REYES Bar Reviewer On Taxation II (v.3)

PM REYES BAR REVIEWER ON TAXATION II
(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) This is the second installment of my two-part reviewer on taxation. It covers 8 topics, namely: (1) Estate Tax (2) Donors Tax (3) Tax Remedies (4) Organization and Functions of the BIR (5) Local Government Taxation (6) Real Property Taxation (7) Tariff and Customs Code; (8) Judicial Remedies (CTA). It is a consolidated and updated version of my reviewers in Tax 2 and Taxation Law Review. This reviewer is based on notes from Atty. Montero and Assoc. Dean Gruba and the books and reviewers of Atty. Mamalateo and Atty. Domondon. I also added some stuff from Atty. Mickey Ingles reviewer and Justice Dimaampao. For the transfer taxes, I added stuff from Starr Weigands notes. References have also been made to the 2013 Bedan Red Book and the 2012 UP Tax Reviewer. Further, I added the recent and relevant revenue regulations and other BIR issuances (especially those issued in 2012) and the latest SC and CTA jurisprudence (as of January 31, 2013). Most of the digests were sourced from Du Baladad and Associates (BDB Law) and from Baniqued & Baniqued. The reviewer will make reference to codal provisions. Thus, I recommend that you read this with a copy of the NIRC and other Laws Codal (2012 edition) by Atty. Sacadalan-Casasola Possessors may reproduce and distribute my reviewer provided my name remains clearly associated with my work and no alterations in the form and content of my reviewer are made. No stamping please. May this reviewer prove useful to you. If it does, please share it to others. Happy studying! --------------------------------------------------------------------------Note: Before we discuss Estate Tax, let us discuss the concept of Transfer Taxes.
Q: What are transfer taxes?

Transfer taxes are those taxes imposed upon the privilege granted by the state to the taxpayer so that he may transfer properties, real or personal, without consideration.
Q: What is the nature of transfer taxes?

Transfer taxes are excise or privilege taxes that are imposed on the act of passing ownership of property and not taxes on the property transferred.
Q: What are the kinds of transfer taxes and define each?

At present, the kinds of transfer taxes are: 1. Estate tax a tax that is levied, assessed, collected and paid upon the transfer of the net estate of a decedent to his or her heirs. 2. Donors tax - is an excise tax levied, collected, and paid upon the privilege of transferring property gratuitously by way of gift inter vivos by any person, resident or non-resident
Note: In 1973, aside from estate and donors tax, inheritance and donees tax were imposed. Inheritance taxes are imposed on the right of the heirs to receive property upon death of the decedent. Donees taxes are imposed on the right given to the done to receive property from a donor during his lifetime. PD No. 69 abolished these two transfer taxes. Today, the recipient of property by inheritance or donation is no longer liable for transfer taxes.
TABLE OF CONTENTS
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II. NIRC B. Estate Tax ................................................. 2 C. Donors Tax ............................................. 18 D. Value-Added Tax .................................... 25 E. Tax Remedies ......................................... 59 F. Organization and Function of the Bureau of Internal Revenue................................... 100 III. Local Government Code A. Local Government Taxation ................ 104 B. Real Property Taxation ........................ 120 IV. Tariff and Customs Code ......................... 137 V. Judicial Remedies (CTA) ......................... 152
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Q: Differentiate estate tax from donors tax.

Estate Tax Tax on the privilege to transfer property upon ones death (mortis causa) Donors Tax Tax on the privilege to transfer property during ones life time (inter vivos)
Maximum tax rate of estate tax is 20% on net estates exceeding Php 10 million and the first Php 200,000 is exempt
Maximum tax rate is 15% on the net gifts exceeding Php 10 million and the first Php 100,000 is tax exempt
PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Page 1 of 164 Last Updated: 30 July 2013 (v3)

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013)
Estate tax is computed on the basis of the net estate transferred at the time of the death of the decedent
Donors tax is computed on the basis of net gifts given during a calendar year
Q: What is the basis of the imposition of estate tax?

Estate tax is imposed upon the basis of the net estate of the decedent, considered as a unit, regardless of the number of shares into which it may be divided or the relationship of the beneficiaries.
Q: Compare and contrast donation mortis causa and donation inter vivos.
Mortis Causa Inter Vivos
Q: What law shall govern the imposition of estate tax?

RR 02-2003 [December 16, 2002] reiterates the well-settled rule that estate taxation is governed by the statute in force at the time of the death of the decedent.
Both are transfers without onerous consideration takes effect upon the death of the transferor Ownership will pass only upon death takes effect during the lifetime of the transferor Ownership will pass during the donors life time subject to donors tax
Q: When does the estate tax accrue?

It accrues upon the death of the decedent. (Section 3, RR 22003 [December 16, 2002]
subject to estate tax
Q: What is the law that governs the imposition of transfer taxes?

Transfer taxes are governed by the laws existing at the time the transfer takes place. In particular a. Donations inter vivos are governed by the law existing at the time of the effectivity of the donation since the transfer takes place at that time b. Donations mortis causa are governed by the law at the time of death because it is at that time that the property is transferred.
Q: Is the accrual of the estate tax distinct from the obligation to pay the same?
Yes. The accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death (see RR 02-2003 [December 16, 2002]. Generally, the estate tax is paid at the time the estate tax return is filed by the executor, administrator or the heirs. The period to file an estate tax return within six months from the death of the decedent except in meritorious cases where an extension not exceeding 30 days is granted. (see Section 90, Tax Code)
---------------------------------------------------------B. ESTATE TAX -----------------------------------------------------------------------------------------------------------------------1. Basic Principles --------------------------------------------------------------Q: What transfer is subject to estate tax?
The transfer of the net estate of every decedent, whether resident or non-resident is subject to estate tax.
Q: A died. He left a will which provided that all real estate shall not be sold or disposed of 10 years after his death and when such period lapses, the property shall be given to B. (1) When does the estate tax accrue?
The estate tax accrues as of the death of the decedent.
Q: Based on the same facts as stated above, B contended that the inheritance tax should be based on the value of the estate at the lapse of the 10-year period. Is Bs contention correct?

No, the tax accrues at the time of death notwithstanding the condition. Since death is the generating source from which the power of the State to impose estate taxes takes its being and if upon the death of the decedent, succession takes place and the right of the state to tax vests instantly, the tax is to be measured by the value of the estate as it stood at the time of the decedents death, regardless of any postponement of actual possession or any subsequent increase or decrease in value. (LORENZO V. POSADAS [JUNE 18, 1937])
3. Provide for an equal distribution of wealth 4. It is the most appropriate and effective method for taxing the privilege which the decedent enjoys of controlling the dispositions 5. It is the only method of collecting the share which is properly due to the State as a partner in the accumulation of property which was made possible on account of the protection given by the State
Q: Discuss the different theories regarding the purposes of estate tax.

Benefit-received theory The tax is in return for the services rendered by the state in the distribution of the estate of the decedent and for the benefits that accrue to the estate and the heirs The tax is in the share of the state as a passive and silent partner in the accumulation of property Pay The tax is based on the act that the receipt of inheritance creates the ability to pay and thus contribute to governmental income The tax is imposed to help reduce undue concentration of wealth in society to which the receipt of inheritance is a contributing factor
--------------------------------------------------------------2. Definition --------------------------------------------------------------Q: Define estate tax?

An estate tax is a graduated tax imposed on the privilege of the decedent to transmit property at death and is based on the entire net estate, regardless of the number of heirs and relations to the decedent. It is a tax levied, assessed, collected and paid upon the privilege of gratuitously transferring the net estate of a decedent to his heirs.
Statepartnership theory
Ability to Theory
--------------------------------------------------------------3. Nature --------------------------------------------------------------Q: What is the nature of the estate tax?

The Estate Tax is a. It is not a tax on property b. It is a tax imposed on the privilege to transmit property a death and is measured by the value of the property.
Redistribution of wealth theory
--------------------------------------------------------------5. Time and transfer of properties --------------------------------------------------------------Q: When are properties transferred to successors? and rights
--------------------------------------------------------------4. Purpose or object --------------------------------------------------------------Q: What are the purposes for imposing the estate tax?
The generally accepted purposes for imposing the estate tax are as follows: 1. To generate additional revenue for the government 2. To reduce the concentration of wealth PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
The properties and rights are transferred to the successors at the time of death of the decedent ( Art. 777, NCC). However, despite the transfer of properties and rights at the time of death, the executor or administrator shall not deliver a distributive share to any party interested in the estate unless there is a

certification from the CIR that estate tax has been paid. (see Section 94, Tax Code)
Note: In the determination of the estate tax, you should note 4 things: (1) The classification of the decedent based on nationality and/or domicile (2) The nature and the location of the assets (3) The computation and valuation of the assets (which includes deductions) and (4) Rates.
8. Determination of gross estate and net estate --------------------------------------------------------------Read Section 85, 1 Q: How is gross estate determined?
Decedent Determination estate of gross
--------------------------------------------------------------6. Classification of decedent --------------------------------------------------------------Q: Who are the taxpayers liable to pay estate tax?
1. 2. 3. 4. Resident citizens Non-resident citizens Resident alien Non-resident alien
Resident Citizen, Non-resident Citizen, Resident Alien
All properties, real or personal, tangible or intangible, wherever situated, plus items includible in gross estate Only those properties situated in the Philippines provided that with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity under Section 104 of the Tax Code
Non-Resident Alien
Note: Only natural persons can be held liable for estate tax. A corporation cannot be liable for the obvious reason that they cannot die (naturally speaking).
--------------------------------------------------------------7. Gross estate vis--vis net estate --------------------------------------------------------------Q: Distinguish Gross Estate from Net Estate
(See Section 4, RR No. 2-2003 [December 16, 2002])
Read Section 104, Tax Code

Gross Estate The value of all the property, real or personal, tangible or intangible, of the decedent wherever situated to the extent of his interest at the time of his death as well as other items includible in the gross estate (See Section 85, Tax Code)
Note: In the case of a nonresident alien decedent, only that part of the entire gross estate which is situated in the Philippines shall form part of his gross estate.
Net Estate The value of the gross estate less the ordinary and special deductions (see Section 86, Tax Code)
Q: What is the rule in determining the situs of intangible personal property for estate tax purposes?
As a general rule, we apply the principle of res mobilia sequuntur personam (chattels follow the person). In other words, the intangible property is taxed based on the domicile of the owner. However, SECTION 104 provides that certain intangibles be deemed located in the Philippines, namely: 1. Franchises being exercised in the Philippines 2. Shares, obligations, or bonds issued by domestic corporations, or partnerships, business or industry located in the Philippines 3. Shares, obligations or bonds issued by foreign corporations
---------------------------------------------------------------

a. at least 85% of the business of which is located in the Philippines; or b. which have acquired situs in the Philippines 4. All intangibles owned by residents
Non-Resident Alien
Net estate is equal to gross estate less ordinary deductions and exclusions allowed by law Note: Non-resident alien decedent cannot avail of special deductions.
Q: What is meant by reciprocity as applied to intangibles of a non-resident alien for estate tax purposes?
As provided in Section 104, there is reciprocity if the foreign country of which the decedent was a citizen or resident at the time of his death: 1. Did not impose an estate tax; or 2. Allowed a similar exemption from estate tax with respect to intangible personal property owned by Filipino citizens not residing in that foreign country.
--------------------------------------------------------------9. Composition of gross estate --------------------------------------------------------------Read Section 85, 1 and Section 104, Tax Code Q: What does the gross estate of a decedent consist of?
Decedent Composition estate of gross
Q: Must there be total reciprocity?

Yes. In COLLECTOR OF INTERNAL REVENUE V. FISHER [JANUARY 28, 1961], at issue is whether the shares of stock of a nonresident alien in a domestic mining company can be exempted from estate tax pursuant to the reciprocity proviso in the Philippine Tax Code. The Supreme Court held in the negative. Reciprocity must be total. If any of the two states collects or imposes or does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work. In this case, the Philippines imposed an estate and an inheritance tax at the time while California imposed only inheritance tax. Resident Citizen, Non-resident Citizen, Resident Alien
1. Real property within and without the Philippines 2. Tangible personal property within and without the Philippines 3. Intangible personal property within and without the Philippines 1. Real property within the Philippines 2. Tangible personal property within the Philippines 3. Intangible personal property within the Philippines unless there is reciprocity in which case it is not taxable
Non-Resident Alien
Q: How is net estate determined?

Decedent Resident Citizen, Non-resident Citizen, Resident Alien Determination of net estate Net estate is equal to gross estate less ordinary and special deductions and exclusions allowed by law Note: The special deductions (FSMA) are: (1) Family Home; (2) Standard deduction (3) Medical expenses and (4) Amount received by heir under RA 4917.
Note: In sum, all assets, real or personal, tangible or intangible wherever located of a citizen and resident alien is subject to estate tax while for nonresident aliens, estate tax is imposed only on properties within the Philippines provided in the case of intangible personal property, it is subject to the rule of reciprocity under Section 104 of the Tax Code.

Q: How do you value the estate for estate tax purposes?

The properties comprising the gross estate shall be valued based on their fair market value as of the time of death.
Q: For purposes of estate taxation, how is the fair market value of the following properties determined?
Real Property Fair market value determined by: 1. the CIR (zonal value) or 2. that shown in the schedule of values fixed by Provincial and City Assessors, whichever is higher If unlisted: 1. Unlisted common shares are valued based on their book value 2. Unlisted preferred shares are valued at par value. If listed: The fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself. The probable life of the beneficiary in accordance with the latest basic standard mortality table shall be taken into account 1. The construction cost per building permit or 2. FMV per latest tax declaration
b. Transfers in contemplation of death c. Revocable transfers d. Property under general power of appointment e. Proceeds of a life insurance taken out by the decedent upon his own life where the beneficiary is the estate, his executor or administrator irrespective of whether or not insured retained power of revocation or any beneficiary designated as recovable f. Transfers for insufficient consideration
Note: These are considered substitutes for testamentary dispositions. Although inter vivos in form, they are mortis causa in substance. Note that in all these transfers, if they were made for a bona fide consideration, they shall not form part of the gross estate.
Decedents Interest Read Section 85(A) Q: What include? does the decedents interest
Shares Stock
of
It includes any interest having value or capable of being valued, transferred by the decedent at his death
Transfer in contemplation of death Read Section 85(B) Q: When is a transfer considered one made in contemplation of death?
A transfer is considered made in contemplation of death when the impelling motive or reason for the transfer is the thought of death, regardless of whether the transferor is near the possibility of death or not.
Note: The presumption that transfers made within three years before death are made in contemplation of death as provided under PD 1705 is no longer applicable.
Usufructuary, use or habitation, annuity Improvement
(See SECTION 88, TAX CODE AND SECTION 5, RR 022003]
--------------------------------------------------------------10. Items to be included in gross estate --------------------------------------------------------------Q: What items/transfers should be included in the gross estate?
a. Decedents interest at the time of death PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: What factors should be considered in determining whether a transfer was made in contemplation of death?
One should consider the following: 1. The type of heir (whether compulsory or voluntary) 2. The timing of the transfer 3. Other special factors Page 6 of 164 Last Updated: 30 July 2013 (v3)

Q: What is the relevance of the type of heir in determining if the transfer was made in contemplation of death?
When there is a donation inter vivos is made to a person who is not a forced heir, the presumption is that such transfer is a donation inter vivos. However, if the recipient of the property is a forced heir, the presumption is that such transfer was made to accelerate inheritance and hence, such transfer is mortis causa. This presumption may be rebutted by evidence to the contrary. (see VIDAL DE ROCES V. POSADAS [M ARCH 13, 1933])
and Z. The CIR contends that such transfers should form part of the gross estate for purposes of estate taxation. Is the CIR correct?
No. The donation inter vivos was made to a legatee who is not a forced heir. Thus, absent any evidence to the contrary, the presumption holds that such transfer is a donation inter vivos. Such being the case, the transfer shall not form part of the gross estate (see TUASON V. POSADAS [JANUARY 23, 1930]).
Q: Name some instances/factors which would disprove the claim that the transfer was made in contemplation of death.
When the reason for the transfer was the desire of the decedent to: 1. see his children enjoy the property while the donor is still alive 2. save income of property taxes 3. settle family disputes 4. relieve donor from administrative burden 5. to reward services rendered 6. to provide independent income for dependents In GESTOPA V. CA [OCTOBER 5, 2000], the Supreme Court enumerated some indications that the transfer was a donation inter vivos, to wit: 1. Property was donated out of love and affection 2. When a reservation on the donation is made only with respect to the right of usufruct which denotes naked ownership was already transferred 3. When the transferors retained sufficient property only for the purpose of maintaining their status in life, thereby implying that it was alright to part with the property even during the transferors lifetime 4. Donee accepted the donation since in a donation mortis causa acceptance is not required.
Q: Using the same facts above, it was determined that the transfer was made three months before his death. Will the transfer form part of the gross estate?
Yes. In VIDAL DE ROCES V. POSADAS [M ARCH 13, 1933], the decedent died without forced heirs but instituted a certain person as a legatee in his will. The presumption that such transfer was a donation inter vivos did not hold because of the timing of the transfer, which was a short period before death.
Q: Prior to his death, A gave his son B a parcel of land through a deed of donation. Upon As death, the CIR contends that the transfer should form part of the gross estate for purposes of estate taxation. Is the CIR correct?
Yes. Since the recipient of the property, the son, is a forced heir, the presumption is that such transfer was made in contemplation of death. Thus, the transfer should form part of the gross estate. ( see DIZON V POSADAS [NOVEMBER 4, 1933])
Q: During his lifetime, Father Z donated some of his property to A, B, C on the condition that they provide him rice and money every year. Father Z died. The CIR contends that the transfers should form part of the gross estate of Father Z. Is the CIR correct?
No. In donations inter vivos, as in the present case, the donees acquired the right to the property while the donor was still alive, subject only to their acceptance and the condition that they pay the donor rice and/or money. ( see ZAPANTA V. POSADAS [DECEMBER 29, 1928])
Q: A donated parcels of land to X, Y, and Z. A died without any forced heir. In her well, she bequeathed personal property to X, Y,

Recovable Transfers Read Section 85(C) Q: What is a revocable transfer?

A revocable transfer is a transfer where the transferor has reserved his right to alter, amend or revoke such transfer, regardless of whether the power is actually exercised or not during his lifetime and whether the power should be exercised by him alone or in conjunction with someone else. To the extent of any interest therein, it forms part of the gross estate of the decedent.
Proceeds of Life Insurance Read Section 85(E) Q: When shall proceeds of the life insurance of the decedent form part of his gross estate?
They shall form part of the gross estate if the beneficiary is: 1. The estate of the deceased, his executor or administrator, irrespective of whether the insured retained the power of revocation 2. Any beneficiary (third person) designated in the policy as revocable
Note: (1) If the policy expressly stipulates that the designation of the beneficiary is irrevocable, then the amount of the proceeds shall not be included in the gross estate. (2) It is revocable when the beneficiary may still be changed and the decedent has still retained interest in the policy. It is irrevocable when the beneficiary may no longer be changed as they have acquired a vested interest. For third persons whose designations are irrevocable, the proceeds of life insurance shall not form part of the gross estate. If it is revocable, it shall form part of the gross estate.
Property under Appointment Read Section 85(D)
General
Power
of
Q: Differentiate the estate tax treatment of property passing under a general power of appointment and one under a special power of appointment.
Kind of appointment General Nature Tax Treatment
Donor gives the donee the power to appoint any person as successor to enjoy the property. Donor gives the donee the power to appoint a person within a limited group to succeed in the enjoyment of the property
Shall form part of the gross estate
Transfers for Insufficient Consideration Read Section 85(G) Q: What are consideration? transfers for insufficient
Special
Shall not form part of the gross estate
Transfers for insufficient consideration are those transfers that are not bona fide sales of property for an adequate and full consideration in money or moneys worth. The excess of the fair market value at the time of the death over the value of the consideration received by the decedent shall form part of his gross estate. Note:
(1) The rule on transfer for insufficient consideration applies to (a) Transfers in contemplation of death (b) Revocable transfers and (c) Transfers under general power of appointment. (2) As a numerical example

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Note: Nonresident aliens cannot avail of the special deductions.
FMV at time of transfer FMV at time of death Consideration received at time of transfer Amount included in estate
Example 1 100 200 70 30
Example 2 100 200 100 0
Expenses, losses, indebtedness, taxes, etc (ELIT) Read Section 86(A)(1) Funeral expenses Q: What the conditions for the deductibility of funeral expenses?
1. Whether paid or unpaid 2. Up to the time of interment 3. The actual amount or in an amount equal to 5% of the gross estate, whichever is lower, but in no case to exceed P200,000
Note: (1) Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred. (2) The amount in excess of the P200,000 threshold shall not be allowed as a deduction nor will it be allowed to be claimed as a deduction under claims against the estate.
In determining whether there was sufficient consideration, compare the FMV of the property at the time of the transfer with the amount of consideration received at the time of the transfer. However, the amount to be included in the estate is computed by taking the difference between the FMV of the property at the time of death and the amount of consideration received at the time of transfer. Example 1: Since the property was sold for 30 less than its FMV at the time of the transfer, there is insufficient consideration. Hence, the difference between the consideration received and the FMV at time of death shall form part of the gross estate. Example 2: This is not a transfer for insufficient consideration, hence, it shall not form part of the gross estate. This is a bona fide sale for an adequate and full consideration in moneys worth.
--------------------------------------------------------------11. Deductions from estate --------------------------------------------------------------Q: Enumerate the deductions from the gross estate.
The deductions from the gross estate are: 1. Ordinary deductions a. Expenses, losses, indebtedness, taxes, etc (ELIT) i. Funeral expenses ii. Judicial expenses iii. Claims against the estate iv. Claims against insolvent persons v. Unpaid mortgage or indebtedness on property vi. Taxes vii. Losses b. Vanishing Deduction c. Transfer for public use 2. Special deductions (FSMA) a. Family home b. Standard deduction c. Medical expenses d. Amount received by heir under RA 4917
Q: A died leaving an estate valued at P20,000,000. His heirs spent P500,000 for all the funeral services. How much should be allowed as a deduction?
The amount deductible is only P200,000. To determine amount deductible, compare P500,000 and P1,000,000 (5% of P20 million). The lower amount is P500,000. However, it is beyond the P200,000 threshold. Thus, only P200,000 will be allowed as a deduction.
Q: Give some examples of funeral expenses that are deductible

1. The mourning apparel of the surviving spouse and unmarried minor children of the deceased, bought and used on the occasion of the burial 2. Expenses for the deceaseds wake, including food and drinks 3. Publication charges for death notices; 4. Telecommunication expenses incurred in informing relatives of the deceased;

5. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; 6. interment and/or cremation fees and charges; and 7. All other expenses incurred for the performance of the rites and ceremonies incident to interment. (See RR 2-2003 [December 16, 2002])
Q: Give some examples of judicial expenses

Judicial expenses may include: 1. 2. 3. 4. 5. 6. 7. Fees of executor or administrator; Attorneys fees; Court fees; Accountants fees; Appraisers fees; Clerk hire; Costs of preserving and distributing the estate; 8. Costs of storing or maintaining property of the estate; and 9. Brokerage fees for selling property of the estate. (RR 2-2003) In CIR V. CA AND PAJONAR [M ARCH 22, 2000], the Supreme Court held that expenses incurred in the extrajudicial settlement of the estate should be allowed as a deduction from the gross estate. It is sufficient that the expense be a necessary contribution toward the settlement of the estate. The notarial fee paid for the extrajudicial settlement is deductible since such settlement effected a distribution of the decedents estate to his lawful heirs. The attorneys fees in the guardianship proceedings of the insane deceased is also deductible as it essential to the proper settlement of the estate, to preserve the properties of the deceased. In Lorenzo v. Posadas [June 18, 1937], the Supreme Court held that compensation of the trustee earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devisees, does not come within the class or reason for exempting administration expenses. Service rendered in behalf that behalf has no reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and is not required or essential to the perfection of the rights of the heirs or legatees. In De Guzman v. De Guzman-Carillo [May 18, 1978], the Court allowed the following expenses as proper expenses for administration of the estate of the deceased: expenses for the renovation and improvement of the family home, expenses for the lawyers subsistence and physician of the deceased during his last illness, and irrigation fees. However, expenses which inured to the benefit of only one heir were not allowed. Further, the expenses for stenographic notes, and celebration of the one year
Q: Give some examples of funeral expenses that are not deductible

1. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like. 2. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased. 3. Medical expenses as of the last illness (See RR 2-2003 [December 16, 2002])
Note: As to (3) This should instead be claimed as part of the deduction for medical expenses.
Judicial expenses Q: What are the requisites for deductibility of judicial expenses?
Judicial expenses to be deductible 1. Must be incurred during the settlement of the estate but not beyond the last day prescribed by law (within 6 months from the date of death of the decedent) or the extension thereof (in meritorious cases, the CIR may grant reasonable extension not exceeding 30 days) for the filing of the estate tax return. 2. The judicial expenses are incurred in: a. Inventory-taking of assets comprising the gross estate b. Administration c. Payment of debts of the estate d. The distribution of the estate among the heirs (RR 2-2003)
the

death anniversary were not allowed as they had nothing to do with the administration of the estate.
Claims against the estate Q: What are claims against the estate?
These are debts or demands of pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. It may arise out of: 1. Contract 2. Tort 3. Operation of law
any legislative intent in our tax laws, which disregards the date-of-death valuation principle which is the US rule on deductions. The amount deductible is the debt which could have been enforced against the deceased in his lifetime, nothing more and nothing less (DIZON V. CIR [APRIL 30, 2008])
Note: In sum, post-death developments should not be considered in determining the net value of the estate
Q: What are the requirements to substantial the claims?

In case of simple loan a. Instrument must be duly notarized b. Duly notarized Certification from the creditor c. Proof of financial capacity of the creditor to lend; d. Statement under oath executed by the executor/administrator of the estate reflecting the disposition of the proceeds of the loan (if the loan was contracted within 3 years prior to the death of the decedent) a. Pertinent documents evidencing the purchase of goods or service b. Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death; c. Certified true copy of the latest audited balance sheet of the creditor
Q: What are the requisites for deductibility of claims against the estate?
1. Must be a personal obligation of the deceased existing at the time of his death except those incurred incident to his death or those medical expenses 2. Liability must have been contracted in good faith 3. The claim must be a debt or claim which is valid in law and enforceable in court 4. Indebtedness not condoned by the creditor or the action to collect from the decedent must not have prescribed
Q: There were claims against the estate of the deceased which allegedly exceed the gross estate which resulted in the administrator reporting no estate tax liability. The BIR contested the amounts of the claims against the estate deductions stating that lower amounts were paid as compromise payments during the settlement of the estate and these amounts should be what will be considered in arriving at the net estate. Will the compromise amounts be the amounts considered as deductions to the gross estate?
No, the deduction allowable is that amount determined at the time of death. Post-death developments are not material in determining the amount of deduction, especially for the claims against the estate deduction. There is no law, nor
In unpaid obligation arose from purchase of goods or services
Claims against insolvent persons Q: What are the requisites for claims against insolvent persons to be deductible?
1. The amount has been initially included as part of the gross estate; and 2. The incapacity of the debtors to pay their obligations is proven, not merely alleged.

Unpaid mortgage property
or
indebtedness
on
Losses Q: What are the requisites for losses to be deductible from the gross estate?
Losses are deductible: 1. 2. were incurred during the settlement of the estate arose from fires, storms, shipwreck or other casualties or from robbery, theft or embezzlement are not compensable are not claimed as deduction for income tax purposes were incurred not later than the last day for payment of the estate tax
Q: What are the requisites for unpaid mortgages to be allowed as a deduction?

1. The FMV of the property mortgaged without deducting the indebtedness has been initially included as part of the gross estate; and 2. The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money/moneys worth.
3. 4. 5.
Taxes Q: What are the requisites for unpaid taxes to be deductible?

1. Taxes which have accrued as of or before the death of the decedent; and 2. Unpaid as of the time of his death, regardless of whether or not it was incurred in connection with trade or business
Note: This deduction will not include: (1) income tax upon income received after death, or (2) property taxes not accrued before his death, or (3) the estate tax due from the transmission of his/her estate. These shall be chargeable against the income of the estate because it accrued after the death of the decedent.
Vanishing Deduction Read Section 86(A)(2), Tax Code Q: What is a vanishing deduction?
A vanishing deduction is a deduction allowed on the property left behind by the decedent which he had acquired previously by inheritance or donation Note: The rationale is to minimize the effects of double taxation on the same property within a short period of time; the law allows a deduction to be claimed on the said property.
Q: Are claims for taxes against the estate not filed in time barred forever?
No. As a general rule, all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in they notice; otherwise they are barred forever. However, as an exception, taxes assessed against the estate of a deceased person need not be submitted to the committee on claims in the ordinary course of administration. They may be collected even after the distribution of the decedents estate among his heirs who shall be liable therefore in proportion of their share in the inheritance. (Vera v. Fernandez [March 30, 1979])
Q: What are the conditions for the deductibility of property previously taxed or vanishing deduction?
1. Death 2. Identity of property (the property with respect to which deduction is sought can be identified as the one received from the prior decedent) 3. Inclusion of the property (the property must form part of the gross estate situated in the Philippines of the prior decedent or was a taxable gift of the donor) 4. Previous taxation of property (Estate tax or donors tax due thereon must have been paid) 5. No vanishing deduction on the property was allowed to the estate of the prior decedent

Q: What are the conditions for the deductibility of property previously taxed or vanishing deduction?
1. Determine the FMV of the PPT at the time of the prior decedents death and the FMV at the time of the present decedents death then get the lower of these two amounts 2. Prorate:
2. 3.
4.
The total value of the family home must be included as part of the gross estate Allowable deduction must be in an amount equivalent to: a. the current FMV of the family home as declared or included in the gross estate or b. the extent of the decedents interest (whether conjugal/community or exclusive property), whichever is lower The deduction not exceed Php 1,000,000.
Standard deduction Read Section 86(A)(5)

Note: Total deductions do not include the special deductions (FSMA)
3. Subtract 2 from 1 4. Apply the rate of vanishing deduction to 3 above.

Note: Let us have a numerical example. In 2000, A inherits a land valued at P500,000. In 2003, A died with the said land having a value of P600,000. His gross estate amounted to P2 million. His allowable deductions amounted to P400,000 500,000 ( = 400,000 = 400,000 x 60% = P240,000
Q: What is the standard deduction?

The standard deduction shall be Php 1,000,000 without need of substantiation.
Medical expenses Read Section 86(A)(6) Q: What are the requisites for deductibility of medical expenses?
1. 2. The expenses were incurred by the decedent within 1 year prior to his death The expenses are duly substantiated with receipts The deductible expense shall not exceed Php 500,000
Transfer for public use

3.
Read Section 86(A)(3), Tax Code Q: What are allowed Transfers for Public Use? deductions as
The deduction on transfers for public purpose refers to the amount of all bequests, legacies, devises, or transfers to or for the use of the Government or any political subdivision thereof, for exclusively public purposes,
Note: The amounts of medical expenses incurred in excess of P500,000 shall no longer be allowed as a deduction for medical expenses. Neither can any unpaid amount thereof in excess of the P500,000 threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as claim against the estate (see Section 6, RR 2-2003)
Amount received by heir under RA 4917 Read Section 86(A)(7), Tax Code Q: Discuss the deductibility of amounts received by heirs under RA 4917.
Amounts received from the decedents employer as a consequence of the death of the decedentemployee as retirements benefits under RA 4917 (An Act Providing that Retirement Benefits of Employees of Private Firms shall not be subject to Page 13 of 164 Last Updated: 30 July 2013 (v3)
Family home Read Section 86(A)(4), Tax Code Q: What are the requisites for deductibility of a family home?
1. The family home must be the actual residential home of the decedent and his family at the time of his death as certified by the barangay captain

any Tax whatsoever) is allowed as a deduction provided that the amount of benefit is included in the gross estate.
Net share of the Surviving Spouse Read Section 86(C), Tax Code Deductions allowed to Non-Resident Estate Read Section 86(B) to (D), Tax Code
2. Special deductions (FSMA) a. Family home b. Standard deduction c. Medical expenses d. Amount received by heir under RA 4917 3. Share in conjugal property
Q: What may be deducted from the gross estate of non-resident aliens?

Citizen or Resident Alien Decedents Gross Estate - all property at the time of death, wherever situated. Non-resident decedents alien
--------------------------------------------------------------12. Exclusions from estate --------------------------------------------------------------Q: What are the exclusion from the gross estate?
1. The capital (exclusive property) of he surviving spouse is considered as an exclusion in the gross estate under Section 85(H) of the Tax Code
Note: Under Section 86(C), the share of the surviving spouse n the absolute community/conjugal partnership is considered as a deduction
Gross Estate includes only that part of the gross estate located in the Philippines
Deductions: 1. Ordinary deductions a. Expenses, losses, indebtedness, taxes, etc (ELIT) i. Funeral expenses ii. Judicial expenses iii. Claims against the estate iv. Claims against insolvent persons v. Unpaid mortgage or indebtedness on property vi. Taxes vii. Losses b. Vanishing Deduction c. Transfer for public use
Deductions: 1. Ordinary deductions 2. Share in conjugal property

Note: (1) Non-resident alien decedent cannot avail of special deductions. (2) No deduction shall be allowed unless the executor, administrator, or anyone of the heirs as the case may be includes in the estate tax return of the decedent, the value at the time of his death that part of the gross estate of the non-resident not situated in the Philippines (Section 86(D), Tax Code)
2. Other items which are excluded: a. GSIS proceeds/benefits b. Accruals from SSS c. Proceeds of life insurance where the beneficiary is irrevocably appointed d. Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life) e. War damage payments f. Transfer by way of bona fide sales g. Transfer of property to the government or to any of its political subdivisions h. Merger or usufruct in the owner of the naked title i. Properties held in trust by the decedent j. Acquisition and/or transfer expressly declared as not taxable
--------------------------------------------------------------13. Tax credit for estate taxes paid in a foreign country ---------------------------------------------------------------

Read Section 86(E), Tax Code

Note: It is a remedy against international double taxation. to minimize the onerous effect of taxing the same property twice, tax credit against Philippine estate tax is allowed for estate taxes paid to foreign countries.
Q: What are the acquisitions and transfers expressly declared as exempt?

1. Merger of the usufruct in the owner of the naked property 2. Transmission or delivery of the inheritance or legacy by the fiduciary heirs or legatee to the fideicomissary 3. Transmission from the first heirs, legatees or donees in favor of another beneficiary in accordance with the desire of the testator 4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the income of which inures to the benefit of any individual, provided that not more than 30% of the said bequests, devises, legacies or transfers shall be used for administrative purposes
Note: The bequest, devises, legacies, or transfers does not include those made to educational institutions. Now, I want to show how we compute estate tax due and payable.
Q: Who may avail of tax credit?

1. Citizen 2. Resident alien
Q: What is the amount allowable as a Tax Credit?

The estate tax imposed by the Philippines shall be credited with the amounts of an estate tax imposed by the authority of a foreign country. However, the amount of tax credit is subject to the following limitations: 1. Per country basis: The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken which the decedents net estate situated within such country taxable under the NIRC bears to his entire net estate.
Note: To best illustrate:
Q: How is estate tax computed?

1. List down all the common (conjugal or community) property 2. List down all the separate or exclusive property of the decedent (exclude the separate or exclusive property of the surviving spouse) 3. Include the family home either in (a) or (b), depending on the status of the house and lot 4. The resulting total is the gross estate 5. Deduct the appropriate deductions 6. The resulting balance is the net estate 7. Deduct the special deductions: (1) share of the surviving spouse (1/2) of the net common properties and (2) family home 8. The resulting balance is the taxable net estate 9. Compute the estate tax using the graduated estate tax rates 10. Deduct any tax credits 11. The resulting balance is the estate tax due and payable
2. Overall basis: The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedents net estate situated outside the Philippines taxable under the NIRC bears to his entire net estate.
Note: To best illustrate:
--------------------------------------------------------------14. Exemption of certain acquisitions and transmissions --------------------------------------------------------------Read Section 87, Tax Code

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Note: To best illustrate Conjugal community property + Separate property of decedent = Gross Estate Less: Allowable deductions, conjugal/community deductions, separate/exclusive deductions = Net Estate Less: Special deductions = Taxable Net Estate Multiplied by estate tax (per graduated rates) Less: Tax Credits = Estate Tax due and payable
or registerable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee.
Q: When should the estate tax return be filed?

General Rule: Within 6 months from the death of decedent Exceptions: The CIR, in meritorious cases, grant an extension not exceeding 30 days for filing the return.
Other Administrative Requirements Read Section 91-97, Tax Code Q: When should the estate tax be paid?
General Rule: At the time the return is filed by the executor, administrator or the heirs Exception: The CIR, if he finds that the payment on the due date would impose undue hardship, may grant an extension of: 1. Not to exceed 5 years in case the estate is settled judicially 2. Not to exceed 2 years in case the estate is settled extrajudicially
--------------------------------------------------------------15. Filing of notice of death --------------------------------------------------------------Read Section 89, Tax Code Q: When is notice of death required to be given to the BIR?
1. In all cases of transfers subject to tax; or 2. Where, though exempt from tax, the gross value of the estate exceeds P20,000
Q: If required, when shall the notice of death be given?

1. Within 2 months after the death of the decedent; or 2. Within a like period after the executor or administrator or executor qualifies as such.
Q: Who is liable for the payment of the estate tax?

The estate tax imposed under the Tax Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. In CIR V. GONZALES [NOVEMBER 24, 1966], the Supreme Court held that estate taxes are satisfied from the estate and are to be paid by the executor or administrator. Where there are 2 or more executors, all of them are severally liable for the payment of the estate tax. Failure to pay the estate taxes before distribution of the estate would subject the executor or administrator to criminal liability. It is immaterial that an heir administers only 1/3 of the estate and will receive as her share only said portion, for her right to the estate comes after taxes. As an administratrix, she is liable for the entire estate tax. As an heir, she is liable for the entire inheritance tax Page 16 of 164 Last Updated: 30 July 2013 (v3)
--------------------------------------------------------------16. Estate Tax Return -------------------------------------------------------------Read Section 90, Tax Code Q: When is an estate tax return required?
1. When the estate is subject to estate tax 2. When, though exempt from tax, the gross value of the estate exceeds Php 200,000 3. Regardless of the gross value of the estate when the said estate consists of registered PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

although her liability would not exceed the amount of her share in the estate.
Q: May estate tax be collected even after the distribution to the heirs?
Yes. As held in GOVERNMENT V. PAMINTUAN [OCTOBER 11, 1930], a claim for taxes and assessments whether assessed before or after the death of the decedent, is not required to be presented to the committee on claims and appraisals. The Heirs are liable for the deficiency income taxes, in proportion to their share in the inheritance. As held in CIR V. PINEDA [SEPTEMBER 15, 1967], an heir is individually answerable for the part of the tax proportionate to the share he received from the inheritance. His liability, however, cannot exceed the amount of his share. On the other hand, a holder of property belonging to the estate is liable for the tax up to the amount of the property in his possession.
the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected.
Q: What is the duty of a bank in case of the death of a decedent-depositor?

General Rule: If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the estate taxes imposed thereon have been paid. Exception: The administrator of the estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos (P20,000) without the said certification.
Q: How can the BIR recover such unpaid tax liabilities?

The BIR can recover in 2 ways: 1. It may recover said liability from all the heirs who shall share proportionately; or 2. It may go against the property held by an heir if the same is sufficient to cover the whole tax liability (in which case, the heir who paid can seek reimbursement from his/her co-heirs) CIR V. PINEDA [SEPTEMBER 15, 1967]
Note: In both instances, the respective heirs may not be held accountable for more than the share he/she inherited.
Q: A died and B (wife) tried to withdraw the joint savings deposit they maintained at the PNB Tarlac but failed because C, who claimed to be the couples adopted child, objected thereto. C claims that B cannot withdraw any amount from the bank account because she should follow legal procedures governing settlement of the estate of a deceased, unless a competent court issues an order allowing her to withdraw invoking Section 97 of the Tax Code. Can the money be released to B?
No. Section 97 of the National Internal Revenue Code states: If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account unless the Commissioner had certified that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos (P20,000) without the said certification. For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors. (POLIDO V. CA [JULY 10, 2007])
Q: Is the approval of the probate court or the court settling the estate of the decedent a mandatory requirement in the collection of the estate tax?
No. As held in M ARCOS II V. CA [JUNE 5, 1997], it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

---------------------------------------------------------C. DONORS TAX -----------------------------------------------------------------------------------------------------------------------1. Basic Principles --------------------------------------------------------------Read Section 98 Q: What donations are covered by the donors tax?
The donors tax is imposed only on donaitons inter vivos. Donations mortis causa partake of the nature of testamentary dispositions are subject to estate tax In the case of Gestopa v CA [October 5, 2000], the Supreme Court held that the donation of the deceased spouses to their illegitimate daughter was a donation inter vivos. The spouses executed the deed out of love and affection for the donee, which is a mark of a donation inter vivos. The donor reserved sufficient properties for their maintenance in accord with their standing in society, indicating the donor intended to part with the property donated. And, the donee accepted the donation, which is only required in donations inter vivos.
Note: Its purpose is to complement estate taxation by preventing tax-free depletion of the transferors estate during his lifetime.
--------------------------------------------------------------3. Nature --------------------------------------------------------------Q: What is the nature of a donors tax?

It is an excise tax on the privilege of the donor to give or on the transfer of property by way of gift inter vivos. It is not a property tax (Lladoc v. CIR [14 SCRA 292])
--------------------------------------------------------------4. Purpose or object --------------------------------------------------------------Q: What are the purposes for the imposition of donors tax?
1. To raise revenues 2. To tax the wealthy and reduce certain other excise taxes 3. To discourage inter vivos transfers of property which could reduce the mortis causa transfers on which a higher tax, the estate tax would be collected 4. It will tend to reduce the incentive to make gifts in order that distribution of future income from the donated property may be to a number of persons with the result that the taxes imposed by the higher brackets of the income tax are avoided.
Q: When is donors tax imposed?

Donors tax is imposed upon the transfer by any person, resident or non-resident, of any property by gift.
Q: What law governs the imposition of donors tax?

The donors tax is governed by the statute in force at the time of the transfer.
--------------------------------------------------------------5. Requisites of valid donation --------------------------------------------------------------Q: What are the requisites of a valid donation?
1. Capacity of donor 2. Donative intent (intention to donate) 3. Delivery, whether actual or constructive, of the subject gift 4. Acceptance by the done 5. Form prescribed by law
Note: (1) As to (1) All persons who may contract or dispose of their property may make a donation (Art. 735, NCC). The donors capacity shall be determined as of the time of the making of the donation (Art. 737, NCC).
--------------------------------------------------------------2. Definition --------------------------------------------------------------Q: What is a donors tax?

A donors tax is an excise tax imposed on the privilege to transfer property by way of gift inter vivos based on pure act of liberality without any or less than adequate consideration and without any legal compulsion to give.

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) (2) As to (2) Donative intent is necessary only in case of a direct gift. If the gift is indirectly taking place by way of sale, exchange or other transfer of property as contemplated in cases of transfers for less than adequate and full consideration (see Section 100, Tax Code), donative intent is not always essential to constitute a gift. (3) As to (3) There is delivery if the subject matter is within the dominion and control of the done (4) As to (4) Acceptance is necessary because nobody is obliged to receive a gift against his will ( OSORIO V. OSORIO [41 PHIL. 531])
1. It must be in public document 2. The property donated and the value of the charges which the done must satisfy must be specified 3. The donee must accept through a deed or similar instrument. (Art. 749, NCC)
Q: What are the requirements for a donation to be subject to donors tax?

1. Property donated is not real property that is a capital asset 2. The transfer is for less than adequate consideration 3. The transfer is inter vivos
Q: ABC Steamship insured the life of A who was then its President and General Manager. He was responsible for the success of the company for which he was compensated for. The company initially designated itself as the beneficiary of the policies but, after As death, it renounced all its rights, title and interest therein in favor of As heirs. The CIR subjected the donation to donors tax. The heirs contend that it was a remuneratory donation on full and adequate compensation for the valuable services of A and as such is not subject to donors tax. Is the contention of the heirs correct?
No. The donation is not remuneratory as A has been fully compensated for his services. A donation made by the corporation to the heirs of a deceased officer out of gratitude for the officer's past services is considered a donation and is subject to donee's gift tax. The fact that his services contributed in a large measure to the success of the company did not give rise to a recoverable debt, and the conveyances made by the company to his heirs remain a gift or donation. (Pirovano v. CIR [July 31, 1965])
--------------------------------------------------------------6. Transfers which may be constituted as donation a) Sale/exchange/transfer of property for insufficient consideration b) Condonation/remission of debt --------------------------------------------------------------Q: What are considered donations for tax purposes?
1. Sales, exchanges and other transfers of property for less than an adequate and full consideration in money or moneys worth Except: Transfers of real property considered as capital assets which is subject to CGT. 2. Condonation or remission of debt where the debtor did not render service in favor of the creditor
Note: Condonation or remission of a debt would constitute a donation to the extent of the fair value of the debt condoned or remitted. Therefore, the creditor would be considered a donor for donors tax purposes and would be liable for the tax thereon.
Q: What are the requisites for a donation of a movable to be valid?

1. Donation may be oral or in writing 2. If oral, the donation must be accompanied with delivery 3. If value is more than Php 5,000, the donation must be in writing and accepted in writing. ( Art. 748, NCC)
Q: What are the requisites for a donation of an immovable to be valid?
Q: A sold his lot not used for business tto his brother B for P500,000 when at that time the lot was valued in the market at P1 million. A bought it for P100,000. In addition, A sold some of the shares of his company ABC Corp to his senior executives. He sold the ABC Corp shares for P300,000 when the

market value was at P500,000. His original cost in the shares is P100,000. Are the sales subject to donors tax?
The sale of the lot is not subject to donors tax as it is a real property classified as a capital asset and such is subject to the 6% CGT. The sale of the shares, however, are subject to the donors tax of 30% based on the difference between the selling price and the market value.
Q: Supposing that instead of a general renunciation, B renounced her hereditary share in As estate to X who is a special child, would the renunciation be subject to donors tax?
Yes, the renunciation in favor of X would be subject to donors tax. This is so because the renunciation was specifically and categorically done in favor of X and identified heir to the exclusion or disadvantage of Y and Z, the other co-heirs in the hereditary estate. (Section 11, RR No. 2-2003)
Note: Without a source of income or acceptable form of acquisition of substantial amount to purchase properties, the inclusion of the names of minor children in the certificates of title of properties shall be deemed an implied donation, which is subject to donors tax. SPS. HORDON H. EVONO AND MARIBEL C. EVONO VS. CIR, ET. AL., CTA EB NO. 705 (CTA CASE NO. 7573), JUNE 4, 2012
Q: Creditors A, B and C condoned the debt of XYZ Corp pursuant to a court approved restructuring. Are the creditors liable for donors tax?
No. The transaction is not subject to donors tax since the condonation was not implemented with a donative intent but only for business consideration. The restructuring was not a result of the mutual agreement of the debtors and creditors. It was through court action that the debt rehabilitation plan was approved and implemented. [BIR Ruling DA 028-2005 [January 24, 2005])
--------------------------------------------------------------7. Transfer for less than adequate and full consideration --------------------------------------------------------------Read Section 100 Q: When is there a transfer for less than an adequate and full consideration in money or moneys worth?
Where property, other than real property classified as capital asset subject to final capital gains tax, is transferred for less than an adequate and full consideration in money or moneys worth, the amount by which the fair market value of the property exceeded the value of the consideration shall, for purposes of donors tax, be deemed a gift.
Note: (1) The element of donative intent is conclusively presumed in transfers of property for less than an adequate or full consideration in money or moneys worth. (2) Why is real property, classified as capital asset, that is transferred for less than an adequate and full consideration in money or moneys worth not deemed a gift subject to donors tax? Well, it is already subject to final capital gains tax, which is 6% of the gross selling price of fair market value of the property, whichever is higher. So what the seller avoids in the payment of the donors tax, it pays for in CGT.
Q: Whether the transfer of property from the distressed Asset Asia Pacific, Inc. pursuant to the Special Purpose Vehicle (SPV) Act of 2002 subject to donors tax?
No. The transaction above is not a donation. Hence, it is not subject to donors tax. [BIR Ruling No. 1092011]
Note: Thus, if the transfer was made pursuant to law, it is not subject to donors tax.
Q: A died leaving as his only heirs, his surviving spouse B, and three minor children, X, Y and Z. Since B does not want to participate in the distribution of the estate, she renounced her hereditary share in the estate. Is the renunciation subject to donors tax?
No. The general renunciation by an heir, including the surviving spouse, as in the case of B, of her share in the hereditary estate left by the decedent is not subject to donors tax. This is so bec ause the general renunciation by B was not specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate (Section 11, RR No. 2-2003). PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: As a condition for approving the manufacture by BF Goodrich of tires and


rubber products, the Central Bank required it to develop a rubber plantation. BF Goodrich purchased land under the Parity Amendment. Thereafter, the DOJ rendered an opinion stating that upon expiration of the Parity Amendment, ownership rights over such lands, including right to dispose or sell them, would be lost. Hence, BF Goodrich sold the rubber plantation to Siltown Realty for a price less than its declared fair market value. The BIR assessed BF Goodrich for deficiency donors tax representing the difference between the fair market value and the actual purchase price of the property. BIR contended that BF Goodrich filed a false income return. Did BF Goodrich commit falsity in its income return?
No. It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an "arm's length" transaction. In this case, Goodrich was compelled to sell the property even at a price less than its market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. In other words, it was attempting to minimize its losses. At the same time, it was able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on the price. The fact that Goodrich sold its real property for a price less than its declared fair market value did not by itself justify a finding of false return. Even though a donor's tax, which is defined as "a tax on the privilege of transmitting one's property or property rights to another or others without adequate and full valuable consideration," is different from capital gains tax, a tax on the gain from the sale of the taxpayer's property forming part of capital assets, the tax return filed by Goodrich to report its income was sufficient compliance with the legal requirement to file a return. In other words, the fact that the sale transaction may have partly resulted in a donation does not change the fact that Goodrich already reported its income by filing an income tax return. [CIR v. B.F. Goodrich Phils [February 24, 1999]
--------------------------------------------------------------8. Classification of donor --------------------------------------------------------------Q: Who are liable to pay donors tax?
1. 2. 3. 4. 5. 6. Resident citizen Non-Resident Citizen Resident Alien Non-Resident Alien Domestic Corporation Foreign Corporation
Note: In contrast to estate taxes, a corporation can be subject to donors tax because it is capable of entering into a contract of donation through the appropriate Board Resolution.
--------------------------------------------------------------9. Determination of gross gift --------------------------------------------------------------Q: Distinguish Gross Gift from Net Gift
Gross Estate Refers to all property, real or personal, tangible or intangible, that is given by the donor to the done by way of gift, without the benefit of any deduction. Net Estate Means the net economic benefit from the transfer that accrues to the done.
Q: How is gross estate determined?

Donor Citizens and Resident Aliens Determination of gross gift Gross gift includes all real properties, tangible and intangible personal properties wherever located Gross gift includes all real properties, tangible, and intangible properties located in the Philippines unless the reciprocity rule applies.
Non-Resident Aliens
Note: In sum, all assets, real or personal, tangible or intangible given by way of gift wherever located of a citizen and resident alien is subject to donors tax while for nonresident aliens, donors tax is imposed only on properties located in the Philippines provided in the case

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) of intangible personal property, it is subject to the rule of reciprocity under Section 104 of the Tax Code. Same rules as in Estate Taxation. See previous discussion on intangible properties considered situated in the Philippines and rule on reciprocity.
schedule of values fixed by the provincial and city assessors (zonal value), whichever is higher. If there is no zonal value, taxable base is FMV that appears in the latest tax declaration. For improvements The value of the improvement is the construction cost per building permit and/or occupancy permit plus 10% per year after year of construction or the FMV per latest tax declaration The fair market value at that time will be considered the amount of gift
Q: ABC a multinational corporation doing business in the Philippines donated 100 shares of stock of said corporation to Mr. Z, its resident manager in the Philippines. What is the tax liability, if any, of ABC corporation?
Foreign corporations effecting a donation are subject to donors tax only if the property donated is located in the Philippines. Accordingly, donation of a foreign corporation of its own shares of stock in favor of resident employees is not subject to donors tax. However, if 85% of the business of the foreign corporation is located in the Philippines or the shares donated have acquired business situs in the Philippines, the donation may be taxed in the Philippines subject to the rule of reciprocity.
For all other properties
--------------------------------------------------------------10. Composition of gross gift --------------------------------------------------------------Read Section 104, Tax Code Q: What is included as part of gross gift?
As a general rule, gross gifts include real and personal property, whether tangible or intangible or mixed, wherever situated Note: If the donor was a non-resident alien at the time of the donation, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of gross gift.
In GIBBS V. CIR [APRIL 28, 1962], the parents made it appear that they transferred shares of stock in favor of their children for consideration, but it was found out that such was insufficient, and such agreements were made to evade taxes. The Supreme Court allowed the CIR to impose taxes for the full value of the shares of stock, not just the excess of the FMV over the consideration/price.
--------------------------------------------------------------12. Tax Credit for donors taxes paid in a foreign country --------------------------------------------------------------Read Section 101(C), Tax Code
Note: See discussion of tax credit under Estate Tax. Computation of the donors tax credit is the same as the computation for estate tax credit. Just change net estate to net gifts.
--------------------------------------------------------------11. Valuation of gifts made in property --------------------------------------------------------------Read Section 102, Tax Code Q: How do we value the gifts subject to donors tax?
For Real Property The value shall be based on either (1) the fair market value as determined by the CIR or (2) the fair market value as shown in the
--------------------------------------------------------------13. Exemptions of gifts from donors tax --------------------------------------------------------------Read Section 101(A) to (B), Tax Code
Note: There are really no deductions from gross gift. There are only exemptions.
Q: Enumerate the exemptions from gross gifts (exempt from donors tax)
1. Dowries or donations made: a. on account of marriage b. before its celebration or within one year thereafter Page 22 of 164 Last Updated: 30 July 2013 (v3)

c.
by parents to each of their legitimate, recognized natural or adopted children d. to the extent of the first php10,000 2. Gifts made to or for the use of the national government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said government 3. Gifts in favor of an education and/or charitable, religious, cultural or social welfare corporation, institution, accredited NGO, trust or philanthropic organization or research institution or organization provided not more than 30% of said gifts will be used by such done for administrative purposes.
institution, accredited NGO, trust or philanthropic organization or research institution or organization to be exempted?
1. Not more than 30% of the said gift should be used for administrative purposes 2. The donee must be a non-stock, non-profit organization or institution 3. The donee organization or institution should be governed by trustees who do not receive any compensation 4. Said donee devotes all of its income to the accomplishment and promotion of its purposes 5. The NGO must be accredited by the Philippine Council for NGO Certification 6. The donor engaged in business shall give notice of donation on every donation worth at least P500,000 to the RDO which has jurisdiction over his place of business within 30 days after receipt of the qualified donees institutions duly issued Certificate of Donation (RR 2-2003)
Q: What exemptions are allowed to nonresident aliens?

Non-resident aliens are exempt from donors tax with respect to (2) and (3) as enumerated above.
Q: In addition to exemptions provided under Section 101 of the Tax Code, are there any other exemptions allowed on gross gift?
1. Encumbrances on the property donated if assumed by the donee 2. Donations made to entities exempted under special laws (e.g. IBP, IRRI, National Museum, National Library) 3. Amount specifically provided by the donor as a diminution of the property donated. 4. Athletes Prizes and Awards (see RA 7549)
Q: What are the requisites for a donation given to athletes as prize or award to be exempted?
The donation must be prize or award given to athletes: 1. In local and international sports tournaments and competitions 2. Held in the Philippines or abroad; 3. Sanctioned by their respective national sports associations (RA 7549)
Note: Remember Section 32(B)(7)(d), Tax Code which provides that all prizes and awards granted to athletes in local and international competitions and tournaments, whether held in the Philippines or abroad, and sanctioned by their national sports associations are excluded from gross income.
Q: What are the requisites for dowries or gifts made on account of marriage to be exempted?
1. The gift was made on account of marriage 2. It was made before or within one year after the celebration of marriage 3. Donor is a parent 4. Donee is a legitimate, recognized natural or adopted child of the donor 5. The amount of the gift exempted is only to the extent of the first P10,000 (per parent, if made out of conjugal or community funds)
Read Section 99(C), Tax Code Q: Are political contributions considered gifts and therefore liable for donors tax?
Under Section 13 of RA 7166, such contributions, be duly reported to the COMELEC, shall no be subject to the payment of any gift tax.
Note: In Abello v. CIR [February 23, 2005], the Supreme Court ruled that the contributions made by certain partners of the ACCRA law firm to the campaign of Senator
Q: What are the requisites for gifts in favor of an education and/or charitable, religious, cultural or social welfare corporation,

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Edgardo Angara constitute as a donation subject to donors tax. However, this was decided before RA 7166. The Court noted that subsequent to the donations involved in the case, Congress approved RA 7166 on November 25, 1991, providing in Section 13 thereof that political/electoral contributions, duly reported to the Commission on Elections, are not subject to the payment of donors tax. RA 7166 provides no retroactive effect. Note: Lets now discuss how to compute donors tax due and payable.
Read Section 99(A) to (B), Tax Code Q: What is the basis in computing donors tax?
The tax shall be computed on the basis of the total net gifts made during the calendar year in accordance with the graduated donors tax rates.
Note: To best illustrate In general --
--------------------------------------------------------------14. Person liable --------------------------------------------------------------Read Section 103, Tax Code Q: Who are liable for donors tax?
Every person, whether natural or juridical, resident or nonresident, who transfers or causes to transfer property by gift, whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible. In other words, the donor is always liable to pay the donors tax.
Gross gifts made Less: Deductions from the gross gifts = Net gifts made Multiplied by applicable rate = Donors tax on the net gifts
If several gifts were made during the year -Gross gifts made Less: Deductions from the gross gifts = Net gifts made on this date Add: all prior net gifts during the year = Aggregate net gifts Multiplied by applicable rate = Donors tax on aggregate net gifts Less: donors tax paid on prior net gifts = Donors tax payable on the net gifts to date In other words, if the donor makes several gifts during the same calendar year, the gifts shall be added on a cumulative basis.
Q: What is the rule for donations made by husband and wife?

Husband and wife are considered as separate and distinct taxpayer's for purposes of the donor's tax. However, if what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donor's tax purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of the Philippines. (see RR 2-2003) In Tang Ho v. Board of Tax Appeals [November 19, 1955], the Supreme Court held that a donation of property belonging to the conjugal partnership, made during its existence, by the husband alone in favor of the common children, is taxable to him exclusively as sole donor. To be a donation by both spouses, taxable to both, the wife must expressly join the husband in making the gift. Her participation cannot be implied. In case a donation was made by the parents in favor of their children, consisting of cash form the CPG, then only one parent may claim the exemption granted by the law.
Q: What are the rates of tax payable by donors?

The applicable donors tax rate shall depend upon the relationship between the donor and the donee. If the donee is a stranger to the donor If the donee is not a stranger to the donor The tax rate is 30% of the net gifts.
--------------------------------------------------------------15. Tax Basis ---------------------------------------------------------------
The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the schedule provided in Section 99(A).

---------------------------------------------------------D. VALUE-ADDED TAX -----------------------------------------------------------------------------------------------------------------------1. Concept --------------------------------------------------------------Q: Define Value-Added Tax (VAT).
A Value-Added Tax is a tax assessed, levied, and collected on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor.
Note: This early on I want to make the distinction between an exempt entity (a taxpayer exempt from VAT) and an exempt transaction (a transaction exempt from VAT). The distinction proceeds from the nature of VAT as an indirect tax. If the law exempts the statutory taxpayer (aka the seller), this does not mean that the buyer is also exempt. The VAT can be shifted to the buyer. Also, if the law exempts the buyer from VAT meaning the seller cannot pass/shift the VAT to the buyer, this does not mean the seller is exempt. He must pay the tax. In both cases, the transaction is not exempt from VAT because someone will pay. But if the law says the transaction is exempt from VAT then neither the buyer nor the seller will have to pay VAT. That is the distinction. Remember that especially when we discussed zero-rated, effectively zero-rated and exempt transactions.
Q: What are VAT-taxable transactions?

VAT-taxable transactions are those transactions which are subject to VAT either at the rate of 12% or 0% and the seller shall be entitled to tax credit for the VAT paid on purchases and leases of goods, properties, and services. (CIR V. CEBU TOYO [FEBRUARY 16, 2005])
Q: What is the current VAT rate?

The current VAT rate is 12%.
--------------------------------------------------------------2. Characteristics/Elements of a VATTaxable Transaction --------------------------------------------------------------Q: What are the characteristics of the VAT?
1. It is a percentage tax imposed at every stage of the distribution process on the sale, barter, or exchange or lease of goods or properties and on the performance of service in the course of trade or business or on the importation of goods, whether for business or non-business. 2. It is a business tax levied on certain transactions involving a wide range of goods, properties and services, such tax being payable by the seller, lessor or transferor. 3. It is an excise tax or a tax on the privilege of engaging in the business of selling goods or services or in the importation of goods 4. It is an indirect tax, the amount of which may be shifted to or passed on the buyer, transferee or lessee of the goods, properties or services. 5. It is an ad valorem tax as its amount or rate is based on gross selling price or gross value in money or gross receipts derived from the transaction PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: What are the elements of a VAT-taxable transaction?

1. There must be a sale, barter, exchange or lease in the Philippines 2. The sale, barter, exchange or lease must be of taxable goods, properties or services 3. The sale must be made by a taxable person in the course of trade or furtherance of his/its profession
Note: (1) An importation is VAT-taxable whether made in the course of trade or business or not.
Q: What is meant by in the course of trade or business

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, nonprofit private organization or a government entity.
Note: Services rendered by non-resident foreign persons shall be considered as being rendered in the course of trade or business, even if the performance of services is not regular (Section 4.105-3, RR No. 16-2005)

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) (2) Any business where the gross sales or receipts do not exceed P100,000 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business. (3) Again, an importation is VAT-taxable regardless of whether made in the course of trade or business or not.
reimbursement-of-cost-only basis and, as such, the services are not VAT-taxable. Is COMASERCO correct?
No. In CIR V. CA AND COMASERCO [M ARCH 30, 2000] , the Supreme Court opined that VAT is a tax on transactions imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The definition of the term in the course of trade or business applies to all transactions. Even a non-stock, non-profit corporation or government entity is liable to pay VAT for the sale of goods and services. In this case, even if the services rendered for a fee were on a reimbursement-on-cost arrangement and without realizing profit, the payments are still subject to VAT.
Q: Pursuant to the governments privatization program, NDC decided its shares in the National Marine Corp. and 5 vessels. Magsaysay Lines bought the shares and vessels. The CIR contends that the sale of the 5 vessels is incidental to its NDCs VAT registered activity of leasing out personal property and thus VAT-taxable. Is the CIR correct?
No. In CIR V. M AGSAYSAY LINES [JULY 28, 2006], the Supreme Court found that any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT. In this case, the sale of the vessels was an isolated transaction, not done in the ordinary course of NDCs business and is thus not subject to VAT.
Note: In THOMAS C. ONGTENCO VS. CIR, CTA CASE NO. 8190, DECEMBER 12, 2012, the CTA held that the taxpayers act of lending money to a corporation, where he is a director and stockholder cannot be considered as an act of lending in the course of his trade or business. His act of lending was not done in the ordinary course of his business or trade but merely an isolated transaction in order to help the company in its provincial expansion considering that, at that time, it was just starting and was having difficulties in getting and applying for loans from banks. The act of lending was a one-time assistance in his capacity as stockholder..
Q: Sony Philippines engaged the services of several advertising companies. Due to dire economic conditions, Sony International Singapore (SIS) gave Sony Philippines a dole-out to pay for said advertising expenses. Sony Philippines claimed as input VAT credits that VAT paid for the advertising expenses. The CIR disallowed this and assessed Sony Philippines deficiency VAT on the reimbursable received by it from SIS. The CIR contends that the reimbursable was a fee for a VATtaxable activity. Is the CIR correct?
No. The Supreme Court held in CIR v. SONY PHILIPPINES [NOVEMBER 17, 2010] that Sony Philippines cannot be deemed to have received the reimbursable as a fee for a VAT-taxable activity. The absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursable. The Supreme Court distinguished this case from CIR V. CA AND COMASERCO [M ARCH 30, 2000] where even if there was similarly a reimbursement on cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines, not SIS.
Q: Is the profit element required for VAT to be imposed?

No. The term in the course of trade or business requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. (see CIR V. CA AND COMASERCO [M ARCH 30, 2000])
Q: COMASERCO is a non-stock, non-profit organization, affiliated with Philamlife and organized to perform collection, consultative or technical services. The BIR assessed COMASERCO for deficiency VAT. COMASERCO argues that the services rendered to Philamlife were on a no-profit,
--------------------------------------------------------------3. Impact of Tax 4. Incidence of Tax ---------------------------------------------------------------

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Note: We discussed this already in General Principles but let us review. The impact of taxation is the point on which a tax is originally imposed. The impact of taxation is on the seller. The incidence of tax is that point on which the tax burden finally rests or settles down and in most cases, the incidence is on the final consumer. Because VAT is an indirect tax, the impact or the tax liability for the payment of the tax falls on one person but the incidence or burden thereof can be shifted or passed to another.
sales or outputs the VAT paid on its purchases, inputs and imports. The legal basis can be found in Section 110(A) of the Tax Code which provides that any input tax evidenced by a VAT invoice or official receipt on purchase or importation of goods or for purchase of services shall be creditable against output tax. Under the VAT method of taxation, which is invoicebased, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. (CIR V. SEAGATE TECHNOLOGY [FEBRUARY 11, 2005]).
Note: (1) The Tax Credit method is the method used para malaman mo how much ang babayaran mo na VAT. We will talk about this in greater detail sa Determination of output/input vat. For now, Ill give you the basics which will suffice for understanding the succeeding topics. As discussed above, the taxpayer determines his tax liability by computing the tax on the gross selling price or gross receipt (output tax) and subtracting or crediting the earlier VAT on the purchase or importation of goods or on the purchase of service (input tax) against the tax due on his own sale. Gawin nating formula:
--------------------------------------------------------------5. Tax Credit Method --------------------------------------------------------------Note: We wont understand Tax Credit Method if we do not define output tax and input tax.
Q: Differentiate output tax from input tax

As differentiated by the Supreme Court in CIR V. BENGUET CORPORATION [JULY 14, 2006]: Input VAT or input tax represents the actual payments, costs and expenses incurred by a VATregistered taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VAT-registered person/entity in the course of his/its trade or business on the importation of goods or local purchases of goods or services from a VATregistered person. On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally becomes liable for 10% (now 12%) of the selling price as output VAT or output tax. Hence, "output tax" is the value-added tax on the sale of taxable goods or services by any person registered or required to register under the Tax Code. Otherwise stated, output tax is the VAT due on the sale or lease or taxable goods, properties or services by an VAT-registered person. On the other hand, input tax is the VAT due on or paid by a VATregistered person on importation of good or local purchases of goods or services, including lease or use of properties, in the course of his trade or business.
Okay example. Lets say seller ka ng wooden furniture. Anong kailangan mo para makagawa ka ng produkto mo? Eh di kahoy. Wooden furniture nga diba. So bumili ka ng kahoy. Yung nagbenta sa iyo binigyan ka ng invoice. Pagtingin mo sa invoice mo naka-indicate yung 12% VAT na binayaran mo sa pagbili mo ng kahoy. Yan ang input tax mo! So using the kahoy, you made lets say table s and chairs. Eh since ibebenta mo ito, subject ka sa VAT. Tawag mo dyan output tax. Under the Tax Credit Method, puwede mo ibawas ang 12% na binayaran mo sa pagbili ng kahoy doon sa babayaran mo na 12%VAT sa pagbenta mo ng final product mo, yung tables and chairs. Because of that nabawasan mo ang VAT liability mo. (2) As explained in ABAKADA GURO PARTY LIST V. ERMITA [SEPTEMBER 1, 2005], the VAT system was previously a single stage system under a cost deduction method and was payable only by the original sellers. Now, the VAT system is a multi-stage system a mixture of the cost deduction method and the tax credit method.
Q: What is the tax credit method?

Under the tax credit method, an entity can credit against or subtract from the VAT charged on its PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013 Page 27 of 164 Last Updated: 30 July 2013 (v3)

--------------------------------------------------------------6. Destination Principle --------------------------------------------------------------Q: What is the destination principle (crossborder doctrine)?
As a general rule, the value-added tax (VAT) system uses the destination principle. It means that the destination of the goods determines the taxation or exemption from VAT. Goods and services are taxed only in the country where they are consumed.
Note: (1) This is the reason why export sales of goods are subject 0% while importations of goods are subject to 12%. Exported goods will be consumed in wherever country it is exported so it is zero-rated. On the other hand, we consume imported goods here in the Philippines that is why it is subject to 12% VAT. (2) In the case of services, consumption takes place where the service is performed. Note, however, na may exception to the destination principle when it comes to sale of services. Although the services are performed in the Philippines, there are certain sales of services that are zero-rated. We will discuss this later when we get to Section 108(B) or zero-rated sales of services.
Note: RR 16-2011 [October 27, 2011] increased the threshold amounts for sale of residential lot, sale of house and lot, lease of residential unit and sale or lease of goods or properties or performance of services covered by Section 109(P), (Q) and (V) of the Tax Code. These are the changes: Section Amount in Pesos (2005) 1,500,000 2,500,000 10,000 1,500,000 Adjusted amounts 1,919,500 3,199,200 12,800 1,919,500
Section 109(P) Section 109(P) Section 109(Q) Section 109(V)
I suggest you update your codal with these adjusted amounts. Importante yan lalo na when we talk about exempt transactions.
--------------------------------------------------------------8. VAT on sale of goods or properties a) Requisites of taxability of sale of goods or properties --------------------------------------------------------------Read Section 106(A)(1), Tax Code Q: What are considered as goods or properties for VAT purposes?
All tangible and intangible objects which are capable of pecuniary estimation, including: 1. Real properties held primarily for sale to customers or held for lease in the ordinary course of business 2. The right or privilege to use patent, copyright, design or model, plan, secret formula or process, good will, trademark, trade brand, or other like property or right 3. The right or privilege to use in the Philippines of any industrial, commercial or scientific equipment 4. The right or the privilege to use motion picture files, films tapes and discs 5. Radio, television, satellite transmission and cable television line (see SECTION 106(A)(1), TAX CODE)
--------------------------------------------------------------7. Persons liable --------------------------------------------------------------Read Section 105, Tax Code Q: In general, who are liable to pay the VAT?
1. Any person who, in the course of trade or business, sells, barters, exchanges or leases goods or properties, or renders services Except: A person, whether or not VATregistered, whose annual gross sales or receipts 1 does not exceed P1,919,500. 2. Any person who imports goods, whether in the course of trade or business or not. (see SECTION 105, TAX CODE, SECTION 4.105-1, RR 16-2005)
Q: What is the tax base of VAT on sale of goods or properties?

The 12% VAT is based on the gross selling price (GSP) or gross value in money of the taxable goods or properties sold, bartered or exchanged.
If the annual gross sales or receipts does not exceed P1,919,500, he shall be liable instead for the 3% percentage tax on small business enterprises (see Section 116, Tax Code).

For goods and properties other than real properties
The total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties excluding the VAT. Any excise tax, if any, on such goods or properties shall form part of the GSP
Note: If the consideration of a sale is not wholly in money as in a partexchange or barter transaction, the base is the price that would have been charged in an open market sale for purely monetary consideration.
exchange of goods or properties for a valuable consideration 2. The sale is undertaken in the course of trade or business or exercise of profession in the Philippines 3. The goods or properties are located within the Philippines and are for use or consumption therein 4. The sale is not exempt from VAT under Section 109 of the Tax Code, special law or international agreement binding upon the government of the Philippines.
Note: (1) The absence of any of the above requisites exempts the transaction from VAT. However, percentage taxes may apply. Actually, the annual gross sales or receipts must exceed P1,199,500. Otherwise, it is subject to the 3% percentage tax on small business enterprises. (2) We can combine (3) and (4) by stating that the transaction should not be a VAT zero-rated or a VATexempt transaction.
2.
3.
4.
In case of real property
The gross selling price shall mean the consideration stated in the sales document or 2 the fair market value, whichever is higher.
5.
(see SECTION 4.106-4, RR 16-2005 [SEPTEMBER 1, 2005])

Note: If the VAT is not billed separately, the selling price stated in the sales document shall be deemed to be inclusive of VAT (RR 16-2005)
6.
including dacion en pago, barter or exchange, assignment, transfer or conveyance, or merely contract to sell involving real property The real property is located in the Philippines The seller or transferor is engaged in real estate business either as a real estate dealer, developer or lessor The real property is held primarily for sale or for lease in the ordinary course of his trade or business The sale is not exempt from VAT under Section 109, special law or international agreement binding upon the government of the Philippines. The threshold amount set by the law should be met
Note: (1) The absence of

any of the above requisites exempts the transaction from VAT. However, percentage taxes may apply. (2) As to (4) Remember that real properties held primarily for sale to customers are ordinary assets. Hence, the income from the sale thereof shall form part of ordinary income subject to graduated income tax rates. If its a capital asset, the income would be subject to capital gains tax
Q: What are the requisites of a VAT-taxable sale?

For goods or properties other than real property 1. There is an actual or deemed sale, barter, For real property
1. The seller executes a deed of sale,
The fair market value shall mean whichever is the higher of (1) the fair market value as determined by the CIR (zonal value) or (2) the air market value as shown in the schedule of values of the provincial and city assessors (real property tax declaration). In the absence of a zonal value, gross selling price shall refer to the market value shown in the latest real property tax declaration or the consideration, whichever is higher.

(3) As to (6), the threshold amounts are: (1) The sale of a residential lot with a GSP must exceed P1,919,500 and (2) the sale of a residential house and lot or other residential dwelling with GSP must exceed P3,199,200. Otherwise, they are not exempt from VAT Installment sale of a residential house and lot or other residential dwellings 3 exceeding P1 million shall be subject to VAT. (See SECTION 4.106-4, RR 16-2005 [SEPTEMBER 1, 2005], AS AMENDED BY RR 04-07 [FEBRUARY 7, 2007], RR 16-2011 [OCTOBER 27, 2011], RR 3-2013 [FEBRUARY 20, 2012] AND RR 13-2012 [OCTOBER 12, 2012].)
Of the amounts typically covering an advance payment, only the pre-paid rent is subject to VAT. Other forms of advance payment such as option money, security deposit, etc. are not subject to VAT.
Q: A bought two adjacent condominium units which he intended to combine so as to fit his family. Each unit has a GSP of 2 million. The two units were separately documented. After 2 years, A decided to sell the two units. A contends that the units are exempt from VAT as the GSP did not exceeding 2.5 million. Is A correct?
No. By virtue of the amendment introduced by RR 13-2012 [OCTOBER 12, 2012], the sale of real properties subject to VAT shall include the sale, transfer, or disposal within a 12-month period of two or more adjacent residential lots, house and lots, or other residential dwellings in favor of a buyer. Such adjacent real properties although covered by separate titles and/or separate tax declarations, when sold to one and the same buyer, whether covered by one or separate deeds of conveyance, shall be presumed as a sale of one residential lot, house and lot or residential dwelling.
Q: How is VAT imposed on real property transactions?

1. If cash or deferred payment, then the VAT on the whole amount is already imposed 2. If installment, then the VAT is imposed on each payment 3. There is no VAT imposed on Section 40(C)(2) exchanges.
Note: (1) In an installment plan, the initial payments do not exceed 25% of the GSP. If the initial payments exceed 25%, the sale is on a deferred payment basis. (2) In case of installment, the buyer can claim the input tax in the same period as the seller recognized the output tax. In deferred-payment basis, the output tax shall be recognized by the seller and the input tax shall accrue to the buyer at the time of the execution of the instrument of sale.
Q: Is the sale of the parking lot included in the sale of a condominium unit?
No. The sale of parking lots is a separate and distinct transaction and is not covered by the rules on the threshold amount not being a residential lot, house and lot, or a residential dwelling and thus should be subject to VAT regardless of the amount of selling price. (see RR 13-2012 [OCTOBER 12, 2012])
--------------------------------------------------------------9. Zero-rated sales of goods or properties and effectively zero-rated sales of goods or properties --------------------------------------------------------------Read Section 106(A)(2), Tax Code Q: What are zero-rated transactions?
A VAT zero-rated transaction are sales by VATregistered persons which are subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT Page 30 of 164 Last Updated: 30 July 2013 (v3)
Q: Assuming a VAT-taxable transaction, is the advance payment in a real estate transaction subject to VAT?
This value has not been changed by the amendments.

purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund.
Q: Distinguish VAT rating (VAT-taxable transactions) from zero rating (Zero-rated transactions).
As explained by the Supreme Court in CIR V. BENGUET CORPORATION [JULY 14, 2006]: In transactions taxed at a 10% rate (now 12%), when at the end of any given taxable quarter the output VAT exceeds the input VAT, the excess shall be paid to the government; when the input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for the succeeding quarter or quarters. On the other hand, transactions which are taxed at zero-rate do not result in any output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other internal revenue taxes at the option of the taxpayer
Note: As an example, assume that VAT-registered person purchases materials from his supplier at P100, P9.6 of which was passed on to him by his supplier as the latters 12% output VAT. In a zero-rated transaction, the taxpayer can recover the P9.6 from the BIR either through a refund or a tax credit. When the taxpayer sells his finished product for lets say P120, he is not required to pay the output VAT of P2.4 (12% of the P20 value he has added to the P100 material). In a transaction subject to VAT, however, he may recover both the input VAT of P9.6 which he paid to the supplier and his output VAT of P2.4 by passing both these costs to the buyer. The buyer then pays P12, the total 12% VAT.
The input VAT on the purchases of a VATregistered person with zero-rated sales may be allowed as tax credits or refunded
The seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt;
Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register
Registration is optional for VAT-exempt persons.
Q: What are the two types of zero-rated transactions?

1. Automatically zero-rated which refers to export sale of goods, properties, and supply of services by a VAT-registered person 2. Effectively zero-rated which refers to the local sale of goods and properties by a VATregistered person o a person or entity who was granted direct and indirect tax exemption under special lws or international agreements (RMC No. 50-2007)
Q: Distinguish zero-rated (automatically zero-rated) from effectively zero-rated transactions.

As distinguished by the Supreme Court in CIR V. SEAGATE TECHNOLOGY [FEBRUARY 11, 2006]:
Zero-rated
Effectively zero-rated
Q: Distinguish exemption.
zero
rating
from
VAT-
generally refers to the export sale of goods and supply of services
As differentiated by the Supreme Court in CIR v. CEBU TOYO CORPORATION [FEBRUARY 16, 2005]:
Zero-rated
VAT-Exempt
It is a taxable transaction but does not result in an output tax
Not subject output tax
to
the
refers to the sale of goods or supply of services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate.

The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser
As applied to the tax base, such rate does not yield any tax chargeable against the purchaser
Q: Enumerate the requisites that must be complied with in order to be entitled to a refund or issuance of a TCC for input VAT due or paid attributable to zero-rated or effectively zero-rated sales.
1. There must be zerorated or effectively zero rated sales; 2. Input taxes were incurred or paid; 3. Such input taxes are directly attributable to zero rated or effectively zerorated sales; 4. Input taxes were not applied against any output VAT liability; and 5. The claim for refund was filed within the two year prescriptive period. (see SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE NO. 7623, M ARCH 3, 2010])
Note: No more VAT TCCs shall be issued. In connection with this, Executive Order 68 [March 27, 2012] provides for the monetization of outstanding VAT TCCs. EO 68 allows qualified VAT-registered taxpayers to receive the cash equivalent of their outstanding TCCs either: (1) Collecting in advance from a trustee bank a discounted cash value of their TCCs or (2) Collect full cash value of their TCC upon a certain maturity date to be determined by the BIR and BOC. DOF Joint Circular 2-2012 provides that the monetization will start in 2012 for TCCs issued prior to 2004 while those issued in 2011 and 2012 will be monetized in 2016. RMO 21-2012 [August 9, 2012] provides the guidelines, policies and procedures for the implementation of the VAT TCC Monetization Program.
The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers
The seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. The taxpayer need not file an application form and to secure BIR approval before sale
intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.
The rules are: 1. Prior to RA 9337 (before November 1, 2005) application is needed except in sales to PEZA, sales to BOIregistered 100% manufacturerexporter 2. RA 9337 up to before RR 4-2007 (November 1, 2005 to April 5, 2007) application is needed; no exceptions 3. RR 4-2007 (April 6, 2007 onwards) need for application not expressly provided.
Q: Enumerate the zero-rated sales of goods.

1. Export Sales (IF GONE) a) Sale and actual shipment of goods from the Philippines to a Foreign country b) Sale of raw materials or packaging materials to a Non-resident buyer for delivery to a resident local export-oriented enterprise c) Sale of raw materials or packaging materials to Export-oriented enterprise whose export sales exceed 70% of total annual production d) Sale of Gold to the BSP e) Those that are not considered export sales under the Omnibus Investment Code and other special laws f) Sale of goods, supplies, and equipment and fuel to persons engaged in International shipping or international air transport operations.

2. Foreign currency denominated sale the sale to a non-resident of goods assembled or manufactured in the Philippines for delivery to a resident in the Philippines paid in acceptable foreign currency and accounted for in accordance with BSP rules and regulations 3. Sales to persons or entities whose exemption under special laws and international agreements to which the Philippines is a signatory subjects such sales to 0% rate (effectively zero-rated transactions)
Note: As to 1(e), considered export sales under E.O. 226 includes the sale of goods and services by a VATregistered person in the customs territory to ecozone and Freeport enterprises so as to make them automatically zero-rated (Section 4.106-5, RR No. 4-2007) As to 1(f), the goods subject to zero-rating are limited to goods and passengers transported 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. (Ibid) Now, I want to discuss the VAT treatment of PEZAregistered enterprises. This has been the subject of much confusion. The cases added more to the confusion. What you have to note in reading the cases is whether it was decided before or after the effectivity of RMC 74-99. Before RMC 74-99, whether a PEZA-registered enterprise was exempt or subject to VAT depended on the type of fiscal incentives availed of by the said enterprise. PEZA entities can avail of two alternative or subsequent incentives of income tax holiday (ITH) or 5% preferential tax rate on gross income. If the entity avails of the 5% preferential tax rate, it is exempt from all taxes including VAT but if it avails of the ITH, it shall be exempt from income taxes for a number of years but not VAT (see CIR v. SEKISUI JUSHI PHILIPPINES [JULY 21, 2006]). This explains the decisions in CIR V. TOSHIBA INFORMATION EQUIPMENT [AUGUST 9, 2005] and CIR v. CEBU TOYO CORPORATION [FEBRUARY 16, 2005] where in both cases the Supreme Court held that the PEZA-registered enterprise is entitled to a VAT refund/credit because it opted to avail itself of the income tax holiday. Having availed of the income tax holiday and its export sales being a zero-rated transaction, the PEZA-registered enterprise was entitled to refund or credit for its unutilized input taxes. In both cases, the transactions were made prior to the effectivity of RMC 74-99. Now, after the effectivity of RMC 74-99, the tax treatment of sales of goods and services of PEZA-registered enterprises is now based on the principles of separate custom territory and cross border doctrine.
As explained by the Court in the cases of CIR V. SEAGATE TECHNOLOGY [FEBRUARY 11, 2005], CIR v. SEKISUI JUSHI PHILIPPINES [JULY 21, 2006], CIR V. TOSHIBA INFORMATION EQUIPMENT [AUGUST 9, 2005], CIR V. CONTEX [JULY 2, 2004]: PEZA-registered enterprises, which would necessarily be located within ecozones, are VAT-exempt entities not because of Section 24 of RA 7926 (which imposes the 5% preferential tax rate on gross income of PEZA-registered enterprises in lieu of all taxes) but rather because of Section 8 of the same which establishes the fiction that ecozones are foreign territory. As a result, sales made by a supplier in the Customs Territory (national territory of the Philippines outside the borders of the ecozone) to a purchaser in the ecozone shall be considered as exportation from the Customs Territory. Conversely, sales made by a supplier from the ecozone to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. The Philippine VAT system adheres to the cross-border doctrine which means that no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while those destined for use or consumption within the Philippines shall be imposed with ten percent (10%) (now 12% VAT). Sales made by an enterprise within a nonecozone territory, i.e., Customs Territory, to an enterprise within an ecozone territory shall be free of VAT. This has been further clarified in RMC 50-2007 [July 302007].
Q: Summarize the current tax treatment of PEZA-registered enterprises as provided in RMC 74-99 and as further clarified in RMC 50-2007.
1. Any sale of goods, property or services by a VAT-registered supplier from the customsterritory to any Ecozone-registered enterprise regardless of incentive availed is zero-rated on the part of the VAT-registered seller because ecozones are foreign soil by fiction and thus the sale is considered an export sale. 2. Sales to an ecozone enterprise made by a nonVAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund for its input VAT because, under Section 109(O) of the Tax Code, export sales by persons who are not VATregistered are exempt transactions.

3. If the ecozone-enteprise is an exporter, its input VAT are subject to refund not because of the incentives it availed but because of the nature of its transactions (export sales). 4. Any sale of goods or property by an ecozoneregistered enterprise to a buyer in the customs territory shall be subject to 12% VAT because it shall be considered an importation. The tax is imposed on the buyer/importer. 5. The sale of service or lease of properties by PEZA-registered enterprises to a customer or lessee from the customs territory shall be exempt from VAT if the service is performed within the ecozone. The lease of properties will be exempt if the property is located within the ecozone. However, if the properties are located outside of the ecozone, payments to such enterprise shall be considered as royalties and subject to final withholding VAT of 12%
Sale of Goods VAT registered supplier from customs territory to PEZA registered enterprise 0% VAT Sale of Services 0% VAT
enterprise seller if the service is performed outside or the property leased is located outside the ecozone,
--------------------------------------------------------------10. Transactions deemed sale a) Transfer, use or consumption not in the course of business of goods/properties originally intended for sale or use in the course of business b) Distribution or transfer to shareholders, investors, or creditors c) Consignment of goods if actual sale not made within 60 days from date of consignment d) Retirement from or cessation of business with respect to inventories on hand --------------------------------------------------------------Read Section 106(B), Tax Code Q: What is meant by transactions deemed sale?
There is no actual sale. However, the law deems that there is a taxable sale.
Q: Enumerate the deemed sale transactions

VAT-exempt supplier from customs territory to PEZAregistered enterprise VAT exempt VAT exempt
PEZAregistered enterprise to buyer from customs territory (local/domestic sales)
12% VAT imposed on buyer in addition to the import tax and customs duties
VAT-exempt if the service is performed or rendered within the ecozone. Same rule applies to lease of properties if located in the ecozone. 12% VAT imposed on the PEZA-registered
1. Transfer of goods or properties not in the course of business (originally intended for sale or for use in the course of business) 2. Property dividends (transfer to shareholders as share in the profits of VAT-registered persons or to creditors in payment of debt) 3. Consignment of goods without the sale being made within 60 days 4. Retirement from or cessation of business with respect to inventories of taxable goods existing (see SECTION 106(B), TAX CODE)
Note: (1) Before considering whether the transaction is deemed sale, it must first be determined whether the sale was in the ordinary course of trade or business. Even if the transaction was deemed sale, if it was note done in the ordinary course of trade or business, still the transaction is not subject to VAT (CIR v. MAGSAYSAY LINES [JULY 28, 2006]).

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) (2) As to (1), the transaction is deemed sale when the taxpayer-seller withdraws goods from his inventory of goods held primarily for sale for his own personal or nonbusiness use. The withdrawal or transfer of goods results in the use or consumption of such goods by a person (the seller himself) who is effectively the final consumer, such withdrawal or transfer is deemed a sale subject to output tax. (3) As to (2), the requisites to constitute the distribution or transfer to a shareholder or creditor a transaction deemed sale are: (a) the VAT-registered person distributing or paying is a domestic corporation; (b) what is being declared or paid is either real property owned by the company or shares of stocks owned in another company; and (c) the domestic corporation is either a real estate dealer (in case of real property) or dealer in securities (in case of shares of stock) (4) As to (3), as a general rule, a consignment of goods by the consignment-owner to the consignee is not a taxable transaction. However, it is subject to VAT when the consigned goods are: (a) not sold by the consignee; and (b) not returned by him to the consignor-owner within 60 days from date of consignment. (5) As to (4), the VAT-registered taxpayer who ceases or retires from business, including an unregistered joint venture undertaking construction activity, must pay output tax on the gross value of his inventory of materials, goods and supplies existing at the time of cessation or retirement of business.
--------------------------------------------------------------11. Change or cessation of status as VATregistered person a) Subject to VAT (i) Change of business activity from VAT taxable status to VAT-exempt status (ii) Approval of request for cancellation of registration due to reversion to exempt status (iii) Approval of request for cancellation of a registration due to desire to revert to exempt status after lapse of 3 consecutive years b) Not subject to VAT (i) Change of control of a corporation (ii) Change in the trade or corporate name (iii) Merger or consolidation of corporations --------------------------------------------------------------Read Section 106(C), Tax Code Q: When is a change in or cessation of status of a VAT registered person subject to VAT?
1. Change of business activity from VATtaxable status to VAT-exempt status When a VAT-registered person engaged in a VAT-taxable activity decides to discontinue such activity and engage in a non-VAT-taxable activity. When a person commenced a business with the expectation that is gross sales or receipts will exceed P1,919,500 but failed to exceed this amount during the first 12 months of operation. When a person who is VAT-exempt and not required to register for VAT opted to register as a VAT taxpayer and after the lapse of 3 years desire to revert to exempt status
Q: San Roque Power entered into a purchase power agreement with NAPOCOR to develop the hydroelectric potential of the Lower Agno River. During the testing period, electricity was transferred by San Roque to NAPOCOR. Can the transfer be considered a sale of electricity?
Yes. In SAN ROQUE POWER CORP. V. CIR [NOVEMBER 25, 2009], the Supreme Court held that although the transfer was not a commercial sale, the NIRC does not limit the definition of sale to commercial transactions in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of VAT, does not limit the term sale to commercial sales, rather it extends the term to transactions that are deemed sale. In the said case, it was undisputed that San Roque transferred to NPC all the electricity that was produced during the trial period. The fact that it was not transferred through a commercial sale or in the normal course of business does not deflect from the fact that such transaction is deemed as a sale.
2. Approval of a request for cancellation of a registration due to reversion to exempt status
3. Approval of request for cancellation of a registration due to desire to revert to exempt status after lapse of 3 consecutive years

Q: Does VAT apply to every importation? Q: When is a change in or cessation of status of a VAT registered person NOT subject to VAT?
1. Change or control of a corporation by acquisition of the controlling interest of such corporation by another stockholder or group of stockholders The goods or properties used in the business or those comprising the stock-in-trade will not be considered sold, bartered or exchanged because the corporation still owns them. Subject to VAT: a. Exchange of property by corporation acquiring control for the shares of stocks of the target corporation b. Exchange of properties by a person who wants to join the corporation of his properties held for sale or for lease for shares of stock whether resulting to corporate control or not 2. Change in trade or corporate name 3. Merger or consolidation The unused input tax of the dissolved corporation as of the date of merger or consolidation shall be absorbed by the surviving corporation. Where the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any. Yes. The VAT shall be imposed on every importation of goods, whether or not in the course of trade or business. This is unlike VAT on sale of goods or properties which must be in the course of trade or business. Otherwise, the person/transaction shall not be liable to pay VAT. (see CIR V. SEAGATE TECHNOLOGY [FEBRUARY 11, 2005]).
Q: What is the tax base of VAT on importation of goods?

The tax base is the total value used by the BOC in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges.
Read Section 107(B), Tax Code Q: What is technical importation?

Technical importation is the subsequent sale, transfer or exchange of imported goods by VATexempt persons to non-exempt persons or entities.
Q: What is the legal consequence of technical importation?

The non-exempt buyers, transferees, or recipients shall be deemed the importers of the taxable goods and shall be liable for the VAT due on such importation. (see SECTION 107(B), TAX CODE)
Q: Anshari, an alien employee of ADB, who is retiring soon has offered to sell you his car, which he imported tax-free for his personal use. The privilege of tax exemption is recognized by tax authorities. If you decide to purchase the car, is the sale subject to tax?
Yes. Section 107(B) provides that in case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax, where the goods are subsequently sold, transferred, or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees, or recipients shall be considered as the importer thereof, who Page 36 of 164 Last Updated: 30 July 2013 (v3)
--------------------------------------------------------------12. VAT on importation of goods a) Transfer of goods by tax exempt persons --------------------------------------------------------------Read Section 107(A), Tax Code

shall be liable for any internal revenue tax on such importation.
--------------------------------------------------------------13. Tax on sale of service and use or lease of properties a) Requisites of taxability --------------------------------------------------------------Read Section 108(A), Tax Code Q: What is a sale or exchange of services?
A sale of exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration. (See SECTION 108(A), TAX CODE for an extensive enumeration of the type of services including in said definition)
Section 108 of the 1997 Tax Code is not exhaustive. Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the same as the showing or exhibition of motion pictures or films. Hence, since the showing or exhibition of motion pictures or films Is not in the enumeration, such is not a VAT-taxable transaction.
Q: Are association dues, membership fees, and other assessment and charges collected by a condominium corporation/ homeowners association subject to VAT?
Yes because they constitute as income payment or compensation for the beneficial services the condominium corporation/ homeowners association provides for its tenants and members ( RMC 652012).
Note: (1) The fact that a condominium corporation/homeowners association is a non-stock, nonprofit organization is immaterial. As held in CIR V. CA & COMASERCO [MARCH 30, 2000], even a non-stock, nonprofit organization or government entity is liable to pay VAT on sale of goods and services. (2) Pursuant to Section 18 of RA 9904 (Magna Carta for Homeowners and Homeowners Association), the association dues and income derived from rentals of the homeowners associations may be exempted from tax subject to the following conditions: (a) The homeowners association must be a duly constituted Association as defined under Section 3(b) of RA 9904; (b) The LGU having jurisdiction over the homeowners association must issue a certification identifying the basic services being rendered by the association and its lack of resources to render such services; and (c) the association must present proof that the income and dues are used for the cleanliness, security and other basic services need by members, including maintenance of the facilities in their respective subdivisions and villages. (RMC 9-2013 [January 29, 2013]
Q: Are toll fees collected operators subject to VAT?
by
tollway
Yes. The Supreme Court in DIAZ V. SECRETARY OF FINANCE [JULY 10, 2011] answered this issue in the affirmative. The court held that VAT is imposed on all kinds of services and tollway operations who are engaged in construction, maintaining, and operating expressways are no different from lessors of property, transportation contractors, etc. Further, they also come under those described as all other franchise grantees which is not confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise grantee under Section 119 of the Tax Code which would have made them subject to percentage tax instead. Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions.
Note: RMC 63-2010 [JULY 19, 2010] was issued to implement Section 108 and impose VAT on the gross receipts of tollway operators from all types of vehicles starting August 16, 2010.
Q: When is the lease of properties subject to VAT?

The use or lease of properties shall be subject to VAT irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines.
Q: Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets subject to VAT?
No. The Supreme Court in CIR v. SM PRIME HOLDINGS [FEBRUARY 26, 2010] held that although the enumeration of services subject to VAT under PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

Q: Is the lease of residential units subject to VAT?

Yes as to the lease of residential units with a monthly rental per unit exceeding P12,800, regardless of the amount of aggregate rentals received by the lessor during the year
5. The service is not exempt under the Tax Code, special law or internal agreement
Note: Absence of any of the requirements renders the transaction exempt from VAT but may be subject to other percentage tax.
Q: What is the tax treatment of the lease of residential units, where some are leased out for exceeding P12,800 while others are leased out for more than P12,800?
The tax treatment shall be as follows: 1. The gross receipts from rentals not exceeding P12,800 per month per unit shall be exempt from VAT regardless of aggregate gross receipts 2. The gross receipts from rentals exceeding P12,800 shall be subject to VAT if the aggregate annual gross receipts from said units exceeds 4 P1,919,500,000.
--------------------------------------------------------------14. Zero-rated sale of services --------------------------------------------------------------Read Section 108(B), Tax Code Q: Enumerate services. the zero-rated sales of
SECTION 108(B) provides for the following: 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 a nonresident person not engaged in business who is outside the Philippines when the services were 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. 3. Services rendered to person or entities whose exemption under Special Laws or International Agreements effectively subjects the supply of such services to a 0% rate. (effectively zerorated transaction) 4. Sale of Services to Persons Engaged in International Shipping or Air Transport Operations 5. Sale of Services for Export-Oriented Enterprise whose export sales exceed 70% of total annual production 6. Transport of Passengers and Cargo by Air or Seal Vessels from the Philippines to a Foreign Country 7. Sale of Power Generated through Renewable Sources of Energy
Q: Give the basis of VAT on sale of services and use or lease of properties?
The basis shall be the gross receipts derived from the sale or exchange of services including the use or lease of properties. (see Section 108(A), Tax Code)
Note: Gross receipts means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty actually or constructively received during the taxable quarter for the services performed or to be performed for another person.
Q: What are the requisites for the taxability of the sale of services and use or lease of properties?
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 the taxpayers trade or business or profession 4. The service is for a valuable consideration actually or constructively received and
Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code.
Q: Acesite is the operator of Holiday Inn Hotel. It leases part of its premises to PAGCOR and caters food and beverages to

its patrons. Acesite contends that the sale of food and beverages to PAGCOR is zerorated and thus entitling them to claim a tax refund/credit. Is Acesite correct?
Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16, 2007], the Supreme Court stated that services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate shall be subject to 0%. Since the law clearly provides for PAGCORs exemption, the sale of services of Acesite to PAGCOR is effectively zerorated. Hence, Acesite may refund the VAT it paid on its sale of food and beverages to PAGCOR.
Note: Lets now discuss the most important zero-rated sale in the enumeration Section 108(B)(2). This is an exception to the destination principle. Remember that under the destination principle, goods and services are taxed only in the country where they are consumed. Section 108(B)(2) is an exception because although the services are performed in the Philippines, the sales of such services are zero-rated.
while as a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax such that goods and services are taxed only in the country where they are consumed, exceptions to the destination principle are found in Section 108(B) of the 1997 Tax Code. In this case, Amex Phils. facilitated in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client, Amex HK, and getting paid for it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. As such, they are deemed exceptions because although the services are performed in the Philippines, the sales of such services are considered zero-rated.
Q: What are the requisites for the zero-rating of the sale of service under Section 108(B)(2)?
1. The service is performed in the Philippines 2. The service falls under any of the categories provided in Section 108(B) 3. It is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas 4. The recipient of such services is doing business outside the Philippines.
Q: Placer Dome Inc (PDI) owns 39.9% of Marcopper. It undertook to clean-up and rehabilitate the Makalupnit and Boac Rivers in Marinduque which was affected by its mining operations. PDI engaged the services of Placer Dome Technical Services Limited (PD Canada), a non-resident foreign corporation in Canada which, in turn, engaged the services of Placer Dom Technical Services Philippines (PD Philippines). PD Philippines filed for a claim for tax credit/refund and contends that its sale of services to Placer Dome Canada was zero-rated. The CIR invokes the destination principle, contending that Placer Dome Philippines services, while rendered to a non-resident foreign corporation, are not destined to be consumed abroad. Is the CIR correct?
No. In CIR V. PLACER DOME [JUNE 8, 2007], the Supreme Court reiterated its ruling in AMERICAN EXPRESS INTERNATIONAL V. CIR [JUNE 29, 2005] to the effect that the services enumerated in Section 108B constitute as exceptions to the destination principle and are zero-rated. Since Placer Dome Philippines services meet the requirements of Section 108(B)(2), it is zero-rated.
Q: American Express Philippines (AMEX-P) is a Philippine Branch of AMEX International. AMEX-P is a servicing unit of AMEX Hong Kong (AMEX-HK) and facilitates the collections of AMEX-HK receivables from card members in the Philippines. AMEX-P claimed a refund for its input taxes arising from zero-rated sales of services to AMEX-HK. CIR argues that AMEX-Ps services must be consumed abroad in order to be zero-rated. Is the CIR correct?
No. In AMERICAN EXPRESS INTERNATIONAL V. CIR [JUNE 29, 2005], the Supreme Court opined that PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: A foreign consortium composed of Burmeister Denmark and Mitsui Engineering entered into a contract with NAPOCOR for the operation and maintenance of two barges.. The Consortium appointed Burmeister Denmark as coordination manager. Burmeister Denmark established

Burmeister Mindanao which subcontracted the operation and maintenance of the two barges. NAPOCOR paid the foreign consortium while the consortium, in turn, paid Burmeister Philippines foreign currency inwardly remitted into the Philippines. The BIR refused to grant a refund since the services were not destined for consumption abroad. Are the services of Burmeister Philippines entitled to zero-rated status?
Yes. In CIR V. BURMEISTER AND W AIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. [JANUARY 22, 2007], they are entitled to zero-rated status and to the refund but only for the period covered prior to the filing of the CIRs answer in the CTA. This is so because prior, Burmeister was able to secure a ruling from the BIR allowing zero-rating of its sales. However, such ruling is valid only until the time that the CIR filed its answer in the CTA which amounted to a revocation of the said ruling. The revocation cannot be made retroactive. It must be noted, however, that without this special circumstance, Burmeister would not have been entitled to a zero-rated status. This is because the Consortium which was the recipient of the services rendered by Burmeister was deemed doing business within the Philippines. While the Consortiums principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. Hence, the transactions of BWSC Mindanao are not subject to VAT at zero percent.
No. The services performed by AB ROHQ to X Corp do not qualify for zero-rating because X Corp cannot be considered doing business outside the Philippines. The phrase other persons doing business outside the Philippines under Section 108(B)(2) shall be deemed to pertain exclusively to affiliates, subsidiaries, or branches of ROHQs. X Corp, as the mother company of AB ROHQ, cannot be considered an affiliate, subsidiary or branch for the simple reason that X Corp and AB ROHWQ must be considered as one and the same entity for purposes of taxation. Further, X Corp is considered doing business in the Philippines through AB ROHQ. Q: ABC is a business process outsourcing company and is engaged in the business of providing call center services from the Philippines to domestic and offshore businesses. Can ABC claim for a refund or issuance of a TCC for its excess input tax paid on domestic purchases of goods and services which were allegedly attributable to ABCs zero rated sales of services? Yes provided it meets the following requisites: 1. the services must be other than processing, manufacturing or repacking of goods; 2. payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and 3. the recipient of such services is doing business outside the Philippines.
Note: In SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE NO. 7623, MARCH 3, 2010], ACCENTURE VS. COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO. 7046, SEP. 22, 2009], PARLANCE SYSTEMS VS. COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO. 7459, JUL. 9, 2009], business process outsourcing companies were refused a refund of their excess input VAT because their sale of services were not zero-rated because they failed to prove that their clients were non-resident foreign corporations doing business outside the Philippines.
Q: AB ROHQ is an ROHQ of X Corp, a foreign corporation organized under the laws of New York, USA. AB ROHQ is a VATregistered taxpayer engaged in providing services including logistics, research and development, product development, data processing and communication, and business development. It provides services solely and exclusively for its head office. AB ROHQ filed a claim for refund or issuance of TCC for input VAT paid on purchases arising from its alleged zero-rated sale of services to X Corp. Are the services rendered by AB ROHQ to its head office deemed VAT zero-rated?
ACCENTURE V. CIR, G.R. NO. 190102, JULY 11, 2012

DOCTRINE: For VAT zero-rating of services rendered to non-resident foreign corporation under Section 108(B)((2) of the NIRC, it is not enough that the recipient of services be proven to be a foreign corporation, it must be proven to be a non-resident foreign corporation.

Q: Enumerate the exempt transactions5

FACTS: Taxpayer filed an application for refund of unutilized input taxes allocated to its zero-rated sale of services to foreign clients. In order to prove that its sales are VAT zero-rated, taxpayer presented as evidence the Official Receipts, Billing Statements, Memo InvoicesReceivable, Memo Invoices-Payable and Bank Statements. Taxpayer argued that these documents show that the zero-rated sales were paid in foreign currency and duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). HELD: The Court ruled that for sale of services to be VAT zero-rated under Section 108(B) of the NIRC, the recipient of service must be doing business outside the Philippines. According to the Court, the documents presented by taxpayer merely substantiated the existence of sales, receipt of foreign currency payments and inward remittance of the proceeds of such sales. There is no evidence that the clients were doing business outside the Philippines. Accordingly, the Court denied the claim on the ground that no evidence was presented to prove the fact that the foreign clients to whom the taxpayer rendered services are clients doing business outside the Philippines.
SECTION 109(A) TO (V) provides for the following: a) Sale or importation of agricultural and marine 6 food products in their original state. b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock 7 and poultry feeds c) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad d) Importation of professional instruments and implements, wearing apparel, domestic animals and personal household effects belonging to persons coming to settle for the first time in the Philippines e) Services subject to percentage tax f) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugarcane into raw sugar
In MINDANAO GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 7801, JULY 10, 2012, the CTA held that in order to qualify for VAT zero-rating under Section 108(B)(7) of the NIRC, as amended, the taxpayer must be able to prove that it is a generation company and that it is engaged in the sale of power or fuel generated through renewable source of energy.
g) Medical, dental, hospital and veterinary services 8 except those rendered by professionals h) Educational services rendered by private educational institutions duly accredited by DEPED, CHED, and TESDA and those by governmental educational institutions i) Services rendered pursuant to an employeeemployer relationship Services rendered by regional or area headquarters established in the Philippines
--------------------------------------------------------------15. VAT exempt transactions a) VAT exempt transactions, in general b) Exempt transactions, enumerated --------------------------------------------------------------Read Section 109, Tax Code Q: What are VAT-exempt transactions?
VAT-exempt transactions refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. The person making the exempt sale of goods, properties, or services shall not bill any output tax to his customers because the said transaction is not subject to VAT.
j)
Those underlined are the notable VAT-exempt transactions. These enumeration is exclusive. 6 Such products are still considered in their original state even if they have undergone simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking, or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered in their original state. 7 Does not include specialty feeds for race hourses, fighting cocks, aquarium fish, zoo animals, and other animals generally considered as pets. 8 But see discussion on VAT exemption of doctors registered with the PRC and lawyers registered with the IBP.

k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws l) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority
u) Services of banks, non-bank financial intermediaries performing quasi-banking functions and other non-bank financial intermediaries v) Sale or lease of goods or properties or performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of 14 P1,919,500. .
m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority whose lending is limited to members n) Sales by non-agricultural, non-electric and noncredit cooperatives duly registered with the 9 Cooperative Development Authority
Q: Are senior citizens exempt from the 12% VAT?

Yes. RA No. 9994 [February 15, 2010], otherwise known as the Expanded Senior Citizens Act of 2010 exempts senior citizens from paying 12-percent VAT on goods and services.
o) Export sales by persons who are not VATregistered p) Sales of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or sales 10 within the low-cost cap of below 1,919,500 for 11 a residential lot and P3,199,200 for a house and lot and other residential dwelling q) Lease of a residential unit with a monthly rental 12 not exceeding P12,800 r) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and is not devoted principally to publication of paid advertisements
Q: Are medical services rendered b doctors registered with the PRC and legal services rendered by lawyers registered with the IBP subject to VAT?
No. RR 7-2004 [M AY 7, 2004] excludes services by doctors registered with the PRC and services by lawyers registered with the IBP as well as GPPs for the sole and exclusive purport of practising law or medicine from the coverage of VAT on services
Q: Are pawnshops liable to pay VAT?

No. As explained by the Supreme Court in TAMBUNTING PAWNSHOP V. CIR [JANUARY 21, 2010]: Prior to the passage of the EVAT Law in 1994, pawnshops were treated as lending investors 15 subject to lending investors tax. Subsequently, pawnshops were treated jurisprudentially as VATable enterprises under the general classification of sale or exchange of services. RA No. 9238 which passed in 2004 finally classified pawnshops as other non-bank financial intermediaries.
s) Sale, importation, or lease of passenger or 13 cargo vessels and aircraft t) Importation of fuels, goods and supplies by persons engaged in international shipping or air transport operations
Provided that the share capital contribution of each member does not exceed P15,000 10 Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27, 2011]. 11 Previously 2.5 million. Amended by RR 16-2011 [OCTOBER 27, 2011]. 12 Previously P10,000. Amended by RR 16-2011 [OCTOBER 27, 2011]. 13 Includes engine, equipment, and spare parts thereof for domestic or international transport operations.
14
Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27, 2011]. 15 Note that in FIRST PLANTERS PAWNSHOP VS. CIR [JULY 30, 2008], the Supreme Court held that First Planters Pawnshop was subject to VAT as it was a lending investor. It must be noted that the factual circumstances of the said case pertained to a taxable period prior to RA No. 9238. What is important to note in this case is that the Supreme Court stated that pawnshops should now be treated as non-bank financial intermediaries and, as such, not subject to VAT.

Q: Is a health maintenance organization liable to pay VAT?

Yes. In CIR V. PHILIPPINE HEALTH CARE PROVIDERS, INC. [APRIL 24, 2007], PHCPI claimed that its services were exempt from VAT and sought a BIR ruling in this regard. The BIR ruled that PHCPI was exempt. The CIR, however, later assessed PHCPI for deficiency VAT taxes. The CIR contended that PHCPI does not actually render medical service but merely acts as a conduit between the members and PHCPIs accredited and recognized hospitals and clinics. The Supreme Court opined that the services of an entity which does not actually provide medical and/or hospital services but merely arranges for the same are subject to VAT. The Court, however, ruled PHCPI cannot be faulted for its reliance on the BIR ruling as such was issued when the term health maintenance organization had no significance for taxation purposes at the time. The failure of PHCPI to describe itself as a health maintenance organization subject to VAT does not amount to bad faith.
Q: Is the sale of e-books and e-journals appearing at regular intervals with fixed prices for subscription and sale and not devoted principally to publication of paid advertisements subject to VAT?
No. The terms book, newspaper, magazine, review and bulletin shall refer to printed materials in hard copies and do not include those in digital or electronic format or computerized versions (RMC No. 75-2012 dated November 22, 2012)
Q: Is PAGCORs sale of services subject to VAT?

No. In PAGCOR V. CIR [M ARCH 15, 2011], the Supreme Court held that RA 9337 only withdrew PAGCORs exemption from corporate income taxes but does not contain any provision that subjects the same to VAT. PAGCOR is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that grants it exemption from taxes. Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus: Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate
Q: Is the sale of copra subject to VAT?

No. RA 9337 amended Section 109(A) to include copra as those that should be considered in their original state. Previously in MISAMIS ORIENTAL V. DOF [NOVEMBER 10, 1994], the Supreme Court opined that copra is not food and is not intended for human consumption. Thus, it is not exempt from VAT. The rule now is the sale of copra is VATexempt.
Q: Is the sale of Andoks chicken subject to VAT?

No. The sale of Andoks chicken is exempt from VAT. However, should Andoks maintain a facility by which the roasted chicken will be offered as a menu to customers who would dine-in, then it will be subject to VAT on sale of service which is similarly imposed on restaurants and other eateries ( VAT Ruling No. 009-07 dated June 21, 2007)
Note: Ano lessons sa ruling na ito sa mga gusto magnegosyo diyan para ma-exempt sa VAT? Una, stall lang itatayo mo na pang-take out. If may dine-in, sale of service yun! That is subject to VAT. Pangalawa, ito lang puwede mo gawin sa manok mo o baboy or isda: freezing, drying, salting, broiling, roasting, smoking, or stripping. Kapag nagbenta ka ng adobong manok, nilagang baboy or sinigang na isda, hindi na original state yan!
Q: S and ABS-CBN entered into an agreement where S will provide his services exclusively to ABS-CBN as a talent for the latters TV and radio shows. Is he liable to pay VAT?
No provided that there exists no employer-employee relationship between S and ABS-CBN. In SONZA V. ABS-CBN [JUNE 10, 2004], the Supreme Court held that an independent contractor is liable to pay VAT. Section 109 only exempts from VAT services rendered pursuant to an employer-employee relationship.
CIR v. PILIPINAS SHELL [G.R. 188497, APRIL 25, 2012]

DOCTRINE: Oil companies are not exempt from the payment of excise tax on petroleum products manufactured and sold by them to international carriers.

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) FACTS: The taxpayer filed with the Large Taxpayers Audit & Investigation Division II of the (BIR) the several formal claims for refund or tax credit for various years. It filed petitions for review since no action was taken by the BIR on its claims. The CTAs First Division ruled that the taxpayer is entitled to the refund of excise taxes in the reduced amount. It relied on a previous ruling rendered by the CTA En Banc in a previous case involving the same taxpayer, where the CTA also granted the taxpayers claim for refund on the basis of excise tax exemption for petroleum products sold to international carriers of foreign registry for their use or consumption outside the Philippines. On appeal, the CTA En Banc upheld the ruling of the First Division. HELD: The Supreme Court held that both the earlier amendment in the 1977 Tax Code and the present Sec. 135 of the 1997 NIRC did not exempt the oil companies from the payment of excise tax on petroleum products manufactured and sold by them to international carriers. Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to international carriers, and absent any provision in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden of the excise tax to the international carriers who buys petroleum products from the local manufacturers. Said provision thus merely allows the international carriers to purchase petroleum products without the excise tax component as an added cost in the price fixed by the manufacturers or distributors/sellers. Consequently, the oil companies which sold such petroleum products to international carriers are not entitled to a refund of excise taxes previously paid on the goods. The Supreme Court pointed out that the taxpayers failure to make a distinction on the exemption under Sections 134 and 135 of the Tax Code, apparently led it to mistakenly assume that the tax exemption under Sec. 135 (a) attaches to the goods themselves such that the excise tax should not have been paid in the first place. The exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured (domestic denatured alcohol) without regard to the tax status of the buyer of the said goods while Sec. 135 deals with the tax treatment of a specified article (petroleum products) in relation to its buyer or consumer. Further, it held that Sec. 135 (a) in relation to the other provisions on excise tax and from the nature of indirect taxation, may only be construed as prohibiting the manufacturers-sellers of petroleum products from passing on the tax to international carriers by incorporating previously paid excise taxes into the selling price. In other words, the taxpayer cannot shift the tax burden to international carriers who are allowed to purchase its petroleum products without having to pay the added cost of the excise tax. Furthermore, considering that the excise taxes attaches to petroleum products as soon as they are in existence as such, there can be no outright exemption from the payment of excise tax on petroleum products sold to international carriers. The sole basis then of the taxpayers claim for refund is the express grant of excise tax exemption in favor of international carriers under Sec. 135(a) for their purchases of locally manufactured petroleum products. Citing its ruling in Philippine Acetylene, it held that a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller. The excise tax imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are international carriers.
Note: Although hindi kasama sa coverage, note na rin that by virtue of RA No. 10378 approved March 7, 2013, transport of passengers by international carriers is a VATexempt transaction.
In COMMISSIONER OF INTERNAL REVENUE VS. SEMIRARA MINING CORPORATION [CTA EB NO. 752, M ARCH 22, 2012], the CTA held that a coal operator with coal operating contract with the government is exempt from value-added tax. In order to encourage and promote said policy, Section 16 of PD 972 expressly grants tax incentive to operators of a contract under the said Decree which exempts them from all taxes except income tax.
--------------------------------------------------------------16. Input tax and output tax, defined --------------------------------------------------------------Note: I already discussed this.
--------------------------------------------------------------17. Sources of input tax a) Purchase or importation of goods b) Purchase of real properties for which a VAT has actually been paid c) Purchase of services in which VAT has actually been paid d) Transactions deemed sale e) Presumptive input f) Transitional input ---------------------------------------------------------------

Read Section 110(A), Tax Code Q: What are the sources of input tax?
1. Purchase or importation of goods a. For sale; or b. For conversion into or intended to form part of a finished product for sale including packaging materials; or c. For use as supplies in the course of business; d. For use as materials supplied in the sale of service; e. For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code except automobiles, aircraft and yachts. 2. Purchase of real properties for which ha VAT has actually been paid 3. Purchase of services in which VAT has actually been paid 4. Transactions deemed sale 5. Presumptive input tax 6. Transitional input tax (see Section 4.110-1, RR 16-2005)
Q: What is the rule on transitional input credits?

A person who becomes liable to VAT or any person who elects to be VAT-registered shall, subject to the filing of an inventory, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.
FORT BONIFACIO DEVELOPMEN CORPORATION V. CIR, G.R. NO. 173425, SEPTEMBER 4, 2012
DOCTRINE: Prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit. FACTS: Fort Bonifacio Development Corporation (FBDC) purchased from the government in 1995 portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City. No VAT on the sale of the land was passed on by the government to FBDC. On January 1, 1996, Republic Act 7716 took effect, amending certain provisions of the NIRC. One of the amendments is the extension of the coverage of the VAT to sale of real properties held primarily for sale to customers or held for lease in the ordinary course of business. In September 1996, FBDC submitted to the BIR an inventory of all its real properties, claiming that it is entitled to the transitional input tax credit on said inventories. FBDC started selling Global City lots in October 2006. For the 1st quarter of 1997, FBDC paid output taxes on the sale of lots after deducting input taxes. Realizing that the transitional input taxes were not applied against the output VAT, which would have resulted to no net output VAT liability (the transitional input taxes being higher), FBDC filed a claim for refund for the VAT payment. The Court of Tax Appeals (CTA) denied the claim on the ground that the benefits of the transitional input tax credit comes with the condition that business taxes should have been paid. Since FBDC acquired the property from the government free of VAT, it cannot avail of the transitional input tax credit. The Court of Appeals (CA) affirmed the decision of the CTA, saying that FBDC is not entitled to the transitional input tax credit since it did not pay any VAT when it purchased the Global City property. HELD: The Supreme Court (SC) reversed the decision of the CA and granted the refund. According to the SC, there is nothing in Section 105 of the old NIRC that indicate that prior payment of taxes is necessary for the availment of the transitional input tax credit. All that is required is for the taxpayer to file a beginning inventory with the BIR.
--------------------------------------------------------------e) Presumptive input --------------------------------------------------------------Read Section 111(B), Tax Code Q: What is the rule on presumptive input tax credits?
Persons or firms engaged in the processing of sardines, mackerel and milk, and in the manufacturing or refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to 4% of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.
--------------------------------------------------------------f) Transitional input --------------------------------------------------------------Read Section 111(A), Tax Code

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Note: There are 3 issues in this case: (1) Is the FBDC entitled to claim transitional input vat (2) If yes, is the transitional input vat applicable only to improvements and (3) should there be a previous payment for the transitional input VAT to be creditable. The issues were first resolved in the case of FORT BONIFACIO DEVELOPMENT CORP. V. CIR [APRIL 2, 2009] and was affirmed in a motion for reconsideration in FORT BONIFACIO DEVELOPMENT CORP. V. CIR [OCTOBER 2, 2009]. The recent case of FORT BONIFACIO DEVELOPMENT CORP. V. CIR [SEPTEMBER 4, 2012] simply reaffirmed the doctrines laid down in the previous cases, which are as follows: As to (1): Yes, FBDC is entitled to claim transitional input VAT by virtue of Section 111(A) (previously Section 105) As to (2): No, RR 7-95 cannot limit the application and coverage of Section 105 (now Section 111(A) by stating that in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements. This is a legislative act beyond authority of the CIR and the Secretary of Finance. The term goods and properties includes real properties held primarily for sale to customers or held for lease in the ordinary course of business. Thus, FBDC is entitled to claim transitional input VAT based not only the improvements but also on the value of the entire real property and regardless of whether or not there was actual payment on the purchase price of the real property or not. As to (3): No, the transitional input tax operates to the benefit of newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.
--------------------------------------------------------------19. Determination for output/input tax; VAT payable; excess input tax credits a) Determination of output tax b) Determination of input tax creditable c) Allocation of input tax on mixed transaction d) Determination of the output tax and VAT payable and computation of VAT payable or excess tax credits --------------------------------------------------------------Note: Remember the formula!
--------------------------------------------------------------a) Determination of output tax --------------------------------------------------------------Q: How is output tax determined?

The output tax is computed by: 1. Multiplying the GSP (for sellers of goods or properties) or the gross receipts (for sellers of services) by 12% or 2. Where the amount of VAT is erroneously billed in the invoice or receipt, by dividing the total invoice amount by a fraction using the rate of VAT as numerator and 100% plus the rate of VAT as the denominator (Section 4.110-6, RR 16-2005)
--------------------------------------------------------------18. Persons who can avail of input tax credit --------------------------------------------------------------Q: Who may avail of input tax credit?
1. The importer upon payment of VAT prior to the release of goods from customs custody 2. The purchaser of the domestic goods or properties upon consummation of he sale 3. The purchaser of services of the lessee or licensee upon payment of compensation, rental, royalty or fee 4. Purchaser of real property under cash/deferred payment basis upon consummation of the sale or if upon instalment basis upon every instalment payment (Section 4.110-2, RR 16-2005)
--------------------------------------------------------------b) Determination of input tax creditable --------------------------------------------------------------Read Section 105(C), Tax Code Q: How is determined? the creditable input tax
The amount of input taxes creditable during a month or quarter shall be determined by: 1. Adding all the creditable input taxes arising from the transactions during the month or quarter plus any amount of input tax carried over from the preceding month or quarter 2. Reduced by the amount of claim for VAT refund or TCC and other adjustments such as purchase returns or allowances, input tax Page 46 of 164 Last Updated: 30 July 2013 (v3)

attributable or allocated to exempt sales, and input tax attributable to sales to government subject to final withholding VAT (Section 4.110-5, RR 16-2005)
The following input taxes were passed on by its VAT suppliers: Input tax on taxable goods at 12% Input tax on zero-rated sales Input tax on sale of exempt goods Input tax on sale to government Input tax on depreciable capital Not attributable to any specific activity (monthly amortization for 60 months) - P5,000 - P3,000 - P2,000 - P4,000 - P20,000
--------------------------------------------------------------c) Allocation of input tax on mixed transaction --------------------------------------------------------------Q: Explain the rule on the apportionment of input VAT on mixed transactions.
SECTION 4.110-4 OF RR16-2005 [SEPTEMBER 1, 2005] provides that a VAT-registered taxpayer who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: 1. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit Exception: Input taxes that can be directly attributable to VAT taxable sales to the Government or any of its political subdivisions, instrumentalities or agencies shall not be credited against output taxes arising from sales to non-Government entities. 2. The input tax attributable to VAT-exempt sales shall not be allowed as credit against output tax, but should be treated as part of cost of asset or operating expense 3. If any input tax cannot be directly attributed to either a VAT-taxable or VAT-exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit.
Note: To illustrate by way of computation. ABC Corporation had the following sales during the month: Sale to private entities subject to 12% Sale to private entities subject to 0% Sale of exempt goods Sale to govt subject to 5% FWT Total Sales for the month - P100,000 P100,000 - P100,000 - P100,000 - P400,000
The creditable input VAT available for each of the respective type of transactions entered into by ABC Corp are as follows: 1. 2. 3. 4. For the sales subject to 12% VAT (i) actual input of P5,000 and (ii) ratable portion of P5,000 For the sales subject to 0% VAT (i) actual input VAT of 3,000 and (ii) ratable portion of P5,000 For sale of exempt goods no input VAT is creditable as the transactions are VAT-exempt For the sales to government no input VAT is creditable as the law imposes a 5% FWT obligation on the government agency-payor.
How was the ratable portion of creditable input VAT for VAT-taxable and zero-rated sales computed? For input VAT creditable on VAT-taxable sales:
For input VAT creditable on VAT zero-rated sales
--------------------------------------------------------------d) Determination of the output tax and VAT payable and computation of VAT payable or excess tax credits --------------------------------------------------------------Read Section 110(B), Tax Code

Q: Give the three possible scenarios that may arise in computing the VAT payable.
If at the end of any taxable month or quarter: Output tax = input tax Output tax > input tax Output tax < input tax No VAT payable The excess shall be paid by the VAT-registered person The excess shall be carried over to the succeeding quarter or quarters
transactions
Note: We will discuss what the required invoices are later. Copy of the Monthly Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor Payment Order showing payment of the advance VAT.
7. Input tax from payments made to non-residents
8. Advance VAT on sugar
Note: If input vat results from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option.
(Section 4.110-8, RR 16-2005)
--------------------------------------------------------------20. Substantiation of input tax credits --------------------------------------------------------------Q: What are the substantiation requirements of input tax credits?
Input taxes must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau:
1. For importation goods the of Import entry or other equivalent document showing actual payment of VAT on the imported goods Invoice showing the information required under Section 113 and 237 of the Tax Code Public instrument i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller. Official receipt showing the information required under Section 113 and 237 of the Tax Code. Inventory of goods as shown in a detailed list to be submitted to the BIR Invoice required
--------------------------------------------------------------21. Refund or tax credit of excess input tax a) Who may claim for refund/apply for issuance of tax credit certificate b) Period to file claim/apply for issuance of TCC c) Manner of giving refund d) Destination principle or cross-border doctrine --------------------------------------------------------------Read Section 112(c), Tax Code Q: Who may claim for refund/apply for issuance of tax credit certificate?
A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may apply for the issuance of a TCC or refund of input tax attributable to such sales (Section 4.112-1, RR No. 16-2005).
Note: The refund or application for issuance of TCC must be filed with the appropriate BIR Office-Large Taxpayers Service (LTS) or RDO having jurisdiction over the principal place of business of the taxpayer. Direct exporters may file their claim for TCC with the One Stop Shop Center of the DOF. (see Section 4.112-1, RR No. 16-2005). The filing of the claim with one office shall preclude the filing of the same claim with another office.
2. For the domestic purchase of goods and properties 3. For the purchase of real property
4. For the purchase of services
5. Transitional input tax
The proper party to seek refund of an indirect tax is the statutory taxpayer, not the person on whom it is shifted to. (EXXON MOBIL PHILIPPINES V. CIR [JANUARY 26, 2011]; SILKAIR V. CIR [FEBRUARY 25, 2010]
6. Input tax Deemed
on sale

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) and paid the related excise taxes thereon before the same were sold to the petitioner. The purchase price for the raw alcohol included, among others, the excise taxes paid by the supplier. Subsequently, petitioner exported its locally manufactured liquor products and received the corresponding foreign currency proceeds of such export sales. Petitioner then filed applications for tax refund/ issuance of tax credit certificates corresponding to the excise taxes which its supplier paid but passed on to it as part of the purchase price of the subject raw alcohol invoking Section130(D) of the Tax Code. HELD: The Court ruled that the right to claim a refund or be credited with the excise taxes belongs to its supplier. Any excise tax paid thereon shall be credited or refunded requires that the claimant be the same person who paid the excise tax.
SILKAIR V. CIR [G.R. NO. 166482, JANUARY 25, 2012]

DOCTRINE: The proper party to question or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.
FACTS: Petitioner filed an administrative claim for refund on the excise taxes paid on the purchase of jet fuel from its supplier oil company for the period of July 1, 1998 to December 31, 1998, which it alleged to have been erroneously paid based on Section 135(a) and (b) of the Tax Code of 1997. Due to inaction by respondent Commissioner, petitioner filed a Petition for Review with the Court of Tax Appeals. The CTA denied the petition and ruled that while petitioners country indeed exempts from excise taxes petroleum products sold to international carriers, petitioner nevertheless failed to comply with the second requirement under Section 135 (a) of the 1997 Tax Code as it failed to prove that the jet fuel delivered by Petron came from the latters bonded storag e tank. Upon the denial of the motion of reconsideration, petitioner elevated the case to the CA. The CA affirmed the denial and ruled that petitioner is not the proper party to seek for the refund of the excise taxes paid. HELD: The Supreme Court held that excise taxes, which apply to articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines, is basically an indirect tax. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production or from the customs custody, the tax, in reality, is actually passed on to the end consumer as part of the transfer value or selling price of the goods, sold, bartered or exchanged. The proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another . Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform its status into a statutory taxpayer.
Q: What are the requirements for a claim for VAT refund/credit?

1. The taxpayer is engaged in sales which are zero-rated or effectively zero-rated 2. The taxpayer is VAT-registered 3. The claim must be filed within two years after the close of the taxable quarter when such sales were made 4. The input taxes are due or paid; 5. The input taxes are not transitional input taxes 6. The input taxes have not been applied against output taxes during and in the succeeding quarters 7. The input taxes claimed are attributable to zerorated or effectively zero-rated sales 8. In certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B); Sections 108(B)(1) and (2)] 9. Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume. (See INTEL TECHNOLOGY PHILIPPINES V. CIR [APRIL 27, 2007])
Note: In JP MORGAN CHASE BANK, N.A. PHILIPPINE CUSTOMER CARE CENTER VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NOS. 7650, 7681 AND 7782, MARCH 13, 2012], the CTA held that Input taxes incurred prior to registration as VAT taxpayer with the BIR cannot be the subject of a refund.
DIAGEO PHILIPPINES V. CIR [G.R. NO. 183553, NOVEMBER 12, 2012]

DOCTRINE: The claimant for the refund of excise taxes related to exported products shall be the same person who paid the taxes. FACTS: Diageo Philippines, Inc. purchased raw alcohol from its supplier for use in the manufacture of its beverage and liquor products. The supplier imported the raw alcohol

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) An application for refund/tax credit certificate on the basis of the cancellation of VAT registration filed before the effectivity of the cancellation is premature. MINDANAO I GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8247, AUGUST 10, 2012 Amounts reflected in the supporting documents must the same with the amount reported as zero-rated sales in its VAT Return for the period subject for refund. (HARTEHANKS PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 7975 & 7998, JULY 2, 2012) A VAT-registered person claiming VAT zero rated direct export sales must present at least three (3) types of documents, to wit: (a) the sales invoice as proof of sale of goods; (b) the export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and (c) bank credit advice, certificate of bank remittance or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services. PHILEX MINING CORPORATION INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8284, JULY 30, 2012
application for effective zero-rating. The BIR issued a ruling stating that the supply of electricity by Mirant to NAPOCOR shall be subject to 0% VAT. On April 14, 1998, Mirant paid Mitsubishi the VAT component billed by the latter for services rendered. Mirant files nd its quarterly VAT return for the 2 quarter of 1998, where it reflected the input VAT paid to Mitsubishi. Subsequently, on December 20, 1999, Mirant filed an administrative claim for refund of unutilized input VAT arising from purchase of capital goods from Mitsubishi and its domestic purchase of goods and services attributable to its zero-rated sales of powergeneration services to NAPOCOR. The claim was denied for being filed beyond the prescriptive period of two years. The Supreme Court held that Mirants claim has prescribed. Unutilized input VAT payments must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT even if the payment for the VAT was made some quarters after 16 that. The fact that there was a pending request for zero-rating cannot be a basis for the late filing of return and payment of taxes. Further, Mirant cannot avail itself of the provisions of either Section 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes the payment of the tax as the starting point for the two-year prescriptive limit for the filing of a claim. These provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
Note: In the case of claims for refund of unutilized VAT on account of cessation of business, the 2-year period shall commence from the date of cancellation of registration of the taxpayer and not from the close of the taxable quarter when the sales were made (Associated Swedish Steels v. CIR [CTA Case No. 7850, August 23, 2012). The cancellation of VAT registration commences from the first day of the month following the application, under Section 236 of the Tax Code. (Ibid)
--------------------------------------------------------------b) Period to file claim/apply for issuance of TCC --------------------------------------------------------------Q: What is the prescriptive period to file the claim for refund or application for issuance of TCC?
The written application for the issuance of a TCC or refund must be filed with the BIR within 2 years after the close of the taxable quarter when the relevant sales were made.
Q: In claims for VAT refund/credit, what is the reckoning point for the two-year prescriptive period?
The reckoning period is from the close of the taxable when the relevant sales were made.
Note: For this matter, It is important to discuss the leading case of CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, 2008].
Q: What is the period within which tax refund/credit of input taxes shall be made?
The CIR shall grant a tax credit certificate/refund for creditable input taxes within 120 days from the date
In CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, 2008], Mirant generated power which it sells to NAPOCOR in which connection it secured the services of Mitsubishi Corporation of Japan. In the belief that its sale of power generation services to the NPC was VAT zero-rated because of NAPOCORs tax exempt status, Mirant filed an PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
16
Note that previously in ATLAS CONSOLIDATED MINING V. CIR [JUNE 8, 2007], the rule was that the two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales was counted from the date of filing of the return

of submission of complete documents in support of the application. (see Section 112(C), Tax Code)
Note: The 120-day period is counted from the submission of the complete documents with the BIR. (PILIPINAS TOTAL GAS, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA, JANUARY 05, 2012]) Non-submission of complete documents at the administrative level is not fatal to a judicial claim (PHILEX MINING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8228, MAY 31, 2012]) What is fatal to the taxpayer's cause is its failure to submit sufficient evidence such as invoices and receipts in support of its claim before the CTA and not its failure of to submit complete documents before the BIR and not before the CTA. COMMISSIONER OF INTERNAL REVENUE VS. PHILIPPINE AIRLINES, INC., CTA EB CASE NO. 775, JULY 24, 2012
the Court the authority to entertain the same. COMMISSIONER OF INTERNAL REVENUE, VS. TEAM SUAL CORPORATION [C.T.A. EB NO. 686, MAY 22, 2012]; CE CASECNAN WATER AND ENERGY COMPANY, INC. VS. CIR, CTA EB NO. 726 [CTA CASE NO. 7739, June 26, 2012]; PHILEX MINING CORPORATION VS. CIR [CTA EB NO. 778 CTA CASE NO. 7720, JUNE 26, 2012] As the provision is phrased, the word "may" relates to the taxpayer's option to appeal or not to appeal, upon the denial of its claim for refund or after the expiration of the 120-day period. However, if the tax payer opts to appeal, such claim must be filed within the 30-day period given from receipt of the denial or the expiration of the 120-day period. Thus, it is the option to appeal which is permissive, however, the period to appeal must be mandatorily complied with. (MINDANAO II GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. 750, JULY 5, 2012)
Q: What is the remedy in case of denial of the CTA of the claim for refund or if the CIR failed to act on the claim within the 120-day period?
In case of full or partial denial of the claim for tax credit certificate/refund: a) The taxpayer may appeal to the CTA within 30 days from the receipt of said denial, otherwise the decision shall be come final b) If no action on the claim for tax credit certificate/refund has been taken by the CIR after the 120 day period in which he must decide, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120 day period.
Note: Judicial claim for refund should be filed within thirty (30) days from the receipt of the decision of the Commissioner of Internal Revenue (CIR) or upon the expiration of the one hundred twenty (120) days in case of inaction of the CIR. KEPCO PHILIPPINES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, [CTA EB NO. 736 695, JANUARY 10, 2012]; DIAGEO PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, [CTA CASE NOS. 7846 AND 7865, JANUARY 16, 2012]; PHILEX MINING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, C.T.A. EB NO. 728, AUGUST 31, 2012; PILIPINAS TOTAL GAS, INC. VS. CIR, C.T.A. EB NO. 776, OCTOBER 11, 2012; NORTHWIND DEVELOPMENT CORPORATION VS. CIR, CTA CASE NO. 7918, OCTOBER 03, 2012 In case of inaction by the BIR, judicial claim for refund filed beyond thirty (30) days from the expiration of the one hundred twenty (120) days is filed out of time and deprives
Q: Can the taxpayer appeal to the CTA without waiting for the lapse of the 120 day period?
No. Where the taxpayer did not wait for the decision of the CIR or the lapse of the 120-day period, the filing of the said judicial claim with the CTA is premature. The non-observance of the 120-day period is fatal to the filing of a judicial claim.
Note: In this regard, let us discuss the leading case of CIR V. AICHI FORGING COMPANY OF ASIA [ OCTOBER 6, 2010].
In CIR V. AICHI FORGING COMPANY OF ASIA [ OCTOBER 6, 2010], Aichi Forging is a VAT-registered corporation engaged in manufacturing and processing of steel. Aichi filed a tax credit/refund for its unutilized input tax from purchases and importation attributed to its zero-rated sales. The CIR and CTA ruled that the administrative and judicial claims were filed beyond the period allowed by law. Moreover, the CIR puts in issue the fact that the administrative claim and the judicial claim were filed on the same day. The CIR opines that simultaneous filing of the claims contravenes the NIRC which requires the prior filing of an administrative claim. The Supreme Court first reiterated that the unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made as laid down in CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, 2008]. Going to the administrative and judicial claims, the Court ruled that the administrative claim was timely filed while the judicial claim was premature. In this case, Page 51 of 164 Last Updated: 30 July 2013 (v3)

applying the Administrative Code which states that a year is composed of 12 calendar months instead of the Civil Code (a year is equivalent to 365 days), it is clear that Aichi timely filed its administrative claim within the two-year prescriptive period. On the other hand, the claim of Aichi must be denied for nonobservance of the 120-day period Where the taxpayer did not wait for the decision of the CIR or the lapse of the 120-day period, it having simultaneously filed the administrative and the judicial claims, the filing of the said judicial claim with the CTA is premature. The non-observance of the 120-day period is fatal to the filing of a judicial claim. The claim of Aichi that such non-observance is not fatal as long as both the administrative and judicial claim is filed within the 2-year prescriptive period is without legal basis. The 2 year prescriptive period refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. Applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The 120-day period is crucial in filing an appeal with the CTA.
Note: In other words, the 2-year prescriptive period applies only to the filing of the administrative claim meaning the filing of the claim for refund or application for TCC with the CIR. If you want to file a suit with the CTA, you wait for the 120-day period to lapse. Dahil dun, you cannot simultaneously file a claim with the CIR and file a suit with the CTA. This early on I will tell you that the rule is different pagdating sa refund or credit of an erroneously or illegally collected tax under Section 229. Doon, both the administrative and judicial claim must be filed within the 2 year prescriptive period. Further, you need not wait for the BIR to act. You can simultaneously file your claim for refund or credit and the suit with the CTA. We will discuss that later in Tax Remedies.
Thus: 1. For the administrative claim, file within 2 years from end of the taxable quarter when sales were made. 2. For judicial claim, BIR has 120 days to decide. If adverse decision within the 120 day period, 30 days from receipt of decision to appeal to CTA. If no BIR decision within 120 days, 30 th days from the 120 day to appeal to the CTA. Note: (1) Thus, Aichi affirmed the Courts ruling in Mirant in that the 2-year prescriptive period shall be reckoned from the end of the taxable quarter when the relevant sales were made but clarified that such prescriptive period applies only to the filing of the administrative claim. See THIRD MILLENNIUM OIL MILLS, INC. VS. CIR [CTA EB NO. 729 (CTA CASE NO. 7583), JUNE 7, 2012]; CIR VS. PENN PHILIPPINES, INC., CTA EB NO. 693 [CTA CASE NO. 7457), JUNE 27, 2012] The taxpayers compliance with the 120 -day period under Section 112(C) is both mandatory and jurisdictional. See PROCTER & GAMBLE ASIA, PTE. LTD. VS. CIR [CTA EB CASE NO. 740 (CTA CASE NO. 7683), JUNE 18, 2012]; CARGILL PHILIPPINES, INC. VS. CIR, [CTA EB CASE NO. 779 (CTA CASE NOS. 6714 & 7262), JUNE 18, 2012]; PHILEX MINING CORPORATION VS. CIR, [CTA EB NO. 817 (CTA CASE NO. 7798), JUNE 13, 2012]; DIAGEO PHILIPPINES, INC. VS. CIR, [CTA EB NO. 806 (CTA CASE NO. 7778), JUNE 21, 2012]; PHILEX MINING CORPORATION VS. CIR, CTA EB NO. 808 (CTA CASE NOS. 7859 & 7886), JUNE 6, 2012; CE CASECNAN WATER AND ENERGY COMPANY, INC. VS. CIR, CTA EB NO. 726 (CTA CASE NO. 7739), JUNE 26, 2012; (2) Citing Aichi, the CTA in numerous cases have held that filing the judicial claim without waiting for the lapse of the 120-day period is fatal. The premature filing of the judicial claim warrants dismissal. SEE DEUTSCHE KNOWLEDGE SERVICES, PTE. LTD. VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8165, JANUARY 08, 2013]; CASECNAN WATER AND COMPANY, INC. VS.COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 836, JANUARY 28, 2013]; HEDCOR SIBULAN, INC. VS. COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO. 8051, JANUARY 05, 2012]; SITEL PHILIPPINES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, [C.T.A. EB NO. 668, JANUARY 06, 2012]; CE CEBU GEOTHERMAL POWER COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 741, JANUARY 12, 2012]; CBK POWER COMPANY LIMITED VS. COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 760, FEB 1, 2012]; SAN ROQUE POWER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO, 7937, FEBRUARY 8, 2012]; AIR LIQUIDE
Q: How do we reconcile CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, 2008] and CIR V. AICHI FORGING COMPANY OF ASIA [ OCTOBER 6, 2010]?
In both Mirant and Aichi In Mirant The 2-year prescriptive period is counted from the end of the taxable quarter when the sales were made. The 2-year prescriptive period applies to both the administrative and judicial claim. Thus, both claims must be filed within 2 years from the end of the taxable quarter when the sales were made The 2-year prescriptive period only applies to the administrative claim.
In Aichi

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) PHILIPPINES INC., VS. COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 704, FEBRUARY 27, 2012]; PANAY POWER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 709, MAY 17, 2012]; ENERGY DEVELOPMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 809, MAY 31, 2012]; CHEVRON HOLDINGS, INC. VS. CIR, [CTA CASE NOS. 7776 & 7813, JUNE 6, 2012]; CIR VS. PENN PHILIPPINES, INC., CTA EB NO. 693 [CTA CASE NO. 7457), JUNE 27, 2012]; AIR LIQUIDE PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8017, JULY 03, 2012; MINDANAO II GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NOS. 7899 AND 7942, AUGUST 1, 2012; CBK POWER COMPANY LIMITED VS. CIR, CTA EB NO. 758, OCTOBER 04, 2012; VISAYAS GEOTHERMAL POWER COMPANY VS. CIR, CTA EB CASE NO. 864, OCTOBER 08, 2012; PROCTER & GAMBLE ASIA PTE. LTD. VS. CIR, CTA EB NO. 765, OCTOBER 11, 2012; HEDCOR SIBULAN, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. 890, DECEMBER 06, 2012 Now, let us outline the process.
--------------------------------------------------------------c) Manner of giving refund --------------------------------------------------------------Q: What is the manner of giving refund?
Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit, the provisions of the Administrative Code of 1987 notwithstanding: That refunds shall be subject to post audit by the Commission on Audit. (See Section 112(D), Tax Code)
Note: If you ask for a tax credit, you get what you call a Tax Credit Certificate (TCC). However, note Executive Order 68 [March 27, 2012]. No more issuance of VAT TCCs and the EO provides for the monetization of outstanding VAT TCCs. EO 68 allows qualified VATregistered taxpayers to receive the cash equivalent of their outstanding TCCs either: (1) Collecting in advance from a trustee bank a discounted cash value of their TCCs or (2) Collect full cash value of their TCC upon a certain maturity date to be determined by the BIR and BOC. DOF Joint Circular 2-2012 provides that the monetization will start in 2012 for TCCs issued prior to 2004 while those issued in 2011 and 2012 will be monetized in 2016. .
Q: Outline the process for the refund or credit of excess or unutilized input taxes under Section 112(c).
1. Filing and Payment 2. Administrative claim within 2 years counted from the close of the taxable quarter when the relevant sales were made 3. Submission of additional and relevant support documents within 60 days from filing of claim 4. Appeal to CTA Division within 30 days from receipt of notice of denial or from lapse of 120 days of inaction counted from submission of documents. The appeal should not be made within the 2-year prescriptive period. Otherwise, the judicial claim is premature. The Motion for Reconsideration or New Trial to CTA Division within 15 days from receipt of decision. 5. Appeal to CTA En Banc within 15 days from receipt of resolution. Motion for Reconsideration to the CTA En Banc within 15 days from receipt of decision 6. Appeal to the SC within 15 days from receipt of resolution under Rule 45
--------------------------------------------------------------d) Destination principle or cross-border doctrine --------------------------------------------------------------Note: I already discussed this.
--------------------------------------------------------------22. Invoicing Requirements a) Invoicing requirements in general b) Invoicing and recording deemed sale transactions c) Consequences of issuing erroneous VAT invoice or VAT official receipt ----------------------------------------------------------------------------------------------------------------------------a) Invoicing requirements in general --------------------------------------------------------------Read Section 113(A), Tax Code

Q: What are required to be issued by a VATregistered person?

1. VAT invoice for every sale, barter or exchange of goods or properties 2. VAT official receipt for every lease of goods or properties and for every sale, barter or exchange of services.
Note: Only VAT-registered persons are required to print their Tax Identification Number (TIN) followed by the word VAT in their invoice or official receipt, which shall be considered the VAT invoice or VAT official receipt. All purchases not covered by invoices/receipts other than the VAT invoice or VAT official receipt shall not give rise to any input tax (see Section 4.113-1(A), RR 16-2005]
Read Section 113(B), Tax Code Q: What information should be contained in the VAT invoice or VAT official receipt?
1. A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); 2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax provided, that: a) The amount of the tax shall be shown as a separate item in the invoice or receipt; 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; c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt; d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VATexempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale shall be shown on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale. 3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and 4. In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of the purchaser, customer or client. (see Section 4.113-1(B), RR 16-2005)
Q: Is there a difference between an invoice and official receipt for purposes of substantiation?
In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], in ruling on Kepcos contention that an invoice and an official receipt are interchangeable, the Supreme Court stated that only a VAT invoice might be presented to substantiate a sale of goods or properties, while only a VAT receipt could substantiate a sale of services. The VAT invoice is the sellers best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyers best evidence of the payment of goods or services received from the seller. Even though VAT invoices and receipts are normally issued by the supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction), and the best means to prove the input VAT payments (proof of payment). Hence, VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used alternatively Note: The unamended Section 113 did not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction. Thus, in the case of transactions which took place during the period of the unamended law, the Court could accept either or both of the documents as evidence of zero-rated transactions (SOUTHERN PHILIPPINES V. CIR [OCTOBER 19, 2011]; AT&T COMMUNICATIONS SERVICES PHILIPPINES V. CIR [AUGUST 3, 2010]
--------------------------------------------------------------b) Invoicing and recording deemed sale transactions ---------------------------------------------------------------

Q: What are the invoicing and recording requirements for deemed sale transactions?
Deemed transaction sale Invoicing and requirements recording
1. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or use in the course of business 2. Distribution or transfer to shareholders/invest ors or creditors
A memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use
disposed of it VATregistered buyers, an invoice or instrument of sale or transfer shall be prepared, citing the invoice number wherein the tax was imposed on the deemed sale. At the same time, the tax paid corresponding to the goods sold should be separately indicated in the instrument of sale
(Section 4.113-2, RR 16-2005)
Invoice, at the time of the transaction, which should include all the info prescribed in Sec. 113(B)
--------------------------------------------------------------c) Consequences of issuing erroneous VAT invoice or VAT official receipt --------------------------------------------------------------Read Section 113(D), Tax Code Q: What are the consequences of issuing erroneous VAT invoices or VAT official receipts?
1. If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word VAT, the erroneous issuance shall result to the following: a) The Non-VAT person shall be liable to the: i. ii. iii. percentage taxes applicable VAT due on the transactions without the benefit of any input tax credit 50% surcharge as penalty
3. Consignment of goods if actual sale is not made within 60 days 4. Retirement from or cessation of business with respect to all goods on hand
Invoice, at the time of the transaction, which should include all the info prescribed in Sec. 113(B) An inventory shall be prepared and submitted to the RDO who has jurisdiction over the taxpayers principal place of business not later than 30 days after retirement or cessation from the business. An invoice shall be prepared for the entire inventory, which shall be the basis of the entry into the subsidiary sales journal. The invoice need not enumerate the specific items appearing in the inventory regarding the description of the goods. However, the sales invoice number should be indicated in the inventory filed and a copy thereof shall form part of this invoice. i. If the business is to be continued by the new owners or successors, the entire amount of output tax on the amount deemed sold shall be allowed as input taxes. ii. If the business is to be liquidated and the goods in the inventory are sold or
b) The VAT shall, if the other requisite information required is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser. 2. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the term VAT -exempt Sale, the issuer shall be liable to account for the VAT imposed. The purchaser shall be entitled to claim an input tax credit on said purchase. (see Section 4.113-4, RR 16-2005)
Note: Failure or refusal to comply with the requirement that the amount of tax shall be shown as a separate item

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) in the invoice or receipt shall, upon conviction, for each act or omission, be punished by a fine of not less than P1,000 but not more than P50,000 and suffer imprisonment of not less than 2 years but not more than 4 years ( RR 18-2011 [November 21, 2011]) same Tax Code and its amendments. It cited the cases of Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, G.R. No. 178090, 8 February 2010, were it was ruled that this provision is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services and Kepco Philippines Corporation v. Commissioner of Internal Revenue, G.R. No. 179961, 31 January 2011 where it was ruled that the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts a case falling under the principle of legislative approval of administrative interpretation by reenactment.
Q: What is the effect of the failure to comply with the invoicing requirements on the claim for refund or credit of input VAT on zerorated sales?
The claim for refund of unutilized or excess input taxes on the alleged zero-rated sales will be denied. The invoicing requirements are mandatory and the failure to comply is fatal in claims for a refund or credit of input VAT on zero-rated sales. (SILICON PHILIPPINES V. CIR [JANUARY 21, 2011]. See also MICROSOFT PHILIPPINES V. CIR [APRIL 6, 2011]; PANASONIC COMMUNICATION IMAGING CORP V. CIR [FEBRUARY 8, 2010]; JRA PHILIPPINES V. CIR [OCTOBER 11, 2010]; HITACHI GLOBAL STORAGE TECHNOLOGIES PHILIPPINES CORP V. CIR [OCTOBER 20, 2010]; KEPCO PHILIPPINES CORP V. CIR [NOVEMBER 24, 2010].
EASTERN TELECOMMUNICATIONS V. CIR, G.R. NO. 168856, AUGUST 29, 2012

DOCTRINE: Failure of a taxpayer to print the word zero-rated on its invoices or receipts is fatal to its claim for tax refund. FACTS: Taxpayer rendered incoming telecommunication services for non-resident foreign telecommunication companies. For these services to non-resident foreign telecommunication companies, taxpayer generated foreign currency revenues which were inwardly remitted in accordance with the rules and regulations of the BSP. Believing that these are zero-rated sales, taxpayer filed an application for refund for the unutilized input taxes allocated to such sales, for the period January 1 to December 31, 1999. HELD: The Court denied the claim on the ground that the taxpayer failed to imprint the word zero -rated on the face of its VAT invoices or receipts, in violation of Revenue Regulations No. 7-95. The absence of the word zerorated on the invoices and receipts of a t axpayer will result in the denial of the claim for tax refund. The claim was also denied on the ground that the taxpayer failed to substantiate its taxable and exempt sales, the verification of which was not included in the examination of the commissioned independent certified public accountant.
WESTERN MINDANAO POWER CORPORATION V. CIR, G.R. NO. 181136, JUNE 13, 2012
DOCTRINE: Failure to print the word zero-rated on the VAT invoices or official receipts is fatal in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior to the effectivity of R.A. 9337. FACTS: Taxpayer contends that RR 7-95 constitutes undue expansion of the scope of the legislation it seeks to implement on the ground that the statutory requirement for imprinting the phrase zero-rated on VAT official receipts appears only in Republic Act No. 9337. This law took effect on 1 July 2005, or long after petitioner had filed its claim for a refund. HELD: the Supreme Court held that in a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant ofnthe claim under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax credit. Hence, the mere fact that taxpayers application for zero-rating has been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming the refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well as by revenue regulations implementing them. It further held that RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance by the NIRC for the efficient enforcement of the
Q: Kepco filed a claim for refund of unutilized input VAT based on its zero-rated sale of power to NAPOCOR. A substantial portion of the claim was denied for having been supported by VAT invoices which only had the TIN-VAT stamped and not printed. Is Kepco entitled to the claim for refund?
No. In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], the Supreme Court ruled that the requirement that the TIN be imprinted and not merely stamped is Page 56 of 164 Last Updated: 30 July 2013 (v3)

a reasonable requirement imposed by the BIR.. The failure to adhere to this rule will not only expose the taxpayer to penalties but should also serve to disallow the claim.
3. Any person who imports goods 4. Professional practitioners whose gross professional fees exceed P1,919,500 for any 12-month period.
Q: Is the printing of the Authority to Print (ATP) required in the invoices or receipts?
No. The ATP need not be reflected in the invoices or receipts because there is no law or regulation requiring it. Failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. But, while there is no such law, the Tax Code requires persons engaged in business to secure ATP from the BIR prior to printing invoices or receipts. Since the ATP is not indicated in the receipts or invoices, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without which, the invoices or receipts would not have probative value for the purpose of refund. (SILICON PHILIPPINES V. CIR [JANUARY 21, 2011]).
Note: A taxpayer exempt from VAT but opting to be registered as VAT taxpayer may be held liable for VAT deficiency for failure to print the words VAT-exempt sale on the official receipts issued to its PEZA-registered lessee First Sumiden Realty, Inc. vs. CIR, CTA Case No. 8151, September 27, 2012 Refund claim under Section 229 of the Tax Code does not require proof of compliance with the invoicing requirements. ERICSSON TELECOMMUNICATIONS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8027, AUGUST 2, 2012
Q: What are the rules regarding the time for filing the return and payment of the tax?
Every person liable to pay VAT shall file a: a. The monthly VAT Declarations of taxpayers whether large or not shall be filed and the taxes paid not later than the 20th day following the end of each month b. A quarterly VAT return of the amount of his gross sales or receipts within 25 days after the close of each taxable quarter prescribed for each taxpayer.
Note: (1) A VAT-registered person shall pay VAT on a monthly basis. Amounts reflected in the monthly VAT return for the first 2 months of the quarter shall be included in the quarterly VAT return which reflects the cumulative figures for the taxable quarter. Payments in the monthly returns shall be credited in the quarterly return to arrive at the net VAT payable or excess input tax as of the end of the quarter (2) Taxable quarter shall mean the quarter that is synchronized to the income tax quarter of the taxpayer.
--------------------------------------------------------------24. Withholding of final VAT on sales to government --------------------------------------------------------------Read Section 114(C), Tax Code Q: What is the rule on withholding of VAT by government agencies?
The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, shall, before making payment on account of each purchase of goods or services subject to VAT, deduct and withhold a final VAT equivalent to 5% of the gross payment thereof provided that the payment for lease or use of properties or property rights to non-resident owners shall be subject to 10% withholding tax at the time of payment. (Section 4.114-2, RR 16-2005)
Note: The 5% final VAT shall represent the net VAT payable of the seller or, otherwise stated, the presumed input VAT cost of the entity dealing with the government
--------------------------------------------------------------23. Filing of return and payment --------------------------------------------------------------Read Section 114(A) and (B), Tax Code Q: Who are required to file a VAT return?
1. Every person or entity who in the course of his trade or business, sells or leases goods, properties and services subject to VAT if the aggregate amount of actual gross sales or receipts exceed P1,919,500 for any 12month period 2. A person required to register as a VAT taxpayer but failed to register PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) agency. The remaining 7% effectively accounts for the standard input VAT, in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. (Ibid) Okay, I sense confusion. Let me explain. Remember na in order for the taxpayer to determine yung tax liability niya, yan ang formula! Remember also na if input tax > output tax, pwde mo icarry over ito to the succeeding quarters or kapag yung input vat results from a zero-rated or effectively zero-rated transaction, puwede humingi ng refund or credit. Ang implication in case of 5% final VAT ay hindi magaaply yang formula na output tax minus input tax. So automatic kapag withholding by the government, do not use that formula! Tanong: Is the taxpayer still entitled to the excess input VAT if meron? It depends. Ito ang rules. If the actual input VAT is above 7% of gross payments, then the difference between the actual input VAT and the 7% or the excess may form part of sellers expense or cost. On the other hand, if the actual input VAT is below 7% of gross payments, the different must be closed or deducted to expense or cost. Hence, the taxpayer will realize additional income.
No. In LVM CONSTRUCTION CORPORATION V. SANCHEZ [DECEMBER 5, 2011], the Supreme Court held that as an entity which dealt directly with the government insofar as the main contract was concerned, LVM was itself required by law to pay the 8.5% (now 5%) VAT which was withheld by DPWH. Given that the JV complied with their own obligation when they paid their VAT from their gross receipts and the fact that the contract between LVM and the JV did not stipulate any obligation on LVM assuming the VAT, LVM has no basis to withhold payments. Although the burden to pay an indirect tax like the VAT can be passed on, the liability to pay the same remains with the seller. IN this case, both LVM and the JV are liable for their respective VAT obligations as respective sellers.
Q: In what instances shall the 12% final VAT be withheld?

1. 2. Lease or use of properties or property rights owned by non-residents; Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents; and; Other services rendered in the Philippines by non-residents
3.
Q: LVM Construction Corp. was engaged by the DPWH for the construction of roads and bridges. LVM subcontracted one of the projects to a Joint Venture. After completion, the JV demanded full payment to which LVM responded that they discovered that no deductions for VAT were made on previous payments and as such they were going to deduct 8.5% (now 5%) from the payments still due. The JV disputed this and argued that all the receipts issued to LVM would have made JV subject to VAT and, hence, LVM could claim such as input tax. Can LVM rightfully deduct the amount representing the withholding VAT due on its transaction with DPWH?

---------------------------------------------------------E. TAX REMEDIES ---------------------------------------------------------Note: I want to start by saying that the bar syllabus creates an impression that the remedies of the taxpayer are assessment, collection and refund. That is wrong. Assessment and collection are the powers of the taxing authority/government. Under the power of collection, different remedies are available to the government namely: (1) tax lien, (2) compromise, (2) distraint of personal property or levy of real property or garnishment of bank deposits (3) sale of property, (4) forfeiture, (5) compromise and abatement, (6) penalties and fines, (7) suspension of business operations, (8) civil action and (9) criminal action. (1) to (7) are the administrative remedies while (8) to (9) are the judicial remedies. Taxpayers have two remedies: (1) administrative protest (you protest the assessment) and (2) claim for refund. In this chapter, I wont discuss the topics under the Syllabus in the order provided because if I do, I dont think we will have a good understanding of tax remedies. Heres what Ill do. Ill follow the outline up to Protest. And then Ill rearrange the topics under b) Collection and 2. Government Remedies and integrate the discussion. After that, Ill discuss Refunds.
(b) Suspension of running of statute of limitations (iv) General provisions on additions to the tax (a) Civil penalties or Surcharges (b) Interest (c) Compromise penalties (v) Assessment process (a) Tax audit (b) Notice of informal conference (c) Issuance of preliminary assessment notice (d) Exceptions to issuance of preliminary assessment notice (e) Reply to preliminary assessment notice (f) Issuance of formal letter of demand and assessment notice/final assessment notice (g) Disputed assessment (h) Administrative decision on a disputed assessment ----------------------------------------------------------------------------------------------------------------------------a) Assessment (i) Concept of assessment (a) Requisites for valid assessment (b) Constructive method for income determination (c) Inventory method for income determination (d) Jeopardy assessment (e) Tax delinquency and tax deficiency --------------------------------------------------------------Read Sections 56 and 71, Tax Code Q: Define assessment
The term assessment may refer to: 1. The official action of an administrative officer in determining the amount of tax due from a taxpayer 2. A notice to the effect that the amount therein stated is due from the taxpayer as a tax with a demand for payment of the tax or deficiency stated therein.
--------------------------------------------------------------a) Assessment (i) Concept of assessment (a) Requisites for valid assessment (b) Constructive method for income determination (c) Inventory method for income determination (d) Jeopardy assessment (e) Tax delinquency and tax deficiency (ii) Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement (a) Power of the Commissioner to obtain information and to summon/examine and take testimony of persons (iii) When assessment is made (a) Prescriptive period for assessment (1) False, fraudulent, and non-filing of returns

Q: May the CIR be compelled by mandamus to make an assessment?

No. In MERALCO SECURITIES CORP V. SAVELLANO [ OCTOBER 23, 1982], the Supreme Court held that mandamus cannot lie to compel the CIR to impose a deficiency tax assessment. The CIRs power to assess is a discretionary one.
(2) A jeopardy assessment is an indication of the doubtful validity of the assessment, hence it may be subject to a compromise.
--------------------------------------------------------------(a) Requisites for valid assessment --------------------------------------------------------------Q: What are the requisites of a valid assessment?
1. A formal letter of demand and assessment notice shall be issued by the CIR or his duly authorized representative 2. The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations or jurisprudence on which the assessment is based. Otherwise, the formal letter of demand and assessment notice shall be void 3. The same shall be sent to the taxpayer only be registered mail or by personal delivery 4. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in duplicate copy of the letter of demand, showing the following: i. His name ii. Signature iii. Designation and authority to act for and in behalf of the taxpayer, if acknowledge received by a person other than the taxpayer himself; and iv. Date of receipt thereof (see Section 3.1.4, RR No. 12-99)
Note: (1) Previously, it is sufficient that the taxpayer be notified of the findings of the CIR. The rule now is that the taxpayer must be informed of not only the law but also of the facts on which an assessment would be made. (see CIR V. REYES [JANUARY 27, 2006]. (2) An assessment must be based on actual facts and not on mere presumptions (see CIR V. BENIPAYO [JANUARY 31, 1962]) (3) In CIR V. PASCOR REALTY [JUNE 29, 1999], the Supreme court held that an assessment must not only contain a computation of tax liabilities but also a demand for payment within the prescribed period. (4) An assessment is deemed made only when he BIR releases, mails or sends such notice to the taxpayer. (Ibid) (5) In ADAMSON V. CA [MAY 21, 2009], at issue was whether the CIRs recommendation letter for the filing of a
Q: How are taxes assessed?

1. Self-assessment Taxpayers are required to file tax returns for various kinds of income earned which may be subject to tax. When a taxpayer files the tax return, he is actually making a self-assessment. 2. Deficiency assessment is an assessment made by the BIR after the conduct of an investigation or audit when it finds that the tax return filed by the taxpayer contains an under-declaration of income or when the taxpayer does not at all file a tax return 3. Jeopardy assessment a tax assessment which was assessed without the benefit of a complete or partial audit by an authorized revenue officer who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayers failure to comply with audit and investigation requirements to present his books of accounts and/or pertinent records or substantiate all or any of the deductions, exemptions, or credits claimed in his return. (see Section 3(1)(a), RR No. 30-2002)
Note: (1) Section 56, Tax Code provides that, as a general rule, the total amount of the tax shall be paid at the time the return is filed. This is otherwise known as the pay-as-you-file system. The pay-as-you-file system is a self-assessing tax return. Note that internal revenue taxes are self-assessing. The tax becomes due and payable without need of any prior assessment by the BIR. The taxpayer himself computes and pays without intervention from the BIR. Thus, the term self-assessment. However, if the taxing authority is first required to investigate or audit and after such investigation or audit to issue the assessment that creates the tax liability, then the tax is not self-assessed and is most likely a deficiency assessment. If despite not having done a complete or partial audit, the BIR issues an assessment believing that the assessment and collection of the deficiency tax will be jeopardized by delay, the assessment is called a jeopardy assessment.

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) criminal complaint against the taxpayer for fraudulent returns and tax evasion can be considered a formal assessment. The Supreme Court held that such was not equivalent to a formal assessment. An assessment is a written notice and demand may by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication containing a computation and giving him an opportunity to contest or disprove the findings is not an assessment since it is yet indefinite. (6) As held in CIR V. GONZALEZ [OCTOBER 12, 2010], the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax against the said taxpayer. (7) In BONIFACIO SY PO V. CTA [AUGUST 18, 1988], the Supreme Court held that tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to provide otherwise. (8) Reasons for presumption of correctness of assessments: (a) lifeblood theory (b) presumption of regularity in the performance of public functions (c) likelihood that the taxpayer will have access to relevant information (d) the desirability of bolstering the recordkeeping requirements of the Tax Code (9) When prima facie correctness of a tax assessment does not apply In CIR V. HANTEX TRADING [MARCH 31, 2005], the Supreme Court held that the rule does not apply when the CIR comes out with a naked assessment (an assessment that is without any foundation and hence, arbitrary and capricious). In UNITED DISTRIBUTION MANAGEMENT, INC. VS. CIR, CTA CASE NO. 7885, SEPTEMBER 24, 2012, the CTA held that the BIR has neither legal nor factual basis to presume that payments made to the stockholder and the interest paid are dividends. It is true that as a general rule, tax assessments by tax examiners are presumed correct and made in good faith. However, the prima facie correctness of a tax assessment does not apply 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. An assessment that does not state the factual and legal bases is void and cannot give rise to an obligation to pay deficiency taxes. LIQUIGAZ PHILIPPINES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8141, NOVEMBER 22, 2012; COMMISSIONER OF INTERNAL REVENUE VS. TOLEDO POWER COMPANY, CTA EB NO. 833, OCTOBER 1, 2012
--------------------------------------------------------------(b) Constructive method for income determination (c) Inventory method for income determination --------------------------------------------------------------Q: What are the constructive methods of income determination?
The following are the general methods developed by the BIR for reconstructing a taxpayers income where the records do not show the true income or where no return was filed or what was filed was a false or fraudulent return. a. b. c. d. e. f. Percentage method Net worth method Bank deposit method Cash expenditure method Unit and value method Third party information or access to records method g. Surveillance and assessment method
Note: As to the third party information or access to records method, see Section 5(b) of the Tax Code. If the revenue officers were not given the opportunity to examine the taxpayers documents, they are authorized unde r Section 5 of the Tax Code to gather information from third parties (CIR V. HON. RAUL M. GONZALES [OCTOBER 15, 2010])
Q: What is the inventory method for income determination? (Net worth method)
The general theory underlying this method is that the taxpayers money and other assets in excess of the liabilities after accurate and proper adjustment of non-deductible and non-taxable items not accounted for in his tax return is deemed to be unreported income. In other words, the theory is that the unexplained increase in net worth of the taxpayer is presumed to be derived from taxable sources.
Q: What are the conditions for the use of the net worth method?
1. That the taxpayers books of accounts do not reflect his income or the taxpayer has no books or if he has books, he refuses to produce them, or that the few records that he had were destroyed

2. That there is evidence of possible source or sources of income to account for the increases of net worth or expenditures 3. That here is a fixed starting point or opening net worth 4. That the circumstances are such that the method does reflect the taxpayers income with reasonable accuracy and certainty, and proper and just additions of personal expenses and other non-deductible expenditures were made, and correct, fair, and equitable credit adjustments were given by way of eliminating non-taxable items (see RMC No. 43-74)
--------------------------------------------------------------(ii) Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement (a) Power of the Commissioner to obtain information and to summon/examine and take testimony of persons --------------------------------------------------------------Read Section 6, Tax Code Q: Enumerate the powers of the CIR in the assessment of taxes.
1. Examination of returns and determination of tax due 2. Use of the best evidence obtainable 3. Authority to conduct inventory-taking, surveillance, and to prescribe presumptive gross sales and receipts 4. Authority to terminate the taxable period 5. Authority to prescribe real estate values 6. Authority to inquire into bank deposits 7. Authority to accredit and register tax agents 8. Authority to prescribe additional procedural or documentary requirements
--------------------------------------------------------------(d) Jeopardy assessment --------------------------------------------------------------Note: I already discussed this.
--------------------------------------------------------------(e) Tax delinquency and tax deficiency --------------------------------------------------------------Q: When is delinquent? the taxpayer considered
1. Self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or only partially paid or 2. Deficiency tax assessed by the BIR became final and executory
Examination of returns and determination of tax due Q: When a taxpayer files his return, can he still (1) withdraw it; or (2) amend it?
Once filed, the taxpayer may no longer withdraw it but he may amend it subject to the following requirements: 1. It is made within 3 years from filing 2. No notice for audit or investigation has been actually served to him (see Section 6, Tax Code)
Q: What is a tax deficiency?

The term deficiency means: 1. The amount by which the tax imposed exceeds the amount shown as the tax by the taxpayer upon his return 2. If no amount is shown as the tax by the taxpayer upon his return, then the amount by which the tax exceeds the amount previously assessed (or collected without assessment)
Note: If the taxpayer is considered delinquent or there is a tax deficiency, he taxpayer is subjected to a civil penalty or surcharge and, if applicable, interests. We will discuss this later.
Use of the best evidence obtainable Q: Explain the best obtainable evidence rule.
The rule is that an assessment must made based on the best evidence obtainable. In CIR V. HANTEX TRADING [M ARCH 31, 2005], the Supreme Court opined that assessments must be based on actual

facts. It ruled that best evidence includes the corporate and accounting records of the taxpayer who is subject of the assessment process while the best evidence obtainable does not include mere photocopies of records and documents. Such photocopies have no probative value and cannot be used as basis for any deficiency taxes against the taxpayer.
Note: (1) The BIR is allowed to make or amend a tax return from his own knowledge or obtained through testimony or otherwise. (see CIR v. Hantex Trading Co. [March 31, 2005]) (2) The rule is that in the absence of 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 (Ibid)
consultation with competent appraisers both from the public and private sectors.
Authority to inquire into bank deposits Q: Does the CIRs power to obtain information include the power to inquire into bank deposits?
No as a general rule. However, the CIR is authorized to inquire into the bank deposits of: 1. A decedent to determine his gross estate 2. Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2) of the Tax Code by reason of financial incapacity to pay his tax liability. 3. Specific taxpayers subject of a request for exchange of information by a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of provided that the requesting foreign tax authority is able to demonstrate the foreseeable relevance of certain information required to be given to the request (see RA 10021 (Exchange of Information on Tax Matters Act of 2009) and RR 10-2010 [OCTOBER 6, 2010]) 4. Where the taxpayer has signed a waiver authorizing the CIR or his duly authorized representatives to inquire into the bank deposits
Authority to conduct inventory-taking, surveillance, and to prescribe presumptive gross sales and receipts Q: In what instance will the CIR exercise such authority?
It will exercise such authority if there is reason to believe that the taxpayer is not declaring his correct income, sales or receipts for internal revenue purposes
Authority to terminate the taxable period Q: In what instances can the CIR terminate the taxable period of a taxpayer?
When the taxpayer is: a. Retiring from business b. Intending to leave the country c. Removing his property d. Obstructing tax collection
Authority to accredit and register tax agents Q: Who are tax practitioners/tax agents?
RR 11-2006 [JUNE 15, 2006] defines a tax practitioner/agent as those who are: 1. engaged in the regular preparation, certification, audit and filing of tax returns, information returns or other statements or reports 2. engaged in the regular preparation of requests for ruling, petitions for reinvestigation, protests, requests for refund or tax credit certificates, compromise settlement and/or abatement of tax liabilities and other official papers and correspondence
Authority to prescribe real estate values Q: Does the CIRs power to prescribe real estate values include the power to unilaterally reclassify the zonal valuation of properties?
As held in CIR V. AQUAFRESH SEAFOODS [OCTOBER 20, 2010], the Supreme Court ruled that although the CIR has the authority to prescribe real property values and divide the Philippines into zones, the law is clear that the same should be done upon PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

3. regularly appear in meetings, conferences, and hearings before any office of the BIR officially on behalf of a taxpayer or client in all matters relating to a client's rights, privileges, or liabilities
Note: Tax practitioners and agents are required to apply for accreditation. RR 11-2006 [JUNE 15, 2006], as amended by RR 4-2010 [FEBRUARY 24, 2010] and RR 142010 [NOVEMBER 25, 2010] provide for the guidelines on accreditation of tax practitioners/agents as a pre-requisite for their practice and representation before the BIR.
Q: A was assessed for deficiency taxes on his Feb 1, 2010 income tax returns by the BIR. The formal demand letter and assessment was stamped Jan 31, 2013, denoting the date of its release in the mail. In Feb 2, 2013, A has not yet received the formal demand letter and assessment. He contends that the assessment is already barred by prescription. Is A correct?
No. The assessment is not barred by prescription. The BIR has 3 years to assess from the date of last filing. As long as the release of the assessment/demand is effected within the prescriptive period, the assessment is deemed made on time even though the taxpayer actually received the assessment/demand after the expiration of the prescriptive period (see BASILAN ESTATES V. CIR [SEPTEMBER 5, 1967]).

Note: As ruled in FITNESS BY DESIGN V. CIR [OCTOBER 17, 2008], the BIR can obtain all relevant records and data in the person of the taxpayer without his consent.
--------------------------------------------------------------(iii) When assessment is made (c) Prescriptive period for assessment (2) False, fraudulent, and non-filing of returns (d) Suspension of running of statute of limitations --------------------------------------------------------------Note: Whats the importance of determining when the assessment is made or deemed made? Ill give you two reasons. First, it is important in order to know if the right to assess has already prescribed. The assessment must be made within the 3-year prescriptive period. Any assessment made thereafter shall be barred. Second, the date in which the assessment was made is the reckoning point of the prescription of the power to collect.
Q: What is the exception to the above rule that assessment is deemed made when BIR releases, mails, or sends such notice to taxpayer?
If the receipt is disputed and for this presumption of receipt of mail to apply, the CIR must prove that: 1. The letter was properly addressed 2. The letter was mailed; otherwise, presumption of receipt cant apply. (see NAVA V. CIR [JANUARY 30, 1965]) In REPUBLIC V. CA [APRIL 30, 1987], the Supreme Court held that a direct denial of receipt of a mailed demand letter by the addressee shifts the burden upon the party favored by the presumption of receipt of letter to prove that the mailed letter was indeed 17 received. In COMMISSIONER OF INTERNAL REVENUE VS. GJM PHILIPPINES M ANUFACTURING, INC. [CTA EB CASE NO. 637, M ARCH 6, 2012], the CTA held that if the taxpayer denies receiving the final assessment notice, it is incumbent upon the BIR to prove that the assessment was indeed received by the taxpayer.
Q: When is an assessment deemed made?

The assessment is deemed to have been made on the date when the demand letter or notice of assessment is released, mailed or sent, even though the same is actually received by the taxpayer after the expiration of the prescriptive period (see BASILAN ESTATES V. CIR [SEPTEMBER 5, 1967]).
Note: RR 12-99 [SEPTEMBER 6, 1999] provides that if the notice to the taxpayer is served by registered mail and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. Further, if the same is personally served and the taxpayer refuses to acknowledge receipt thereof, the same shall be constructively received by the taxpayer.
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Also important to note in this case is the ruling that a follow-up letter which reiterates demand for payment of taxes is considered a notice of assessment.

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Note: (1) When an estate is under administration, the notice of assessment must be sent to the administrator (see Republic v. Leonor dela Rama [Nov. 29, 1956] ) (2) Service of an assessment notice made to the agent of the decedent after the decedents death is not effective. As held in ESTATE OF LATE JULIAN DIEZ V. CIR [JANUARY 27, 2004], service of assessment notice on the trust officer/agent of the decedent made after the death is invalid since at that time the legal relationship between the principal and his agent had been automatically severed by the death of the principal even if the agent continued to act as such by filing the decedents ITR. The fact of failure to file a notice of death will not later this effect but will only expose the estate to penalties and will not continue the relationship with the agent. Pursuant to Section 229 of the Tax Code, he had two years from the filing of its final adjusted return to file a claim for tax refund or credit. The CIR argued that the taxpayer had 730 days to file its claim given that Article 13 of the Civil Code states that a year is understood to mean 365 days. The taxpayer contended that under the 1987 Administrative Code, a year consists of 12 calendar months and having filed the claim on the last day of the th 24 calendar month, the claim was filed within the prescriptive period. The Supreme Court ruled in favor of the taxpayer. There exists a manifest incompatibility between the manner of computing legal periods under the Civil Code and the Administrative Code. Given that the Administrative Code is the more recent law, its treatment of a year governs the computation of legal periods. Ano kapag the date of which the assessment is due to prescribe falls on a Saturday? As held in CIR V. WESTERN PACIFIC CORPORATION [MAY 27, 1965], where the last day for issuing a tax assessment falls on a Saturday, it may be validly issued the following business day. And anong araw yun? Eh di Monday! What if itll prescribe on Sunday? You can still assess on Monday. What if prescription falls due on a legal holiday? You can still assess on the next day which is neither a Saturday, Sunday or a legal holiday.
Q: What is the significance of the taxpayers indicating in the previous years ITR its new address?
As held in CIR V. BPI AS LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORP [SEPTEMBER 23, 2003], any service of assessment notice on the old address subsequent to such previous year invalidates the assessment.
Read Section 203 and 222, ax Code Q: When does the governments right to assess prescribe?
General Rule: The governments right to assess prescribes in 3 years from the date of the last day of filing. However: 1. If the return is filed after such date, the 3 year period is reckoned from date of actual filing 2. If the return is filed before the last day, then considered as filed on last day. Exceptions: Section 222, Tax Code provides for the following instances 1. False return 2. Fraudulent return 3. Failure to file a return In such cases, the tax may be assessed or a proceeding in court for collection may be filed without assessment at any time within 10 years from discovery of the falsity, fraud, or omission.
Note: (1) In contrast, the right to collect the tax prescribes in 5 years and the period is reckoned from the date the assessment is made.
--------------------------------------------------------------(a) Prescriptive period for assessment (3) False, fraudulent, and non-filing of returns --------------------------------------------------------------Note: As a preliminary matters, lets talk about how to compute the legal period. If we will follow the old Administrative Code and the Civil Code, the BIR may assess the deficiency tax only within 1,095 days because they both state that a year is 365 days. 365 times 3 equals 1095. So, kapag nag-assess ang CIR sa dulo ng 3 year period na may leap year, prescribed na! Bakit? A leap year has 366 days. So 365 + 365 + 366 equals 1096 days! Kapag may libro or notes ka na ganyan pa rin sinasabi, patay tayo diyan! The doctrine to that effect as laid down in NAMARCO v. Tecson [29 SCRA 70] has been abandoned! The rule now is very simple. Susundin natin ang Administrative Code of 1987. A year is 12 calendar months. Wag mo na bilangin ang total number of days. So if the CIR assesses in the last day of the last month of the 3-year period, hindi pa prescribed yun. Ano kapag may leap year yung isang taon sa 3-year period. It aint gonna matter. On a serious note, the relevant case is CIR V. PRIMETOWN PROPERTY [AUGUST 28, 2007]. In that case, the taxpayer filed a claim for tax refund of income tax paid in 1997.

(2) May there be a proceeding in court when no assessment is made within the 3 year period? Yes in the case of false return, fraudulent return, or failure to file return. You can file within 10 years from discovery.
Yes. A false return merely implies deviation from the truth, whether intentional or not, while a fraudulent return refers to an intentional evasion of tax. ( see AZNAR V. CTA [AUGUST 23, 1974])
Q: What is the effect if the assessment is made beyond the prescribed period?
Assessments made beyond the prescribed period would not be binding on the taxpayer. ( see TUPAZ V. ULEP [OCTOBER 1, 1999]; CIR v. AYALA SECURITIES CORPORATION [M ARCH 31, 1976]
Q: A filed his tax return in 2000. The CIR assessed A for deficiency taxes in 2004 alleging fraud in its complaint. Has the right to assess prescribed?
Yes. As held in REPUBLIC V. LIM DE YU [APRIL 30, 1964], it is not enough the fraud is alleged in the complaint, it must be proven and established.
Q: What if the return is incomplete, will the prescriptive period to assess run?
No. As held in REPUBLIC V. M ARSMAN DEVELOPMENT COMPANY [APRIL 27, 1972], in order that the filing of a return may serve as a starting point of the period for making an assessment, the return must be as substantially complete as to include the needed details on which the full assessment may be made.
Q: What is the reckoning point with respect to amended returns?

From the filing of the amended return if the amendment is substantial. In CIR V. PHOENIX [MAY 20, 1965], the taxpayer filed its ITR for 1952 on 1 April 1953. It amended the said return on 30 August 1955. Thereafter, on 24 July 1958, the CIR assessed deficiency income tax on the basis of the amended return contending that his right to assess has not yet prescribed inasmuch as the same was 18 availed of within 5 years from the filing of the amended return. The Supreme Court ruled that where the deficiency assessment is based on the amended return, which is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended return. In this case, the changes and alterations embodied in the amended return constituted substantial ones and thus the CIRs deficiency assessment was not barred by prescription.
Q: The CIR contends that seven lots were deliberately omitted by A in his return filed as the representative of the heirs. A contends that the lots were excluded because one belonged to one of the heirs, three were already declared in the return of the surviving spouse, and three were actually included. Is there a deliberate intent to evade taxes on the part of A?
No. As held in REPUBLIC V. HEIRS OF CESAR JALANDONI [SEPTEMBER 20, 1965], the omission as described above was not deliberate and did not amount to fraud indicative of an intention to evade payment of the proper tax due the government.
Q: May the period of assessment be extended?

Yes. Before the expiration of the 3-year prescriptive period, both the CIR and the taxpayer may agree in writing to extend the period of assessment. The period so agreed upon may be further extended by subsequent written agreement made before the expiratiton of the period previously agreed upon (see Section 222(b), Tax Code)
Q: What are the requirements of a valid waiver of the statute of limitations?

As provided in RMO No. 20-90: 1. The waiver must be in the proper form 2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. 3. Signature of the proper authority (For tax cases involving Php 1 million or above, the
Q: Is there a difference between a false return and a fraudulent return?
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Note that the case was governed under the old law which provides for 6 tears to assess and another 5 years to collect.

CIR must sign) indicating that the BIR has accepted and agreed to the waiver 4. The date of the acceptance by the BIR should be indicated. Both the dae of execution by the taxpayer and the date of the acceptance by the BIR should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 5. The waiver must be executed in 3 copies, the original to be attached to the docket, the second copy for the taxpayer and the third copy for the Office accepting the waiver. Taxpayer must be furnished a copy of the waiver in order to perfect the agreement since the waiver is not a mere unilateral act
Note: (1) The signatures of both the CIR and the taxpayer are required for a waiver of the prescriptive period, thus a unilateral waiver on the part of the taxpayer does not suspend the prescriptive period (CIR v. CA [February 25, 1999])
This led some to believe that the Waiver form prescribed under RMO No. 20-90 should be used instead of the waiver form mandated under RDAO No. 05-01. RMC No. 29-2012 clarifies that while the provisions of RMO No. 2090 should be strictly complied with in order for a Waiver to be valid, the Waiver form prescribed in RMO No. 20-90 should no longer be used as the same has been revised per RDAO No. 05-01. In SMC STOCK TRANSFER SERVICE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 7944, JANUARY 10, 2012], the CTA held that the waiver of the Statute of Limitations executed by the taxpayer is defective if: (a) It fails to indicate the fact of receipt by the taxpayer of his file copy of the waiver The Court noted that the fact of receipt by the taxpayer must be indicated in the original copy, which is to be attached to the docket of the case; (b) It fails to indicate the specific kind of tax and the amount of tax due if the amount of tax were not indicated in the said waiver, there is no agreement to speak of; (c) It was not duly notarized; (d) Both the acceptance by the BIR and the execution by the taxpayer of the subsequent waiver was made at a time when the period previously agreed upon had already lapsed. See also UNION CEMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 6842, JANUARY 18, 2012]; EAST ASIA POWER RESOURCES CORPORATION V. CIR [CTA CASE NO. 7936, FEBRUARY 6, 2012]; NEXT MOBILE, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 7965, DECEMBER 11, 2012 A waiver of the defense of prescription which does not indicate the date of acceptance by the BIR does not toll the running of the three-year prescriptive period. FIRST GAS POWER CORPORATION VS. CIR, CTA CASE NO. 7281, SEPTEMBER 24, 2012
Q: What is the effect of failure to conform to the requirements of a waiver of the statute of limitations?
A waiver of the statute of limitations under the Tax Code must conform strictly with the provisions of Revenue Memorandum Order No. 20-90 in order to be valid and binding. (See RMC 06-05 [February 2, 2005]; PHILIPPINE JOURNALISTS INC. V. CIR [DECEMBER 16, 2004]). The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the 3-year period. RMO 20-90 and RDAO 05-01 lay down the procedure for the proper execution of the waiver. If not followed, any assessment issued by the BIR beyond the 3-year period is void. (CIR V. KUDOS METAL CORP [M AY 5, 2010]; see also AVON PRODUCTS V. CIR [MAY 13, 2010])
Note: RMC No. 29-2012 [June 29, 2012] clarifies the form to be used for Waiver of the Statute of Limitations. In RMO 20-90, there is a particular waiver form attached as an Annex. Revenue Delegation Authority Order (RDAO) No. 05-01 was issued in August 2, 2001 prescribing a new waiver form to be used. With the decision of the SC in PHILIPPINE JOURNALISTS INC. V. CIR [DECEMBER 16, 2004], RMC No. 06-05 was issued on February 2, 2005 citing the said decision that "a waiver of the statute of limitations under the Tax Code must conform strictly with the provisions of Revenue Memorandum Order No. 20-90.
Q: ABC Bank executed two Waivers of the Defense of Prescription covering internal revenue taxes due for the years 1994 and 1995, extending the period of the BIR to assess up to December 31, 2000. A Formal Letter of Demand was issued by the BIR which was protested by ABC Bank. Another Formal Letter of Demand was received by ABC with a reduced assessment which was paid by ABC on the same day except for two other taxes. ABC argues that the waivers it executed were not valid because it was not signed or conformed to by the CIR. Are the waivers valid? Yes. Partial payment of the assessment issued within the extended period to assess as provided in the Waiver of Defense of Prescription is an implied admission of the validity of the waiver. (RCBC v. CIR [September 7, 2011])

Q: Can the waiver cover taxes already prescribed?

No. As held in REPUBLIC V. LIM DE YU [APRIL 30, 1964], the waiver of the statute of limitations executed by the taxpayer cannot be deemed to include taxes already prescribed.
(c) Compromise penalties ----------------------------------------------------------------------------------------------------------------------------(a) Civil penalties or Surcharges --------------------------------------------------------------Read Section 247-248, Tax Code Q: What are the civil penalties (surcharges) under the Tax Code and in what instances are they imposable?
1. 25% surcharge, which is imposable in case of: a. Failure to file a return and pay tax due thereon b. Filing with unauthorized revenue office c. Failure to pay deficiency tax within time prescribed in assessment notice d. Failure to pay full or part of the amount shown in ITR required to be filed 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 2. 50% surcharge, which is imposable in case of: a. Willful neglect to file the return within the period prescribed b. False or fraudulent return is willfully made (see Section 248, Tax Code).
Note: (1) Surcharges are imposed in addition to the tax required. They are in the nature of penalties and shall be collected at the same, in the same manner, and as part of the tax (see Section 248(A), Tax Code) (2) There is a prima facie evidence of false or fraudulent return when there is a substantial under-declaration of taxable sales, receipts or income in an amount exceeding 30% of that declared per returm. (3) As held in PHILIPPINE REFINING COMPANY V. CA [MAY 8, 1996], it is mandatory to collect penalty and interest at the stated rate in case of delinquency. The intention of the law is to discourage the delay in the payment of taxes due the Government, and, in this sense, the penalty and interest is not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the government.
Q: Can the doctrine of estoppel be applied as an exception to the statute of limitations?

No. In CIR V. KUDOS METAL CORPORATION [M AY 5, 2010], the Supreme Court held that the doctrine of estoppels cannot be applied as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver.
--------------------------------------------------------------(a) Suspension of running of statute of limitations --------------------------------------------------------------Read Section 223, Tax Code Q: When is the running of the period of prescription suspended?
It is suspended when: 1. The CIR was prohibited from making the assessment or beginning distraint/levy and 19 for 60 days thereafter 2. Taxpayer requests reinvestigation which is granted by the CIR 3. Taxpayer cannot be located in address 4. A warrant of distraint and levy is served (not only issued) and no property could be found 5. Taxpayer is out of the Philippines
--------------------------------------------------------------(iv) General provisions on additions to the tax (a) Civil penalties or Surcharges (b) Interest (1) In general (2) Deficiency interest (3) Delinquency interest (4) Interest on extended payment
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An example would be when an injunction is allowed under the CTA law is availed of.

Q: ABC is a cement company. Initially, the BIR ruled that cement is a mineral product rather than a manufactured product and is therefore subject to ad valorem tax, not sales tax. Subsequently, the CIR ruled that cement is a manufactured product and therefore subject to sales tax. The BIR then assessed ABC for deficiency sales tax and imposed the 25% surcharge. Is the 25% surcharge imposable?
No. In CIR V. REPUBLIC CEMENT CORP [AUGUST 10, 1983], the Supreme Court noted that the 25% penalty contemplates a case where the liability for the tax is undisputed or indisputable. In this case, the assessments are disputed. The dispute as to the tax liability of Republic Cement for sales tax arose not simply because of ordinary divergence of views in good faith vis--vis the interpretation of the law, the position of Republic Cement was founded upon the original stand of the BIR itself that cement is a mineral product. Under such circumstances, the 25% surcharge imposition must be deleted.
tasked to implement the tax are sufficient justification to delete the imposition of surcharges (MICHEL J. LHUILLIER PAWNSHOP V. CIR [SEPTEMBER 11, 2006])
Some Problems on Civil Penalty Impositions Q: If a taxpayer who files a return subsequently realizes that the return filed was insufficient, will his amended return be subject to the 25% surcharge?
No. As long as the taxpayer files the amended return before the lapse of any demand by the BIR to pay his deficiency assessment, the taxpayer is not liable for any surcharge.
Q: Taxpayer A filed and paid taxes on April 15, 2009 worth 5 million. On May 15, 2009, he realized he should have paid 6 million and thus pays the additional 1 million. Is A subject to the 25% surcharge?
No. None of the violations mentioned was committed by the taxpayer.
Q: What is the nature of the fraud contemplated in the act of making a fraudulent return which would subject the taxpayer to a 50% surcharge?
In CIR V. AIR INDIA [JANUARY 29, 1988], the Supreme Court explained the fraud contemplated by the law in this way: It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of avoiding the tax.
Q: Taxpayer B filed and paid taxes on April 15, 2009 worth 5 million. On May 15, 2009, the BIR issued an assessment and required B to pay an additional 1 million on or before June 15, 2009. If B pays before June 15, 2009, is he subject to the 25% surcharge?
No. None of the violations mentioned was committed by the taxpayer.
Q: Taxpayer C did not file any return nor pay any taxes on April 15, 2009. On May 15, 2009, he realized he should have paid 6 million and thus pays the whole 6 million. Is he subject to the 25% surcharge?
Yes. Taxpayer C failed to file a return and pay the tax due thereon which is the first type of act which requires a 25% surcharge imposition.
Q: As a result of divergent rulings on whether he is subject to tax or not, the taxpayer failed to pay taxes on time. The CIR imposed surcharges and interests for such delay. The taxpayer invokes good faith. Is good faith a defense?
Yes. The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: Taxpayer D filed and paid taxes on April 15, 2009 worth 10 million. On May 15, 2009, the BIR issued an assessment and required D to pay an additional 5 million on or before

June 15, 2009. If D pays after June 15, 2009, is he subject to any surcharge?
Yes. Taxpayer D will be subject to the 50% surcharge since (a) he failed to pay within the time prescribed in the notice of assessment; and (b) the under declaration is 50% or in excess of the 30% threshold which raises the prima facie presumption of a false or fraudulent return. As such allegation is only prima facie, it may be rebutted.
from the date of notice and demand until it is paid (see Section 249, Tax Code)
Note: (1) For delinquency interest, it is important to note that the instances in which it is applied is the same as those enumerated under 25% surcharge except (b) filing with unauthorized officer. (2) Note that in deficiency interest, it is imposed on the deficiency not the amount of tax due. On the other hand, in delinquency interest, it is imposed on the tax due. Thus, it is an interest earning interest. (3) Interest on deficiency tax may be waived when the assessment is highly controversial as in the case of CAGAYAN ELECTRIC POWER & LIGHT CO. V. CIR [SEPTEMBER 25, 1985], where there was a withdrawal of its exemption from income tax and a subsequent reinstatement of such exemption. Thus, non-payment during the short time when the taxpayer was exempt was not subjected to interest payment. The deficiency interest should be computed from the date prescribed for the payment of the deficiency tax until full payment thereof. On the other hand, delinquency interest should be computed from the due date prescribed under the Assessment Notice until the full payment thereof. REPUBLIC CEMENT CORPORATION (AS SURVIVING CORPORATION IN A MERGER INVOLVING FR CEMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. 821, JULY 18, 2012) Deficiency interest and delinquency interest, having different nature for their existence, cannot be assailed as double imposition of interests as the law itself allows the simultaneous imposition of these two kinds of interests. Deficiency interest on any deficiency tax shall be assessed from the date prescribed for its payment until the full payment thereof; while the assessment of delinquency interest that is imposed upon failure to pay a deficiency tax, or any surcharge or interest thereon, shall be reckoned from the due date appearing in the notice and demand of the Commissioner until the amount is fully paid.TAKENAKA CORPORATION PHILIPPINE BRANCH, CTA EB CASE NO. 745 (CTA CASE NO. 7701), SEPTEMBER 4, 2012
--------------------------------------------------------------(d) Interest (1) In general (2) Deficiency interest (3) Delinquency interest (4) Interest on extended payment --------------------------------------------------------------Read Section 249, Tax Code Q: What are the types of interests collected under the Tax Code
1. In general there shall be assessed and collected any unpaid amount of tax, interest at the rate of 20% per annum or such higher rate as may be prescribed from the date prescribed for payment until fully paid 2. Deficiency interest any deficiency in the tax due shall be subject to 20% per annum 3. Delinquency interest the unpaid amount shall be subject to 20% per annum in case of: a. Failure to pay the amount of tax due on any return required to be filed b. Failure to pay the amount of tax due for which no return is required c. Failure to pay a deficiency tax or surcharge or interest thereon on the due date appearing on the notice and demand of the CIR 4. Interest on Extended Payments if any person is qualified and elects to pay installments but fails to pay the tax or any installment on or before the date prescribed, there shall be assessed and collected interest at the rate of 20% per annum on the tax or deficiency tax or part thereof unpaid PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
--------------------------------------------------------------(e) Compromise penalties --------------------------------------------------------------Note: I will discuss this fully later under Compromise and Abatement but note that in the two instances where the CIR may compromise payment of internal revenue taxes (doubtful validity of the assessment and financial incapacity), there is what you call a compromise penalty. A compromise penalty is the amount agreed upon between the taxpayer and the CIR to be paid as a penalty in cases of a compromise. For doubtful validity of the assessment, the minimum compromise rate is 40%. For other cases

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) (including financial incapacity), the minimum compromise rate is 10%.
See RR 12-99 [SEPTEMBER 6, 1999])
--------------------------------------------------------------(v) Assessment process (i) Tax audit (j) Notice of informal conference (k) Issuance of preliminary assessment notice (l) Exceptions to issuance of preliminary assessment notice (m) Reply to preliminary assessment notice (n) Issuance of formal letter of demand and assessment notice/final assessment notice (o) Disputed assessment (p) Administrative decision on a disputed assessment --------------------------------------------------------------Note: Lets simplify the discussion. Ill give you two versions of the assessment process: a simplified and an expanded version. I want you first to get an overview of the whole process first and then in the expanded version, we will discuss what happens in each step and other details.
1. The CIR or Revenue Regional Director (RD) issues a Letter of Authority (LA) to the Revenue Officer (RO) a. The LA must be served within 30 days from date of issuance. Otherwise, it shall become null and void. b. The LA is issued to the RO by the: i. CIR or his duly authorized representatives after a return has been filed or ii. Revenue Regional Director for all audit cases within his regional jurisdiction except in: (1) Cases involving civil or criminal tax fraud falling under the jurisdiction of the Tax Fraud Division of the Enforcement Service (2) Policy cases under audit by Special Teams in the National Office (RMO No. 36-99)
Note: (1) The Letter of Authority is the authority given to the revenue officer to perform assessment functions. There must be a grant of authority before any revenue officer can conduct an examination or assessment and the revenue officer must not go beyond the authority given [CIR v. SONY PHILIPPINES [NOVEMBER 17, 2010]. (2) A LA that was issued to cover an audit of unverified prior years is invalid. A LA should cover a taxable period not exceeding one taxable year. The practice of issuing LOAs covering audit of unverified prior years is prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods shall be specifically indicated. (see RMO 43-90 [SEPTEMBER 20, 1990]. In CIR V. SONY PHILIPPINES [NOVEMBER 17, 2010], a Letter of Authority was issued covering the period 1997 and unverified prior years. The deficiency VAT assessment was based on records from January to March 1998. The Supreme Court held that the CIR went beyond the scope of their authority as indicated in the LOA. Further, the fact that the LOA covers unverified prior years invalidates it and a VAT deficiency assessment made on the basis thereof must be disallowed. (3) Eh ano itong tinatawag na Letter Notice? A Letter Notice (LN) is a discrepancy notice issued by the CIR after conducting data matching processes, informing the taxpayer of findings of discrepancy. A LN covers only a tax indicated therein on a given particular period or quarter rd (e.g. VAT liabilities for 2002 3 quarter). It must be noted, however, that under RMC 40-2003 [JULY 7, 2003] and
Q: Enumerate the steps in the assessment process (simplified)

1. The CIR or Revenue Regional Director (RD) issues a Letter of Authority (LA) to the Revenue Officer (RO) 2. The RO conducts an Audit within 120 days from date of issuance and service of the LOA 3. RO sends Notice of Informal Conference (NIC) 4. Taxpayer responds within 15 days from receipt of NIC 5. The Assessment Division of the Revenue Regional Office or CIR or his duly authorized representative issues a Preliminary Assessment Notice 6. Taxpayer responds within 15 days from receipt of PAN via a Reply 7. The CIR or his duly authorized representative issues a Formal Letter of Demand and Assessment Notice (FAN) which may be objected to via Protest within 30 days from receipt of the FAN
Q: Enumerate the steps in the assessment process (expanded)


(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) RMO 55-2010 [JUNE 15, 2010], a LN shall be treated as a notice of audit or investigation in the absence of evident error or clear abuse of discretion. In order to expedite the processing of LN cases, the issuance of NICs may immediately commence, even without prior issuance of LOAs. Ano daw? Ito ibig sabihin: a LN is effectively equated to a LA.
Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted.
Note: Ano ba ang nangyayari sa Informal Conference? This is where youre given the chance to present your side. And of course, sasabihin mo ay tama ang binayad mo!
2. The RO conducts an Audit within 120 days from date of issuance and service of the LOA a. If the audit is not completed within the 120 day period, the LA is revalidated. b. If the RO finds: i. No deficiency, the audit ends ii. Any deficiency, the RO will inform the taxpayer and write in his report whether the taxpayer agrees with his findings: (1) If the taxpayer is amenable, the taxpayer pays the tax (2) If the taxpayer is not amendable, the RO shall state such fact in his report of investigation and submit the same to the RDO or by the Special Investigation Division (in case of the Revenue Regional Office) or by the Chief of Division (in the case of the BIR National Office). 3. RO sends Notice of Informal Conference (NIC) a. The taxpayer shall be informed, in writing, by the RDO or by the Special Investigation Division (in case of the Revenue Regional Office) or by the Chief of Division (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayers payment of his internal revenue taxes for the purpose of Informal Conference 4. Taxpayer responds within 15 days from receipt of NIC a. If the taxpayer responds within 15 days, there will be an Informal Conference b. If the taxpayer fails to reply, he shall be considered in default. The Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
5. The Assessment Division of the Revenue Regional Office or CIR or his duly authorized representative issues a Preliminary Assessment Notice a. If there is no sufficient basis to assess, dismissed. b. If there is sufficient basis to assess, a Preliminary Assessment Notice (PAN) shall be issued for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based c. A PAN is not required in the following instances i. Assessment is purely mathematical error ii. Excise tax on excisable article not paid iii. Discrepancy between tax withheld and remitted iv. Goods imported by tax-exempt entity are sold to a taxable entity v. Claim for refund is filed when it was previously carried over
Note: The PAN must be issued by the BIR before issuing the FAN and letter of demand. In CIR V. METRO STAR SUPERAMA [DECEMBER 8, 2010], where the taxpayer received only a FAN, the Supreme Court ruled that such amounted to a denial of due process. The taxpayer must be informed of the facts and law upon which the assessment is made. The law imposes a substantive, not merely a formal requirement. However, if you fall under the 5 exceptions, then you can go straight to the FAN. The issuance of Preliminary Assessment Notice is mandatory in tax assessments except in a few instances, specifically enumerated by law, where it is not required. COMMISSIONER OF INTERNAL REVENUE VS. UNIOIL CORPORATION, CTA EB CASE NO. 857, NOVEMBER 13, 2012 See LAURENCE LEE V. LUANG V. HON. SIXTO S. ESQUIVIAS IV [CTA CASE NO. 7967, JANUARY 5, 2102] where the CTA held that in the absence of proof that taxpayer received preliminary assessment notice, the assessment is void.

6. Taxpayer responds within 15 days from receipt of PAN via a Reply a. If the taxpayer fails to respond within 15 days, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
Note: (1) Failure to file a reply to the PAN will not bar the taxpayer from protesting the FAN. Why? The PAN is not the final assessment contemplated by the NIRC which can be protested. The only consequence of failure to file a reply to the PAN is that the taxpayer shall be considered in default and the BIR can now make a final assessment.
Supreme Court reiterated that the assessment must state the fact, the law, the rules and regulations or jurisprudence on which the assessment is based, otherwise the assessment shall be void (see also CIR V. METRO STAR SUPERAMA [DECEMBER 8, 2010] and CIR v. ENRON SUBIC POWER CORPORATION [JANUARY 19, 2009]; FLUOR DANIEL PHILIPPINES V. CIR [CTA CASE NO. 7793, APRIL 17, 2012]) (2) Remember the requisites of a valid assessment we discussed earlier. If the assessment does not have these requisites or, in other words, if the assessment is not valid, the implication is that the 30-day period allowed to the taxpayer in which to appeal to the CTA shall not begin to run. (3) The taxpayer or his duly authorized representative may protest administratively against the FAN within thirty (30) days from date of receipt thereof. Otherwise, the FAN will become final and executory. You can no longer appeal to the CTA. Lets now discuss the remedy of the taxpayer if youre given a FAN.
7. The CIR or his duly authorized representative issues a Formal Letter of Demand and Assessment Notice (FAN) which may be objected to via Protest within 30 days from receipt of the FAN a. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. b. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void c. The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand.
Note: (1) The requirement that the assessment must first sate the facts and the law on which the assessment is based is not merely a procedural requirement but a substantive requirement which determines the taxpayers ability to protest. Thus, the same must be complied with otherwise the assessment is void. Thus, assessment notices which only have computations are invalid. This is the reason why the new Tax Code provides that the taxpayer be informed and not merely notified. Given that this new rule benefits the taxpayer, the same may be applied retroactively (CIR V. AZUCENA REYES [JANUARY 27, 20 2006]. In CIR V. GONZALEZ [OCTOBER 13, 2010], the
--------------------------------------------------------------a) Protest (i) Protesting assessment (a) Protest of assessment by taxpayer (1) Protested assessment (2) When to file a protest (3) Forms of protest (4) Content and validity of protest (b) Submission of documents within 60 days from filing of protest (c) Effect of failure to protest (d) Period provided for the protest to be acted upon (ii) Rendition of decision by Commissioner (a) Denial of protest (1) Commissioners actions equivalent to denial of protest (a) Filing of criminal action against taxpayer (b) Issuing a warrant of distraint and levy (2) Inaction by Commissioner (iii) Remedies of taxpayer to action by Commissioner (a) In case of denial of protest
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Further, the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents
thereof which should inform the taxpayer of the declaration of deficiency tax.

(b) In case of inaction by Commissioner within 180 days from submission of documents (c) Effect of failure to appeal --------------------------------------------------------------Read Section 228, Tax Code
Note: First, Ill give you the overview of the steps in an administrative protest and then well go to the topics in the outline.
Q: Outline the steps in disputing an assessment starting from the filing of the return until the appeal to the Supreme Court.
1. Filing of the Return - period begins on date of filing or last day required by law, whichever is later) 2. Issuance of LA served to the taxpayer within 30 days from issuance 3. Audit within 120 days from date of receipt of LA by taxpayer 4. Notice of Informal Conference taxpayer submits explanation within 15 days from receipt of notice 21 5. Preliminary Assessment Notice (PAN) taxpayer submits reply within 15 days from receipt of notice 6. Final Assessment Notice 7. Taxpayer files protest within 30 days from receipt of FAN and Formal Notice of Demand 8. Relevant supporting documents submitted within 60 days from filing of letter of protest 9. CIRs denial of protest or inaction for 180 days 10. Appeal to CTA Division within 30 days from date of receipt of CIRs denial or from the lapse of 180 days of inaction counted from submission of documents to CIR. CTA Division has to decide the case within 30 days after submission for decision. Motion for Reconsideration or New Trial to CTA Division within 15 days from receipt of decision. 11. Appeal to CTA En Banc within 15 days from receipt of resolution. 12. Appeal to the SC within 15 days from receipt of resolution under Rule 45
--------------------------------------------------------------(i) Protesting assessment (a) Protest of assessment by taxpayer (1) Protested assessment (2) When to file a protest (3) Forms of protest (4) Content and validity of protest (b) Submission of documents within 60 days from filing of protest (c) Effect of failure to protest (d) Period provided for the protest to be acted upon ----------------------------------------------------------------------------------------------------------------------------(1) Protested assessment --------------------------------------------------------------Q: What is a protested assessment?
A protested assessment or a disputed assessment is where the taxpayer questions an assessment and asks the BIR to reconsider or cancel the same because he believes he is not liable therefor
--------------------------------------------------------------(2) When to file a protest --------------------------------------------------------------Q: When should a taxpayer file a protest with the CIR?
The taxpayer or his duly authorized representative may protest administratively against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. (see RR No. 1299)
Q: Is payment prior to protest required?

General Rule: no prior payment of assessed internal revenue tax is required when protested or disputed. Exception: If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency
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When PAN is not required, from filing of return, a final assessment notice will be issued.

tax, inclusive of the applicable surcharge and/or interest. No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues. (see RR No. 12-99)
Note: In contrast, payment prior to protest is required in real property taxes and customs duties.
(3) The period utilized for reinvestigation is deducted from the period within which to collect. (see REPUBLIC V. LOPEZ 22 [MARCH 30, 1963]) The running of the statute of limitations shall not be suspended or interrupted unless the taxpayers request for reinvestigation is acted upon by the Commissioner. BRAVO ALABANG, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8199, NOVEMBER 29, 2012
--------------------------------------------------------------(3) Forms of protest --------------------------------------------------------------Q: What are the two ways of protesting an assessment notice for an internal revenue tax? (Two forms of protest)
1. Request for Reconsideration refers to a plea for reevaluation 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 2. Request for Reinvestigation refers to a plea for reevaluation of an assessment on the basis of newly discovered evidence or additional evidence that a intends to present in the investigation. It may also involve a question of fact or law or both (see RR No. 12-85)
Q: What happens if the CIR does not consider or act upon the request for reinvestigation?
As there was no evidence that the request was considered or acted upon, it did not suspend the running of the period for filing an action for collection (see REPUBLIC V. ABECEDO [M ARCH 29, 1968]) In BPI v. CA [OCTOBER 17, 2005] as reiterated in BPI V. CA [M ARCH 17, 2008], the Supreme Court emphasized that the BIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations.
Q: What is the difference between a request for reinvestigation and a request for reconsideration for purposes of tolling the running of the prescriptive period?
It is the request for reinvestigation acted upon which suspends the prescriptive period to collect. A request for reconsideration does not toll the prescriptive period (see BPI V. CIR [OCTOBER 17, 2005]; CIR V. PHILIPPINE GLOBAL COMMUNICATIONS [OCTOBER 31, 2006])
Note: (1) The ruling in CIR V. CAPITOL SUBDIVISION [APRIL 30, 1964] to the effect that the prescriptive period to collect a deficiency tax is interrupted when there is a request for review or reconsideration is no longer controlling. (2) Why does a request for reinvestigation toll the running of the prescriptive period? Well, a reinvestigation will take more time because you need to receive and evaluate additional evidence.
Q: Can a taxpayer invoke the defense of prescription when he made repeated requests for reinvestigation and repeated requests for extension of time to pay?
No. As held explained by the Supreme Court in REPUBLIC V. ARCACHE [FEBRUARY 29, 1964]: W hile we may argue with the Court of Tax Appeals that a mere request for re-examination or re-investigation may not have the effect of suspending the running of the period of limitation for in such a case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has no previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government.
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Example: If the assessment was made on 1/1/2000 and the collection was made on 1/1/2006 but it was shown that from 1/1/2000 to 1/1/2003 or a period of 2 years that the assessment was being reinvestigated, the action to collect has not yet prescribed since deducting the 2 year period when reinvestigation was made will only amount to 4 years and is thus still within the 5 year period to collect.

--------------------------------------------------------------(4) Content and validity of protest --------------------------------------------------------------Q: What are the requirements for the validity of a taxpayers protest?
1. Must be in writing and addressed to the CIR 2. Must contain the information required, namely: a. Name of the taxpayer and address for the immediate past 3 taxable years b. Nature of the request, specifying the newly discovered evidence he intends to present c. Taxable periods covered by the assessment d. Amount and kind of tax involved and the assessment notice and number e. Date of receipt of 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 immediately upon filing of protest g. Itemized schedule of the adjustments to which the taxpayer does not agree 3. The taxpayer must not only show the errors of the BIR but also the correct computation through: a. A statement of the facts, the applicable law, rules and regulations, or jurisprudence on which the taxpayers protest is based. Otherwise, his protest shall be considered void and without force and effect. b. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable 4. It must be filed within the reglementary period of 30 days from receipt of the notice of assessment
Q: When must the taxpayer submit all relevant supporting documents?

Within 60 days from filing of protest, the taxpayer shall submit all relevant supporting documents.
Note: Relevant supporting documents should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, the taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit (CIR V. FIRST EXPRESS PAWNSHOP [JUNE 16, 2009]; CIR VS. LA SUERTE CIGAR AND CIGARETTE FACTORY, TELENGTAN BROTHERS AND SONS, INC., CTA EB CASE NO. 820 (CTA CASE NO. 7390) JUNE 11, 2012.
--------------------------------------------------------------(b) Effect of failure to protest --------------------------------------------------------------Q: What is the effect of failure to protest the FAN?
If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable.
--------------------------------------------------------------(c) Period provided for the protest to be acted upon --------------------------------------------------------------Q: What is the period for the CIR to act upon a valid protest against the FAN?
The CIR or his duly authorized representative may act on the taxpayers protest within 180 days from the date of submission by the taxpayer of the required documents in support of his protest
Note: The 30-day period to appeal set by Section 228 of the NIRC, as amended, should be reckoned from the lapse of the 180-day period for the BIR to act on the protest without any decision having been rendered and not from the date the taxpayer received the Final Demand and Assessment Notice (LA FLOR DELA ISABELA, INC. V. CIR [C.T.A. EB NO. 672, FEBRUARY 02, 2012])
--------------------------------------------------------------(a) Submission of documents within 60 days from filing of protest ---------------------------------------------------------------

--------------------------------------------------------------(iii) Remedies of taxpayer to action by Commissioner (a) In case of denial of protest (b) In case of inaction by Commissioner within 180 days from submission of documents (c) Effect of failure to appeal ----------------------------------------------------------------------------------------------------------------------------(a) In case of denial of protest --------------------------------------------------------------Q: What are the remedies of the taxpayer if the protest is denied?
1. Appeal to the CTA within 30 days from date of receipt of the said decision. Otherwise, the assessment becomes final, executory and demandable. 2. Instead of appealing to the CTA at once, the taxpayer may first opt to file a MR of the denial of the administrative protest with the CIR. If the MR is denied, the taxpayer may then appeal o the CTA, but only within the remaining period of the original 30-day period to appeal (if any) (see FISHWEALTH CANNING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [JANUARY 21, 2010])
Note: This is not an the MR being contemplated in FISHWEALTH CANNING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [JANUARY 21, 2010] which tolls the running of the period to appeal to the CTA.
Q: Enumerate some acts of the CIR that may be considered as denial of the taxpayers protest?
1. An indication to the taxpayer by the CIR in clear and unequivocal language of his final denial not the issuance of the warrant of distraint and levy. What is the subject of the appeal is the final decision not the warrant of distraint. (CIR v. Union Shopping [May 21, 1990]) 2. Filing by the BIR of a civil suit for collection of the deficiency tax is considered a denial of the request for reconsideration (CIR v. Union Shopping [May 21, 1990]) 3. Filing of criminal action against the taxpayer (Ibid) 4. A BIR demand letter sent to the taxpayer after his protest of the assessment notice is considered as the final decision of the CIR on the protest (Surigao Electric v. CTA [57 SCRA 523]) 5. A letter of the CIR reiterating to a taxpayer his previous demand to pay an assessment is considered a denial of the request for reconsideration or protest and is appealable to the CTA (CIR v. Ayala Securities [70 SCRA 204]) 6. Final notice before seizure considered as CIRs decision of taxpayers request for reconsideration who received no other response. (CIR v. Isabela Cultural Corp [July 11, 2001])
Q: Will a Motion for Reconsideration toll the

30 day period to appeal the denial of the protest of the FAN?
No. A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. (see FISHWEALTH CANNING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [JANUARY 21, 2010])
Q: What is the remedy of the taxpayer if it is the duly authorized representative of the CIR who denied the protest?
The taxpayer may elevate his protest to the CIR within 30 days from date of receipt of the final decision of the Commissioner's duly authorized representative since the latters decision is not be considered final, executory and demandable.
Q: The BIR issued a Formal Letter of Demand which stated The opinions promulgated by the Secretary of Justice are advisory in natureand any aggrieved party has the court for recourse. The taxpayer did not protest the assessment and instead filed a Petitioner for Review with the CTA. Is the taxpayer correct?
Yes. Estoppel is an exception to the doctrine of exhaustion of administrative remedies as when the wording of the Formal Letter of Demand with Assessment Notices led the taxpayer to believe that it was in fact a final decision of the CIR. The statement of the BIR led the taxpayer to believe that Page 77 of 164 Last Updated: 30 July 2013 (v3)

only a final judicial ruling in its favor would be accepted by the CIR (ALLIED BANK V. CIR [FEBRUARY 5, 2010].
--------------------------------------------------------------(b) In case of inaction by Commissioner within 180 days from submission of documents --------------------------------------------------------------Q: What happens if the protest is not acted upon within 180 days by the CIR?
1. File a petition for review with the CTA within 30 days after the expiration of the 180 day period 2. Await the final decision of the CIR on the disputed assessment and appeal such final decision to the CTA within 30 days after receipt of a copy of such decision (see CIR V. FIRST EXPRESS PAWNSHOP COMPANY, INC [JUNE 16, 2009]; RCBC V. CA [APRIL 24, 2007])
Director of the BIR for the reason that the case was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of Section 228 of the Tax Code. By virtue thereof, the said assessment notice has become final, executor and demandable. HELD: The Supreme Court held that it is not correct to say that the assessment became final and executory by the sole reason that the taxpayer failed to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period because in effect, it limited the remedy of the taxpayer under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period.
--------------------------------------------------------------(a) Effect of failure to appeal --------------------------------------------------------------Q: What is the effect of the failure of the taxpayer to appeal the denial of the protest by the CIR to the CTA in due time?
Failure of the taxpayers to appeal to the CTA in due time make the assessments in question, final, executory and demandable. (see DAYRIT V. CRUZ 23 [SEPTEMBER 26, 1988]). Taxpayers failure to file a petition for review with the CTA within the statutory period renders the disputed assessment final, executory and demandable. PHILIPPINE DREAM COMPANY, INC. VS. BUREAU OF INTERNAL REVENUE, CTA CASE NO. 7700, DECEMBER 06, 2012
Q: If a taxpayer files out of time his petition for review with the CTA, can he wait for the final decision of the CIR and then appeal the same to the CTA?
No. After availing of the first option (filing of the petition for review) which was however filed out of time, a taxpayer cannot successfully resort to the second option (await final decision and appeal the same to the CTA) on the pretext that there is yet no final decision on the disputed assessment because of the CIRs inaction. (see also LASCONA LAND V. CIR [M ARCH 5, 2012])
Q: Will the failure of the taxpayer to appeal the inaction result in the finality of the FAN?
No. The failure of the taxpayer to appeal the inaction on the disputed assessment by the CIR or his representative within 30 days after the lapse of 30 days from the submission of supporting documents will not result in the finality of the FAN (see RCBC V. CA [APRIL 24, 2007])
LASCONA LAND CO. V. CIR, G.R. NO. 171251, MARCH 5, 2012

DOCTRINE: Under Section 228, in case of the inaction of the CIR on the protested assessment, the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days from the receipt of a copy of such decision. FACTS: Taxpayer filed a letter protest against the Assessment Notice issued alleging deficiency income tax for the year 1993. The protest was denied by the Regional
Q: Is the requirement that the appeal of the decision of the CIR to the CTA be brought within 30 days jurisdictional?
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The Court also stated that a suit for collection of internal revenue taxes where the assessment has already become final and executory is akin to an action to enforce judgment.

In RCBC V. CIR [JUNE 16, 2006], the Supreme Court held that while the right to appeal a decision of the CIR to the CTA is merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply may be raised in a motion to dismiss.
Note: From here on, you will notice that I have already deviated from the order in the bar syllabus. Ill integrate the discussion of Collection and Government Remedies as they are closely related. In fact, the government remedies are meant to ensure collection, But before that, I want to dispose of the topic of injunctions. This is just a review. We already discussed this in General Principles.
b) Collection (i) Requisites (ii) Prescriptive periods --------------------------------------------------------------Read Section 203, 222-223, Tax Code Q: What are the requisites for the collection of taxes?
We must make a distinction between delinquency tax and deficiency tax. 1. Delinquency tax can be immediately collected administratively through issuance of a warrant of distraint or levy and/or through judicial action (see Section 205, Tax Code) 2. Deficiency tax can be collected also through administrative and/or judicial remedies but has to go through the process of filing the protest by the taxpayer against the assessment and the denial of such protest by the CIR.
--------------------------------------------------------------(v) Non-availability of injunction to restraint collection of tax --------------------------------------------------------------Read Section 218, Tax Code Q: Can an injunction be issued to restrain the collection of any internal revenue tax, fee or charge?
General Rule: No court can issued an injunction, as provided under Section 218, Tax Code. Exception: Section 11, RA 9282 provides that an injunction may be issued by the CTA to restrain the collection of taxes when in the opinion of the Court the collection may jeopardize the interest of the Government and/or the taxpayer, the Court 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 with the Court.
Note: (1) TROs and injunctions issued by courts other than the CTA against the BIR should be annulled and cancelled for lack of jurisdiction [see RMO 042-10 [MAY 4, 2010].) (2) As held in ANGELES CITY V. ANGELES ELECTRIC CORPORATION [JUNE 29, 2010], 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. However, the Supreme Court noted that such injunctions enjoining the collection of local taxes are frowned upon.
Q: When may collection of taxes be made? It may be made within 5 years from assessment Q: Summarize the prescriptive periods for the collection of taxes.
No ITR, False ITR, Fraudulent ITR Collection w/ prior assessment Assess within 3 years Assess within 10 years from actual filing or last from discovery of fraud, day to file, whichever is falsity or omission later Collect within 5 years Collection within 5 years from date of assessment from date of assessment 24 by summary or judicial by summary or judicial Collection w/o prior assessment This cannot be done Collection within 10 anymore because there years from date of must be an assessment discovery of the falsity, before collection in the fraud, omission by Regular ITR
24
--------------------------------------------------------------PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
The rule is to the effect that once there is already an assessment, the period to collect is always 5 years even if the return is fraudulent, false, or was not filed.

case of a regular ITR
judicial only.
proceedings
Note: We already discussed this in assessment.
Note: Apparently, there is a conflict as to the proper prescriptive period for collecting taxes when a return was filed by the taxpayer and such return is not false or fraudulent. Domondon says it is 3 years. Sababan, Mamalateo, and Dimaampao says that it is 5 years. Gruba and Montero adhere to this view. 5 years, it is then! Majority wins.
Q: A tax was assessed in September 27, 1999. The CIR filed a suit to collect deficiency taxes in December 27, 2009. The CIR claims that there was a waiver of the 5year prescriptive period and presented a waiver dated December 17, 2005. Is the waiver valid?
No. As held in REPUBLIC V. ABECEDO [M ARCH 29, 1968], the waiver must be executed within the 5 year period. A waiver executed beyond the five-year limitation is in effective and, as such, the CIR can no longer revive the right of action.
Q: What are the alternatives of the CIR in cases of a false, fraudulent return or the failure to file a return in terms of collection?
As held in REPUBLIC V. RET [M ARCH 31, 1962], CIR has two alternatives:
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the
1. Assess the tax within 10 years from the discovery of the falsity, fraud or failure and then collect within 5 years by judicial or summary proceedings 2. Do not assess and instead collect the tax without assessment within 10 years from the discovery of the falsity, fraud or failure by judicial proceedings only. Thus, when there is an assessment, the 10 year period to collect from discovery of falsity, fraud, and failure is not applicable.
Q: What is effect of the failure of the waiver to bear the written consent of the CIR?
In CIR V. CA [FEBRUARY 25, 1999], the Supreme Court reiterated that waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. Hence, a waiver which does not have the consent of the CIR is invalid and without any binding effect.
Q: How should the waiver be construed when the specified period in the waiver refers to both assessment and collection?
If the waiver refers to both assessment and collection and interpreting such will in effect shorten the collection period, then such waiver is deemed to refer to assessment only and not collection (see REPUBLIC V. LIM DE YU APRIL 30, 1964])
Q: The CIR maintains that the prescription of his right to collect the amount of deficiency taxes is governed by Article 1145 of the Civil Code, which gives him 6 years. Is the CIR correct?
No. As held in GUAGUA ELECTRIC LIGHT COMPANY V. CIR [APRIL 24, 1967], the right to assess and collect is governed by the Tax Code and not by Article 1145 of the Civil Code. A special law (Tax Code) shall prevail over a general law (Civil Code).
Q: Can a letter of demand be deemed an assessment such that the 5-year period for collection shall commence from the time such letter was sent?
Yes. In REPUBLIC V. LIMACO & DE GUZMAN [AUGUST 31, 1962], the Supreme Court held that a letter of demand should be deemed an assessment if it declares and fizes th tax to be payable against the party liable thereto and demands the settlement thereof. Hence, the 5-year period for collection of the tax due should commence anew from time said letter of demand was sent to the taxpayer.
Q: Can the prescriptive period to collect be waived?

Yes, provided the requirements of a valid waiver as provided for in RMO No. 20-90 are present.
25
In the said case, the Supreme Court noted that Section 332 (no w Section 222) does not apply in the collection of income taxes by summary proceedings. But when the collection of income taxes is to be effected by court action, the provision is controlling.

Q: What is the effect of pendency of appeal on the running of the prescriptive period?
Under SECTION 223 OF THE TAX CODE, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the CIR is prohibited from beginning a distraint or levy or instituting a proceeding in court and for 60 days thereafter. In REPUBLIC V. KER & CO. [SEPTEMBER 29, 1966], the Supreme Court held that the pendency of a taxpayers appeal has the effect of temporarily staying the hands of the CIR. The running of the prescriptive period is suspended. In PROTECTORS SERVICES V. CA [APRIL 12, 2000], the Supreme Court held that the act of a taxpayer in filing a petition before the CTA to prevent the collection of the assessed deficiency tax and in elevating the case to the Supreme Court for review after the CTA dismissed the petition suspended the running of the statute of limitations.
No. In VERA V. FERNANDEZ [M ARCH 30, 1979], the Supreme Court held that claims for taxes are collectible even after distribution of decedents estate among his heirs who are liable in proportion of their share in the inheritance to the payment of taxes. Claims for taxes against the estate are excepted from the statute of non-claims and are not barred forever.
Q: An informer filed a case with the CTA against the taxpayer and BIR. The informer was seeking to (1) declare the taxpayer as having an assessment; and (2) as a consequence, to collect his informers reward. This case was filed by the informer within 3 years from the time that the taxpayer filed his return. However, apart from this action initiated by the informer, no other action was filed by the government seeking to collect against the taxpayer. Has the right to collect already prescribed?
No. In PNOC V. CA [APRIL 26, 2005], the Supreme Court held that the BIR is deemed to be compliant with the requirement that collection be made within the 5 years from time of assessment since if the informant won, the CTA would have ordered the erring parties to pay the tax. At the very least, the filing by the informer of the case would have suspended the running of the period because the BIR is prohibited from making collection because there was a pending case.
Q: Is the government barred by prescription from claiming deficiency taxes against an estate?
--------------------------------------------------------------2. Government Remedies a) Administrative Remedies (i) Tax lien (ii) Compromise and Abatement (a) Authority of the Commissioner to compromise and abate taxes (b) Compromise (c) Abatement (iii) Distraint of personal property including garnishment (a) Summary remedy of distraint of personal property (1) Purchase by the government at sale upon distraint (2) Report of sale to the BIR (3) Constructive distraint to protect the interest of the government (iv) Summary remedy of levy on real property (1) Advertisement and sale (2) Redemption of property sold (3) Final deed of purchaser (v) Forfeiture to government for want of bidder (a) Remedy of enforcement of forfeitures (1) Action to contest forfeiture of chattel (b) Resale of real estate taken for taxes (c) When property to be sold or destroyed (d) Disposition of funds recovered in legal proceedings or obtained from forfeiture (vi) Further distraint or levy (vii) Suspension of business operation (viii) Statutory offenses and penalties

b) Judicial Remedies (i) Civil and criminal actions (a) Suit to recover tax based on false and fraudulent returns --------------------------------------------------------------Read Section 205, Tax Code Q: What are the remedies of the government for the collection of taxes?
1. Administrative Remedies a. Tax lien b. Distraint of personal property, or levy of real property or garnishment of bank deposits c. Sale of property d. Forfeiture e. Compromise and abatement f. Penalties and fines; g. Suspension of business operations 2. Judicial Remedies a. Civil action b. Criminal action
predicated on a tax lien is superior to the claim of a private litigant predicted on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax had become due and payable. In both cases, the distraint was made long before the writ of execution was issued to implement the levy on execution.
--------------------------------------------------------------(ii) Compromise and Abatement (a) Authority of the Commissioner to compromise and abate taxes (b) Compromise (c) Abatement --------------------------------------------------------------Read Section 204, Tax Code --------------------------------------------------------------(b) Compromise --------------------------------------------------------------Q: What is a compromise?
A compromise is an agreement whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced (see ART. 2208, CIVIL CODE)
--------------------------------------------------------------(i) Tax lien --------------------------------------------------------------Read Section 219, Tax Code Q: What is a tax lien?
It is a legal claim or charge on property, real or personal, established by law as security in default of the payment of tax (HSBC v. Rafferty [39 Phil. 105])
Q: Who may compromise tax liability?

The CIR is the only official vested with the power and discretion to compromise civil and criminal cases arising from violations of the Tax Code. He cannot be compelled to exercise such discretion. However, the Regional Evaluation Board may enter into a compromise on: a. Assessment issued by the Regional Officers involving basic deficiency taxes of P500,000 or less; and b. Minor criminal violations, discovered by regional and district (See Section 7(c), Tax Code)
Q: The CIR served a warrant of distraint over four barges owned by ABC Company to satisfy various deficiency taxes. Later, the same four barges were levied upon execution to satisfy a judgment for unpaid wages and other benefits of the employees of ABC Company. Which claim is superior?
The claim of the government is superior. As held in CIR v. NLRC [November 9, 1994] reiterating the doctrine laid down in REPUBLIC V. ENRIQUEZ [OCTOBER 21, 1988], the claim of the government PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: Can a compromise be made after final judgment?

No. In Rovero v. Amparo [May 5, 1952], the Supreme Court stressed that a compromise is resorted to, to avoid litigation or to end a suit already instituted. There can no longer be a compromise at Page 82 of 164 Last Updated: 30 July 2013 (v3)

a stage of judicial proceedings where a final judgment has already been rendered because there is nothing to compromise as the Government has definitely and finally won the litigation.
Q: What are the grounds for the compromise of payment of internal revenue taxes?
1. Doubtful validity of the assessment 2. Financial incapacity
Note: Refer to RR 30-2002 [December 16, 2002] for the instances where the tax can be compromised under these two grounds.
be handled by the Regional Evaluation Board or the National Evaluation Board on a case-to-case basis 5. Cases which become final and executory after final judgment of a court where compromise is requested on the ground of financial incapacity of the taxpayer
(See Section 2, RR No. 30-2002)
Q: What tax cases may or may not be the subject of a compromise?

Subject to compromise Not subject compromise to
Q: What are the minimum amounts for compromise settlements?

1. For cases of financial incapacity, the minimum compromise rate is 10% of the basis assessed tax. 2. For other cases (including doubtful validity), the minimum compromise rate is 40% of the basic assessed tax.
1. Delinquent accounts 2. Cases under administrative protest after issuance of the FAN to the taxpayer which are still pending in the RO, RDO, Legal Service, Large Taxpayer Service, Collection Service, Enforcement Service and other officers of the National Office 3. Civil tax cases being disputed before the courts 4. Collection cases filed in courts 5. Criminal violations other than those already filed in court or those involving criminal tax fraud
1. Withholding tax cases unless the applicanttaxpayer invokes provisions of law that cast doubt on the taxpayers obligation to withhold 2. Criminal tax fraud cases confirmed as such by the CIR or his duly-authorized representative 3. Delinquent accounts with duly approved schedule of installment payments 4. Cases where the final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall
Q: Can the compromise offer of a taxpayer be lower than the prescribed rates?
Yes, but the approval by the Evaluation Board which is composed of the CIR and the 4 Deputy Commissioners is required.
Note: The Evaluation Board must also approve the compromise if the basic tax involved exceeds P1 million.
Q: Can a void assessment serve as basis for a compromise?

No. As held in CIR V. REYES [JANUARY 27, 2006], the Supreme Court reiterated that an assessment that fails to inform the taxpayer of the law and the facts on which it is made is void. As a corollary, a void assessment cannot in turn be used as basis for perfection of a tax compromise.
Q: Can criminal violations of the Tax Code be compromised?

Yes, except: a. those already filed in court and b. those involving fraud. Page 83 of 164 Last Updated: 30 July 2013 (v3)

--------------------------------------------------------------(a) Abatement --------------------------------------------------------------Q: What is abatement?

An abatement is a diminution or decrease in the amount of tax imposed such that to abate is to nullify or reduce in value or amount.
Q: How is it different from a compromise?

A compromise is marked by mutual concessions, whereas in abatement or cancellation, no mutual concessions between the taxpayer and the CIR are made (see PEOPLE V. SANDIGANBAYAN [AUGUST 16, 2005].
(a) Remedy of enforcement of forfeitures (2) Action to contest forfeiture of chattel (b) Resale of real estate taken for taxes (c) When property to be sold or destroyed (d) Disposition of funds recovered in legal proceedings or obtained from forfeiture (xi) Further distraint or levy --------------------------------------------------------------Q: What are the requisites for a valid distraint and levy? 1. The taxpayer must be delinquent 2. There must be a subsequent demand for its payment 3. The taxpayer must fail to pay the delinquent tax at the time required 4. The period within which to collect the tax has not yet prescribed Read Section 206, Tax Code Q: In what instances can the CIR place under constructive distraint26 the property of a taxpayer?
1. Delinquent taxpayer 2. Taxpayer is retiring from any business subject to tax 3. Taxpayer is intending to leave the Philippines 4. Taxpayer is intending to remove his property therefrom 5. Taxpayer is intending to hide or conceal his property 6. Taxpayer is intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him
Q: What are the grounds for abatement?

1. If the assessment is excessive or erroneous 2. If the administration costs involved do not justify the collection of the amount due
Note: Refer to RR 13-2001 [September 27, 2001] for the instances where the tax can be compromised under these two grounds. Note that RR 13-2001 was amended by RR 4-2012 [March 28, 2012]. Previously, one of the instances is when there is late payment of the tax under meritorious circumstances. One day late filing and remittance due to failure to beat bank cut-off time fall under this instance in RR 13-2001. RR 4-2012 deleted the same.
--------------------------------------------------------------(iii) Distraint of personal property including garnishment (b)Summary remedy of distraint of personal property (1) Purchase by the government at sale upon distraint (2) Report of sale to the BIR (3) Constructive distraint to protect the interest of the government (ix) Summary remedy of levy on real property (1) Advertisement and sale (2) Redemption of property sold (3) Final deed of purchaser (x) Forfeiture to government for want of bidder
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In a constructive distraint, the taxpayer or any person having possession or control of the property will sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispute the same without authority from the CIR.

Read 207 to 217, Tax Code

Note: After reading the codal (that is, if you read it), I am sure youre thinking: WTF is this shit? Do not worry. Let us simplify the discussion of Distraint and Levy. First, let us go through some definitions. Distraint is the seizure by the government of personal property, tangible, or intangible, to enforce the payment of taxes, to be followed by its public sale, if the taxes are not voluntary paid. Garnishment is the taking of personal properties usually cash or sums of money owned by the delinquent taxpayer which is in the possession of a third party. A levy refers to the seizure of real properties and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer. Magagamit niyo yang definitions na yan later sa local taxes and sa RPT (Oo, may distraint and levy rin dun). Now, lets discuss the whole procedure from Section 207 to Section 217 of the Tax Code.
Note: The next steps will depend if the Bid is less than amount of tax/ FMV of goods distrained.
Bid less than amount of tax/FMV of goods distrained 7. Commissioner may purchase property for the National Government (Section 212, Tax Code) 8. Property may be resold and the net proceeds shall be remitted to the National Treasury as internal revenue. (Section 212, Tax Code)
Bid equal or more than amount of tax/FMV of goods distrained 7. Officer sells the goods to the highest bidder for cash or with the Commissioners approval, through commodity/ stock exchanges. (Section 209, Tax Code) 8. Excess of proceeds over the entire claim, shall be returned to the owner. No charge shall be imposed for the services of the officer (Section 209, Tax Code) 9. Within 2 days after the sale, officer shall report to the Commissioner. (Section 211, Tax Code) 10. Within 5 days after sale, distraining officer shall enter return of proceedings in the records of RCO, RDO and RRD (Section 213, Tax Code)
not his the on
Q: Outline the procedure for distraint of personal property

Note: Take note of the following - RCO - Revenue Collection Officer, RDO - Revenue District officer, RRD Revenue Regional Director, and LGU- Local Government Unit
1.
Person owing any delinquent tax to fails to pay w/in the time required
Note: The authority who will do the distraint of personal property will depend on whether the delinquent tax is more than Php 1 million.
More than million 2.
Php
Php 1 million or less
Commissioner seizes sufficient personal property to satisfy the tax, charge & expenses of seizure (Section 207 (A), Tax Code)
2.
RDO seizes sufficient personal property to satisfy the tax, charges & expenses of seizure (Sec. 207 (A), Tax Code)
3. 4.
5. 6.
Distraining Officer accounts for the goods distrained (Section 208, Tax Code) RDO posts notice in at least 2 public places in the municipality/city where the distraint is made. One place of posting must be at the mayors office. Time of sale shall not be less than 20 days after the notice (Section 209, Tax Code) Goods shall be restored to owner, if charges are paid (Section 210, Tax Code) Officer conducts public auction
Note: If the personal property of the taxpayer is sufficient to satisfy his tax delinquency, the CIR or authorized representative shall, within 30 days after execution of the distraint, proceed with the levy taxpayers real property. (Section 209(B), Tax Code)

Q: Outline the procedure for levy on real property.

1. Real property may be levied on before, simultaneously, or after the distraint of personal property (Section 207 (B), Tax Code) 2. Internal revenue officer, designated by the Commissioner, shall prepare a certificate with the force of a nationwide legal execution (Section 207 B, Tax Code) 3. Levy shall be affected by writing upon said certificate a description of the property. Notice of the levy shall be served upon the Register of Deeds of LGU where the property is located and upon the owner (Section 207 B, Tax Code) 4. Within 10 days after receipt of the warrant, levying officer shall report to the Commissioner who shall have the authority to lift the warrant of levy (Section 207 B, Tax Code) 5. Within 20 days after levy, officer shall post notice at the main entrance of the municipal/city hall & in public place in the barrio/district where the real estate lies for at least 30 days by and publish it once a week for 3 weeks. Owner may prevent sale by paying all charges (Section 213, Tax Code) 6. Sale shall be held at the main entrance of the municipal/city hall, or on the premises of the levied property. (Section 213, Tax Code)
Note: The next steps will depend if there is a bidder or not OR the highest bid is sufficient or not.
redeem said property by paying full amount of the taxes and charges (Section 215, Tax Code) 10. The Commissioner may, after 20 days notice, sell property at public auction or at private sale with approval of the Secretary of Finance. Proceeds shall be deposited with the National Treasury (Section 216, Tax Code)
the foreclosed asset of natural persons and the period within which to pay CGT or CWT and DST on the foreclosure of Real Estate Mortgage shall be reckoned from the date of registration of the sale in the Office of the Register of Deeds For juridical persons in an extrajudicial foreclosure, Section 47 of the General Banking Law provides that its right of redemption shall be until, but not after the registration of the certificate of sale with the Register of Deeds, which in no case shall be more than 3 months after foreclosure, whichever is earlier. (RMC No. 55-2011 [November 10, 2011]) The right of redemption shall be reckoned from the approval of the executive judge [CIR v. UPCB [October 23, 2009])
No bidder or highest There is a bidder or bid insufficient highest bid sufficient

7. Officer conducting the sale shall forfeit the property to the Government (Section 215, Tax Code) 8. Within 2 days, he shall make a return of the forfeiture. Register of Deeds, upon registration of forfeiture shall transfer title to the Government without court order. (Section 215, Tax Code) 9. Within 1 year from forfeiture, the taxpayer, may 7. Excess of proceeds of the sale over claim and cost of sale shall be turned over to the owner (Section 213, Tax Code) 8. Within 5 days after the sale, levying officer shall enter return of the proceedings upon the records of the RCO, RDO and RRD (Section 213, Tax Code)
Note: The 1-year period on
9. Within 1 year from sale, the owner may redeem, by paying to the RDO the amount of the taxes, penalties, and interest thereon from the date of delinquency to the date of sale, and 15% per annum interest on purchase price from the date of purchase to the date of redemption. (Section 214, Tax Code) 10. Owner shall not be deprived of the possession and shall be entitled to the fruits until 1 year expires (Section 214, Tax Code)

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) Note: Levy and distraint may be repeated until the full amount due, and all expenses are collected. (Section 217, Tax Code)
2. By filing an answer to the petition for review filed by the taxpayer with the CTA Q: Which court has exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties?
1. The CTA if the principal amount of taxes and fees, exclusive of charge and penalties is Php 1 million and above. 2. The proper MTC or RTC if the principal amount of taxes and fees, exclusive of charge and penalties, is less than Php 1 million.
--------------------------------------------------------------(xii) Suspension of business operation --------------------------------------------------------------Read Section 115, Tax Code Q: When may the CIR suspend the business operation of a VAT-registered person?
The CIR or his authorized representative may suspend the business operation and temporarily close the business of a VAT-registered person for understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter
Note: The duration of the suspension of business operation is for a period of not less than 5 days and shall be lifted only upon compliance of whatever requirements imposed by the CIR in the collection order.
Q: Assuming that the principal amount of taxes and fees is less than Php 1 million, can the lower court acquire jurisdiction over a a tax collection case while there is a pending case in the CTA disputing the assessment?
No. As held in YABES V. FLOJO [JULY 20, 1982], the Supreme Court held that the lower court can acquire jurisdiction over a claim for collection of deficiency taxes only after the assessment made by the CIR has become final and unappealable, not where there is still a pending CTA case.
--------------------------------------------------------------(iv) Statutory offenses and penalties --------------------------------------------------------------Note: I already discussed civil penalties or surcharges and interests in Assessment. As to statutory offenses, I will include them in the discussion of criminal action.
--------------------------------------------------------------b) Judicial Remedies (i) Civil and criminal actions (b) Suit to recover tax based on false and fraudulent returns --------------------------------------------------------------Read Section 220-221, Tax Code Civil Actions Q: What are the two ways by which the civil tax liability of a taxpayer is enforced by the government through civil actions? 1. By filing a civil case for the collection of a sum of money with the proper regular court
Q: When an assessment has become final for failure to protest, can the taxpayer still raise the issue of prescription?
Yes. As held in CIR V. HAMBRECHT & QUIST PHILIPPINES [NOVEMBER 17, 2010], the Supreme Court held that the fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or the correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed.
Q: Is a decision on a request for reinvestigation a condition precedent to the filing of an action of taxes already assessed?

No. In REPUBLIC V. LIM TIAN TENG SONGS & CO [M ARCH 31, 1966], the Supreme Court ruled that a decision on a request for reinvestigation is not a condition precedent to the filing of an action of taxes already assessed. Nowhere in the Tax Code is the CIR required to rule first on a taxpayers request for reconsideration before he can go to court for the purpose of collecting the tax assessed. The requirement to rule on disputed assessments before bringing action for collection is applicable only on where the assessment was actually disputed, adducing reasons in support thereto. In this case, the taxpayer did not actually contest the assessment by stating the basis thereof. (see DAYRIT V. CRUZ [SEPTEMBER 26, 1988])
Q: Define willful in the context of the third element of a violation of the Tax Code for failure to make or file the return?
In PEOPLE V. KINTANAR [CTA CRIM. CASE NO. 006, DECEMBER 3, 2010, affirmed by the Supreme Court in a minute resolution [G.R. 196340] dated February 2012], the Supreme Court defined willful in this light: willful in the tax crimes statutes means voluntary, intentional violation of a known legal duty, and bad faith or bad purpose need not be shown. Further, the Supreme Court stated that an act or omission is "willfully" done if done voluntarily and intentionally and with specific intent to do something the law forbids, or with specific intent to fail to do something the law requires to be done; that is, with bad purpose to either disobey or disregard the law. A willful act may be described as one done intentionally, knowingly and purposely, without justifiable excuse. As held in PEOPLE OF THE PHILIPPINES VS. JUDY ANNE SANTOS Y LUMAGUI [CTA CRIM. CASE NO. O-012, JANUARY 16, 2012], the element of wilful failure to supply correct and accurate information must be fully established as a positive act or stale of mind. It cannot be presumed nor attributed to mere inadvertent or negligent acts. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. Fraud must amount to intentional wrongdoing with the sole object of avoiding the tax.
Criminal Actions Q: Name the most common punishable under the Tax Code? Read Section 254-255, Tax Code crimes
1. Attempt to evade or defeat tax (Section 254) 2. Failure to File return, supply correct and accurate information, pay tax, withhold and remit tax, and refund excess taxes withheld on consumption (Section 255)
Note: As to other statutory offenses, refer to Sections 253 to 282.
Q: What are the elements of a violation of Section 255 of the Tax Code for failure to make or file a return?
1. The accused is a person required to make or file a return 2. The accused failed to make or file the return at the time required by law 3. The failure to make or file the return was willful
(see PEOPLE V. KINTANAR [CTA CRIM. CASE NO. 006, DECEMBER 3, 2010]; PEOPLE OF THE PHILIPPINES VS. JUDY ANNE SANTOS Y LUMAGUI [CTA CRIM. CASE NO. O-012, JANUARY 16, 2012])
Q: What are the elements of a violation of Section 255 in relation to Sections 253(d) and 256 of the Tax Code for failure of a corporation to make or file a return (holding the corporate officers criminally liable)?
1. The corporate taxpayer is required to pay tax and it failed to pay such tax at the time required by law; 2. The accused is the president, general manager, branch manager, treasurer, officer-in-charge, or employee responsible for the violation of the corporate taxpayer; and 3. The accused willfully fails to pay the corporate taxes. (PEOPLE OF THE PHILIPPINES VS.JOSEPH TYPINGCO [CTA CRIM. CASE NO. 0-114, M AY 16, 2012]

Q: Which court has exclusive original jurisdiction in criminal tax cases?

1. The CTA if the principal amount of taxes and fees, exclusive of charge and penalties is Php 1 million and above. 2. The proper MTC or RTC if the principal amount of taxes and fees, exclusive of charge and penalties, is less than Php 1 million.
assessment is not necessary before a criminal charge can be filed and such criminal charge need only be supported by a prima facie showing of failure 27 to file a required return. This was likewise reiterated in Adamson v. CA [May 21, 2009] where the Court held that there is no need for precise computation and formal assessment in order for criminal complaints can be filed against the taxpayer. An assessment is not necessary for a criminal prosecution for willful attempt to defeat and evade the income tax.
Note: However, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a willfull attempt to evade taxes (CIR v. Fortune Tobacco [June 4, 1996])
Q: Does the acquittal of the taxpayer from the criminal action affect his liability to pay the tax?
No. In REPUBLIC V. PATANAO [JULY 21, 1967], the Supreme Court held that since the taxpayers civil liability is not included in the criminal action, his acquittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay taxes. His legal duty to pay taxes cannot be affected by his attempt to evade taxes. Said obligation is not a consequence of the criminal act charged nor is it a mere civil liability arising from a crime that could be wiped out by judicial declaration of non-existence of the criminal acts charged.
Q: Is the filing of the criminal action an implied assessment?

No. The filing of a criminal action is not an implied assessment. An assessment contains not only a computation of tax liabilities but also a demand for payment within the prescribed period. An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to the criminal complaint for tax evasion cannot be deemed an assessment that can be questioned before the CTA (CIR v. Pascor Realty [June 29, 1999])
Q: Should the filing of a criminal complaint be preceded by assessment?

No. In case of a false or fraudulent return, proceedings in court may be commenced without an assessment since under the Tax Code, civil and criminal aspects may be pursued In UNGAB V. CUSI [M AY 30, 1980]the Supreme Court held that while there can be no civil action to enforce collection before the assessment procedures provided in the Tax Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Tax Code. This was clarified further in CIR V. PASCOR REALTY AND DEVELOPMENT CORP. [JUNE 29, 1999], the taxpayer argued that a tax assessment should precede a criminal indictment. The Supreme Court disagreed. The Court noted that Section 222 of the Tax Code specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file return, proceedings in court may be commenced without an assessment. Further, Section 205 provides that the civil and criminal aspects may be pursued simultaneously. An PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: What is the effect of satisfaction of the civil liability to the criminal liability in tax cases? The subsequent satisfaction of civil liability by payment or prescription does not extinguish the taxpayers criminal liability. Q: Can subsidiary imprisonment be imposed on the tax which the taxpayer is sentences to pay?
It depends. Subsidiary imprisonment cannot be imposed in case of insolvency on the part of the taxpayer but it may be imposed in the case of failure to pay the fine imposed (see Section 280, Tax Code)
27
The Court also stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

Read Section 281, Tax Code Q: What is the prescriptive period for violations of the Tax Code?
All violations of any provision of the Tax Code shall prescribe after 5 years.
already pending or previously investigated
Q: Who are disqualified from availing of the informers reward?

1. A BIR official or employee or any other incumbent public official or employee; 2. Relative within the sixth (6th) civil degree of consanguinity of a BIR official or employee, or other public official or employee; and 3. Though already retired or otherwise separated from service, BIR officials or employees or other public officials who acquired the information in the course of the performance of their duties during their incumbency. (see RR 16-2010 [NOVEMBER 25, 2010])
Note: Now, lets discuss another remedy of the taxpayer Refunds.
Q: When does the prescriptive period begin?

Prescription shall begin to run from: 1. The day of the commission of the violation 2. If the same is not known, from the discovery and the institution of judicial proceedings for its investigation and punishment.
Note: In LIM, SR. V. CA [OCTOBER 18, 1990], the Supreme Court adopted the view of the Solicitor General to the effect that, in addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins. Also,
--------------------------------------------------------------b) Refund (i) Grounds and Requisites for refund (ii) Requirements for refund as laid down by cases (a) Necessity of written claim for refund (b) Claim containing a categorical demand for reimbursement (c) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause (iii) Legal basis of tax refunds (iv) Statutory basis for tax refund under the Tax Code (a) Scope of claims for refund (b) Necessity of proof for claim or refund (c) Nature of erroneously paid tax/illegally assessed collected (d) Tax refund vis--vis Tax Credit (e) Essential requisites for claim of refund (v) Who may claim/apply for tax refund/tax credit (a) Taxpayer/withholding agents of non-resident foreign corporations
Q: In what instances is the prescriptive period interrupted?

1. When proceedings are instituted against guilty persons (and shall run again if proceedings are dismissed for reasons constituting jeopardy) 2. When the offender is absent from Philippines the the not the
Read Section 282, Tax Code Q: What is the reward given to persons instrumental to the discovery of violations of the Tax Code?
A sum equivalent to 10% of the revenues, surcharges, or fees recovered and/or fine or penalty imposed and collected or P1 million, whichever is lower.
Entitlement to Informers Reward Yes No No
The offender offered to compromise No revenue, surcharges or fees were actually recovered The information refers to case

(vi) Prescriptive period for recovery of tax erroneously or illegally collected (vii) Other consideration affecting tax refunds --------------------------------------------------------------Read Section 229, Tax Code
Note: Before we even begin, note that the rules in Section 229 both statutory and jurisprudential does NOT apply to the refund or tax credit of excess and unutilized input tax (VAT). Section 229 applies to the recovery of erroneously or illegally collected internal revenue taxes. On the other hand, the refund or tax credit of excess and unutilized input tax is governed by Section 112(C). So kung sinabi recovery of input tax (sa VAT), apply Section 112(C). Kung recovery of erroneous or illegally internal revenue tax (mostly in income taxes), apply Section 229.Remember that. Keep this mind in our discussion of Refund here. Ill first discuss Refund in Section 229 by following the order in the syllabus and then later we will discuss the procedure for claim of refund in Section 229 and Ill compare it with Section 112(C). Hanggang ngayon kung titingnan niyo ang mga kaso involving refunds, marami pa rin nagkakamali diyan. Who is to blame? Well, ang kaso ng Aichi na we discussed under VAT. Malalaman natin mamaya bakit.
from date of payment regardless of any supervening cause --------------------------------------------------------------Q: What are the requirements for a claim of a tax refund or a tax credit?
1. There is a tax collected erroneously or illegally, or a penalty collected without authority, or a sum excessively or wrongfully collected (see Section 229, Tax Code) 2. There must be a written claim for refund filed by the taxpayer to the CIR (see Vda. De Aguinaldo v. CIR [February 26, 1965]) Exceptions (no written claim required) a. When on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid, the CIR may refund or credit the tax even without a written claim (Section 229, Tax Code) b. A return filed showing an overpayment shall be considered as a written claim for credit or refund. (Sec. 204(C), Tax Code) 3. The claim must be a categorical demand for reimbursement (see Bernejo v. CIR [July 25, 1950]) 4. The claim for refund must be filed within 2 years from the date of the payment of the tax regardless of any supervening cause (Section 229, Tax Code) 5. The taxpayer must show proof of payment of the tax (See CIR v. Li Yao [December 27, 1963])
Note: Payment under protest is not required in order to obtain a refund of erroneously or illegally collected internal revenue taxes. (Section 229, Tax Code) As to (3): The idea is first to afford the CIR an opportunity to correct the action of subordinate officers and second 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 (see Bermejo v. CIR [July 25, 1950]) As to (5), before recovery is allowed, it must be established that there was actual collection and receipt by the government of the tax sought to be recovered and this
--------------------------------------------------------------(i) Grounds and Requisites for refund --------------------------------------------------------------Q: What are the grounds for refund or credit of internal revenue taxes?
1. The tax was illegally collected There is no law that authorizes the collection of the tax) 2. The tax was excessively collected There is a law that authorizes the collection but the tax collected was more than what the law allows 3. The tax was paid through a mistaken belief that the taxpayer should pay the tax This is a case of solutio indebiti
--------------------------------------------------------------(ii) Requirements for refund as laid down by cases (a) Necessity of written claim for refund (b) Claim containing a categorical demand for reimbursement (c) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) required factual proof (CIR v. Li Yao [December 27, 1963]) See PHILAM Properties Corporation vs. Commissioner of Internal Revenue [CTA Case No. 7912, January 12, 2012] where the CTA held that failure to prove that the income, related to the excess creditable withholding being claimed as refund, was reported in the income tax return would result in the denial of the claim. SEE ALSO PHILIPPINE BANK OF COMMUNICATIONS VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 7763, JANUARY 20, 2012]; PHILAM INSURANCE AGENCY AND CALL CENTER SERVICES, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 792, JANUARY 20, 2012]; HAVI FOOD SERVICES PHILS., INC. VS. CIR, CTA EB NO. 800 (CTA CASE NO. 7735), JUNE 28, 2012 In a claim for refund of excess income tax, failure to present the original annual income tax return is fatal to the claim. Maunsell Philippines, Inc. vs. CIR, C.T.A. EB No. 860, October 23, 2012
(4) For actions for refund of corporate income tax, the twoyear prescriptive period is counted from the time of actual filing of the Final Adjustment Return or Annual Income Tax Return not on the date when the taxes were paid on quarterly basis. (see CIR V. CA [JANUARY 21, 1999]). It is at this point that it can already be determined whether there has been an overpayment of the taxpayer. (see CIR V. PHILAMLIFE [MAY 29, 1995]). See PRHC Property Managers. Inc. vs. Commissioner of Internal Revenue [CTA Case No. 8071, January 6, 2012] where the CTA held that the reckoning of the 2-year prescriptive period for the filing of a claim for refund of excess creditable withholding tax or quarterly income tax starts from the date of filing of the annual income tax return See also MCKINSEY & CO., (PHILS.) VS. COMMISSIONER INTERNAL REVENUE, CTA CASE NO. 8078, JULY 30, 2012
OF
--------------------------------------------------------------(c) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause --------------------------------------------------------------Q: What is the prescriptive period for recovery of erroneously or illegally collected internal revenue taxes?
The claim for refund must be filed within 2 years from the date of payment of the tax regardless of any supervening cause (Section 229, Tax Code)
Note: (1) Note Section 56 of the Tax Code which provides that payment is made at the time the return is filed. But when the final adjusted return was filed earlier than the time the return could still be filed, the 2-year period is counted from the date the return was filed (CIR v. CA [January 21, 1999]) (2) In case of payments through the withholding tax system, the tax liability is deemed paid when he same falls due at the end of the tax year (Gibbs v. CIR [November 29, 1965]) (3) If the tax is paid in installments, the two year prescriptive period is counted from the time of the payment of the last installment. As held in CIR v. PALANCA [OCTOBER 29, 1966], where the tax account was paid by installment, then the computation of the 2 year prescriptive period should be from the date of last installment.
The period to file a claim for refund of excess creditable withholding taxes by a tax-exempt entity is not reckoned from the filing of the final adjustment return, but from the time the taxes were erroneously withheld LISP-1 LOCATORS ASSOCIATION INCORPORATED VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 7905, NOVEMBER 29, 2012 (5) In case the taxpayer merely made a deposit, the 2-year period is counted from the conversion of the deposit to payment (Union Garment v. Collector [CTA Case No. 416, November 17, 1965]). (6) For VAT, the two year prescriptive period is counted from the time of filing of the quarterly VAT return, i.e. within 25 days after the close of each taxable quarter (CIR v. Mirant [September 12, 2008] (7) In case of dissolution of a corporation, the 2-year prescriptive period for refund begins thirty (30) days after the approval by SEC of its plan for dissolution MINDANAO I GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8250, NOVEMBER 9, 2012
Q: Is a RMC which extends the 2 year period to file a claim for refund to 10 years valid?
No, the RMC cannot go beyond what is provided in the law and the State cannot be put into estoppel (see PBCOM V. CIR [JANUARY 28, 1999])
Q: What is the judicial remedy with respect to a refund or recovery of tax erroneously or illegally collected?
The remedy is the filing of a suit or proceeding with the CTA: Page 92 of 164 Last Updated: 30 July 2013 (v3)

1. Within 30 days from receipt of the denial by the CIR of the application for refund 2. Before the expiration of the 2 years prescriptive period.
Note: The 30-day period to appeal to the CTA should be within the 2-year prescriptive period
Q: What must the taxpayer do in case of a situation where the CIR is taking time to decide the claim and the period of 2 years is about to end?
If the the 2 year period is about to lapse, the taxpayer may already appeal to the CTA even if the CIR has not yet made any decision on the claim for refund. In GIBBS V. COLLECTOR OF INTERNAL REVENUE [FEBRUARY 29, 1960], the Supreme Court noted that if the CIR takes time in deciding the claim and the period of two years is about to end, the suit or proceeding must be started in the CTA before the end of the 2 year period without awaiting the decision of the CIR. In CIR V. SWEENEY [AUGUST 21, 1959], the Supreme Court stated that taxpayers need not wait for the action of the CIR on the request for refund before taking the matter to Court.
Note: (1) The implication of this is that a simultaneous filing of the application with the BIR for refund/credit and the institution of the suit with the CTA is allowed. (2) The rule is different in the refund or tax credit of excess or unutilized input taxes for VAT. Sa recovery of excess or unutilized input taxes, premature if you file the judicial claim within the 2 year prescriptive period. Dito sa refund of erroneously or illegally collected tax, hindi premature un! In fact, kapag hindi ka nagfile within, fatal un sa claim mo. We will discuss this later.
absolutely exempt from income tax regardless of the nature of tax, the taxpayers claim was barred by prescription since the filing of the supplemental petition (and not an original action) was not granted and therefore it did not have any judicial effect to toll the running of the 2 year period. It was only when a subsequent petition for review was filed did the prescriptive period toll. Further, this is not a case where the 2-year period can be considered nonjurisdictional since there are no exceptional or supervening circumstances to speak of.
Q: May the 2-year prescriptive period be suspended?

Even if the 2 year prescriptive period, if applicable, had already lapsed, the same may be suspended for reasons of equity and other special circumstances. (see CIR V. PHILAMLIFE [MAY 29, 1995]; CIR v. PNB [OCTOBER 25, 2005]) The two-year prescriptive period under Section 229 of the NIRC may be suspended for reasons of equity and other special circumstances. COMMISSIONER OF INTERNAL REVENUE VS. M ANILA ELECTRIC COMPANY, INC., CTA EB NO. 773, NOVEMBER 13, 2012
Q: Name some reasons of equity and other special circumstances that jurisprudence has considered to extend the 2 year prescriptive period.
1. When the taxpayer made advance income tax payment heeding former President Corazon Aquinos call and was made to believe that its request for tax credit will be acted upon and favourably considering that its carry over was unutilized since the company suffered losses for the next 4 years (see PNB V. CA [OCTOBER 25, 2005]) 2. When the taxpayer and the CIR agreed to wait for the result of another case having the same issue (see PANAY ELECTRIC CO. V. CIR [M AY 28, 1958]) 3. When the CIR initially agreed to grant the refund and later denied the same
Q: Will the filing of a supplemental petition be sufficient to toll the prescriptive period for the claim for refund?
It depends. If it was granted, it would toll the prescriptive period. Otherwise, it would not have the effect of tolling the prescriptive period. In FAR EAST BANK AND TRUST COMPANY V. CIR [M AY 2, 2006], the Supreme Court held that the claim for refund has been barred by prescription since the supplemental petition was not admitted. While retirement funds/employment trusts are still PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: If the availment of the tax credit/refund is due for reasons other than the erroneous or wrongful collection of taxes, what prescriptive period shall apply?

As held in CIR v. PNB [OCTOBER 25, 2005] citing CIR V. PHILAMLIFE [MAY 29, 1995], availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision in the Tax Code or special laws, the period would be 10 years under Article 1144 of the Civil Code.
--------------------------------------------------------------(a) Scope of claims for refund (b) Necessity of proof for claim or refund --------------------------------------------------------------Note: For scope of claims for refund, refer to the grounds as discussed earlier. Also make reference to Section 204(c) as to internal revenue stamps.As to necessity of proof, refer to the discussion on requirements for refund.
--------------------------------------------------------------(iii) Legal basis of tax refunds --------------------------------------------------------------Q: What is the legal basis of tax refunds?
Tax refunds are founded on the legal principle which underlies quasi-contracts abhorring a persons unjust enrichment at the expense of another. The pertinent laws governing this principle are found in Art. 2142 and Art. 2154 of the NCC, to wit: 1. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasicontract to the end that no one shall be unjustly enriched or benefited at the expense of another (Art. 2142) 2. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. (Art. 2154)
--------------------------------------------------------------(c) Nature of erroneously paid tax/illegally assessed collected --------------------------------------------------------------Q: What is the nature of a claim for tax refund?
A claim for tax refund is in the nature of a claim for exemption and should be construed strictissimi juris against the taxpayer. (see CIR V. TOKYO SHIPPING [M AY 26, 1995])
Q: Is a tax refund automatically granted?

No. As held in UNITED AIRLINES V. CIR [SEPTEMBER 29, 2010], the grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. Before granting the refund, the CIR must determine the proper assessment and the tax due. In this case, the CIR found that the tax return was not valid and, thus, it was justified in denying the claim after determining the proper assessment and the tax due.
--------------------------------------------------------------(iv) Statutory basis for tax refund under the Tax Code (a) Scope of claims for refund (b) Necessity of proof for claim or refund (c) Nature of erroneously paid tax/illegally assessed collected (d) Tax refund vis--vis Tax Credit (e) Essential requisites for claim of refund --------------------------------------------------------------Q: What is the statutory basis for a tax refund under the Tax Code?
See Section 204(c) and Section 229.
Q: Who has the burden of proof for a claim of refunds?

Burden of proof for claim of refund rests upon the claimant since it is strictly construed against him and the failure to discharge said burden is fatal to his claim (CIR v. S.C. Johnson and Son [June 25, 1999])
Read Section 204(c) and 229, Tax Code
Q: ABC Corp filed its annual income tax return for 2001 showing net loss. Hence, it argues that the tax withheld on its income was not utilized against income. Accordingly, ABC Corp filed a claim for refund and presented its income tax return showing the incurred losses. The CIR

argued that ABC must prove its reported losses to be entitled to the refund. Is the CIR correct? No. In CIR V. ASIAN TRANSMISSION CORPORATION [JANUARY 26, 2011], the Supreme Court ruled that while it is indeed true that the taxpayer bears the burden to establish the losses, the taxpayer has fulfilled this duty when it presented its income tax return showing he incurred losses. --------------------------------------------------------------(d) Tax refund vis--vis Tax Credit --------------------------------------------------------------Note: We already discussed this in Income Taxes but nonetheless let us review.
PSPC then utilized the said TCCs for its excise taxes and were then issued TDM (Tax Debit Memo) and ATAPs (Authority to Accept Payment) by the BIR. However, the BIR assessed PSPC for delinquent excise taxes alleging that PSPC is not a qualified transferee of the TCCs. CA ruled that the PSPC was not entitled to the benefit of the TCCs and thus upheld the assessment. Was the use of PSPC of the TCCs valid?
Yes. As held in PILIPINAS SHELL V. CIR [DECEMBER 21, 2007], there is no suspensive condition for the validity of TCCs as they are effective immediately and only computational errors are allowed as basis to invalidate TCCs. Also, even if the source is defective, it does not affect PSPCs right as it acted in good faith and the agencies approved of the use of TCCs. In CIR V. PETRON [M ARCH 21, 2012], the Supreme Court had occasion to reiterate that TCCs are valid and effective from their issuance and are not subject to post-audit as a suspensive condition for their validity.
Note: However, by virtue of RR 14-2011 [JULY 29, 2011], all Tax Credit Certificates (TCCs) issued by the BIR are no longer transferable or assignable to any person.
Q: Discuss the difference between tax refund and tax credit?

A tax refund requires a physical return of the sum erroneously paid by the taxpayer while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer.
Note: Ano ba ang practical implications ng difference ng tax refund and tax credit? Isipin niyo na lang bumili ka ng damit sa department store tapos may sira pala. Kapag yun talaga yung gusto mong shirt, you ask for a refund. Babalik sa iyo yung pera tapos puwede mo itong gamitin para bumili ng libro or whatever. Pero may isa ka pang gustong shirt dun sa store na un pero mas mahal ng konti, ipa-credit mo. Bayaran mo nalang yung kulang. Thats how simple it is.
--------------------------------------------------------------(e) Essential requisites for claim of refund --------------------------------------------------------------Note: I already discussed this under the requirements for a claim for refund or tax credit.
Q: May a taxpayer ask for both a tax refund and a tax credit?
No. As held in PHILAM ASSET M ANAGEMENT V. CIR [DECEMBER 14, 2005], a taxpayer may apply for either a tax refund or tax credit, but not both. The choice of one precludes the other. Note: If you avail of the tax credit, you get what is called a Tax Credit Certificate (TCC). There is no suspensive condition for its validity. Remember that.
--------------------------------------------------------------(v) Who may claim/apply for tax refund/tax credit (a) Taxpayer/withholding agents of non-resident foreign corporations --------------------------------------------------------------Q: Who is the proper party to claim a tax credit/refund?
The proper party to seek a refund is the statutory taxpayer, who is the person on whom the tax is imposed by law and who paid the same, even if that
Q: PSPC acquired some TCCs (tax Credit Certificates) through the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center from other BOI-registered entities.

person shifted the tax to another (see SILKAIR SINGAPORE V. CIR [NOVEMBER 14, 2008])
and the amount of tax withheld. FILIPINO V. CA [M ARCH 27, 2007]
(BANCO
Q: May a withholding agent file a claim for tax refund?

Generally, the person entitled to claim a tax refund is the taxpayer. However, if the taxpayer does not file the claim, the withholding agent may file the same. In CIR V. SMART COMMUNICATIONS [AUGUST 25, 2010], it was submitted that rule allowing the withholding agent to file the claim is applicable only when the withholding agent and the taxpayer are related parties. The Supreme Court disagreed and stated that such relationship is not required. A withholding agent has a legal right to file a claim for refund. First, he is considered a taxpayer under the Tax Code as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount withheld be finally found to be less than the amount that should have been withheld. Second, as an agent of the taxpayer, his authority to file the income tax return and remit the tax withheld to the government includes the authority to file a claim for refund and to bring an action for recovery of such claim.
See also ORIX AUTO LEASING PHILIPPINES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8001, NOVEMBER 28, 2012; PHILIPPINE BANK OF COMMUNICATIONS VS. CIR, CTA CASE NO. 7915, JUNE 6, 2012; MANILA NORTH TOLLWAYS CORPORATION VS. CIR, C.T.A. EB NO. 812, OCTOBER 11, 2012) WINEBRENNER & IIGO INSURANCE BROKERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8277, DECEMBER 19, 2012 Note: In the third requisite, the taxpayer need not prove the fact of remittance to the BIR of the taxes withheld by the various payors (withholding agents). CIR V. MIRANT [JUNE 15, 2011] In a claim for refund of its excess income tax payment or creditable withholding taxes paid, claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Presentation of forgotten evidence is disallowed. MIRANT NAVOTAS II CORPORATION VS. CIR, CTA EB NO. 754 (CTA CASE NO. 7618), JUNE 5, 2012
UNITED INTERNAL PICTURES V. CIR, G.R. 168331, OCTOBER 11, 2012

DOCTRINE: Failed to reconcile the discrepancy between income payments per income tax return and the certificate of creditable tax withheld will result in the denial of a claim for refund. FACTS: For the same case mentioned in the preceding number, the Court also denied the claim pertaining to the year 1999. As found by the Court, the certificate of tax withheld would reveal that the taxpayer earned P146,355,699.80. On the contrary, its annual income tax return reflects a gross income from film rentals in the amount of P145,381,568.00. However, despite the P974,131.80 difference, both the certificate of taxes withheld and income tax return filed by the taxpayer for taxable year 1999 indicate the same amount of P7,317,785.00 as creditable tax withheld. Also, taxpayer failed to present sufficient proof to allow the Court to trace the discrepancy between the certificate or taxes withheld and the income tax return. HELD: The Court agreed with the position of the Office of the Solicitor General that the amount of income payments in the income tax return must correspond and tally to the amount indicated in the certificate of withholding, since there is no possible and efficacious way by which the BIR can verify the precise identity of the income payments as reflected in the income tax return. Therefore, taxpayers claim for tax refund for taxable year 1999 must be denied, since it failed to prove that the income payments subjected to withholding tax were declared as part of the gross income of the taxpayer.
Q: Is the withholding agent who filed the claim for tax refund obliged to remit the same to the taxpayer?
Yes. In CIR V. SMART COMMUNICATIONS [AUGUST 25, 2010], the Supreme Court ruled that while the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer under the principle of unjust enrichment.
Q: What are the requisites for claim for tax credit or refund of a creditable withholding tax?
1. Claim must be filed within the two-year prescriptive period from date of payment of the tax 2. It must be shown on the return that the income received was declared as part of gross income 3. The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid

--------------------------------------------------------------(vi) Prescriptive period for recovery of tax erroneously or illegally collected --------------------------------------------------------------Note: I have already discussed the 2-year prescriptive period as well. Now, lets compare the procedure for claiming a tax refund under Section 229 and that of the refund of excess or unutilized input taxes under Section 112(c).
Motion for Reconsideration or New Trial to CTA Division within 15 days from receipt of decision. 5. Appeal to CTA En Banc within 15 days from receipt of resolution. 6. Appeal to the SC within 15 days from receipt of resolution under Rule 45
the judicial claim is premature. The Motion for Reconsideration or New Trial to CTA Division within 15 days from receipt of decision. 11. Appeal to CTA En Banc within 15 days from receipt of resolution. Motion for Reconsideration to the CTA En Banc within 15 days from receipt of decision 12. Appeal to the SC within 15 days from receipt of resolution under Rule 45
Q: Outline the steps for tax refund/credit of erroneously or illegally collected internal revenue tax under Section 229 and compare it with the recovery of excess or unutilized input tax under Section 112(C)
Section 229 Recovery of erroneously or illegally collected internal revenue tax 1. Payment period begins on the date of payment of tax or penalties regardless of any supervening cause 2. Administrative claim within 2 years from payment filed with the CIR 3. Submission of additional and relevant support documents within 60 days from filing of claim 4. Appeal to CTA Division within 30 days from receipt of notice of denial or from inaction of the CIR counted from submission of documents. Appeal should be made within the 2 years prescriptive period. Section 112(c) Recovery of excess or unutilized input tax
7. Filing and Payment 8. Administrative claim within 2 years counted from the close of the taxable quarter when the relevant sales were made 9. Submission of additional and relevant support documents within 60 days from filing of claim 10. Appeal to CTA Division within 30 days from receipt of notice of denial or from lapse of 120 days of inaction counted from submission of documents. The appeal should NOT be made within the 2-year prescriptive period. Otherwise,
Note: (1) Majority of authorities including Atty. Montero is of the view that with regard to refund of erroneously or illegally collected tax, the CIR must act within a period of 120 days. That period, however, is found in Section 112(A) which applies to refunds of erroneously or illegally collected tax. Further, the 180 day period provided in Section 228 applies to a protest. What should we follow? 120 or 180? Well, it doesnt matter. In th e refund of erroneously or illegally collected tax, as long as you file your claim for refund within the 2-year period, youre fine. In fact, you may simultaneously file a claim for refund and a file a suit with the CTA. This brings me to my second point.
(2) As held in the case of CIR V. AICHI FORGING COMPANY OF ASIA [OCTOBER 6, 2010], non-observance of the 120-day period is fatal to the judicial claim. Thus, you cannot simultaneously file your claim for refund of excess or unutilized input tax and file a suit with the CTA. The 2 year prescriptive period applies only to the administrative claim meaning that you should file your claim with the CIR within 2 years. As to the judicial claim, you wait for the 120 days to lapse.
--------------------------------------------------------------(vii) Other consideration affecting tax refunds --------------------------------------------------------------Note: Lets discuss here the Irrevocability Rule under Section 76. That is found in Title II (Income Tax). Its not included in the portion of the syllabus on Income Tax. I will discuss it here because it relates to tax credit or tax refund.

Read Section 76, Tax Code Q: What are the options available to the corporation when the sum of the quarterly tax payments made during the taxable year is more than the total tax due on the entire taxable income of that year?
The corporation shall either: 1. Pay the balance of tax still due 2. Carry-over the excess credit 3. Be credited or refunded with the excess amount paid
payment. It opted to carry-over this excess as tax credit to the succeeding taxable year. This was applied to the 1999 taxable year leaving again an excess income tax payment. The taxpayer then applied for a refund for this amount. HELD: The Supreme Court cited Section 76 of the Tax Code, which provides that 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 TCC shall be allowed therefore. Having chosen to carry-over the excess quarterly income tax, the taxpayer here cannot thereafter choose to apply for a cash refund or for the issuance of a TCC for the amount representing such overpayment. The taxpayers claim for refund should be denied as is option to carry over has precluded it from claiming the refund of the excess income tax payment.
Q: What is the irrevocability rule?

Once the option to carry-over the excess 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. (see Section 76, Tax Code and SYSTRA PHILIPPINES V. CIR [SEPTEMBER 21, 2007]) In ASIAWORLD PROPERTIES V. CIR [JULY 29, 2010], the Supreme Court opined that once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years (tax credit), such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund. The unutilized tax credits will remain in the taxpayers account and will be carried over and applied against the taxpayers income tax liabilities in the succeeding taxable years until fully utilized.
See also BELLE CORPORATION V. CIR [JANUARY 14, 2011]; CIR V. PL MANAGEMENT PHIL. [APRIL 4, 2011]; CIR V. PHILAMGEN [SEPTEMBER 29, 2010]; CIR V. MCGEORGE FOOD [OCTOBER 20, 2010]; CIR VS. RHOMBUS ENERGY, INCORPORATED, C.T.A. EB NO. 803, OCTOBER 11, 2012
Q: Does the irrevocability rule apply to the claim of refund or issuance of TCC?
No. The irrevocability rule in Section 76 of the Tax Code applies only to the option to carry-over the excess income tax payment, and not to the claim for refund or issuance of a TCC. Nowhere in Section 76 was it stated that the option to claim refund or TCC, once chosen, is irrevocable. UNITED COCONUT PLANTERS BANK VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. 725, AUGUST 23, 2012; STABLEWOOD PHILIPPINES, INC. VS. CIR, CTA EB 751 (CTA 7705)
Q: If the corporate taxpayer fails to signify his intention in the Final Adjustment Return, is it barred from making a valid request for refund should it choose this option later on?
No. As held in PHILAM ASSET M ANAGEMENT V. CIR [DECEMBER 14, 2005], failure to indicate a choice will not bar a valid request for a refund, should this option be chosen by the taxpayer later on.
UNITED INTERNATIONAL PICTURES AB V. CIR [OCTOBER 11, 2012]

DOCTRINE: Carry-over of excess income tax payments will result in the denial of a claim for refund of excess income tax payment. FACTS: The taxpayer filed its annual income tax return for the taxable year 1998 showing an excess income tax
Q: What is the implication when a corporation fills out the portion Prior Years Excess Credits in the Final Adjustment Return?
As held in PHILAM ASSET M ANAGEMENT V. CIR [DECEMBER 14, 2005], the fact that the corporation filled out the portion prior years excess credits in the Final Adjustment Return means that it categorically availed itself of the carry-over option. If

an application for tax refund has been or will be filed, that portion should necessarily be blank.
Q: Is there an exception to the irrevocability rule?

Yes. In STABLEWOOD PHILIPPINES, INC. VS. CIR, CTA EB NO. 794, OCTOBER 08, 2012, the CTA held that If the corporation permanently ceases its operations before full utilization of the tax credits it opted to carryover, it may be allowed to claim the refund of the remaining tax credits as an exception to the irrevocability rule under Section 76 of the NIRC of 1997, as amended. However, the dissolving corporation must prove that the termination of its operations is permanent in nature and that it is cleared from any tax or other government liabilities before a tax refund may be granted. Therefore, a corporation contemplating dissolution must first secure a tax clearance certificate from the Commissioner of Internal Revenue (CIR), which certificate shall be submitted to the Securities and Exchange Commission (SEC) for the issuance of the Certificate of Dissolution.

---------------------------------------------------------------
F. ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE

--------------------------------------------------------------Q: What are the powers and duties of the BIR?
The powers and duties of the BIR shall comprehend: 1. The assessment and collection of all national internal revenue taxes, fees and charges 2. The enforcement of all forfeitures, penalties and fines connected therewith 3. Including the execution of judgments in all cases decided in its favor by the CTA and the ordinary courts 4. The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (see Section 2, Tax Code)
Q: Differentiate the power of the CIR to interpret tax laws and the power to decide tax cases.
The power to interpret tax laws is under the exclusive and original jurisdiction of the CIR, subject to the review by the Secretary of Finance On the other hand, the power to decide tax cases, while vested also in the CIR, is subject to the exclusive appellate jurisdiction of the CTA.
Q: Can the Secretary of Finance motu proprio review a ruling of the CIR?
Yes. DOF ORDER NO. 007-02 [M AY 7, 2002] provides that the Secretary of Finance may, of his own accord, review a ruling issued by the CIR.
Note: The power to obtain information and to summon, examine and take testimony of persons AND the power to make assessment and prescribe additional requirements for tax administration and enforcement have already been discussed this under Tax Remedies
Q: Describe briefly the structure of the BIR?

The BIR is under the supervision and control of the Department of Finance (DOF). It is headed by the Commissioner of Internal Revenue and assisted by 6 Deputy Commissioners. Each region of the country has a Revenue Regional Director. The country is also divided into Internal Revenue districts headed by Revenue District Officers.
To delegate power Read Section 7, Tax Code Q: What powers of the CIR are nondelegable?
1. To recommend the promulgation of rules and regulations 2. Issuance of first impression rulings 3. Compromise or abatement if the amount is over P500,000 4. Assign officers in charge of excisable articles
Q: What are the powers of the CIR?

1. To interpret tax laws and to decide cases (Section 4, Tax Code) 2. To obtain information and to summon, examine and take testimony of persons (Section 5, Tax Code) 3. To make assessment and prescribe additional requirements for tax administration and enforcement (Section 6, Tax Code) 4. To delegate power (Section 7, Tax Code) 5. To ensure the provision and distribution of forms, receipts, certificates, and appliances and acknowledgment of payment of taxes (Section 8, Tax Code)
To interpret tax laws and decide cases Read Section 4, Tax Code
Q: A is the assistant commissioner of the BIR. Upon inquiry by ABC and XYZ company on the applicable excise tax rates, A signed a letter informing ABC and XYZ of the conduct of the survey, the results thereof and the applicable excise tax rates. ABC and XYZ contend that that A acted without authority and that it should be the CIR who signed such issuance. Are ABC and XYZ correct?

No. Under Section 7 of the NIRC, the CIR is authorized to delegate to his subordinates the powers vested in him except, among others, the power to issue rulings of first impression. Here, the subject matter of the letter does not involve the exercise of the power to rule on novel issues. It merely implemented the revenue regulations then in force (see PARAYNO VS. LA SUERTE CIGAR AND CIGARETTE FACTORY [JUNE 11, 2009])
b) Specific provisions to be contained in rules and regulations c) Non-retroactivity of rulings ----------------------------------------------------------------------------------------------------------------------------a) Authority of Secretary of Finance to promulgate rules and regulations --------------------------------------------------------------Read Section 244, Tax Code Q: Who promulgates revenue rules and regulations?
The Secretary of Finance, upon recommendation of the CIR, shall promulgate all needful rules and regulations for the enforcement of tax laws.
Q: May the CIR delegate the power to approve the filing of tax collection cases?
Yes. The CIR may validly delegate to subordinates the power to approve the filing of tax collection cases in court. In REPUBLIC VS. HIZON [DECEMBER 13, 1999], the Supreme Court upheld the delegation of that power to the Chief of Legal Division of Region IV, the act having been likewise verified by the Regional Director.
To ensure the provision and distribution of forms, receipts, certificates, and appliances and acknowledgment of payment of taxes Read Section 8, Tax Code Q: Give some notable powers and duties of a Revenue Regional Director?
1. Implement tax laws in the regional area 2. Administer and enforce tax laws including assessment and collection of all internal revenue taxes 3. Issue Letters of Authority (LOA) for the examination of taxpayers in the region (see SECTION 11, TAX CODE)
--------------------------------------------------------------b) Specific provisions to be contained in rules and regulations --------------------------------------------------------------Read Section 245, Tax Code Q: Enumerate and define the tax-related administrative issuances
Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, the specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes. are issuances that provide directives or instructions; prescribe guideline; and outline processes, operations, activites, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing. are rulings, opinions and
Q: What is the authority given to a Revenue Officer?

The Revenue Officer, pursuant to a LOA, may examine taxpayers within the jurisdiction of the district to collect the correct amount of tax or to recommend the assessment of any deficiency tax. (see SECTION 13, TAX CODE) Revenue Memorandum Orders (RMOs)
--------------------------------------------------------------1. Rule-making authority of the Secretary of Finance a) Authority of Secretary of Finance to promulgate rules and regulations
Revenue

Memorandum Rulings (RMRs)
Revenue Memorandum Circular (RMCs)
Revenue Bulletins (RB)
BIR Rulings
BIR ITAD Rulings
interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio. are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices. refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenues positions of the Tax Code, relevant tax laws and other issuances for the guidance of the public. are official position of the Bureau to Queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws. are issued by the BIR International Tax Affairs Division to rule on certain issues relating to interpretations of international tax treaty provision under which certain taxpayers or transactions can avail of tax exemptions or preferential tax rates.
Q: Explain the rule on non-retroactivity of rulings Read Section 246, Tax Code
General Rule: Revenue Regulations, Rulings, Circulars and other administrative issuances have no retroactive application Exception: If prejudicial to the taxpayer, they shall have retroactive application Exception to the Exception: Even if prejudicial to the taxpayer, they shall have retroactive effect in the following cases 1. The taxpayer deliberately misstates or omits material facts 2. The facts subsequently gathered are different from the facts on which the ruling was based 3. The taxpayer acted in bad faith
Q: If a ruling was subsequently found by the CIR to be null and void, does the nonretroactivity principle still apply?
No. The non-retroactivity principle does not apply when the ruling involved is null and void for being contrary to law. In BIR RULING NO. 370-2011 [OCTOBER 7, 2011], the CIR affirmed its position that the Poverty Alleviation and Eradication Certificates (PEAce) Bonds are not tax-exempt and subject to a 20% FWT. Previously, 2001 BIR Rulings have considered such instruments as tax-exempt. The CIR concluded that no right has been vested by virtue of the 2001 Rulings as they were null and void for being contrary to law.
Q: What is the effect of RR 5-2012 [April 5, 2012] on rulings issued prior to January 1, 1998?
RR 5-2012 [APRIL 5, 2012] provides that all rulings issued prior to January 1, 1998 will no longer have any binding effect. They can no longer be invoked as basis for any current business transaction/s or as a basis for securing legal tax opinions and rulings. RMC 22-2012 [M AY 7, 2012] clarified that BIR Rulings prior to January 1, 1998 remains valid: Page 102 of 164 Last Updated: 30 July 2013 (v3)
--------------------------------------------------------------c) Non-retroactivity of rulings --------------------------------------------------------------PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

1. To the taxpayer who was issued the ruling 2. Covering the specific transaction which is subject of the ruling
Q: May a BIR ruling be invoked by a taxpayer other than the one who requested the same?
No. In CIR v. Filinvest Development Corp [July 19, 2011], the Supreme Court ruled that in keeping with the caveat attendant in every BIR ruling to the effect that it is valid only if the facts claimed by the taxpayer are correct, a BIR ruling could be invoked only by the taxpayer who sought the same. If the taxpayer is not the one who, in the first instance, sought the ruling from the BIR, he cannot invoke the principle of non-retroactivity of BIR rulings.
--------------------------------------------------------------2. Power of the Commissioner to suspend the business operation of a taxpayer --------------------------------------------------------------Note: I already discussed this under Tax Remedies.

---------------------------------------------------------III. LOCAL GOVERNMENT CODE ------------------------------------------------------------------------------------------------------------------A. LOCAL GOVERNMENT TAXATION -----------------------------------------------------------------------------------------------------------------------1. Fundamental Principles --------------------------------------------------------------Read Section 130, LGC Q: What are the fundamental principles of local government taxation?
a. Uniformity b. Taxes, fees, charges and other impositions shall be equitable and based on ability to pay for public purposes not unjust, excessive oppressive or confiscatory, no contrary to law, public policy, national economic policy, or in restraint of trade c. The levy and collection shall not be left to any private person d. Inures solely to the local government unit levying the tax e. The progressivity principle must be observed.
granted by a direct mandate of the Constitution b. Limited although directly expressed by the Constitution, the power is subject to limitations and guidelines as the legislature may deem necessary to impose c. Legislative in nature the power to impose taxes is vested solely in he legislative body of each respective LGU d. Territorial the same can only be exercised within the territorial jurisdiction of a LGU
Q: What is the source of the local taxing power of the government?

Article X. Section 5. Each local government unit shall have the power to create its 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.
It is granted by the Constitution under Section 5, Article X of the 1987 Constitution. It is not inherent in the Local Government. In MERALCO V. PROVINCE OF LAGUNA [M AY 5, 1999], the Supreme Court explained that prior to the 1987 Constitution; the taxing power of LGUs was exercised under limited statutory authority. Under the present Constitution, the taxing power of LGUs is deemed to exist, subject only to specific exceptions that the law may prescribe. Otherwise stated, the taxing power of LGUs is a direct grant of the Constitution, and is not a delegated power of Congress.
Note: A law which deprives LGUs of their power to tax would be unconstitutional.
--------------------------------------------------------------2. Nature and Source of taxing power a) Grant of local taxing power under the local government code b) Authority to prescribe penalties for tax violations c) Authority to grant tax exemptions d) Withdrawal of exemptions e) Authority to adjust local tax rates f) Residual taxing power of local governments g) Authority to issue local tax ordinances --------------------------------------------------------------Q: What is the nature of the local taxing power?
a. Direct the power of the LGU to impose taxes although not an inherent power is
Q: What is the legal basis of the grant of local taxing power under the LGC?
The legal basis is found in Section 129 of the LGC, to wit:
Read Section 129, LGC

Q: Who has the authority to prescribe penalties for local tax violations?
The Sanggunian of a LGU is authorized to prescribe fines or other penalties for violation of tax ordinances. (see Section 516, LGC)
Note: The fines or other penalties shall in no case shall be less than P1,000 or more than P5,000 nor shall the imprisonment be less than 1 month nor more than 6 months. The Sangguniang Barangay may prescribe a fine of not less than P100 nor more than P1,000
Q: May the government grant tax exemption to taxpayers whose previous exemption has been withdrawn?
Yes. Withdrawal of a tax exemption does not prohibit future grants of tax exemption (PLDT v. City of Davao [August 22, 2001])
Q: Who has the authority to adjust local tax rates?

The Local Government Units have the authority to adjust local tax rates. However, it should not be more than once every 5 years and in no case shall such adjustment exceed 10% of the rates fixed under the Code.
Q: Who may grant local tax exemptions?

The LGU may, through ordinance duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions, as they may deem necessary.
Read Section 192, LGC Q: What is the residual taxing power of LGUs?
LGUs may exercise the power to levy taxes, fees or charges on any base or subject, provided that the taxes, fees, and charges are
Read Section 192, LGC Q: What is the effect of Section 193 (Withdrawal of Tax Exemption Privileges) of the LGC? Read Section 193, LGC
Under Section 193, all existing tax exemption privileges granted to or presently enjoyed by all persons whether natural or juridical including GOCCs (except local water districts, cooperatives registered under RA 6938, non-stock and non-profit hospitals and educational institutions) were withdrawn upon effectivity of the LGC. In MERALCO V. PROVINCE OF LAGUNA [M AY 5, 1999], the Supreme Court noted that indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to LGUs, the LGC has effectively withdrawn tax exemptions and incentives theretofore enjoyed by certain entities. (see also NAPOCOR V. CITY OF CABANATUAN [APRIL 9, 2003].
a. Not specifically enumerated in the LGC b. Not taxed under the provisions of the NIRC c. Not taxes under other applicable laws Read Section 186, LGC Q: Who has the authority to issue local tax ordinances?
The power to impose a tax, fee, or charge or to generate revenue shall be exercised by the Sanggunian of the LGU concerned through an appropriate ordinance (see Section 132, LGC)
Read Section 132, LGC --------------------------------------------------------------3. Local taxing authority a) Power to create revenues exercised through Local Government Units b) Procedure for approval and effectivity of tax ordinances --------------------------------------------------------------Note: As discussed above, each LGU has the power to create its own source of revenue (see Section 129, LGC)
Q: What entities are still exempt from local taxes? a. b. c. d.

Local Water Districts Cooperatives duly registered under RA 6938 Non-stock and non-profit hospitals Educational institutions

Q: What is the significance of a local tax ordinance?

What determines tax liability is the tax ordinance. The LGC is simply the enabling law for the local legislative body. In YAMANE V. BA LEPANTO CONDOMINIUM CORP [OCTOBER 25, 2005], at issue was whether the City Government of Makati can hold condominium corporations liable to pay business taxes. The Supreme Court noted that the City Treasurer did not make any reference to any provision of the Makati City Revenue Code which would serve as legal authority for the collection of business taxes from condominiums in the city. The Supreme Court pointed out that in issuing a notice of assessment, reference to the local tax ordinance is vital because the power of LGUs to impose local taxes is exercised through the appropriate ordinance enacted by the Sanggunian and not by the LGC.
To be sure, public hearings are conducted by local legislative bodies to allow interested parties to ventilate their views on a proposed law or ordinance. These views, however, are not binding on the legislative body and it is not compelled by law to adopt the same.
Q: Can a public hearing conducted after the passage of a tax ordinance cure the defect in its enactment (for failure to hold one prior to the enactment)?
No. As held in ONGSUCO V. M ALONES [OCTOBER 27, 2009], the Supreme Court held that a public hearing conducted after the passage of a tax ordinance does not cure the defect in its enactment. The LGC requires that public hearings be held prior to the enactment by the LGU of the ordinance levying taxes, fees, and charges.
Q: What are the requisites of a valid local tax ordinance?

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 6. It must not be unreasonable (Magtajas v. Pryce Properties [234 SCRA 225])
Q: What is the effect of non-compliance with the publication/posting requirements of tax ordinances laid down in Section 188 of the LGC?
Failure to follow the procedure in enactment of tax ordinances renders the same null and void. The publication requirement is mandatory.
Q: What must be complied with under the provisions of the LGC for a valid local tax ordinance?
1. Public hearing is required with quorum, voting and approval and/or veto requirements complied with 2. Publication of ordinance within 10 days from approval for 3 consecutive days in an newspaper of general circulation and/or posting in at least 2 conspicuous and publicly accessible places
Q: Can an ordinance with has been declared void for failure to publish for 3 weeks be remedied by passing another ordinance with purports to amend the ordinance that has been declared null and void?
No. The new ordinance is still void since it cannot cure something which had never existed in the first place as the same was void ab initio (see COCACOLA BOTTLERS V. CITY OF M ANILA [JUNE 27, 2006]).
Q: Is publication/posting of an ordinance fixing the assessment levels for different classes of real property in an LGU necessary?
Yes. In FIGUERRES V. CA [M ARCH 25, 1999], the Supreme Court held that the publication/posting requirement under Section 188 of the LGC must be complied with in case of an ordinance imposing real property taxes, as well as an ordinance fixing the assessment levels for different classes of real
Q: What is the nature of the public hearings under Section 187 of the LGC?
In HAGONOY M ARKET VENDOR ASSOCIATION V. MUNICIPALITY OF HAGONOY, BULACAN [FEBRUARY 2, 2002], the discussed the nature of the public hearings on proposed tax ordinances in this light: PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

property. The latter is in the nature of a tax ordinance.

Note: I will discuss the procedure in questioning the constitutionality or legality of a tax ordinance under remedies.
e) Common revenue raising powers (i) Service fee charges (ii) Public utility charges (iii) Toll fees or charges f) Community Tax --------------------------------------------------------------Read Sections 134-144, 146-149 and 151164, LGC. Q: What is the taxing power of the following LGUs: (a) province; (b) Municipalities; (c) Cities; and (d) Barangays?
Province Expressly provided in the Code: 1. Local Transfer Tax (Section 135, LGC) 2. Business Tax on Printing and Publication (Section 136 LGC) 3. Local Franchise Tax (Section 137, LGC) 4. Tax on Sand, Gravel and Other Quarry Resources (Section 138, LGC) 5. Professional Tax (Section 139, LGC) 6. Amusement Tax (Section 140, LGC) 7. Tax on Route Delivery Truck or Vans (Section 141, LGC) Municipalities A municipality may levy on those taxes, fees and charges not otherwise levied by provinces (see Section 142, LGC) Expressly provided in the Code: 1. Local Business Tax (Section 143, LGC) 2. Fees on business and occupation (Section 146, LGC) 3. Fees on sealing and licensing of weights and measures (Section 148, LGC) 4. Fishery Rentals, Fees and charges (Section 149, LGC) Cities They may levy taxes which the province and municipality may impose. The tax rates, fees, and charges which the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates
--------------------------------------------------------------4. Scope of taxing power --------------------------------------------------------------Q: What is the scope of the taxing power of LGUs?
The taxing power of LGU is limited only through the guidelines expressly provided for by the legislature. Beyond these limitations, the LGU is given a wide array or latitude to impose taxes not pre-empted by the NIRC?
Q: What is the Principle of Pre-emption or Exclusionary Doctrine?

When the national government elects to tax a particular area, it is impliedly withholding from the LGU the delegated power to tax the same field.
--------------------------------------------------------------5. Specific taxing power of LGUs a) Taxing powers of provinces (i) Tax on transfer of real property ownership (ii) Tax on business of printing and publication (iii) Franchise tax (iv) Tax on sand, gravel and other quarry services (v) Professional ax (vi) Amusement tax (vii) Tax on delivery truck/van b) Taxing power of cities c) Taxing power of municipalities (i) Tax on various types of businesses (ii) Ceiling on business tax impossible on municipalities within Metro Manila (iii) Tax on retirement of business (iv) Rules on payment of business tax (v) Fees and charges for regulation and licensing (vi) Situs of tax collected d) Taxing powers of barangays

of professional and amusement taxes (see Section 151, LGC) Barangays 1. Taxes on stores with fixed business establishments (gross receipts of P50,000 or less for cities, P30,000 for municipalities) 2. Service fees for use of barangay-owned properties and services rendered 3. Barangay clearance 4. Other fees and charges for (a) commercial breeding of fighting cocks, cockpits and cockfighting; (b) on places of recreation with admission fees; and (c) billboards, signboards and outdoor advertisements Common only to Cities and Municipalities 1. Community tax Common to all LGUs 1. Service fees and charges for services rendered 2. Public utility charges 3. Toll fees or charges
Q: May the tax be imposed on extractions from private lands?

No. The tax may be imposed only to those extracted from public lands or public waters within its territorial jurisdiction. Private lands are excluded. ( Province of Bulacan v. CA [November 27, 1998])
Q: ABC Mining was issued a mining lease contract which granted it the right to extract and use for its purposes all mineral deposits within the boundary lines of its mining claim in Benguet. Later, the Provincial Treasurer demanded payment of sand and gravel tax for the quarry materials that ABC extracted. ABC countered that the sand and gravel tax applied only to commercial extractions. Is ABC correct?
No. In LEPANTO CONSOLIDATED MINING COMPANY V. AMBANLOC [JUNE 29, 2010], the Supreme Court found that under the Revised Benguet Revenue Code, only gratuitous permits were exempt from the sand and gravel tax, and Lepantos permit was not a gratuitous permit. Hence, Lepanto was liable to pay the provincial sand and gravel tax.
Note: Take note of the following.
Professional Tax Q: What is the situs of professional tax?

Professional tax is payable in the province where the taxpayer practices his profession or where the principal office is located in case he practices his profession in several places.
Note: (1) The taxpayer has the option. Such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any national or local tax, license or fee for the practice of such profession (see Section 139, LGC) (2) Professional tax may be imposed by a province or city but not by a municipality or barangay (3) Professionals exclusively employed in government shall be exempt from payment
Local Transfer Tax Q: What are not covered by the local transfer tax of real property?
The sale, transfer or other disposition of real property pursuant to the Agrarian Reform Program shall be exempt from local transfer tax.
Business Tax on Printing and Publication Q: What is not covered by the business tax on printing and publication?
The receipts from the printing and/or publishing of books or other reading materials prescribed by the DepEd as school texts or references shall be exempt from the business tax.
Tax on Sand, Gravel and Other Quarry Resources

Amusement Tax Q: Is the amusement tax on admission tickets to PBA games a national or local tax?
It is a national tax. In PBA v CA [AUGUST 8, 2000], the Supreme Court held that it was the National Government which could collect amusement taxes from the PBA. While Section 13 of the Local Tax Code mentions other places of amusement, professional basketball games are definitely not within its scope under the principle of ejusdem generis.
customers outside the city. Id the imposition valid?

Yes. As held in PHILIPPINE M ATCH CO. V. CITY OF CEBU [JANUARY 18, 1978], the city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the companys branch office in the city. Those matches can be regarded as sold in the city because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer. A different interpretation would defeat the tax ordinance and encourage tax evasion.
Q: Are gross receipts derived from admission tickets in showing motion pictures, films or movies also subject to VAT?
No. The Supreme Court in CIR v. SM PRIME HOLDINGS [FEBRUARY 26, 2010] held that although the enumeration of services subject to VAT under Section 108 of the 1997 Tax Code is not exhaustive. Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the same as the showing or exhibition of motion pictures or films. Hence, since the showing or exhibition of motion pictures or films is not in the enumeration, such is not a VAT-taxable transaction. The intent of the legislature is not to impose VAT on persons already covered by the amusement tax.
Q: ABC Bottlers Inc. maintained a bottling plant in Pavia, Iloilo but sold softdrinks in Iloilo City by means of a fleet of delivery trucks called rolling stores which went directly to customers. Iloilo City passed an ordinance imposing a municipal license tax on distributors/sellers in the area. Is ABC liable under the tax ordinance?
Yes. In ILOILO BOTTLERS INC. V. CITY OF ILOILO [AUGUST 19, 1988], the Supreme Court found that the bottling company was engaged in the business of selling/distributing softdrinks in Iloilo City through its rolling stores where sales transactions with customers were entered into and sales were perfected and consummated by route salesmen, Hence, the company was subject to municipal license tax.
Tax on Route Delivery Truck or Vans

Note: See discussion on situs of local business tax.
Local Business Tax Q: Who are covered by the local business tax?
1. Manufacturers, assemblers and producers 2. Wholesalers, dealers and distributors 3. Exporters, manufacturers of essential commodities 4. Retailers (if both wholesale and retail, then pay both taxes) 5. Contractors 28 6. Banks and other financial institutions
Q: How are the sales of route trucks and vans taxed?

If the sale is made in a place with a branch office: the sale is reported in the LGU where the branch office is located. If the sale is made in a place without a branch office: the sale is reported in the LGU where the sales are withdrawn.
Q: The City of Cebu imposed a gross sales tax on sales of matches stored by Philippine Match Co. in Cebu City but delivered to
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DOF LOCAL FINANCE CIRCULAR 01-93 provides for the guidelines governing the power of municipalities and provinces to impose a business tax on banks and other banking institutions. DOF LOCAL FINANCE CIRCULAR 2-93 provides for the guidelines for insurance companies. DOF LOCAL FINANCE CIRCULAR 3-93 provides for guidelines for financing companies.

7. Peddlers 8. Other business not specified

Note: Those already subject to tax under (1) to (7) can no longer be subject to tax under (8) otherwise it will be deemed as double taxation. (see City of Manila v. CocoCola Bottlers [August 4, 2009]) A corporation with no business operation, and is merely an investor in another corporation, is not liable for local business tax. ORLEYTE COMPANY (PHILIPPINE BRANCH) VS. CITY OF MAKATI AND DULCE P. CRUZ, IN HER CAPACITY AS TREASURER OF MAKATI, CTA AC NO. 80, NOVEMBER 14, 2012 The operator of the North Expressway falls within the classification of a contractor subject to local business tax based on its gross receipts. MANILA NORTH TOLLWAYS CORPORATION VS. THE MUNICIPALITY OF GUIGUINTO BULACAN, CTA AC NO. 82, DECEMBER 03, 2012
the said case, the Supreme Court differentiated gross receipts and gross revenue. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged, or leased, whether actual or constructive whereas gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received.
Q: What is the ceiling on business tax imposed on municipalities within Metro Manila?
The municipalities in Metro Manila may levy taxes at rates which shall not exceed by 50% the maximum rate prescribed in Section 143, LGC (see Section 144, LGC)
Q: What are the conditions before a business may be subject to local business tax?
Before a business may be subject to local business tax, the business must not be subject to VAT or percentage tax under the NIRC or if the business is subject to excise, VAT or percentage tax under the NIRC, the tax rate shall not exceed 2% of gross sales/ receipts of the preceding calendar year.
Q: What are the conditions before business may be considered officially retired?
A business subject to tax shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If he ax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired (see Section 145, LGC)
Q: Can an corporation?
LGU
tax
condominium
No. As held by the Supreme Court in Y AMANE V. BA LEPANTO CONDOMINIUM CORP [OCTOBER 25, 2005], condominium corporations are not businesses as the same is defined under the LGC which is a commercial activity regularly engaged with a view to profit. Even if a condominium corporation can levy fees, these are used merely to finance the expenses of the condominium and nothing more.
Q: Are the local tax payments paid for the privilege of carrying on business in the year paid or for having engaged in business the previous year?
It is paid for the privilege of carrying on business in the year paid. In MOBIL PHILIPPINES V. THE CITY TREASURER OF M AKATI [JULY 14, 2005], for the year 1998, Mobil paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on Mobils gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on Mobils actual gross sales for 1998, Mobile upon its retirement is not liable for additional taxes to the City of Makati. The Supreme Court found that the City Treasurer erroneously reated the assessment and collection of tax as if it were an income tax by rendering an additional
Q: What is the tax base of the local business tax?

The local business tax is imposed on gross receipts. In ERICSSON TELECOMMUNICATIONS V. CITY OF PASIG [NOVEMBER 22, 2007], Ericsson was assessed for deficiency local business tax but countered that the assessment was erroneous for having been based on is gross revenue rather than just its gross receipts. The Supreme Court ruled that the local business tax must be imposed on gross receipts. In PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

assessment of P1,331,638.84 for the revenue 29 generated for the year 1998.
Q: What are the rules on payment of business tax?

a. The business taxes shall be payable for every separate and distinct establishment or place where business subject to tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid In cases where a person conducts or operates 2 or more of the businesses subject to local business tax: i. If both businesses are subject to the same rate the tax shall be computed on the combined total gross sales or receipts If both businesses are subject to different rates the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. (see Section 146, LGC)
If there is branch/sales office in the municipality or city where the sale or transaction is made, the tax shall accrue and shall be paid where such branch or sales outlet is located. If there is no branch/sales office in the city or municipality where the sale or transaction is made, the sale shall be recorded in the principal office and the taxes shall accrue and shall be paid to such city or municipality (where the principal office is located)
With branch/sales office Yes No Recorded at Allocation
b.
Branch/sales office Principal office
None None
ii.
Note: An office may be considered a sales office (1) if the office only accepts orders but does not issue sales invoice; (2) if the office does not accept orders but issues sales invoices or (3) if the office accepts orders and issues sales invoices (see BLGF Opinion dated January 15, 2007)
Section 150(b) The following sales allocation shall apply to manufacturers with factories, plants and plantations, etc.: If the plantation and factory are located in the same place 1. 30% of all sales recorded in the principal office shall be taxable by the city or municipality where principal office is located 2. 70% shall be taxable by the city or municipality where If the plantation and factory are not located in the same place, the 70% above shall be divided as follows 1. 60% to the city or municipality where the factory is located 2. 40% to the city or municipality where the plantation is located
Plantation & factory in same location Yes No Allocation principal 30% 30% to Allocation factory, etc to
Fees on business and occupation Q: May a municipality impose a professional tax?

No. The municipality may impose and collect such reasonable fees and charges on business and occupation and on the practice of any profession or calling except professional tax which is reserved to the province. (see Section 147, LGC)
Q: What is the situs of local business taxes as stated in Section 150 of the LGC?
Section 150(a)
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Another example: A corporation whose gross sales was 10 million in 2008 and 20 million in 2009, the local business tax payable in January 2009 is based on 10 million (gross receipts for 2008) but the same is payment for the right to do business in 2009. Thus, on the year of retirement, the company will only be liable if the actual local business tax on the basis of current year sales is more than the local business tax paid based on previous years sales. To continue the example, if the sales of the company are also P10 million as of the date of retirement in 2010, this means that the payment made in January 2010 based on the 2009 gross receipts is sufficient to cover the local business tax due upon retirement.
70% The 70% above shall be divided:

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) 1. Factory 60% 2. Plantation 40% If two or more factories, etc = 70% is prorated Note: Section 150(b) is only resorted to if there is no branch or sales office. In addition, the allocation shall be applied irrespective of whether or not the sales are made in the locality where the factory, plant or plantation is located.
located but where no transactions are made, may only collect Mayors permit fee and other regulatory fees.
Q: ABC is engaged in manufacturing household products. It secured the services of an independent contractor XYZ to provide local physical distribution facilities within the specified places in the Philippines. XYZ has a warehouse in Tacloban City and makes deliveries to ABCs customers outside the city. Under the contract, ABC can also make deliveries of its products in other places of the country from its own warehouse in Makati. What is the situs of taxation of the sales made by ABC and XYZ?
As held in BUREAU OF LOCAL GOVERNMENT OPINION DATED M ARCH 7, 1994, the products taken from the warehouse of PBE in Tacloban City and delivered to CPI's customers outside the city should be recorded and the tax thereon paid in Tacloban City where said warehouse is situated. As to the deliveries or sales made by CPI of products taken from its warehouse in Makati to places where it does not have any branch, sales office, or another warehouse, the same should be recorded in Makati where its principal office is located and the taxes due thereon should likewise be paid to said municipality.
Q: Taxpayer has its principal office and also a branch in the City of Makati. At the same time, it has branches in the cities of Paranaque and Cebu. The City Treasurer of Makati assessed the taxpayer for deficiency local business tax for sales of the Paranaque branch allegedly not declared in the City of Paranaque. The City of Makati maintained that it had the authority to assess business taxes on revenues not properly taxed in Paranaque City and Cebu City. Is the City Treasurer of Makati correct?
No. For purposes of collection of local taxes,
businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. Thus, the revenues of the branches outside Makati should not be part of the tax base for the determination of the local business tax to be paid in the City of Makati. In other words, Revenues of branches or
sales outlet elsewhere should not be part of the tax base for the determination of the local business tax to be paid in the City where the principal office is located. (CITY OF M AKATI AND THE OFFICE OF THE CITY TREASURER OF MAKATI CITY VS. NIPPON EXPRESS PHILIPPINES CORPORATION [CTA AC CASE NO. 76 DATED FEBRUARY 17, 2012])
Q: MI is a corporation engaged in trading books. It holds an office in Pasig where all transactions are made. However, MI also maintains a warehouse in Mandaluying which serves as its storage area and no transactions are made therein. What is the situs of taxation of the sale of MIs books? As held in BUREAU OF LOCAL GOVERNMENT OPINION
DATED M ARCH
--------------------------------------------------------------6. Common limitations on the taxing power of LGUs --------------------------------------------------------------Read Section 133, LGC Q: What are the limitations on the taxing power of LGUs?
As provided in SECTION 133, LGUs cannot impose the following: a. Income tax (except on bank and financial entities) Page 112 of 164 Last Updated: 30 July 2013 (v3)
29, 1993, Mi should be liable for gross sales tax to the then Municipality of Pasig. On the other hand, Mandaluyong, where the warehouse is PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

b. c. d. e. f. g. h. i. j. k. l. m. n. o.
DST Estate and Donors taxes Customs Duties Taxes on goods passing through the LGU Taxes on agricultural and aquatic products sold by marginal farmers and fisherman Taxes on BOI-registered enterprises Excise taxes on articles under the Tax Code and taxes on petroleum products Percentage tax and VAT Taxes on gross receipts of transportation contractors Taxes on premium paid by way of reinsurance Taxes on registration of motor vehicles Taxes on Philippine products actually exported Taxes on Countryside and Barangay Business Enterprises and cooperatives Taxes and fees on the National Government
No. As held in PROVINCE OF BULACAN V. CA [NOVEMBER 27, 1998], generally, the LGU can impose such tax even if not in LGC since Section 186 of the Code is sweeping. However, the province cannot levy on minerals from private lands because it is an excise tax on an article already covered by 30 the Tax Code.
Q: Petron maintains a depot or bulk plant at the Navotas Fishport Complex where it engages in the selling of diesel fuels to vessels used in commercial fishing. Navotas City levied business taxes on its sale of petroleum products. Can the LGU levy the business tax on the sale of petroleum?
No, the LGU cannot impose any local tax on petroleum products. As held in PETRON CORP. V. TIANGCO [APRIL 16, 2008], the prohibition with respect to petroleum products extends not only to excise taxes but all taxes, fees, and charges. Section 133(h) provides for two possible bases for exemption: (1) excise tax on articles enumerated under the Tax Code; and (2) taxes, fees, and charges on petroleum products. In the latter, the exemption refers not only to direct or excise taxes to be levied by the LGUs on petroleum products but on all types of taxes on petroleum products including business taxes.
As provided in SECTION 186, LGUs cannot impose taxes that are specifically enumerated or taxed under the provisions of the Tax Code.
Section 133(e)
Q: Is a municipal ordinance imposing fees on goods (corn) that pass through a municipalitys territory valid?
No. As held in PALMA DEVELOPMENT CORP V. ZAMBOANGA DEL SUR [OCTOBER 16, 2003], LGUs, through their Sanggunian, may impose taxes for the use of any public road such as a service fee imposed on vehicles using municipal roads to a wharf. However, Section 133(e) prohibits the imposition in the guise of wharfage, of fees as well as other taxes or charges in any form whatsoever on goods or merchandise. In this case, the LGU cannot tax the goods even in the guise of police surveillance fees.
Section 133(j)
Q: What is the rationale for the exemption of common carriers from local taxes?
As held in FIRST PHILIPPINE INDUSTRIAL CORP V. CA [DECEMBER 29, 1998], the legislative intent in excluding from the taxing power of the LGU the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax.
Section 133(h)
Q: The Province of Bulacan passed an ordinance imposing tax on minerals extracted from public lands but went on to collect tax on minerals extracted from private lands. Since the LGC only provides for tax on public lands, is the action of the Province of Bulacan valid?
30
This applies the Preemption or Exclusionary Rule wherein the national government elects to tax a particular area, impliedly withholding from the LGU the delegated power to tax the same field.

Section 186
Q: Are broadcasting and telecommunication companies liable to pay local transfer taxes?
No. As held in both SMART COMMUNICATIONS V. THE CITY OF DAVAO [SEPTEMBER 16, 2008] and QUEZON CITY V. ABS-CBN BROADCASTING CORPORATION [OCTOBER 6, 2008], these franchise holders are now 31 subject to VAT.
General Rule: Within the first 20 days of January or of each subsequent quarter, as the case may be Exception: For justifiable reason or cause, the Sanggunian may extend the time for payment without surcharge or penalties but only for a period not exceeding 6 months. (See Section 167, LGC)
Q: What penalties are imposable on failure to pay local taxes?

The penalty of 25% surcharge and 2% interest per month not to exceed 36 months (or a maximum of 72%) may be imposed. (see Section 168, LGC)
--------------------------------------------------------------7. Collection of business tax a) Tax period and manner of payment b) Accrual of tax c) Time of payment d) Penalties on unpaid taxes, fees or charges e) Authority of treasurer in collection and inspection of books --------------------------------------------------------------Read Section 165 to 171, LGC Q: What is the tax period for local taxes
The tax period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees, and charges may be paid in quarterly instalments (see Section 165, LGC)
Note: Local taxes may be paid on an annual basis at the option of the taxpayer. In contrast, real property taxes must be paid annually.
Q: What are the requisites for a valid examination of books?

a. In order to ascertain, assess, and collect the correct amount of the tax, fee, or charge b. During regular business hours c. Only once every tax period d. Shall be certified to by the examining official e. Such certificate shall be made of record in the books of accounts of the taxpayer examined.
--------------------------------------------------------------8. Taxpayers Remedies a) Periods of assessment and collection of local taxes, fees or charges b) Protest of assessment c) Claim for refund of tax credit for erroneously or illegally collected tax, fee or charge --------------------------------------------------------------Note: The bar syllabus covers only tax remedies available to the taxpayer when the assessment has been made. Allow me to discuss the remedies available prior to the assessment which is provided for in the LGC and the Rules of Court.
Q: When do local taxes accrue?

General Rule: On January 1 Exception: New taxes which will accrue on the 1 day of the next quarter following effectivity of the ordinance.
st
Q: When are local taxes paid?
Q: What are the remedies available to the taxpayer prior to assessment?

a. To question the constitutionality or legality of tax ordinances or revenue measures on appeal (see Section 187, LGC) (Administrative) b. Petition for declaratory relief as and when applicable (Judicial)
31
The Supreme Court ruled in both cases that the in lieu of all taxes clause in their franchises applies only to national internal revenue taxes and not to local taxes. As such, they would have been liable to pay local transfer taxes. However, with the advent of the VAT law, such franchise holders are instead liable to pay VAT.

Q: Outline the process on how an appeal involving questions of constitutionality or legality of tax ordinances.
1. Appeal to the Secretary of Justice within 30 days from effectivity 2. The Secretary of Justice has 60 days to decide but an appeal does not suspend the effectivity of the ordinance 3. Within 30 days from the Secretary of Justices decision or after 60 days inaction, an appeal may be filed with the RTC.
Star Daily published Ordinance No. 9503-2005 on 1 to 3 February 2005. Ordinance No. 9503-2005 thus took effect on 19 February 2005. CEPALCO filed its petition for declaratory relief before the Regional Trial Court on 30 September 2005, clearly beyond the 30-day period provided in Section 187. CEPALCO did not file anything before the Secretary of Justice. Thus, the Court found that CEPALCO ignored the mandatory nature of the statutory periods.
Q: Is payment under protest required before a party may appeal to the Secretary of Justice?
No. As held in JARDINE DAVIS INSURANCE V. ALIPOSA [FEBRUARY 27, 2003], prior payment under protest is not required when the taxpayer is questioning the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax (as opposed to questioning the increase or decrease in the tax to be paid).
Q: Is compliance with the 30-60-30 day period rule mandatory?

Yes. In REYES V. CA [DECEMBER 10, 1999], the Secretary of Justice dismissed an appeal assailing the constitutionality of the tax ordinances of the Municipality of San Juan on the ground that it was filed out of time. The Supreme Court ruled that compliance with the three separated periods is mandatory. The failure of the petitioners in the case to appeal to the Secretary within 30 days from the date of effectivity is fatal to their cause.
Q: What authority is given to the Secretary of Justice with respect to review of tax ordinances?
The Secretary of Justice can declare an ordinance void for not having followed the requirements of the law but he cannot replace it with his own law or he cannot say that is is unwise. In DRILON V. LIM [AUGUST 4, 1994], then Secretary of Justice Drilon set aside the Manila Revenue Code on two grounds, namely the inclusion of certain ultra vires provisions and its non-compliance with the prescribed procedure in its enactment. In ruling that the act of then Secretary Drilon was proper, the Supreme Court noted that when the Secretary alters or modifies or sets aside a tax ordinance, he is not allowed to substitute his own judgment for the judgment of the LGU that enacted the measure. In the said case, Secretary Drilon only exercised supervision and not control.
Cagayan Electric Power and Light Co. v. City of Cagayan de Oro, G.R. 191761, November 14, 2012
DOCTRINE: Failure to appeal to the Secretary of Justice within the statutory period of 30 days from the effectivity of the ordinance is fatal to ones cause. FACTS: On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No. 9503-2005 imposing a tax on the lease orrental of electric and/ortelecommunication posts, poles or towers by pole owners to other pole users at ten percent(10%) of the annual rental income derived from such lease or rental. The City Council, in aletter dated 15 March 2005, informed Cagayan Electric Power and Light Company, Inc. (CEPALCO), through its President and Chief Operation Manager, Ms. Consuelo G. Tion, of the passage of the subject ordinance. On September 30, 2005, appellant CEPALCO, purportedly on pure question of law, filed a petition for declaratory relief assailing the validity of Ordinance No. 9503-2005 before the Regional Trial Court. HELD: The Court ruled that CEPALCO failed to exhaust administrative remedies. Section 5 of said ordinance provided that the Ordinance shall take effect after 15 days following its publication in a local newspaper of general circulation for at least three (3) consecutive issues. Gold
Q: X, a taxpayer who believes that an ordinance passed by the City Council of Pasay is unconstitutional for being discriminatory against him wants to know from you, his tax lawyer, whether or not he could file an appeal. In the affirmative, he asks you where such appeal should be made: The Secretary of Finance, the Secretary of Justice or the CTA or the

regular courts. What would your advice be to your client?

The appeal should be made with the Secretary of Justice. Any question on the constitutionality or legality of a tax ordinance may be raised on appeal with the Secretary of Justice within 30 days from the effectivity thereof (Hagonoy Market Vendor Assoc. v. Municipality of Hagonoy [376 SCRA 376])
within 10 years from discovery of fraud or intent to evade
Q: What is the rule on collection?

Collection must be within 5 years from assessment.
Q: May regular court issue an injunction to restrain LGUs from collecting taxes?
Yes. In ANGELES CITY V. ANGELES ELECTRIC CORPORATION [JUNE 29, 2010], the Supreme Court held that the LGC does not specifically prohibit an injunction enjoining the collection of local taxes (as compared to the Tax Code which has 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.
Q: Olongapo City enacted an ordinance fixing monthly rental fees for the different stalls in the new public market. A questioned the validity of the said ordinance by filing an appeal with the Secretary of Justice. The Secretary deferred rendering a decision on the appeal and advised A to file his appeal with the RTC. Is the act of the Secretary proper?
No. As held in CITY OF OLONGAPO V. STALLHOLDERS OF EAST B AJAC-B AJAC PUBLIC M ARKET [OCTOBER 19, 2000], the act of the Secretary of Justice was tantamount to an abdication of his jurisdiction over the appeal of the ordinance. The Secretary may not abdicate his authority to review tax ordinances.
Q: What are the grounds for the suspension of the running of the prescriptive?
a. The treasurer is legally prevented from the assessment or collection of the tax b. The taxpayer requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect; and c. The taxpayer is out of the country or otherwise cannot be located
Q: When may an action for declaratory relief be filed?

When there is such an obscurity, declaratory relief would be applicable. This remedy is open to determine any question of construction or validity of a tax law and/or the declaration of taxpayers liabilities thereunder (Valley Trading v. CFI [March 4, 1989])
Q: What are the remedies available to the taxpayer after assessment?

a. Protest of assessment (Section 195, LGC) b. Claim for refund (Section 196, LGC)
--------------------------------------------------------------a) Periods of assessment and collection of local taxes, fees or charges --------------------------------------------------------------Read 194, LGC Q: What are the rules on assessments?
General Rule: An assessment must be made within 5 years from the date they become due. Exception: If there is fraud or intent to evade payment of the tax, the assessment may be made
--------------------------------------------------------------b) Protest of assessment --------------------------------------------------------------Read Section 195, LGC Q: Outline the procedure in contesting a local tax assessment.
1. Assessment notice issued by local treasurer 2. File written protest with the local treasurer within 30 days from date of payment 3. The Treasurer has to decide within 60 days

4. An appeal to the RTC is then available upon denial or 60-day inaction by the treasurer 5. The RTC decision is appealable to the CTA En Banc 6. Appeal to the SC within 15 days from receipt of resolution.
Note: (1) Unlike in RPT, no protest under payment is required. (2) Review by RTC over denial of protest by the local treasurer falls within the courts original jurisdiction. NATIONAL TRANSMISSION CORPORATION VS. MUNICIPAL TREASURER OF LABRADOR, PANGASINAN, REPRESENTED BY EDUALINO CASIPIT IN HIS CAPACITY AS MUNICIPAL TREASURER, CTA AC NO. 67, JUNE 25, 2012 In local tax assessments, the CTA En Banc does not have jurisdiction over cases decided by the Regional Trial Court in the exercise of its original jurisdiction. NATIONAL POWER CORPORATION VS. THE CITY GOVERNMENT OF TUGUEGARAO, CTA EB CASE NO. 696 (RTC CIVIL CASE NO. 7240), JUNE 5, 2012 (3) What is the venue of your appeal of the denial of the protest by the local treasurer? In NATIONAL TRANSMISSION CORPORATION VS. THE MUNICIPALITY OF MAGALLANES, AGUSAN DEL NORTE [C.T.A. AC NO. 68, JANUARY 5, 2012], the CTA held that the local Governments assessment for business taxes and other regulatory fees is civil in nature and basically a personal action. For purposes of instituting personal actions in court, the place where the taxpayers principal office is located may also be considered as the proper venue. (4) The failure of the taxpayer to file and perfect its appeal with the regional trial court within the prescribed period deprives the Court of the jurisdiction to entertain and determine the correctness of the assessment made by the city treasurer. ACESITE (PHILIPPINES) HOTEL CORPORATION VS. LIBERTY TOLEDO, IN HER CAPACITY AS CITY TREASURER OF THE CITY OF MANILA AND THE CITY OF MANILA [CTA, MAY 24, 2012]. Taxpayer has 60 days from the date of receipt of the assessment to file a protest; failing which, the assessment shall become final and executor SPC REALTY CORPORATION VS. MUNICIPAL TREASURER OF CAINTA, CTA AC NO. 77, NOVEMBER 15, 2012
Q: What is the rule on refunds?

The taxpayer must file a written claim within 2 years from the date of payment of tax or from the date when the taxpayer is entitled to refund.
--------------------------------------------------------------9. Civil Remedies by the LGU for collection of revenues a) Local governments lien for delinquent taxes, fees or charges b) Civil Remedies, in general (i) Administrative action (ii) Judicial action --------------------------------------------------------------Read Section 172-185, LGC Q: What is the governments lien? nature of a local
Local taxes, fees, charges and other revenues constitute a lien, superior to all liens, charges, or encumbrances in favour of any person, enforceable by any appropriate administrative or judicial action (see Section 173, LGC)
Note: The lien may only be extinguished upon full payment of the delinquent local taxes, fees, and charges, including related surcharges and interest (see Section 173, LGC)
Q: What are the civil remedies available to the LGU for collection of revenues?
a. Administrative action i. Distraint of personal property ii. Levy upon real property iii. Compromise b. Judicial action
Note: Either of these remedies or both may be pursued concurrently or simultaneously at the discretion of the LGU concerned (see Section 174, LGC)
--------------------------------------------------------------c) Claim for refund of tax credit for erroneously or illegally collected tax, fee or charge --------------------------------------------------------------Read Section 196, LGC
Q: How is the administrative remedy of distraint or levy exercised?

By administrative action thru distraint of goods, chattels, or effects, and other personal property or whatever character, including stocks and other securities, debts, credits, bank accounts and interest

in and rights to personal property, and by levy upon real property and interest in or rights to real property. (see Section 174, LGC)
Note: (1) The remedies of distraint and levy may be repeated if necessary until the full amount due including all expenses is collected (see Section 184, LGC) (2) For properties exempt from distraint or levy, see Section 185, LGC
(Section 175, LGC)

Note: If the proceeds of the sale are insufficient other property may be distrained until the full amount due, including all expenses, is collected. (Section 175, LGC)
Q: Outline the procedure for distraint of real property 1. Warrant of Levy issued by the Local Treasurer
(LT), which has the force of legal execution in the LGU concerned. (Section 176, LGC) 2. Warrant is mailed to or served upon the delinquent owner (Section 176, LGC) 3. Written notice of the levy and the warrant is mailed/served upon the assessor and the Registrar of Deeds of the LGU (Section 176, LGC) 4. 30 days from service of warrant, LT shall advertise sale of the property by: a. posting notice at main entrance of LGU hall/building and in a conspicuous place in the barangay where property is located and b. by publication once a week for 3 weeks (Section 178, LGC)
Note: In cases of levy for unpaid local taxes publication is once a week for 3 weeks
Q: Outline the procedure for distraint of personal property

1. Tax constitutes a lien superior to all liens and
2. 3.
4.
5. 6.
7.
may only be extinguished upon payment of the tax and the related charges. (Section 173, LGC) Time for payment of Local taxes expires Local Treasurer (LT), upon written notice, seizes sufficient personal property to satisfy the tax, and other charges (Section 175, LGC) LT issues a certificate which serves as warrant for the distraint of personal property, (Section 175, LGC) Officer executing the distraint accounts for the goods, distrained (Section 175, LGC) Officer posts notice in office of the chief executive of the LGU where the property is distrained and in at least 2 other public places specifying the time & place of sale, and distrained goods. The time of sale shall not be less than twenty (20) days after the notice. (Section 175, LGC) Before the sale, the goods or effects distrained shall be restored to the owner if all charges are paid (Section 175, LGC)
5. Before the date of sale, the owner may stay the

proceedings by paying the delinquent tax, interest and the expenses of sale. (Section 178, LGC) 6. Sale is held: a. at the main entrance of the LGU building, or b. on the property to be sold, or c. at any other place specified in the notice (Section 178, LGC)
Note: The next steps in the procedure will vary depending on whether, on one hand, there is a bidder and on the other, there is no bidder or the highest bid is insufficient to cover the taxes and other charges.
Note: The next steps in the procedure will vary depending on whether the property distrained is disposed of within 120 days from distraint.
If disposed
If not disposed
8. Officer sells the goods at public auction to the highest bidder for cash. w/in 5 days, the local treasurer shall report sale to the local chief executive concerned (Section 175, LGC) 9. Excess of proceeds over charges shall be returned to the owner of the property sold.
8. It shall be considered as sold to the LGU for the amount of the assessment made by the Committee on Appraisal and to the extent of the same amount, the tax delinquencies shall be cancelled. (Section 175, LGC)
If there is a bidder
If there is no bidder OR the highest bid is insufficient to cover the taxes and other charges 7. LT shall purchase the property in behalf of the LGU (Section 181, LGC)
7. Bidder pays and 30 days after the sale, the LT shall report the sale to the

sanggunian (Section 178, LGC) 8. LT shall deliver to purchaser certificate of sale 9. Proceeds of sale in excess of delinquent tax, interest & expenses of sale remitted to the owner (Section 178, LGC) 10. Within 1 year from sale, owner may redeem upon payment of the 1. delinquent tax, 2. interest due, 3. expenses of sale (from date of delinquency to date of sale) and 4. addl interest of 2% per month on the purchase price from date of sale to date of redemption. Delinquent owner retains possession and right to the fruits (Section 179, LGC) 11. LT returns to the purchaser/bidder the price paid plus interest of 2% per month (Section 179, LGC) 12. If property is not redeemed, the local treasurer shall execute a deed of conveyance to the purchaser (Section 180, LGC)
Note: in cases of levy for unpaid local taxes, LT may purchase if there is no bidder or if the highest bid is insufficient (Section 181, LGC)
and other charges but for RPT, the LGU may purchase for only one reason there is no bidder! Its that simple. So memorize the procedure and just take note of these two distinctions between levying for local taxes and levying for RPT.
8. Registrar of Deeds shall transfer the title of the forfeited property to the LGU without need of a court order (Section 181, LGC) 9. Within 1 year from forfeiture, the owner, may redeem the property by paying to the local treasurer the full amount of the tax and the related interest and the costs of sale otherwise the ownership shall be vested on the local government unit concerned. (Section 181, LGC) 10. Sanggunian concerned may, by ordinance sell and dispose of the real property acquired under the preceding section at public auction. (Section 182, LGC)
Q: How is the remedy of judicial action exercised?

The LGU concerned may institute an ordinary civil action with the regular courts for the collection of delinquent taxes within 5 years from the date the taxes, fees or charges become due (see Section 138 in relation to Section 194, LGC)
Note: (1) In both cases, levy may be repeated until the full amount due, including all expenses, is collected. (2) This is important! To make our lives easier, I want you to note that the procedure for levying real properties to satisfy local taxes is.wait for it.the SAME as the levy procedure for satisfying RPT. Wait hindi pa tapos! Its the same EXCEPT for two things: (1) Publication is once a week for 3 weeks for local taxes while it is once a week for 2 weeks for RPT and (2) for local taxes, the LGU may purchase levied property for two reasons there is no bidder OR the highest bid is insufficient to cover the taxes

---------------------------------------------------------B. REAL PROPERTY TAXATION ---------------------------------------------------------Q: What are real property taxes?
These are direct taxes imposed on the privilege to use real property such as land, building, machinery and other improvements unless specifically exempted.
Note: Before we can even talk about real property taxation, I would have to state the obvious that this tax only applies to, well, real property. In any problem involving real property taxation, you must first determine if its real property or not. If its not real property, then its not subject to real property taxation. Thus, Ill discuss what are considered real properties for purposes of RPT.
(7) Fertilizer actually used on a piece of land; (8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant; (9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast; (10) Contracts for public works, and servitudes and other real rights over immovable property.
Note: Personal property may be classified as real property for purposes of taxation.
Q: Are the steel towers of an electric company real property for the purpose of RPT?
No. In BOARD OF ASSESSMENT APPEALS V. MERALCO [JAN. 31 1964], the Supreme Court held that the steel towers of MERALCO do not constitute real property or the purpose of the real property tax. The steel towers were regarded as poles and under its franchise Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached to any land or building. They were removable from their metal frames.
Q: What are considered real properties?

There is no definition provided for in the LGC. Reference must be made to Article 415 of the Civil Code, to wit.
Article 415. The following are immovable property: (1) Land, buildings, roads and constructions of all kinds adhered to the soil; (2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable; (3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; (4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements; (5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included; PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: Define machinery.
Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes (see Section 199(o), LGC)
Q: What types of machinery are subject and not subject to RPT?

1. Machinery that is permanently attached to land and buildings is subject to the real property tax, even though this is actually, directly, and exclusively used for religious, charitable or educational purposes.

2. Machinery that is not permanently attached to real estate is: a. Subject to the real property tax if it is an essential and principal element of an industry, work or activity without which such industry, work or activity, cannot function; b. Not subject to the real property tax if it is not an essential and principal element of an industry, work or activity. 3. Notwithstanding rules 1 and 2, machinery of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes is not subject to real property tax. (see DOF LOCAL FINANCE CIRCULAR 001-2002 [APRIL 25, 2002])
finished products for sale nor to repair machineries offered to the general public for business or commercial purposes considered as realty subject to RPT?
No. In MINDANAO BUS CO. V. CITY ASSESSOR & TREASURER [SEPT. 29, 1962], the Supreme Court held that for equipment to be real property, they must be essential and principal elements. In addition, the machinery should be essential to carry on business in a building or piece of land and this is not the case here since it was proven that the equipment was not essential because it is used only for repairs which could actually be done elsewhere.
Q: Define improvement.
Improvement is a valuable addition to the property or an amelioration in its condition amounting to more than a repair or replacement of parts. (see Section 199(m), LGC)
Q: Are the gas station equipment and machinery (tanks, pumps, etc) permanently affixed by Caltex to its gas station and pavement, albeit on leased land, considered real property subject to real property taxes even if lessor does not become the owner of the said assets?
Yes, because they are essential to the business of the taxpayer. In CALTEX V. CBAA [M AY 31, 1982], the Supreme Court ruled that he said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex and which fixtures are necessary to the operation of the gas station for without them the gas station would be useless and which have been attached or affixed permanently to the gas station site are taxable improvements and machinery. The case of DAVAO SAWMILL CO. V. CASTILLO [AUGUST 7, 1935] where at issue was whether the property was installed by the owner does not apply since in that case the issue was on execution of judgment against the lessee.
Q: What are the requisites for taxability of an improvement?

1. It must enhance the value of the property 2. It must be separately assessable 3. It can be treated independently from the main property.
Q: The City Assessor of CDO assessed as taxable the machinery of Asian College of Science and Technology (ACSAT), a nonstock, non-profit educational institution. Upon the issuance of DOF LOCAL FINANCE CIRCULAR 001-2002 [APRIL 25, 2002], the City Assessor declared the machinery as tax exempt effective the 2nd quarter of 2002. ACSAT argues that the exemption should retroact to the year 1998. Is ACSAT correct?
Yes. In BLGF OPINION DATED DECEMBER 15, 2006], it was held that the request for retroactive effectivity in 1998 of exemption of the subject machinery owned by ACSAT should be given due course
Q: Are generator sets real property for purposes of RPT?

No. [see BLGF OPINION DATED NOVEMBER 28, 2011]
Q: Are equipment/machineries in cement or wooden platform and which were never used as industrial equipments to produce
PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013 Page 121 of 164 Last Updated: 30 July 2013 (v3)

Q: What is the taxability of the following properties of a bank: (1) vault doors; (2) safety deposit boxes; (3) surveillance cameras; (4) generator sets; (5) water pumps; (6) uninterrupted power supply equipment; (8) exhaust fans; and (9) ceiling fans?
(1) Vault doors, (2) safety deposit box; and (3) surveillance cameras should be assessed as improvements for enhancing the utility of the bank. (4) to (9) do not fall within the definition of machinery subject to RPT. (see BLGF OPINION DATED M ARCH 22, 2005]
real property tax. AUGUST 5, 2004]
(see BLGF OPINION DATED
Q: MERALCO installed two oil storage tanks on a lot in Batangas which it leased from Caltex. They are used for storing fuel oil for MERALCOs power plants. Are the oil storage tanks real property for purposes of RPT?
Yes. In MERALCO V. CBAA [M AY 31, 1982], the Supreme Court held that while the two storage tanks are not embedded in the land, they are to be considered improvements on the land enhancing its utility and rendering it useful to the oil industry. The two tanks have been installed with some degree of permanence as receptacles for the considerable quantities oil needed by MERALCO for its operations.
Q: What is the taxability of the following properties of a bank: (1) ATM Machine procash; (2) Cash vault door protect; (3) Security cash locker fortress; (4) Protect safe deposit boxes; (5) Security Devices; (6) Magitek UPS; (7) Airconditioning units; (8) Computers (CPU, printer, deskset, monitors, scanner/HP Flatbed, PC Server, modem, etc.); (9) Phone Panasonic Wireless; (10) Phone SNI Digital; and (11) Exhaust fans?
Items Nos. 2-5 should have been classified as improvement subject to real property tax as discussed above; while item Nos. 6-11 should be classified as machinery of general purpose use thus exempt from payment of real property tax. ATMs, however, are correctly classified as machinery subject to real property tax. (see BLGF OPINION DATED FEBRUARY 17, 2005]
--------------------------------------------------------------1. Fundamental Principles --------------------------------------------------------------Read Section 198, LGC Q: Enumerate the fundamental principles that shall guide real property taxation.
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 3. Real property shall be assessed on the basis of a uniform classification within each LGU 4. The appraisal, assessment, levy and collection of real property tax shall not be let to any private person 5. The appraisal and assessment of real property shall be equitable.
Q: What is the taxability of the following properties: (1) printing and developing machine owned by a photo center and (2) equipment being utilized by water refilling stations in purification process?
The printing and developing machine owned by the photo center is a taxable real property considering that the same falls within the definition of "Machinery" without which, the work or activity of the said photo center cannot function, and therefore, an essential and principal element of the business of photography. On the other hand, the equipment being utilized by the water refilling stations thereat in purification process also fall within the definition of machinery and considered real property subject to

--------------------------------------------------------------2. Nature of Real Property Tax ---------------------------------------------------------------
Q: What is the nature of a real property tax?

a. It is a direct tax b. Indivisible single obligation c. Ad valorem tax based on the assessed value of the property d. Local tax e. Imposed on the use and not on the ownership of the property f. Progressive in character depending to a certain extent on the use and value of the property
Note: The ruling made by the Supreme Court in MERALCO SECURITIES INDUSTRIAL CORP. V. CBAA [MAY 31, 1982] to the effect that RPT is a national tax was made long before real property taxation was made part of the LGC.
1. In the case of a province, at the rate not exceeding 1% of the assessed value 2. In the case of a city or municipality within Metro Manila, at the rate not exceeding 2% of the assessed value
Note: The bar syllabus did not include special levies. Nonetheless, lets discuss the pertinent matters. I will not provide the codal anymore. Just refer to Section 235-245, LGC.
Q: What are the special levies under the LGC?

2. Additional Levy for the Special Education Fund (SEF) 1% on the assessed value of real property in addition to the basic RPT (see Section 235, LGC) 3. Special Levy on Idle Lands idle lands shall be taxed at a rate not exceeding 5% of the assessed value in addition to the basic RPT (see Section 236, LGC) 4. Special Levy by LGUs for lands benefited by public works (special assessment) the special levy shall not exceed 60% of the actual cost of such project and improvements, including the costs of acquiring land and other real property. (see Section 240, LGC)
--------------------------------------------------------------3. Imposition of real property tax a) Power to levy real property tax b) Exemption from real property tax ----------------------------------------------------------------------------------------------------------------------------a) Power to levy real property tax --------------------------------------------------------------Read Section 232 to 233, LGC Q: Do all types of LGUs have the power to impose real property taxes?
No. Only provinces and cities as well as municipalities within Metro Manila may impose RPTs. (see SECTION 200 AND 232, LGC) Municipalities outside Metro Manila and barangays cannot impose RPT.
Q: When may idle lands be exempted from tax?

a. b. c. d. Force majeure Civil disturbance Natural calamity Any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving, utilizing, or cultivating the same (see Section 238, LGC)
Q: What are the conditions for the validity of a tax ordinance imposing special levy for public works?
1. The ordinance shall describe the nature, extent, and location of the project, state the estimated cost, and specify the metes and bounds by monuments and lines (see Section 241, LGC)
Q: What are the rates of levy for purposes of RPT?

A province or city or municipality within Metro Manila shall fix a uniform rate of basic property tax applicable to their respective localities:

2. It must state the number of annual installments, not less than 5 years nor more than 10 years (see Section 241, LGC) 3. Notice to the owners and public hearing (see Section 242, LGC) Note: If you want to contest a special levy, the interested person may appeal to the LBAA and then to the CBAA following the same process as an administrative protest (see Section 244, LGC). Ill discuss the process later.
No. In METRO M ANILA M ANILA INTERNATIONAL AIRPORT AUTHORITY v. CA [JULY 20, 2006], the Supreme Court, in resolving the issue on whether the lands and buildings owned by the Manila International Airport Authority were subject to real property tax, ruled in the negative. The Supreme Court opined that since MIAA is not a GOCC but instead as government instrumentality vested with corporate powers or a government corporate entity. As such, it is exempt from real property tax. However, it must be noted that previously in M ACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY V. M ARCOS [SEPTEMBER 11, 1996], the Supreme Court ruled that MCIAA is a GOCC and since the last paragraph of Section 234 of the LCG unequivocally withdrew the exemptions from payment of RPT granted to natural or juridical including GOCCs, MCIAA is now liable for RPT.
--------------------------------------------------------------b) Exemption from real property tax --------------------------------------------------------------Read Section 234, LGC Q: What are the properties exempt from RPT?
a. Real property owned by the Republic or any of its political subdivisions (except when beneficial use has been granted to a taxable person) b. Charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings or improvements actually, directly, and exclusively used for religious, charitable or educational purposes c. All machineries and equipment actually, directly and exclusively used by local water districts and GOCCs engaged in supply and distribution of water and/or generation and transmission of electric power d. All real property owned by duly registered cooperatives e. Machinery and equipment used for pollution control and environmental protection 32 (includes infrastructure)
Q: Is the Philippine Fisheries Development Authority (PFDA) a GOCC and, hence, now liable for RPT?
No. In PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY V. CA [JULY 31, 2007], the Supreme Court ruled that the PFDA is not a GOCC but an instrumentality of the national government which is generally exempt from payment of RPT. However, said exemption does not apply to the portions of the properties which the PFDA leased to private 33 entities.
Q: Is the GSIS liable for RPT?

No. As held in GSIS V. CITY TREASURER OF THE CITY OF M ANILA [DECEMBER 23, 2009], the Supreme Court stated that the ruling in METRO M ANILA M ANILA INTERNATIONAL AIRPORT AUTHORITY v. CA [JULY 20, 2006] argues for the non-tax liability of the GSIS for RPT. The Court ruled that GSIS is an instrumentality of the government and, as such, is not a taxable juridical person for purposes of RPT.
Section 234(a) Q: Is the Metro Manila International Airport Authority (MMIA) a GOCC which will now be considered liable for RPT under the LGC?
Q: Is the Philippine Reclamation Authority (PRA) a GOCC and, as such, liable for RPT?
32
Note that under RA 7942 (Philippine Mining Act of 1995), pollution control devices exempted from RPT include infrastructure.
33
Note that under Section 234 the exemption to the government and its political subdivisions does not apply to properties whose beneficial use has been granted to a taxable person

No. In PHILIPPINE RECLAMATION AUTHORITY V. CITY OF PARANAQUE [JULY 18, 2012], the Supreme Court ruled that PRA is not a GOCC. Much like the MIAA, PPA, UP, PFDA, GSIS and BSP, it is considered a government instrumentality exercising corporate powers but which are not considered GOCCs as they are neither a stock (for not having the authority to distribute dividends), not a non-stock corporation (for not having members) corporation. In addition, the Constitution likewise provides that a GOCC is created under two conditions: (a) established for a common good and (b) meets the test of economic viability. While test (a) is complied with, the PRA was undoubtedly not created to engage in economic or commercial activities as it is the only entity engaged in reclamation which was described as essentially a public service. Thus, PRA is not liable for RPT.
commercial purposes. Are these exempt from real property taxes?

No. In LUNG CENTER OF THE PHILIPPINES V. QUEZON CITY [433 SCRA 119], the Supreme Court held that the hospital was not exempt from real property tax on the portions of its property not actually, directly, and exclusively used for charitable purposes. Thus, those leased out for commercial purposes are subject to real property tax. Those used by the hospital even if used for paying patients remain exempt from real property taxes.
Q: Is the Light Rail Transit Authority (LRTA) a GOCC, and, as such, liable for RPT?
Yes. Although not expressly stating that LRTA is a GOCC, the Supreme Court in LIGHT RAIL TRANSIT AUTHORITY V. CBAA [OCTOBER 12, 2000] stated that the LRTA is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. It operates much like any private corporation engaged in the mass transport industry. As such, it is liable for RPT.
Q: ABC Association is a non-stock, nonprofit organization owned by XYZ Hospital in Cebu City. XYZ likewise owns the XYZ Medical Arts Center. The City Assessor assessed the XYZ Medical Arts Center Building with the assessment level of 35% for commercial buildings (instead of the 10% special assessment imposed on XYZ hospital and its buildings). Was the medical arts center built to house its doctors a separate commercial building?
No. The Supreme Court in CITY ASSESSOR OF CEBU CITY V. ASSOCIATION OF BENEVOLA DE CEBU INC. [JUNE 8, 2007] ruled that the fact alone that doctors holding clinics in the separate medical center are consultants of the hospital and the ones who treat the patients takes way the medical center from being categorized as commercial. The Supreme Court classified the medical arts center building as special for the following reasons: (1) the medical arts center was an integral part of the hospital; (2) the medical arts center facility was incidental to and reasonably necessary for the operations of the hospital; and (3) charging rentals for the offices used by its accredited physicians was a practical necessity and could not be equated to a commercial venture.
Q: ABC Company owned two parcels of land in Pasig City. Portions of the properties are leased to different business establishments. Being part of ill-gotten wealth of the Marcoses, the owner of ABC voluntarily surrendered ABC Company to the Republic through the PCGG. Now, Pasig City seeks to impose RPT on the properties of ABC. Are the properties of ABC liable for RPT?
It depends. In PASIG CITY V. REPUBLIC [AUGUST 24, 2011], the Supreme Court held that the portions of the properties not leased to taxable entities are exempt from RPT while the portions leased to taxable entities are subject to RPT.
Section 234(c) Q: What are the requisites to claim exemption from RPT for machineries and equipment used by LWDs and GOCCs?
1. The machineries and equipment are actually, directly, and exclusively used by the LWDs and GOCCs
Section 234(b)
Note: Remember our discussions in General Principles of Taxation
Q: The Philippine Lung Center leased portions of its real property out for

2. The LWDs and GOCCs claiming exemption must be engaged in the supply and distribution of water and/or generation and transmission of electric power.
and/or actually uses the machineries and equipment for generation and transmission of power. The CBAA affirmed. Are the properties exempt from RPT?
No. NAPOCORs basis for exemption which is Section 243(c) provides that the machinery and equipment used for generation and transmission of power must be actually, directly and exclusively used by the GOCC. The machineries and equipment here are owned by BPPC, subject only to the transfer of these properties to NAPOCOR after the lapse of the 15-year period agreed upon. BPPCs use of the machineries and equipment are actual, direct and immediate while NAPOCORs is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for exemption ( see NAPOCOR V. CBAA [JANUARY 30, 2009]). Similarly, in NAPOCOR V. PROVINCE OF QUEZON [JULY 15, 2009], at issue was whether NAPOCOR as a GOCC can claim exemption under Section 234 of the LGC for the taxes due from the Mirant Pagbilao Corporation whose tax liabilities the NAPOCOR has contractually assumed under the BOT Agreement where Mirant would build and finance a power plant and transfer the same to NAPOCOR after 25 years without compensation. The Supreme Court ruled that NAPOCOR does not have the legal interest that the law requires to give it personality to protest the tax imposed by law on Mirant. Further, the machinery and equipment must actually, directly and exclusively be used by the GOCC. Here, NAPOCORs use is merely contingent
Q: FELS entered into a lease contract with NAPOCOR over two engine power barges at Balayan Bay Batangas. The lease contract stipulated that NAPOCOR shall be responsible for all taxes (including RPT on the barges), fees and charges that FELS may be liable except income tax of FELS and its employees and construction permit and environmental fees. FELS was assessed for RPT and the LBAA upheld the assessment stating that while the barges may be classified as personal property, they are considered real property for RPT purposes because they are installed at a specific location with a character of permanency. Are the power barges subject to RPT?
Yes. First, Article 415(9) of the Civil Code provides that docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake or coast. Barges fall under this provision. Second, FELS cannot claim exemption given that the requirement is that to be exempt the machineries and equipment must be actually, directly and exclusively used by GOCCs engaged in the generation of power. Since the agreement between FELS and NAPOCOR is that FELS will own and operate the barges and not NAPOCOR. (see FELS ENERGY . PROVINCE OF BATANGAS [FEBRUARY 16, 2007]).
Section 234(e) Q: ABC Mining operates a Siltation Dam and Decant System. The Provincial Assessor of Marinduque assessed the same for RPT. Is the subject property exempt from RPT?
The answer would be yes in light of SECTION 91 OF RA 7942 IN RELATION TO SECTION 3(AM) which includes infrastructure in the definition of pollution control devices exempt from RPT. Nonetheless, it must be noted that in PROVINCIAL 34 ASSESSOR OF M ARINDUQUE V. CA [APRIL 30, 2009],
Q: FPPC entered into a BOT Agreement with NAPOCOR for the construction of a powerplant. Under the agreement BPPC was created to own, manage and operate the powerplant. The BOT Agreement provided that after a period of time, the power plant shall be transferred to NAPOCOR without payment of any compensation and that NAPOCOR shall be responsible for payment of RPT. BPCC was assessed for RPT. NAPOCOR filed a petition to declare the properties exempt from RPT. The LBAA ruled that the properties were not exempt as this is only available to a GOCC which owns
34
The Supreme Court pointed out that the disputed assessment notice took effect on 1 January 1995. The governing law was the

the Supreme Court ruled that the tax exemption of machineries and equipment used for pollution control and environmental protection is based on usage, i.e., direct, immediate and actual application of the property itself to the exempting purpose. Here, the Supreme Court found that the subject property was not a machinery used for pollution control, but a structure adhering to the soil and intended for pollution control.
Note: It must be noted that, by virtue of Section 234 of the LGC, any exemption from RPT previously granted or presently enjoyed by all persons, whether natural or juridical, including all GOCCs were withdrawn upon the effectivity of the LGC. We have to note that Congress has the power to exempt an entity again from RPT notwithstanding the withdrawal made by the LGC.
Q: Prior to the LGC, XYZ telecom was exempted from paying RPT under its original franchise. Years after the effectivity of the LGC, Congress passed a law amending XYZs franchise and contained a reenactment of the tax provision in XYZs original franchise granting it RPT exemption. Is XYZ liable for RPT?
No. As held in CITY GOVERNMENT OF QUEZON CITY V. BAYAN TELECOMMUNICATIONS [M ARCH 6, 2006], the Supreme Court held that the RPT exemption enjoyed by Bayantel under its original franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by the new law which amended its original franchise.
Q: ABC Telecom was granted a 25-year franchise to install, operate and maintain telecommunications system throughout the Philippines under a law which states that The grantee shall be liable to pay the same taxes on its real estate, building, and personal property exclusive of this franchise. As they were not being issued a Mayors permit, ABC Telecom paid RPT under protest. ABC argued that the phrase exclusive of this franchise means that only the real properties not used in furtherance of its franchise are subject to RPT. Is ABCs contention correct?
No, the properties of ABC whether or not used in its telecommunications business is subject to RPT. In DIGITAL TELECOMMUNICATIONS PHILIPPINES INC. V. CITY GOVERNMENT OF BATANGAS [DECEMBER 11, 2008], the Supreme Court held that the phrase exclusive of this franchise qualifies the term personal property. This means that the legislative franchise, which is an intangible personal property, shall not be subject to taxes. This is to put franchise grantees in parity with non-franchisees as the latter obviously do not have franchises which may potentially be subject to RPT. There is nothing in the law which expressly or even impliedly exempts the company from RPTC. Finally, the company cannot rely on the BGLF opinion as they have no authority to rule on claims for RPT exemption.
--------------------------------------------------------------4. Appraisal and assessment of real property tax a) Rule on appraisal of real property at fair market value b) Declaration of real property c) Listing of real property in assessment rolls d) Preparation of schedules of fair market value (i) Authority of assessor to take evidence (ii) Amendment of schedule of fair market value e) Classes of real property f) Actual use of property as basis of assessment g) Assessment of real property (i) Assessment levels (ii) General Revisions of assessments and property classification (iii) Date of effectivity of assessment or reassessment (iv) Assessment of property subject to back taxes (v) Notification of new or revised assessment h) Appraisal and assessment of machinery --------------------------------------------------------------Note: In most of these items, I will simply provide the codal provisions as they are self-explanatory. I will focus on the important matters.
1991 LGC. All references to RA No. 7942, which came into effect only on 14 April 1995, were all out of place.
--------------------------------------------------------------Page 127 of 164 Last Updated: 30 July 2013 (v3)

a) Rule on appraisal of real property at fair market value --------------------------------------------------------------Read Section 201, LGC
(i) Authority of assessor to take evidence (ii) Amendment of schedule of fair market value --------------------------------------------------------------Read Section 212, LGC
Q: How is real property appraised?

All real property, whether taxable or exempt, shall be appraised at the current and FMV prevailing in the locality where the property is situated (see Section 201, LGC).
Note: FMV is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer not compelled to buy.
Q: When is the schedule of FMVs prepared?

The schedule of FMVs shall be prepared before any general revision of property assessment is made
Q: Who prepares the schedule of FMVs?

The provincial, city and the municipal assessors of the municipalities within Metro Manila prepares the schedule of FMV for the different classes of real property situated in their respective LGUs for enactment by ordinance of the Sanggunian concerned.
Note: (1) The schedule of FMV shall be published in a newspaper of general circulation in the province, city or municipality concerned or the posting in the provincial capitol or other places as required by the law. (2) The proposed FMVs of real property in a LGU as well as the ordinance containing the schedule must be published in full for 3 consecutive days in a newspaper of local circulation where available, within 10 days of its approval and posted in at least 2 prominent places in the provincial capitol, city, municipal, or barangay hall for a minimum of 3 consecutive weeks (Figuerres v. CA [March 25 ,1999])
--------------------------------------------------------------b) Declaration of real property --------------------------------------------------------------Read 202-204, LGC Q: What is the purpose of a tax declaration?
A tax declaration only enables the assessor to identify the property for purposes of determining the assessment levels. It does not bind the assessor when he makes the assessment.
Q: Are tax declarations conclusive evidence of ownership?

As a rule, tax declarations are not conclusive evidence of ownership. However, as held in TABUENA V. CA [M AY 6, 1991], the rule admits of an exception: tax receipts and tax declarations become strong evidence of ownership acquired by prescription when accompanied by proof of actual possession of the property.
Q: What are the different approaches in estimating the FMV of real property for RPT purposes?
1. Sales Analysis Approach the sales price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the Register of Deeds, notaries public, appraisers, brokers, dealers, bank officials, and various sources stated under the LGC 2. Income Capitalization Approach the value of an income-producing property is no more than the return derived from it. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property
--------------------------------------------------------------c) Listing of real property in assessment rolls --------------------------------------------------------------Read Section 205, LGC --------------------------------------------------------------d) Preparation of schedules of fair market value

3. Reproduction cost approach the formal approach used exclusively in appraising manmade improvements such as buildings and other structures, based on such data as materials and labor costs to reproduce a new replica of the improvement (Allied Banking Corp v. Quezon City Government [October 11, 2005] citing Local Assessment Regulations No. 1-92)
Note: An ordinance whereby the parcels of land sold, ceded, transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the BIR prevailing at the time of sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate of payment of the CGT issued therefore is invalid being contrary to public policy and for restraining trade (see Allied Banking Corp v. Quezon City Government [October 11, 2005] )
Agricultural Land
Commercial Land
Industrial Land
Mineral Lands
--------------------------------------------------------------(i) Authority of assessor to take evidence --------------------------------------------------------------Read Section 213, LGC --------------------------------------------------------------(ii) Amendment of schedule of fair market value --------------------------------------------------------------Read Section 214, LGC --------------------------------------------------------------e) Classes of real property --------------------------------------------------------------Read Section 215 to 216, LGC
Is land devoted principally to the planting of trees, raising of crops, livestock and poultry, dairying, salt making, inland fishing and similar aquaculture activities and other agricultural activities and is not classified as mineral, timber, residential, commercial or industrial land Is land devoted principally for the object of profit and is not classified as agricultural, industrial, mineral, timber or residential land Is land devoted principally to industrial activity as capital investment and is not classified as agricultural, commercial, timber, mineral or residential land Are lands in which minerals exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such minerals
Q: What are the special classes of real property under the LGC?
All lands, buildings, and other actually, directly and exclusively: improvements
1. Used for hospitals, cultural or scientific purposes 2. Owned and used by local water districts 3. Owned and used by GOCCs rendering essential public services in a. Supply and distribution of water; b. Generation and transmission of electric power
--------------------------------------------------------------f) Actual use of property as basis of assessment --------------------------------------------------------------Read Section 217, LGC Q: The real property of Mr. and Ms. X, situated in a commercial area in front of the public market, was declared in their tax declaration as residential because it is used as their family residence. However, when the spouses left for the US to stay there permanently with their children, the property has been rented to a single proprietor engaged in sale of appliances and
Q: What are the classes of real property for assessment purposes?

4. 5. 6. 7. 8. 9. Residential Agricultural Commercial Industrial Mineral Special
Is land principally habitation devoted to
Residential Land

agricultural products. The Provincial assessor reclassified the property as commercial for tax purposes. Mr. and Ms. X appealed to the LBAA and argued that the tax declaration classifying their property as residential is binding. Is the contention of the spouses correct?
No. The law focuses on the actual use of the property for classification, valuation and assessment purposes regardless of ownership. Section 217 of the LGC provides that 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.
Q: What is the procedure in computing real property tax?

1. Ascertain the assessment level of the property 2. Multiply the market value by the applicable assessment level of the property 3. Find the tax rate which corresponds to the class (use) of the property and multiply the assessed value by the applicable tax rates. Otherwise stated:
--------------------------------------------------------------g) Assessment of real property (i) Assessment levels (ii) General Revisions of assessments and property classification (iii) Date of effectivity of assessment or reassessment (iv) Assessment of property subject to back taxes (v) Notification of new or revised assessment --------------------------------------------------------------Q: Define assessment.
Assessment is the act or process of determining the value of a property or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties.
--------------------------------------------------------------(ii) General Revisions of assessments and property classification --------------------------------------------------------------Read Section 219, LFC Q: What are the steps to be followed for the mandatory conduct of general revision of real property assessments under Section 219 of the LGC?
1. Preparation of the Schedule of FMVs 2. The enactment of Ordinances a. Levying an annual ad valorem tax on real property and an additional tax accruing to the SEF b. Fixing the assessment levels to be applied to the market values of the real properties c. Providing necessary appropriation to defray expenses incident to general revision of real property assessments d. Adopting the Schedule of FMVs prepared by the assessors (see LOPEZ V. CA [FEBRUARY 19, 1999]
Note: This is not included in the Syllabus but just note that the following are the instances where he assessor shall make a valuation of real property: (1) the real property is declared and listed for taxation purposes for the first time; (2) there is an ongoing general revision of property
Q: Define assessment level.

It is the percentage applied to the FMV of the real property to determine the taxable value of the property . Note: I will do away with the different values here. Ill discuss instead how the assessed value is arrived at. So for the different percentages, please refer to Section 218 of the LGC.
Q: Define assessed value

It is the FMV of the real property multiplied by the assessment level. It is synonymous with taxable value PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) classification and assessment; or (3) a request is made by the person in whose name the property is declared. (see Section 220, LGC)
--------------------------------------------------------------(iii) Date of effectivity of assessment or reassessment --------------------------------------------------------------Read Section 221, LGC --------------------------------------------------------------(iv) Assessment of property subject to back taxes --------------------------------------------------------------Read Section 222, LGC --------------------------------------------------------------(v) Notification of new or revised assessment --------------------------------------------------------------Read Section 223, LGC --------------------------------------------------------------h) Appraisal and assessment of machinery --------------------------------------------------------------Read Section 224-225, LGC --------------------------------------------------------------5. Collection of real property tax a) Date of accrual of real property tax and special levies b) Collection of tax (i) Collecting authority (ii) Duty of assessor to furnish local treasurer with assessment rolls (iii) Notice of time for collection of tax c) Periods within which to collect real property tax d) Special rules on payment (i) Payment of real property tax in installments (ii) Interests on unpaid real property tax (iii) Condonation of real property tax e) Remedies of LGUs for collection of real property tax
(i) Issuance of notice of delinquency for real property tax assessment (ii) Local governments lien (iii) Remedies in general (iv) Resale of real estate taken for taxes, fees, or charges (v) Further levy until full payment of amount due ----------------------------------------------------------------------------------------------------------------------------a) Date of accrual of real property tax and special levies --------------------------------------------------------------Read Section 246, LGC --------------------------------------------------------------b) Collection of tax (i) Collecting authority (ii) Duty of assessor to furnish local treasurer with assessment rolls (iii) Notice of time for collection of tax --------------------------------------------------------------Read 247 to 249, LGC --------------------------------------------------------------c) Periods within which to collect real property tax --------------------------------------------------------------Read 270, LGC Q: What is the rule on assessment of RPT?
General Rule: The assessment must be made within 5 years from the date they become due Exception: If there is fraud or intent to evade taxes, assessment may be made within 10 years from discovery of fraud or intent to evade.
Q: What is the rule on collection of RPT?

Collection of RPT must be made within 5 years from assessment

Q: In what instances is the running of the prescriptive period be suspended?

1. Treasurer is legally prevented from assessing/ collecting 2. Taxpayer requests for reinvestigation and executes waiver 3. Taxpayer is out of the country or cannot be located
----------------------------------------------------------------------------------------------------------------------------(i) Issuance of notice of delinquency for real property tax assessment --------------------------------------------------------------Read Section 254, LGC
In real estate taxation, the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. (NATIONAL GRID CORPORATION OF THE PHILIPPINES VS. CENTRAL BOARD OF ASSESSMENT APPEALS [CTA EB NO. 801, JANUARY 29, 2013])
--------------------------------------------------------------d) Special rules on payment (i) Payment of real property tax in installments (ii) Interests on unpaid real property tax (iii) Condonation of real property tax --------------------------------------------------------------Read Section 250, 255, 276-277 LGC
Q: In what instances can there be a condonation or reduction of RPT? 1. General failure of crops 2. Substantial decrease in the price agricultural or agri-based products 3. Calamity 4. When public interest so requires
--------------------------------------------------------------(ii) Local governments lien --------------------------------------------------------------Read Section 257, LGC Q: What is the Local Governments Lien?
The basic RPT constitutes as a lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the owner or possessor thereof, enforceable by administrative or judicial action and may only be extinguished by payment of the tax and related interests and expenses. In TESTATE ESTATE OF CONCORDIA LIM V. CITY OF M ANILA [FEBRUARY 21, 1990], the Supreme Court held that unpaid real estate taxes attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it, regardless of whether or not he is the owner.
of
Note: (1) In the case of (1) to (3), the condonation is done by the Sanggunian concerned by ordinance and upon recommendation of the Local Disaster Coordinating Council. In the case of (4), only the President may exercise this power. (2) In EXECUTIVE ORDER 27 [FEBRUARY 28, 2011], the President under the power given to him by Section 227 of the LGC reduced the RPT payable in Quezon by independent power producers under BOT contracts with GOCCs and condoned the penalties and surcharges of such RPT payables.
--------------------------------------------------------------e) Remedies of LGUs for collection of real property tax (i) Issuance of notice of delinquency for real property tax assessment (ii) Local governments lien (iii) Remedies in general (iv) Resale of real estate taken for taxes, fees, or charges (v) Further levy until full payment of amount due
--------------------------------------------------------------(iii) Remedies in general (iv) Resale of real estate taken for taxes, fees, or charges (v) Further levy until full payment of amount due --------------------------------------------------------------Read Section 256 to 269, LGC

Q: What are the remedies available to the LGU for the collection of RPT?
1. Administrative action thru levy of real property a. Distraint of personal property b. Lien on property subject to tax c. Levy on real property tax 2. Judicial action
Note: The above simultaneous remedies are concurrent and
d. by publication once a week for 2 weeks (Section 260, LGC)

Note: In cases of levy for unpaid local taxes publication is once a week for 3 weeks
7. Before the date of sale, the owner may stay the

proceedings by paying the delinquent tax, interest and the expenses of sale. 8. Sale is held: a. at the main entrance of the LGU building, or b. on the property to be sold, or c. at any other place specified in the notice
Note: The next steps in the procedure will vary depending on whether there is a bidder or not.
Q: When is there levy on real property?

After the expiration of the time required to pay the tax levied, the real property subject to tax may be levied upon.
Note: (1) The remedies of and levy may be repeated if necessary until the full amount due including all expenses is collected (see Section 265, LGC) (2) Notice and publication for sale, as well as the legal requirements for a tax delinquency sale are mandatory and failure to comply can invalidate the sale. ( De Knecht v. CA; De Knecht v. Sayo [290 SCRA 223] )
If there is a bidder 9. Bidder pays and 30 days after the sale, the LT shall report the sale to the sanggunian 10. LT shall deliver to purchaser certificate of sale 11. Proceeds of sale in excess of delinquent tax, interest & expenses of sale remitted to the owner (Section 260, LGC) 12. Within 1 year from sale, owner may redeem upon payment of the 1. delinquent tax, 2. interest due, 3. expenses of sale (from date of delinquency to date of sale) and additional interest of 2% per month on the purchase price from date of sale to date of redemption. Delinquent
If there is no bidder 9. LT shall purchase the property in behalf of the LGU (Section 263, LGC)
Note: in cases of levy for unpaid local taxes, LT may purchase if there is no bidder or if the highest bid is insufficient (Section 181, LGC)
Q: Outline the procedure for levy on real property

Note: Owner means owner or administrator of real property or any person having legal interest thereto.
1. Tax constitutes a lien on the property superior to

all liens and may only be extinguished upon payment of the tax and charges. (Section 257, LGC) Time for payment of real property taxes expires (Section 258, LGC) Warrant of Levy issued by the Local Treasurer (LT), which has the force of legal execution in the LGU concerned. (Section 258, LGC) Warrant is mailed to or served upon the delinquent owner (Section 258, LGC) Written notice of the levy and the warrant is mailed/served upon the assessor and the Registrar of Deeds of the LGU (Section 258, LGC) 30 days from service of warrant, LT shall advertise sale of the property by: c. posting notice at main entrance of LGU hall/building and in a conspicuous place in the barangay where property is located and
2. 3. 4. 5.
6.
10. Registrar of Deeds shall transfer the title of the forfeited property to the LGU without need of a court order (Section 263, LGC) 11. Within 1 year from forfeiture, the owner, may redeem the property by paying to the local treasurer the full amount of the tax and the related interest and the costs of sale otherwise the ownership shall be vested on the local government unit concerned. (Section 263, LGC) 12. Sanggunian concerned may, by

owner retains possession and right to the fruits (Section 261, LGC) 13. LT returns to the purchaser/bidder the price paid plus interest of 2% per month (Section 261, LGC) 14. If property is not redeemed, the local treasurer shall execute a deed of conveyance to the purchaser (Section 262, LGC)
ordinance sell and dispose of the real property acquired under the preceding section at public auction. (Sectiton 264, LGC)
general law. Thus, the period shall be counted from the date of annotation of the sale.
Q: Discuss the remedy of civil action for collection of real property tax.
The civil action for the collection of real property tax shall be filed by the local treasurer in any court of competent jurisdiction within 5 or 10 years wherein real property taxes may be collected. (see Section 266, LGC)
--------------------------------------------------------------6. Refund or credit of real property tax a) Payment under protest b) Repayment of excessive collections --------------------------------------------------------------Note: I will discuss payment under protest and refund under Taxpayers Remedies.
Note: (1) In both cases, levy may be repeated until the full amount due, including all expenses, is collected. (Section 265, LGC) (2) Again recall what I said in the levying procedure for local taxes. The procedure for levying real properties to satisfy local taxes is the SAME as the levy procedure for satisfying RPT EXCEPT for two things: (1) Publication is once a week for 3 weeks for local taxes while it is once a week for 2 weeks for RPT and (2) for local taxes, the LGU may purchase levied property for two reasons there is no bidder OR the highest bid is insufficient to cover the taxes and other charges but for RPT, the LGU may purchase for only one reason there is no bidder! Its that simple. So memorize the procedure and just take note of these two distinctions between levying for local taxes and levying for RPT.
Q: What is the redemption period for tax delinquent properties sold at public auction?
Under the LGC, the redemption period is within 1 year from the date of sale. However, in CITY M AYOR OF QUEZON CITY V. RCBC [AUGUST 3, 2010], the Supreme Court ruled that while the LGC provides that the one year period begins from the date of sale on which date the delinquent tax is and other fees are paid, the local tax ordinance of Quezon City provides that the period is reckoned from the date of annotation of the sale. To reconcile the two conflicting laws, the Court applied the rule that a special law prevails over a PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
--------------------------------------------------------------7. Taxpayers remedies a) Contesting an assessment of value of real property (i) Appeal to the Local Board of Assessment Appeals (ii) Appeal to the Central Board of Assessment Appeals (iii) Effect of payment of tax b) Payment of real property tax under protest (i) File protest with local treasurer (ii) Appeal to the Local Board of Assessment Appeals (iv) Appeal to the CTA (v) Appeal to the Supreme Court -------------------------------------------------------------Note: This outline creates the impression that contesting an assessment and payment under protest are two different remedies of the taxpayer. That is wrong! Theyre part of the same process. The distinction should instead be made on whether the taxpayer is questioning the validity of the tax ordinance (in such case, the assessment would be illegal or void) or is disputing the correctness, reasonableness or excessiveness of the assessment. If the taxpayer is questioning the validity of the tax ordinance, the taxpayer may either question the legality of a tax ordinance before the DOJ Secretary under Section 187 of the LGC or question the constitutionality of the

(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the Latest Supreme Court and CTA Jurisprudence as of January 31, 2013) ordinance before the Regular Courts. In this case, payment under protest is not required. If the taxpayer is questioning the correctness, reasonableness or excessiveness of the assessment, the taxpayer will resort to administrative remedies. In this case, payment under protest is required. Lets now discuss the administrative remedies.
Read Section 226 to 231, LGC Q: Who may contest the assessment of real property?
In order for a taxpayer to have legal standing to contest an assessment to the LBAA, he must be a person having legal interest in the property. In NAPOCOR V. PROVINCE OF QUEZON [JULY 15, 2009], the Supreme Court stated that legal interest is defined as interest in property or a claim cognizable at law, equivalent to that of a legal owner who has legal title to the property. A review of the provisions of the 1991 LGC on real property taxation shows that the phrase person having legal interest in the property has been repeatedly adopted and used to define an entity: 1. in whose name the real property shall be listed, valued, and assessed; 2. who may be summoned by the local assessor to gather information on which to base the market value of the real property; 3. who may protest the tax assessment before the LBAA and may appeal the latters decision to the CBAA; 4. who may be liable for the idle land tax, as well as who may be exempt from the same; 5. who shall be notified of any proposed ordinance imposing a special levy, as well as who may object the proposed ordinance; 6. who may pay the real property tax; 7. who is entitled to be notified of the warrant of levy and against whom it may be enforced; 8. who may stay the public auction upon payment of the delinquent tax, penalties and surcharge; and 9. who may redeem the property after it was sold at the public auction for delinquent taxes.
1. Pay the tax under protest and annotation of paid under protest in receipt 2. File written protest with local treasurer within 30 days from payment of the tax 3. Treasurer to decide within 60 days from receipt of the protest 4. From treasurers decision or inaction, appeal to the LBAA within 60 days 5. LBAA to decide within 120 days 6. Appeal LBAA decision to CBAA within 30 days from receipt of adverse decision 7. CBAA appealable to CTA en banc within 30 days from receipt of the adverse decision of the CBAA 8. Appeal to SC within 15 days from receipt of adverse decision of CTA
Note: (1) In (4), if the treasurers decision is in favor of the taxpayer, he may now apply for a tax refund or tax credit.
Q: What is the effect of an appeal on assessments?

An appeal on assessments of real property shall, in no case, suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending upon the final outcome of the appeal. (see Section 231, LGC)
Q: Can the RTC issue an injunction against the collection of RPT if there is a pending appeal with the LBAA?
Yes. In TALENTO V. ESCALADA, JR. [JUNE 27, 2008], the Supreme Court held that as a general rule, appeal shall not suspend the collection of RPT. However, an exception to the rule is where the taxpayer has shown a clear and unmistakable right to refuse or hold in abeyance the payment of RPT. In this case, the taxpayer showed that the assessments covered more than 10 years, the assessment included items which should properly be excluded, and the subject assessment should take effect on January 1 the following year. Further, the filing of a bond was deemed to have been in compliance with Section 11 of RA 9282.
Payment under Protest Read Section 252, LGC
Q: Enumerate the process in contesting a RPT assessment.


Q: Is payment a pre-requisite to protest an assessment for RPT?

Yes. SECTION 252 OF THE LGC provides that no protest shall be entertained unless the taxpayer first pays the tax.
Q: When is payment under protest not required?

Prior payment under protest is applicable only if the issue is anchored on the correctness, reasonableness or excessiveness of assessment, hence, considered a question of fact Prior payment under protest is not required when the taxpayer is questioning the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax as opposed to questioning the increase/decrease in the tax to be paid. (see JARDINE DAVIES INSURANCE BROKERS, INC. V. ALIPOSA [FEBRUARY 27, 2003]).
Yes. By claiming an exemption from realty taxation, NAPOCOR is simply raising the question of the correctness of the assessment. As such real property taxes must be paid prior to the making of the protest. On the other hand, if the taxpayer is questioning the authority of the local assessor to assess RPT, it is not necessary to pay the RPT prior to the protest. A claim for tax exemption, whether full or partial, does not question the authority of the local assessor to assess RPT (NAPOCOR v. Province of Quezon [January 25, 2010])
Refund or Credit of RPT Read Section 253, LGC Q: What is the rule on refunds of RPT?
The taxpayer must file the written claim within 2 years from the date of payment of tax or from the date when the taxpayer is entitled to reduction or 36 adjustment. The provincial treasurer has 60 days to decide the claim for tax refund or credit
Q: Can the taxpayer file a case directly to the RTC if it claims that it was questioning the authority of the treasurer to assess and not only the amount of the assessment?
No. In OLIVARES V. JOEY M ARQUEZ [SEPTEMBER 22, 2004], it was found that the taxpayer raised issues on prescription, double taxation, and tax exemption. In such case, the correctness of the assessment must be dealt with and the treasurer has initial jurisdiction and his decision is appealable to the 35 LBAA. Payment under protest is required. Q: The Province of Quezon assessed Mirant for unpaid real property taxes. NAPOCOR, which entered a BOT with Mirant, protested the assessment before the LBAA, claiming the entitlement to tax exemption under Sec. 234 of the LGC. The RPT assessed were not paid prior to the protest. LBAA dismissed NAPOCORs petition for failure to make a payment under protest. Is NAPOCOR required o make a payment under protest?
Q: What is the remedy available if the claim for tax refund or credit is denied?
Follow steps 4 to 8 in the procedure in contesting an RPT assessment.
35
Unlike in JARDINE DAVIES INSURANCE BROKERS, INC. V. ALIPOSA [FEBRUARY 27, 2003], the taxpayer in this case should make a payment under protest as the issues included correctness of the assessment.
36
Supervening cause doctrine applies.

---------------------------------------------------------IV. TARIFF AND CUSTOMS CODE -----------------------------------------------------------------------------------------------------------------------A. Tariff and duties, defined --------------------------------------------------------------Q: Define tariff.
Tariff is the list or schedule of articles on which a duty is imposed upon the importation into the country with the rates at which they are severally taxed. Derivatively, it is the system of imposing duties or taxes on the importation of foreign merchandise.
--------------------------------------------------------------C. Purpose for imposition --------------------------------------------------------------Q: What is the purpose of imposing a tax on imported articles?
They are imposed to: 1. Raise government revenues 2. Protect consumers and manufacturers, as well as, Philippine products.
--------------------------------------------------------------D. Flexible tariff clause --------------------------------------------------------------Read Section 401, TCC Q: What is the flexible tariff clause?
Q: Define customs duties.

Customs duties is the name given to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from or exported to, a foreign country. (Nestle v. CA [July 6, 2001])
Note: Tariff and customs duties are used interchangeably.
The flexible tariff clause is a provision in the TCC which implements the constitutionally delegated power to the Congress to further delegate to the President of the Philippines, in the interest of national economy, general welfare, and/or national security upon recommendation of the NEDA: a. Increase, reduce or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem b. Establish import quota or to ban imports of any commodity c. To impose additional duty on all imports not exceeding 10% ad volorem, whenever necessary
--------------------------------------------------------------B. General Rule: all imported articles are subject to duty 1. Importation by government taxable --------------------------------------------------------------Read Section 100, TCC Q: What is the rule on imported articles?
As a general rule, all imported articles shall be subject to duty even though previously exported from the Philippines.
Read Section 1205, TCC Q: What is importations? the rule on government
All importations of the government for is own use or that of its subordinate branches or instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government shall be subject to duties.
--------------------------------------------------------------E. Requirements of importation 1. Beginning and ending of importation 2. Obligations of importer a) Cargo manifest b) Import entry c) Declaration of correct weight or value d) Liability for payment of duties e) Liquidation of duties f) Keeping of records ----------------------------------------------------------------------------------------------------------------------------1. Beginning and ending of importation --------------------------------------------------------------Page 137 of 164 Last Updated: 30 July 2013 (v3)

Read Section 1201 to 1202, TCC Q: When does importation begin and when does it end?
Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of the duties, taxes, and other charges due upon the agencies or secured to be paid at the port of entry and he legal permit for withdrawal shall have been granted.
Note: Why is important to know when importation begins and ends? The jurisdiction of the BoC to enforce the provisions of the TCC including seizure and forfeiture also begins from the beginning of imporation. Thus, the BoC obtains jurisdiction over imported articles only after importation has begun. On the other hand, the BoC loses jurisdiction to enforce the TCC and to make seizures and forfeitures after importation is deemed terminated.
arrived within the limits of the port of entry. ( see SECTION 205, TCC)
Q: When are imported articles deemed have been withdrawn from the warehouse in the PH for consumption?
Imported articles shall be deemed "withdrawn" from the warehouse in the Philippines for consumption when the specified form is properly filed and accepted, together with any related documents required by any provisions of this Code and/or regulations to be filed with such form at the time of withdrawal, by the customs official designated to receive the withdrawal entry and any duties, taxes, fees and/or other lawful charges required to be paid at the time of withdrawal have been deposited with the customs official designated to receive such payment. (see SECTION 205, TCC)
Q: What is meant by entry in relation to the TCC?

Entry has a three-fold meaning: a. The documents filed at the customs house b. The submission and acceptance of the documents; and c. Customs declaration forms or customs entry forms required to be accomplished by passengers of incoming vessels or passenger planes as envisaged under Section 2505 of the TCC. (Failure to Declare Baggage) (Jardeleza v. People [February 6, 2006])
Q: When does the BoC acquire exclusive jurisdiction over imported goods for the purpose of enforcing customs laws?
From the moment imported goods are actually in the possession or control of the Customs authorities, even if no warrant for seizure or detention had previously been issued by the Collector of Customs in connection with the seizure and forfeiture proceedings. (see SUBIC BAY METROPOLITAN AUTHORITY V. RODRIGUEZ [APRIL 23, 2010])
Read Section 205, TCC Q: When are imported articles deemed to have entered the PH for consumption?
Imported articles shall be deemed "entered" in the Philippines for consumption when the specified entry form is properly filed and accepted, together with any related documents required by the provisions of this Code and/or regulations to be filed with such form at the time of entry, at the port or station by the customs official designated to receive such entry papers and any duties, taxes, fees and/or other lawful charges required to be paid at the time of making such entry have been paid or secured to be paid with the customs official designated to receive such monies, provided that the article has previously PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Q: A flight attendant arrived from Singapore. Upon her arrival she was asked whether she has anything to declare. She answered none, and she submitted her Customs Baggage Declaration Form which she accomplished and signed with nothing or written on the space for items to be declared. When her bag was examined some pieces of jewelry were found concealed within the lining of the bag. She was then convicted of violating Section 3601 for unlawful importation. She now appeals claiming that the lower court erred in convicting her under Section 3601 when the facts alleged both in the information and those shown by the prosecution constitute the offense under Section 2505 Failure to

Declare Baggage of which acquitted. Is she correct?
she
was Read Section 1204, TCC

e. Liquidation of duties f. Keeping of records Liquidation means the final computation or ascertainment of the duties to be imposed on the imported articles. It is akin to an assessment of internal revenye taxes under the NIRC where the tax liability of the taxpayer is definitely determined. (Pilipinas Shell v. CoC [June 18, 2009])
No. Section 2505 does not define a crime. It merely provides the administrative remedies which can be resorted to by the BoC when seizing dutiable articles found in the baggage of any person arriving in the Philippines which is not included in the accomplished baggage declaration submitted to the customs authorities and he administrative penalties that such person must pay for the release of such goods if not imported contrary to law. Such administrative penalties are independent of any criminal liability for smuggling that may be imposed under Section 3601. (Jardeleza v. People [February 6, 2006])
Read Section 1601 to 1604, TCC --------------------------------------------------------------F. Importation in violation of TCC 1. Smuggling 2. Other fraudulent practices --------------------------------------------------------------Q: Define smuggling.
Smuggling is an act of any person who shall fraudulently import or bring into the Philippines or assist in so doing, any article, contrary to law or shall receive, conceal, buy or sell or in any manner facilitate the transportation, concealment or sale of such article after importation knowing the same to have been imported contrary to law. It includes the exportation of articles in a manner contrary to law. (see Section 3519, TCC)
--------------------------------------------------------------2. Obligations of importer a) Cargo manifest b) Import entry c) Declaration of correct weight or value d) Liability for payment of duties e) Liquidation of duties f) Keeping of records --------------------------------------------------------------Q: What are the obligations of the importer?
a. Cargo Manifest A cargo manifest is the document used in shipping, containing the list of the contents, value, origin, carrier and destination of the goods to be shipped.
Read Section 3601, TCC Q: How is smuggling committed?

Smuggling is committed by any person who: a. Fraudulently imports or brings into the country any article contrary to law b. Assists in so doing any article contrary to law c. Receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such goods after importation knowing the same to have been imported contrary to law (Rodriguez v. CA [September 18, 1995]) The commission of smuggling through the first type transpired when the shipments of 3x40 container vans were declared to contain Used Truck Page 139 of 164 Last Updated: 30 July 2013 (v3)
Read Section 1105, TCC

b. Import Entry An import entry is a declaration to the BoC showing particulars of the imported articles that will enable the customs authorities to determine the correct duties and internal revenue taxes due on the importation. It is also known as Marine Entry and Internal Revenue Declaration
Read Section 1301 to 1307, TCC

c. Declaration of Correct Weight Value
Read Section 1402 and 2523, TCC

d. Liability for payment of duties PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

Replacement Parts, when in truth and in fact, the shipment contained fifteen units of Sportage and Galloper. (PEOPLE OF THE PHILIPPINES VS. ROEL PAQUIT SAYSON, CTA CRIM CASE NO. O-094, DECEMBER 12, 2012)
Note: Mere possession of alleged smuggled goods is prima facie evidence of guilt of the smuggling unless the defendant could explain that his possession is lawful.
3. Conditionally-free importation --------------------------------------------------------------Q: What are the classes of importation under the TCC?
1. Dutiable Importation (Section 100, TCC) 2. Prohibited Importations (Section 101 and 1207, TCC) 3. Conditionally-Free Importations (Section 105, TCC) 4. Drawbacks (Section 106, TCC)
Q: Is payment a defense in smuggling?

No. The law expressly provides that payment of the tax due after apprehension shall not constitute a valid defense in any prosecution under this section.
Q: What are dutiable importations?

They refer to those imported articles subject to duty and not otherwise exempted by the TCC or other special laws.
Q: What are the other fraudulent practices against customs revenue aside from unlawful importation? Read Section 3602, TCC
1. Entry of imported articles or exported article by means of any false or fraudulent practices, invoice, declaration, affidavit, or other documents 2. Entry of goods at less than their true weights or measures or upon a classification as to quality or value 3. Payment of less than the amount due 4. Filing any false or fraudulent claim for the payment of drawback or refund of duties upon the exportation of merchandise 5. Filing any affidavit, certificate or other document ot secure to him or to others the payment of any drawback, allowance or refund of duties on the exportation of merchandise greater than that legally due thereon
Note: In PEOPLE OF THE PHILIPPINES VS. MARIVIC BRIONES, DAVID BANGA, BENJAMIN VALIC, CTA CRIM CASE NO. 0158, JULY 23, 2012, the CTA held that in the prosecution for violation of Section 3602 of the Tariff and Customs of the Philippines, in relation to Article 172 of the Revised Penal Code, it must prove beyond reasonable doubt that the accused in conspiracy with the other accused, made or attempted to make an entry of the alleged imported article through the filing of the said Import Entry at the Bureau of Customs
Read Section 100, TCC Q: What are prohibited importations?

They refer to those articles that are cannot be imported into the PH because they are contrary to policy, morals, laws, etc. Examples include: 1. Dynamite, gunpowder, ammunition and explosives, other weapons (except when authorized by law) 2. Written or printed articles advocating or inciting treason, rebellion, or insurrection 3. Written or printed articles, etc of an obscene or immoral character 4. Articles, instruments, drugs and substances designed for unlawful abortion 5. Devices used in gambling or the distribution of money, cigarettes, or other articles when such distribution is dependent on chance 6. Lottery and sweepstakes tickets (Except those authorized) 7. Any article manufactured in gold, silver or other precious metals when there is no indication of the actual fineness of quality 8. Adulterated or misbranded articles of food and drugs 9. Marijuana, opium and other narcotics 10. Opium pipes and parts thereof 11. All other articles and parts prohibited by law or rules and regulations
--------------------------------------------------------------G. Classification of goods 1. Taxable importation 2. Prohibited importation


Read Section 101, TCC Q: What are conditionally-free importations?

They refer to those articles which are allowed to be imported into the PH but subject to conditions. Examples include: 1. Articles for repair, re-conditioning to be reexported within 6 months (requires a bond) 2. Personal effects for balikbayans excluding cars, and must not be commercial quantity and no exceeding P2,000 (can be brought in 90 days after arrival) 3. Articles to be donated to relief organizations (must be certified by DSWD, DepEd) 4. Samples not for commercial sales, including medicines (but must not be available in PH) 5. Economical, technical, vocational, scientific, philosophical, historical, cultural books/publications and bibles
Q: X and his wife Y, Filipino living in the Philippines went on a 3-month pleasure trip around the world during the months of June, July, and August 2002. In the course of their trip, they accumulated some personal effects which were necessary, appropriate and normally used in leisure trips as well as souvenirs in noncommercial quantities. Are they returning residents for purposes of Section 105 of the TCC?
No. The term returning residents refers to nationals who have stayed in a foreign country for a period of at least 6 months (see Section 105(f), TCC). Due to their limited duration of stay abroad, X and Y are not considered as returning residents but they are merely considered as travelers or tourists who likewise enjoy the benefit of conditionally-free importation (see Section 105(g), TCC)
Q: What are drawbacks? Read Section 105, TCC Q: Jacob after serving a 5-year tour of duty as military attach in Jakarta, Indonesia returned to the Philippines bringing with him his personal effects, including a personal computer and a car. Would Jacob be liable for taxes on these items?
No. Jacob will be exempted provided he complies with the requirements under Section 105 of the TCC. The requirements are: a. The car must have been ordered or purchased prior to the receipt by the Philippine mission or consulate of the recall order b. The car is registered in his name c. The exemption shall apply only to the value of the car d. The exemption shall apply to the aggregate value of his personal and household effects not exceeding 30% of the total amount received by him as salary and allowances during his assignment but not to exceed 4 years e. He must not have availed of the exemption more oftener than once every four years (see last para. Section 105, TCC) They refer to refunds or tax credits of duties paid on goods that are being exported or used in the 37 production of manufactured exports Examples include: 1. Fuel used for propulsion of vessels engaged in trade with foreign countries or coastwise trade 2. Petroleum Oils or Oils obtained from bituminous minerals, crude eventually used for generation of electric power and manufacture of city gas 3. On certain articles made from imported articles subject to certain conditions.
Q: What are freely importable commodities?

Under Section 7(1) of Central Bank Circular no. 1389, freely importable commodities are those importations which are neither regulated nor prohibited and may be effected without the prior approval of or clearance from any government agency. UNIMEX MICRO-ELECTRONICS GMBH VS.
37
Section 106(e), TCC provides that Claims for refund or tax credit eligible for such benefits shall be paid or granted by the Bureau of Customs to claimants within sixty (60) days.

REPUBLIC OF THE PHILIPPINES, CTA CASE NO. 8412, NOVEMBER 14, 2012
b. Specific customs duties
Q: What are ad valorem customs duties? --------------------------------------------------------------H. Classification of duties 1. Ordinary/Regular duties a) Ad valorem; methods of valuation (i) Transaction value (ii) Transaction value of identical goods (iii) Transaction value of similar goods (iv) Deductive value (v) Computed value (vi) Fallback value b) Specific 2. Special duties a) Dumping duties b) Countervailing duties c) Marking duties d) Retaliatory/discriminatory duties e)Safeguard duties ----------------------------------------------------------------------------------------------------------------------------1. Ordinary/Regular duties a) Ad valorem; methods of valuation (i) Transaction value (ii) Transaction value of identical goods (iii) Transaction value of similar goods (iv) Deductive value (v) Computed value (vi) Fallback value b) Specific --------------------------------------------------------------Q: What are ordinary or regular duties?
These are axes that are imposed or assessed upon merchandise from or exported to a foreign country for the purpose of raising revenue. They may also be imposed to serve as protective barriers which would prevent the entry of merchandise that would compete with locally manufactured items. They are also referred to as tariff barriers These are customs duties that are computed on the basis of value (see Section 201, TCC)
Q: What are the methods of determining dutiable values? Read Section 201-205, 1313 TCC
The methods of determining the dutiable value are as follows (by order of preference): 1. Transaction value an ad valorem rate of duty equivalent to the price actually paid or payable for the goods when sold for export to the Philippines, as adjusted; 2. Transaction value of identical goods the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued; identical goods shall mean goods which are the same in all respects, including physical characteristics, quality and reputation, discounting minor differences in appearances; 3. Transaction value of similar goods the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued; similar goods shall mean goods which, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable; 4. Deductive value an amount based on the unit price at which the imported gods or identical or similar imported goods are sold in the Philippines, in the same condition as when imported, in the greatest aggregate quantity, at or about the time of importation of the goods being valued, to persons not related to the persons from whom they buy such goods, as adjusted;
38
Q: What are the kinds of ordinary or regular duties?

Ordinary or regular court duties may be: a. Ad valorem customs duties or PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
38
Methods four and five may be reversed.

5. Computed value the aggregate value of the cost or value of materials and fabrication or other processing employed in producing the imported goods, amount for profit andNgeneral expenses, freight, insurance fees and other transportation expenses for the importation of the goods, among others; and 6. Fallback value an amount determined by using other reasonable means and on the basis of data available in the Philippines.
Note: The transaction value is the primary method of determining dutiable value. If the transaction value of the imported article could not be determined using the above, the alternative methods should be used one after the other.
2. Special duties a) Dumping duties b) Countervailing duties c) Marking duties d) Retaliatory/discriminatory duties e)Safeguard duties --------------------------------------------------------------Q: What are special duties?
These are additional import duties imposed on specific kinds of imported articles under certain conditions. It cannot be applied without the regular customs duties. It can only be applied in the presence of a special order from government officers.
Q: What are the kinds of special duties? Q: Define transaction value

The following are special duties: It is the price actually paid/payable when exported to PH adjusted by adding the following: 1. Commissions, cost of containers, packing cost, cost of tools, engineering, artwork if supplied free of charge, royalties 2. Value of subsequent resale accruing to the seller 3. Cost of transport & loading/unloading charges from port of exportation to port of entry in PH (costs within PH already excluded) 4. Insurance. 1. 2. 3. 4. 5. Anti-Dumping (Section 301, TCC) Countervailing (Section 302, TCC) Marking (Section 303, TCC) Discriminatory (section 304, TCC) Safeguard Duties (RA 8800)
Read Section 301, TCC Q: What is an anti-dumping duty?

It is a special duty imposed on the importation of a product, commodity or article of commerce into the Philippines at less than its normal value when destined for domestic consumption in the exporting country which is the difference between the export 39 price and the normal value of such product, commodity or article. (see Section 301(s)(1), TCC)
Q: When is transaction value (method one) not used?

1. Buyer imposes restrictions on sale or use of goods (except if imposed by law, geographical limits, not affect value of goods) 2. Sale is subject to some condition/consideration which cannot be valued 3. Part of subsequent resale accrues to seller and amount undeterminable 4. Buyer and seller are related a. business partners b. holds 5% equity c. common control th d. relatives up to 4 degree
Q: What are the requisites for the imposition of anti-dumping duty?

The requisites are the following: a. Where the product, commodity or article of commerce i. Is exported into the Philippines
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--------------------------------------------------------------PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Normal value for purposes of imposing the anti-dumping duty is the comparable price at the date of sale of like product, commodity or article in the ordinary course of trade when destined for consumption in the country of export (see Section 301(s)(3), TCC, as amended by RA 8752)

ii. iii.
At a price less than its normal value When destined for domestic consumption
b. And such exportation i. Is causing or ii. Is threatening to cause material injury to a domestic industry iii. Materially retards the establishment of a domestic industry producing like product (see Section 301(a), TCC, as amended by RA 8752)
Note: (1) The imposing authority for the anti-dumping duty is the DTI Secretary in the case of non-agricultural product, commodity, or article or the DA Secretary in the case of agricultural product, commodity or article. (2) Even when all the requirements for the imposition have been fulfilled, the decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission (3) In the determination of whether to impose the antidumping duty, the Tariff Commission may consider among others, the effect of imposing an anti-dumping duty on the welfare of the consumers and/or the general public, and other related local industries (4) The amount of anti-dumping duty that may be imposed is the difference between the export price and the normal value of such product, commodity, or article.
(2) The countervailing duty is equivalent to the bounty (cash award paid to an exporter), subsidy (fiscal incentives, not in the form of cash award, to encourage manufacturers or exporters) or subvention (any assistance other than bounty or subsidy). (3) The imposing authority for the countervailing duties is the DTI Secretary in the case of non-agricultural product, commodity, or article or the DA Secretary in the case of agricultural product, commodity or article.
Read Section 303, TCC Q: What is a marking duty?

A marking duty are the additional customs duties imposed on foreign articles (or its containers if the article itself cannot be marked) not marked in any official language in the Philippines in a conspicuous place as legibly, indelibly and permanently in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin. (See Section 303, TCC)
Q: What are the exceptions to marking of articles?

1. The article is incapable of being marked 2. The article cannot be marked prior to importation to the Philippines without injury 3. The article cannot be marked prior to importation to the Philippines except at an expense economically prohibitive of its importation 4. The marking of the container of such article will reasonably indicate the origin of such article 5. The article is of a crude substance 6. Such article is for the use of the importer and not intended for sale in its imported or other form 7. Such article is to be processed in the Philippines by the importer or for his own account and not for the purpose of concealing the origin of such article 8. The ultimate purchaser by the Character of the article necessarily know the country of origin of such article 9. Such article was produced more than 20 years prior to its importation into the Philippines 10. Such article cannot be marked after importation except at an expense economically prohibitive and the failure to mark the article before importation was not due to any purpose of the importer, producer, seller or shipper to avoid compliance.
Note: (1) Only the CoC may impose marking duties
Read Section 302, TCC Q: What is a countervailing duty?

It is a special duty imposed on the importation of a product, commodity or article of commerce into the Philippines when the same is granted directly or indirectly by the government in the country of origin or exportation any kind or form of specific subsidy upon the production, manufacture or exportation of such product, commodity or article, and the importation of such subsidized product, commodity or article has caused or threatens to cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry as determined by the Tariff Commission. (see Section 302, TCC, as amended by RA 8751)
Note: (1) The countervailing duty shall be in addition to any ordinary duties, taxes, and charges imposed by law on such imported product or article

(2) The marking duty is equivalent to 5% ad valorem
Read Section 304, TCC Q: What is a discriminatory duty?

It is an additional customs duty imposed upon articles wholly or in part, the growth or product of, or imported in a vessel of any foreign country whenever the President shall find as a fact that such country: a. Directly or indirectly upon any Philippine product unreasonable charge, exaction, regulation or limitation which is not equally enforced upon like articles of other foreign countries b. Discriminates in fact against the commerce of the Philippines as o place the Philippines at a disadvantage compared with the commerce of any foreign country (See Section 304, TCC)
Note: It is the President who imposes the discriminatory duties.
2. Taxpayer a) Protest b) Abandonment c) Abatement and Refund ----------------------------------------------------------------------------------------------------------------------------1. Government a) Administrative/extrajudicial (i) Search, seizure, forfeiture, arrest b) Judicial (i) Rules on appeal including jurisdiction --------------------------------------------------------------Q: What are government? the remedies of the
a. Administrative/Extrajudicial Remedies b. Judicial Remedies
Q: When does the BoC normally avail itself of the administrative remedy instead of the judicial remedy and vice versa?
a. Administrative Remedy when the goods to which the tax lien attaches, regardless of ownership is still in the custody or control of the government. In the case, however, of importations which are prohibited or undeclared, the remedy of seizure and forfeiture may still be exercised even if the goods are no longer in its custody b. Judicial Remedy when the goods are properly released and thus beyond the reach of a tax lien, the government can seek payment of the tax liability through judicial action since the tax liability of the importer constitutes a personal debt to the government, therefore, enforceable by action.
Q: What are safeguard measures?

Safeguard measures are emergency measures including tariffs to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.
Note: (1) The CTA is vested with jurisdiction to review decisions of the DTI Secretary imposing safeguard measures as provided under RA 8800, the Safeguard Measures Act (see Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corp [July 8, 2004]) (2) The imposing authority for the safeguard measures is the DTI Secretary in the case of non-agricultural product, commodity, or article or the DA Secretary in the case of agricultural product, commodity or article. (3) The DTI Secretary cannot impose the safeguard measures if the Tariff Commission does not favorably recommend its imposition.
--------------------------------------------------------------a) Administrative/extrajudicial (i) Search, seizure, forfeiture, arrest --------------------------------------------------------------Q: What are the extrajudicial (or administrative remedies) available to the government?
1. Enforcement of tax lien (Section 1204 and Section 1508, TCC) 2. Seizure and forfeiture (Section 2201-2212, 2301-2317, 2530-2536, TCC) Page 145 of 164 Last Updated: 30 July 2013 (v3)
--------------------------------------------------------------I. Remedies 1. Government a) Administrative/extrajudicial (i) Search, seizure, forfeiture, arrest b) Judicial (i) Rules on appeal including jurisdiction

Read Section 1024, 1058, NCC Q: What is a tax lien in relation to the TCC?
The liability for duties, taxes, fees and other charges of an importer constitutes a lien upon the articles imported which may be enforced while such articles are in custody or subject to the control of the government. The Collector shall hold the delivery of any article imported or consigned to an importer whenever such importer has an outstanding and demandable account with the BoC. If subsequently authorized by the Commissioner and upon notice, the Collector may sell such importation or a portion thereof to cover the outstanding account of the importer.
Customs officers may seize any vessel, aircraft, cargo, article, animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under the TCC and related rules and regulations. (see Section 2205, TCC)
Note: The BoC may conduct search and seizures even without the benefit of a warrant issued by a judge upon probable cause except if the search is to be conducted in a dwelling.
Q: When is a warrant of seizure issued by the CoC?

The CoC upon probable cause that the articles are imported or exported or are attempted to be imported or exported, in violation of the TCC shall issue a warrant of seizure.
Note: (1) If the search and seizure is to be conducted in a dwelling place, then a search warrant should be issued by the regular courts and not the BoC. (2) The rules on warrantless search and seizures also apply such as in search and seizures of motor vehicles and vessels. In such cases, no warrants issued by the BoC or regulars is required. (3) If the smuggled goods are seized by virtue of a court warrant, they should be surrendered to the court that issued the warrant not to the BoC because the goods are in custodia legis. (4) The payment of customs duties, taxes does not necessarily render as irregular and improper the issuance of a warrant of seizure
--------------------------------------------------------------(i) Search, seizure, forfeiture, arrest --------------------------------------------------------------Note: This how seizure and forfeiture works. First, the articles are seized by the customs authorities. A warrant of seizure is used for said purpose. In the case of a search in a dwelling, a search warrant from the regular courts would have to be procured. Second, the Collector upon making any seizure shall issue a Warrant of Detention. The articles may be released if a bond is filed except if there is prima facie evidence of fraud in their importation in which case the seized articles may not be released by a bond. Then the forfeiture proceedings take place. The only issue is whether the seized goods should be forfeited. The case can be compromised or be subject of a settlement. The Collector may either issue a Declaration of Forfeiture or rule that the seized articles are not subject to forfeiture. Thus, either the importer or the government can be aggrieved by said decision. If the importer is aggrieved, he may file an administrative protest to the CoC and if denied, he can proceed to the CTA and so on. If the government is aggrieved, there is automatic review by the CoC and then by the DOF Secretary. If said bodies decide in favor of the government, the importer may proceed to the CTA and so on. Tada! Its not that complicated. This is how Ill organize the discussion below. First, Ill discuss seizure and arrest and provide the related provisions. Second, Ill discuss what properties are subject to forfeiture. Third, Ill discuss the forfeiture proceeding itself and which body has jurisdiction over the same.
Read Section 2530-2536, TCC Q: What are the requisites for forfeiture of imported goods?
a. Wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit or the wrongful making or delivery by the same person of any invoice, letter or paper all touching on the importation or exportation of merchandise b. The falsity of such declaration, affidavit, invoice, letter or paper c. An intention on the part of the importer/consignee to evade the payment of the duties due (Republic v. CA [October 2, 2001])
Read Section 2201-2212, TCC Q: What is the power of seizure and arrest?
Read Section 2530 to 2536, TCC

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013 Page 146 of 164 Last Updated: 30 July 2013 (v3)

Q: What properties are subject to forfeiture under the TCC?

See Section 2530, TCC.
Note: Under Section 2530(a), it is not necessary that the vessel or aircraft must itself carry the contraband. The complementary if collateral use of the vessel or aircraft for the smuggling operation is sufficient for it to be deemed to have been used in smuggling.
Danny, the truck owner, did not have a certificate of public convenience to operate his trucking business. Danny did not know that the shipment of garlic was illegally imported. Can the CoC of the port seize and forfeit the truck as an instrument in the smuggling?
Yes, the CoC of the port can seize and forfeit the truck as an instrument of the smuggling since the same was used unlawfully in the importation of smuggled articles. The mere carrying of such articles on board the truck in commercial quantities shall subject the truck to forfeiture, since it was no being used as a duly authorized common carrier, which was chartered or leased as such (see Section 2530(a), TCC) Further, although forfeiture of the vehicle will not be affected if it is established that the owner thereof had no knowledge of or participation in the unlawful act, there arises a prima facie presumption of knowledge or participation if the owner is not in the business for which the conveyance is generally used. Thus, not having a certificate of public convenience to operate a trucking business, he is legally deemed no to have been engaged in the trucking business (see Section 2531, TCC)
Q: What properties are not subject to forfeiture?

See Section 2531, TCC.
Q: Are common forfeiture?
carriers
subject
to
As a general rule, they are not subject to forfeiture. However, if the owner has knowledge of its use in smuggling and was a consenting party, it may be forfeited. Pursuant to Section 2530 of the Tariff and Customs Code of the Philippines, the mere carrying or holding on board of smuggled articles shall subject the vessel to forfeiture. However, the vessel is not subject to forfeiture if it is engaged as duly authorized common carrier and as such carrier it is not chartered or leased. THE COMMISSIONER OF CUSTOMS AND THE UNDERSECRETARY OF FINANCE VS. GOLD M ARK SEA CARRIERS, INC., CTA EB NO. 825, DECEMBER 24, 2012
Read Section 2301-2317, TCC

Note: I will reserve the discussion of the administrative protest (in the case of an aggrieved importer) and automatic review of the CoC (in the case of the aggrieved government) when I discuss Protest under the Remedies of the Taxpayer. For now, I will limit it to the administrative proceeding.
Q: When is there prima facie knowledge by the owner of the common carrier?
There is prima facie knowledge by the owner of the common carrier of its use in smuggling: a. If the conveyance was used for smuggling at least twice before b. If the owner is not in the business for which the conveyance is generally used c. If the owner is not in a position to own such conveyance
Q: Discuss the administrative proceeding of forfeiture from issuance of warrant of detention to declaration of forfeiture.
1. Collector issues warrant for detention of property (if owner or importer desires to secure release of property for legitimate use, Collector may surrender subject property upon filing of sufficient bond) 2. Collector immediately reports seizure to COC and Chairman of COA 3. Collector gives owner or importer or his agent written notice of seizure and opportunity to be heard 4. Collector causes preparation of list and particular description of property seized, as Page 147 of 164 Last Updated: 30 July 2013 (v3)
Q: In smuggling a shipment of garlic, the smugglers used an eight-wheeler truck which they hired for the purpose of taking out the shipment from the customs zone.

well as appraisal and classification of the same 5. Collector, after hearing and in writing, makes a declaration of forfeiture or fixes amount of fine or takes such action as may be proper
Note: As a result of (5), the aggrieved owner or imported may file what is called an administrative protest. In said protest, he is essentially questioning the decision of the Collector before CoC. In some cases, instead of a declaration of forfeiture, it is the government who is aggrieved. In such case, automatic review shall apply. See discussion under Administrative Protest.
Q: Who has jurisdiction to hear and determine questions touching on the seizure and forfeiture of dutiable goods?
The CoC sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. As held in SUBIC BAY METROPOLITAN AUTHORITY V. RODRIGUEZ [APRIL 23, 2010], the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and the regular courts cannot interfere with his exercise thereof or enjoin or interfere with it. The regular courts are precluded from assuming cognizance over such matters even through petitions for certiorari, prohibition, or mandamus. The RTC must defer to the exclusive original jurisdiction of the BOC in such proceedings. This is known as the doctrine of primary jurisdiction.
prevent smuggling and other frauds upon customs c. To render effective and efficient the collection of import and export duties due he State which enables the government to carry out its functions d. The issuance by regular courts of preliminary injunction in seizure and forfeiture proceedings before the BoC may arouse suspicion that the issuance or grant was for consideration other than the strict merits of the case (see Zuno v. Cabredo [402 SCRA 75]) e. Under the doctrine of primary jurisdiction, the BoC has exclusive administrative jurisdiction to conduct searches and seizures and forfeitures of contraband without interference from the courts. It could conduct search and seizures without need of a judicial warrant except if the search is to be conducted in a dwelling place.
Q: What is the nature of customs seizure and forfeiture cases?

They are administrative and civil in nature and are directed against the res or the imported articles and entail the determination of the legality of the importation. These are actions in rem. Thus, it is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property is used illegally. The absence or lack of actual knowledge of such use is a defense personal to the owner himself, which cannot in any way absolve the vessel from the liability of forfeiture (CoC v. Manila Star Ferry [October 21, 1993]) In CORNELIO Q. CASIDO V. REPUBLIC OF THE PHILIPPINES, AND HON. NAPOLEON L. MORALES [C.T.A. CASE NO.8087, FEBRUARY 8, 2012], the CTA held that forfeiture of seized goods by the BOC is an action in rem against the goods and not against the owner. Absence of knowledge or participation of the owner in the unlawful act does not absolve the vessel/goods from forfeiture
Note: (1) The issue is limited to whether the imported goods should be forfeited and disposed of in accordance with law for violation of the TCC (see Transglobe International v. CA [January 25, 1999] ) (2) Forfeiture of seized goods in the BoC is a proceeding against the goods and not against the owner ( Asian Terminals v. Bautista-Ricafort [October 27, 2006])
Q: What is the rationale for the exclusive customs jurisdiction doctrine?

a. RTCs have no jurisdiction to replevin a property which is subject to seizure or forfeiture proceedings for violation of the TCC. Otherwise, actions for forfeiture of property for violation of the Customs laws could easily be undermined by the simple device of replevin (see Dela Fuente v. De Veyra [120 SCRA 455]) b. The doctrine of exclusive customs jurisdiction over customs cases to the exclusion of the RTC is anchored upon the policy of placing no unnecessary hindrance on the governments drive, not only to

Q: May forfeiture cases be compromised?

Yes. Subject to the approval of the Secretary of Finance, the CoC may compromise any case arising under the TCC or other laws or part of laws enforced by the BoC involving the imposition of fines, surcharges, and forfeitures (see Section 2306, TCC)
from receipt refers to his decisions on administrative tax protests. Unless an appeal is made to the CTA in the manner and within the period prescribed by law, the action or ruling of the CoC shall be final and conclusive (Pilipinas Shell v. CoC [June 18, 2009]) Note that the CTA has jurisdiction only over decisions of the CoC in cases involving seizures, detention or release of property affected, not the decision of the Collector.
Q: May forfeiture cases be settled?

Yes. Settlement of cases by payment of fine or redemption of forfeited property is allowed. There are, however, exceptions: a. The importation is absolutely prohibited b. The surrender of the property to the person offering to redeem would be contrary to law c. When there is fraud
Note: The above enumeration are also the instances where there is no right of redemption of seized and forfeited articles (see Transglobe International v. CA [January 25, 1999]).
I will discuss this more in relation to administrative tax protests.
--------------------------------------------------------------2. Taxpayer a) Protest b) Abandonment c) Abatement and Refund ----------------------------------------------------------------------------------------------------------------------------a) Protest --------------------------------------------------------------Read Section 2308 to 2315, TCC Q: What is an administrative tax protest?
A tax protest case, under the TCC, involves a protest of the liquidation of import entries. In other words, it is a protest which questions the legality or correctness of assessed customs duties.
--------------------------------------------------------------b) Judicial (i) Rules on appeal including jurisdiction --------------------------------------------------------------Read Section 2401, TCC Q: What are the judicial remedies that may be availed of by the Government?
a. Civil Action b. Criminal Action
Note: Such actions shall be brought in the name of the Government of the Philippines and shall be conducted by customs officers but no action shall be filed in court without the approval of the CoC.
Q: Is payment prior to protest required?

Yes. No protest shall be considered unless payment of the amount due has first been made and the corresponding docket fee (see Section 2308, TCC).
--------------------------------------------------------------(i) Rules on appeal including jurisdiction --------------------------------------------------------------Read Section 2042, TCC

Note: The Decision of the CoC in cases involving liability for customs duties, fees, or other money charges, that must be appealed to the CTA in Division within 30 days
Q21.1. Discuss the procedure for customs protest from issuance of warrant of detention to appeal to the Supreme Court.
1. Collector issues warrant for detention of property (if owner or importer desires to secure release of property for legitimate use, Collector may surrender subject property upon filing of sufficient bond) 2. Collector immediately reports seizure to COC and Chairman of COA

3. Collector gives owner or importer or his agent written notice of seizure and opportunity to be heard 4. Collector causes preparation of list and particular description of property seized, as well as appraisal and classification of the same 5. The Collector, after hearing and in writing, can either make a declaration of forfeiture (owner or importer is aggrieved) or rule otherwise (government is aggrieved). If the owner or importer is aggrieved by the decision of the Collector: 1. Protest to the Collector within 15 days 2. If aggrieved by the decision or action of the collector upon protest, appeal to the Commissioner within 15 days after notification in writing by the Collector of his action or decision 3. Appeal to CTA Division within 30 days from notice 4. Appeal to CTA En Banc 5. Appeal to SC by certiorari within 15 days If the government is aggrieved by the decision of the Collector: 1. Automatic review by COC 2. Automatic review by DOF Secretary 3. If owner or importer is aggrieved by decision of COC or DOF Secretary 4. Appeal to CTA Division within 30 days from notice 5. Appeal to CTA En Banc 6. Appeal to SC by certiorari within 15 days
NORTHERN ISLANDS COMPANY, INC., CTA CASE NO. 8068, JUNE 6, 2012
--------------------------------------------------------------b) Abandonment --------------------------------------------------------------Read Sections 1801-1802, TCC Q: What is abandonment?

Abandonment is the renunciation by an importer of all his interests and property rights in imported articles (see Section 1801, TCC)
Q: When is an article deemed abandoned?

1. Importer expressly signifies in writing to the Collector his intention to abandon (express abandonment) 2. When the importer fails to file an entry within 30 days (not extendible) from the date of discharge of the last package or having filed such entry, fails to claim the imported articles within 15 days (not extendible) from the date of posting of the notice to claim such importation (implied abandonment)
Note: Both the Import Entry Declaration (IED) and Import Entry and Internal Revenue Declaration (IEIRD) should be filed within 30- days from he date of discharge of the last package from the vessel or aircraft. When the importer fails to file the entry within the said period, he shall be deemed to have renounced all his interest and property rights to the importations and these should be considered impliedly abandoned in favor of the government (Chevron Philippines v. CoC [August 11, 2008])
Q: What are the effects of abandonment?

Note: Automatic review is intended to protect the interests of the Government in the collection of taxes and customs duties in seizure and protest cases. Without such automatic review, nether the CoC or the DOF Secretary would know about the decision of the Collector of Customs favoring the taxpayer. The power to decide seizure and protest cases may be abused if no checks are instituted. Automatic review is necessary because nobody is expected to appeal the decision of the Collector which is favorable to the taxpayer and adverse to the government (Yaokasin v. CoC [180 SCRA 591]). Remember the lifeblood theory! The CTA does not have jurisdiction on rulings of the Secretary of Finance over seizure and forfeiture proceedings which do not involve assessment of any duties. 3-D INDUSTRIES, INC. VS. SECRETARY OF FINANCE AND
a. Any person who abandons an article shall be deemed to have renounced all his interests and property rights therein. b. An abandoned article shall ipso facto be deemed the property of the Government. c. It does not relieve the owner from any criminal liability d. If the abandoned articles are transferred to a customs bonded warehouse, he operator shall be liable for the payment of duties and taxes in the case of losses of the stored abandoned imported articles (see R.V. Marzan v. CA [March 4, 2004])

--------------------------------------------------------------c) Abatement and Refund --------------------------------------------------------------Read Sections 1701-1708, TCC Q: What is abatement?
Abatement is the reduction or non-imposition of customs duties on certain impored materials as a result of damage incurred during voyage; deficiency in contents of packages; loss or destruction of articles after arrival; or death or injury of animals.
Note: The general rule is that no abatement of duties shall be made on account of damage incurred or deterioration suffered during voyage of importation and duties will be assessed on the actual quantity imported (see Section 1701, TCC).
Q: What are the instances where the Collector may abate or refund the amount of duties accruing or paid by the importer? (exceptions to the general rule)
1. 2. 3. 4. 5. 6. Damage incurred during voyage Missing package Deficiency in contents of packages Articles lost or destroyed after arrival Dead or injured animals Refund of Excess payments (made due to manifest clerical errors)
Q: What is the procedure for claiming refund?

1. The taxpayer shall make his claim for refund of duties in writing and forward it to the Collector for verification 2. If the Collector found the claim to be correct, he shall certify it to the CoC with his recommendation 3. If found correct by the CoC, he shall cause the same to be paid. (see Section 1708, TCC)

---------------------------------------------------------V. JUDICIAL REMEDIES (CTA) ---------------------------------------------------------Note: The rules here are those found in R.A. 1125, as amended by RA 9282. Some sources and answers to past bar questions may still contain rules applicable to R.A. 1125 before its amendment. So make sure you have an updated codal and reference material.
b. Decisions, resolutions or orders on MRs or MNTs of the Court in Division in the exercise of its exclusive original jurisdiction over: i. ii. Tax Collection cases Cases involving criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR or BOC
--------------------------------------------------------------A. Jurisdiction of the Court of Tax Appeals 1. Exclusive appellate jurisdiction 2. Criminal cases --------------------------------------------------------------Note: The CTA is composed of a Presiding Justice and 8 associate justices organized into three divisions.
c. Decisions, resolutions or orders of the RTCs in the exercise of its appellate jurisdiction over: i. ii. iii. Local tax cases Tax Collection cases Criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR or BOC
--------------------------------------------------------------1. Exclusive Appellate Jurisdiction a.) Cases within the jurisdiction of the court en banc b) Cases within the jurisdiction of the court in divisions --------------------------------------------------------------Note: This refers to the exclusive jurisdiction to review by appeal of the CTA en banc and CTA in division.
d. Decisions of the CBAA in the exercise of its appellate jurisdiction over cases involving assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. (see Section 2, Rule 4, A.M. No. 05-11-07-CTA)
Read Section 3(a), Rule 4, RRCTA Q: What are the cases within the exclusive appellate jurisdiction to review by appeal of the CTA in division?
a. Decisions of the CIR i. In cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto; or Other maters arising under the NIRC or other laws administered by the BIR
Read Section 2, Rule 4, RRCTA Q: What are the cases within the exclusive appellate jurisdiction to review by appeal of the CTA en banc?
a. Decisions or resolutions on MRs or MNTs of the Court in Division in the exercise of its exclusive appellate jurisdiction over: i. ii. iii. Cases arising from administrative agencies Local tax cases decided by the RTCs in the exercise of their original jurisdiction Tax collection cases decided by RTCs in the exercise of their original jurisdiction involving final and executory assessments for taxes, fees, charges, and penalties, where the principal amount of taxes and penalties claimed is less than P1,000,000 Criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR or BOC
ii.
b. Inaction by the CIR where the NIRC provides a specific period of action i. In cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or Other matters arising under the NIRC or other laws administered by the BIR
ii.
iv.
c. Decisions, orders or resolutions of the RTCs in local tax cases decided or resolved by them in the exercise of their original jurisdiction Page 152 of 164 Last Updated: 30 July 2013 (v3)

d. Decisions of the Commissioner of Customs i. In cases involving liability for customs duties, fees, or other money charges, seizure, detention or release of property affected, fines, forfeitures of other penalties in relation thereto; or Other matters arising under the Customs Law or other laws administered by the Bureau of Customs
statement that the action is final. The rationale is that to let the taxpayer defer the period is to unduly put in his hand the collection of taxes.
ii.
Q: A taxpayer received on 15 Jan 1996 an assessment for internal revenue tax deficiency. On 10 Feb 1996, the taxpayer filed a petition for review with the CTA. Should the CTA entertain the appeal?
No. Before the taxpayer can avail of a judicial remedy, he must first exhaust administrative remedies by filing a protest within 30 days from receipt of the assessment. An assessment by the BIR is not the CIRs decision from which a petition for review may be filed with the CTA. Rather, it is the action taken by the CIR in response to the taxpayers protest on the assessment that would constitute the appealable decision.
e. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the TCC f. Decisions of the DTI Secretary in the case of non-agricultural product, commodity or article and the DA Secretary in case of agricultural product, commodity or article, involving dumping and countervailing duties under Sections 301 and 302 of the TCC and safeguard measures under the Safeguard Measures Act (RA 8800) where either party may appeal the decision to impose or not to impose said duties (see Section 3(a), Rule 4, A.M. No. 05-11-07-CTA)
Note: Any dispute or controversy involving national internal revenue taxes or customs duties not falling within the purview of the exclusive appellate jurisdiction of the CTA must fall within the jurisdiction of the regular courts. A taxpayers suit impugning he constitutionality of a tax statute, for example, even if involving the NIRC or TCC would fall within the jurisdiction of the regular courts.
Q: ABC Corp. received an income tax deficiency from the BIR. ABC filed a protest and submitted to the BIR all relevant supporting documents. The CIR did not formally rule on the protest. Thereafter, ABC was served summons and a copy of the complaint for collection of the tax deficiency filed by the BIR with the RTC. ABC filed a petition for review before the CTA. The BIR contends that the petition is premature since there was no formal denial of the protest of ABC. Is the BIRs contention correct?
No. The CTA has jurisdiction because the action of the CIR qualifies as an appeal from the CIRs decision on the disputed assessment. When the CIR decided to collect the tax assessed without first deciding on he taxpayers protest, the effect of his action of filing a judicial action for collection is a decision of denial of the protest, in which event the taxpayer may file an appeal with the CTA ( Republic v. Lim Tian Teng & Sons [16 SCRA 584])
Q: When is a decision of the CIR appealable to the CTA?

First view: The appealable decision is the one which categorically stated that the CIRs action on the disputed assessment is final. [COMMISSIONER OF INTERNAL REVENUE VS. UNION SHIPPING CORPORATION (M AY 21, 1990)] Second view: There is no need for a categorical statement. So long as the tenor of the decision is that the dispute of the taxpayer is denied, it is appealable. (see SURIGAO ELECTRIC V. CTA [JUNE 28, 1974]) A survey of cases would indicate that the second view is followed. There is no need for a categorical PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

Q: Name some communications sent by the CIR to taxpayers that are deemed appealable to the CTA.
As provided in Surigao ELECTRIC V. CTA [JUNE 28, 1974]: 1. a letter which stated the result of the investigation requested by the taxpayer and the consequent modification of the assessment; 2. letter which denied the request of the taxpayer for the reconsideration cancellation, or withdrawal of the original assessment 3. a letter which contained a demand on the taxpayer for the payment of the revised or reduced assessment; and 4. a letter which notified the taxpayer of a revision of previous assessments
enforce its collection without further notice. In addition, the letter contained a notation indicating that petitioners request for reconsideration had been denied for lack of supporting documents.
Q: Is the final demand letter issued by the BIR reiterating the demand for immediate payment considered a final decision appealable to the CTA?
Yes. As held in CIR v. ISABELA CULTURAL CORP [JULY 11, 2001], the letter is deemed as the CIRs final act since failure to comply therewith exposes the property to distraint and levy. The Supreme Court stated that a final demand letter from BIR, reiterating to the taxpayer the immediate payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayers request for reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the CTA.
Q: AA Corp received a FAN for contractors tax. It protested the assessments. Thereafter, AA requested for the cancellation of the assessments. 4 years passed and nothing happened. CIR then issued 2 warrants of distraint to collect the taxes. One year later, CIR answered and denied AAs request for cancellation. The CIR, in its answer to AAs request for the cancellation of the assessments, requested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter with this paragraph: This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax Appeals within 30 days from receipt of this letter. What is the reckoning point of the appeal period to the CTA the issuance of the warrant of distraint or the letter embodying the final demand of payment??
The reviewable decision is the latter letter where the CIR clearly directed the taxpayer to appeal to the CTA and not the warrants of levy and distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision. He even directed the taxpayer to appeal it to the Tax Court. The directive is in consonance with this Court's dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action. (see ADVERTISING ASSOCIATES, INC. VS. COURT OF APPEALS [DECEMBER 26, 1984])
In OCEANIC WIRELESS NETWORK

OF
VS. COMMISSIONER INTERNAL REVENUE [DECEMBER 9, 2005], the Supreme Court reiterated that a demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the BIR on petitioners request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the issuance of a warrant of distraint and levy to
Q: U Corp was assessed deficiency income taxes (FAN). U Corp protested the assessment. BIR, without ruling on the protest, issued a warrant of distraint and levy. U Corp requested reinvestigation and reconsideration of issuance of the warrant.

Thereafter, BIR filed a collection suit to collect the taxes. U Corp then filed a petition for review with the CTA, on the theory that its period to appeal only began to run from its receipt of summons in the civil collection case. BIR argued the appeal was filed out of time, as the period began to run when the warrant of distrant and levy was issued. Who is correct?
U Corp is correct. Under the circumstances, the CIR didnt clearly signify his final action on the disputed assessment. Thus, it was only when U Corp received the summons on the civil suit for collection of deficiency income that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by the CIR when the latter filed a civil suit for collection of deficiency income. [COMMISSIONER OF INTERNAL REVENUE VS. UNION SHIPPING CORPORATION (M AY 21, 1990)]
jurisdiction. The CIR argued that the Revenue District Officer who signed the letter which became the basis of the instant petition, cannot be deemed an alter ego of the CIR for purposes of issuing a final decision on Festos protest under a delegated authority. As such, the subject letter is not the CIR's final decision on Festos protest; thus, the 30 day period to file an appeal was yet to commence, rendering the instant petition premature. Is the contention of the CIR correct?
Yes, the appeal to the CTA was premature. As held in FESTO HOLDINGS, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8226, SEPTEMBER 2, 2011], the Revenue District Officer who issued the letter cannot be considered as the CIR's decision appealable to this Court, in the absence of any proof that the former was authorized to decide and act in behalf of the latter on the protest of a taxpayer. Nowhere is it provided that a Revenue District Officer can issue decisions that are appealable to this Court. Therefore, there being no decision of the CIR in the present case, this Court cannot take cognizance of the present case.
Q: The City of Makati received assessment notices imposing deficiency taxes. Makati protested. The BIR stated that the assessments were already final and executory. Nonetheless, Makati requested for another reinvestigation. The Revenue officer and deputy Commissioner granted this request. Did the reinvestigation of the case reversed the finality of the assessments?
No. Only the Commissioner of Internal Revenue has the power to reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue (BIR), which power cannot be delegated. In assessment cases, a reopening/reinvestigation after a final decision on disputed assessment has been issued must be initiated by the commissioner. Otherwise, the reopening / reinvestigation is without authority and failure to appeal the final decision on disputed assessment to CTA would render the assessment final and executory. Here, the reinvestigation was merely granted by a revenue officer and a deputy commissioner. (see CITY OF M AKATI VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 641, SEPTEMBER 16, 2011])
Q: Is the denial by the BIR of the protest on the PAN (not the FAN) appealable to the CTA?
No, the denial of the CIR must be on the protest of the FAN. In ALLIED BANKING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [FEBRUARY 5, 2010], the Supreme Court ruled that it is the Formal Letter of Demand and Assessment Notice (FAN) that must be administratively protested or disputed within 30 days, and not the PAN.
Q: The CIR filed a Motion to Dismiss the Petition for Review commenced by Festo Holdings on the ground of lack of
Q: BIR issued a PAN to AB Corp for deficiency DST. AB protested the PAN. Thereafter, BIR sent a FAN to AB Corp. The letter provided: It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and

demandable. Thereafter, AB immediately filed a petition for review with the CTA. Should the petition be dismissed?
No. Ordinarily, the procedure is that its the FAN that must be administratively protested, as a prerequisite to subsequently filing a PFR with the CTA. However, the SC ruled in this case that the CIR was estopped from claiming the need for a protest. AB Corp cant be blamed for not filing a protest against the FAN since the language used and the tenor of the PAN indicate that it is the final decision of the CIR on the matter. The CIR is required to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Thus, CIR is now estopped from claiming that he did not intend the PAN to be a final decision. Moreover in the Formal Letter of Demand with Assessment Notices, CIR used the word appeal instead of protest, reinvestigation, or reconsideration. Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word appeal under prevailing tax laws refers to the filing of a Petition for Review with the CTA (see ALLIED BANKING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [FEBRUARY 5, 2010])
Yes. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected. This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed assessment or a claim for refund. In Pantoja v. David, we upheld the jurisdiction of the CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals, the decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the BIR, was upheld by this Court. (see PHILIPPINE JOURNALISTS INC. VS. COMMISSIONER OF INTERNAL REVENUE [DECEMBER 16, 2004])
Q: What other matters are cognizable by the CTA?

The other matters cognizable by the CTA should be of the same nature, kind or class as the matters specifically enumerated as within its jurisdiction.
Q: Sec 7(a)(1) of RA 1125 as amended by RA 9262 provides that the CTA has exclusive appellate jurisdiction to review by appeal the decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue. Does the CTA also have jurisdiction to determine the validity of warrants of distraint/levy and the waiver of statute of limitations?
Q: The CIR, pursuant to the NIRC, issued a RMO imposing a 5% lending investors tax on pawnshops. The RMO identified pawnshops as a lending investor due to the nature of its activities. Leal, a pawnshop owner, filed with the RTC a petition for prohibition that sought to stop the CIR from implementing the RMO. CIR filed a motion to dismiss. CIR alleged RTC had no jurisdiction over the matter. Did the RTC have jurisdiction over the action to nullify the RMO?
No, the CTA had exclusive jurisdiction. The questioned is actually a ruling or opinion of the CIR in implementing the Tax Code with regard taxability of pawnshops. The RMO was issued pursuant to CIRs powers under Section 244 of the NIRC (providing for the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including ruling on the classification of articles of sales and similar purposes). Thus, the petition should have been filed with the CTA. (see COMMISSIONER OF INTERNAL REVENUE VS. LEAL [NOVEMBER 18, 2002])

Similarly, in the case of ASIA INTERNATIONAL AUCTIONEERS, INC. VS. PARAYNO (DECEMBER 18, 2007], several RRs and RMOs were also considered as rulings/opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the SSEZ. They were deemed issued pursuant to the power of the CIR to interpret provisions of the NIRC. Thus, when an action to annul such RRs/RMOs was filed with the RTC, SC held that such was improper, as it was the CTA that had exclusive jurisdiction
Note: See also EGIS PROJECTS S.A. VS. THE SECRETARY OF FINANCE AND COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8413, JANUARY 29, 2013] where the CTA held that the issue on the constitutionality or validity of RMO Nos. 72-2010 and 1-2000 or its relevant provisions is beyond the jurisdiction of the CTA, but of the regular courts. SMART COMMUNICATIONS, INC. VS. MUNICIPALITY OF MALVAR, BATANGAS, CTA EB NO. 767 (CTA AC NO. 58), JUNE 26, 2012, where the CTA held that the issue on the validity or constitutionality of Ordinance is not within the jurisdiction of the CTA, but with the regular courts. However, in NEGROS CONSOLIDATED FARMERS ASSOCIATION MULTI-PURPOSE COOPERATIVE VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 7994; FEBRUARY 17, 2012], the CTA held that it has jurisdiction to rule on the validity of a rule or regulation issued by the Bureau of Internal Revenue. This case should not be controlling in light of the SC ruling in British American Tobacco.
Q: A was assessed for income tax deficiency. The taxpayer failed to file a protest and thus the said assessment has become final and unappealable. Thereafter, the taxpayer filed a petition for review to the CTA arguing that the right of the CIR to collect the assessed tax has prescribed. The CIR contends that the CTA has no jurisdiction because when the law says that the CTA has jurisdiction over other matters it presupposes that the tax assessment has not become final and unappealable. Is the CIRs contention correct?
No. The fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide. (Commissioner of Internal Revenue v. Hambrecht & Quist Philippines, Inc., [November 17, 2010])
--------------------------------------------------------------2. Criminal Cases a) Exclusive original jurisdiction b) Exclusive appellate jurisdiction in criminal cases --------------------------------------------------------------Note: This applies to CTA in Divisions. Note that, with regard to criminal cases, the CTA en banc has exclusive appellate jurisdiction over the decisions or resolutions on MRs or MNTs of the Court in Division in the exercise of its exclusive appellate jurisdiction or in the exercise of its exclusive original jurisdiction over criminal offenses arising from violations of the NIRC or TCC and other Tax Laws.
Read Section 3(b) and 3(a), Rule 4, RRCTA Q: What are the criminal cases within the exclusive original jurisdiction of the CTA?
The CTA shall exercise exclusive original jurisdiction over all criminal cases where the principal amount involved of taxes and fees is P1,000,000 or more, exclusive of charges and penalties, arising from violations of the NIRC, TCC and other laws administered by the BOC or the BIR.
Q: Does the CTA have jurisdiction relative to matters involving the constitutionality of regulations issued by the BIR?
No. The doctrine in ASIA INTERNATIONAL AUCTIONEERS V. PARAYNO [DECEMBER 18, 2007] which ruled that the CTA has such jurisdiction has been reversed in BRITISH AMERICAN TOBACCO V. CAMACHO [AUGUST 20, 2008]. The regular courts have jurisdiction to rule upon the constitutionality of a tax law or a regulation issued by the BIR.
Q: What are the criminal cases within the exclusive original jurisdiction of the regular courts?
The regular courts have original jurisdiction in offenses and felonies where:

a. The principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than P1,000,000 b. There is no specified amount claimed
--------------------------------------------------------------a) Who may appeal, mode of appeal, effect of appeal --------------------------------------------------------------Q: Who may appeal in the CTA? Read Section 11, RA 1125 and Section 3, Rule 8, RRCTA
a. A party adversely affected by a decision, ruling, or the inaction of: i. CIR ii. CoC iii. DOF Secretary iv. DTI Secretary v. DA Secretary vi. RTC (in the exercise of its original jurisdiction) b. A party adversely affected by a decision or resolution of a Division on a MR or MNT c. A party adversely affected by a decision or ruling of the CBAA and the RTC in the exercise of their appellate jurisdiction.
Q: What are the criminal cases within the exclusive appellate jurisdiction of the CTA?
a. Appeals from judgments, resolutions or orders of the RTCs in tax cases originally decided by them in their respective territorial jurisdiction; and b. Petitions for review of the judgments, resolutions or orders of the RTCs in the exercise of their appellate jurisdiction over tax cases originally decided by the MeTCs, MTCs or MCTCs.
Note: (1) The same rules apply with regard to the exclusive jurisdiction of the CTA in division over tax collection cases. (2) As held in YABES V. FLOJO [JULY 20, 1982], the Supreme Court 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 unappealable, not where there is still a pending CTA case.
--------------------------------------------------------------B. Judicial Procedures 1. Judicial action for collection of taxes a) Internal revenue taxes b) Local taxes i) Prescriptive period --------------------------------------------------------------Note: This has been thoroughly discussed under Tax Remedies and Local Government Taxation. I will not discuss them anymore.
Q: What are the different modes of appeal? Read Section 4, Rule 8, RRCTA
a. Petition for review under Rule 42 to be acted upon the CTA in division with respect to a decision, ruling or inaction of: i. CIR (on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected) ii. CoC iii. DOF Secretary iv. DTI Secretary v. DA Secretary vi. RTC (in the exercise of their original jurisdiction) Period to file: 30 days b. Petition for review under Rule 43 to be acted upon the CTA en banc with respect to a decision or resolution of the Court in Division on a MR or 40 MNT.
--------------------------------------------------------------2. Civil Cases a) Who may appeal, mode of appeal, effect of appeal i) Suspension of collection of tax a) Injunction not available to restrain collection ii) Taking of evidence iii) Motion for reconsideration or new trial b) Appeal to the CTA, en banc c) Petition for review on certiorari to the Supreme Court ---------------------------------------------------------------
40
In cases falling under the exclusive appellate jurisdiction of the CTA en banc, a petition for review of a decision or resolution of

Period to file: 15 days. It may be extended to an additional period not exceeding 15 days. c. Petition for review under Rule 43 to be acted upon by the CTA en banc with respect to the decisions or rulings of: i. ii. CBAA RTCs (in the exercise of their appellate jurisdiction) Period to file: 30 days
SM Land v. City of Manila, G.R. No. 197151, October 22, 2012

DOCTRINE: The 30-day period to appeal decisions of the RTC to the CTA is extendible FACTS: On the strength of the provisions of Tax Ordinance Nos. 7988 and 8011, whichamended Ordinance No. 7794, also known as the Revenue Code of Manila, the City of Manila assessed petitioners/taxpayers, together with their other sister companies, increased rates of business taxes for the year 2003 and the first to third quarters of 2004. The companies filed under protest and later filed an application for refund and later a complaint for refund with the Regional Trial Court (RTC). The RTC granted the claim for refund. Respondent City of Manila filed a petition for review with the CTA, after the latter granted its request for extension of time to file the petition for review. One of the issues presented before the Court was whether the 30-day period provided by law within which to appeal decisions of the RTC to the CTA may be extended. HELD: According to the Court, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 42 of the Revised Rules of Civil Procedure provides that the Petition for Review of an adverse judgment or final order of the RTC must be filed with the Court of Appeals within: (1) the original 15-day period from receipt of the judgment or final order to be appealed; (2) an extended period of 15 days from the lapse of the original period; and (3) only for the most compelling reasons, another extended period not to exceed 15 days from the lapse of the first extended period. Following by analogy, Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3 (a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days
Q: CC Corp filed a petition in the RTC to nullify an ordinance enacted by the City of Manila. RTC dismissed the petition. CC Corp filed a petition for review with CTA. It was argued that the petition for review was filed out of time. Can the 30 day period to file a petition for review to the CTA of an adverse decision or ruling of the RTC (in the exercise of its original jurisdiction) be extended?
Yes. As held in CITY OF M ANILA VS. COCA-COLA BOTTLERS PHILIPPINES, INC. [AUGUST 4, 2009], it is clear from the Section 3 of the Revised Rules of the CTA that to appeal an adverse decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse decision or ruling of the RTC. It must be pointed out that the rule is silent as to whether the 30 day period can be extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days.
In MUNICIPALITY OF CAINTA, RIZAL VS. BRILLANTE REALTY CORPORATION [CTA AC NO. 88, JANUARY 02, 2013], the CTA held that the thirty-day period to appeal an adverse decision of the Regional Trial Court to the Court of Tax Appeals may be extended for a period of 15 days, subject to filing of motion for extension before the CTA and payment of appropriate fees.
the Court in Division must be preceded by the filing of a timely MR or MNT with the Division. (see Section 1, Rule 8, RRCTA)

Q: Does a Motion for Reconsideration of the decision of the CIR toll the 30 day period to appeal the denial of the protest of the FAN to the CTA?
No. A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. (see FISHWEALTH CANNING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [JANUARY 21, 2010])
Note: (1) The CTA may issue injunction only in the exercise of its appellate jurisdiction. CIR vs. J.C. Yuseco [G.R. No. L-12518, October 28, 1961] (2) 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 CORPORATION [JUNE 29, 2010] (3) TROs and injunctions issued by courts other than the CTA against the BIR should be annulled and cancelled for lack of jurisdiction [see RMO 042-10 [MAY 4, 2010].)
--------------------------------------------------------------i) Suspension of collection of tax a) Injunction not available to restrain collection --------------------------------------------------------------Q: Does the perfection of an appeal suspend the collection of taxes? (effect of an appeal)
No appeal taken to the CTA shall suspend the payment, levy, distraint and/or sale of any of the taxpayers property for the satisfaction of his tax liability. However, when in the opinion of the CTA the collection of the tax may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain the collection of the tax and require the taxpayer either to deposit the amount claimed or to file a surety bond for no more than double the amount with the Court.
Note: Nonetheless, during the pendency of the appeal, the taxpayer may still enter into a compromise settlement of his tax liability for as long as any of the grounds for a compromise (doubtful validity of assessment and financial incapacity) is present. A compromise of a tax liability is possible at any stage of litigation even during appeal (Pampanga Sugar Co. v. CIR [114 SCRA 496] )
--------------------------------------------------------------ii) Taking of evidence --------------------------------------------------------------Q: When may the CTA receive evidence? Read Section 2, Rule 12, RRCTA
The Court may receive evidence in the following cases: a. In all cases falling within the original jurisdiction of the CTA in division pursuant to Section 3, Rule 4 of the RRCTA b. In appeals in both civil and criminal cases where the Court grants a new trial pursuant to Section 2, Rule 53 and Section 12, Rule 124 of the Rules of Court
Q: Who are authorized to take evidence? Read Section 3-4, Rule 12, RRCTA
The following are authorized: a. Any justice of the court when i. The determination of a question of fact arises at any stage of the proceedings or ii. The taking of an account is necessary iii. The determination of an issue of fact requires the examination of a long account b. Any court official for the sole purpose of marking comparison with the original and identification by witnesses of the received documentary evidence
Q: May the CTA issue an injunction to enjoin the collection of taxes by the BIR?
Yes. When a decision of the CIR on a tax protest is appealed to the CTA, such appeal does not suspend the payment, levy, distraint and/or sale of any of the taxpayers property. However, when in the opinion of the CTA the collection of the tax may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain the collection of the tax and require the taxpayer either to deposit the amount claimed or to file a surety bond for no more than double the amount with the Court. PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

--------------------------------------------------------------iii) Motion for reconsideration or new trial --------------------------------------------------------------Read Section 1, 4 and 5, Rule 15 Q: Who may file a MR or MNT?
Any aggrieved party may seek a reconsideration or new trial of any decision, resolution or order of the court
Note: (1) The period to file the MR or MNT is 15 days. (2) No second MR or MNT is allowed (see Section 7, Rule 15, RRCTA) Note, however, that a Motion for Reconsideration filed on the Amended Decision of the Court in Division is not a second motion for reconsideration, which is a proscribed under Section 7, Rule 15 of the CTA Rules, in relation to Section 2, Rule 52 of the 1997 Rules of Civil Procedure, as amended. MIRANT (NAVOTAS II) CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO. 783, JULY 18, 2012
Q: Who may file an appeal to the CTA en banc?

a. A party adversely affected by a resolution of a Division of the CTA on a MR or MNT may file a petition for review with the CTA en banc b. A party adversely affected by a decision or ruling of the CBAA or the RTC in the exercise of their appellate jurisdiction
Note: You cannot directly appeal a decision or order of a Division to the CTA en banc. You must first file a timely MR or MNT. (see Section 1, Rule 8, RRCTA)
Q: Is a prior MR required before filing a Petition for Review of a decision of a CTA division?
Yes. The mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals requiring that 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. The word "must" clearly indicates the mandatory -- not merely directory -- nature of a requirement. The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division. (see COMMISSIONER OF CUSTOMS VS. M ARINA SALES, INC. [NOVEMBER 22, 2010])
Q: What is the effect of the filing of the MR or MNT?

The filing of the MR or MNT shall suspend the running of the period within which an appeal may be perfected
Q: What are the grounds for the filing of a MR or MNT?

a. Fraud, accident, mistake or excusable negligence (FAME) which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights or b. Newly discovered evidence which he could not, with reasonable diligence, have discovered and produced at the trial and which, if presented, would probably alter the result
--------------------------------------------------------------b) Appeal to the CTA, en banc --------------------------------------------------------------Read Section 18, RA 1125
Q: Juday was criminally charged in the CTA for filing a fraudulent income tax return. Thereafter, she filed a motion to quash in the CTA 1st division. The MTQ was denied. MR was also denied. She then filed a motion for extension of time to file her petition for review in CTA en banc. Thereafter, she filed her petition for review with CTA en banc. CTA en banc denied both the petition for extension, and the petition for review, on the theory that the denial of the motion to quash was an interlocutory order, and therefore, unappealable. Was the dismissal by CTA en banc proper?
Yes. CTA en banc did not err in denying petitioners Motion for Extension of Time to File Petition for

Review. Petitioner cannot file a Petition for Review with the CTA en banc to appeal the Resolution of the CTA First Division denying her Motion to Quash. The Resolution is interlocutory and, thus, unappealable. Even if her Petition for Review is to be treated as a petition for certiorari, it is dismissible for lack of merit. (see JUDY ANNE L. SANTOS VS. PEOPLE OF THE PHILIPPINES AND BUREAU OF INTERNAL REVENUE [AUGUST 26, 2008])
--------------------------------------------------------------c) Petition for review on certiorari to the Supreme Court --------------------------------------------------------------Read Section 19, RA 1125 and Section 1, Rule 16, RRCTA Q: Who may file an appeal to the Supreme Court?
Any party adversely affected by a decision or ruling of the Court en banc may appeal to the Supreme Court.
--------------------------------------------------------------C. Criminal Cases a) Institution and prosecution of criminal actions i) Institution of civil action in criminal action b) Appeal and period to appeal i) Solicitor General as counsel for the people and government officials sued in their official capacity c) Petition for review on certiorari to the Supreme Court ----------------------------------------------------------------------------------------------------------------------------a) Institution and prosecution of criminal actions i) Institution of civil action in criminal action --------------------------------------------------------------Read Section 2, Rule 9, RRCTA Q: How are criminal actions instituted?
All criminal actions before the CTA in Division in the exercise of its original jurisdiction shall be instituted by the filing of an information in the name of the People of the Philippines.
Note: (1) The institution of the criminal action shall interrupt the running of the period of prescription (2) For violations of the NIRC and other laws enforced by the BIR, the CIR must approve the filing (3) For violations of the TCC and other laws enforced by the BOC, the CoC must approve their filing
Q: What is the mode of appeal from the CTA en banc to the Supreme Court?
The mode of appeal is a petition for review on certiorari under Rule 45. Q: ABC Corporation, engaged in the retail of medicines and other pharmaceutical drugs filed a claim for TCC pertaining to the 20% sales discounts granted to senior citizens. The CTA denied the claim for insufficiency of evidence. Thus, ABC filed its petition for review before the SC. Instead of filing a reply to the comments of respondent, ABC filed a motion to withdraw praying that the case be dismissed without prejudice. According to BAC, the amount of tax credit being claimed would just be included in its future claims for issuance of TCC. The CIR argues that the decision of the CTA became final and executory and thus the tax credit could no longer be claimed in the future. Is the contention of the CIR correct? Yes. By withdrawing the appeal the taxpayer is deemed to have accepted the decision of the CTA. And since the CTA had already denied taxpayers request for the issuance of TCC for insufficiency of evidence, it may no longer be included in taxpayers future claim. (Central Luzon Drug Corporation v. CIR [March 2, 2011] ). PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013
Read Section 2, Rule 9, RRCTA Q: Who shall prosecute the criminal action?
The criminal actions shall be conduced and prosecuted under he direction and control of the public prosecutor
Note: For violations of the NIRC and other laws enforced by the BIR and violations of the TCC and other laws enforced by the BoC, the prosecution may be conducted by their respective duly deputized legal officers.

Read Section 12, Rule 9, RRCTA Q: Is the civil action deemed instituted with the criminal action?
Yes. The criminal action and 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.
c) Petition for review on certiorari to the Supreme Court --------------------------------------------------------------Note: Same rule as in Civil Cases.
--------------------------------------------------------------C. Taxpayers suit impugning the validity of tax measures or acts of taxing authorities --------------------------------------------------------------Q: What is a taxpayers suit?
A taxpayers suit is a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.
--------------------------------------------------------------b) Appeal and period to appeal i) Solicitor General as counsel for the people and government officials sued in their official capacity --------------------------------------------------------------Read Section 9, Rule 9, RRCTA Q: What are the modes of appeal with respect to criminal cases?
a. Notice of Appeal pursuant to Sections 3(a) and 6, Rule 122 of the Rules of Court to the CTA in Division with respect to an appeal from criminal cases decided by the RTC in the exercise of its original jurisdiction b. Petition for Review under Rule 43 to the CTA En Banc with respect to criminal cases decided by i) CTA in Division in the exercise of its appellate jurisdiction ii) RTC in the exercise of its appellate jurisdiction
Note: In both cases, the period to file is 15 days.
Q: Distinguish a taxpayers suit from a citizens suit?

Taxpayers Suit
Definition Case where the act complained of directly involves the illegal disbursement of public funds Plaintiff is affected by the expenditure of the public funds
Citizens Suit
Case in which is in the nature of a public right, if not the duty of every citizen, to institute in protection of the general public The plaintiff is but a mere instrument of public concern.
Plaintiff
Q: How is the concept of locus stand applied in a taxpayers suit?

Locus standi is a right of appearance in a court of justice on a given question. It is the personal and substantial interest in the case, such that the party has sustained or will sustain direct injury as a result of a challenged act. In order to challenge the constitutionality of tax measures or illegal expenditures of public money, the taxpayer must have locus standi.
Read Section 10, Rule 9, RRCTA Q: Who shall act as a representative of the People and the Government?
The Solicitor General shall represent the People and government officials sued in their official capacity in all cases brought to the CTA in the exercise of its appellate jurisdiction.
Q: What are the requisites of a taxpayers suit? (for taxpayers to have locus standi to sue)
As laid down in ANTI-GRAFT LEAGUE V. SAN JUAN [260 SCRA 251], the requisites of a taxpayers suit are:
---------------------------------------------------------------

1. Public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and; 2. Petitioner is directly affected by the alleged ultra vires act Hence, in LOZADA V. COMELEC [120 SCRA 337], it was held that the petitioners action for mandamus to compel the COMELEC to hold a special collection is not considered a taxpayers suit because it does not involve public expenditure. Further, there is no allegation that tax money is spent illegally. Also, in JOYA V. PCGG [225 SCRA 568], the Supreme Court held that such was not a taxpayers suit because the case did not involve a misapplication of public funds. In fact, the paintings and antique silverware alleged to have been public properties were acquire from private sources and not with public money.
A constitutional question is ripe for adjudication when the government act being challenged has a direct adverse effect on the individual challenging it. As a general rule, a taxpayer must show that he would be prejudiced or benefited by the suit which questions the validity of the collection of taxes or the manner of expenditure of funds collected from taxation. Personal injury or benefit must be shown for judicial controversy to be ripe for judicial determination
NOTE: However, it must be noted that where the public interest requires the resolution of the constitutional issues raised by the taxpayer, the doctrine of ripe for judicial determination is within the Courts discretion to set aside ABAKADA GURO PARTY-LIST V. PURISIMA [G.R. NO. 166715, AUGUST 14, 2008]
========== END OF REVIEWER ============ Thank you for using my reviewer. Again, if you find it useful, please share it to others. Also, if its not so much to ask, pray that my girlfriend and I do well and pass the bar exams. Ateneo Law Batch 2013 and all the other barristers who will come to possess this reviewer, good luck to us all. AMDG. For comments, corrections, and suggestions, please email me at pmreyestax@gmail.com.
Q: Must a taxpayer be a party to a government contract so that it can challenge the validity of a disbursement of public funds?
No. The prevailing doctrine in taxpayers suit is to allow taxpayers to question contracts entered into by the national government or GOCCs allegedly in contravention of law. A taxpayer need not be a party to the contract to challenge its validity ( ABAYA V. EBDANE [515 SCRA 720])
Q: How is the doctrine of transcendental importance applied to a taxpayers suit?

As a general rule, only those with locus standi may impugn the tax measure or illegal imbursement of public funds. However, the Supreme Court has discretion to entertain a taxpayers suit and brush aside lack of locus standi where the issues are of such transcendental importance in keeping with the courts duty to determine if public officers have not abused the discretion given to them KILOSBAYAN V. GUINGONA [G.R. 113375, MAY 5, 1994]
NOTE: However, while the taxpayer need not suffer personal damage if matter is of transcental important, he must prove damage to others. [JUMAMIL V. CAF [G.R. NO. 144570, SEPTEMBER 1, 2005]
Prayer to St. Joseph of Cupertino for success in Examinations

O Great St. Joseph of Cupertino who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me a like favour in the examinations for which I am now preparing. In return I promise to make you known and cause you to be invoked. Through Christ our Lord. St. Joseph of Cupertino, Pray for us. Amen.
Q: How is ripeness for judicial determination applied in a taxpayers suit?

REYES Bar Reviewer On Taxation II (v.3)

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PM REYES BAR REVIEWER ON TAXATION II

Q: What are transfer taxes?

Q: What is the nature of transfer taxes?

Q: What are the kinds of transfer taxes and define each?

Q: Differentiate estate tax from donors tax.

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

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PM REYES BAR REVIEWER ON TAXATION II

Q: What is the basis of the imposition of estate tax?

Q: What law shall govern the imposition of estate tax?

Q: When does the estate tax accrue?

subject to estate tax

Q: What is the law that governs the imposition of transfer taxes?

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

PM REYES BAR REVIEWER ON TAXATION II

Q: Discuss the different theories regarding the purposes of estate tax.

--------------------------------------------------------------2. Definition --------------------------------------------------------------Q: Define estate tax?

--------------------------------------------------------------3. Nature --------------------------------------------------------------Q: What is the nature of the estate tax?

Redistribution of wealth theory

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PM REYES BAR REVIEWER ON TAXATION II

Resident Citizen, Non-resident Citizen, Resident Alien

(See Section 4, RR No. 2-2003 [December 16, 2002])

Read Section 104, Tax Code

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

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PM REYES BAR REVIEWER ON TAXATION II

Q: Must there be total reciprocity?

Q: How is net estate determined?

Read Section 88, Tax Code

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

Page 5 of 164 Last Updated: 30 July 2013 (v3)

PM REYES BAR REVIEWER ON TAXATION II

Q: How do you value the estate for estate tax purposes?

Usufructuary, use or habitation, annuity Improvement

(See SECTION 88, TAX CODE AND SECTION 5, RR 022003]

PM REYES BAR REVIEWER ON TAXATION II

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PM REYES BAR REVIEWER ON TAXATION II

Recovable Transfers Read Section 85(C) Q: What is a revocable transfer?

Property under Appointment Read Section 85(D)

Shall form part of the gross estate

Shall not form part of the gross estate

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

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PM REYES BAR REVIEWER ON TAXATION II

Example 1 100 200 70 30

Example 2 100 200 100 0

Q: Give some examples of funeral expenses that are deductible

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

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PM REYES BAR REVIEWER ON TAXATION II

Q: Give some examples of judicial expenses

Q: Give some examples of funeral expenses that are not deductible

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

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PM REYES BAR REVIEWER ON TAXATION II

Q: What are the requirements to substantial the claims?

In unpaid obligation arose from purchase of goods or services

PIERRE MARTIN DE LEON REYES Ateneo Law Batch 2013

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PM REYES BAR REVIEWER ON TAXATION II

Unpaid mortgage property