and
other winnings are added to the corporation’s
operating income and the net income is subject to 30%
(now taxed at 25%) corporate income tax.
Prizes and Awards Exempt from Income Tax
1. Prizes and awards made primarily in recognition of
religious, charitable, scientific, educational,
artistic, literary, or civic achievement provided, the
following conditions are met:
a. The recipient was selected without any action
on his part to enter the contest or proceeding;
and
b. The recipient is not required to render
substantial future services as a condition to
receiving the prize or award.
2. All prizes and awards granted to athletes in local
and international sport competitions and
tournaments whether held in the Philippines or
abroad and sanctioned by their national sports
associations
NOTE: The national sports association referred to
by law that should sanction said sport activity is the
Philippine Olympic Committee. (Sec. 13, R.A. No.
6847)
3. Prizes that winning inventors receive from the
nationwide contest for the most innovative New and
Renewable Energy Systems jointly sponsored by the
PNOC and other organizations during the first ten
years reckoned from the date of the first sale of the
invented products, provided that such sale does not
exceed P200,000 during any twelve-month period.
(Secs. 5 and 6, R.A. No. 7459; BIR Ruling 069-2000)
(9) PENSIONS, RETIREMENT BENEFIT OR
SEPARATION PAY
Refer to discussion on “Inclusions and Exclusions for
Taxation on Compensation Income” – p. 35
(10) INCOME FROM ANY SOURCE
Taxation of Debts
GR: Borrowed money is not part of taxable income
26
 PRE-WEEK NOTES 2023
because it has to be repaid by the debtor. On the other hand, the 2.
creditor does not receive any income upon payment because it 3.
is merely a return of the investment.
4.
Application of Tax Benefit Rule
5.
1. Recovery of bad debts – the recovery of bad debts 6.
previously allowed as deduction in the preceding year or
years shall be included as part of the taxpayer’s gross 7.
income in the year of such recovery to the extent of the 8.
income tax benefit of said deduction.
If the taxpayer did not benefit from deduction of the
baddebt written-off because it did not result in any
reduction of his income tax in the year of such deduction as
General Rules on Deductions
in the case where the result of the taxpayer’s business
operation was a net loss even without deduction of the bad 1.
debts written-off, his subsequent recovery thereof shall be
treated as a mere recovery or a return of capital, hence, not
treated as receipt of realized taxable income.
Tax Payments for the First Three (3) Quarters,
Creditable Tax Withheld for the First Three (3)
Quarters,
Creditable Tax Withheld per BIR Form No. 2307 for
the 4th Quarter,
Creditable Tax Withheld per BIR Form No. 2316,
Tax Paid in Return Previously Filed, if this is an
Amended Return,
Special Tax Credits, if applicable, and
Other Tax Credits/Payments.
4. DEDUCTIONS FROM GROSS INCOME
Deductions must be paid or incurred in connection
with the taxpayer’s trade, business, or profession.
Matching Concept of Deductibility

2. Receipt of tax refunds or credit – if a taxpayer receives tax
credit certificate or refund for erroneously paid tax which
was claimed as a deduction from his gross income that
resulted in a lower net taxable income or a higher net
operating loss that was carried over to the succeeding
taxable year, he realizes taxable income that must be
included in his income tax return in the year of receipt.
XPN: The foregoing principle does not apply to tax credits
or refunds of the following taxes since these are not
deductible from gross income:
a. Income tax (except FBT);
b. Estate tax;
c. Donor’s tax;
d. Special assessments;
e. VAT; and
f. Stock Transactions Tax.
This posits that the deductions must, as a general
rule, “match” the income, i.e., helped earn the
income. (Domondon, 2013)
Ordinary and necessary expenses must have been
paid or incurred during the taxable year for it to be
deductible from gross income. Further, the
deduction shall be taken for the taxable year in
which 'paid or accrued' or 'paid or incurred.'
Otherwise, the expenses are barred as deductions
in subsequent years. (CIR v. Isabela Cultural
Corporation, G.R. No. 172231, 12 Feb. 2007)
2. Deductions must be supported by adequate
receipts or invoices.
XPN: standard deduction

e) EXCLUSIONS 3. The withholding and payment of tax required must

be shown.

(1) TAXPAYERS WHO MAY AVAIL Any income payment which is otherwise
deductible shall be allowed as a deduction from
(2) DISTINGUISHED FROM DEDUCTIONS AND TAX CREDITS gross income only if it is shown that the income tax
required to be withheld has been paid to the BIR.
Exclusions, Deductions and Tax Credits Distinguished (Sec. 2.58.5, RR No. 2-98)
EXCLUSIONS DEDUCTIONS TAX CREDITS
Income received or These are It refers to a) CONCEPT AS RETURN OF CAPITAL
earned but are not included in the foreign taxes
taxable because of gross income but paid beforehand The mere return of capital is allowed as deduction from
exemption by virtue are later but are claimed gross income in order to arrive at income subject to tax.
of a law or treaty; deducted to as credits against While in general, the nomenclature of “cost of sales or
hence, not included arrive at net Philippine cost of goods sold” is applied, the return of capital have
in the computation income income tax to different components depending upon the nature of the
of gross income. arrive at the tax business being taxed. (Domondon, 2013)
due and payable
The amount representing return of capital should be
deducted from the proceeds from the sales of assets and
should not be subject to income tax.
Other Tax Credits Cost of goods purchased for resale, with proper
adjustment for opening and closing inventories are
1. Prior Year’s Excess Credits,

27 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
deducted from gross sales in computing gross income. (Sec. 65, NOTE: A taxpayer who is required but fails to file the
RR No. 2) quarterly income tax return for the first quarter shall be
deemed to have elected to avail of itemized deductions
b) ITEMIZED DEDUCTIONS vs. OPTIONAL STANDARD for the taxable year.
DEDUCTION
EXPENSES
Itemized Deductions and Optional Standard Deduction
Distinguished Requisites for Deductibility of Expenses (D–S-T-R-
O-W-N)
OPTIONAL STANDARD
ITEMIZED DEDUCTIONS
DEDUCTION 1. Paid or incurred During the taxable year;
Definition
2. The expense must be Substantiated by proof;
(Substantiation Rule)

In lieu of the itemized 3. The expense must be incurred in Trade or business

Under the itemized
deductions, regular or special, carried on by the taxpayer
deductions, taxpayers list
including NOLCO. The NOTE: It must be directly attributable to the
every item of business
deduction is merely presumed development, management, operation, and or
expense they claim as
as a fixed percentage of gross conduct of trade or business of the taxpayer, or in
deductions. Deductions
income for corporations and the exercise of the taxpayer’s profession;
are strictly construed
gross sales or gross receipts for
against the taxpayer.
individuals. 4. The expense must be Reasonable;

5. The expense must be Ordinary and necessary;

Deduction 6. If subject to Withholding taxes, proof of payment

Individuals: to BIR; and
40% of total sales/ revenues/
Deductible items allowed receipts/ fees 7. Expenses must Not be against public policy, public
by the law moral or law such as bribes, kickbacks, for
Corporations: 40% of gross immoral purposes.
income
Travelling/Transportation Expenses
Who may avail?
All taxpayers who are subject to
The following are the requisites for its deductibility:
tax on taxable net income (RC,
All taxpayers except those NRC, RA, NRA-ETB, DC, RFC) can
1. Reasonable and necessary expenses;
subject to tax on gross claim deductions except the
2. Incurred or paid while away from home; and
income (NRA-NETB & following:
3. In pursuit of trade, business or profession.
NRFC). 1. NRA-ETB
2. Taxpayers mandate to use
NOTE: Travelling expense includes transportation,
itemized deductions
meals and lodging, whether local or foreign. (RR No. 2)
Substantiation of claim

It must be substantiated It requires no proof of expenses
by receipts. incurred.
(Banggawan, 2019)
The election to claim either the OSD or itemized deductions
must be signified in the income tax return filed for the first
quarter of the taxable year. Unless the corporation signified in
his return his intention to elect optional standard deduction, it
shall be considered as having availed itself of the itemized
deduction.
Once the election is made, the same type of deduction must be
consistently applied for all succeeding quarters and in the
annual income tax return. In other words, the choice shall be
irrevocable for the taxable year for which the return is made.
Expenses partly for business and partly for other
purposes shall be apportioned. (Jamir v. Collector, G.R.
No. L-16552; 30 Mar. 1962; Gutierrez v. Collector, G.R.
No. L-19537, 20 May 1965) In combined business and
pleasure trip, those that are related to the trade of
business are deductible whereas, those spend on
pleasure are non-deductible. (Lim, 2021)
Rentals and/or Other Payments for Use or
Possession of Property
The following are the requisites for its deductibility:
1. Payment was made as a condition to the
continuous use of or possession of the property;

UNIVERSITY OF SANTO TOMAS 28

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
2. Taxpayer has not taken or is not taking title to the property 3. All payments for Services such as radio and TV
or has no equity other than that of a lessee, user or time, print ads, talent fees, advertising expense or
possessor; know-how must be subjected to withholding tax.
3. Property must be used in the trade or business; and
4. The withholding tax must have been withheld and paid. Training Expenses

Entertainment/Representation Expenses Grants for manpower training and special studies given
to rank-and-file employees pursuant to a program
The following are the requisites to avail of this deduction: prepared by the labor-management committee for
development skills identified as necessary by the
1. Paid or incurred during the taxable year; appropriate government agencies shall entitle the
2. Directly connected to the development, management, and business enterprise to a special deduction from gross
operation of the business, trade or profession of the income equivalent to fifty percent (50%) of the total
taxpayer; or directly related to or in furtherance of the grants over and above the allowable ordinary and
conduct of its trade, business or exercise of a profession; necessary business deductions for said grants under
3. Not contrary to law, morals, good customs, public policy or the NIRC. (Sec. 7(2), R.A. No. 6071; Sec. 1, RMC No. 102-
public order; 90)
4. Must not constitute as a bribe, kickback, or other similar
payment;
INTEREST
5. Duly substantiated by adequate proof or receipt;
6. Withholding tax, if any, should have withheld therefrom
The following are the requisites for deductibility:
and paid; and
7. Must be reasonable.
1. There must be an indebtedness;
2. The indebtedness must be that of the taxpayer;
Ceiling or Limitation on the Amount Allowed as
3. The interest must be legally due and stipulated in
Entertainment, Amusement, and Recreation Expense
writing;
4. The interest must be paid or incurred during the
Entertainment, amusement and recreation expense shall be
taxable year;
allowed as a deduction from gross income but in no case shall
5. The indebtedness must be connected with the
exceed:
taxpayer’s trade, business, or exercise of
profession;
1. For taxpayers engaged in sale of goods or properties –
6. The interest arrangement must not be between
0.50% of net sales (i.e., gross sales less sales returns or
related taxpayers; and
allowances and sales discounts)
7. The allowable deduction has been reduced by an
amount equivalent to 20% of the interest income
2. For taxpayers engaged in sale of services, including
subjected to final tax. (Sec. 7 (B), RR No. 5-2021, in
exercise of profession and use or lease of properties – 1%
relation to Sec. 21, R.A. No. 11534)
of net revenue (i.e., gross revenue less discounts)
Non-Deductible Interest Expense
3. For taxpayers deriving income from both sale of goods
and services – the allowable deduction shall in all cases be
1. Interest on preferred stock, which in reality is
determined based on an apportionment formula taking into
dividend;
consideration the percentage of the net sales/net revenue
to the total net sales/net revenue, but which in no case shall
NOTE: Preferred shares are considered capital
exceed the maximum percentage ceiling provided (Sec. 5,
regardless of the conditions under which such
RR No. 10-2002)
shares are issued and consequently, dividends or
“interest” paid thereon shall not be allowed as a
Apportionment Formula
deduction from gross income of the corporation.
(Phil. Trust Co. v. Collector, CTA Case No. 367, 30
𝑁𝑁𝑁𝑁𝑁𝑁 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑁𝑁𝑁𝑁𝑁𝑁 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 Jan. 1961)
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑁𝑁𝑁𝑁𝑁𝑁 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑜𝑜𝑜𝑜 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟
2. Interest on unpaid salaries and bonuses;
Advertising and Promotional Expenses
3. Interest calculated for cost keeping;
4. Interest paid where parties provide no stipulation
The following are the requisites for the deductibility of
in writing to pay interest;
advertising and promotional expenses: (Sub-Pro-Ser)
5. If the indebtedness is incurred to finance
petroleum exploration;
1. Substantiated with sufficient evidence;
6. Interest paid on indebtedness between related
taxpayers; and
2. All payments for the purchase of Promotional giveaways,
contest prizes or similar material must be properly
receipted; and

29 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
7. Interest on indebtedness paid in advance through
discount or otherwise and the taxpayer reports income
on cash basis.
NOTE: Interest is allowed as a deduction in the year the
indebtedness is paid, not when the interest was paid in advance.
If the indebtedness is payable in periodic amortizations, the
amount of interest which corresponds to the amount of the
principal amortized or paid during the year shall be allowed as
deduction in such taxable year.
Optional Treatment of Interest Expense on Capital
Expenditure
Interest incurred to acquire property used in trade, business or
profession may be allowed either:
1. Treated as capital expenditure, i.e., it forms part of the cost
of the asset; or
2. As a deduction. (Sec. 34(B)(2), NIRC)
NOTE: Interest paid in advance, interest periodically amortized,
and interest incurred to acquire property used in trade or
business is also treated the same, the taxpayer can deduct it as
an outright deduction or capital expenditure.
TAXES
The requisites for deductibility are:
1. Payments must be for taxes;
2. Tax must be imposed by law on, and payable by the
taxpayer;
3. Paid or incurred during the taxable year in connection with
taxpayer’s trade, business or profession; and
4. Taxes are not specifically excluded by law from being
deducted from the taxpayer’s gross income.
Limitation on the Deduction
In the case of RA, NRC, NRA-ETB and RFC, the deductions for
taxes shall be allowed only if and to the extent that they are
connected with income from sources within the Philippines.
(Sec. 34(C)(2), NIRC)
When to Claim Deductions for Taxes
GR: Taxes may be deducted only on the year it was paid or
incurred.
XPN: In the case of contingent tax liability, the obligation to
deduct arises only when the liability is finally determined.
Non-deductible Taxes
The following are the taxes not allowed as deduction from gross
income to arrive at taxable income:
1. Income tax provided under the NIRC (Philippine income
tax);
GR: Income taxes imposed by authority of any foreign
country
UNIVERSITY OF SANTO TOMAS 30
2023 PRE -WEEK NOTES
XPN: When the taxpayer does not signify in his
return his desire to avail of the tax credit (except
FBT).
2. Estate tax and donor’s taxes;
3. Special assessments – taxes assessed against local
benefits of a kind tending to increase the value of
property assessed;
4. Stock transaction tax – taxes on sale, barter,
exchange of shares of stock listed and traded
through the local stock exchange or through initial
public offering;
5. Final taxes;
6. Presumed capital gains tax; and
7. VAT.
Treatment to Income Taxes Paid in Foreign
Countries
The taxpayer may either claim it as:
1. Foreign tax credits against Philippine income tax
due of citizens and domestic corporations; or
2. A deduction from gross income of citizens and
domestic corporations.
Limitations on Claiming Tax Credit
1. The amount of the credit in respect to the tax paid
or incurred to any country shall not exceed the
same proportion of the tax against which such
credit is taken, which the taxpayer’s taxable
income from sources within such country under
Title II of the NIRC (Tax on Income) bears to his
entire taxable income for the same taxable year;
and
2. The total amount of the credit shall not exceed the
same proportion of the tax against which such
credit is taken, which the taxpayer’s income from
sources without the Philippines taxable under
Title II of the NIRC (Tax on Income) bears to his
entire taxable income for the same taxable year.
(Sec. 34(C)(4), NIRC)
LOSSES
The requisites for deductibility are: (T-A-E-T-I-E-C45)
1. Loss belongs to the Taxpayer;
2. Actually sustained and charged off during the
taxable year;
3. Evidenced by a closed and completed transaction;
 PRE-WEEK NOTES 2023
4. Must be connected with taxpayer’s Trade, business or
profession or incurred in any transaction or incurred by an
individual in any transaction entered into for profit though
not connected with his trade, business or profession;
5. Not compensated by Insurance or other forms of
indemnity;
6. Not claimed as a deduction for Estate tax purposes in case
of individual taxpayers; and
7. If it is Casualty loss, it is evidenced by a declaration of loss
filed within 45 days with the BIR.
Net Operating Loss Carry-over (NOLCO)
Net operating loss refers to the excess of allowable deduction
over gross income of the business in a taxable year. The net
operating loss of the business or enterprise for any taxable year
immediately preceding the current taxable year, which had not
been previously offset as deduction from gross income shall be
carried over as a deduction from gross income for the next three
(3) consecutive taxable years immediately following the year of
such loss, provided that:
1. The taxpayer was not exempt from income tax in the year
of such net operating loss; and
2. There has been no substantial change in the ownership of
the business or enterprise.
NOTE: NOLCO is on a first-in first-out basis. (RR 14-2001)
Effect of NOLCO when the Corporate Taxpayer is Subject to
MCIT
The running of the 3-year period for the expiry of NOLCO is not
interrupted by the fact that such corporation is subject to MCIT
in any taxable year during such 3-year period. However, such
corporation cannot enjoy the benefit of NOLCO for as long as it
is subject to MCIT in any taxable period.
An individual who claims the 40% OSD cannot claim deduction
of NOLCO simultaneously. Even if NOLCO was not claimed, the
3-year period shall continue to run. (RR No. 14-2001)
Those who are Not Qualified to Avail NOLCO
1. OBUs for a foreign banking corporation and FCDU of a
domestic banking corporation;
2. Enterprise registered with the BOI enjoying the Income
Tax Holiday Incentive;
3. PEZA-registered enterprise;
4. SBMA-registered enterprise;
5. Foreign corporations engaged in international shipping or
air carriage business in the Philippines; and
6. Any person, natural or juridical, enjoying exemption from
income tax. (RR No. 14-2001)
Special Losses
31
1. Wagering losses – deductible only to the extent
of gain or winnings deemed to only apply to
individuals. (Sec. 34(D)(6), NIRC)
2. Losses on wash sales of stocks
Wash sale - A sale of stock or securities where
substantially identical securities are acquired or
purchased within 61-day period, beginning 30
days before the sale and ending 30 days after the
sale.
GR: Losses from wash sale are not deductible
since these are considered as artificial loss.
XPN: When a taxpayer is a dealer in securities,
and the transaction from which the loss resulted
was made in the ordinary course of business of
such dealer, the loss is deductible in full.
Non-deductible Losses
1. Losses not incurred in trade, profession, or
business or in any transaction entered into profit;
2. Losses from sales or exchanges of property
entered into between related taxpayers are not
deductible as provided under Sec. 36 of the NIRC
but the gains are taxable;
3. Losses from exchanges of property in a corporate
readjustment;
4. Losses from illegal transactions; and
5. Loss on voluntary removal of building on land
purchased with a view to erect another building.
Such loss shall form part of the cost of the new
building to be erected. (Tabag, 2015)
BAD DEBTS
The requisites for deductibility are: (U-S-T-C-A-RPart)
1. The debts are Uncollectible despite diligent effort
exerted by the taxpayer;
To prove that the taxpayer exerted diligent efforts
to collect the debts:
a. Sending of statement of accounts;
b. Sending of collection letters;
c. Giving the account to a lawyer for collection;
and
d. Filing a collection case in court.
2. Existing indebtedness Subsisting due to the
taxpayer which must be valid and legally
demandable;
3. Connected with the taxpayer’s Trade, business or
practice of profession;
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
4. Actually Charged off in the books of accounts of the DEPLETION
taxpayer as of the end of the taxable year;
The requisites for deductibility are: (C-O-I-L-E)
5. Actually Ascertained to be worthless and uncollectible as of
the end of the taxable year; 1. The method allowed under the rules and
NOTE: In lieu of requisite No. 5, the BSP, thru its Monetary regulations prescribed by the Secretary of Finance
Board, shall approve the writing off of said indebtedness is Cost depletion method.
from the banks’ books of accounts at the end of the taxable
year. (RR No. 5-1999) 2. Can be availed of by Oil and gas wells and mines.

In no case may a receivable from an insurance or surety
company be written off from the taxpayer’s books and
claimed as bad debts deduction unless such company has
been declared closed due to insolvency or for any such
similar reason by the Insurance Commissioner. (RR No. 5-
1999)
6. Must not be sustained in a transaction entered into
between Related Parties.
Effect of Recovery of Bad Debts
3. The basis of cost depletion is the capital Invested in
the mine which is the accumulated exploration and
development expenses.
4. In case of RFC, allowance for depletion shall be
authorized only in respect to oil and gas wells and
mines Located in the Philippines.
5. When the allowance shall Equal the capital
invested no further allowance shall be granted.
CHARITABLE AND OTHER CONTRIBUTIONS

That recovery of bad debts previously allowed as deduction in

The requisites for deductibility are: (A-W-S-E-A)
the preceding years shall be included as part of the gross income
in the year of recovery to the extent of the income tax benefit of
1. The contribution or gift must be Actually paid;
said deduction. (Sec. 34(E), NIRC) This is also known as the Tax
2. It must be paid Within the taxable year;
Benefit Rule.
3. It must be given to the organization Specified by
law;
DEPRECIATION 4. It must be Evidenced by adequate receipts or
records; and
The requisites for deductibility are: 5. The amount of charitable contribution of property
other than money shall be based on the
1. The property subject to depreciation must be property Acquisition cost of said property.
with life of more than 1 year;
2. The property depreciated must be used in trade, business, Contributions that are Deductible in Full (G-A-F-A)
or exercise of a profession;
3. The depreciation must have been charged off during the 1. Donations to the Government of the Philippines, or
taxable year; political subdivisions including fully-owned
4. The depreciation method used must be reasonable and government corporation to be used exclusively in:
consistent; and (C-H2-E-E-S-Y)
5. A depreciation schedule should be attached to the income
tax return. a. Culture
b. Health
Q: Is depreciation of goodwill deductible from gross c. Human Settlement
income? (1999 BAR) d. Economic Development
e. Education
A: Goodwill may or may not be subject to depreciation. f. Science
g. Youth and Sports development
GR: Depreciation for goodwill is not allowed as deduction from
gross income. While intangibles maybe allowed to be NOTE: NEDA determines annually which will be
depreciated or amortized, it is only allowed to those intangibles considered as a priority activity.
whose use in the business or trade is definitely limited in
duration (Basilan Estates, Inc. v. CIR, G.R. No. L-22492, 05 Sept. 2. Donations to Accredited NGO’s
1967). Such is not the case with goodwill. a. Exclusively for: (C2-H-E-S2-Y-R-C)
i. Cultural
XPN: If the goodwill is acquired through capital outlay and is ii. Charitable
known from experience to be of value to the business for only a iii. Health
limited period. (Sec. 107, RR No. 2) In such case, the goodwill is iv. Educational
allowed to be amortized over its useful life. v. Scientific
vi. Social welfare

UNIVERSITY OF SANTO TOMAS 32

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
vii. Character building & Youth and sports
Development
viii. Research
ix. Any Combination of the above
b. Donation must be utilized not later than the 15th day
of the 3rd month following the close of taxable year.
c. Administrative expense must not exceed 30% of the
total expenses.
d. Upon dissolution, assets shall be transferred to another
non-profit domestic corporation or to the State.
3. Donations to Foreign institutions and international
organizations in compliance with treaties and agreements
with the Government
4. Donations of prizes and awards to Athletes (Sec. 1, R.A. No.
7549)
Donations that are Deductible in Full under Special Laws
1. The Integrated Bar of the Philippines (P.D. No. 81)
2. Development Academy of the Philippines (P.D. 205)
3. Aquaculture Department of the Southeast Asian Fisheries
and Development Center (P.D. 292)
4. National Social Action Council (P.D. 294)
5. National Museum, Library and Archives; (P.D. 373)
6. University of the Philippines and other state colleges and
universities
NOTE: Gifts and donations to the University of the
Philippines shall be exempt from donor’s tax and the same
shall be allowable as a deduction up to 150% of the value of
the donation (R.A. No. 9500)
7. Philippine Rural Reconstruction Movement
8. The Cultural Center of the Philippines (CCP)
9. Trustees of the Press Foundation of Asia
10. Humanitarian Science Foundation
11. Artesian Well Fund (R.A. No. 1977)
12. International Rice Research Institute
13. National Science Development Board (now the DOST) and
its agencies and to public or recognized non-profit, non-
stock educational institutions (R.A. No. 3589)
14. Ministry of Youth & Sports Development (P.D. 604)
15. Social Welfare, Cultural & Charitable Institution (P.D. 507)
16. Museum of Philippine Costumes (P.D. 1388)
17. Intramuros Administration; (P.D. 1616)
18. Lungod ng Kabataan; and (P.D. 1631)
19. Foster child agencies. (R.A. No. 10165)
20. National Book Trust Fund
NOTE: It shall likewise be exempt from donor’ tax and the
same shall be allowable as a deduction up to 150% of the
value of the donation (R.A. No. 9521)
33
Donations that are Subject to Limitations
1. Donations that are not in accordance with the
priority plan;
2. Donations whose conditions are not complied with;
3. Donations to the Government of the Philippines or
political subdivision exclusive for public purposes;
and
4. Donations to domestic corporations organized
exclusively for: R2-E-C2-S2
a. Religious
b. Rehabilitation of veteran
c. Educational
d. Cultural
e. Charitable
f. Scientific
g. Social welfare
Limitations on Deductions
Amount deductible shall not exceed:
1. For individuals – 10% of taxable income before
contributions
2. For corporations – 5% of taxable income before
contributions (Sec. 34(H)(1), NIRC)
RESEARCH AND DEVELOPMENT EXPENDITURE
Amortization Period of Deferred Research and
Development Expenditures
In computing taxable income, such deferred expenses
shall be allowed as deduction and ratably distributed
over a period of not less than 60 months, beginning
with the month in which the taxpayer first realizes
benefits from such expenditures.
Research and Development Expenditures that are
Not Deductible
1. For the acquisition or improvement of land or for
the improvement of property to be used in
connection with research and development
subject to depreciation and depletion; and
2. Paid or incurred for the purpose of ascertaining
the existence, location, extent or quality of any
deposit of ore or other mineral including oil or gas.
(Sec. 34 (I)(3), NIRC)
PENSION TRUSTS
The requisites for deductibility are: (P-F-R-A-N-C)
1. The employer must have established a Pension or
retirement plan to provide for the payment of
reasonable pensions to his employees;
2. It must be Funded by the employer;
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
3. The pension plan is Reasonable and actuarially sound;
4. The deduction is Apportioned in equal parts over a period
of 10 consecutive years beginning with the year in which
the transfer or payment is made;
5. The payment has Not yet been allowed as a deduction; and
6. The amount contributed must no longer be subject to the
Control and disposition of the employer.
Payments to Pension Trusts that are Deductible
1. Employer’s current liability or Current Service Cost –
amount contributed during the taxable year shall be
treated as an ordinary and necessary expense.
2. Employer’s liability for past services or Past Service Cost –
1/10 of the reasonable amount paid to cover pension
liability applicable to the preceding ten (10) years.
NOTE: When an employer makes a contribution to his
employee’s Personal Equity and Retirement Account (PERA),
the employer can claim this amount as a deduction but only to
the extent of the employer’s contribution that would complete
the maximum allowable PERA contribution of an employee. (RR
No. 17-2011; R.A. No. 9505)
SPECIAL DEDUCTIONS
Other Business Expenses Allowed by Special Laws as
Deductions
1. Discounts granted by establishments for senior citizens and
PWDs. (RR No. 8-2010 and RR No. 5-2017)
2. Expenses incurred by a private health and non-health
facility, establishment, or institution, in complying with the
Expanded Breastfeeding Promotion Act of 2009 – up to
twice the actual amount incurred. (R.A. No. 10028)
3. Expenses incurred in training schemes pursuant to the
Jewelry Industry Development Act of 1998 – additional
50% of actual amount incurred. (R.A. No. 8502)
4. Expenses incurred for adopting a school based on the
Adopt-a-School program – additional 50% of actual amount
incurred. (R.A. No. 8525)
5. A lawyer or professional partnerships rendering actual free
legal services, as defined by the Supreme Court, shall be
entitled to an allowable deduction from gross income, the
amount that could have been collected for the actual free
legal services rendered up to ten percent (10%) of gross
income derived from the actual performance of the legal
profession, whichever is lower. (R.A. No. 9999)
6. Private companies that employ PWDs as regular employee,
apprentice or learner are entitled to a gross income
deduction equivalent to 25 percent (25%) of the total
UNIVERSITY OF SANTO TOMAS 34
2023 PRE -WEEK NOTES
amount paid as salaries and wages to PWDs. (IRR
of R.A. No. 10524)
7. Qualified business enterprises that promote green
jobs are entitled to a special deduction from the
taxable income equivalent to 50% of the total
expense for skills training and research
development expenses. (R.A. No. 10771)
8. Sec. 42 of R.A. No. 7916 or the PEZA Law provides
that an additional deduction equivalent to half the
value of training expenses incurred in developing
skilled or unskilled labor or for managerial or
other management development programs
incurred by enterprises in the economic zone
(ecozone) can be deducted from the National
Government’s 3% share as provided in Sec. 24 of
the law.
OPTIONAL STANDARD DEDUCTION (OSD)
The OSD is an amount not exceeding:
1. 40% of the gross sales or gross receipts of a
qualified individual taxpayer; or
2. 40% of the gross income of a qualified corporation.
(Sec. 34(L), NIRC)
Persons Entitled to Claim OSD
1. Individuals
a. Resident citizens (RC)
b. Non-resident citizens (NRC)
c. Resident aliens (RA)
NOTE: An individual who avails of the OSD is not
required to submit final statements provided that
said individual shall keep such records pertaining
to his gross sales or gross receipts.
2. Corporations
a. Domestic Corporations (DC)
b. Resident foreign corporations (RFC)
NOTE: A corporation is still required to submit its
financial statements when it files its annual income
tax return and keep such records pertaining to its
gross income.
3. Partnerships
4. Estates and trusts
c) ITEMS NOT DEDUCTIBLE
In computing net income, no deduction shall in any case
be allowed in respect to:
1. Personal, living or family expenses;
 PRE-WEEK NOTES 2023
NOTE: These are personal expenses and not related to the
conduct of trade or business.
2. Any amount paid out for new buildings or for permanent
improvements, or betterments made to increase the value
of any property or estate;
NOTE: These are capital expenditures added to the cost of
the property and the periodic depreciation is the amount
that is considered as deductible expense.
These shall not apply to intangible drilling and development
costs incurred in petroleum operations which are
deductible under Subsection (G)(1) of Sec. 34 of the NIRC.
1. Any amount expended in restoring property or in making
good the exhaustion thereof for which an allowance is or
has been made (major repairs);
2. Premiums paid on any life insurance policy covering the life
of any officer or employee, or of any person financially
interested in any trade or business carried on by the
taxpayer, individual, or corporate, when the taxpayer is
directly or indirectly a beneficiary under such policy; (Sec.
36(A), NIRC)
NOTE: A person is said to be financially interested in the
taxpayer’s business, if he is a stockholder thereof or if he
receives as compensation his share of the profits of the
business.
3. Interest expense, bad debts, and losses from sales of
property between related parties;
4. Bribes, kickbacks, and other similar payments; and
5. Items where the requisites for deductibility are not met.
5. INCOME TAX ON INDIVIDUALS
a) RESIDENT CITIZENS, NON-RESIDENT CITIZENS, AND
RESIDENT ALIENS
Refer to previous discussion on “Kinds of Taxpayers” – p. 18
(1) INCLUSIONS AND EXCLUSIONS FOR TAXATION ON
COMPENSATION INCOME
Scope of Compensation Income
The test is whether such income is received by virtue of an
employer-employee relationship.
The requisites for taxability are: (S-A-R)
1. Payment is for such Services rendered;
2. Personal services Actually rendered; and
3. Payment is Reasonable.
35
Exclusions on Compensation Income
1. Fringe benefit subject to tax
2. De minimis benefit
3. 13th month pay and other benefits and payments
specifically excluded from taxable compensation
income
FRINGE BENEFITS
Definition
Fringe benefit is any good, service, or other benefit
furnished or granted by an employer in cash or in kind,
in addition to basic salaries, to an individual employee,
except rank-and-file employee, such as but not limited
to: (H-E-V-H-I-M-H-E-E-L)
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel such as maid, driver and
others;
5. Interest on loans at less than market rate to the
extent of the difference between the market rate
and the actual rate granted;
6. Membership fees, dues and other expenses borne
by the employer for the employee in social and
athletic clubs or other similar organizations;
7. Holiday and vacation expenses;
8. Expenses for foreign travel;
9. Educational assistance to the employee or his
dependents; and
10. Life or health insurance and other non-life
insurance premiums or similar amounts in excess
of what the law allows (Sec. 33(B), NIRC; Sec.
2.33(B), RR No. 3-1998)
Tax Treatment for Fringe Benefits
If the benefit is not tax-exempt and the recipient is:
1. A rank-and-file employee – the value of such
fringe benefit shall be considered as part of the
compensation income of such employee subject to
tax payable by the employee.
2. A managerial or supervisory employee – the
value shall not be included in the compensation
income of such employee subject to tax. The fringe
benefit tax (FBT) is payable by the employer on
behalf of the employee. (Sec. 33, NIRC)
Computation of Grossed-up Monetary Value
If the fringe benefit is granted or furnished in:
1. Money, or is directly paid for by the employer –
the value is the amount granted or paid.
2. Property other than money and ownership is
transferred to the employee – the value of the
fringe benefit shall be equal to the fair market
value of the property as determined in accordance
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
with the authority of the Commissioner to prescribe real FRINGE BENEFIT CEILING AMOUNT
property values (zonal valuation). Qualify:
1. Private
3. Property other than money but ownership is NOT employees:
transferred to the employee – the value of the fringe a. Vacation leave -
benefit is equal to the depreciation value of the property. exempt up to 10
(Sec 2.33, RR 3-1998) days
Monetized unused b. Sick leave –
NOTE: These guidelines are only used in instances where there vacation leave credits of always taxable
are no specific guidelines. For example, there are specific employees
guidelines for the valuation of real property and automobiles. 2. Government
employees:
Vacation and sick
Fringe Benefits Exempt from FBT leave are always tax
exempt regardless of
1. Fringe benefits which are authorized and exempted from the number of days.
tax under the NIRC or special laws. (e.g., separation benefits
Not exceeding P1,500
which are given to employees who are involuntarily Medical cash allowance
per semester or P250
separated from work) to dependents of
per month (RR No. 11-
employees
2018)
2. Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization P2,000 or one sack of
benefit plans. 50-kg rice per month
Rice subsidy amounting to not more
3. Benefits given to the rank-and-file employees, whether than P2,000 (RR No.
granted under a collective bargaining agreement or not. 11-2018)
Not exceeding P6,000
Uniforms and clothing
4. De minimis benefits, whether given to rank and file per annum (RR No. 11-
allowances
employees or to supervisory or managerial employees. (Sec 2018)
32(3), NIRC) Actual Medical Assistance
(e.g., medical allowance
5. Fringe benefits granted to employee as required by the to cover medical and
nature of, or necessary to the trade, business or profession healthcare needs, annual Not exceeding P10,000
of the employer. medical/executive check- per annum
up, maternity assistance,
6. Fringe benefits granted for the convenience of the and routine
employer. (Employer’s Convenience Rule) (Secs. 32 & Sec. consultations)
33(A), NIRC; Sec. 2.33(C), RR No. 3-1998) Not exceeding P300
Laundry allowance
per month
NOTE: Although a fringe benefit may be exempted from the
FBT, it may still fall under a different tax under another law,
such as the compensation income tax or the like.
Employee achievement
In the form of tangible
Convenience of the Employer Rule awards under an
personal property
established written plan
An exemption from taxation is granted to benefits which are other than cash or gift
which does not
given to the employee for the exclusive benefit or convenience certificate with an
discriminate in favor of
of the employer. annual monetary
highly paid employees
value not exceeding
(e.g., for length of service
DE MINIMIS BENEFITS P10,000
or safety achievement)
.
Q: What are de minimis benefits and how are these taxed?
Give three (3) examples of de minimis benefits. (2015 BAR)
A: De minimis fringe benefits and their respective ceiling Gifts given during Not exceeding P5,000
amounts: (RR Nos. 2-98 & 3-98, as amended) Christmas and major per employee per
anniversary celebrations annum

Not exceeding 25% of

Daily meal allowance for the basic minimum
overtime work wage on a per region
basis

UNIVERSITY OF SANTO TOMAS 36

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
Benefits received by
Not exceeding P10,000 per
virtue of collective
employee per annum from
bargaining agreement
the two items combined (RR
(cba) and productivity
1-2015)
incentive scheme
All other benefits given by employers, which are not included in
the above enumeration shall not be considered as de minimis
benefits, and hence, shall be subject to income tax, as well as to
withholding tax on compensation income. The benefits
provided in the Regulations shall apply to income earned
starting the year 2011. (RR No. 5-2011)
NOTE: Flowers, fruits, books, similar items given to employees
under special circumstances (e.g., on account of illness,
marriage, birth of baby, etc.) are now taxable.
De minimis benefits in Excess of Respective Ceilings
The amount of benefits exceeding their respective ceilings shall
be considered as part of “other benefits” under Sec. 32(B)(7)(e)
of the NIRC.
Under Sec. 32(B)(7)(e) of the NIRC, 13th month pay and other
benefits are excluded from gross income, provided that they do
not exceed P90,000 any excess thereof is considered part of the
compensation income of an individual, hence, subject to income
tax.
13TH MONTH PAY AND OTHER BENEFITS
Exclusion of 13th Month Pay and other Benefits
The 13th month pay and other benefits are excluded from gross
income, provided that they do not exceed P90,000. Any excess
thereof is considered part of the compensation income of an
individual, hence, subject to income tax. (Sec. 32(B)(7)(e), NIRC)
The threshold amount of P90,000 shall apply to the 13th-month
pay and other benefits which covers only the following:
1. Thirteenth month pay equivalent to the mandatory one-
month basic salary of officials and employees of the
government, (whether national or local), including
government-owned or -controlled corporations, and or
private offices received after the 12th-month pay; and
2. Other benefits, such as Christmas bonus, productivity-
incentive bonus, loyalty award, gifts in cash or in kind and
other benefits of similar nature actually received by
officials and employees of both government and private
offices.
NOTE: In no case shall the exemption apply to other
compensation received by an employee under an employer
employee relationship, such as basic salary and other
allowances. (R.A. No. 10653 as clarified by RR No. 3-2015)
37
(2) TAXATION OF BUSINESS INCOME/ INCOME
FROM PRACTICE OF PROFESSION
Purely Self-Employed and/or Professionals
1. Self-employed individuals and/or professionals
with gross sales/gross receipts and other non-
operating income not more than P3 million –
shall have the option to avail of:
a. Schedular tax rate (Sec. 24(A)(2)(a) of the
NIRC); or
b. 8% of the gross sales/gross receipts and other
non-operating income in excess of P250,000
(No. 22, RMC No. 50-2018)
2. Self-employed individuals and/or professionals
with gross sales/gross receipts and other non-
operating income more than P3 million –
schedular tax rate only (Sec. 24(A)(2)(a), NIRC)
Mixed Income Earners
1. All income from compensation – schedular tax
rate (Sec. 24(A)(2)(a), NIRC)
2. All income from business or practice of
profession
a. If gross sales and/or gross receipts and
other non-operating income does not
exceed P3 million – shall have the option to
avail of:
i. Schedular tax rate (Sec 24(A)(2)(a),
NIRC); or
ii. 8% of the gross sales/gross receipts
and other non-operating income
NOTE: P250,000 shall not be
deducted. (No. 22, RMC No. 50-2018)
b. If gross sales and/or gross receipts and
other non-operating income exceeds P3
million – schedular tax rate (Sec. 24(A)(2)(a),
NIRC)
Optional 8% Income Tax Rate
Self-employed individuals and/or professionals shall
have the option to avail of an eight percent (8%) tax on
gross sales or gross receipts and other non-operating
income in excess of two hundred fifty thousand pesos
(P250,000) in lieu of the graduated income tax rates
under Subsection (A)(2)(a) of this Section and the
percentage tax under Sec. 116 of this Code. (Sec.
24(A)(2)(b), NIRC)
Persons Not Entitled to Claim the 8% Income Tax
Rate
1. Purely compensation income earner;
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
2. VAT-registered taxpayers, regardless of the amount of gross
sales/receipts and other non-operating income;
3. Non-VAT taxpayers whose gross sales/receipts and other
non-operating income exceeded the P3,000,000 VAT
threshold;
4. Taxpayers who are subject to OPT, except those under Sec.
116;
5. Partners of a GPP since their distributive share from the
GPP is already net of costs and expenses; and
6. Individuals enjoying income tax exemption such as those
registered under the BMBEs, etc./, since taxpayers are not
allowed to avail of double or multiple tax exemptions under
different laws, unless specifically provided by law. (No. 16,
RMC No. 50-2018)
Taxation of Partners in a General Professional Partnership
A general professional partnership (GPP) shall not be subject to
the income tax. Persons engaging in business as partners in a
GPP shall be liable for income tax only in their separate and
individual capacities.
For purposes of computing the distributive share of the
partners, the net income of the partnership shall be computed
in the same manner as a corporation.
Each partner shall report as gross income his distributive share,
actually or constructively received, in the net income of the
partnership. (Sec. 26, NIRC)
A GPP is not a taxable entity for income tax purposes because it
only acts as a “pass-through entity where its income is
ultimately passed to the partners.” (Ingles, 2018)
(3) TAXATION OF PASSIVE INCOME
Refer to previous discussions on “Passive Investment
Income” – p. 25
(4) TAXATION OF CAPITAL GAINS
Refer to previous discussions on “Income from Dealings in
Property” – p. 22
(5) CAPITAL ASSET VS. ORDINARY ASSET
Refer to previous discussions on “Income from Dealings in
Property” – p. 22
b) INCOME TAX ON NON-RESIDENT ALIENS ENGAGED IN
TRADE OR BUSINESS
Refer to previous discussions on “Kinds of Taxpayers” – p. 18
UNIVERSITY OF SANTO TOMAS 38
2023 PRE -WEEK NOTES
c) INCOME TAX ON NON-RESIDENT ALIENS NOT
ENGAGED IN TRADE OR BUSINESS
Refer to previous discussions on “Income from
Dealings in Property” – p. 22
d) INDIVIDUAL TAXPAYERS EXEMPT FROM
INCOME TAX
(1) SENIOR CITIZENS
GR: Qualified senior citizens deriving returnable
income during the taxable year, whether from
compensation or otherwise, are required to file their
income tax returns and pay the tax as they file the
return.
XPN: If the returnable income of a senior citizen is in
the nature of compensation income but he qualifies as
a minimum wage earner under R.A. No. 9504, he shall
be exempt from income tax on the said compensation
income subject to the Rules provided under R.R. 10-
2008 applicable to minimum wage earners. (Tabag,
2019)
(2) MINIMUM WAGE EARNERS
GR: Minimum wage earners shall be exempt from the
payment of income tax on their taxable income. Holiday
pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners
shall likewise be exempt from income tax. (Sec.
24(A)(2), NIRC, as amended by R.A. No. 9504)
XPN: Minimum wage earners receiving “other benefits”
exceeding P90,000 limit shall be taxable on the excess
benefits. (Sec. 32(B)(7)(e), NIRC)
Statutory Minimum Wage
It refers to the rate fixed by the Regional Tripartite
Wage and Productivity Board, as defined by the Bureau
of Labor and Employment Statistics (BLES) of the
Department of Labor and Employment (DOLE). (Sec.
22(GG), NIRC)
NOTE: Effective June 4, 2022, the daily minimum wage
rate in NCR for Non - Agricultural sector is P570.00 and
P533.00 for Agriculture (plantation and non -
plantation), Service/Retail Establishments employing
15 workers or less, and Manufacturing regularly
employing less than 10 workers (National Wages and
Productivity Commission Per Wage Order No. NCR-23)
However, effective July 16, 2023, the daily minimum
wage in NCR is P610 for the non-agriculture sector, and
P573 for the agriculture sector, service, and retail
establishments employing 15 or less workers, and
manufacturing establishments regularly employing
 PRE-WEEK NOTES 2023
less than 10 workers. (National Wages and Productivity agreement under a service contract with the
Commission Per Wage Order No. NCR-24) government. (Sec. 22(B), NIRC as amended)

Classification of Corporations
(3) EXEMPTIONS GRANTED UNDER INTERNATIONAL
AGREEMENTS
Refer to previous discussion on “Kinds of Taxpayers”
– p. 25
Only the following shall be exempt from Philippine Income
Taxes:
Special Types of Corporations
1. Diplomatic agents who are not nationals or permanent
1. Special DC
residents of the Philippines;
2. Members of family of the diplomatic agent forming part of a. Proprietary educational institutions;
his/her household who are not Philippine nationals; b. Non-profit hospitals;
3. Members of the administrative and technical staff of the c. Government-owned or controlled
mission together with members of their families forming corporations, agencies, instrumentalities; and
part of their respective households who are not nationals d. Domestic depositary banks (foreign currency
or permanent residents of the Philippines; deposit units).

4. Members of the service staff of the mission who are not 2.
nationals or permanent residents of the Philippines; and
5. Private servants of members of the mission who are not
nationals or permanent residents of the Philippines. (RMC
No. 31-2013 citing Vienna Convention on Diplomatic
Relations)
6. INCOME TAX ON CORPORATIONS
Special RFC
a. International carriers
b. Regional or Area Headquarters (RHQs)
NOTE: Pursuant to Offshore Banking Units
(OBUs) and Regional Operating Headquarters
(ROHQs) of multinational companies are now
subject to regular corporate tax rate of 25%.

Entities Considered as Corporations for Taxation Purposes 3. Special NRFC

a. Non-resident cinematographic film owners,
1. One-person corporations (OPC) or corporations with a lessors or distributors;
single stockholder; b. Non-resident owners or lessors of vessels
chartered by Philippine nationals; and
NOTE: Only a natural person, a trust, or an estate may form c. Non-resident lessors of aircraft, machinery
an OPC. and other equipment.

2. Partnerships no matter how created or organized; a) INCOME TAX ON DOMESTIC CORPORATIONS

3. Joint stock companies; AND RESIDENT FOREIGN CORPORATIONS
4. Joint accounts (cuentas en participacion);
5. Associations; and Taxes Imposed on DCs
6. Insurance companies.
1. Normal corporate income tax (NCIT) or Regular
Entities Not Considered as Corporations for Taxation corporate income tax (RCIT),
Purposes 2. Minimum corporate income tax (MCIT),
3. Final tax on passive income, and
1. General Professional Partnerships (GPP) – partnerships 4. Capital Gains Tax.
formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is NOTE: The 15% Gross Income Tax (Optional
derived from engaging in any trade or business; Corporation Income Tax) imposed on qualified
corporate taxpayers and 10% Improperly Accumulated
NOTE: The distributive share of each partner in a general Tax (IAET) of 10% were repealed upon effectivity of
professional partnership shall form part of partner’s gross R.A. No. 11534. Thus, these tax rates will no longer
income in its individual tax returns subject to graduated apply.
income tax rates.
NORMAL CORPORATE INCOME TAX OR REGULAR
2. A joint venture or consortium formed for purposes of
CORPORATE INCOME TAX
undertaking construction projects; and

3. A joint venture or consortium formed for the purpose of An income tax rate of 25% effective July 1, 2020
engaging in petroleum, coal, geothermal and other energy (previously taxed at 30%) shall be imposed upon the
operations pursuant to an operating or consortium

39 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
taxable income derived during each taxable year from all
sources within and without the Philippines by DCs.
For DCs with net taxable income not exceeding P5,000,000 and
with total assets not exceeding P100,000,000, excluding the
land on which the particular business entity's office, plant, and
equipment are situated during the taxable year for which the tax
is imposed, shall be taxed at 20%. (Sec. 27, NIRC as amended)
MINIMUM CORPORATE INCOME TAX
The MCIT is equal to 2% of the gross income at the end of the
taxable quarter, except income exempt from income tax and
income subject to final withholding tax.
NOTE: From July 1, 2020 to June 30, 2023, the MCIT rate
imposable upon DCs and RFCs is 1%. (Secs. 27(E) & 28(A), NIRC
as amended)
Being a minimum income tax, a corporation should pay the
MCIT whenever its normal corporate income tax (NCIT) is lower
than the MCIT, or when the firm reports a net loss in its tax
return. Conversely, the NCIT is paid when it is higher than the
MCIT. (Dimaampao, 2015)
Therefore, the taxable due for the taxable year will be NCIT
(25% of taxable income) or MCIT (2% or 1% of gross income),
whichever is higher.
Q: When shall the MCIT commence to be imposed on a
corporation?
A: The MCIT is imposed beginning on the 4th year immediately
following the year in which the corporation commenced its
business operations. For purposes of the MCIT, the taxable year
in which business operations commenced shall be the year in
which the domestic corporation registered with the BIR,
regardless of whether the corporation is using the calendar year
or fiscal year.
Firms which were registered with BIR in 1994 and earlier years
shall be covered by the MCIT beginning January 1, 1998. (Sec.
27(E)(1), NIRC; RR No. 9-98; Manila Banking Corporation v. CIR,
G.R. No. 168118, 28 Aug. 2006)
NOTE: Recognizing the birth pangs of businesses and the reality
of the need to recoup initial major capital expenditures, MCIT
commences only on the 4th taxable year.
Q: CREBA assails the constitutionality of MCIT on the
contention that it violates due process. Is the imposition of
MCIT unconstitutional?
A: NO. The imposition of MCIT is not violative of due process for
the following reasons:
1. MCIT is imposed on gross income and not on capital. Thus,
it is not arbitrary or confiscatory;
UNIVERSITY OF SANTO TOMAS 40
2023 PRE -WEEK NOTES
2. It is not an additional tax imposition but is imposed
in lieu of normal net income tax and only if said tax
is suspiciously low; and
3. There is no legal objection to a broader tax base or
taxable income resulting from the elimination of all
deductible items and, at the same time, reduction
of the applicable tax rate. In as much as deductions
are a matter of legislative grace, Congress has the
power to condition, limit or deny deductions from
gross income in order to arrive at the net that it
chooses to tax. (CREBA, Inc. v. Romulo, G.R. No.
160756, 09 Mar. 2010)
Excess MCIT Carry-over
1. The excess of MCIT over the NCIT shall be carried
forward on an annual or quarterly basis.
2. The excess shall be credited against the NCIT due
for the three (3) immediately succeeding taxable
years.
3. Any excess not credited in the next three years
shall be forfeited.
4. Carry forward (annually or quarterly) is possible
only if MCIT is greater than NCIT.
5. The maximum amount that can be credited is only
up to the amount of the NCIT, there can be no
negative NCIT.
Suspension of the Imposition of MCIT
Since certain businesses may be incurring genuine
repeated losses, the law authorizes the Secretary of
Finance, upon recommendation of the BIR, to suspend
the imposition of MCIT if a corporation suffers losses
due to any of the following:
1. Prolonged Labor Dispute – losses arising from a
strike staged by the employees which lasted for
more than 6 months within a taxable period and
which has caused the temporary shutdown of
business operations;
2. Force Majeure – a cause due to an irresistible force
as by ‘Act of God’ like lightning, earthquake, storm,
flood and the like, and shall also include armed
conflicts like war or insurgency; or
3. Legitimate Business Reverses – include
substantial losses due to fire, theft or
embezzlement or for other economic reason, as
determined by the Secretary of Finance (Sec. 27
(E)(3), NIRC; Sec. 2.27 (E)(4)(b-d), RR No. 9-98,)
 PRE-WEEK NOTES 2023
TAX ON CORPORATE PASSIVE INCOME
Refer to previous discussions on “Income from Dealings in
Property” and “Passive Investment Income” – pp. 22 & 25
TAX ON CORPORATE CAPITAL GAINS
Refer to previous discussions on “Income from Dealings in
Property” and “Passive Investment Income” – pp. 22 & 25
IMPROPERLY ACCUMULATED EARNINGS TAX
The IAET shall no longer be imposed on corporations upon the
effectivity of the CREATE on April 11, 2021. This shall apply to
the entire taxable year for all fiscal or taxable years ending after
the effectivity of the CREATE. (Sec. 6, RR No. 5-2021)
Resident Foreign Corporations (RFCs)
GR: RFCs shall be liable for a 25% income tax on their income
from within the Philippines.
XPNs:
1. International carriers – RFCs shall be taxed at 2 ½% on
their Gross Philippine Billings; and (Sec 28(A)(3), NIRC)
2. Regional or area headquarters of multi-national
corporations – RFCs shall not be subject to income tax.
(Sec. 28(A)(6), NIRC)
NOTE: Beginning January 1, 2021, a RCIT rate of 25% shall be
imposed upon offshore banking units and regional operating
headquarters of muti-national corporations. (Secs. 28(A)(4) and
28(A)(6)(b), NIRC as amended)
Taxes Imposed on RFCs
1. Normal corporate income tax (NCIT) or Regular corporate
income tax (RCIT),
2. Minimum corporate income tax (MCIT),
3. Final tax on passive income
4. Capital gains tax; and
5. Branch profit remittance tax.
NOTE: The 15% Gross Income Tax (Optional Corporation
Income Tax) imposed on qualified corporate taxpayers was
repealed upon effectivity of R.A. No. 11534. Thus, the tax rate
will no longer apply.
NORMAL CORPORATE INCOME TAX OR REGULAR
CORPORATE INCOME TAX
An income tax rate of 25% effective July 1, 2020 (previously
taxed at 30%) shall be imposed upon the taxable income derived
during each taxable year from all sources within the Philippines
by RFCs.
41
MINIMUM CORPORATE INCOME TAX
Refer to previous discussion on “Income Tax on
Domestic Corporations and Resident Foreign
Corporations – Minimum Corporate Income Tax” – p.
40
TAX ON CORPORATE PASSIVE INCOME
Refer to previous discussions on “Income from
Dealings in Property” and “Passive Investment
Income” – pp. 22 & 25
TAX ON CORPORATE CAPITAL GAINS
Refer to previous discussions on “Income from
Dealings in Property” and “Passive Investment
Income” – pp. 22 & 25
(1) BRANCH PROFIT REMITTANCE TAX
Any profit remitted by branch office of a multinational
corporation to its head office is subject to 15% final tax
based on total profits applied or earmarked for
remittance without deduction for the tax component.
The profit remitted must be effectively connected with
the conduct of its trade or business in the Philippines.
(Marubeni Corporation v. CIR, G.R. No. 76573, 14 Sept.
1989)
NOTE: A branch is classified as a resident foreign
corporation. As such, it is subject to income tax at the
rate of 25% on its net income derived within the
Philippines.
Activities Not Subject to Branch Profit Remittance
Tax
Activities registered with the Philippine Economic
Zone Authority (PEZA) are exempt from the imposition
of Branch Profit Remittance Tax.
(2) ITEMIZED DEDUCTIONS vs. OPTIONAL
STANDARD DEDUCTIONS
Refer to previous discussion on “Deductions from
Gross Income – Itemized Deductions vs. Optional
Standard Deduction” – p. 28
b) INCOME TAX ON NON-RESIDENT FOREIGN
CORPORATIONS
Taxes imposed on NRFCs
1. Corporate income tax; and
2. Final tax on passive income
CORPORATE INCOME TAX
Beginning January 1, 2021, a corporate income tax of
25% (previously taxed at 30%) shall be imposed on
gross income received during each taxable year from all
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
sources within the Philippines by NRFCs. (Sec. 28(B), NIRC as
amended)
NRFs Subject to Preferential Tax Rates
a. Non-resident cinematographic film owner, lessor or
distributor – 25% of its gross income from all sources
within the Philippines
b. Non-resident owner or lessor of vessels chartered by
Philippine nationals – 4 ½% of gross rentals, lease, or
charter fees; and
c. Non-resident owner or lessor of aircraft, machineries
and other equipment – 7 ½% of gross rentals or fees.
TAX ON PASSIVE INCOME
Refer to previous discussions on “Income from Dealings in
Property” and “Passive Investment Income” – pp. 22 & 25
c) INCOME TAX ON SPECIAL CORPORATIONS
PROPRIETARY EDUCATIONAL INSTITUTIONS AND NON-
PROFIT HOSPITALS
Proprietary Educational Institutions
It is not tax-exempt but rather taxed at a preferential rate of
10% on their taxable income, except on certain passive incomes
which are subject to final tax.
NOTE: Beginning July 1, 2020 until June 30, 2023, the
preferential rate imposable upon proprietary educational
institutions and non-profit hospitals shall be 1%. (Sec. 27(B),
NIRC as amended)
Predominance Test
If the gross income from unrelated trade, business, or other
activity exceeds 50% of the total gross income from all sources,
the entire taxable income of the proprietary educational
institution shall be subject to the regular corporate tax rate of
25%.
Non-Profit Hospitals
It must satisfy the following requisites in order to be entitled to
the exemption from income tax:
1. It is a non-stock corporation.
2. It is operated exclusively for charitable purposes; and
3. No part of its net income or asset shall belong to or inure to
the benefit of any member, organizer, officer or any specific
person.
NOTE: The only qualifications for hospitals are that they must
be (1) proprietary; and (2) non-profit. “Proprietary” means
private, following the definition of a “proprietary educational
institution” as “any private school maintained and administered
by private individuals or groups” with a government permit.
“Non-profit” means no net income or asset accrues to or benefits
UNIVERSITY OF SANTO TOMAS 42
2023 PRE -WEEK NOTES
any member or specific person, with all the net income
or asset devoted to the institution’s purposes and all its
activities conducted not for profit. (CIR v. St. Luke’s
Medical Center, Inc., G.R. Nos. 195909 & 195960, 26 Sept.
2012)
Q: De La Salle University leases out a portion of its
property to private concessionaires, i.e.,
commercial canteens and bookstores. The lease
payments were factually proven to be used for
educational purposes.
a. Is the land owned by De La Salle University
subject to real property tax?
b. Are the lease payments received by De La
Salle University subject to income tax?
c. Are the lease payments received by De La
Salle University subject to VAT? (2016
BAR)
A:
a. YES. The leased portion of the building may be
subject to real property tax. The test of exemption
from taxation is the use of the property for
purposes mentioned in the Constitution. The
lease of a portion of a school building for
commercial purposes, removes such asset from
the property tax exemption granted under the
Constitution. There is no exemption because the
asset is not used actually, directly and exclusively
for educational purposes. The commercial use of
the property is also not incidental to and
reasonably necessary for the accomplishment of
the main purpose of a university, which is to
educate its students. (Abra Valley College, Inc. v.
Aquino, G.R. No. L-39086, 15 June 1988 cited in CIR
vs. De La Salle University, Inc., G.R. No. 196596, 09
Nov. 2016)
b & c.
NO. If the university actually, directly and
exclusively uses for educational purposes the
revenues earned from the lease of its school
building, such revenues shall be exempt from
taxes and duties. The tax exemption no longer
hinges on the use of the asset from which the
revenues were earned, but on the actual, direct
and exclusive use of the revenues for educational
purposes. To avail of the exemption, the taxpayer
must factually prove that it used actually, directly
and exclusively for educational purposes the
revenues or income sought to be exempted.
In sum, the crucial point of inquiry then is on the
use of the assets or on the use of the revenues.
These are two things that must be viewed and
treated separately. (Ibid.)
 PRE-WEEK NOTES 2023
NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS FOREIGN CURRENCY DEPOSIT UNITS

Exemption Granted to Non-stock Non-Profit Educational Taxability of FCDUs

Institutions
TRANSACTION TAX RATE
All revenues and assets of non-stock, non-profit educational
Income from foreign 10% final tax
institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. currency loans granted to
(Art. XIV, Sec. 4(3), 1987 Constitution) Philippine residents other
than OBUs, etc. (Onshore
Non-stock, non-profit educational institutions owned and Income)
operated by religious organizations including public schools are Income from foreign Exempt
exempt from property and income taxes. (Lim, 2021) currency transactions
with non-residents, OBUs,
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS, etc. (Offshore Income)
AGENCIES, OR INSTRUMENTALITIES
(Ingles, 2021)
INTERNATIONAL CARRIERS
Foreign Currency Transactions Exempt from Tax
GR: They shall be taxed at 2.5% on their Gross Philippine
1. With non-residents,
Billings (GPB).
2. With local commercial banks,
3. With branches of foreign banks authorized by the
XPNs:
BSP, and
1. It is subject to preferential rate, or
4. With OBUs in the Philippines.
2. Exempt from tax on the basis of applicable tax
treaty/international agreement to which the Philippines is
a signatory or on the basis of reciprocity. REGIONAL OR AREA HEADQUARTERS OF
MULTINATIONAL COMPANIES
Tax Imposed on Off-line International Carrier

An off-line airline having a branch office or a sales agent in the
Philippines which sells passage documents for compensation or
commission to cover off-line flights of its principal or head
office, or for other airlines covering flights originating from
Philippine ports or off-line flights, is not considered engaged in
business as an international air carrier in the Philippines and is,
therefore, not subject to Gross Philippine Billings Tax (Sec.
28(A)(3)(a), NIRC) nor three percent (3%) common carrier's
tax. (Sec. 118(A), NIRC)
If an international air carrier maintains flights to and from the
Philippines, it shall be taxed at the rate of 2 1/2% of its Gross
Philippine Billings, while international air carriers that do not
have flights to and from the Philippines but nonetheless earn
income from other activities in the country will be taxed at the
rate of 25% (previously taxed at 30%) of such income. (South
African Airways v. CIR, 16 Feb. 2010; Air Canada v. CIR, G.R. No.
169507, 11 Jan. 2016)
OFFSHORE BANKING UNITS
Beginning January 1, 2021, OBUs are subject to 25% (previously
taxed at 10%) regular corporate income tax. (R.A. No. 11534)
RHQ is a branch established in the Philippines by
multinational companies and which headquarters do
not earn or derive income from the Philippines and
which act as supervisory, communications and
coordinating center for its affiliates, subsidiaries, or
branches in the Asia-Pacific region and other foreign
markets. (Sec. 22(D), NIRC) It is exempt from income
tax.
REGIONAL OPERATING HEADQUARTERS OF
MULTINATIONAL COMPANIES
ROHQ is a branch established in the Philippines by
multinational companies to offer services to its affiliates
outside the Philippines, and engaged in:
1. General administration and planning;
2. Business planning and coordination;
3. Sourcing/procurement of raw materials and
components;
4. Corporate finance advisory services;
5. Marketing control and sales promotion;
6. Training and personnel management;
7. Logistics services;
8. Research and development services, and product
development;
9. Technical support and maintenance;
10. Data processing and communication; and
11. Business development.

43 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
ROHQ shall pay a tax of ten percent (10%) of their taxable income.
(Sec. 28(A)(6), NIRC)
NOTE: Beginning January 1, 2022, ROHQs are subject to 25%
regular corporate income tax. (R.A. No. 11534)
SPECIAL NON-RESIDENT FOREIGN CORPORATIONS
Refer to previous discussions on “Income Tax on Non-
resident Foreign Corporations” – p. 41
d) EXEMPTIONS FROM TAX ON CORPORATIONS
Exempted Corporations
The following organizations shall not be taxed in respect to
income received by them as such:
1. Labor, agricultural or horticultural organization, not
organized principally for profit
a. Provincial fairs and like associations of a quasi-public
character designed to encourage development of better
agricultural and horticultural products through a
system of awards, prizes and premiums, and whose
income derived from gate receipts, entry fees,
donations, etc. is used exclusively to meet necessary
expenses of upkeep and operation are thus exempt.
b. The holding of periodical race meets by associations,
the profits from which inure to the benefit of their
stockholder are not tax exempt. Similarly, corporations
engaged in growing agricultural or horticultural
products or raising livestock or similar products for
profits are subject to tax (Sec. 25, RR No. 2)
2. Mutual savings banks and cooperative banks, either
domestic or foreign, provided that:
a. No capital represented by shares.
b. Earnings, less only the expenses of operating, are
distributable wholly among the depositors; and
c. It is operated for mutual purposes and without profit.
NOTE: If the deposits are made compulsory under
contract between the bank and the depositors and is
operated for speculation rather for savings, the bank is
not qualified as a mutual savings bank.
3. A Beneficiary Society, Order or Association, provided that:
a. It must be operated under lodge system or for the
exclusive benefit of the members of society, with parent
and local organizations which are active;
b. There must be an established system of payment to its
members or their dependents of life, sick, accident or
other benefits; and
c. No part of the net income inures to the benefit of the
stockholders/members.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
4. Cemetery Companies, provided that:
a. It must be owned and operated exclusively for
the benefit of their owners; and
b. It is not operated for profit.
5. Religious, Charitable, Scientific, Athletic or Cultural
Corporations, provided that:
a. It is organized and operated for one or more
specified purposes; and
b. No part of the net income inures to the benefit
of the any private stockholder or individual.
NOTE: St. Luke’s Medical Center, Inc. fails to meet
an indispensable requirement under Sec. 30(E) –
operated exclusively for charitable purposes – to
be completely tax exempt from all its income. It
admitted paying patients from which profit is
derived. (CIR v. St. Luke’s Medical Center, Inc., G.R.
Nos. 195909 & 195960, 26 Sept. 2012)
6. Business, Chamber of Commerce, or Board of
Trade, provided that:
a. It is an association of persons having some
common business interest;
b. Its activities are limited to work for such
common interests;
c. Not engaged in a regular business for profit;
and
d. No part of the net income inures to the benefit
of any private stockholder or individual.
7. Civic league, provided that:
a. It is not organized for profit but operated
exclusively for purposes beneficial to the
community as a whole. In general,
organizations engaged in promoting the
welfare of mankind;
b. Sworn affidavit filed with the BIR showing the
following:
i. Character of the league or organization
ii. Purpose for which it was organized
iii. Actual activities
iv. Sources of income and disposition thereof,
and
v. All facts relating to the operation of the
organization which affects it right to
exemption.
vi. The copy of articles of incorporation, by
laws and financial statements should be
attached to the sworn affidavit.
8. Government Educational Institutions
9. Mutual Fire Insurance Companies and like
Organizations
The requisites for exemption are:
a. Income is derived solely from assessments,
dues and fees collected from members; and
44
 PRE-WEEK NOTES 2023
b. Fees collected from members are for the sole purpose
of meeting its expenses.
NOTE: To be exempt from income tax, Sec. 30(E) of the
NIRC requires that a charitable institution must be
“organized and operated exclusively” for charitable
purposes. Likewise, to be exempt from income tax, Sec.
30 (G) requires that the institution be “operated
exclusively” for social welfare. (CIR v. St. Luke’s Medical
Center, Inc., G.R. Nos. 195909 & 195960, 26 Sept. 2012)
10. Farmers, Fruit Growers, or like Associations
The requisites for exemption are:
a. Formed and organized as sales agent for the purpose of
marketing the product of its members;
b. No net income to the members; and
c. Proceeds of the sale shall be turned over to them less
necessary selling expenses on the basis of the quantity
of goods produced by them.
NOTE: The income of whatever kind and character of the
foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be
subject to tax imposed under the NIRC. (Sec. 30, NIRC)
Other Corporations Exempt from Income Tax under Special
Laws
1. Cooperatives (R.A. No. 6938 or the “Cooperative Code of the
Philippines”) – since interest from any Philippine currency
bank deposit and yield or any other monetary benefit from
deposit substitutes are paid by banks, cooperatives are not
required to withhold the corresponding tax on the interest
from savings and time deposits of their members.
NOTE: The amendment in Art. 61 of R.A. No. 9520,
specifically providing that members of cooperatives are not
subject to final taxes on their deposits, affirms the
interpretation of the BIR that Sec. 24 (B)(1) of the NIRC does
not apply to cooperatives and confirms that such ruling
carries out the legislative intent. (Dumaguete Cathedral
Cooperative v. CIR, G.R. No. 182722, 22 Jan. 2010)
2. Foundations created for scientific purposes (Sec. 24, R.A.
2067 or the “Act to Integrate, Coordinate, and Intensify
Scientific and Technological Research and Development and
to Foster Invention”)
GPPs Not Subject to Income Tax
GPPs are not subject to income tax but are required to file
information returns for their income for the purpose of
furnishing information as to the share in the net income of the
partnership, which each partner should include in his individual
return. Partners shall be liable for income tax in their separate
and individual capacities.
GPP is only required to file a return for its income, except
income exempt under Sec. 32(B) of the NIRC, setting forth the
items of gross income and of deductions allowed, and the names,
45
Taxpayer Identification Numbers (TIN), addresses and
shares of each of the partners. (Sec. 55, NIRC)
Partners shall nonetheless be liable for income tax in
their separate and individual capacities.
e) PERIOD WITHIN WHICH TO FILE INCOME TAX
RETURN OF INDIVIDUALS AND CORPORATIONS
INDIVIDUAL RETURN
Persons Required to File ITR
GR: The following individuals are required to file an
income tax return:
1. Every Filipino citizen residing in the Philippines;
2. Every Filipino citizen residing outside the
Philippines, on his income from sources within the
Philippines;
3. Every alien residing in the Philippines, on income
derived from sources within the Philippines; and
4. Every non-resident alien engaged in trade or
business or in the exercise of profession in the
Philippines. (Sec. 51(A)(1), NIRC)
The following persons are also required to file ITR:
1. A citizen of the Philippines and any alien
individual engaged in business or practice of
profession within the Philippines, regardless of
the amount of gross income;
2. An individual deriving compensation concurrently
from two or more employers at any time during
the taxable year; and
3. An individual whose pure compensation income
derived from sources within the Philippines
exceeds Two Hundred Fifty thousand pesos
(P250,000). (RMC 50-2018)
XPNS: The following individuals shall not be required
to file an income tax return:
1. An individual whose taxable income does not
exceed Two Hundred Fifty thousand pesos
(P250,000);
2. Individual taxpayer receiving purely
compensation income, regardless of amount, from
only one employer in the Philippines for the
calendar year, the income tax of which has been
withheld correctly by said employer (Substituted
Filing);
3. An individual whose sole income has been
subjected to final withholding tax; and
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
4. A minimum wage earner or an individual who is exempt 2. For final return – on or before April 15, or the 15th
from income tax. (Sec. 51(A)(2), NIRC) of the 4th month following the close of the fiscal
year.
NOTE: Individuals not required to file an income tax return may
nevertheless be required to file an information return. (Sec.
51(A)(3), NIRC) Place to File ITR

Period to File ITR Except in cases where the Commissioner otherwise

1. Basic Tax – The return of any individual required to file the
same shall be filed on or before April 15th day of each year
covering income for the preceding taxable year.
However, individuals who are self-employed or in practice
of a profession are required to file and pay estimated
income tax every quarter as follows:
QUARTER ITR DEADLINE
First Quarter return May 15
permits, the return shall be filed with any of the
following:
1. Authorized agent bank;
2. Revenue District Officer;
3. Collection Agent; or
4. Duly authorized city of municipal Treasurer in
which such person has his legal residence or
principal place of business, or if there be no legal
residence or principal place of business, with the
Office of the Commissioner.

Second Quarter return August 15 Return on Capital Gains Realized from Sale of
Shares of Stock and Real Estate
Third Quarter return November 15
Final adjusted (annual) April 15 of the succeeding 1. Shares of stock
return year a. Ordinary Return – 30 days after each
transaction
2. Final Withholding Tax on Passive Income (Manual b. Final Consolidated Return – on or before
Filing) April 15 of the following year

a. Quarterly return – filed and the payment made not Q: I-Remit is a domestic corporation listed with the
later than the last day of the month following the close Philippine Stock Exchange. JPSA Global Services Co.,
of the quarter during which withholding was made. JTKC Equities, Inc., and Surewell Equities, Inc., all
constituted under the laws of the Philippines, are
b. Annual Information Return – filed on or before shareholders of I-Remit and have constituted the
January 31 of the year following the calendar year in latter as their attorney-in-fact for their claim for
which income payments subjected to final withholding refund. I-Remit offered to the public 140,604,000
taxes were paid or accrued. shares by way of an initial public offering at the
offer price of P4.68 each share. Of these shares,
Place to File ITR 107,417,000 shares were offered in primary
offering by I-Remit as the issuing corporation, and
Except in cases where the Commissioner otherwise permits, the 33,187,000 shares were offered in secondary
return shall be filed with any of the following: offering by JTKC, JPSA, and Surewell, as selling
1. Authorized agent bank, shareholders of petitioner. In compliance with Sec.
2. Revenue district officer, 127(B) requiring payment of tax in accordance with
3. Collection agent, the "shares of stock sold, bartered, exchanged or
4. Duly authorized city treasurer where he is legally residing, otherwise disposed" in proportion to the "total
or outstanding shares of stock after the listing," I-
5. Office of the Commissioner. Remit paid the tax in the amount of P26,321,069.00.
The dividend used by I-Remit in arriving at the
For non-resident citizens, the return shall be filed with the corresponding tax rate of 4% was 140,604,000,
1. Philippine Embassy, or which was the total amount of shares sold to the
2. nearest Philippine Consulate, or public in both primary and secondary offerings.
3. be mailed directly to the CIR. (Sec. 51(B), NIRC) The divisor used was 562,417,000, which was
obtained after adding 50,000 treasury shares to I-
Remit's 562,367,000 outstanding shares of stock. I-
CORPORATE RETURNS
Remit filed a claim for refund. I-Remit believed that
there was an overpayment in the amount of
Period to File ITR
P13,160,534.06 resulting from the use of the 4% tax
rate, which was in turn due to the addition of the
1. For quarterly declarations – within 60 days following the
50,000 treasury shares to the 562,367,000
close of the quarter.
outstanding shares of stock. By excluding the
50,000 treasury shares from the divisor, the

UNIVERSITY OF SANTO TOMAS 46

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
resulting tax rate would only be 2%. I-Remit filed a Petition 7. WITHHOLDING TAX
for Review before the CTA after the CIR failed to act on the
claim for refund and in order to toll the running of the
a) CONCEPT
prescriptive period arguing that the treasury shares should
be excluded from the divisor. I-Remit stated that the tax
under Sec. 127(B) should be based on the total shares sold Persons Required to Withhold Taxes
in primary and secondary offerings in proportion to the
total outstanding shares of stock of the corporation after The withholding taxes shall be withheld by the person
listing. Is the argument of I-Remit valid and therefore having control over the payment and who at the same
entitles it to refund? time claims the expenses. The following persons are
constituted as withholding agents:
A: YES. The tax on sale of shares of stock in closely held
corporations sold or exchanged through initial public offering 1. Juridical person, whether or not engaged in trade
under Sec. 127(B) is separately computed as to shares offered or business;
in primary and secondary offerings.
2. Individuals, with respect to payments made in
connection with his trade or business;
Since tax is imposed on every sale of shares of stock, there is a
need to determine which sales are covered in the sale of shares
3. Individual buyers, whether or not engaged in
through initial public offering. On this score, the second
trade or business insofar as taxable sale, exchange
paragraph of Sec. 127(B) precisely provides for the types of
or transfer of real property is concerned; and
sales involved: sale by the issuing corporation in primary
offering, and sale by each of the corporation's shareholders in
4. All government offices including GOCCs as well as
secondary offering. Further, the distinction is readily apparent
provincial, city and municipal governments and
from a reading of Sec. 127 (C) of the NIRC, which expressly
barangay (Sec. 2.57.3, RR No. 2-1998)
provides for a separate time and manner of payment of tax in
primary and secondary offerings as well as the party liable to
Period to Withhold Taxes
pay the corresponding tax. (I-Remit, Inc v. CIR, G.R. No. 209755, 9
Nov. 2020, J. Hernando)
It arises at the time an income payment is paid or
2. Real Property – 30 days following each sale or other payable or accrued or recorded as an expense or asset,
disposition (Sec. 51(C)(2), NIRC) whichever is applicable in the payor’s books, whichever
comes first. (Sec. 2.57.4, RR No. 2-1998 as amended)
f) SUBSTITUTED FILING
NOTE: The term “payable” refers to the date the
Substituted filing applies only if all of the following obligation becomes due, demandable or legally
requirements are present: enforceable. (Sec. 2.57.4, RR No. 2-1998 as amended)

1. The employee received purely compensation income
(regardless of amount) during the taxable year;
2. The employee received the income from only one
employer in the Philippines during the taxable year;
3. The amount of tax due from the employee at the end
of the year equals the amount of tax withheld by the
employer;
4. The employee’s spouse also complies with all 3
conditions stated above;
5. The employer files the annual information return (BIR
Form No. 1604-CF); and
Consequences for Failure to Withhold
1. Liable for surcharges and penalties;
2. Liable upon conviction to a penalty equal to the
total amount of the tax not withheld, or not
accounted for and remitted; and (Sec. 251, NIRC)
3. Any income payment which is otherwise
deductible from the payor’s gross income will not
be allowed as a deduction if it is shown that the
income tax required to be withheld is not paid to
the BIR. (Sec. 2, RR No. 18-2013)

6. The employer issues BIR Form No. 2316 to each

employee.

g) FAILURE TO FILE RETURNS

Refer to discussion on “False Returns vs. Fraudulent Returns

vs. Non-Filing of Returns” – p. 70

47 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
b) CREDITABLE vs. FINAL WITHHOLDING TAXES
C. VALUE-ADDED TAX (VAT)
Creditable Withholding Tax and Final Withholding Tax
Distinguished

1. CONCEPT AND ELEMENTS OF VATABLE

CWT FWT
TRANSACTIONS
As to income subject of the system

Tax on Value Added

1. Compensation Income
2. Professional/talent fees VAT is a tax on value added of a taxpayer arising from
3. Rentals the sales of goods, properties or services during the
1. Certain passive incomes quarter. “Value added” is the difference between the
4. Cinematographic film
2. Fringe benefits total sales of the taxpayer for the taxable quarter
rentals and other
payments subject to VAT and his total purchases for the same
5. Income payments to period subject also to value added tax. (Mamalateo,
certain contractors 2014)

Sales Tax
As to whether or not income should be reported as part
of the gross income VAT is a tax on the taxable sale, barter or exchange of
goods, properties or services. A barter or exchange has
the same tax consequence as a sale. A sale may be an
The recipient may not
actual or deemed sale, or an export sale or local sale.
report the said income in his
The income is required to be (Mamalateo, 2014) The buyer is informed that the price
gross income because the
included in the gross income includes VAT and it is shown in the official receipt/sales
tax withheld constitutes
in ITR. invoice.
final and full settlement of
the tax liability.
Tax on Consumption

As to the effect of the tax withheld
The tax withheld can be
claimed as a tax credit or may
be deducted from the tax due
or payable.
As to filing of ITR
The earner is required to file
an ITR.
The tax withheld cannot be
claimed as tax credit.
If the only source of income
is subject to final tax, the
earner may no longer file an
ITR. However, with the new
income tax forms (RR No. 2-
2014), taxpayers need to
declare those income
subjected to final tax in their
ITR.
Every sale of goods, properties or services at the levels
of manufacturers or producers and distributors is
subject to VAT. However, the tax burden rests on the
final consumers. (Mamalateo, 2014)
Elements of a VATable Transaction
1. It must be done in the ordinary course of trade or
business;
2. There must be a sale, barter, exchange, lease of
goods or properties, or rendering of service in the
Philippines; and
3. It is not VAT-exempt or VAT zero-rated.
Absence of one element will not make the transaction
subject to VAT. (Ingles, 2021)
Sale of Goods or Properties

1. Those held for sale to customers in the ordinary

course of trade or business;
2. Those held for lease in the ordinary course of trade
or business; and
3. Those used in the trade or business of the seller (as
it is incidental to the taxpayer’s main business).

Output tax shall be recognized by the seller and input

tax shall accrue to the buyer at the time of the execution
of the instrument of sale (at the time of consummation

UNIVERSITY OF SANTO TOMAS 48

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
of sale) Payments that are subsequent to “initial payments” shall
no longer be subject to output VAT. (RR No. 4–2007)
Meaning of “In the Course of Trade or Business”
The phrase “in the course of trade or business” means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any
person, regardless of whether or not the person engaged therein
is a non-stock, non-profit private organization (irrespective of
the disposition of its net income and whether or not it sells
exclusively to members or their guests) or government entity.
(Sec. 105(3), NIRC)
Transaction that are undertaken incidental to the pursuit of a
commercial or economic activity are considered as entered into
in the course of trade or business. (Mamalateo, 2014)
Conditions under “in the Ordinary Course of Trade or
Business” (C-R)
1. Commercial or economic activity – It implies that a
transaction is conducted for profit; and
2. Regularity or habituality in the action – Regularity
involves more than one isolated transaction and involves
repetition and continuity of action. (Ingles, 2018)
XPNs:
a. Non-resident aliens who perform services in the
Philippines are deemed to be making sales in the course
of trade or business, even if the performance of services
is not regular; and (Sec. 4.105-3, RR No. 16-2005)
b. Importations are subject to VAT whether in the course
of trade or business or not.
Q: Masarap Kumain, Inc. (MKI) is a Value-Added Tax (VAT)-
registered company which has been engaged in the catering
business for the past 10 years. It has invested a substantial
portion of its capital on flat wares, table linens, plates,
chairs, catering equipment, and delivery vans. MKI sold its
first delivery van, already 10 years old and idle, to
Magpapala Gravel and Sand Corp. (MGSC), a corporation
engaged in the business of buying and selling gravel and
sand. The selling price of the delivery van was way below its
acquisition cost. Is the sale of the delivery van by MKI to
MGSC subject to VAT? (2014 BAR)
A: YES. For VAT purposes, a transaction “in the course of trade
or business” includes “transactions incidental thereto.” In the
course of business, MKI bought and eventually sold the delivery
van. Prior to the sale, the motor vehicle was used as part of MKI’s
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 for VAT regardless of the
fact that there was no profit realized from the sale.
49
IMPORTATION OF GOODS
Tax on Importation
GR: The tax base shall be based on the total value used
by the BOC in determining tariff and customs duties
plus customs duties, excise taxes, if any, and other
charges to be paid by the importer prior to the release
of such goods from customs custody. (Transaction
value)
XPN: In case the valuation used by the BOC in
computing customs duties is based on volume or
quantity of the imported goods, the landed cost shall be
the basis for computing VAT.
Persons Liable for Tax on Imported Goods
The VAT on importation shall be paid by the importer
prior to the release of such goods from customs
custody.
Importer refers to any person who brings goods into
the Philippines, whether or not made in the course of
his trade or business. It includes non-exempt persons
or entities who acquire tax-free imported goods from
exempt persons, entities or agencies.
Transfer of Imported Goods by Tax-exempt Persons
to Non-exempt Persons
In case of tax-free importation of goods into the
Philippines by persons, entities, or agencies exempt
from tax where such goods are subsequently sold,
transferred, or exchanged in the Philippines by a non-
exempt person, entities, the purchaser or transferee
shall be considered as an importer and shall be held
liable for VAT and other internal revenue tax due on
such importation. The tax due on such importation shall
constitute a lien on the goods, superior to all charges/or
liens, irrespective of the possessor of said goods. (Sec.
107(B), NIRC)
SALE OF SERVICES AND USE
OR LEASE OF PROPERTIES
Requisites for Taxability (S-P-C-Va-N)
1. There is a Sale or exchange of service or lease or
use of property enumerated in the law or other
similar services;
2. The service is performed or to be performed in the
Philippines;
3. The service is in the Course of trade of taxpayer’s
trade or business or profession;
4. The service is for a Valuable consideration actually
or constructively received; and
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
5. The service is Not exempt under the NIRC, special law or 2. IMPACT AND INCIDENCE OF TAX
international agreement.
Impact and Incidence of Taxation Distinguished
NOTE: Absence of any of the requisites renders the transaction
exempt from VAT but may be subject to other percentage tax
under Title V of the NIRC. IMPACT OF INCIDENCE OF
TAXATION TAXATION
Q: Are non-stock, non-profit entities liable to pay VAT for As to Definition
sale of goods and services?
It refers to the statutory
liability to pay the tax; it It is the economic cost
A: YES. As long as the entity provides service for a fee,
falls on the person of tax; it is also known
remuneration or consideration, then the service rendered is
originally assessed with as burden of taxation
subject to VAT. (CIR v. CA, G.R. No. 125355, 30 Mar. 2000)
a particular tax
Q: The Bureau of Internal Revenue (BIR) issued Rvenue As to its Nature
Memorandum Circular (RMC) No. 65-2012 imposing Value-
Added Tax (VAT) on association dues and membership fees It is the imposition of tax It is the payment of tax
collected by condominium corporations from its member (liability) (burden)
condominium-unit owners. The RMC’s validity is As to Whom it is Imposed
challenged before the Supreme Court (SC) by the
condominium corporations. The Solicitor General, counsel It is on the final
It is on the seller upon
for BIR, claims that association dues, membership fees, and consumer, the place at
whom the tax has been
other assessment/ charges collected by a condominium which the tax comes to
imposed
corporation are subject to VAT since they constitute income rest
payments or compensation for the beneficial services it
provides to its members and tenants. On the other hand, the
3. DESTINATION PRINCIPLE AND CROSS-BORDER
lawyer of the condominium corporations argues that such
DOCTRINE
dues and fees are merely held in trust by the condominium
corporations exclusively for their members and used solely
for administrative expenses in implementing the The destination of the goods determines taxation or
condominium corporations’ purposes. Accordingly, the exemption from tax. Export sales of goods are subject
condominium corporations, do not actually render services to 0% rate while imports of goods are subject to 12%
for a fee subject to VAT. Whose argument is correct? Decide. VAT. Exports are zero-rated because the consumption
(2014 BAR) of such goods will be made outside of the Philippines,
while imports of goods are subject to 12% VAT because
A: THE LAWYER OF THE CONDOMINIUM CORPORATIONS IS they are for consumption within the Philippines.
CORRECT. The association dues, membership fees, and other (Mamalateo, 2014)
assessment/charges do not constitute income payments
because they were collected for the benefit of the unit owners Q: Is the destination principle absolute?
and the condominium corporation is not created as a business
entity. The collection is the money of the unit owners pooled A: NO. The law clearly provides for an exemption to the
together and will be spent exclusively for the purpose of destination principle; that is, for a 0% VAT rate for
maintaining and preserving the building and its premises which services that are performed in the Philippines, paid for
they themselves own and possess. (First e-Bank Tower in acceptable foreign currency and accounted for in
Condominium Corp., v. BIR, G.R. No. 125801 & 218924, 15 Jan. accordance with the rules of BSP. (Sec. 108(B)(2); CIR v.
2020) American Express International, Inc., G.R. No. 152609, 29
June 2005)
When an affiliate provides funds to a taxpayer who then uses the
funds to pay a third party, the transaction is not subject to VAT, Consistent with the destination principle, the
as there was no sale, barter, or exchange between the affiliate purchases of goods and services destined for
and the taxpayer. The money was simply given as a dole-out. consumption within an ECOZONE should be free of
(CIR v. Sony Philippines, Inc., G.R. No. 178697, 17 Nov. 2010) VAT; hence, no input VAT should then be paid on such
purchases. With no input VAT paid, there is nothing to
However, if a taxpayer renders service to an affiliate for a fee be refunded or credited under Sec. 112 of the NIRC.
(even if the fee is merely to reimburse costs), the service is (Coral Bay Nickel Corp. v. CIR, G.R No. 190506, 13 June
subject to VAT. Thus, the collection of condominium 2016)
corporations of association dues and membership fees from its
member condominium-unit owners are subject to VAT even if
receives payments for services rendered to its affiliates in trust
and on reimbursement-of-cost basis only, without realizing
profit.

UNIVERSITY OF SANTO TOMAS 50

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
4. IMPOSITION OF VAT ON TRANSFER OF GOODS BY TAX
EXEMPT PERSONS
Refer to previous discussions on “Transfer of Imported Goods
by Tax-exempt Persons to Non-exempt Persons” – p. 49
5. TRANSACTIONS DEEMED SALE SUBJECT TO VAT
Transactions Deemed Sale Subject to VAT (C-O-R-D)
1. Consignment of goods if actual sale is not made within sixty
(60) days following the date such goods were consigned.
NOTE: Consigned goods returned by the consignee within
the 60-day period are not deemed sold.
2. Transfer, use, or consumption not in the course of business
of goods or properties Originally intended for sale or for
use in the course of business (i.e., when a VAT-registered
person withdraws goods from his business for his personal
use).
3. Retirement from or cessation of business with respect to
all goods on hand, whether capital goods, stock-in-trade,
supplies or materials as of the date of such retirement or
cessation, whether or not the business is continued by the
new owner or successor.
4. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the
VAT-registered persons
NOTE: Property dividends which constitute stocks in
trade or properties primarily held for sale or lease
declared out of retained earnings on or after January 1,
1996 and distributed by the company to its
shareholders shall be subject to VAT based on the
zonal value or fair market value at the time of
distribution, whichever is applicable. (Sec. 106.7, RR
16-2005)
b. Creditors in payment of debt. (Sec. 106(A)(2)(B), NIRC)
Change or Cessation of Status as VAT-registered Person
The 12% VAT rate in Sec. 106(A) shall also apply to goods
disposed of or existing as of a certain date if under
circumstances to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as
a VAT-registered person changes or is terminated. (Sec.
106(A)(2)(C), NIRC)
Instances where Changes in or Cessation of Status of VAT-
registered Persons are Not Subject to VAT
1. Change of control in the corporation of as corporation by
the acquisition of controlling interest of the corporation by
another stockholder or group of stockholders.
51
NOTE: The goods or properties used in the
business or those comprising the stock-in-trade of
the corporation will not be considered sold,
bartered, or exchanged despite the change in the
ownership interest. However, the exchange of real
estate properties held for sale or for lease, for
shares of stocks, whether resulting to corporate
control or not, is subject to VAT, subject to
exceptions provided under Sec. 4.106-3 (Sale of
real properties) hereof. On the other hand, if the
transferee of the transferred real property by a
real estate dealer is another real estate dealer, in
an exchange where the transferor gains control of
the transferee-corporation, no output VAT is
imposable on the said transfer. (Sec. 8, RR No. 4-
2007)
2. Change in the trade or corporate name of the
business.
3. Merger or consolidation of corporations.
NOTE: The unused input tax of the dissolved
corporation, as of the date of merger or
consolidation, shall be absorbed by the surviving
or new corporation.
6. ZERO-RATED AND EFFECTIVELY ZERO-RATED
SALES OF GOODS OR PROPERTIES
ZERO-RATED SALE OF GOODS
1. Export sales – The term export sales means: (F-I2-
N-E-G-O)
a. The sale and actual shipment of goods from the
Philippines to a Foreign country:
i. Irrespective of any shipping arrangement;
and
ii. Paid for in acceptable foreign currency or
its equivalent in goods or services and
accounted for in accordance with the rules
and regulations of BSP.
b. The sale of goods, supplies, equipment and fuel
to persons engaged in International shipping or
international air transport operations, provided
that:
i. Goods, supplies, equipment, and fuel shall
be used; and
ii. For international shipping or air transport
operations. (Sec. 106(A)(2)(a), NIRC)
c. Sales to persons or entities whose exemption
under special laws or International agreements
to which the Philippines id s signatory
effectively subjects such sales to zero rate. (Sec.
106(A)(2)(b), NIRC)
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
d. Sale of raw materials or packaging materials by a VAT-
registered entity to a Non-resident buyer:
i. For delivery to a resident local export-oriented
enterprise;
ii. Used in the manufacturing, processing, packing,
repacking in the Philippines of the said buyer’s
goods;
iii. Paid for in acceptable foreign currency and
accounted in accordance with the rules of BSP.
e. Sale of raw material or packaging materials to Export
oriented enterprise whose export sales exceed 70% of
total annual production;
f. Sale of goods or properties by VAT-registered persons to
OGLs subject to the Gaming tax under Sec. 125-A of the
Tax Code; and (Sec. 106(A)(2)(c), NIRC)
g. Those considered as export sales under the Omnibus
Investment Code of 1987. (E.O. 226)
2. Effectively zero-rated transactions – The term “effectively
zero-rated sale of goods and properties” shall refer to the
local sale of goods and properties by a VAT-registered
person to a person or entity who was granted indirect tax
exemption under special laws or international agreement.
Since the buyer is exempt from indirect tax, the seller cannot
pass on the VAT and therefore, the exemption enjoyed by the
buyer shall extend to the seller, making the sale effectively zero-
rated. (R.M.C. 50-2007)
Zero-rated Sales of Services
The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate:
1. Processing, manufacturing, or repacking goods for other
persons doing business outside the Philippines which goods
are subsequently exported, where the services are paid for
in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;
2. Services other than those mentioned in the preceding
paragraph rendered to a person engaged in business
conducted outside the Philippines or to a non-resident
person not engaged in business who is outside the
Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules
and regulations of the BSP, i.e., recruitment;
3. Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to 0% rate;
UNIVERSITY OF SANTO TOMAS 52
2023 PRE -WEEK NOTES
4. Services rendered to persons engaged in
international shipping or international air
transport operations, including leases of property
for use thereof; provided, that these services shall
be exclusive for international shipping or air
transport operations;
5. Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed 70% of total annual
production;
6. Transport of passengers and cargo by domestic air
or sea vessels from the Philippines to a foreign
country;
7. Sale of power or fuel generated through renewable
sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen
fuels; and
8. Services rendered to:
a. Registered enterprises within a separate
customs territory as provided for by special
law; and
b. Registered enterprises within tourism
enterprise zones as declared by TIEZA. (Sec.
108(B), NIRC)
7. VAT-EXEMPT TRANSACTIONS
Exempt Transactions
1. Sale or importation of:
a. Agricultural and marine food products in their
original state,
b. Livestock and poultry of:
i. A kind generally used as, or yielding or
producing foods for human consumption;
and
ii. Breeding stock and genetic materials
therefor.
NOTE: Livestock shall include cows, bulls and
calves, pigs, sheep, goats and rabbits. Poultry
shall include fowls, ducks, geese and turkey.
Livestock or poultry does not include fighting
cocks, racehorses, zoo animals and other
animals generally considered as pets.
Marine food products shall include fish and
crustaceans, such as, but not limited to, eels,
trout, lobster, shrimps, prawns, oysters,
mussels, and clams.
 PRE-WEEK NOTES 2023
Meat, fruit, fish, vegetables and other agricultural and i. Except specialty feeds for racehorses,
marine food products classified under this paragraph fighting cocks, aquarium fish, zoo animals
shall be considered in their original date even if they and other animals generally considered as
have undergone the simple processes of preparation or pets;
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping, NOTE: Specialty feeds refer to non-agricultural
including those using advanced technological means of feeds or food for race horses, fighting cocks,
packaging, such as shrink wrapping in plastics, vacuum aquarium fish, zoo animals and other animals
packing, tetra-pack, and other similar packaging generally considered as pets.
methods.
3. Importation of personal and household effects:
Polished and/or husked rice, corn grits, raw cane sugar
a. Belonging to:
and molasses, ordinary salt and copra shall be
i. Residents of the Philippines returning
considered as agricultural food products in their
from abroad, and
original state.
ii. Non-resident citizens coming to resettle in
the Philippines,
Sugar whose content of sucrose by weight, in the dry
state, has a polarimeter reading of 99.5o and above are
b. Provided, that such goods are exempt from
presumed to be refined sugar.
customs duties under the Tariff and Customs
Code of the Philippines;
Cane sugar produced from the following shall be
presumed, for internal revenue purposes, to be refined
4. Importation of professional instruments and
sugar:
implements, tools of trade, occupation or
employment, wearing apparel, domestic
1. Product of a refining process;
animals, and personal household effects, except
any vehicle, vessel, aircraft, machinery and other
2. Products of a sugar refinery; or
goods for use in the manufacture and
merchandise of any kind in commercial quantity
3. Product of a production line of a sugar mill
a. Belonging to:
accredited by the BIR to be producing and/or
i. Persons coming to settle in the Philippines,
capable of producing sugar with polarimeter
or
reading of 99.5o and above, and for which the
ii. Their families and descendants who are
quedan issued therefor, and verified by the Sugar
now residents or citizens of other
Regulatory Administration, identifies the same to
countries (overseas Filipinos),
be of a polarimeter reading of 99.5º and above.
b. In quantities and of the class suitable to the
Bagasse is not included in the exemption provided for
profession, rank or position of the persons
under this section. (Sec. 4.109-1(B)(1)(a), RR No. 16-
importing said items,
2005)
c. For their own use and not for barter or sale,
Refined Sugar Subject to VAT

d. Accompanying such persons, or arriving

Raw Sugar refers to sugar produced by simple process
within a reasonable time,
of conversion of sugar cane without a need of any of
mechanical or similar device such as muscovado. For
e. Provided, that the Bureau of Customs may
this purpose, raw sugar refers only to muscovado sugar.
exempt such goods from payment of duties and
taxes upon the production of satisfactory
Centrifugal process of producing sugar is not in itself a
evidence that:
simple process. Therefore, any type of sugar produced
therefrom is not exempt from VAT. (RR. No. 13-2013)
i. Such persons are actually coming to settle
in the Philippines, and
2. Sale or importation of:
a. Fertilizers
ii. The goods are brought from their former
place of abode, exempt such goods from
b. Seeds, seedlings and fingerlings,
payment of duties and taxes
c. Fish, prawn, livestock and poultry feeds, including
f. Provided, further, That the vehicles, vessels,
ingredients, whether locally produced or imported,
aircrafts, machineries and other similar goods
used in the manufacture of finished feeds:
for use in manufacture, shall not fall within this
classification and shall therefore be subject to
duties, taxes and other charges;

53 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
5. Services subject to percentage tax;
6. Services by:
a. Agricultural contract growers, and
b. Milling for others of:
i. Palay into rice,
ii. Corn into grits, and
iii. Sugar cane into raw sugar;
NOTE: Agricultural contract growers refer to those persons
producing for others poultry, livestock or other agricultural
and marine food products in their original state.
7. Medical, dental hospital and veterinary services, except
those rendered by professionals;
NOTE: Laboratory services are exempted. If the hospital or
clinic operates a pharmacy or drug store, the sale of drugs
and medicine is subject to VAT.
8. Educational services rendered by:
a. Private educational institutions duly accredited by the:
i. Department of Education (DepED),
ii. Commission on Higher Education (CHED),
iii. Technical Education and Skills Development
Authority (TESDA), and
b. Government educational institutions;
NOTE: Educational services shall refer to academic,
technical or vocational education provided by private
educational institutions duly accredited by the DepED, the
CHED and TESDA and those rendered by government
educational institutions and it does not include seminars,
in-service training, review classes and other similar
services rendered by persons who are not accredited by the
DepED, the CHED and/or the TESDA.
9. Services rendered by individuals pursuant to an
employer-employee relationship;
10. Services rendered:
a. By regional or area headquarters established in the
Philippines by multinational corporations,
b. Which act as:
i. Supervisory,
ii. Communications, and
iii. Coordinating centers in the Asia Pacific Region for
their:
1. Affiliates,
2. Subsidiaries, or
3. Branches, and
c. Do not earn or derive income from the Philippines;
11. Transactions which are exempt under international
agreements to which the Philippines is a signatory or
under special laws except those granted under PD No.
UNIVERSITY OF SANTO TOMAS 54
2023 PRE -WEEK NOTES
529 which refers to Petroleum Exploration
Concessionaires under the Petroleum Act of
1949;
12. Sales by agricultural cooperatives duly
registered with the Cooperative Development
Authority (CDA) to their members, as well as sale
of their produce, whether in its original state or
processed form, to non-members; their
importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to
be used directly and exclusively in the
production and/or processing of their produce;
13. Gross receipts from lending activities by credit
or multi-purpose cooperatives duly registered
and in good standing with the Cooperative
Development Authority;
14. Sales by non-agricultural, non-electric and non-
credit cooperatives duly registered with and in
good standing with the CDA; Provided, That the
share capital contribution of each member does
not exceed Fifteen Thousand Pesos (P15,000.00)
and regardless of the aggregate capital and net
surplus ratably distributed among the members;
NOTE: Importation by non-agricultural, non-
electric and non-credit cooperatives of
machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
15. Export sales by persons who are not VAT-
registered;
16. Sales of real properties, namely:
a. Sale of real properties not primarily held for
sale to customers or held for lease in the
ordinary course of trade or business;
NOTE: However, even if the real property is
not primarily held for sale to customers or held
for lease in the ordinary course of trade or
business but the same is used in the trade or
business of the seller, the sale thereof shall be
subject to VAT being a transaction incidental to
the taxpayer’s business.
b. Sale of real properties utilized for low-cost
housing as defined by R.A. No. 7279, otherwise
known as the "Urban Development and
Housing Act of 1992" and other related laws;
NOTE: “Low-cost housing" refers to housing
projects intended for homeless low-income
family beneficiaries, undertaken by the
Government or private developers, which may
either be a subdivision or a condominium
registered and licensed by the Housing and
Land Use Regulatory Board/Housing (HLURB).
 PRE-WEEK NOTES 2023
c. Sale of real properties utilized for socialized housing as
defined under R.A. No. 7279, and other related laws,
such as R.A. No. 7835 and R.A. No. 8763, wherein the
price ceiling per unit is P450,000 or as may from time
to time be determined by the HUDCC and the NEDA and
other related laws
NOTE: "Socialized housing" refers to housing programs
and projects covering houses and lots or home lots only
undertaken by the Government or the private sector for
the underprivileged and homeless citizens which shall
include sites and services development, long-term
financing, liberated terms on interest payments, and
such other benefits in accordance with the provisions
of R.A. No. 7279, otherwise known as the "Urban
Development and Housing Act of 1992" and R.A. No.
7835 and R.A. No. 8763.
"Socialized housing" shall also refer to projects
intended for the underprivileged and homeless
wherein the housing package selling price is within the
lowest interest rates under the Unified Home Lending
Program (UHLP) or any equivalent housing program of
the Government, the private sector or non-government
organizations.
17. Sale of the following:
a. Residential lot valued at P1,919,500 and below, or
b. House and lot and other residential dwellings valued at
P3,199,200 and below
NOTE: Beginning January 2021, the VAT exemption shall
only apply to:
1. Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of
trade or business,
2. Sale of real property utilized for socialized housing as
defined by R.A. 7229,
3. Sale of house and lot, and other residential dwelling
with selling price of not more than P2,000,000.
Provided, further, that every three (3) years thereafter,
the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (PSA).
(Sec. 109(P), NIRC)
If two or more adjacent residential lots are sold or disposed
in favor of one buyer, for the purpose of utilizing the lots as
one residential lot, the sale shall be exempt from VAT only
if the aggregate value of the lots do not exceed P1,500,000.
Adjacent residential lots, although covered by separate
titles and/or separate tax declarations, when sold or
disposed to one and the same buyer, whether covered by
one or separate deed of conveyance, shall be presumed as
a sale of one residential unit.
This does not include the sale of parking lot which may or
may not be included in the sale of condominium units. The
55
sale of parking lots in a condominium is a separate
and distinct transaction and is not covered by the
rules on threshold amount not being a residential
lot, house and lot or a residential dwelling. Thus,
the sale is subject to VAT regardless of the selling
price. (R.R. 13-2012)
18. Lease of residential units with a monthly rental
per unit not exceeding P15,000, regardless of the
amount of aggregate rentals received by the
lessor during the year;
NOTE: Every 3 years thereafter, the amount shall
be adjusted to its present value using the Consumer
Price Index, as published by the Philippine Statistic
Authority. Such adjustment shall be published
through revenue regulations to be issued not later
than March 31 of each year.
The foregoing notwithstanding, lease of residential
units where the monthly rental per unit exceeds
P15,000 but the aggregate of such rentals of the
lessor during the year do not exceed P3,000,000
shall likewise be exempt from VAT, however, the
same shall be subjected to 3% percentage tax.
In cases where a lessor has several residential units
for lease, some are leased out for a monthly rental
per unit of not exceeding P15,000 while others are
leased out for more than P15,000 per unit, his tax
liability will be as follows:
1. The gross receipts from rentals not exceeding
P15,000 per month per unit shall be exempt
from VAT regardless of the aggregate annual
gross receipts.
2. The gross receipts from rentals exceeding
P15,000 per month per unit shall be subject to
VAT if the aggregate annual gross receipts
from said units only exceeds P3,000,000.
Otherwise, the gross receipts will be subject to
the 3% tax imposed under Sec. 116 of the
NIRC. (RR No. 13-2018)
In case of mixed transactions, the abovementioned
rule should be observed.
The term “residential units” shall refer to
apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof
used solely as dwelling places (e.g., dormitories,
rooms and bed spaces) except motels, motel rooms,
hotels and hotel rooms, lodging houses, inns and
pension houses. (RR No. 13–2018)
The term “unit” shall mean an apartment unit in the
case of apartments, house in the case of residential
houses; per person in the case of dormitories,
boarding houses and bed spaces; and per room in
case of rooms for rent.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
19. Sale, importation, printing or publication of books, and
any newspaper, magazine, journal, review bulletin, or
any such educational reading material covered by the
UNESCO Agreement on the Importation of Educational,
Scientific and Cultural Materials, including the digital or
electronic format thereof: Provided, that the materials
enumerated herein are not devoted principally to the
publication of paid advertisements;
NOTE: A newspaper, magazine, review, or bulletin must be:
1. Printed or published at regular intervals;
2. Available for subscription and sale at fixed prices;
and
3. Are not principally devoted to the publication of
paid advertisements.
Sale of books, newspapers, magazines, etc. in electronic
format are also VAT- exempt.
20. Transport of passengers by international carriers;
NOTE: The transport of cargo by international carriers
doing business in the Philippines shall be exempt from VAT
as the same is subject to Common Carrier's Tax (Percentage
Tax on International Carriers) International carriers
exempt under Secs. 109(1)(S) and 109(1)(E) of the NIRC, as
amended, shall not be allowed to register for VAT purposes.
(RR No. 15-2015)
21. Sale, importation or lease of passenger or cargo vessels
and aircraft, including engine, equipment and spare
parts thereof for domestic or international transport
operations;
NOTE: Provided, that the exemption from VAT on the
importation and local purchase of passenger and/or cargo
vessels shall be subject to the requirements on restriction
on vessel retirement program of Maritime Industry
Authority (MARINA).
22. Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations;
NOTE: Provided, that the fuel, goods and supplies shall be
used for international shipping or air transport operations.
Thus, said fuel, goods and supplies shall be used exclusively
or shall pertain to the transport of goods and/or passenger
from a port in the Philippines directly to a foreign port, or
vice versa, without docking or stopping at any other port in
the Philippines unless the docking or stopping at any other
Philippine port is for the purpose of unloading passengers
and/or cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad.
Provided, further, that if any portion of such fuel, goods or
supplies is used for purposes other than that mentioned in
this paragraph, such portion of fuel, goods and supplies
shall be subject to 12% VAT.
UNIVERSITY OF SANTO TOMAS 56
2023 PRE -WEEK NOTES
Taxability of Fuel
Fuel is exempt if imported by persons engaged in
international shipping or air transport operations. On
the other hand, fuel is zero-rated when sold to persons
engaged in international shipping or international air
transport operations without docking or stopping at
any other port in the Philippines.
23. Services of:
a. Banks,
b. Non-bank financial intermediaries performing
quasi-banking functions, and
c. Other non-bank financial intermediaries such
as money changers and pawnshops, subject to
percentage tax under Secs. 121 and 122 of the
NIRC;
NOTE: In Tambunting Pawnshop, Inc. vs. CIR, since
the taxpayer (pawnshop) is a non-bank
intermediary, it is subject to 10% (now 12%) VAT
for the tax years 1996-2002; however, with the
levy, assessment and collection of VAT from non-
bank intermediaries being specifically deferred by
law, then taxpayer is not liable for VAT during these
tax years. But with the full implementation of the
VAT system on non-bank financial intermediaries
starting January 1, 2003, taxpayer is liable for 10%
VAT for the said tax year. And beginning 2004 up to
the present, by virtue of R.A. No. 9238, taxpayer is
no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5% as
the case may be.
Pawnshops are not Liable to Pay VAT
Pawnshops are not classified as lending investors and
therefore, they are not subject to VAT. They are subject
to percentage tax as imposed on Sec. 122 of NIRC.
(Tambunting Pawnshop, Inc., v CIR, G.R. No. 179085, 21
Jan. 2010; R.A. No. 9238; RMC 74-2005)
24. Sale or lease of goods and services to senior
citizens and persons with disability; (R.A. Nos.
9994 or Expanded Senior Citizens Act of 2010,) and
10754 or An Act Expanding the Benefits and
Privileges of Persons with Disability)
25. Transfer of property pursuant to Sec. 40(C)(2) of
the NIRC, as amended or tax-free exchanges;
26. Association dues, membership fees, and other
assessments and charges collected on a purely
reimbursement basis by homeowners
associations and condominium corporations;
(R.A. Nos. 9904 or Magna Carta for Homeowners and
Homeowners’ Association, and 4726 or The
Condominium Act)
27. Sale of gold to the Bangko Sentral ng Pilipinas;
 PRE-WEEK NOTES 2023
28. Sale of or importation of prescription drugs and exceeded. Thus, the VAT-exempt sales shall not be
medicines for: included in determining the threshold.
a. Diabetes, high cholesterol, and hypertension beginning
January 1, 2020; Zero-rated and VAT-exempt Transactions
b. Cancer, mental illness, tuberculosis, and kidney Distinguished
diseases beginning January 1, 2021
EXEMPT ZERO-RATED
NOTE: Provided, That the DOH shall issue a list of approved As to nature of transaction
drugs and medicines for this purpose within sixty (60) days Not taxable; removes Transaction is taxable for
from the effectivity of this Act VAT at the exempt stage VAT purposes although
the tax levied is 0%
29. Sale or importation of the following beginning January 1,
2021 to December 31, 2023:
a. Capital equipment, its spare parts and raw materials, As to by whom made
necessary for the production of personal protective Need not be a VAT- Made by a VAT-
equipment components such as coveralls, gown, registered person registered person
surgical cap, surgical mask, N-95 mask, scrub suits,
As to input tax
goggles and face shield, double or surgical gloves,
Not subject to output May claim input tax
dedicated shoes, and shoe covers, for COVID-19
tax, thus cannot claim credit although the
prevention; and
input tax credit. transaction resulted to
zero output tax.
b. All drugs, vaccines and medical devices specifically
prescribed and directly used for the treatment of As to tax credit/refund
COVID-19; and Cannot avail of tax Can claim or enjoy tax
credit or refund. Thus, credit/refund (Total
c. Drugs for the treatment of COVID-19 approved by the may result in increased Relief)
Food and Drug Administration (FDA) for use in clinical prices (Partial Relief)
trials, including raw materials directly necessary for the
production of such drugs
8. INPUT AND OUTPUT TAX
NOTE: Provided, That the Department of Trade and
Industry (DTI) shall certify that such equipment, spare Sources of Creditable Input Tax
parts or raw materials for importation are not locally
available or insufficient in quantity, or not in accordance Any input tax evidenced by a VAT invoice or official
with the quality or specification required. Provided, further, receipt issued in accordance with Sec. 113 of the NIRC
That for item (ii), within sixty (60) days from the effectivity on the following transactions shall be creditable against
of this Act, and every three (3) months thereafter, the the output tax:
Department of Health (DOH) shall issue a list of prescription
drugs and medical devices covered by this provision: 1. Purchase or importation of goods:
Provided, finally, That the exemption claimed under this a. For sale; or
subsection shall be subject to post audit by the Bureau of
Internal Revenue or the Bureau of Customs as may be b. For conversion into or intended to form part
applicable. (Sec. 12, R.A. No. 11534) of a finished product for sale including
packaging materials; or
30. Sale or lease of goods or properties or services other than
the transactions mentioned above wherein the gross c. For use as supplies in the course of business;
annual sales or receipts do not exceed P3,000,000 pesos. or

NOTE: Every three (3) years thereafter, the amount shall be
adjusted to its present value using the Consumer Price
Index, as published by the NSO. Such adjustment shall be
published through revenue regulations to be issued not
later than March 31 of each year.
For purposes of the threshold, the husband and the wife
shall be considered separate taxpayers. However, the
aggregation rule for each taxpayer shall apply. For instance, 2.
if a professional, aside from the practice of his profession,
also derives revenue from other lines of business which are
otherwise subject to VAT, the same shall be combined for 3.
purposes of determining whether the threshold has been
d. For use as materials supplied in the sale of
service; or
e. For use in trade or business for which
deduction for depreciation or amortization is
allowed under NIRC, except automobiles,
aircraft and yachts. (Capital Goods)
Purchases of real properties for which a VAT has
actually been paid
Purchases of services in which a VAT has actually
been paid (Sec. 110, NIRC)

57 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
4. Transactions “deemed sales” 5. Goods and supplies for use in the course of the
taxpayer’s trade or business as a VAT-registered
5. Presumptive input tax person. (Sec. 4.110-1(a), RR No. 16- 2005)

6. Transitional input tax credits allowed under the transitory Allowable Transitional Input Tax
and other provisions. (Sec. 4.110-1, RR No. 16- 2005)
The allowed input tax shall be whichever is higher
Presumptive Input Tax between:
1. 2% of the value of the taxpayer’s beginning
It is an input tax credit allowed to persons or firms engaged in inventory of goods, materials and supplies; or
the: (S-M2-R-C-N) 2. The actual value-added tax paid on such goods.
(Sec.111(A), NIRC)
1. Processing of:
a. Sardines
NOTE: Transitional input tax credit may only be availed
b. Mackerel
once. It may be carried over to the next taxing period,
c. Milk
until fully utilized.
2. Manufacturing of: Prior payment of taxes is not necessary before a
a. Refined sugar taxpayer could avail of transitional input tax credit. All
b. Cooking oil that is required from the taxpayer is to file a beginning
c. Packed Noodle based instant meals inventory with BIR.

The allowed input tax shall be equivalent to four percent (4%)
of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their
production. (Sec. 111 (B), NIRC)
They are given this 4% presumptive input tax because the goods
used in the said enumeration are VAT-exempt. (Ingles, 2015)
NOTE: The term “processing” shall mean pasteurization,
canning and activities which through physical or chemical
process alter the exterior texture or form or inner substance of
a product in such manner as to prepare it for special use to
which it could not have been put in its original form or condition.
A transitional input tax credit is not a tax refund per se
but a tax credit. Sec. 112 of the NIRC does not prohibit
cash refund or tax credit of transitional input tax. The
grant of a refund or issuance of tax credit certificate in
this case would not contravene the above provision.
The refund or tax credit would not be unconstitutional
because it is precisely pursuant to Sec. 105 of the old
NIRC which allows refund/tax credit. (Fort Bonifacio
Development Corporation vs. CIR, G.R. No. 173425, 22
Jan. 2013)
Q: Is Transitional Input Tax Credit applicable to real
property?

Transitional Input Tax A: YES. Under Sec. 105 of the old NIRC (now Sec.
111(A)), the beginning inventory of “goods” forms part
It can be availed by taxpayers who become VAT registered of the valuation of the transitional input tax credit.
persons upon: Goods, as commonly understood in the business sense,
1. Exceeding the minimum turnover of P3 million in any 12- refer to the product which the VAT-registered person
month period; or offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which
2. Who voluntarily register even if they do not reach the constitute their “goods”. Such real properties are the
threshold, except for franchise grantees of radio and TV operating assets of the real estate dealer. (Ibid.)
broadcasting whose threshold is P10,000,000.
Determination of Input Tax Creditable
The said taxpayers shall be entitled to a transitional input tax on
the inventory on hand as of the effectivity of their VAT The amount of input taxes creditable during a month or
registration on the following: quarter shall be determined by adding all creditable
input taxes arising from the input tax transactions
1. Goods purchased for resale in the present condition; during the month or quarter plus any amount of input
tax carried-over from the preceding month or quarter,
2. Raw materials - Materials purchased for further processing reduced by the amount of claim for VAT refund or tax
but which have not yet undergone processing; credit certificate (whether filed with the BIR, the
Department of Finance, the Board of Investments or the
3. Manufactured goods; BOC) and other adjustments, such as purchases returns
or allowances, input tax attributable to exempt sales
4. Goods in process for sale; and and input tax attributable to sales subject to final VAT
withholding.

UNIVERSITY OF SANTO TOMAS 58

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
Excess Tax Credits (ETC)
If the input tax inclusive of input tax carried over from the
previous quarter exceeds the output tax, the excess input tax
shall be carried over to the succeeding quarter or quarters.
NOTE: Provided, that any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded
or applied for a tax credit certificate which may be used in the
payment of internal revenue taxes
Thus, input tax, attributable to zero-rated sales may either be:
1. Refunded, or
2. Credited against other internal revenue taxes of the VAT
taxpayer (e.g., income tax)
9. TAX REFUND OR TAX CREDIT
Requirements to Claim for VAT Refund
Persons Entitled to Claim Refund or Apply for Issuance of
Tax Credit Certificate (TCC)
1.
1. Under zero-rated and effectively zero-rated sales – Any
2.
VAT-registered person, whose sales are zero-rated or
effectively zero-rated. (Sec. 112 (A), NIRC)
3.
A VAT-registered person whose sales of goods, properties
or services are zero-rated or effectively zero-rated may
4.
apply for the issuance of a tax refund of input tax
attributable to such sales. The input tax that may be subject
of the claim shall exclude the portion of input tax that has
5.
been applied against the output tax. The application should
be filed within two (2) years after the close of the taxable
quarter when such sales were made.
In case of zero-rated sales under Secs. 106(A)(2)(a)(1) and
(3), Secs. 108(B)(1) and (2) of the Tax Code, the payments
for the sales must have been made in acceptable foreign
currency duly accounted for in accordance with the BSP
rules and regulations.
Where the taxpayer is engaged in both zero-rated or
effectively zero-rated sales and in taxable (including sales
subject to final withholding VAT) or exempt sales of goods,
properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to
any one of the transactions, only the proportionate share of
input taxes allocated to zero-rated or effectively zero-rated
sales can be claimed for refund or issuance of a tax credit
certificate.
2. Under cancellation of VAT registration – A VAT-registered
person whose registration has been cancelled due to
retirement from or cessation of business, or due to changes
in or cessation of status under Sec. 106 (C) of the Tax Code
may, within two (2) years from the date of cancellation,
apply for the issuance of tax credit certificate for any unused
input tax which he may use in payment of his other internal
revenue taxes.
59
NOTE: Provided, however, that he shall be entitled
to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate
may be utilized.
Provided, further, that the date of cancellation
being referred hereto is the date of issuance of tax
clearance by the BIR, after full settlement of all tax
liabilities relative to cessation of business or
change of status of the concerned taxpayer.
Provided, finally, that the filing of the claim shall be
made only after completion of the mandatory audit
of all internal revenue tax liabilities covering the
immediately preceding year and the short period
return and the issuance of the applicable tax
clearance/s by the appropriate BIR Office which
has jurisdiction over the taxpayer.
The taxpayer is VAT-registered;
The taxpayer is engaged in zero-rated or
effectively zero-rated sales;
The input taxes are due or paid;
The input taxes are not transitional input taxes as
it cannot be claimed as a refund or credit;
The input taxes have not been applied against
output taxes during and in the succeeding
quarters;
NOTE: In Chevron Holdings, Inc. v. CIR, the
Supreme Court ruled that the taxpayer only needs
to prove non-application or non-charging of the
input VAT subject of the claim. There is nothing in
the law and rules that mandate the taxpayer to
deduct the input tax attributable to zero-rated
sales from the output tax from regular twelve
percent (12%) VAT-able sales first and only the
"excess" may be refunded or issued a tax credit
certificate.
The remedies accorded by law to the taxpayer are
alternatives. Requiring taxpayers to prove that
they did not charge the input tax claimed for
refund against the output tax is one thing;
requiring them to prove that they have "excess"
input tax after offsetting it from output tax is
another. The former is essential to the entitlement
of the refund under Sec. 112(A); the latter is not.
The reason is that a taxpayer who enjoyed a lower
(or zero) output tax payable because it deducted
the input tax from zero-rated sales from the
output tax cannot benefit twice by applying for the
refund or tax credit of the same input tax used to
reduce its output tax liability. Proof of non-
charging the input tax subject to the refund or
credit against the output tax is to avert double
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
recovery. (Chevron Holdings, Inc. v. CIR, G.R. No. 215159, 05 Period to file Claim for Refund or Apply for
July 2022) Issuance of Tax Credit Certificate

6. The input taxes claimed are attributable to zero-rated or The claim, which must be in writing, for both cases,
effectively zero-rated sales; must be filed within two (2) years after the close of the
7. For zero-rated sales under Sec. 106(A)(2)(1) and (2); taxable quarter when the sales were made.
106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted for Rules on Prescriptive Periods for Claiming
in accordance with the rules and regulations of the BSP; Refund or Credit of Input Tax

8. Where there are both zero-rated or effectively zero- rated CLAIM PRESCRIPTIVE PERIOD
sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of these Only the administrative
sales, the input taxes shall be proportionately allocated on claim that must be filed within
the basis of sales volume; and the period

9. The claim is filed within two years after the close of the GR: The reckoning date is the
taxable quarter when such sales were made. (Luzon Hydro close of the taxable quarter
Corporation v. CIR, G.R. No. 188260, 13 Nov. 2013) when the relevant sales were
Administrative made
NOTE: The taxpayer must prove the following for a tax refund Claim:
to prosper: Two-Year XPN: From June 8, 2007 to
1. That it is a VAT-registered entity; and Prescriptive September 12, 2008 the two-
2. It must substantiate the input VAT paid by purchase Period year prescriptive period for
invoices or official receipts. (Commissioner v. Manila Mining filing a claim for tax refund or
Corporation, G.R. No. 153204, 31 Aug. 2005) credit should be counted from
the date of filing of the VAT
Q: Team Energy filed with the BIR its Quarterly VAT Returns return and payment of the
and its Monthly VAT Declaration. CIR thereafter filed an tax. (Atlas Consolidated Mining
administrative claim for cash refund or issuance of tax and Dev. Corp v CIR, G.R. No.
credit certificate corresponding to the input VAT reported 141104, 08 June 2007)
in its Quarterly VAT Returns. Due to CIR’s inaction on its
claim, Team Energy filed a Petition for Review. However, in Two ways of filing an appeal to
its Answer, the CIR argued that the alleged claim for refund the CTA:
is still subject to administrative investigation/examination 1. Within 30 days after the
and that Team Energy failed to prove compliance with the CIR denies the claim
requirements. Is the CIR’s contention correct? within the 90-day period,
or
A: NO. Respondent's failure to submit a Certificate of 2. Within 30 days from the
Compliance issued by the Energy Regulatory Commission does expiration of the 90-day
not disqualify it from claiming a tax refund or tax credit. Given period if the CIR does not
that respondent in this case likewise anchors its claim for tax act within the 90-day
refund or tax credit under Sec. 108(B)(3) of the Tax Code, it period.
cannot be required to comply with the requirements under the
EPIRA before its sale of generated power to NPC should qualify Judicial Claim:
GR: The 30-day period to
for VAT zero-rating. Sec. 108(B)(3) of the Tax Code in relation 90+30 Day
appeal always applies as it is
to Sec. 13 of the NPC Charter, clearly provide that sale of Period
both mandatory and
electricity to NPC is effectively zero-rated for VAT purposes. jurisdictional.

The basis for the VAT zero-rated treatment of the supplier is the XPN: As an exception,
tax exemption of the purchaser of services, and not the premature filing is allowed
qualification of the supplier itself, in order to relieve the tax- only if filed between 10
exempt purchaser from tax burden considering that it may not December 2003 and 5 October
be able to offset or utilize any input tax passed on by its supplier 2010, when BIR Ruling No. DA-
of services, had the services it purchased been subject to VAT of 489-03 was still in force
12%. (CIR v. Team Energy Corporation, G.R. No. 230412, 27 Mar.
2019) NOTE: Late filing is absolutely
prohibited.

UNIVERSITY OF SANTO TOMAS 60

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
(CIR v. Mindanao II Geothermal Q: Is Team Energy's (A VAT-registered entity)
Partnership, G.R. No. 191498, 15 failure to comply with the 120 + 30-day
Jan. 2014) prescriptive period fatal to its claim?

A: YES. A claim for input VAT refund or credit is

construed strictly against the taxpayer. Accordingly,
there must be strict compliance with the prescriptive
periods and substantive requirements set by law before
NOTE: The rule on a claim for refund or credit of an erroneously a claim for tax refund or credit may prosper. The mere
or illegally collected tax under Sec. 229 of the NIRC is different. fact that Team Energy has proved its excess input VAT
Under such, both the administrative and judicial claim must be does not entitle it as a matter of right to a tax refund or
filed within the two (2)-year prescriptive period from the date credit. The 120+30-day periods (90 + 30 day period
of payment. The claim for refund or credit and the appeal to CTA under TRAIN Law) in Sec. 112 is not a mere procedural
may occur simultaneously. technicality that can be set aside if the claim is
otherwise meritorious. It is a mandatory and
Taxpayer Remedies jurisdictional condition imposed by law. Team Energy's
failure to comply with the prescriptive periods is, thus,
1. CIR’s inaction – The taxpayer may also appeal to the CTA fatal to its claim. (Team Energy v. CIR, G.R. No. 197663,
within 30 days after the lapse of 90 days from the 14 Mar. 2018)
submission of the complete documents, if no action has
been taken by the Commissioner. Persons Required to register for VAT
2. CTA’s denial – The taxpayer may appeal the full or partial
denial of the claim to the Court of Tax Appeal (CTA) within Any person who, in the course of trade or business,
30 days from the receipt of said denial, otherwise the sells, barters or exchanges goods or properties, ore
decision shall become final. engages in the sale or exchange of services, shall be
liable to register for value-added tax if:
Sec. 112 on Refund for VAT and Sec. 229 on Refund of Other
Taxes Distinguished 1. His gross sales or receipts for the past twelve (12)
SEC. 229 months, other than those that are exempt under
SEC. 112 (VAT)
(OTHERTAXES) Sec. 109(A) to (BB), have exceeded three million
As to Reckoning Point of the 2-year period pesos (P3,000,000); or
Period is 2 years after the close of Period is 2 years from
the taxable quarter when the sales the date of payment of 2. There are reasonable grounds to believe that his
were made. the tax. gross sales or receipts for the next twelve (12)
As to the Commencement of the Judicial Claim months, other than those that are exempt under
The 30-day period of appeal to the Sec. 109(A) to (BB), will exceed three million
CTA need not necessarily fall pesos (P3,000,000).
within the two-year prescriptive
period, as long as the Every person who becomes liable to be registered
administrative claim before the CIR under paragraph (1) of this subsection shall register
is filed within the two-year with the Revenue District Office which has jurisdiction
prescriptive period. This is because over the head office or branch of that person. If he fails
Sec. 112(C) of the 1997 NIRC to register, he shall be liable to pay the tax under Title
mandates that a taxpayer can file Period to file an IV as if he were a VAT-registered person, but without
the judicial claim: (1) only within administrative claim the benefit of input tax credits for the period in which
thirty days after the Commissioner before the CIR and he was not properly registered. (Sec. 236, NIRC)
partially or fully denies the judicial claim with the
claim within the 120-day period CTA must fall within Failure to Register as VAT Taxpayer
(90-day period under TRAIN the 2-year prescriptive
He shall be held liable to pay the tax as if he is a VAT
Law) , or (2) only within thirty period.
registered person but he cannot avail of the input tax
days from the expiration of the
credit for the period that he has not properly registered.
120-day (90-day period under
(Sec. 236(G), NIRC)
TRAIN Law) period if the
Commissioner does not act within
Information Required in VAT Invoice or VAT
the 120-day period (now 90-day
Official Receipts
period). (CIR v. San Roque Power
Corporation, G.R. Nos. 187485,
1. A statement that the seller is a VAT-registered
196113, 197156, 12 Feb. 2013)
person, and the taxpayer's identification number
(TIN);

61 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
2. The total amount which the purchaser pays or is obligated 1. In case of non-VAT registered person who issues a
to pay to the seller with the indication that such amount VAT invoice/receipt shall be held liable for:
includes the VAT. Provided that: a. Payment of percentage tax if applicable;
b. Payment of VAT without input tax;
a. The amount of the tax shall be shown as a separate c. 50% surcharge on tax due as provided for
item in the invoice or receipt; under Sec. 248(B); and

NOTE: In case of failure to indicate the VAT as a
separate item in the sales invoice or official receipt, a
fine of not less than P1,000 but not more than P50,000
shall, upon conviction, be collected for each act or
omission in addition to imprisonment of not less than
2 years but not more than 4 years. (RR 18-2011)
b. If the sale is exempt from value-added tax, the term
"VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
2. In case a VAT-registered who issues a VAT
invoice/official receipt for a VAT-exempt sale
without the words “VAT Exempt Sale,” the
transaction shall become taxable and the issuer
shall be liable to pay VAT thereon. The purchaser
shall be entitled to claim an input tax credit on his
purchase.
10. FILING OF RETURNS AND PAYMENT

Period of Filing Monthly (Form 2550-M) and

c. If the sale is subject to 0% VAT, the term "zero-rated
Quarterly (Form 2550-Q) VAT Returns
sale" shall be written or printed prominently on the
Distinguished
invoice or receipt; or
d. If the sale involves goods, properties or services some
of which are subject to and some of which are VAT FORM 2550-M FORM 2550-Q
zero-rated or VAT-exempt, the invoice or receipt shall AS to scope
clearly indicate the breakdown of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the value-added tax Quarterly sales and/or receipts
on each portion of the sale shall be shown on the Monthly sales within 25 days after the close
invoice or receipt: "Provided, That the seller may issue and/or receipts of each taxable quarter.
separate invoices or receipts for the taxable, exempt, within 20 days
and zero-rated components of the sale. following the end The VAT payable for each
of month. calendar quarter shall be
3. The date of transaction, quantity, unit cost and description reduced by the total amount of
of the goods or properties or nature of the service; and Accomplished taxes previously paid for the
only for each of the preceding 2 months and/or the
4. In the case of sales in the amount of P1,000 or more where first 2 months of sum of the allowance excess
the sale or transfer is made to a VAT-registered person, the each taxable input tax carried over and the
name, business style, if any, address and taxpayer quarter. VAT withheld by the
identification number (TIN) of the purchaser, customer or government.
client. (Sec. 113(B), NIRC)

NOTE: The appearance of the word “zero rated” on the face of As to deadline
invoices covering zero rated sales prevents buyers from falsely 20th day of 25th day of following calendar
claiming input VAT from their purchases when no VAT was following month quarter
actually paid. If, absent such word, a successful claim for input
VAT is made, the government would be refunding money it did
NOTE: Beginning January 1, 2023, the period for filing
not collect. Further, the printing of the word “zero-rated” on the
and payment of VAT shall be within 25 days following
invoice helps segregate sales that are subject to 12% VAT from
the close of each taxable quarter. (R.A. No. 10963)
those sales that are zero-rated. Unable to submit the proper
invoices, taxpayer has been unable to substantiate its claim for
Place to File and Pay VAT
refund. (Eastern Telecommunication Phils. Inc. v. CIR, G.R. No.
183531, 25 Mar. 2015)
GR: VAT shall be filed and paid to:
1. An Authorized Agent Bank (AAB);
The failure to print the word “zero-rated” in the invoice or
2. Revenue Collection Officer (RCO); or
receipts is fatal to a claim for credit or refund of input VAT on
3. Duly authorized city or municipal Treasurer,
zero rated sales. (JRA Philippines, Inc. v. CIR, G.R. No. 177127, 11
where such Treasurer is:
Oct. 2010)
a. Within the Philippines; and
b. Located within the revenue district where the
Issuing Erroneous VAT Invoices or VAT Official Receipts
taxpayer is registered or required to register.
(Sec. 114(B), NIRC)

UNIVERSITY OF SANTO TOMAS 62

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
XPN: As the Commissioner otherwise permits.
D. TAX REMEDIES UNDER THE NATIONAL INTERNAL
REVENUE
1. ASSESSMENT OF INTERNAL REVENUE TAXES
Tax Assessment
A formal written notice/communication with the computation
of the tax liability sent to the taxpayer and demanding for the
settlement of a due tax liability within the indicated period
thereof.
Kinds of Assessments
1. Self-assessment (Sec. 56(A), NIRC) – When the taxpayer
computes his own liability, files his return, and pays the tax
based on his computation.
2. Deficiency assessment (Sec. 56(B), NIRC) – this occurs upon
discovery of the BIR that the self-assessment was either
deficient or when no return was made by the taxpayer.
(Ingles, 2015)
Issuance of Assessment
GR: Internal Revenue Taxes are self-assessing and do not
require the issuance of an assessment notice in order to
establish the tax liability of a taxpayer. (Tupaz v. Ulep, G.R. No.
127777, 01 Oct. 1999) The NIRC follows the pay-as-you-file
system of taxation under which the taxpayer computes his own
tax liability, prepares the return, and pays the tax as he files the
return.
XPNs:
1. When the taxable period of a taxpayer is terminated (Sec. 6
(D), NIRC)
2. In case of deficiency tax liability arising from a tax audit
conducted by the BIR (Sec. 56 (B), NIRC)
3. Tax lien (Sec. 219, NIRC)
4. Dissolving corporation (Sec. 52 I, NIRC)
5. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)
Principles relative to Tax Assessments (P-A-D3)
1. Prima facie presumed correct and made in good faith
GR: Assessments are Prima facie presumed correct and
made in good faith, with the taxpayer having the burden of
proving otherwise. (FELS Energy, Inc. v. The Province of
Batangas, et al., G.R. No. 168557, 16 Feb. 2007)
In the absence of any irregularities in the performance of
official duties, an assessment will not be disturbed. Failure
to present proof of error in assessments will justify judicial
affirmance of said assessment. (Atlas Consolidated Mining
and Development Corporation v. Court of Appeals, G.R. No.
105563, 10 Mar. 1995)
63
The burden of proof is on the taxpayer contesting
the validity or correctness of an assessment to
prove not only that the CIR is wrong, but the
taxpayer is right. Otherwise, the presumption in
favor of correctness of tax assessment stands.
XPN: Upon proof that an assessment is utterly
without foundation, meaning it is arbitrary and
capricious. Where the BIR has come out with a
“naked assessment” i.e., without any foundation
character, the determination of the tax due is
without rational basis. (CIR v. Hantex Trading Co.
Inc., G.R, No. 136975, 31 Mar. 2005)
2. Should be based on Actual facts (CIR vs. Benipayo,
G.R. No. L-13656, 31 Jan. 1962)
However, in the absence of the accounting records
of a taxpayer, his tax liability may be determined by
estimation. The CIR is not required to compute
such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is
justified. However, the rule does not apply where
the estimation is arrived at arbitrarily and
capriciously. (CIR v. Hantex Trading Co. Inc., G.R, No.
136975, 31 Mar. 2005)
An assessment on estimates is prima facie valid and
lawful where it does not appear to have been
arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly
that the assessment is erroneous. Failure to
present proof of error in the assessment will justify
the judicial affirmance of the said assessment.
(RMC No. 23-2000)
3. Discretionary on the part of the Commissioner
Mandamus cannot lie to compel the CIR to impose
deficiency tax assessment. The CIR’s power to
assess is a discretionary one. (Meralco v. Sevillano,
G.R. No. L-46245, 23 Oct. 1982)
4. Must be Directed to the right party
An affidavit, which was executed by the revenue
officers stating the tax liabilities of the taxpayer
and attached to a criminal complaint for tax
evasion cannot be deemed a valid assessment, not
having been received by the taxpayer and thus the
taxpayer was not informed of the law and facts in
which the assessment was made. (CIR v. Pascor
Realty Dev. Corp., G.R. No 128315, 19 June 1999)
5. The authority vested in the Commissioner to
assess taxes may be Delegated (Sec. 7, NIRC)
The authority to make tax assessments may be
delegated to subordinate officers. Said assessment
has the same force and effect as that issued by the
CIR if not revised or reviewed by the latter.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
(Oceanic Network Wireless Inc. v. CIR, G.R. No. 148380, 09
Dec. 2005)
Before the delegated revenue officer can conduct
examination or assessment, there must be a clear grant of
authority. This authority is embodied in a Letter of
Authority (LOA) (CIR vs. Sony Philippines, Inc. G.R. No.
178697, 17 Nov. 2010)
When CIR shall Compute Income for Taxation
The CIR shall compute income for taxation in accordance with
the method as in his opinion clearly reflects income:
1. If no method of accounting was employed by the taxpayer,
or
2. The accounting method employed does not clearly reflect the
income. (Sec. 43, NIRC)
a) PROCEDURAL DUE PROCESS IN TAX ASSESSMENTS
Deficiency Assessment Process
1. Issuance of Letter of Authority
2. Tax Audit
3. Notice of Discrepancy
4. Issuance of Preliminary Assessment Notice (PAN)
5. Reply
6. Issuance of Formal Letter of Demand and Final Assessment
Notice (FAN)
7. Protest
8. Issuance of Final Decision of Disputed Assessment
Letter of Authority
The LOA commences the audit process and informs the taxpayer
that it is under audit for possible deficiency tax assessment. It is
the authority given to the appropriate revenue officer to
examine the books and accounting records of the taxpayer to
determine correct internal revenue liabilities for collection. (CIR
v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941,
09 Nov. 2016)
Effect of Absence of LOA
The absence of LOA violates the taxpayer’s right to due process.
No assessments can be issued without prior approval and
authorization of the CIR through a LOA. Any tax assessment
issued without a LOA renders the investigation null and void.
(Medicard Philippines, Inc. v. CIR, GR No. 222743, 05 Apr. 2017)
Covered Period of LOA
A LOA should cover a taxable period not exceeding one taxable
year. The practice of issuing LOAs covering audit of “unverified
prior years” is therefore prohibited. (CIR v. Sony Philippines, Inc.,
G.R. No. 178697, 17 Nov. 2010)
Service of LOA
It must be served to the taxpayer within 30 days from its date of
UNIVERSITY OF SANTO TOMAS 64
2023 PRE -WEEK NOTES
issuance; otherwise, it shall become null and void. The
taxpayer shall then have the right to refuse the service
of this LA, unless the LA is revalidated. (Medicard
Philippines, Inc. v. CIR, G.R. No. 222743, 05 Apr. 2017)
Q: How is LOA revalidated? How often can it be
revalidated?
A: It is revalidated through the issuance of a new LOA:
1. only once, if issued by the Regional Director;
2. twice, if issued by the CIR.
NOTE: The suspended LOAs must be attached to the
new issued LOA. (RMO No. 38-1988)
Tax Audit
This includes the examination of books of accounts and
other accounting records of the taxpayers by revenue
officers to determine the correct tax liability.
(Mamalateo, 2014)
Period within which Revenue Officer Should
Conduct an Audit
A revenue officer is allowed only 120 days to conduct
the audit and submit the required report of
investigation from the date of receipt of a LOA by the
taxpayer. If the RO is unable to submit his final report
of investigation within the 120-day period, he must
then submit a Progress Report to his Head of Office and
surrender the LOA for revalidation.
Q: How many times can a taxpayer be subjected to
examination and inspection for the same taxable
year?
A: GR: Only once per taxable year
XPNs: (F-R-C3)
1. When the CIR determines that Fraud, irregularities,
or mistakes were committed by the taxpayer;
2. When the taxpayer himself requests for the Re-
investigation or re-examination of his books of
accounts and it was granted by the Commissioner;
3. When there is a need to verify the taxpayer’s
Compliance with withholding and other internal
revenue taxes as prescribed in a Revenue
Memorandum Order issued by the Commissioner;
4. When the taxpayer’s Capital gains tax liabilities
must be verified; or
5. When the Commissioner chooses to exercise his
power to obtain information relative to the
examination of other taxpayers. (Secs. 5 and 235,
NIRC)
 PRE-WEEK NOTES 2023
Notice of Discrepancy
This replaces the Notice of Informal Conference. Presently, there
is no requirement for the issuance of a Notice for Informal
Conference since RR No. 18-2013 deleted such requirement.
A Notice of Discrepancy (ND) will be issued to the taxpayer if he
is found to be liable for deficiency taxes during investigation
conducted by a revenue officer.
It is not yet a deficiency tax assessment. It only aims to fully
afford the taxpayer with an opportunity to present and explain
his side on the discrepancies found.
Covered Period of ND
The taxpayer must be able to present and explain its side on the
discrepancies noted by the BIR within five (5) days from receipt
of the notice. If the taxpayer needs more time to present
documents, he may submit such documents after the discussion
but within 30 days from receipt of the ND. The discussion of
discrepancies shall not extend beyond 30 days from the receipt
of the notice.
If the taxpayer disagrees with the discrepancies detected during
the audit, the taxpayer must present an explanation and provide
supporting documents. Should the taxpayer need more time to
present the documents, he may submit such documents that
support his explanation within thirty (30) days after receipt of
the ND.
If after being allowed to present his side through the Discussion
of Discrepancy, it is still found that the taxpayer is still liable for
deficiency taxes and the taxpayer does not address the
discrepancies through payment of the deficiency taxes, or the
taxpayer does not agree with the findings, the investigating
officer shall endorse the case to the reviewing office and
approving official for issuance of a deficiency tax assessment in
the form of a Preliminary Assessment Notice (PAN) within ten
(10) days from the conclusion of the Discussion. (RR No. 22-
2020)
Preliminary Assessment Notice (PAN)
If after review and evaluation by the Commissioner or his duly
authorized representative, as the case may be, it is determined
that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer
a PAN for the proposed assessment. It shall show in detail the
facts and the law, rules and regulations, or jurisprudence on
which the proposed assessment is based. (RR No. 18-2013)
NOTE: Prior to the issuance of the PAN, the taxpayer may be
allowed to make voluntary payments of probable deficiency
taxes and penalties. (RMO 11-2014)
Requirements of a Valid PAN
1. Due process requirements – That the assessment must be in
writing and must state the facts and the law upon which it
is based;
65
NOTE: The sending of PAN to taxpayer to inform
him of the assessment made is but part of the “due
process requirement in the issuance of a deficiency
tax assessment,” the absence of which renders
nugatory any assessment made by the tax
authorities. Therefore, for its failure to send the
PAN stating the facts and the law on which the
assessment was made as required by the law, the
assessment made by the CIR is void. (CIR v. Metro
Star Suprema, Inc., G.R. No. 185371, 08 Dec. 2010)
2. The amount must be definitely set; and
3. It must contain a due date. (Soriano, Manuel & Laco,
2021)
Issuance of PAN
GR: There must be a PAN issued by the BIR before
issuing a Formal Letter of Demand (FLD)/ Final
Assessment Notice (FAN).
XPN: PAN is not required in the following instances:
(M-E-D-E-C)
1. When the finding for any deficiency tax is the result
of Mathematical error in the computation of the tax
appearing on the face of the tax return filed by the
taxpayer; or
2. When the Excise tax due on excisable articles has
not been paid; or
3. When a Discrepancy has been determined between
the tax withheld and the amount actually remitted
by the withholding agent; or
4. When an article locally purchased or imported by
an Exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-
exempt persons (Sec. 228, NIRC); or
5. When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a
taxable period was determined to have Carried
over and automatically applied the same amount
claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding
taxable year. (Sec. 3.1.2, RR No. 18-2013)
In the above-cited cases, an FLD/FAN shall be issued
outright. (2002 BAR)
Period for the Taxpayer to Respond to PAN via
“Reply”
The taxpayer has 15 days from receipt of PAN to file a
written reply contesting the proposed assessment.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
Effect of Taxpayer’s Failure to Respond to PAN
The taxpayer shall be considered in default, in which case, a
FLD/FAN shall be issued calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties. (Sec.
3.1.1(2), RR No. 18-2013)
13 of the NIRC. The term likewise refers to other tax
officials with the rank equivalent to a division chief or
higher, pursuant to the CIR’s authority to delegate
powers vested in him under Sec. 7 of the NIRC. (CIR v.
Linde Philippines, Inc., C.T.A. EB Case No. 2194, 05 Jan.
2021)

For the purpose of contesting in writing the findings contained Q: In what form shall the FAN be and what should it
in a PAN, the regulations use the term “reply” to distinguish the contain?
written objections against a FAN issued by the BIR, where the
generic term “protest” or the specific term “request for A:
reconsideration” or “request for reinvestigation” is utilized.
1. In writing; and
2. Shall state the facts, the law, rules and regulations,
The failure to file a reply to PAN will not bar the taxpayer from
or jurisprudence on which the assessment is based,
protesting the FAN because PAN is not the final assessment
otherwise, the FAN shall be void. (Sec. 228, NIRC;
which can be protested as contemplated under the NIRC.
Sec. 3.1.3, RR No. 18-2013)

Formal Letter of Demand and Final Assessment Notice

NOTE: If the FAN is deemed insufficient insofar as
compliance with Sec. 228 of the NIRC is concerned, such
The FLD or FAN are notices issued to taxpayers who fail to
insufficiency can be cured if the FLD can show the legal
respond to the PAN within the prescribed period, or those who
and factual bases relied upon in the issuance of the
respond to the PAN without merit.
assessment which the FAN failed to detail.

A final assessment is a notice "to the effect that the amount

therein stated is due as tax and a demand for payment thereof."
This demand for payment signals the time "when penalties and
interests begin to accrue against the taxpayer and enabling the
latter to determine his remedies." Thus, it must be "sent to and
received by the taxpayer and must demand payment of the taxes
described therein within a specific period.” (CIR v. Fitness by
Design, Inc., G.R. No. 215957, 09 Nov. 2016)
Period to Issue FLD or FAN
If the taxpayer, within 15 days from date of receipt of the PAN,
responds that he/it disagrees with the findings of deficiency tax
or taxes, an FLD/FAN shall be issued within 15 days from
filing/submission of the taxpayer’s response, calling for
payment of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties. (RR No. 18-2013)
b) REQUISITES OF A VALID ASSESSMENT
1. It must be in writing and signed by the BIR;
2. It must contain the law and the facts on which the
assessment is based (basis must be provided);
3. It must contain a demand for payment within the
prescribed period; and
4. It must be served on and received by the taxpayer.
NOTE: The taxpayers shall be informed in writing of the
law and the facts on which the assessment is made;
otherwise, the assessment shall be void.
Moreover, the regulations provide that the FLD and
FAN shall be issued by the Commissioner or his duly
authorized representative.

NOTE: Issuance of the FAN/FLD without waiting for the 15-day

period to reply to PAN is a violation of due process. (CIR vs. Next
Mobile, Inc., CTA EB Case No. 1419, 21 Nov. 2016)
An FLD or FAN issued beyond 15 days from filing or submission
of the taxpayer’s response to the PAN shall be valid, provided
that, it is issued within the period of limitation to assess internal
revenue taxes. The non-observance of the 15-day period,
however, shall constitute an administrative infraction and the
revenue officers who caused the delay shall be subject to
administrative sanctions as provided for by law and pertinent
revenue issuances. (RMO No. 11-2014)

Q: Who issues the FAN?

A: It shall be issued by the Commissioner of Internal Revenue or

his duly authorized representative.

The term “duly authorized representative” under Sec. 6(A) of

the NIRC which may authorize examination of taxpayers refers
to a Revenue Regional Director in accordance with Secs. 10 and

UNIVERSITY OF SANTO TOMAS 66

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
c) TAX DELINQUENCY vs. TAX DEFICIENCY A delinquency tax assessment made without the benefit
of a complete or partial investigation by an authorized
Tax Delinquency and Tax Deficiency Distinguished revenue officer who has a reason to believe that the
assessment and collection of a deficiency tax will be
DELINQUENCY TAX DEFICIENCY TAX jeopardized by delay caused by the taxpayer’s failure
to:
As to when liable
1. Self-assessed tax per 1. The amount by which the
1. Comply with audit and investigation requirements
return filed by the tax imposed by law as
to present his books of accounts and/or pertinent
taxpayer on the determined by the CIR or
records, or
prescribed date was his authorized
not paid at all or only representative exceeds the
2. Substantiate all or any of the deductions,
partially paid; or amount of tax in the
exemptions or credits claimed in his return (Sec. 3
taxpayer’s return; or
(1)(a), RR No. 30-2002)
2. Deficiency tax
assessed by the BIR 2. If there is no amount tax in
NOTE: This is issued when the revenue officer finds
becomes final and his return, then the amount
himself without enough time to conduct an appropriate
executory and the by which the tax as
or thorough examination in view of the impending
taxpayer has not paid determined by the CIR or
expiration of the prescriptive period for assessment.
it within the period his authorized
To prevent the issuance of a jeopardy assessment, the
given in the notice of representative exceeds the
taxpayer may be required to execute a waiver of the
assessment. amounts previously
statute of limitations.
assessed or collected
without assessment as
d) PRESCRIPTIVE PERIOD FOR ASSESSMENT
deficiency. (Sec. 56(B),
NIRC)
Three (3) Important Prescriptive Periods

As to collection
1. Period to assess tax;
Can immediately be Cannot be collected immediately 2. Period to collect tax; and
collected through: as the taxpayer may file the 3. Period to file a criminal action. (Mamalateo, 2014)
1. administrative action protest assessment & there
- the issuance of a should be a denial of such
warrant of distraint protest by the BIR.
and levy; and

2. judicial action

As to the filing of civil action

The filing of a civil action
for the collection of the
delinquent tax in the
ordinary court is a proper
remedy.
The filing of a civil action at the
ordinary court for collection
during the pendency of protest
may be the subject of a motion to
dismiss. In addition to a motion
to dismiss, the taxpayer must
file a petition for review with the
CTA to toll the running of the
prescriptive period.

As to penalties
Subject to administrative Not subject to the 25%
penalties such as 25% surcharge, although subject to
surcharge, interest, and interest and compromise
compromise penalty. penalty.

Jeopardy Assessment

67 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
Prescriptive Period of Assessment and Collection 3. Waiver of statute of limitations in writing, which
Distinguished must be made before the expiration of the period of
assessment of taxes: period agreed upon.
PRESCRIPTIVE
PRESCRIPTIVE PERIOD OF
PERIOD OF NOTE: The period agreed upon may be extended by
COLLECTION
ASSESSMENT subsequent written agreements made before the
Filing of returns before due date period previously agreed upon.

Q: STI filed its Amended Annual Income Tax Return

5 years from receipt of FAN by for fiscal year 2003 on August 15, 2003; its
taxpayer; Quarterly VAT Returns on July 23, 2002, October
25, 2002, January 24, 2003, and May 23, 2003; and
NOTE: If taxpayer files fraudulent its Bureau of Internal Revenue (BIR) Form for EWT
3 years from due
return or did not file any return, the from May 10, 2002 to April 15, 2003. On May 30,
date
BIR may collect without assessment 2006, STI's Sangalang signed a Waiver of the
within ten (10) years of filing of Defense of Prescription Under the Statute of
fraudulent return or discovery of non- Limitations of the NIRC. On June 2, 2006, the waiver
filing was accepted by the Large Taxpayers District
Officer of Makati and was notarized on even date.
On December 12, 2006, another waiver was
Filing of returns on the due date
executed extending the period to assess and collect.
3 years from due 5 years from receipt of FAN by It was also signed by Sangalang and accepted by the
date taxpayer same officer and notarized on the same date. A third
waiver was executed by the same signatories
Filing of returns beyond due date extending further the period to June 30, 2007. On
June 28, 2007, STI received a Formal Assessment
3 years from actual 5 years from receipt of FAN by Notice from the CIR, assessing STI for deficiency
filing taxpayer income tax, VAT and EWT for fiscal year 2003, in the
Fraudulent filing amount of P161M. However, the CIR maintains that
prescription had not set in because the parties
10 years from validly executed a waiver of statute of limitations
5 years from receipt of FAN by
discovery of bad under Sec. 222(b) of the NIRC, as amended. Are the
taxpayer
faith/fraud waivers executed valid? Thus, prescription has set
in against the assessments for deficiency income
Non-filing
tax, deficiency VAT and deficiency expanded
10 years from withholding tax?
5 years from receipt of FAN by
discovery of non-
taxpayer
filing A: NO. The last day for the CIR to issue an assessment
Waiver on STI's income tax was on August 15, 2006; while the
latest date for the CIR to assess STI of EWT was on April
Depends on the agreement of the parties provided that the 17, 2006; and the latest date for the CIR to assess STI of
agreement to extend is executed prior to the expiration of the deficiency VAT for the four quarters was on May 25,
original period of assessment 2006. Clearly, on the basis of these dates, the final
assessment notice which STI received on June 28, 2007,
was issued beyond the three-year prescriptive period.
Prescriptive Periods for Making Assessments
Furthermore, STI's signatory to the three waivers had
no notarized written authority from the corporation's
GR: The BIR has the right to assess within 3 years from the date
board of directors. RDAO No. 05-01 mandates the
of:
authorized revenue official to ensure that the waiver is
1. Actual filing of the return, or duly accomplished and signed by the taxpayer or his
From the last date prescribed by law for the filing of such authorized representative before affixing his signature
return, whichever is later. to signify acceptance of the same; and in case the
authority is delegated by the taxpayer to a
XPNs: representative, as in this case, the concerned revenue
official shall see to it that such delegation is in writing
1. False or fraudulent return with intent to evade tax: within and duly notarized. The waiver should not be accepted
ten (10) years from discovery of falsity or fraud; by the concerned BIR office and official unless
notarized. Similar to Standard Chartered Bank, the
2. Failure to file any return at all: within ten (10) years from waivers in this case did not specify the kind of tax and
discovery of omission to file a return; and the amount of tax due. There can be no agreement if the
kind and amount of the taxes to be assessed or collected

UNIVERSITY OF SANTO TOMAS 68

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
were not indicated. Hence, specific information in the waiver is
necessary for its validity. Verily, considering the foregoing
defects in the waivers executed by STI, the periods for the CIR to
assess or collect the alleged deficiency income tax, deficiency
EWT and deficiency VAT were not extended. The assessments
subject of this case, which were issued by the BIR beyond the
three-year prescriptive, are therefore considered void and of no
legal effect. (CIR v. Systems Technology Institute., G.R. No. 220835,
26 July 2007)
Extended Assessment
An assessment issued as a result of the waiver of the
prescriptive period is known as an “extended assessment”,
which has a prescriptive period for collection of five (5) years
from the time of issuance of the assessment.
Guidelines on Proper Execution of Waivers
1. The Waiver is a unilateral and voluntary undertaking which
shall take legal effect and be binding on the taxpayer
immediately upon his execution thereof.
2. The Waiver need not specify the type of taxes to be assessed
nor the amount thereof.
3. It is no longer required that the delegation of authority to a
representative be in writing and notarized.
4. The taxpayer cannot seek to invalidate his Waiver by
contesting the authority of his own representative.
5. It is the duty of the taxpayer to submit his Waiver to the
officials listed in the said RMO prior to the expiration of the
period to assess or to collect as the case may be.
6. In addition to the previously authorized officials, the RDO
or Group Supervisor as designated in the Letter of Authority
or Memorandum of Assignment can accept the waiver.
7. The date of acceptance by the BIR Officer is no longer
required to be indicated for the Waivers validity.
8. The taxpayer shall have the duty to retain a copy of the
submitted Waiver.
9. Notarization of the Waiver is not a requirement for its
validity.
10. The taxpayer is charged with the burden of ensuring that his
Waiver is validly executed when submitted to the BIR. Thus,
the taxpayer must ensure that his Waiver:
a. Is executed before the expiration of the period to
assess or to collect taxes.
b. Indicates the expiry date of the extended period.
c. Indicates the type of tax (for waiver of the
prescriptive period to collect). d. Is signed by his
authorized representative.
69
11. There is no strict format for the Waiver. The
taxpayer may utilize any form with no effect on its
validity. (RMC No. 141-2019)
Failure to Comply with Requirements of Waiver of
Statute of Limitations
It is invalid and ineffective to extend the prescriptive
period to assess taxes. (CIR v. Next Mobile Inc., G.R. No.
212825, 07 Dec. 2015)
Q: What is the effect of the execution by a taxpayer
of a "waiver of the statute of limitations" on his
defense of prescription? (2010 BAR)
A: The waiver of the statute of limitation executed by a
taxpayer is not a waiver of the right to invoke the
defense of prescription. The waiver of the statute of
limitation is merely an agreement in writing
between the taxpayer and the BIR that the period to
assess and collect taxes due is extended to a date
certain. If prescription has already set in at the time
of the execution of the waiver is invalid, the taxpayer
can still raise prescription as a defense. (Phil.
Journalists Inc., v. CIR, G.R. No. 162852, 16 Dec. 2004)
NOTE: Applying Sec. 222(b) of the NIRC, the Supreme
Court held that the period agreed upon may be
extended by subsequent written agreement made
before the expiration of the period previously agreed
upon. Failure to do so renders the extension ineffective.
(La Flor Dela Isabela, Inc. v. CIR, G.R. No. 202105, 28 Apr.
2021, J. Hernando)
Importance of Distinguishing Between a “False
Return” and a “Fraudulent Return”
The two returns are different but have the same
prescriptive periods to be assessed, which is 10-years.
The importance in distinguishing the two lies in the
application of the penalty surcharge.
Actual fraud, not constructive fraud, is subject to 50%
penalty surcharge. For the surcharge to apply, it must
be intentional fraud.
Negligence, whether slight or gross, is not equivalent to
fraud with intent to evade the tax contemplated by law.
(Ingles, 2015)
Just because the 10-year period applies, it doesn’t
necessarily mean that the taxpayer will be penalized
with the 50% surcharge. When a taxpayer files a false
return and not a fraudulent one, the 10-year period
applies but the 50% surcharge will not. (Aznar v. CTA,
G.R. No. L-20569, 23 Aug. 1974)
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW

(1) FALSE RETURNS VS. FRAUDULENT RETURNS VS. NON-FILING OF RETURNS
FALSE RETURNS
Contains wrong information due to
mistake, carelessness, or ignorance.
(Aznar v. CTA, G.R. No. L-20569, 23 Aug.
1974)
Deviation from the truth, whether
intentional or not
Does not make the taxpayer criminally
liable
Not subject to 50% penalty surcharge
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.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
TAXATION LAW
FRAUDULENT RETURNS FAILURE TO FILE A RETURN
As to nature
Omission to file a return in the date
Intentional and deceitful with the sole
prescribed by law.
aim of evading the correct tax due.
As to intention
Intentional or deceitful entry with
Omission can be intentional or not
intent to evade the taxes due
As to liability of taxpayer
Filing a fraudulent return will make the
The mere omission is already a violation
taxpayer liable for the crime of moral
regardless of the fraudulent intent or
turpitude as it entails willfulness and
willfulness of the individual. (CIR vs.
fraudulent intent on the part of the
Bank of Commerce, CTA EB Case No. 654,
individual. (Republic v. Marcos II, G.R.
14 Mar. 2011)
Nos. 130371 & 130855, 04 Aug. 2009)
As to penalty
Subject to 50% penalty surcharge Not subject to 50% penalty surcharge
As to period of assessment
70
 PRE-WEEK NOTES 2023
(2) SUSPENSION OF THE RUNNING OF STATUTE OF Requisites of a Protest
LIMITATIONS
1. It must be in writing.
Grounds for suspension of the prescriptive period for both
the power to assess and the power to collect: (L-O-W-P-A- 2. It must be addressed to the CIR or his duly authorized
R-A) representative;

1. When taxpayer cannot be Located in the address given
by him in the return;
XPN: He informs the CIR of any change in his address
thru a written notice to the BIR.
2. When the taxpayer is Out of the Philippines;
3. When the Warrant of distraint and levy is duly served
upon the taxpayer, his authorized representative or a
member of his household with sufficient discretion and
no property is located;
NOTE: Only period to collect is suspended.
4. Where the CIR is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court for 60 days thereafter, such as
where there is a Pending petition for review in the CTA
from the decision on the protested assessment;
(Republic v. Ker & Co., GR L-21609, 29 Sep. 1966)
5. Where CIR and the taxpayer Agreed in writing for the
extension of the assessment, the tax may be assessed
within the period so agreed upon; (Waiver)
6. When the taxpayer Requests for reinvestigation which
is granted by the Commissioner; and
NOTE: Only the period to collect is suspended because
assessment has been done at this point. (Ingles, 2015)
The request must be granted by the CIR. A request for
reconsideration alone does not suspend the period to
collect.
7. When there is an Answer filed by the BIR to the petition
for review in the CTA. (Hermanos v. CIR, GR. No. L-
24972, 29 Sept. 1969) Where the court justified this by
saying that in the answer filed by the BIR, it prayed for
the collection of taxes.
2. TAXPAYER’S REMEDIES
a) PROTESTING AN ASSESSMENT
Administrative Protest
The taxpayer or its authorized representative or tax agent
may protest administratively against the aforesaid
FLD/FAN within thirty (30) days from date of receipt
thereof.
3. It must state the facts, applicable law, rules and
regulations or jurisprudence on which the protest is
based otherwise the protest would be void; and
4. It must contain the following:
a. Name of the taxpayer and address for the
immediate past 3 taxable years;
b. Nature of the request, specifying the newly
discovered evidence to be presented;
c. Taxable periods covered by the assessment;
d. Amount and kind of tax involved and the
assessment notice number;
e. Date of receipt of the assessment notice or letter of
demand;
f. Itemized statement of the finding to which the
taxpayer agrees (if any) as basis for the
computation of the tax due, which must be paid
upon filing of the Protest;
g. Itemized schedule of the adjustments to which the
taxpayer does not agree;
h. Statements of facts or law in support of the
Protest; and
i. Documentary evidence as it may deem necessary
and relevant to support its Protest to be submitted
60 days from the filing thereof.
NOTE: Protested assessment is the same as disputed
assessment.
Effect of a Protest against an Assessment
Prescriptive period provided by law to make collection by
distraint or levy or by a proceeding in court is interrupted
once a taxpayer protests the Assessment and requests for
its cancellation.
(1) PERIOD TO FILE PROTEST
Period to Protest
The taxpayer or its authorized representative or tax agent
may protest administratively against the FLD/FAN within
thirty (30) days from date of receipt thereof.
Kinds of Protest
The taxpayer protesting an Assessment may file a written
request for reconsideration or reinvestigation defined as
follows:
1. Request for Reconsideration — refers to a plea of re-
evaluation of an Assessment on the basis of existing
records without need of additional evidence. It may
involve both a question of fact or of law or both.; or

71 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
2. Request for Reinvestigation — refers to a plea of re-
evaluation of an Assessment on the basis of newly
discovered or additional evidence that a taxpayer
intends to present in the Reinvestigation. It may also
involve a question of fact or of law or both.
Request for Reconsideration and Reinvestigation
Distinguished
otherwise, his protest shall be considered void and
without force and effect.
Q: On January 26, 2009, respondent received a Formal
Letter of Demand and Final Assessment Notice (FAN)
finding it liable for deficiency withholding tax on
compensation and deficiency expanded withholding
tax for the year ending December 31, 2005.

REQUEST FOR
RECONSIDERATION
As to basis
A claim for re-evaluation of
the assessment based on
existing records without
need of additional evidence.
REQUEST FOR
REINVESTIGATION
A claim for re-evaluation
of the assessment based
on newly discovered or
additional evidence.
Unioil filed its protest to the FAN on February 25, 2009
and submitted its supporting documents on April 24,
2009. Thereafter, Unioil filed the instant Petition for
Review on November 20, 2009, considering that the CIR
failed to act on its protest and the one hundred eighty
(180)-day period had already expired.
The CTA Third Division and CTA En Banc ruled that CIR
failed to comply with the notice requirements, thereby
denying respondent of its right to due process, hence,
effectively voiding the assessments issued.

Obtaining no relief from the CTA, the CIR filed this

As to issues involved petition for review on certiorari and submitted for the
It may also involve a first time proof of its issuance of a PAN and Unioil's
It may involve a question of
question of fact or law or actual receipt thereof.
fact or law or both.
both.
Unioil maintains that the CIR's assessments for
As to effect on tolling statute of limitations
deficiency withholding taxes were issued beyond the
It does not toll the statute of It tolls the statute of three-year prescriptive period provided in Sec. 203 of
limitations. limitations. the NIRC. The withholding tax returns for November
2005 were filed on December 2005. Hence, the BIR had
NOTE: A motion for reconsideration of the denial of the only until 9 December 2008 within which to assess the
Administrative Protest administrative protest does not toll alleged deficiency withholding taxes for compensation
the 30-day period to appeal to the CTA. (Fishwealth Canning and expanded withholding for the months of July to
Corporation v. CIR, G.R. No. 179343, 21 Jan. 2010) November 2005.

There is a distinction between a Request for
Reconsideration and a Request for Reinvestigation. A
reinvestigation which entails the reception and evaluation
of additional evidence will take more time than a
reconsideration of a Tax Assessment, which will be limited
to the evidence already at hand; this justifies why the
reinvestigation can suspend the running of the statute of
limitations on collection of the assessed tax, while the
reconsideration cannot. (BPI v. CIR, G.R. No. 181836, 9 July
2014)
Contents of a Protest
The taxpayer shall state in his Protest:
1. The nature of the Protest whether Reconsideration or
Reinvestigation, specifying newly discovered or
additional evidence he intends to present if it is a
Request for Reinvestigation,
2. Date of the Assessment Notice; and
3. The applicable law, rules and regulations, or
jurisprudence on which his protest is based,
1. Did CIR prove the issuance and receipt of a PAN by
Unioil?
2. Did CIR’s assessment of Unioil for deficiency
withholding taxes prescribed?
3. Are the FLD and FAN issued by the CIR valid?
A:
1. NO. The Supreme Court is not a trier of facts. The
CIR did not proffer a proof of Unioil's receipt of the
PAN in their petition for review before the CTA En
Banc. Since it was not offered as evidence, there is
nothing for this Court to consider. The CIR failed to
establish the fact of issuance of the PAN to Unioil.
Hence, its failure to comply with the notice
requirements under Sec. 228 of the 1997 NIRC
effectively denied Unioil of its right to due process.
2. YES. The CIR’s assessment of Unioil for deficiency
withholding taxes has prescribed. Sec. 203 of the
NIRC mandates the government to assess internal
revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or
the actual date of filing of such return, whichever
comes later. From the date of the Formal Letter of

UNIVERSITY OF SANTO TOMAS 72

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
Demand and the FAN which were simultaneously
issued on January 14, 2009, and only received by
Unioil on January 26, 2009, the three-year
prescriptive period reckoned from the deadline set
by law for the filing of the return, assessment of the
January to November 2005 monthly remittance
returns has palpably prescribed. As for the
assessment for December 2005, suffice to state that
all the circumstances obtaining herein lead to no
other conclusion that the assessment has likewise
prescribed.
3. NO. The FLD and FAN are void because they did not
state the factual and legal bases for the assessment.
In CIR v. Avon Products, the CIR, in exercising its
power to assess and collect taxes if these are owed,
ought to give due consideration to the arguments
and evidence submitted by the affected party. In
the case, the CIR only perfunctorily assessed Unioil
for deficiency withholding tax on compensation
and expanded withholding tax and went through
just the motions without due consideration. This is
apparent from the haste in which the Formal Letter
of Demand and the FAN were issued on January 14,
2009 in order to ostensibly beat the three-year
prescriptive period which set after January 15,
2009. (CIR v. Unioil Corp., G.R. No. 204405, 04 Aug.
2021, J. Hernando)
(2) SUBMISSION OF SUPPORTING DOCUMENTS
(3) EFFECT OF FAILURE TO FILE PROTEST
If the taxpayer fails to file a valid protest against the
FLD/FAN within thirty (30) days from date of receipt
thereof, the Assessment shall become final, executory, and
demandable. No request for reconsideration or
reinvestigation shall be granted on tax assessments that
have already become final, executory, and demandable.
(4) ACTION OF THE COMMISSIONER ON THE PROTEST
FILED
Period to Act upon or Decide on the Protest filed
1. By the duly authorized representative
a. Request for Investigation – within 180 days from
submission of relevant documents
b. Request for Reconsideration – within 180 days
from filing of protest
2. By the CIR
a. In case of Protest – within 180 days from filing of
protest
b. In case of Administrative Appeal – within 180 days
from the filing of Administrative Appeal
NOTE: Administrative appeal – Request for
Reconsideration filed with the CIR to elevate the
73
denial made by his duly authorized representative.
Decision on the Protest Filed
1. Direct grant or denial of protest – Final Decision on a
Disputed Assessment (FDDA)
The decision of the Commissioner or his duly
authorized representative shall state:
a. The facts, the applicable law, rules and regulations,
or jurisprudence on which such decision is based,
otherwise, the decision shall be void, and
b. That the same is his final decision.
2. Indirect denial of protest
a. Formal and final letter of demand from the BIR to
the taxpayer;
b. Civil collection can also be considered as denial of
protest of assessment;
c. Filing of criminal action against the taxpayer; or
d. Issuance of warrant of distraint and levy to enforce
collection of deficiency assessment is outright
denial of the request for reconsideration. (Hilado v.
CIR, CTA EB Case 1256, 25 Feb. 1964)
3. Inaction by the CIR or his duly authorized
representative
Remedies of the Taxpayer in Case of Denial or Inaction
by the Commissioner
1. By the CIR’s duly authorized representative
a. If the Protest is denied, in whole or in part, the
taxpayer may either:
i. appeal to the CTA within 30 days from date of
receipt of the said decision; or
ii. elevate his Protest through Request for
Reconsideration to the CIR within 30 days
from date of receipt of the said decision.
NOTE: No Request for Reinvestigation shall be
allowed in administrative appeal and only issues
raised in the decision of the CIR’s duly authorized
representative shall be entertained by the CIR.
b. If the Protest is not acted upon, the taxpayer may
either:
i. appeal to the CTA within 30 days after the
expiration of the 180-day period; or
ii. await the final decision of the CIR’s duly
authorized representative on the disputed
Assessment.
NOTE: Items a and b are mutually exclusive. The exercise
of one option bars the other.
2. By the CIR
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
a. If the Protest or administrative appeal, as the case b) COMPROMISE AND ABATEMENT OF TAXES
may be, is denied, in whole or in part, the taxpayer
may appeal to the CTA within 30 days from date of Compromise and Abatement of Taxes Distinguished
receipt of the said decision. Otherwise, the
assessment shall become final, executory and
COMPROMISE ABATEMENT
demandable.
As to nature
A motion for reconsideration of the CIR’s denial of Involves a reduction of the Involves the cancellation of
the protest or administrative appeal, as the case taxpayer’s liability through the entire tax liability of a
may be, shall not toll the 30-day period to appeal to a mutual agreement. taxpayer.
the CTA. As to Authorized Officer

b. If the Protest or administrative appeal is not acted CIR, REB, NEB CIR
upon, the taxpayer may either: As to grounds
i. Appeal to the CTA within 30 days from after 1. Reasonable doubt as to 1. The tax or any portion
the expiration of the 180-day period; or the validity of thereof appears to be
assessment; or unjustly or excessively
ii. Await the final decision of the CIR on the 2. Financial incapacity of assessed; or
disputed assessment and appeal such final the taxpayer. 2. The administration
decision to the CTA within 30 days after the and collection costs
receipt of a copy of such decision. involved do not justify
the collection of the
NOTE: Items a and b are mutually exclusive. The exercise amount due.
of one option bars the other.
Requisites for Compromise
When the law provided for the remedy to appeal the
inaction of the CIR, it did not intend to limit it to a single 1. Tax liability of the taxpayer;
remedy of filing an appeal after the lapse of 180-day 2. An offer of the taxpayer of an amount to be paid by him;
prescribed period. When a taxpayer protested an and
Assessment, he naturally expects the CIR to decide either 3. The acceptance (the CIR or the taxpayer) of the offer in
positively or negatively. A taxpayer cannot be prejudiced if the settlement of the claim
he chooses to wait for the final decision of the CIR on the
protested Assessment. (Lascona Land Co., Inc. v. CIR, G.R. No. Authority of the CIR to Compromise Taxes
171251, 05 Mar. 2012)
The CIR may compromise the payment of any internal
Q: What is the effect of a void FDDA? revenue tax, when:

A: FDDA that does not inform the taxpayer in writing of the
facts and law on which it is based renders the decision void.
The written notice requirement for both the FLD and the
FAN is in observance of due process — to afford the
taxpayer adequate opportunity to file a protest on the
assessment and thereafter file an appeal in case of an
adverse decision.
However, a void FDDA does not ipso facto render the
assessment void. The assessment remains valid
notwithstanding the nullity of the FDDA because the
assessment itself differs from a decision on the disputed
assessment. An FDDA that does not inform the taxpayer in
writing of the facts and law on which it is based renders the
decision void. Therefore, it is as if there was no decision
rendered by the CIR. It is tantamount to a denial by inaction
by the CIR, which may still be appealed before the CTA and
the assessment evaluated on the basis of the available
evidence and documents. (CIR v. Liquigaz Philippines Corp.,
G.R. No. 215534, 18 Apr. 2016)
1. A reasonable doubt as to the validity of the claim
against the taxpayer exists provided that the minimum
compromise entered into is equivalent to 40% of the
basic tax (Doubtful Validity).
2. The financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax provided that the
minimum compromise entered into is equivalent to
10% of the basic assessed tax (Financial Incapacity).
Cases which May be Compromised (2005, 2002, 1998
BAR) (D-A-N-C3)
1. Delinquent accounts;
2. Cases under Administrative protest after issuance of
the Final Assessment Notice to the taxpayer which are
still pending in the RO, RDO, Legal Service, Large
Taxpayer Service, Collection Service, Enforcement
Service, and other offices in the National Office;

3. Cases covered by pre-assessment notices, but taxpayer

is Not agreeable to the findings of the audit office as

UNIVERSITY OF SANTO TOMAS 74

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
confirmed by the review office;
4. Civil tax cases disputed before the courts;
5. Collection cases filed in courts; and
6. Criminal violations except:
1. Those already filed in courts; and
2. Those involving criminal tax fraud. (Sec. 3, RR 30-
2002)
When must Compromise be Made
1. Criminal cases – It must be entered into prior to the
institution of the corresponding criminal action arising
out of a violation of the provisions of the NIRC. A
compromise can never be entered into after final
judgment because by virtue of such final judgment the
Government had already acquired a vested right.
(Roviro v. Amparo, G.R. No. L- 5482, 05 May 1982)
NOTE: A compromise validly entered into between the
CIR and the taxpayer prior to the institution of the
corresponding criminal action arising out of a violation
of the provisions of the NIRC becomes a bar to such
criminal action. (People v. Magdaluyo, G.R. No. L-16235,
20 Apr. 1965)
Extent of Commissioner’s Power to Compromise
Criminal Violations
a. Before the complaint is filed with the
Prosecutor’s Office – full discretion to compromise
except those involving fraud.
b. After the complaint is filed with the Prosecutor’s
Office but before the information is filed with the
court – can still compromise provided that the
prosecutor gives his consent.
c. After the information is filed with the court – no
longer permitted to compromise with or without the
consent of the Prosecutor. (People v. Magdaluyo, G.R.
No. L-1595, 20 Apr. 1961)
2. Civil cases – Before litigation or at any stage of the
litigation, even during appeal, although legal propriety
demands that prior leave of court should be obtained.
Remedies in Case the Taxpayer Refuses or Fails to
Follow the Tax Compromise
1. Enforce the compromise
a. If it is a judicial compromise, it can be enforced by
mere execution. A judicial compromise is one
where a decision based on the compromise
agreement is rendered by the court on request of
the parties.
b. Any other compromise is extrajudicial and like any
other contract can only be enforced by court action.
75
2. Regard it as rescinded and insist upon original demand.
(Art. 2041, NCC)
Prescriptive Period to Enforce Compromises
As a rule, the obligation to pay tax is based on law. But when,
for instance, a taxpayer enters into a compromise with the
BIR, the obligation of the taxpayer becomes one based on
contract. Compromise is a contract whereby the parties, by
reciprocal concessions, avoid litigation or put an end to one
already commenced. (Art. 2028, NCC) Since it is a contract,
the prescriptive period to enforce the same is 10 years
based on Art. 1144, NCC reckoned from the time the cause
of action accrued.
Abatement and Cancellation of Tax Liability
Grounds for abatement (Sec. 204(B), NIRC):
1. The tax or any portion thereof appears to be unjustly or
excessively assessed: (Wrong-L-I-C-E)
a. The filing of the return/payment is made at the
Wrong venue;
i. The taxpayer fails to file the return and pay the
tax on time due to:
ii. Substantial losses from prolonged labor
dispute;
iii. Force majeure; or
iv. Legitimate business reverses;
NOTE: The abatement shall only cover the
surcharge and the compromise penalty and not the
interest imposed under Sec. 249, NIRC.
b. There is Late payment of the tax under meritorious
circumstances (i.e., Failure to beat bank cut-off
time, surcharge erroneously imposed);
c. The assessment is brought about or resulted from
taxpayer’s non-compliance with the law due to a
difficult Interpretation of said law;
d. The taxpayer fails to file the return and pay the
correct tax on time due to Circumstances beyond
his control; and
e. The taxpayer’s mistake in payment of his tax is due
to Erroneous written official advice of a revenue
officer. (Sec. 2, RR No. 13-2001)
2. The administration and collection costs involved do not
justify the collection of the amount due: (A-W-O-R-D)
a. Abatement of penalties on assessment confirmed
by the lower court but Appealed by the taxpayer to
a higher court;
b. Abatement of penalties on Withholding tax
assessment under meritorious circumstances;
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
c. Such Other circumstances which the CIR may deem
analogous to the enumeration above. (Sec. 3, RR No.
13-2001)
d. Abatement of penalties on assessment reduced
after Reinvestigation but taxpayer is still
contesting reduced assessment;
e. Abatement of penalties on Delayed installment
payment under meritorious circumstances; or
NOTE: For items a to e, the abatement of the
surcharge and compromise penalty shall be
allowed only upon written application by the
taxpayer, signifying his willingness to pay the basic
tax and interest or basic tax only, whichever is
applicable under prevailing circumstance.
c) RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY
COLLECTED
Remedies of Taxpayer After Payment
1. Tax refund – Actual reimbursement of tax
2. Tax credit – Government issues Tax Credit Certificate
(TCC) which may be applied against any internal
revenue tax, excluding withholding taxes, for which the
taxpayer is directly liable. (Sec. 204 (C), NIRC)
NOTE: All TCCs issued by the BIR shall not be allowed
to be transferred or assigned to any person. (Sec. 2, RR
No. 14-2011)
Requisites for Claim of Tax Refund or Tax Credit (2005,
2002 BAR)
1. There is tax collected erroneously or illegally, or a
penalty collected without authority, or a sum
excessively or wrongfully collected. (Sec. 229, NIRC)
NOTE: Payment under protest is not required.
2. There must be a written claim for refund filed by the
taxpayer with the CIR; (Vda. De Aguinaldo v. CIR, G.R. No.
L-19927, 26 Feb. 1965)
XPNs:
a. When on the face of the return upon which
payment was made, such payment appears clearly
to have erroneously paid - the CIR may refund or
credit the tax even without a written claim (Sec.
229, NIRC)
b. A return filed showing an overpayment shall be
considered as a written claim for credit or refund
(Sec. 204 (C), NIRC) (2010, 2002 BAR)
3. Must be a categorical claim for refund or credit;
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
NOTE: It is for the CIR to afford an opportunity to
correct the action of subordinate officers; and
To notify the Government that such taxes have been
questioned and the notice should then be borne in mind
in estimating the revenue available for expenditure.
(Bermejo v. CIR, G.R. No. L-3029, 25 July 1950)
4. Must be filed within 2 years from date of payment of the
tax or penalty regardless of any supervening cause that
may arise after payment. No suit or proceeding shall be
instituted after the expiration of the period; and (2008
BAR)
5. The taxpayer must present proof of payment of the tax.
Payment under Protest Not a Requirement
A suit or proceeding for tax refund may be maintained
“whether or not such tax, penalty or sum has been paid
under protest or duress” (Sec. 229, NIRC)
Two-year Period for Filing Tax Refund is Jurisdictional
The Supreme Court held that Sec. 204 applies to
administrative claims for refund, while Sec. 229 to judicial
claims for refund. In both instances, the taxpayer's claim
must be filed within two (2) years from the date of payment
of the tax or penalty. However, Sec. 229 of the NIRC further
states the condition that a judicial claim for refund may not
be maintained until a claim for refund or credit has been
duly filed with the Commissioner. Timeliness of the filing of
the claim is mandatory and jurisdictional. Thus, the CTA
cannot take cognizance of a judicial claim for refund filed
either prematurely or out of time. (CIR v. Carrier Air
Conditioning Philippines, Inc., G.R. No. 226592, 27 July 2021)
Q: PBCOM filed an amended ITR for the year 2006
reflecting a net loss and a creditable tax withheld for
the fourth quarter of 2006. After two years, they filed a
letter to the BIR. PBCOM filed a petition for review with
the CTA, praying for the issuance of a TCC due to the
inaction of the CIR on the former's claim for a TCC. The
CIR essentially argued that PBCOM's claim for the
issuance of a TCC is in the nature of a refund and is thus
subject to administrative examination by the BIR. Is the
CIR correct?
A: NO. The Supreme Court affirmed the CTA En Banc’s
ruling that the failure of the taxpayer to comply with the
requirements of its administrative claim for refund/credit
does not preclude its judicial claim. With reference to Sec.
229 of the NIRC, the only requirement for a judicial claim of
tax credit/refund to be maintained is that a claim of refund
or credit has been filed before the CIR; there is no mention
in the law that the claim before the CIR should be acted
upon first before a judicial claim may be filed.
The legislative intent is to treat the judicial claim as
independent and separate action from the administrative
claim; provided that the latter must be filed in order for the
former to be maintained. While the CIR should be given
76
 PRE-WEEK NOTES 2023
opportunity to act on PBCOM's claim, PBCOM should not be
faulted for lawfully filing a judicial claim before the
expiration of the two-year prescriptive period,
notwithstanding the alleged defects in its administrative
claim. (CIR V. Philippine Bank of Communications, G.R. No.
211348, 22 Feb. 2022, J. Hernando)
Taxpayer’s Remedy in Case of Denial of Claim for
Refund
The taxpayer may appeal to CTA in case of denial by CIR of
the claim for refund. It must be filed within 30 days from
receipt of the decision of the CIR but not to exceed the 2-
year period from date of payment of the tax or penalty
regardless of any supervening cause that may arise after
payment.
In case the decision of the CIR takes too long and the 2-year
period is about to end, proceedings in the CTA must be
commenced and without the need to wait for the decision of
the CIR.
Corporate Taxpayer’s Options in case of Excess
Quarterly Income Taxes Paid
If the sum of the quarterly tax payments made during the
said taxable year exceeds the total tax due on the entire
taxable income of that year, the corporation shall either:
1. Carry-over the excess credit against the estimated
quarterly income tax liabilities for the taxable quarters
of the succeeding taxable years; or
2. Be credited (TCC); or
3. Refunded with the excess amount paid. (Sec. 76, NIRC)
NOTE: The above options are alternative and not
cumulative in nature, that is, the choice of one precludes the
other. The logic behind the rule is to ease tax
administration, particularly the self-assessment and
collection aspects. (Republic v. Team (Phils.) Energy Corp.,
G.R. No. 188016, 14 Jan. 2015)
Irrevocability Rule
Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years has been made,
such option shall be considered irrevocable for that taxable
period and no application for cash refund or issuance of a
tax credit certificate shall be allowed therefor. (Sec. 76,
NIRC)
The phrase “such option shall be considered irrevocable for
that taxable period” means that the option to carry over the
excess tax credits of a particular taxable year can no longer
be revoked. (SYSTRA Phil., Inc. v. CIR, G.R. No. 176290, 21
Sept. 2007)
NOTE: Under the old provision, the option to carry-over the
excess or overpaid income tax for a given taxable year is
limited to the immediately succeeding taxable year only. In
contrast, under Sec. 76 of the NIRC of 1997, the application
77
of the option to carry over the excess of creditable tax is not
limited only to the immediately following taxable year but
extends to the next succeeding taxable years. The clear
intent in the amendment under Sec. 76 is to make the
option, once exercised, irrevocable for the “succeeding
taxable years”. (Asiaworld Properties Philippines
Corporation v. CIR, G.R. No. 171766, 29 Jul. 2010)
3. GOVERNMENT REMEDIES FOR COLLECTION OF
DELINQUENT TAXES
a) REQUISITES
GR: Collection is only allowed when there is already a final
assessment made for the determination of the tax due.
XPN: Judicial action to collect the tax liability is permitted
even without an assessment when the taxpayer:
1. Files a false or fraudulent return with intent to evade
the tax; or
2. Fails to file a return.
In the above cases, collection must be done within ten (10)
years after the discovery of falsity, fraud, or omission.
However, once an assessment is made against the taxpayer,
the government cannot avail of the 10-year period in Sec.
222(A). If the assessment is made, then the period to collect
is five years from the assessment and not 10 years. (Ingles,
2015)
NOTE: In sum, as a rule, the government can only file a
proceeding in court to collect once the assessment has
become final and unappealable.
When Assessments are Deemed Final
1. The taxpayer failed to file a protest thirty (30) days
from receipt of the assessment;
2. After the 180-day period and the CIR has not yet acted
on the protest, the taxpayer fails to appeal it; or
3. After thirty (30) days from the receipt of the decision of
the CIR the taxpayer fails to appeal.
Refer to discussion on “Taxpayer’s Remedies –
Protesting an Assessment” – p. 71
b) PRESCRIPTIVE PERIODS
GR: The prescriptive period to collect taxes due is five (5)
years from the date of assessment.
XPNs:
1. False or fraudulent return with intent to evade the tax
– within ten (10) years from discovery without need of
assessment;
2. Failure or omission to file return – within ten (10) years
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
from discovery without need of assessment; or Warrants of Distraint, Garnishment and Levy
Distinguished
3. Waiver in writing executed before the five-year period
expires – period agreed upon. DISTRAINT GARNISHMENT LEVY

Summary of Prescriptive Periods to Collect Deficiency As to subject matter

Tax

FALSE, FRAUDULENT, OR
RETURN WAS MADE FAILURE TO FILE A
RETURN Personal
Personal property Real property
Collection with prior assessment property
owned by the owned and in
owned by and
Collection should be made Collection should be made taxpayer but in the the possession
in possession
within 5 years from the within 5 years from the possession of the of the
of the
date of assessment, either date of assessment, either third party taxpayer
taxpayer
by: by:

1. Summary 1. Summary
proceedings; or proceedings; or
2. Judicial proceedings. 2. Judicial proceedings.
(Sec. 222(c), NIRC) (Sec. 222(c), NIRC) As to acquisition by the Government

Personal
Collection without prior assessment property Real property
Personal property
Collection is within 10 distrained is subject to levy is
garnished is
years from discovery, of purchased by forfeited to the
purchased by the
the falsity, fraud or the Government
Government and
omission to file a return. Government then sold to
– resold to meet
and resold to meet the
deficiency.
Limited to purely judicial meet deficiency.
remedies (Sec. 222(A)) deficiency.

As to advertisement of sale
Newspaper
Administrative Remedies
publication is
No newspaper No newspaper
required once a
1. Tax lien; publication publication
week for 3
2. Distraint of personal property; levy and sale of real required required
consecutive
property;
weeks.
3. Forfeiture of real property to the government for want
of bidder;
4. Suspension of business operation; and Requisites for the Exercise of Distraint and Levy (De-F-
5. Non-availability of injunction to restrain collection of De-P)
tax.
1. Taxpayer is Delinquent in payment of tax;
2. Taxpayer Failed to pay delinquent tax on time;
3. There must be subsequent Demand to pay; and
4. Period within which to assess and collect the tax due
has not yet prescribed.

Similarities between Distraint and Levy

1. Summary in nature,
2. Requires notice of sale, and
3. May not be resorted to if the amount involved is less
than P100.

UNIVERSITY OF SANTO TOMAS 78

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
Lien and Distraint Distinguished
LIEN DISTRAINT
As to directed against
The property subject to the Need not be directed
tax against the property
subject to tax
As to whom directed
The property itself The property should be
regardless of the present presently owned by the
owner of the property taxpayer
Q: Who is authorized to issue the warrant of distraint?
A:
1. CIR or his duly authorized representative – if the
amount involved is in excess of P1 million; or
2. Revenue District Officer – if the amount involved is P1
million or less (Sec. 207(A), NIRC)
Effect of Service of Warrant of Distraint or Levy
Its timely service suspends the running of the prescriptive
period to collect the tax deficiency in the sense that the
disposition of the attached properties might well take time
to accomplish, extending even after the lapse of the
statutory period for collections. (Republic v. Hizon, G.R. No.
130430, 13 Dec. 1999)
Q: Glowide and PMI are clients of TICO, an insurance
company. While Glowide and PMI's fire insurance
policy with TICO over certain properties was in effect, a
fire broke out that destroyed the said properties. Due
to TICO's failure to pay the full amount of the insurance
proceeds despite demand, Glowide and PMI filed a
Complaint for sum of money and damages, which was
granted. On January 8, 2002, Glowide and PMI moved
for execution as a matter of right, which was also
granted. Meanwhile, on April 22, 2002, the Insurance
Commission placed TICO under liquidation. TICO
moved to hold in abeyance the implementation of
Glowide and PMI’s writ of execution claiming, among
others, that it has tax assessments from 1996-1998
which enjoy preference above all other credits. For its
part, the BIR alleged that on January 31, 2000, it served
on TICO several final assessment notices for its alleged
deficiency in internal revenue taxes. The BIR averred
that TICO's tax liabilities remained unpaid. Thus, it
resorted to the issuance and service to TICO, and the
Register of Deeds, of a warrant of distraint and/or levy
on condominium units owned by TICO, and a notice of
tax lien. Is BIR entitled to the condominium units?
A: NO. It is settled that execution is enforced by the fact of
levy and sale. As a result of such execution, title over the
subject property vests immediately in the purchaser. On the
other hand, the Tax Code provides that a tax lien is
79
enforceable against all property and rights to property
belonging to the taxpayer and retroacts to the time when
the tax assessment was made. However, the tax lien shall
not be valid against any judgment creditor until notice of
such lien is filed with the Register of Deeds.
BIR's tax lien could only have been enforceable against
Glowide and PMI when it annotated its tax lien on February
15, 2005, which was already after the annotation of their
levy on attachment and sale of the condominium units in
Glowide and PMI's favor. At this point, Glowide and PMI
already had rights over the condominium units. (Bureau of
Internal Revenue v. Tico Insurance Co., Inc., G.R. No. 204226,
April 19, 2022, J. Hernando)
Forfeiture of Real Property
BIR is allowed to forfeit the property subject to levy only if:
1. There is no bidder; or
2. The bid amount is insufficient to pay the taxes,
penalties and costs. (Sec. 215, NIRC)
Redemption of Forfeited Property
The Register of Deeds shall transfer the title of forfeited
property to the Government without necessity of a court
order.
Within one (1) year from the date of forfeiture, the taxpayer,
or any one for him may redeem said property by paying to
the CIR or Revenue Collection Officer the full amount of the
taxes and penalties, together with interest thereon and the
costs of sale, but if the property be not thus redeemed, the
forfeiture shall become absolute. (Sec. 215, NIRC)
Judicial Remedies
1. Ordinary civil action, and
2. Criminal action.
In case the CIR decides adversely or if no decision yet after
the lapse of 180 days, the taxpayer may appeal to the CTA
Division, 30 days from the receipt of the decision or from
the lapse of the 180 days otherwise the decision shall
become final, executory and demandable. (RCBC v. CIR, G.R.
No. 168498, 24 Apr. 2007)
If the decision is adverse to the taxpayer, he may file a
motion for reconsideration or new trial before the same
Division of the CTA within fifteen (15) days from notice
thereof.
NOTE: A Motion for Reconsideration is required to be filed
to the division that decided the case, before filing Petition
for Review with the CTA En Banc.
In case the resolution of a Division of the CTA on a motion
for reconsideration or new trial is averse to the taxpayer, he
may file a petition for review with the CTA En Banc.
The ruling or decision of the CTA En Banc may be appealed
with the Supreme Court through a verified petition for
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
review on certiorari pursuant to Rule 45 of the 1997 Rules
of Civil Procedure.
Refer to discussion on “Court of Tax Appeals” – p. 95
No Injunction Rule
GR: No court shall have the authority to grant an injunction
to restrain the collection of any national internal revenue,
tax, fee, or charge. (Sec. 218, R.A. No. 8424)
XPNs:
1. Filing of Injunction with the CTA as an incident to its
appellate jurisdiction:
a. Showing that collection of the tax may jeopardize
the interest of the government and/or the
taxpayer; (Sec. 2, Rule 10, RRCTA)
b. Deposit of the amount claimed or file a surety bond
in an amount not more than double the disputed
amount or value; (Sec. 6, Rule 10, RRCTA); or
c. Showing by taxpayer that appeal is not frivolous
nor dilatory.
2. The SC, on exceptional cases of suits questioning the
constitutionality of a tax law. (Tolentino v. Executive
Secretary, G.R. No. 115455, 25 Aug. 1994)
3. In case of local taxes, RTCs may issue an injunction
upon a suit questioning their validity.
NOTE: In the case of the collection of local taxes, there
is no express prohibition in the Local Government Code
prohibiting courts from issuing an injunction to
restrain local governments from collecting taxes. Such
statutory lapse or intent, however it may be viewed,
may have allowed preliminary injunction where local
taxes are involved. (Angeles City v. Angeles Electric
Corporation, G.R. No. 166134, 29 June 2010)
Q: Standard Insurance Co., Inc., a non-life insurance
company, received from the BIR a Final Decision on
Disputed Assessment (FDDA) dated November 25,
2014, declaring its liability for the DST deficiency,
including interest and compromise penalty, totaling
P400,000.00. Standard, after its request for
reconsideration was denied, filed a Civil Case before the
RTC with prayer for issuance of a temporary
restraining order (TRO) or of a writ of preliminary
injunction and for the judicial determination of the
constitutionality of Secs. 108 and 184 of the NIRC with
respect to the taxes to be paid by non-life insurance
companies. The RTC promulgated a judgment
permanently enjoining the BIR, its agents,
representatives, or any persons acting on its behalf
from proceeding with the implementation or
enforcement of Secs. 108 and 184 of the NIRC against
Standard. Decide on the propriety of the RTC ruling.
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
A: The injunctive relief is not available as a remedy to assail
the collection of a tax. Sec. 218 of the NIRC provides that no
court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax,
fee or charge imposed by the NIRC. Also, decisions or
rulings of the BIR/CIR, among others, assessing any tax, or
levying, or distraining, or selling any property of taxpayers
for the satisfaction of their tax liabilities are immediately
executory, and their enforcement is not to be suspended by
any appeals thereof to the CTA unless in the opinion of the
CTA, the collection by the BIR or the Commissioner of
Customs may jeopardize the interest of the Government
and/or the taxpayer, in which case the CTA at any stage of
the proceeding may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file
a surety bond for not more than double the amount.
The adequate remedy upon receipt of the Final Decision on
Disputed Assessment (FDDA) was not the action for
declaratory relief but an appeal taken in due course to the
CTA. (CIR v. Standard Insurance Co., Inc., G.R. No. 219340, 07
Nov. 2018)
4. CIVIL PENALTIES
a) DELINQUENCY INTEREST AND DEFICIENCY
INTEREST
Kinds of Interest for Tax Purposes
1. Interest in general – There shall be assessed and
collected on any unpaid amount of tax, interest at the
rate of double the legal interest rate for loans or
forbearance of any money in the absence of an express
stipulation as set by the BSP, from the date prescribed
for payment until the amount is fully paid. (Sec. 249(A),
NIRC)
2. Deficiency interest – Any deficiency in the tax due shall
be subject to interest at the rate of 12% per annum
(double the legal interest rate prescribe in Sec. 249 (A),
which interest shall be assessed and collected from the
date prescribed for its payment until the full payment
thereof, or upon issuance of a notice and demand by the
CIR, whichever comes earlier. (Sec. 249(B), NIRC)
NOTE: The new interest rate shall be applied only in
cases of deficiency taxes for 2018 onwards. If the
deficiency taxes were for earlier taxable period, it shall
be computed pro-rata i.e., 20% for 2017 and earlier
(R.A. No. 8424) and the 12% for 2018 onwards (R.A. No.
10963).
3. Delinquency interest –
There shall be assessed and collected on the unpaid
amount, interest at the rate of 20% per annum until the
amount is fully paid, which interest shall form part of
the tax, in case of failure to pay:
80
 PRE-WEEK NOTES 2023
a. Amount of tax due on any return required to be the return, but subsequently discovered that the
filed, or return filed, and the amount paid was erroneous.
b. Amount of tax due for which no return is required, (Ingles, 2015)
or
c. Deficiency tax, or any surcharge on interest 2. 50% Surcharge:
thereon on the due date appearing in the notice and
a. Willful neglect to file the return within the period
demand of the CIR. (Sec. 249 (C), NIRC)
prescribed.; or

NOTE: Deficiency interest on deficiency income tax

accrues and commences from the date of
assessment as shown in the assessment notice.
Interest on Extended Payment
There shall be assessed and collected interest at the rate of
20% per annum on the tax or deficiency tax or any part
thereof unpaid from the date of notice and demand until it
is paid:
1. If any person required to pay the tax is qualified and
elects to pay the tax on installment, but fails to pay the
tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed
for its payment; or
2. Where the CIR has authorized an extension of time
within which to pay a tax or a deficiency tax or any part
thereof. (Sec. 249(D), NIRC)
b) SURCHARGE
Kinds of Civil Penalties
1. 25% Surcharge: (F-T-O-P)
a. Failure to File any return and pay the tax due
thereon as required under the provisions of the
NIRC or rules and regulations on the date
prescribed.; or
b. Failure to pay the deficiency tax within the Time
prescribed for its payment in the notice of
assessment.; or
NOTE: If the taxpayer voluntarily files the return
without notice from BIR, only 25% surcharge shall
be imposed for late filing and late payment of tax.
But if the taxpayer files the return after prior notice
in writing from BIR, then the 50% surcharge will be
imposed. Thus:
i. No demand from the BIR and the taxpayer
pays, albeit late, 25%
ii. With demand by the BIR, 50% (Ingles, 2015)
b. False or fraudulent return is willfully made.
NOTE: The fraud contemplated by law is actual
fraud, not constructive fraud. It must be intentional
fraud, consisting of deception willfully and
deliberately done or resorted to. Negligence,
whether slight or gross, is not equivalent to fraud
with intent to evade the tax contemplated by law.
(Aznar vs. CTA, G.R. No. L-20569, 23 Aug. 1974)
c) COMPROMISE PENALTY
It is a certain amount of money which the taxpayer pays to
compromise a tax violation. Compromise penalties are paid
in lieu of criminal prosecution and cannot be imposed in the
absence of a showing that the taxpayer consented thereto.
If an offer of compromise is rejected by the taxpayer, the
compromise penalty cannot be enforced through an action
in court or by distraint and levy. The CIR should file a
criminal action if he believes that the taxpayer is criminally
liable for violation of the tax law as the only way to enforce
a penalty. (Dimaampao, 2015)

NOTE: In cases of late payment of a deficiency tax

assessed, taxpayer shall be liable for the
delinquency interest incident to late payment. (RR
No. 18-2013)

c. Unless otherwise authorized by the CIR, filing a

return with an internal revenue officer Other than
those with whom the return is required to be filed.;
or

d. Failure to Pay the full or part of the amount of tax

shown on any return required to be filed under the
provisions of the NIRC or rules and regulations, or
the full amount of tax due for which no return is
required to be filed, on or before the date
prescribed for its payment. (Sec. 248(A), NIRC)

NOTE: There is no 25% surcharge when tax return

is filed on time and paid the full amount stated in

81 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
III. LOCAL TAXATION
A. LOCAL GOVERNMENT TAXATION
1. GENERAL PRINCIPLES
The fundamental principles are: (L-U-P-I-T)
1. The collection of local taxes, fees, charges and other
impositions shall in no case be Let to any private person;
2. Taxation shall be Uniform in each LGU;
3. Each LGU shall, as far as practicable, evolve a Progressive
system of taxation.
4. The revenues collected pursuant to the provisions of the
LGC shall Inure solely to the benefit of, and be subject to the
disposition by, the LGU levying the tax, fee, charge or other
imposition unless otherwise specifically provided herein;
and
5. Taxes, fees, charges and other impositions shall: (E-P-U-C)
a. be Equitable and based as far as practicable on the
taxpayer's ability to pay;
b. be levied and collected only for Public purposes;
c. shall not be Unjust, excessive, oppressive, or
confiscatory; and
d. not be Contrary to law, public policy, national economic
policy, or in the restraint of trade. (Sec. 130, LGC)
NOTE: The fundamental principles of local taxation are also
known as the requisites of municipal taxation.
2. NATURE AND SOURCE OF TAXING POWER
Characteristics of Taxing Power of LGUs: (D-O-N2-G)
1. Direct grant from the Constitution – while a direct grant,
the same is subject to limitations as may be set by Congress;
2. Exercised by the Sanggunian of the LGU concerned
through an appropriate Ordinance;
3. Not inherent – may only be exercised if delegated to them
by national legislature or conferred by the Constitution
itself;
4. Not absolute – subject to limitations and guidelines as may
be provided by law and the Constitution such as
UNIVERSITY OF SANTO TOMAS 82
2023 PRE -WEEK NOTES
progressivity etc.;
NOTE: It is a fundamental principle that municipal
ordinances are inferior in status and subordinate
to the laws of the state. An ordinance in conflict
with a state law of general character and statewide
application is universally held to be invalid.
(Batangas CATV, Inc. v. Court of Appeals, G.R. No.
138810, 29 Sept. 2004)
5. Its application is bounded by the Geographical
limits of the LGU that imposes the tax – gross
receipts realized by a specialty contractor from its
overseas construction projects are not subject to
tax. (Bureau of Local Government Finance Opinion,
16 May 2017)
a) GRANT OF LOCAL TAXING POWER UNDER THE
LOCAL GOVERNMENT CODE
Q: What are the bases for the exercise of the LGUs of
the power to impose tax?
A:
1. Art. X, Sec. 5, 1987 Constitution – “Each LGU shall
have the power to create their own sources of
revenues and to levy taxes, fees and charges subject
to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges shall
accrue exclusively to the local governments.”
2. Sec. 129, LGC – “Each LGU shall exercise its power
to create its own sources of revenue and levy taxes,
fees, and charges subject to the provisions herein,
consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue
exclusively to the LGUs.”
3. Charter of Cities – additional taxing authority
exclusively granted to cities include the power to
impose percentage tax and taxes on articles subject
to specific tax.
Paradigm Shift in Local Government Taxation
The power to tax is no longer vested exclusively on
Congress. Local legislative bodies are now given direct
authority to levy taxes, fees, and other charges
pursuant to Art. X, Sec. 5 of the Constitution. (NAPOCOR
v. City of Cabanatuan, G.R. No. 149110, 09 Apr. 2003)
The reason of the shift results from the realization that
genuine development can be achieved only by
strengthening local autonomy and promoting
decentralization of governance. (Ibid.)
 PRE-WEEK NOTES 2023
b) AUTHORITY TO PRESCRIBE PENALTIES FOR TAX 13. Cagayan De Oro Port Authority,
VIOLATIONS 14. San Fernando Port Authority,
15. Government Service Insurance System,
16. Laguna Lake Development Authority, and
c) AUTHORITY TO GRANT LOCAL TAX EXEMPTIONS 17. Bases Conversion Development Authority.

Guidelines for Granting Tax Exemptions, Incentives and NOTE: Exemption likewise applies to real property
Reliefs taxation.

1. Tax Exemptions and Reliefs: d) WITHDRAWAL OF EXEMPTIONS

a. They may be granted in cases of natural calamities, civil GR: Tax exemptions or incentives granted to, or
disturbance, general failure of crops or adverse presently enjoyed by all persons, whether natural or
economic conditions such as substantial decrease in juridical, including GOCCs, were withdrawn upon the
prices of agricultural or agri-based products. effectivity of the LGC. (Sec. 193, LGC)

b. The grant shall be through an ordinance. XPNs:

1. Unless otherwise provided in the LGC;
c. Any exemption or relief granted to a type or kind of 2. Local water districts;
business shall apply to all businesses similarly situated. 3. Cooperatives duly registered under R.A. No. 6938
or “The Cooperative Code of the Philippines”;
d. The same may take effect only during the calendar year 4. Non-stock and non-profit hospitals; and
not exceeding twelve (12) months as may be provided 5. Non-stock and non-profit educational institutions.
in the ordinance.
e. In case of shared revenues, the relief or exemption shall NOTE: However, withdrawal of tax exemption is not to
only extend to the LGU granting such. be construed as prohibiting future grants of tax
exemptions. The grant of taxing powers to LGU’s under
2. Tax incentives: the LGC does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared
a. They shall be granted only to new investments in the national policy.
locality and the ordinance shall prescribe the terms and
conditions thereof. Necessity of Re-enactment

b. The grant shall be for a definite period not exceeding
one (1) calendar year.
c. The grant shall be through an ordinance passed prior to
the 1st day of January of any year.
d. Tax incentive granted to a type or kind of business shall
apply to all businesses similarly situated. (Art. 282(b),
Rules and Regulations Implementing the LGC)
NOTE: Tax exemption is conferred through the issuance of a
non-transferable tax exemption certificate. (Art. 282, IRR of
LGC)
The person claiming the exemption has the burden of
proving its claim by clear grant of exemption after the
enactment of the LGC. (NAPOCOR v. City of Cabanatuan,
G.R. No. 149110, 09 Apr. 2003)
The rule that special law must prevail over the
provisions of a later general law does not apply as the
legislative purpose to withdraw tax privileges enjoyed
under existing laws or charters is apparent from the
express provisions of the LGC. (City of San Pablo,
Laguna v. Reyes, G.R. No. 127780, 25 Mar. 1999)
3. SCOPE OF TAXING POWER

Government Instrumentalities Exempt from Local Taxation

Q: What are the bases for the scope of taxing power
1. Philippine Amusement and Gaming Corporation, of LGUs?
2. Philippine Reclamation Authority,
3. Manila International Airport Authority, 1. Each LGU shall exercise its power to create its own
4. Mactan Cebu International Airport Authority, sources of revenue and to levy taxes, fees, and
5. Philippine Economic Zone Authority, charges, consistent with the basic policy of local
6. Philippine Rice Research Institute, autonomy. Such taxes, fees, and charges shall
7. Philippine Ports Authority, exclusively accrue to it. (Sec. 129, LGC)
8. Philippine National Railways,
9. University of the Philippines, 2. All LGUs are granted general powers to levy taxes,
10. Bangko Sentral ng Pilipinas, fees or charges on any base or subject not
11. Philippine Fisheries Development Authority, otherwise specifically enumerated herein or taxed
12. Cebu Port Authority, under the provisions of the NIRC or other
applicable laws. The levy must not be unjust,

83 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
excessive, oppressive, confiscatory or contrary to a 14. Tuition fees from the operation of the provincial
declared national economic policy. (Sec. 186, LGC) high school, except in the public elementary grades.

3. No such taxes, fees or charges shall be imposed without a Amusement Places upon which Provinces or Cities
public hearing having been held prior to the enactment of cannot Impose Amusement Taxes
the ordinance. (Sec. 187, LGC)
1. Cockpits,
4. Copies of the provincial, city, and municipal tax ordinances 2. Cabarets,
or revenue measures shall be published in full for three 3. Night or day clubs,
consecutive days in a newspaper of local circulation or 4. Boxing exhibitions,
posted in at least two conspicuous and publicly accessible 5. Professional basketball games,
places. (Sec. 188, LGC) 6. Jai-Alai, and
7. Racetracks.
4. SPECIFIC TAXING POWER OF LOCAL GOVERNMENT
UNITS NOTE: There can be no imposition of amusement taxes
on the above amusement places since Sec. 125 of NIRC
already imposes amusement taxes on them.
TAXING POWER OF PROVINCES

Therefore, LGUs cannot collect amusement taxes on

Taxes, Fees, and Charges which a Province or a City may
admission tickets to the Philippine Basketball
Levy
Association (PBA) games including the income from
cession of streamers and advertising spaces. (Philippine
1. Tax on transfer of real property ownership; (Sec. 135, LGC)
Basketball Association v. CA, G.R. No. 119122, 08 Aug.
2. Tax on business of printing and publication; (Sec. 136, LGC)
2000)
3. Franchise Tax; (Sec. 137, LGC)
TAXING POWER OF CITIES
4. Tax on sand, gravel and other quarry resources; (Sec. 138,
Specific Limitations on the Taxing Power of Cities
LGC)

GR: A city shall not levy the taxes and other impositions
5. Professional tax; (Sec. 139, LGC)
enumerated under the common limitations on the
taxing powers of local governments.
6. Amusement tax; (Sec. 140, LGC)

XPNs:
7. Annual fixed tax for every delivery truck or van of
1. Tax that may be levied by cities on the transfer of
manufacturers or producers, wholesalers of, dealers, or
real property ownership; and
retailer in certain products; (Sec. 141, LGC)
2. Wharfage on wharves constructed and maintained
by the city.
8. Annual ad valorem tax on real property such as land,
building, machinery, and other improvement not
TAXING POWER OF MUNICIPALITIES
specifically exempted at the rate not exceeding 1% of the
assessed value of the real property; (Sec. 232, LGC)
Under the LGC, a municipality may impose the
following taxes:
9. Special levies on real property;

1. Fees and charges on business and occupation; (Sec.

10. Toll fees or charges for the use of any public road, pier, or
147, LGC)
wharf, waterway, bridge, ferry, or telecommunication
system funded and constructed by the provincial
2. Fees for sealing and licensing of weights and
government; (Sec. 155, LGC)
measures; (Sec. 148, LGC)
11. Reasonable fees and charges for services rendered; (Sec.
3. Fishery rentals, fees, and charges; (Sec. 149, LGC)
153, LGC)

4. Tax on business: (Sec. 143, LGC)

12. Charges for the operation of public utilities owned,
operated, and maintained by the provincial government;
a. On Manufacturers, assemblers, repackers,
(Sec. 154, LGC)
processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and
13. Slaughter fees, corral fees, market fees, charges for holding
wines or manufacturers of any article of
benefits; and
commerce of whatever kind or nature;

UNIVERSITY OF SANTO TOMAS 84

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
b. On Wholesalers, distributors, or dealers in any article Ceiling on Business Taxes Imposed by LGUs within
of commerce of whatever kind or nature; Metro Manila

c. On exporters, and on manufacturers, millers, The municipalities in Metro Manila may levy taxes at
producers, wholesalers, distributors, dealers or rates which shall not exceed by 50% the maximum
retailers of essential commodities such as: rates prescribed in Sec. 143 of the LGC. (Sec. 144, LGC)

i. Rice and corn; Regulation and Licensing Fees, and Charges

ii. Wheat or cassava flour, meat, dairy products,
locally manufactured, processed or preserved food,
sugar, salt and other agricultural, marine and fresh
water products, whether in their original state or
not;
iii. Cooking oil and cooking gas;
1. The municipality may impose and collect such
reasonable fees and charges on business and
occupation except professional taxes reserved for
provinces. (Sec. 147, LGC)
2. Imposition of fees for sealing and licensing of
weights and measures. (Sec. 148, LGC)

iv. Laundry soap, detergents, and medicine; 3. Imposition of fishery rentals, fees and charges,
including the authority to grant fishery privileges
v. Agricultural implements, equipment and post- within municipal waters, as well as issue licenses
harvest facilities, fertilizers, pesticides, for the operation of fishing vessels of three tons or
insecticides, herbicides, and other farm inputs; less.

vi. Poultry feeds and other animal feeds; 4. The Sanggunian may penalize the use of explosives,
noxious, or poisonous substances, electricity,
vii. School supplies; and Muro–Ami, and other deleterious methods of
fishing and prescribe a criminal penalty thereof.
viii. Cement. (Sec. 149, LGC)

d. On Retailers; NOTE: In case of manufacturers or producers which

NOTE: Retailers who are at the same time wholesalers
within the same tax period shall be taxed on both
activities but may avail of the concession or the reduced
tax.
e. On Contractors;
engage the services of an independent contractor to
produce or manufacture some of their products, these
rules shall apply except that the factory or plant and
warehouse of the contractor utilized for the production
and storage of the manufacturers’ products shall be
considered as the factory or plant and warehouse of the
manufacturer.

f. Banks and other financial institutions;
NOTE: Bank income not subject to local taxation:
i. Interest earned under the expanded foreign
currency deposit system;
The city or municipality where the port of loading is
located shall not levy and collect reasonable fees unless
the exporter maintains in said city or municipality its
principal office, a branch, sales office, or warehouse,
factory, plant or plantation in which case, the rule on
the matter shall apply accordingly.

ii. Interest accumulated by lending institutions on TAXING POWER OF BARANGAYS

mortgages insured under Home Financing Act (R.A.
No. 480), as amended; and 5. COMMON REVENUE RAISING POWERS

iii. Receipts form filing fees, service, and other

1. Fees, service or user charges – LGUs may impose
administrative charges.
and collect such reasonable fees and charges for
services rendered. (Sec. 153, LGC)
g. Peddlers; and

2. Public utility charges – LGUs may fix the rates for

h. Other business not specified which the Sanggunian
the operation of public utilities owned, operated,
concerned may deem proper to tax.
and maintained by them within their jurisdiction.
(Sec. 154, LGC)

3. Toll fees or charges – The Sanggunian concerned

may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for

85 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
the use of any public road, pier, or wharf, waterway, bridge, charges and dues except wharfage on wharves
ferry or telecommunication system funded and constructed constructed and maintained by the LGU concerned;
by the LGU concerned. (Sec. 155, LGC)
NOTE: Item I of Sec. 133 must be correlated with
6. COMMUNITY TAX Sec. 155 which provides for toll fees or charges.
Applying the foregoing provisions, while imported
products are exempt from custom duties when
Persons Liable to Pay Community Tax
passing through an LGU, they are, however, not
exempt from toll fees and charges.
1. Individuals – Every inhabitant of the Philippines 18 years
of age or over:
5. Taxes, fees, and charges and other impositions
upon goods Carried into or out of, or passing
a. who has been regularly employed on a wage or salary
through, the territorial jurisdictions of LGUs in the
basis for at least 30 consecutive working days during
guise of charges for wharfage, tolls for bridges or
any calendar year;
otherwise, or other taxes, fees, or charges in any
form whatsoever upon such goods or merchandise;
b. who is engaged in business or occupation;

6. Taxes, fees, or charges, on Countryside and

c. who owns real property with an aggregate assessed
Barangay Business Enterprises and cooperatives
value of P1,000.00 or more; or
duly registered under R.A. No. 6810 and R.A. No.
6938 or the “Cooperative Code of the Philippines”,
d. who is required by law to file an income tax return.
respectively.
(Sec. 157, LGC)

7. Taxes, fees, or charges on Agricultural and aquatic

2. Juridical Persons – Every corporation no matter how
products when sold by marginal farmers or
created or organized, whether domestic or resident
fishermen;
foreign, engaged in or doing business in the Philippines.
(Sec. 158, LGC)
8. Taxes on business enterprises certified to by the
Board of Investments as Pioneer or non-pioneer
Persons Exempt from Community Tax
for a period of six (6) and four (4) years,
respectively from the date of registration;
1. Diplomatic and consular representatives, and
2. Transient visitors when their stay in the Philippines does
9. Percentage or VAT on sales, barters, or exchanges
not exceed three (3) months. (Sec. 159, LGC)
or similar transactions on goods or services except
as otherwise provided herein.
7. COMMON LIMITATIONS ON THE TAXING POWERS OF
LOCAL GOVERNMENT UNITS NOTE: Amusement Tax, as a form of percentage
tax, is expressly allowed by the LGC to be imposed
Limitation on the Taxing Powers of LGUs by the LGU. (Sec. 140, LGC)
Unless otherwise provided in the LGC, the exercise of the taxing
10. Taxes on Premiums paid by way or reinsurance or
powers of provinces, cities, municipalities, and barangays shall
retrocession.
not extend to the levy of the following: (I-D-E-C3-A-P3-M-E2-N-
T)
11. Taxes, fees, or charges for the registration of Motor
vehicles and for the issuance of all kinds of licenses
1. Income tax, except when levied on banks and other financial
or permits for the driving thereof, except tricycles.
institutions;

12. Taxes, fees, or other charges on Philippine

2. Documentary stamp tax;
products actually Exported, except as otherwise
provided in the LGC. (i.e., Sec. 143(I), LGC)
3. Taxes on Estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as provided herein;
13. Excise taxes on articles enumerated under the
NIRC, as amended, and taxes, fees, or charges on
GR: Taxes on estates, inheritance, gifts, legacies, and other
petroleum products.
acquisitions mortis causa, except as otherwise provided
under the LGC.
NOTE: LGUs may impose tax on a petroleum
business. A tax on business is distinct from a tax on
XPN: Tax on transfer of real property (Sec. 135, LGC)
the article itself. (Phil. Petroleum Corporation vs.
Municipality of Pililia Rizal, G.R. No. 90776, 03 June
4. Customs duties, registration fees of vessel and wharfage on
1991)
wharves, tonnage dues, and all other kinds of customs fees,

UNIVERSITY OF SANTO TOMAS 86

2023 PRE -WEEK NOTES
 PRE-WEEK NOTES 2023
Sec. 133(h) clearly specifies the two kinds of taxes which
cannot be imposed by LGUs:
a. excise taxes on articles enumerated under the NIRC, as
amended; and
b. taxes, fees or charges on petroleum products.
(Batangas City v. Pilipinas Shell Petroleum Corp., G.R. No.
187631, 08 July 2015)
14. Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and LGUs.
(Sec. 133, LGC)
NOTE: Item O of Sec. 133 must be correlated with Sec. 193.
Thus, tax exemptions of GOCCs created before the
effectivity of the 1991 LGC are revoked. Conversely, tax
exemptions of GOCCs created after the effectivity of the
1991 LGC are not revoked.
15. Taxes on the gross receipts of transportation contractors
and persons engaged in the Transportation of passengers
or freight by hire and common carriers by air, land, or
water, except as provided in this Code.
NOTE: An examination of the above enumeration reveals that
those taxes, charges, and fees already imposed and collected by
the National Government such as income taxes, estate taxes,
donor’s taxes, documentary stamp taxes. Under the Reservation
Rule or Exclusionary Rule, the LGUs cannot exercise taxing
powers reserved to the National Government.
Principle of Pre-emption or Exclusionary Doctrine
It refers to an instance where the National Government elects to
tax a particular area, it impliedly withholds from the local
government the delegated power to tax the same field. This
doctrine principally rests on the intention of the Congress.
Conversely, should the Congress allow municipal corporations
to cover fields of taxation it already occupies then the doctrine
of pre-emption will not apply. (Victorias Milling Co., Inc. v.
Municipality of Victorias Negros Occidental, G.R. No. L-21183, 27
Sept. 1968)
Instances when Principle of Pre-emption or Exclusionary
Doctrine does Not Apply
1. Taxes levied under:
a. the NIRC, unless otherwise provided by the LGU;
b. the Tariff and Customs Code;
c. special laws;
2. Taxes, fees, and other charges the imposition of which
contravenes existing governmental policies, or which
violates the fundamental principles of taxation;
3. When Congress allows municipal corporations to cover
fields of taxation it already occupies;
4. It does not apply beyond a certain level of sales or receipts
for the preceding year, e.g., sales subject to VAT and sales
tax imposed by the LGU; and
87
5. If the subjects of the taxes levied by the national
and local governments are different from each
other. (Lim, 2021)
Levy of Income Taxes
GR: The exercise of the taxing authority of LGUs shall
not extend to the levy of income tax.
XPN: Income tax may be levied on banks and other
financial institutions. (Sec. 133(a), LGC)
Authorization Limitation
With the exception of cities, each LGU could not
exercise the taxing powers granted to others. Hence, a
province could not exercise the powers granted to
municipality and vice-versa. However, a city could
exercise the taxing powers of both a province and a
municipality.
8. REQUIREMENTS FOR A VALID TAX ORDINANCE
To be valid, an ordinance must conform to the following
substantive requirements: (C-U-P2-G-Un)
1. It must not Contravene the Constitution or any
statute;
2. It must not be Unfair or oppressive;
3. It must not be Partial or discriminatory;
4. It must not Prohibit but may regulate trade;
5. It must be General and consistent with public
policy; and
6. It must not be Unreasonable. (Municipality of San
Mateo, Isabela v. Smart Communications, Inc. G.R.
No. 219506, 23 June 2021)
9. TAXPAYER’S REMEDIES
a) PROTEST
1. When the correct tax, fee, or charge is not paid, the
Local Treasurer shall issue a Notice of Assessment
within the applicable prescriptive period, stating
the nature of the levy, the amount of deficiency, the
surcharges, interests, and penalties.
2. Within 60 days from receipt of the assessment, the
taxpayer may file a written Protest of the
assessment with the local treasurer contesting the
assessment; otherwise, the assessment shall
become final and executory.
3. The local treasurer shall decide the protest within
60 days from the time of its filing. If the local
treasurer finds the assessment to be wholly or
partly correct, he shall deny the protest wholly or
partly with notice to the taxpayer.
4. The taxpayer shall have 30 days from the receipt of
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
the denial of the protest or from the lapse of the 60-day
period prescribed herein within which to appeal with the
court of competent jurisdiction otherwise the assessment
becomes conclusive and unappealable. (Sec. 195, LGC)
5. The competent court referred to is the RTC, or MTC, or
MeTC, or MCTC which act in the exercise of its original
jurisdiction, depending on the amount. Local tax cases
originally decided by the MTC, or MeTC, or MCTC may be
appealed to RTC.
NOTE: When an assessment is seasonably disputed, the
collection of tax, fee, or charge subject matter of the assessment
should be held in abeyance pending final determination thereof.
b) REFUND
Procedure for Refund
1. A written claim for refund or credit is filed with the local
treasurer.
2. A claim or proceeding is then filed with the court of
competent jurisdiction, depending upon the jurisdictional
amount, within two (2) years from the date of the payment
of such tax, fee, or charge, or from the date the taxpayer is
entitled to a refund or credit. (Sec. 196, LGC)
NOTE: The filing of a written claim for refund with the local
treasurer is a condition precedent for maintaining a court
action. If the local treasurer does not act on the written
claim for refund and the 2-year statute of limitation is about
to expire, the taxpayer should forthwith initiate the court
action and consider the treasurer’s inaction as a denial of
his claim for refund.
c) ACTION BEFORE THE SECRETARY OF JUSTICE
Procedure before the Secretary of Justice
1. Administrative appeal questioning the constitutionality or
legality within 30 days from the effectivity of the tax
ordinance or revenue measure.
2. Secretary of Justice shall render a decision within 60 days
from date of receipt of the appeal.
3. Within 30 days after receipt of the decision or the lapse of
60-day period without action from the Secretary of Justice,
aggrieved party may file appropriate proceedings with a
court of competent jurisdiction.
NOTE: Such appeal shall not have the effect of suspending
the effectivity of the ordinance and the accrual of the
payment of the tax, fee, or charge levied therein. (Sec. 187,
LGC)
The three separate periods (30-30-60) are given for
compliance as a pre-requisite before seeking redress in a
competent court. (Jardine Davies Insurance Brokers, Inc. vs.
Aliposa, G.R. No. 118900, 27 Feb. 2003)
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
10. ASSESSMENT AND COLLECTION OF LOCAL
TAXES
GR: Local taxes, fees, or charges shall be assessed
within five (5) years from the date they became due. No
action for the collection of such taxes, fees, or charges,
whether administrative or judicial, shall be instituted
after the expiration of such period.
XPN: In case of fraud or intent to evade the payment of
taxes, fees, or charges, the same may be assessed within
10 years from discovery of the fraud or intent to evade
payment. (Sec. 184 (a) and (b), LGC)
Grounds for Refund of Local Government Taxes,
Fees, or Charges
1. Erroneously collected, or
2. Illegally collected. (Sec. 196, LGC)
Procedure for Refund of Local Government Taxes,
Fees, or Charges
1. A written claim for refund or credit is filed with the
local treasurer.
2. A claim or proceeding is then filed with the court of
competent jurisdiction, depending upon the
jurisdictional amount, within two (2) years from
the date of the payment of such tax, fee, or charge,
or from the date the taxpayer is entitled to a refund
or credit (Ibid.)
a) REMEDIES OF LOCAL GOVERNMENT UNITS
1. Local government lien – Local taxes, fees, charges,
and other revenues constitute a lien, superior to all
liens, charges or encumbrances in favor of any
person, enforceable by appropriate administrative
or judicial action, not only upon any property or
rights therein which may be subject to the lien but
also upon property used in business, occupation,
practice of profession or calling, or exercise of
privilege with respect to which the lien is imposed.
(Sec. 173, LGC)
The lien may only be extinguished upon full
payment of the delinquent local taxes fees and
charges including related surcharges and interest.
2. Civil remedies
a. Distraint of personal property,
b. Levy of real property, or
c. Judicial action. (Secs. 173-174, LGC)
Properties Exempt from Distraint or Levy
The following properties shall be exempt from distraint
and the levy, attachment or execution thereof for
delinquency in the payment of any local tax, fee or
88
 PRE-WEEK NOTES 2023
charge, including the related surcharge and interest: (To-Be-C-
Ho-P-L-B-M) B. REAL PROPERTY TAXATION

1. Tools and implements necessarily used by the delinquent

taxpayer in his trade or employment;
2. One horse, cow, carabao, or other Beast of burden, such as
the delinquent taxpayer may select, and necessarily used by
him in his ordinary occupation;
3. His necessary Clothing, and that of all his family;
1. FUNDAMENTAL PRINCIPLES
The appraisal, assessment, levy and collection of real
property tax shall be guided by the following: (C-A-U-
L-E)

4. Household furniture and utensils necessary for
housekeeping and used for that purpose by the delinquent
taxpayer, such as he may select, of a value not exceeding
P10,000.00;
5. Provisions, including crops, actually provided for individual
or family use sufficient for four (4) months;
6. The professional Libraries of doctors, engineers, lawyers
and judges;
7. One fishing Boat and net, not exceeding the total value of
P10,000.00, by the lawful use of which a fisherman earns his
livelihood; and
1. Real property shall be appraised at its Current and
fair market value;
2. Real property shall be classified for assessment
purposes on the basis of its Actual use; (Doctrine of
Usage)
NOTE: Actual use refers to the purpose for which
the property is principally or predominantly
utilized by the person in possession of the
property.
3. Real property shall be assessed on the basis of a
Uniform classification within each LGU;

8. Any Material or article forming part of a house or 4. The appraisal, assessment, levy, and collection of
improvement of any real property. (Sec. 185, LGC) real property tax shall not be Let to any private
person; and
b) PRESCRIPTIVE PERIOD
5. The appraisal and assessment of real property shall
Period of Assessment be Equitable. (Sec. 198, LGC)

Local taxes, fees, or charges shall be assessed within five (5) NOTE: Real Property shall be classified, valued and
years from the date they become due. (Sec. 194(a), LGC) assessed on the basis of its actual use regardless of
where located, whoever owns it, and whoever uses it.
Period of Collection (Sec. 217, LGC)

Local taxes, fees, or charges may be collected within five (5) 2. NATURE
years from the date of assessment by administrative or judicial
action. (Sec. 194(c), LGC) Characteristics of Real Property Tax (L-A-P-I-D)

Suspension of Running of Prescriptive Period 1. It is a Local tax;

The running of the periods of prescription shall be suspended 2. It is an Ad valorem tax;

for the time during which: (P-R-O)
NOTE: Ad valorem tax is a levy on real property
1. The treasurer is legally Prevented from making the determined on the basis of a fixed proportion of the
assessment of collection; value of money.

2. The taxpayer Requests for a reinvestigation and executes a 3. It is Proportionate because the tax is calculated on
waiver in writing before expiration of the period within the basis of a certain percentage of the value
which to assess or collect; and assessed;
4. It creates a single Indivisible obligation; and
3. The taxpayer is Out of the Country or otherwise cannot be
located. (Sec. 194(d), LGC) 5. It is Direct tax on the ownership of real property.

NOTE: The impact and incidence of taxation

devolves on the same person. (Aban, 2001)

89 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
3. IMPOSITION
a) POWER TO LEVY
Extent of the Local Taxing Power in Real Property Taxation
Provinces, cities, and municipalities do not only have the power
to levy real estate taxes, but they may also fix real estate tax
rates. Sec. 233 of the LGC provides that they shall fix a uniform
rate of basic real property tax applicable to their respective
localities.
NOTE: Municipalities outside Metro Manila cannot levy real
property taxes. They can, however, impose special levies.
Real Properties Subject to Tax
1. For Basic Real Property Tax and Special Levy on
Education Fund:
a. Land
b. Building
c. Machinery
d. Other improvements (Sec. 232, LGC)
2. For Special Levy on Idle Lands and Special Levy on Public
Works (Special Assessments):
a. Land Only
Ceiling on Real Property Tax Rates
1. Province – can impose a real property tax rate not
exceeding 1% of the assessed value of the property.
2. City or municipality within the Metro Manila area – can
impose a real property tax rate not exceeding 2% of the
assessed value of the property. (Sec. 233, LGC)
Special Levy or Special Assessment by LGUs
GR: A province, city or municipality may impose a special levy
on the lands within its territorial jurisdiction specially benefited
by public works projects or improvements by the LGU
concerned.
XPN: It shall not apply to lands exempt from basic real property
tax and the remainder of the land, portions of which have been
donated to the LGU concerned for the construction of such
projects or improvements. (Sec. 240, LGC)
NOTE: The special levy shall not exceed 60% of the actual cost
of such projects and improvements, including the costs of
acquiring land and such other real property in connection
therewith.
Additional Levy on Real Property for Special Education
Fund
A province, city, or a municipality within the Metro Manila area
may levy and collect an annual tax of 1% on the assessed value
UNIVERSITY OF SANTO TOMAS
2023 PRE -WEEK NOTES
of real property, which shall be in addition to the basic
real property tax. The proceeds thereof shall
exclusively accrue to the Special Education Fund
created under R.A. 5447. (Sec. 235, LGC)
Additional Ad Valorem Tax on Idle Lands
A province or city or a municipality within the Metro
Manila area may levy an annual tax on idle lands at the
rate not exceeding 5% of the assessed value of the
property which shall be in addition to the basic real
property tax. (Sec. 236, LGC)
Grounds for Exemption from Idle Lands Tax
1. Force majeure;
2. Civil disturbance;
3. Natural calamity; or
4. Any cause or circumstance which physically or
legally prevents the owner or person having legal
interest from improving, utilizing or cultivating the
same. (Ibid.)
b) EXEMPTION FROM REAL PROPERTY TAX
The following are exempted from Real Property Tax:
(R-C-W-C-P)
1. Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has been
granted for consideration or otherwise to a taxable
person. (Testate Estate of C.T. Lim v. City of Manila,
G.R. No. 90639, 21 Feb. 1990)
2. Charitable institutions, churches, parsonages, or
convents appurtenant thereto, mosques, non-
profit or religious cemeteries, and all lands,
buildings, and improvements actually, directly and
exclusively used for religious, charitable, or
educational purposes.
NOTE: The tax exemption here rests on the
premise that the real property is actually, directly
and exclusively used by said entities or
institutions for their stated purposes and not
necessarily because they are owned by religious,
charitable or educational institutions.
3. All machineries and equipment that are actually,
directly and exclusively used by local Water
utilities and GOCCs engaged in the supply and
distribution of water and/or generation and
transmission of electric power.
4. All real property owned by duly registered
Cooperatives as provided for under R.A. No. 6938.
5. Machinery and equipment used for Pollution
control and environmental protection. (Sec. 234,
LGC)
90
 PRE-WEEK NOTES 2023
NOTE: Pollution control and infrastructure devices refers
to infrastructure, machinery, equipment and/or
improvements used for impounding, treating or
neutralizing, precipitating, filtering, conveying and
cleansing mine industrial waste and tailings as well as
eliminating or reducing hazardous effects of solid particles,
chemicals, liquids, or other harmful by-products and gases
emitted from any facility utilized in mining operations for
their disposal. (Sec. 3, R.A. No. 7942)
Other Properties Exempt from Real Property Tax
1. Real property in any one city or municipality belonging to a
single owner, the entire assessed valuation of which is not
in excess of P1,000.00;
2. Land acquired by grant, purchase, or lease from the public
domain for conversion into dairy farms for a period of five
(5) years from the time of such conversion;
3. Machinery of a pioneer and preferred industry as certified
by the Board of Investments used or operated for industry,
agriculture, manufacturing, or mining purposes, during the
first three (3) years of the operation of the machinery;
4. Perennial trees and plants of economic value except where
the land upon which they grow is planted principally to
such growth; and
5. Properties owned by non-stock or non-profit educational
institutions, the total assessed value of which does not
exceed P3,000.00, including those owned by Educational
Foundations organized under R.A. No. 6055.
Withdrawal of Real Property Tax Exemption
Except as provided under Sec. 234 of the LGC, any exemption
from payment of real property tax previously granted to, or
presently enjoyed by all persons, whether natural or juridical,
including all GOCCs, are hereby withdrawn upon the effectivity
of the LGC.
Q: Are the airport lands and buildings of Manila
International Airport Authority (MIAA) exempt from real
estate tax under existing laws?
A: YES. First, MIAA is not a GOCC but an instrumentality of the
National Government, thus, exempt from local taxation. MIAA is
a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any
other government instrumentality; the only difference is that
MIAA is vested with corporate powers. Second, the real
properties of MIAA are owned by the Republic of the
Philippines, thus, exempt from real estate tax. Airport lands and
buildings are outside the commerce of man. Since the airport
lands and buildings of MIAA are devoted to public use, they are
properties of public dominion. (MIAA v. CA, City of Paranaque, et
al., G.R. No. 155650, 20 July 2006)
Q: MWSS claims that it is an instrumentality of the Republic;
thus, its real properties should be exempt from real
91
property tax. Is the contention of MWSS correct?
A: YES. After the promulgation of Manila International
Airport Authority, then President Gloria Macapagal-
Arroyo issued E.O. No. 596, which recognized the
Court’s categorization of “government
instrumentalities vested with corporate powers.”
Under Sec. 2 of E.O. No. 596, MWSS is categorized with
other government agencies that were found to be
exempt from the payment of real property taxes. Also,
in 2011, Congress passed R.A. No. 10149 or the GOCC
Governance Act of 2011, which adopted the same
categorization and explicitly lists petitioner together
with the other government agencies that were
previously held by the Court to be exempt from the
payment of real property taxes. (MWSS v. Local
Government of Quezon City, G.R. No. 194388, 07 Nov.
2018)
Q: The Quezon City Local Government assessed real
property taxes on MWSS’s properties located in
Quezon City. MWSS received several Final Notices of
Real Property Tax Delinquency from the Local
Government of Quezon City, covering various
taxable years, in the total amount of
P237,108,043.83 on MWSS’s real properties. MWSS
argues that it is exempt from taxation as it is an
instrumentality of the government holding
properties of the public dominion. The local
government argues that MWSS holds properties in
the exercise of its proprietary functions, thus, are
susceptible to real property tax and points out that
tax exemption granted in Sec. 18 of R.A. No. 6234
has been repealed by Sec. 234 of the LGC. May the
local government unit assess real property taxes on
MWSS, a government entity?
A: NO. The general rule is that any real property owned
by the Republic or its political subdivisions is exempt
from the payment of RPT except when the beneficial
use of the real property was granted to a taxable
person. E.O. No. 596 categorizes MWSS as a
government instrumentality vested with corporate
powers. R.A. No. 10149 or the GOCC Governance Act of
2011 adopted the same categorization and explicitly
lists MWSS as exempt from the payment of RPT. Thus,
the real properties of the MWSS are exempt from real
property taxes, except if the beneficial use of its
properties has been extended to a taxable person.
(Metropolitan Waterworks and Sewerage System v.
Local Government of Quezon City, G.R. No. 194388, 07
Nov. 2018)
Q: Filipinas Palm Oil Plantation, Inc. is a private
organization engaged in palm oil plantation. It
leases the land from NGPI-NGEI Cooperative. The
LBAA assessed Filipinas of real property taxes on
the land it leases, on the road it built primarily for
the benefit of the plantation, and on the
machineries that are not attached to the land. Is the
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
assessment of LBAA proper?
A: NO. Under Sec. 133(n) of the LGC, the taxing power of LGUs
shall not extend to the levy of taxes, fees, or charges on duly
registered cooperatives under the Cooperative Code. NGPI-
NGEI, as the owner of the land being leased by respondent, falls
within the purview of the law. Sec. 234 of the LGC exempts all
real property owned by cooperatives without distinction.
Nothing in the law suggests that the real property tax exemption
only applies when the property is used by the cooperative itself.
Similarly, the instance that the real property is leased to either
an individual or corporation is not a ground for withdrawal of
tax exemption.
The roads that Filipinas Palm constructed within the leased area
should not be assessed with real property taxes. The roads
constructed became permanent improvements on the land
owned by the NGPI-NGEI by right of accession under Arts. 440
and 445 of the Civil Code. Hence, whatever is incorporated in the
land, either naturally or artificially, belongs to the NGPI-NGEI as
the landowner. Although the roads were primarily built for
Filipinas Palm’s benefit, the roads were also being used by the
members of NGPI and the public.
However, the assessment pertaining to the machinery is proper.
The definition of “machinery” under Sec. 199 of the LGC includes
machines which may or may not be attached, permanently or
temporarily, to the real property. (Provincial Assessor of Agusan
del Sur vs. Filipinas Palm Oil Plantation, Inc., G.R. No. 183416, 05
Oct. 2016)
4. APPRAISAL AND ASSESSMENT
a) CLASSES OF REAL PROPERTY
b) ASSESSMENT BASED ON ACTUAL USE
Real property shall be classified, valued and assessed on the
basis of its actual use regardless of where located, whoever
owns it, and whoever uses it. (Sec. 217, LGC)
Effectivity of Assessment or Reassessment
All assessments or reassessments made after the 1st day of
January of any year shall take effect on the 1st day of January of
the succeeding year.
NOTE: Provided, however, that the reassessment of real
property due to its partial or total destruction, or to a major
change in its actual use, or to any great and sudden inflation or
deflation of real property values, or to the gross illegality of the
assessment when made or to any other abnormal cause, shall be
made within 90 days from the date of any such cause or causes
occurred, and shall take effect at the beginning of the quarter
next following the reassessment. (Sec. 221, LGC)
Assessment of Real Property Subject to Back Taxes
Real property declared for the first time shall be assessed for
taxes (back taxes) for the period during which it would have
UNIVERSITY OF SANTO TOMAS 92
2023 PRE -WEEK NOTES
been liable but in no case of more than ten (10) years
prior to the date of initial assessment: Provided,
however, that such taxes shall be computed on the basis
of the applicable schedule of values in force during the
corresponding period.
NOTE: If such taxes are paid on or before the end of the
quarter following the date the notice of assessment was
received by the owner, no interest for delinquency shall
be imposed thereon; otherwise, taxes shall be subject
to interest at the rate of 2% per month or a fraction
thereof from the date of the receipt of the assessment
until such taxes are fully paid. (Sec. 222, LGC)
5. COLLECTION
a) DATE OF ACCRUAL
When Real Property Tax shall Accrue
For any year, the real property tax shall accrue on the
first day of January, and from that date, it shall
constitute a lien on the property which shall be
superior to any other lien, mortgage, or encumbrance
of any kind whatsoever, and shall be extinguished only
upon the payment of the delinquent tax. (Sec. 246, LGC)
Collecting Authority
GR: It shall be the responsibility of the city or municipal
treasurer to collect the real property tax, with interest
thereon and related expenses, as well as the
enforcement of the remedies provided for by the LGC or
any applicable laws. (Sec. 247, LGC)
XPN: The City or Municipal Treasurer may deputize the
Barangay Treasurer to collect all taxes on real property
located in the barangay, provided that:
1. The barangay treasurer is properly bonded for the
purpose; and
2. The premium on the bond shall be paid by the city
or municipal government concerned. (Ibid.)
b) PERIODS TO COLLECT
Period of Collection
GR: The basic real property tax and any other tax levied
under the Title of Real Property Taxation shall be
collected within five (5) years from the date they
became due. No action for the collection of the tax,
whether administrative or judicial, shall be instituted
after the expiration of such period.
XPN: In case of fraud or intent to evade the payment of
tax, such action may be instituted for the collection of
the same within ten (10) years from discovery of the
fraud or intent to evade payment. (Sec. 270, LGC)
Suspension of Period of Prescription
 PRE-WEEK NOTES 2023
The period of prescription within which to collect shall be
suspended for the time during which: (P-R-O)
1. The local treasurer is legally Prevented from collecting the
tax;
2. The owner of the property or the person having legal
interest therein Requests for reinvestigation and executes a
waiver in writing before the expiration of the period within
which to collect; and
3. The owner of the property or the person having legal
interest therein is Out of the country or otherwise cannot
be located. (Ibid.)
c) REMEDIES OF LOCAL GOVERNMENT UNITS
Remedies of LGUs for the Collection of Real Property Tax
1. Administrative action
a. Exercise of lien on the property subject to tax;
NOTE: Superior to all liens, charges or encumbrances
and is enforceable by administrative or judicial action.
It is extinguished only upon payment of tax and other
expenses (Sec. 257, LGC)
b. Levy on the real property subject of the tax; and
c. Distraint of personal property.
2. Judicial action
Effect of Redemption of the Delinquent Property
Such payment shall invalidate the certificate of sale issued to the
purchaser and the owner of the delinquent real property or
person having legal interest therein shall be entitled to a
certificate of redemption which shall be issued by the local
treasurer or his deputy. (Ibid.)
NOTE: From the date of sale until the expiration of the period of
redemption, the delinquent real property shall remain in
possession of the owner or person having legal interest therein
who shall be entitled to the income and other fruits thereof.
Effect of Failure to Redeem
In case the owner or person having legal interest fails to redeem
the delinquent property, the treasurer shall execute a deed
conveying to the purchaser said property, free from lien of the
delinquent tax, interest due thereon and expenses of sale.
Right of Pre-emption
At any time before the date fixed for the sale, the taxpayer may
stay the proceedings by paying the taxes, fees, charged,
penalties, and interests.
Effect of Distraint of Personal Property
93
When notice of delinquency has been accordingly
posted and published, the local treasurer shall proceed
to sell the personal property of the delinquent taxpayer
in order to satisfy his unpaid obligation. (Sec. 254, LGC)
Further levy until Full Payment of Amount Due
Levy may be repeated if necessary, until the full amount
due, including all expenses, is collected. (Sec. 265, LGC)
6. TAXPAYER’S REMEDIES
a) CONTESTING AN ASSESSMENT
(1) PAYMENT UNDER PROTEST; EXCEPTIONS
Necessity of Prior Payment before Protest
GR: The taxpayer must pay the real property tax
assessed prior to protesting a real property tax
assessment. (Sec. 252, LGC)
XPN: The payment of the tax prior to protest is not
necessary where the taxpayer questions the authority
and power of the assessor to impose the assessment
and of the treasurer to collect the tax. (Ty v. Trampe, G.R.
No. 117577, 01 Dec. 1995)
NOTE: The protest contemplated under Sec. 252 is
required where there is a question as to the
reasonableness or correctness of the amount assessed.
Hence, if a taxpayer disputes the reasonableness of an
increase in a real property tax assessment, he is
required to “first pay the tax” under protest. Otherwise,
the city or municipal treasurer will not act on his
protest. (Ibid.)
Period for Claim for Refund
The claim must be filed with the local treasurer within
two (2) years from the date the taxpayer is entitled to
such reduction or adjustment (Ibid.)
b) CONTESTING A VALUATION OF PROPERTY
(1) APPEAL TO THE LOCAL BOARD OF
ASSESSMENT APPEALS
Jurisdiction of the LBAA
LBAA has Jurisdiction to hear appeals of owners or
persons having legal interest in the property who are
not satisfied with the action of the assessor on an
assessment of his property.
NOTE: In the exercise of its appellate jurisdiction, the
LBAA shall have the power to:
1. summon witnesses;
2. administer oaths;
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
3. conduct ocular inspection;
4. take depositions; and
5. issue subpoena and subpoena Duces tecum.
The proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts without necessarily adhering
to technical rules applicable in judicial proceedings. (Sec. 229(b),
LGC)
Period for Decision of Appeal
The LBAA shall decide the appeal within 120 days from the date
of receipt of such appeal. The Board, after hearing, shall render
its decision based on substantial evidence or such relevant
evidence on record as a reasonable mind might accept as
adequate to support the conclusion. (Sec 229(a), LGC)
(2) APPEAL TO THE CENTRAL BOARD OF ASSESSMENT
APPEALS
Jurisdiction of the CBAA
The Board shall have appellate jurisdiction over all assessment
cases decided by the LBAA. (Sec. 230, LGC)
NOTE: The CBAA can be appointed by the SC to act as a court-
appointed fact-finding commission to assist the Court in
resolving the factual issues raised in the cases before it. In that
regard, the CBAA is not acting in its appellate jurisdiction.
(Mathay v. Undersecretary of Finance, G.R. Nos. 97618, 97760 &
102319, 16 Dec. 1993)
The owner of the property or the person having legal interest
therein or the assessor who is not satisfied with the decision of
the Board may, within 30 days after receipt of the decision of
said Board, appeal to the Central Board of Assessment Appeals,
as herein provided. The decision of the Central Board shall be
final and executory. (Sec. 229(c), LGC)
Appeal to LBAA or CBAA does Not Suspend Collection of Tax
An appeal on assessments of real property shall in no case,
suspend the collection of the corresponding realty taxes the
property involved as assessed. This is without prejudice to
subsequent adjustment depending upon the final outcome of
the appeal. (Sec. 231, LGC)
NOTE: “No Injunction Rule” provides that no court shall have
the authority to enjoin or restrain the collection of any tax, fee,
or charge collected by the provincial, city or municipal
treasurer.
CTA En Banc Exclusive Appellate Jurisdiction over Cases
Filed with CBAA
1. In the exercise of its appellate jurisdiction;
2. Over cases involving the assessment and taxation of real
property; and
3. Originally decided by the provincial or CBAA.
UNIVERSITY OF SANTO TOMAS 94
2023 PRE -WEEK NOTES
Period for CBAA to Decide a Case
The Central Board shall decide cases brought on appeal
within twelve (12) months from the date of receipt
thereof, which decision shall become final and
executory after the lapse if fifteen (15) days from the
date of receipt thereof by the appellant.
Prior Resort to Administrative Remedies
In disputes involving real property taxation, the general
rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest
before allowing any resort to a judicial action, except
when the assessment itself is alleged to be illegal or is
made without legal authority.
NOTE: For example, prior resort to administrative
action is required when among the issues raised is an
allegedly erroneous assessment, like when the
reasonableness of the amount is challenged, while
direct court action is permitted when only the legality,
power, validity or authority of the assessment itself is
in question.
Stated differently, the general rule of a prerequisite
recourse to administrative remedies applies when
questions of fact are raised, but the exception of direct
court action is allowed when purely questions of law
are involved. (Capitol Wireless, Inc. vs. Provincial
Treasurer of Batangas, G.R. No. 180110, 30 May 2016)
(3) EFFECT OF PAYMENT OF TAXES
c) COMPROMISE OF REAL PROPERTY TAX
ASSESSMENT
Instances which the Sanggunian may Condone or
Reduce Real Property Tax
The Sanggunian, by ordinance passed prior to the 1st
day of January of any year and upon recommendation
of the local disaster coordinating council, may condone
or reduce, wholly or partially, the taxes and interest
thereon for the succeeding year or years in the city or
municipality affected by the calamity in cases of: (Cro-
Pri-Cal)
1. General failure of Crops;
2. Substantial decrease in the Price of agricultural or
agri-based products;
3. Calamity in any province, city or municipality.
President’s Power to Condone or Reduce Real
Property Tax
The president may, when public interest so requires,
condone, or reduce the real property tax and interest
for any year in any province or city or a municipality
within the Metropolitan Manila Area. (Sec. 277, LGC)
 IV. JUDICIAL REMEDIES
of their original jurisdiction involving final and
IV. JUDICIAL REMEDIES executory assessments for taxes, fees, charges
and penalties, where the principal amount of
taxes and penalties claimed is less than P1
million pesos;

A. COURT OF TAX APPEALS (CTA) 2. Decisions, resolutions or orders of the RTC in cases
decided or resolved by them in the exercise of their
appellate jurisdiction over:
Powers of the CTA: (A-D-D-P-R-O-C-E-S-S)
a. Local tax cases, and
1. To Administer oath; b. Tax collection cases;

2. To assess Damages against the appellant if the appeal to 3. Decisions, resolutions or orders on Motions for
CTA is found to be frivolous and dilatory; reconsideration or new trial of the Court in
Division in the exercise of its exclusive original
3. To render Decision on cases brought before it; jurisdiction over tax collection cases; and

4. To require Production of papers or documents by subpoena 4. Decisions of the Central Board of Assessment
Duces tecum; Appeals (CBAA) in the exercise of its appellate
jurisdiction over cases involving the assessment
5. To prescribe Rules and regulations for the conduct of its and taxation of Real property originally decided by
business; the provincial or city board of assessment appeals.
(Sec. 2, Rule 4, RRCTA)
6. To issue Order authorizing distraint of personal property
and levy of real property; NOTE: Decisions, orders, and resolutions of the
RTC in local tax cases do not include real property
7. To punish for Contempt for the same causes under the same tax which is an Ad valorem tax. The jurisdiction of
procedure and with the same penalties provided for in the the CTA En banc involves only those real property
rules of court; tax cases originally decided by the CBAA in the
exercise of its appellate jurisdiction under Sec.
8. To receive Evidence; 7(a)(5) of R.A. No. 9282 and under R.A. 7160.
(Habawel v. CTA, G.R. No. 174759, 07 Sept. 2011)
9. To Summon witnesses by subpoena; and
Cases within Jurisdiction of the CTA in Divisions
10. To Suspend collection of tax pending appeal. (RA. No. 1125,
as amended) 1. Exclusive Appellate Jurisdiction (Sec. 3(c), Rule 4,
RRCTA): (D-I-R-C-A-P)
NOTE: Power to issue writs of prohibition and injunction is )
supplementary to its appellate jurisdiction. (CIR v. Yuseco, G.R. a. Decisions of the CIR in cases involving: (D-R-
No. L-12518, 28 Oct. 1961) O)

1. EXCLUSIVE ORIGINAL AND APPELLATE JURISDICTION i. Disputed assessments;

OVER CIVIL CASES
Q: Which court has jurisdiction over
undisputed assessments?
Cases within Jurisdiction of the CTA En Banc

A: Being an action for the collection of sum of

The Court En banc shall exercise exclusive appellate jurisdiction
money, the CTA has exclusive original
to review by appeal the following: (A-R-Mo-R)
jurisdiction over undisputed assessments
when the amount involved is P1 million or
1. Decisions or resolutions on motions for reconsideration or
more; and appellate jurisdiction over appeals
new trial of the Court in Divisions in the exercise of its
from the judgments, resolutions, or orders of
exclusive Appellate jurisdiction over: (A-L-T)
the RTC in tax collection cases originally
decided by them within their jurisdiction. (Sec.
a. Cases arising from Administrative agencies – BIR, BOC,
3(c), Rule 4, RRCTA)
DoF, DTI, and DA;

However, where the amount is less than P1

b. Local tax cases decided by the RTC in the exercise of
million, it is the RTC or the MTC that has
their original jurisdiction; and
jurisdiction, as the case may be, depending on
the jurisdictional amount.
c. Tax collection cases decided by the RTC in the exercise

95 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
NOTE: Undisputed assessments are already final and
collectible. The taxpayer failed to seasonably protest
the assessment within a period of 30 days from receipt
of the notice of assessment.
ii. Refunds of internal revenue taxes, fees or other
charges and penalties imposed thereto;
iii. Other matters arising under NIRC or other laws
administered by the BIR.
Q: What does “Other Matters” under the NIRC or the
TCCP mean?
A: The term “other matters” includes cases which can
be considered within the scope of the function of the
BIR and BOC by applying the Ejusdem generis rule (i.e.,
such cases should be of the same nature as those that
have preceded them).
In CIR v. Hambrecht & Quist Philippines, Inc., the term
“other matters” is limited only by the qualifying phrase
that follows it. The appellate jurisdiction of the CTA is
not limited to cases which involve the decisions of the
CIR on matters relating to assessments or refunds. It
covers other cases that arise out of the NIRC or related
laws administered by the BIR. The issue of whether or
not the BIR’s right to collect taxes had already
prescribed is a subject matter falling under the NIRC. In
connection therewith, the NIRC also states that the
collection of taxes is one of the duties of the BIR. Thus,
from the foregoing, the issue of prescription of the BIR’s
right to collect taxes may be considered as covered by
the term “other matters” over which the CTA has
appellate jurisdiction.
2.
b. Inaction by the CIR in cases involving: (D-R-O-W)
i. Disputed assessments;
ii. Refunds of internal revenue taxes, fees or other
charges and penalties imposed thereto;
iii. Other matters arising under NIRC or other laws
administered by the BIR, Where the NIRC provides
a specific period for action.
NOTE: The inaction by the CIR within the 180-day
period under Sec. 228 of the NIRC, and the 90-day
period for VAT refund cases, under the TRAIN Law,
shall be deemed a denial, which shall be appealable
to the CTA, within 30 days from the expiration of
the 180 or 90 days, as the case may be.
c. Decisions, Orders or Resolutions of the RTC in the
exercise of their original jurisdiction over local tax
cases and tax collection cases.
d. Decisions of the Commissioner of Customs (COC) in
cases involving: (D-S-F-O)
UNIVERSITY OF SANTO TOMAS 96
2023 PRE -WEEK NOTES
i. Liability for customs Duties, fees or other
money charges;
ii. Seizure, detention or release of property
affected;
iii. Fines, forfeitures or other penalties in
relation thereto; or
iv. Other matters arising under Customs Law
or other laws administered by the BOC.
e. Decisions of the Secretary of Finance on
customs cases elevated for Automatic review
from decisions of the COC which are adverse to
the Government under Sec. 2315 of the TCCP
(now Sec. 1128 of the CMTA).
f. Decisions of the Secretary of Trade and
Industry, in the case of non-agricultural
Product, commodity or article, and the
Secretary of Agriculture in the case of
agricultural product, commodity or article,
involving dumping and countervailing duties
under Secs. 301 and 302, respectively of the
TCCP, and safeguard measures under R.A. No.
8800, where either party may appeal the
decision to impose or not to impose said
duties.
NOTE: The SC held that the lower courts can
acquire jurisdiction over a claim for collection
of deficiency taxes only after the assessment
made by the CIR has become final and
appealable, not where there is still a pending
CTA case. (Yabes v. Flojo, G.R. No. L-46954, 20
July 1982)
Exclusive jurisdiction over tax collections cases
(Sec. 3(c), Rule 4, RRCTA)
a. Original jurisdiction in tax collection cases
involving final and executory assessments for
taxes, fees, charges and penalties, where the
principal amount of taxes and fees, exclusive of
charges and penalties, claimed is P1 million
pesos or more.
NOTE: Collection cases where the principal
amount of taxes and fees, exclusive of charges
and penalties claimed is less than P1 million
shall be tried by the proper MTC, MeTC, or RTC,
depending on their respective jurisdiction. The
jurisdiction of the CTA in these cases shall be
appellate. (Sec. 7(b)(1), R.A. No. 1125, as
amended)
b. Appellate jurisdiction over appeals from the
judgments, resolutions or orders of the
Regional Trial Courts in tax collection cases
originally decided by them within their
respective territorial jurisdiction.
 IV. JUDICIAL REMEDIES
2. EXCLUSIVE ORIGINAL AND APPELLATE JURISDICTION
OVER CRIMINAL CASES
1. Exclusive original jurisdiction – The CTA in Division have
exclusive original jurisdiction over all criminal offenses
arising from violations of the NIRC or TCCP and other laws
administered by the BIR or the BOC, where the principal
amount of taxes and fees, exclusive of charges and penalties,
claimed is P1 million or more.
Regular courts shall have jurisdiction in offenses or felonies
where:
a. The principal amount of taxes and fees, exclusive of
charges and penalties claimed is less than P1 million; or
b. No specified amount is claimed.
NOTE: The jurisdiction of the CTA in these cases shall be
appellate. (Sec. 7(b)(1), R.A. No. 1125, as amended)
Institution of Civil Action in the Criminal Action
Despite any provision of law or the Rules of Court, the
criminal action and the corresponding civil action for the
recovery of the civil liability for taxes and penalties, shall at
all times be simultaneously instituted with, and jointly
determined in the proceeding before the CTA. The filing of
the criminal action is deemed to necessarily carry with it the
filing of civil action, and no right to reserve the filing of such
civil action separately from the criminal action will be
recognized. (Sec. 7, R.A. No. 1125, as amended)
2. Exclusive appellate jurisdiction
a. CTA in Divisions:
i. Appeals from the Judgments, Resolutions or Orders
of the RTC in their original jurisdiction in criminal
offenses arising from violations of the NIRC or
TCCP and other laws administered by the BIR or
BOC, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less
than P1 million or where there is no specified
amount claimed; and
ii. Criminal offenses over Petitions for Review of the
Judgments, Resolutions or Orders of the RTC in the
exercise of their appellate jurisdiction over tax
cases originally decided by the MeTC, MTC and
MCTC. (Sec. 7(b)(2)(b), RA. No. 1125 as amended)
b. CTA En Banc:
i. Decisions, Resolutions or Orders on Motions for
Reconsideration or New Trial of the Court in
division in the exercise of its exclusive original
jurisdiction over criminal offenses arising from
violations of the NIRC or TCCP and other laws
administered by the BIR or BOC where the
principal amount of taxes and fees, exclusive of
charges and penalties is P1 million or more;
97
ii. Decisions, Resolutions or Orders on
Motions for Reconsideration or New Trial
of the Court in division in the exercise of its
exclusive appellate jurisdiction over
criminal offenses arising from violations of
the NIRC or TCCP and other laws
administered by the BIR or BOC; and
iii. Decisions, Resolutions or Orders of the
RTC decided or resolved by them in the
exercise of their appellate jurisdiction
over criminal offenses arising from
violations of the NIRC or TCCP and other
laws administered by the BIR or BOC
where the principal amount of taxes and
fees, exclusive of charges and penalties
claimed is less than P1 million.
B. PROCEDURES
1. FILING OF AN ACTION FOR COLLECTION OF
TAXES
a) INTERNAL REVENUE TAXES
Procedures before the MTC and RTC in the Exercise
of their Exclusive Original Jurisdiction
1. Initiatory action – Where the assessment has
attained a state of finality because the assessment
has not been disputed, the BIR files an ordinary suit
for the collection of a sum of money with the court
of appropriate jurisdiction.
2. Appealed cases – Decisions of the MTCs rendered in
the exercise of their original jurisdiction are
appealed to the RTC by means of notice of appeal.
Decision of the RTC on local tax cases or collection
cases rendered in aid of their appellate jurisdiction
shall be appealed to the CTA En Banc, by means of
petition for review.
Adverse decisions of the CTA En Banc shall be
appealed to the SC by means of petition for review.
Decisions or Judgment Rendered by the CTA in
Divisions in the Exercise of their Exclusive Original
Jurisdiction
1. If no MR or MNT – execution of judgment
2. If there is a motion filed with the Division that
rendered the judgment:
a. If denied – appeal by means of a petition for
review before the CTA En Banc; and
b. If denied by CTA En Banc – appeal to the SC by
means of a petition for review on certiorari.
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
b) LOCAL TAXES
Remedies Available to Taxpayer Prior Assessment
1. To question the constitutionality or legality of tax
ordinances or revenue measures on appeal (Sec. 187, LGC);
or
2. Petition for declaratory relief, when applicable.
Q: May regular court issue injunction to restrain LGUs from
collecting taxes?
A: YES. The LGC does not specifically prohibit an injunction
enjoining the collection of local taxes unlike in the NIRC where
there is an express prohibition. Nevertheless, the Court noted
that injunctions enjoining the collection of local taxes are
frowned upon and should therefore be exercised with extreme
caution. (Angeles City v. Angeles City Electric Corporation G.R.
No.166134, 29 June 2010)
Prescriptive Period for Local Taxes
1. Assessment
GR: Prescriptive period is within five (5) years from the date
they become due. Thus, no action for collection of such taxes,
fees, or charges, whether administrative or judicial, shall be
instituted after the expiration of such period.
XPN: In case of fraud or intent to evade the payment of taxes,
fees, or charges, the assessment may be made ten (10) years
from discovery of fraud or intent to evade payment.
2. Collection – within five (5) years from date of assessment
by administrative or judicial action.
Grounds for Suspension of the Running of Prescriptive
Period on Assessment and Collection of Local Taxes: (P-R-
O)
1. The treasurer is legally Prevented from making the
assessment or collection;
2. The taxpayer requests for a Reinvestigation and executes a
waiver in writing before the expiration of the period within
which to assess or collect; and
3. The taxpayer is Out of the country or otherwise cannot be
located. (Sec. 194, LGC)
Remedies Available to Taxpayer after Assessment
1. Protest of assessment (Sec. 195, LGC)
Within 60 days from the receipt of the notice of assessment,
the taxpayer may file a written protest with the local
treasurer; otherwise, the assessment shall become final and
executory. The local treasurer shall decide the protest
within 60 days from the time of its filing.
UNIVERSITY OF SANTO TOMAS 98
2023 PRE -WEEK NOTES
The taxpayer shall have 30 days from the receipt of
the denial of the protest or from the lapse of the 60-
day prescribed period within which to appeal with
the court of competent jurisdiction.
NOTE: In case of an illegal assessment where the
assessment was issued without authority,
exhaustion of administrative remedies is not
necessary and the taxpayer may directly resort to
judicial action. The taxpayer shall file a complaint
for injunction before the RTC to enjoin the local
government unit from collecting real property
taxes. (City of Lapu-Lapu v. PEZA, G.R. No. 187853,
26 Nov. 2014)
2. Claim for refund or tax credit (Sec. 196, LGC)
Prior to a judicial action for recovery of tax
erroneously or illegally collected, a written claim
for refund or credit must first be filed with the local
treasurer.
In any case, the judicial action for claim for refund
or credit must be made within two (2) years from
the date of the payment of such tax, fee, or charge,
or from the date the taxpayer is entitled to a refund
or credit.
2. CIVIL CASES
a) WHO MAY APPEAL, MODE OF APPEAL, AND
EFFECT OF APPEAL
WHO MAY APPEAL
1. To the CTA in Division – any party adversely
affected by a decision, ruling, or inaction of the:
a. CIR on disputed assessments or claims for
refund of internal revenue taxes;
b. COC;
c. Secretary of Finance;
d. Secretary of Trade and Industry;
e. Secretary of Agriculture; or
f. RTC in the exercise of its original jurisdiction.
2. To the CTA En Banc – any party adversely affected
by a decision or ruling of:
a. The CTA in Division on a MR or MNT;
b. The CBAA, in the exercise of its appellate
jurisdiction; or
c. The RTC, in the exercise of its appellate
jurisdiction. (Sec. 11, R.A. No. 1125, as
amended)
Q: Will the CTA acquire jurisdiction even in the
absence of a decision of the CIR or COC?
A:
GR: CTA has jurisdiction only, if there is a decision of
 IV. JUDICIAL REMEDIES
the CIR or COC. No. 191498, 15 Jan. 2014)

XPNs: NOTE: 120 + 30 days is mandatory and

jurisdictional. (now 90 days under TRAIN Law)
1. If COC has not rendered a decision and the suit is about to
prescribe.
Q: Energy Development Corporation (EDC) is a
domestic corporation registered with the
2. Deemed Denial / Inaction of the CIR in a refund of illegally
Bureau of Internal Revenue (BIR) as a VAT
or erroneously collected tax and the 2-year prescriptive
taxpayer. On various dates, EDC filed its
period is about to expire or after the lapse of 120-day period
quarterly VAT Returns and the amendments.
or 90-day period (for claims for refund 2018 onwards
EDC filed with the BIR Large Taxpayers District
under TRAIN) to decide in case of refund of unutilized input
Office an administrative claim for tax credit or
VAT; or
refund of its unutilized input VAT for its zero-
rated.
3. Deemed denial or inaction – where the CIR has not acted
upon a protested assessment within 180 days from
On 18 June 2009, respondent Commissioner of
submission of all relevant documents supporting the
Internal Revenue (CIR) opposed the claim of
protest, the taxpayer adversely affected by the inaction may
EDC, arguing that EDC failed to substantiate its
appeal to the CTA within 30 days from the lapse of the 180-
claim for input VAT tax credit or refund by the
day period.
submission of proper documents.
MODE OF APPEAL
On 6 October 2010, the Supreme Court
promulgated its Decision in Aichi which
1. To the CTA in Division – by filing a Petition for Review
delineated the prescriptive periods for filing
under a procedure analogous to that provided for under
separate administrative and judicial claims for
Rule 42 of the ROC, within 30 days from the receipt of the
input VAT refund or tax credit of the then Sec.
decision or ruling or from the expiration of the period fixed
112(A) and (C), of the National Internal
by law or inaction of the CIR on disputed assessments or
Revenue Code of 1997 (NIRC).
claim for refund of internal revenue taxes erroneously or
illegally collected, the COC, the Secretary of Finance, the
On 25 March 2011, the CIR filed a Motion to
Secretary of Trade & Industry, the Secretary of Agriculture,
Dismiss EDC's Petition for Review citing EDC's
and the RTC in the exercise of their original jurisdiction.
failure to comply with the prescriptive periods
under Sec. 112(C) of the NIRC. The CIR alleged
NOTE: The 30-day period to appeal decisions of the RTC to
that EDC did not wait for: (a) the CIR's action on
CTA is extendible. (SM Land v. City of Manila, G.R. No.
its administrative claim for input VAT tax credit
197151, 22 Oct. 2012)
or refund before appealing to the CTA within 30
days, and (b) in the alternative of the CIR's
Disputed Assessments
inaction, reckon the 30-day period to appeal
from the expiration of 120 days from the date of
Inaction of the CIR within the 180-day period shall be
the submission of complete documents to
deemed a denial, thus, appealable via a petition for review
support the administrative claim under Sec.
to the CTA within 30 days from receipt of copy of decision.
112(A).
Should the taxpayer opt to await the final decision of the CIR
beyond the 180-day period, appeal to the CTA should be
EDC opposed the CIR's motion to dismiss
made within 30 days after receipt of copy of such decision.
arguing that Aichi cannot be applied
retroactively to cases where the claim for input
Claims for Refund of Internal Revenue Taxes
VAT tax credit or refund arose
Erroneously or Illegally Collected
before Aichi's promulgation and especially
since the period relied upon for availment of
In case of inaction of the CIR, the 30-day period to file the
remedies was based on prevailing
petition for review before the CTA after the lapse of 180
jurisprudence.
days must be within the 2-year period prescribed by law
from payment of tax.
Is the Aichi case the controlling doctrine in
cases involving claims for refund of unutilized
Claim for Refund of Unutilized Input VAT Payments
input vat?

The 2-year period does not refer the filing of judicial claim
A: YES. In case of full or partial denial of the claim
with the CTA but to the filing of the administrative claim
for tax refund or tax credit, or the failure on the part
with the CIR. (CIR v. San Roque power Corporation, G.R. No.
of the Commissioner to act on the application
187485, 12 Feb. 2013) The taxpayer will always have 30
within the period prescribed above, the taxpayer
days to file the judicial claim regardless of his action or
affected may, within thirty (30) days from the
inaction. (CIR v. Mindanao II Geothermal Partnership, G.R.
receipt of the decision denying the claim or after

99 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
the expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court of
Tax Appeals.
Notably, the recent amendment to Sec. 112(C) finally
removed the confusion on the reckoning period for judicial
claims by legislating a singular action for the CIR to decide
on the administrative claim for input VAT tax credit or
refund within a period of ninety (90) days.
As held in Aichi, there is nothing in Sec. 112 of the NIRC
which sanctions the simultaneous filing of administrative
and judicial claims, and the filing of the judicial claim prior
to the action of the CIR or the lapse of the 120-day period
(now 90-day period under TRAIN Law) within which the
CIR is required to act on the administrative claim.
Therefore, Sec. 112(A) simply cannot be invoked as the
prescriptive period for both administrative and judicial
claims of input VAT tax refund or credit with the CIR. The
taxpayer claiming input VAT tax credit or refund should not
ignore subsection (C) on judicial claims, and persist in the
notion that the correct prescriptive period to file any of the
claims can be found in an entirely separate provision and
Chapter III on "Protesting, Assessment, Refund, Etc."
(Energy Development v. CIR, G.R. No. 203367, 17 Mar. 2021,
J. Hernando)
Rules Laid Down in Mindanao II Geothermal Partnership
Case
TYPE OF
INACTION APPEAL
CLAIM
Inaction within 180- Appealable 30
day period is a deemed days to CTA
Disputed
denial. from receipt of
assessments
denial.
Remedy of Party Affected by the Ruling or
Decision of the CTA Division
The adverse party may file a MR or MNT before the
same Division of the CTA within 15 days from
notice thereof.
However, in criminal cases, the general rule
applicable in regular courts on matters of
prosecution and appeal shall apply.
2. In appeals to the CTA En Banc:
a. By filing a Petition for Review under a
procedure analogous to that provided for
under Rule 43 of the ROC, within 15 days from
receipt of decision or resolution of the Court in
Division on a MR or MNT. Upon proper motion
and the payment of the full amount of the
docket and other lawful fees and deposit for
costs before the expiration of the reglementary
period herein fixed, the Court may grant an
additional period not exceeding 15 days from
the expiration of the original period within
which to file the petition for review.
NOTE: An MR/MNT filed before the Court in
Division is required before filing a Petition for
Review to the Court En Banc.
b. By filing a Petition for Review under a
procedure analogous to that provided for
under Rule 43 of the ROC, within 30 days from
a decision or ruling of the CBAA or the RTC in
the exercise of their appellate jurisdiction. (Sec.
4, Rule 8, RRCTA)

Remedy of Party Affected by the Decision or

Inaction within the 2- Appealable 30
Ruling of the CTA En Banc
Claims for year prescriptive days to CTA
refund of period (from date of from receipt of
The adverse party may file a Petition for Review on
internal payment). denial, provided
Certiorari under Rule 45 of the ROC, through a
revenue taxes it is within two
verified petition before the Supreme Court, within
erroneously (2) years from
15 days from receipt thereof. (Sec. 1, Rule 16, R.A.
paid date of payment.
No. 9282)
Inaction within 120- Appealable 30
NOTE: The MR or MNT filed before the Court shall
day or 90-day period, days to CTA
be deemed abandoned if, during its pendency, the
as the case may be, is a from receipt of
movant shall appeal to the SC. (Sec. 1, Rule 16, R.A.
deemed denial. 2-year denial or from
No. 9282)
period refers to the lapse of the
institution of 120-day or 90-
Claims for 30-day Prescriptive Period of Appeal with the CTA
administrative claim, day period to
unutilized
and it is jurisdictional. decide.
input VAT 1. It runs from the date the taxpayer receives the
appealable decision or 30 days after the lapse of
NOTE: 90-day period
180 days within which the BIR should act.
to decide the claim for
refund for VAT under
NOTE: The two periods are mutually exclusive.
the TRAIN law.
(RCBC v. CIR, G.R. No. 168498, 16 June 2006)

2. It is jurisdictional and mandatory. (CIR v. First

UNIVERSITY OF SANTO TOMAS 100

2023 PRE -WEEK NOTES
 IV. JUDICIAL REMEDIES
Express Pawnshop Company, Inc., G.R. No. 172045-46, 16 June
2009)
3. It is non-extendible. (Filipinas Investment and Finance
Corporation v. CIR, G.R. No. L-23501, 16 May 1967)
NOTE: After the 30-day period, an assessment may no
longer be disputed through the simple expedient of paying
the protested tax and by subsequently claiming it as a
refund within the period of two (2) years from date of
payment. (Sec. 3, Rule 8, RRCTA)
Q: Does the motion for reconsideration toll the 30-day
period to appeal to the CTA?
A: NO. A motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal
to the CTA. (Fishwealth Canning Corporation v. CIR, G.R. No.
179343, 21 Jan. 2010)
Q: Does the RTC have jurisdiction over the collection case
filed by the BIR? Explain.
A: NO. The filing of an appeal with the CTA has the effect of
divesting the RTC of jurisdiction over the collection case. There
is no final, executory and demandable assessment which can be
enforced by the BIR, once a timely appeal is filed.
EFFECT OF APPEAL
Effect of Appeal on Collection of Taxes (2010, 2004 BAR)
GR: An appeal to the CTA shall not suspend payment, levy,
distraint and/or sale of any property of taxpayer for the
satisfaction of his tax liability.
XPN: However, when in the opinion of the CTA, the collection of
tax may jeopardize the interest of the government and/or the
taxpayer, the Court may suspend or restrain collection of tax
and require the taxpayer either to:
1. Deposit the amount claimed; or
2. File a surety bond for not more than double the amount of
the tax due. (Sec. 11, R.A. No. 1125)
b) SUSPENSION OF COLLECTION OF TAXES
Requisites for Suspension of Tax Collection
1. There is an appeal to the CTA from a decision of the CIR;
2. In the opinion of the CTA, the collection may jeopardize the
interest of the government and/or the taxpayer;
3. The taxpayer may be required to deposit the amount
claimed or to file a surety bond for not more than double the
amount with the Court (Sec. 11, R.A. No. 1125); and
4. That the appeal is not frivolous or dilatory.
NOTE: The motion for the suspension of the collection of tax
shall be verified and shall state clearly and distinctly the facts
and the grounds relied upon in support of the motion. (Sec. 4,
101
Rule 10, RRCTA)
Exceptions to Posting of Bond Requirement
1. Allegations of prescription of administrative
action for collection – Collector of Internal
Revenue cannot, after three (3) years from the time
the taxpayer has filed his income tax returns or
from the time when he should have filed the same,
make any summary collection of the deficiency
income taxes demanded thru administrative
methods and that the warrant of distraint and levy
as well as the contemplated sale at public auction
of the properties of the taxpayer are null and void
being as they are in violation of Sec. 51(d) of the
NIRC. (Collector v. Avelino, G.R. No. L-9202, 19 Nov.
1956)
2. Method of collection contrary to law – CTA has
ample authority to issue injunctive writs to
restrain the collection of tax and to even dispense
with the deposit of the amount claimed or the filing
of the required bond, whenever the method
employed by the CIR in the collection of tax
allegedly jeopardizes the interests of a taxpayer for
being patently in violation of the law. (Sps.
Pacquiao v. CTA, G.R. No. 213394, 06 Apr. 2016)
It would certainly be an absurdity on the part of the
CTA to declare that the collection by the summary
methods of distraint and levy was violative of the
law, and then, on the same breath, require the
petitioner to deposit or file a bond as a pre-
requisite of the issuance of a writ of injunction.
(Collector v. Zulueta, G.R. No. L-8840, 08 Feb. 1957)
NOTE: The prohibition on the issuance of a writ of
injunction to enjoin the collection of taxes is
applied only to national internal revenue taxes, not
to local taxes. (Angeles City v. Angeles Electric Corp.,
G.R. No. 166134, 29 June 2010)
c) INJUNCTION NOT AVAILABLE TO RESTRAIN
COLLECTION
When Injunction is Available
Collection of taxes should not be enjoined except upon
clear showing of a right to an exemption. This is
founded under the Lifeblood Theory. (Northern Lines
Inc. v. CA, G.R. No. L-41376-77, 29 June 1988)
GR: Collection of internal revenue taxes and customs
duties cannot be enjoined. Even an appeal to the CTA
shall not suspend the payment, levy, distraint and sale
of taxpayer’s property as a rule.
XPNs: However, the CTA is empowered to suspend the
collection of internal revenue taxes and custom duties
in cases pending appeal only when:
1. In the opinion of the court the collection by the BIR
may jeopardize the interest of the government
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
 TAXATION LAW
and/ or taxpayer; and
2. The taxpayer is willing to deposit the amount being
collected or to file a surety bond for more than double the
amount of the tax to be fixed by the court (Sec. 11, R.A. No.
1125)
NOTE: The CTA may issue injunction only in the exercise of its
appellate jurisdiction. (CIR v. Yuseco, G.R. No. L-12518, 28 Oct.
1961)
3. CRIMINAL CASES
a) INSTITUTION AND PROSECUTION OF CRIMINAL
ACTION
b) INSTITUTION OF CIVIL ACTION IN CRIMINAL ACTION
Institution of Civil Action with the Criminal Action (2010
BAR)
The criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall be deemed
jointly instituted in the same proceeding. The filing of the
criminal action shall necessarily carry with it the filing of the
civil action. No right to reserve the filing of such civil action
separately from the criminal action shall be allowed or
recognized (Sec. 11, Rule 9, RRCTA)
c) PERIOD TO APPEAL
1. Appeal to the Court in criminal cases decided by a RTC in
the exercise of its original jurisdiction – by filing a notice
of appeal pursuant to Secs. 3(a) and 6, Rule 122 of the ROC
within fifteen (15) days from receipt of a copy of the
decision or final order with the court which rendered the
final judgment or order appealed from and by serving a
copy upon the adverse party. The Court in Division shall act
on the appeal.
2. Appeal to the CTA En Banc in criminal cases decided by
the Court in Division or the RTC in the exercise of their
appellate jurisdiction – by filing a petition for review as
provided in Rule 43 of the ROC within fifteen (15) days from
receipt of a copy of the decision or resolution appealed
from. (Sec. 9, Rule 9, RRCTA)
4. APPEAL TO THE CTA EN BANC
Q: May a decision or resolution of the CTA in Division be
appealable directly to the CTA En Banc in its exercise of its
exclusive appellate jurisdiction?
A: NO. The petition for review of a decision or resolution of the
Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division. (Sec.
1, Rule 8, RRCTA)
NOTE: The word “must” clearly indicate the mandatory and not
UNIVERSITY OF SANTO TOMAS 102
2023 PRE -WEEK NOTES
directory of the nature of a requirement.
Q: Can the CTA En Banc entertain a petition for
annulment of a decision of the CTA Division?
A: NO. Annulment of judgment implies power by a
superior court over a subordinate one, as provided for
in Rule 47 of the Rules of Court, wherein the appellate
court may annul a decision of the regional trial court, or
the latter court may annul a decision of the municipal
or metropolitan trial court. The laws creating the CTA
and expanding its jurisdiction (R.A. Nos. 1125 and 9282)
and the court’s own rules of procedure (RRCTA) do not
sanction such a procedure.
The CTA sitting En Banc cannot annul a decision of one
of its divisions. The divisions are not considered
separate and distinct courts but are divisions of one and
the same court; there is no hierarchy of courts within
the Court of Tax Appeals, for they each remain as one
court notwithstanding that they also work in divisions.
By analogy, the Supreme Court sitting En Banc is not an
appellate court vis-à-vis its divisions, and it exercises
no appellate jurisdiction over the latter. Thus, it
appears contrary to these features that a collegial court,
sitting En Banc, may be called upon to annul a decision
of one of its divisions which had become final and
executory, for it is tantamount to allowing a court to
annul its own judgment and acknowledging that a
hierarchy exists within such court. (CIR v. Kepco Ilijan
Corporation, G.R. No. 199422, 21 June 2016)
5. PETITION FOR REVIEW ON CERTIORARI TO THE
SC
Effect of Appeal to the Supreme Court
The MR or MNT filed before the Court shall be deemed
abandoned if, during its pendency, the movant shall
appeal to the Supreme Court (Sec. 1, Rule 16, RRCTA)
Q: Who may file an appeal to the Supreme Court by
petition for review on certiorari?
A: A party adversely affected by a decision or ruling of
the Court En Banc may appeal therefrom by filing with
the Supreme Court a verified petition for review on
certiorari within fifteen (15) days from receipt of a copy
of the decision or resolution, as provided in Rule 45 of
the ROC.
If such party has filed a MR or MNT, the period herein
fixed shall run from the party’s receipt of a copy of the
resolution denying the MR or MNT. (Sec. 1, Rule 16,
RRCTA)
Q: Does the CTA have jurisdiction over an action to
collect on a bond used to secure payment of taxes?
A: NO. An action filed by the BOC against a bonding
company to collect on a bond used to secure payment
 IV. JUDICIAL REMEDIES
of taxes is not a tax collection case but rather a simple case for
enforcement of a contractual liability. Hence, appellate
jurisdiction over the case properly lies with the CA rather than
the CTA. (Phil. British Assurance Co., Inc. v. Republic of the Phil.,
G.R. No. 185588, 02 Feb. 2010)

Q: Can the SC take cognizance of a petition for annulment of

a decision of the CTA Division or of the CTA En Banc?
A: NO. A direct petition for annulment of a judgment of the CTA
to the Supreme Court, meanwhile, is unavailing, for the same
reason that there is no identical remedy with the High Court to
annul a final and executory judgment of the Court of Appeals.
R.A. No. 9282, Sec. 1 puts the CTA on the same level as the Court
of Appeals, so that if the latter’s final judgments may not be
annulled before the SC, then the CTA’s own decisions similarly
may not be so annulled. And more importantly, annulment of
judgment is an original action, yet, it is not among the cases
enumerated in the Constitution’s Sec. 5, Art. VIII over which the
SC exercises original jurisdiction. Annulment of judgment also
often requires an adjudication of facts, a task that the Court
loathes to perform, as it is not a trier of facts. (CIR v. Kepco Ilijan
Corporation, G.R. No. 199422, 21 June 2016)

Procedures on Appeal of Decision to the CTA and Beyond

1. Appeal within thirty (30) days from receipt of decision or

period of inaction of the CIR, COC, Secretary of Finance,
or the CBAA or the RTC
GR: Appeal to the CTA Division by a petition for review
under Rule 42 within thirty (30) days.

XPNs: In case of decisions of the CBAA or RTC in the

exercise of its appellate jurisdiction, appeal to En Banc by a
petition for review under Rule 43.

In criminal cases, appeal from the decision of the RTC

decided in the exercise of its original jurisdiction is via a
notice of appeal filed within fifteen (15) days from the
receipt of decision.

If the RTC acted in the exercise of its appellate jurisdiction,

appeal to the En Banc by a petition for review under Rule 43
within fifteen (15) days from the receipt of decision.

2. In case the decision of the Division was adverse – file an

MR or MNT with the same division within fifteen (15) days
from the receipt of the decision.

NOTE: The MR or the MNT is a condition precedent before

bringing the case to the CTA En Banc. (COC vs. Marina Sales,
G.R. No. 183868, 22 Nov. 2010)

3. In case the resolution of the Division on the MR is still

adverse – file a petition for review with the CTA En Banc
under Rule 43 within fifteen (15) days from the receipt of
the decision. The same rule applies for criminal cases.

4. In case the decision of the CTA En Banc is still adverse –

file an MR before CTA EB or a review on certiorari with the
SC under Rule 45 within fifteen (15) days from receipt of the
decision. (Ingles, 2015)

103 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
CTA Jurisdiction Matrix

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)

2. Inaction by 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), where the
NIRC provides a specific period for action, in which case the inaction shall
be deemed a denial.

3. Decisions, orders or resolutions of the RTCs in local tax cases originally

decided or resolved by them in the exercise of their original or appellate
jurisdiction.

4. Decisions of the Commissioner of Customs in cases involving:

a. Liability for customs duties, fees or other money charges
b. Seizure, detention or release of property affected
Exclusive Appellate Jurisdiction to c. Fines, forfeitures or other penalties in relation thereto
Review by Appeal d. Other matters arising under Customs Law or other laws (under BOC)
5. Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment
appeals;

6. Decisions of the Secretary of Finance on custom cases elevated to him

automatically for review from decisions of the Commissioner of Customs
which are adverse to the Government under Sec. 2315 of the TCCP (now Sec.
1128, Custom Modernization & Tariff Act of 2016, as amended).

7. Decisions of the Secretary of Trade and Industry, in the case of non-agricultural

product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and
countervailing duties under Secs. 301 and 302, respectively of the TCCP, and
safeguard measures under R.A. No. 8800, where either party may appeal the
decision to impose or not to impose said duties.

8. Decisions of the Secretary of Agriculture in the case of agricultural product,

commodity or article, involving dumping and countervailing duties under Secs.
301 and 302, respectively of the 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,
3. Other laws administered by BIR
Exclusive Original Jurisdiction and BOC
NOTE: Where the principal amount of
taxes and fees, exclusive of charges and
penalties claimed is P1M and above.
Tax collection cases involving final and
executory assessments for taxes, fees,
charges, and penalties where the
principal amount of taxes and fees,
exclusive of charges and penalties
claimed is P1M and above.

UNIVERSITY OF SANTO TOMAS 104

2023 PRE -WEEK NOTES
 IV. JUDICIAL REMEDIES
Criminal Cases Civil Cases
1. Violations of:
a. NIRC
b. TCCP,
c. Other laws administered by
BIR and BOC 1. Tax collection cases from
judgments, resolutions or orders
NOTE: Originally decided by the regular of the RTC in tax cases originally
court where the principal amount of the decided by them.
taxes is less than P1M or no special
Exclusive Appellate Jurisdiction amount claimed. 2. Tax collection cases from
judgments, resolutions or orders
1. Judgments, resolutions, or orders of of the RTC in the exercise of its
the RTC in tax cases originally appellate jurisdiction over tax
decided by them. cases originally decided by the
MeTC, MTC and MCTC.
2. Judgments, resolutions, or orders of
the RTC in the exercise of its
appellate jurisdiction over tax cases
originally decided by the MeTC,
MTC and MCTC.

105 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
Procedure for Assessment

UNIVERSITY OF SANTO TOMAS 106

2023 PRE -WEEK NOTES
 IV. JUDICIAL REMEDIES
Protest under the NIRC

107 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW
 TAXATION LAW
Elevation of Disputes to CTA Division, CTA En Banc, and the Supreme Court

UNIVERSITY OF SANTO TOMAS 108

2023 PRE -WEEK NOTES
 IV. JUDICIAL REMEDIES
Taxpayer’s Remedies for Tax Refund or Tax Credit

109 UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW