Updates on

Taxation
2015

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AMDG

GENERAL PRINCIPLES
La Suerte Cigar & Cigarette Factory vs. CIR

The cigarette manufacturers contend that for a long time

prior to the transactions involved in the case, the CIR had
never subjected their purchases and importations of stemmed
leaf tobacco to excise taxes.
??? Will an erroneous interpretation by a BIR officer based on
a misapprehension of law put the government in estoppel?
!!! NO. Prolonged practice of the BIR in not collecting specific
tax on stemmed leaf tobacco cannot validate what is an
otherwise erroneous application and enforcement of the law.
The government is never estopped from collecting legitimate
taxes because of the error committed by its agents. The BIR is
not precluded from making a new interpretation of the law,
especially when the old interpretation was flawed.

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GENERAL PRINCIPLES
Angeles University Foundation vs. City of
Angeles
Petitioner is a non-stock, non-profit educational foundation. It
received a Building Permit Fee assessment for the construction of
the AUF Medical Center but claimed exemption from the same as
well as from other permits and fees. Respondent disputed the
claimed exemption by stating that the impositions are regulatory
in nature and not taxes from which Petitioner is exempt under the
said law.
??? Is the building permit fee a tax from which Petitioner is
exempt?
!!! It is a REGULATORY FEE. The DPWH has in fact issued
implementing rules which provide the bases for the assessment of
fees and Petitioner has failed to show that they were arbitrarily
determined or unrelated to the activity being regulated. Neither
has there been proof that the fee was unreasonable or in excess
of the cost of regulation or inspection. The Court added that even
if there was incidental revenue, the same is deemed not to
change the nature of the charge. Thus, the City of Angeles was
justified in its assessment.

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GENERAL PRINCIPLES
CIR vs. Pilipinas Shell Petroleum Corporation

Shell filed a claim for refund for excise taxes it paid on sales
of gas and fuel oils to various international carriers. The Court
initially denied the claims but the Respondent filed a Motion
for Reconsideration

??? Is Shell entitled to refund the excise taxes?

!!! YES. Section 135 is concerned with the exemption of the
article itself and not the ostensible exemption of the
international carrier-buyer. In addition, the failure to grant
exemption will cause adverse impact on the domestic oil
industry (similar to the practice of tankering) as well as result
to violations of international agreements on aviation. Thus,
Respondent, as the statutory taxpayer who is directly liable to
pay the excise tax is entitled to a refund or credit for taxes
paid on products sold to international carriers.

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GENERAL PRINCIPLES
Philippine Airlines, Inc. vs. CIR

Caltex sold aviation fuel to PAL and included excise taxes in its
billings. PAL filed for a refund of the excise taxes passed-on to it by
Caltex. The claim was based on PALs franchise which confers
upon PAL tax exemption on purchases of fuel. The CTA denied
PALs claim using as basis the earlier decision in Silkair.
??? Does PAL have standing to refund the excise taxes passed-on
by Caltex?
!!! YES. The case of Silkair is not applicable since PALs franchise
provides it with tax exemption privileges from both direct and
indirect taxes. While there have been previous cases discussing
which party is entitled to a refund in the case of excise taxes sold
to exempt entities, the Court reiterated the statement in Silkair
which said that it is primarily the statutory taxpayer which has the
right to file the claim. However, the above rule was deemed not
to apply in PALs case since the law/franchise clearly grants the
party to which the economic burden of the tax is shifted (i.e., PAL)
an exemption from both direct and indirect taxes, thus following
the principle laid down in the earlier case of Maceda.

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GENERAL PRINCIPLES
Deutsche Bank AG Manila Branch vs. CIR

Petitioner withheld a 15% tax on its remittances to its

head office in Germany using as basis the Tax Code
provision on BPRT. Believing that it overpaid the BPRT
since the RP-Germany provides for a lower rate of 10%
on branch remittances, the Petitioner filed a refund
with the BIR and subsequently with the CTA. Both the
BIR and the CTA denied the claim stating that the
branch office should have filed a tax treaty relief
application prior to availing of the preferential treaty
rate in view of the existing doctrine in the Mirant case.
??? Is Deutsche Bank entitled to the claim for refund
even if it did not file a tax treaty relief application with
the BIR?

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GENERAL PRINCIPLES
Deutsche Bank AG Manila Branch vs. CIR

!!! YES. The Court said that the principle of pacta sunt
servanda requires the performance in good faith of
treaty obligations. Thus, to require that taxpayers
must first comply with an administrative requirement
(under RMO 1-2000) is not in consonance with the
performance in good faith. The obligation to comply
with a tax treaty must take precedence over the
objectives of the said RMO. In addition, it was
pointed out that the prior application becomes
illogical if the premise of the claim was an erroneous
payment since the taxpayer could not have known
it would be entitled to the refund since precisely it
was using a different basis when it paid the taxes
due.

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GENERAL PRINCIPLES
Swedish Match Philippines, Inc. vs.
Treasurer of the City of Manila
The City of Manila sought to enforce both Sections 14 and 21 of
the Manila Revenue Code claiming that the former is a tax on
manufacturers, etc. while the latter applies to business subject to
excise, VAT or percentage tax.

??? Will the imposition of both sections amount to invalid double

taxation?
!!! YES. There is in fact double taxation since both sections are
being imposed on the same subject matter (privilege of doing
business within the city), for the same purpose, by the same taxing
authority, within the same taxing jurisdiction, for the same taxing
period, and of the same kind or character (a local business tax
imposed on gross sales or receipts). The Court further said that the
LGC provision applicable (Section 143) clearly states that Section
143 (h) may be imposed only on businesses that are subject to
excise tax, VAT, and percentage tax and that are not otherwise
specified in the preceding paragraphs.

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GENERAL PRINCIPLES
Land Bank of the Philippines vs. Cacayuran
The Municipality of Agoo, La Union passed a resolution
authorizing its mayor to obtain a loan from the Petitioner and
mortgage as collateral a portion of the Agoo plaza. As additional
security, the municipality assigned a portion of its internal revenue
allotment (IRA) in favor of the Petitioner. The loan proceeds were
used to construct a commercial center on the plaza which was
objected to by the local residents including the Respondent.
??? Did the Respondent have standing to file for the nullification
of the loan?
!!! YES. The two requisites for a taxpayers suit have been complied
with. First, even if the construction of the commercial center
would be sourced from the loan proceeds from the Petitioner, the
said funds were already converted into public funds upon receipt
by the municipality, and the assignment of the IRA likewise
characterized the funds as public. Second, since the plaza is for
public use, the Respondent, like all other Agoo residents, is directly
affected. Besides it has been held that as long as taxes are
involved, people have a right to question government contracts
even if they are not party to the contract/s.

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INCOME TAX
CIR vs. Julia Campos Benedicto
After the PCGG filed cases to recover the ill-gotten wealth of
the late husband of the Respondent, a compromise agreement
was reached wherein the parties agreed that Swiss cases
involving Respondents husbands bank deposits would be
terminated in exchange for the PCGG unfreezing all of the
deposits so that Benedicto could get his 49% share from the
deposits. The CIR assessed the amount of the unfrozen accounts
claiming that the same was income subject to tax.
??? Did the Respondents husband realize income as a result of
the compromise agreement which led to him receiving 49% of the
deposits?
!!! NO. The 49% was in no way income because the Respondents
husband did not gain any wealth nor did he become any richer
than he was before as in fact his wealth diminished to the extent
of the 51% which he ceded to the PCGG. The 49% was a mere
return of capital not subject to income tax. The Court ruled that it
is only the interest income of the deposits which may be
subjected to income tax as the same is the only gain.

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INCOME TAX
CIR vs. Spouses Manly
The CIR filed criminal charges against the spouses claiming
that there was unreported income after applying the
expenditure method of reconstructing income which is done
by reconstructing a taxpayers income by deducting the
aggregate yearly expenditures from the declared yearly
income. This method is resorted to when the records
submitted by taxpayers are inadequate or inaccurate.
??? Did the CIR erroneously base the criminal charges on its
use of the expenditure method?
!!! NO. The Court ruled that there is probable cause to indict
respondent for tax evasion since the method clearly yielded a
huge disparity between respondents reported income and
their cash acquisitions. The use of the expenditure method
was thus upheld.

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INCOME TAX
Officemetro Philippines, Inc. vs. CIR
??? Are condominium dues, membership fees and
other assessment/charges considered as income?
!!! NO. The said payments which are merely held in
trust and which are to be used solely for
administrative expenses in implementing their
purposes (i.e., safeguard the welfare of the owners,
provide utilities and amenities, etc.) and from which
the corporation could not realize any gain or profit
as a result of their receipt thereof, must not be
included in said corporations gross income. As such,
payments of the said dues are not subject to
withholding taxes.

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INCOME TAX
SMI-Ed Philippines Technology, Inc. vs. CIR
Petitioner constructed buildings and purchased
machineries for its microprocessor factory within the PEZA
zone. However, the company failed to commence operations
and it then sold its machineries to another PEZA entity,
subjecting the sale to the 5% preferential tax applicable to
some PEZA enterprises. Petitioner thereafter filed for a refund
of the taxes paid on the sale but the BIR failed to act on the
claim and thus an appeal was filed with the CTA. The CTA
then decided that the Petitioner was liable for capital gains
tax (CGT) on the sale. The company objected to the CTAs
finding claiming that it cannot on its own make the
assessment against the Petitioner.
??? (1) Was the sale subject to CGT?

(2) Did the CTA commit an error when it made an

assessment?
(3) Has the right to assess by the BIR prescribed?

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INCOME TAX
SMI-Ed Philippines Technology, Inc. vs. CIR
!!! (1) The sale was subject to both CGT and ordinary
income tax. As the Petitioner did not do business, it was not
entitled to the incentives under the PEZA law. The Court also
pointed out that the CGT imposed on individuals and
corporations is different in that the CGT for individuals is
imposed on all real properties while CGT on corporations is
imposed only on sale of lands and/or buildings. The income
from the sale of machineries was thus subject to the regular
corporate income tax.
(2) The CTA acquired jurisdiction because of the inaction
of the BIR. As such, the CTA was not making an assessment
but was merely determining the proper category of tax the
petitioner should have paid which became an incidental
matter.

(3) YES. The filing of the refund by the taxpayer was not a
bar to the BIRs exercise of its assessment powers. Since, more
than 10 years have lapsed from the filing of the returns, the
right to assess has lapsed.

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INCOME TAX
DPWH vs. Soriano
??? In expropriation proceedings, which party is
liable for the taxes due on the transfer of the
property taken?
!!! The buyer-owner is still the party liable for the CGT
in expropriation proceedings, although the said
liability is enforced is via a withholding tax obligation
imposed on DPWH as the withholding agent.
However, the DST is a liability of the government
since the DPWHs guide in acquiring property
through expropriation clearly provides that the
government should shoulder this tax.

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INCOME TAX
Banco de Oro vs. CIR
The BIR initially issued a BIR ruling in 2001to CODENGO confirming that the PEACe Bonds are not deposit
substitutes and as such were not subject to withholding
tax. In 2011, another ruling was issued in reply to the
query of the Secretary of Finance this time stating that
the bonds are in fact deposit substitutes since the
determination of the 20 or more lenders is at any one
time which means that it is the entire term of the bond
and not merely the point of origination or issuance.
??? (1) Does the Supreme Court have jurisdiction?
(2) At what point is the 20 lender rule determined?
(3) Is the interest from the bonds exempt under the
exclusion provision on trading gains?
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INCOME TAX
Banco de Oro vs. CIR
!!! (1) YES. While BIR rulings are generally reviewable by the
Secretary of Finance, the rule on exhaustion of administrative
remedies does not apply since (1) it involved a pure question
of law and (2) an appeal to the SOF is deemed futile because
the request for ruling in 2011 was filed by the SOF himself.
(2) The phrase at any one time for purposes of determining
the 20 or more lenders would mean every transaction
executed in the primary and secondary market in connection
with the sale of the bonds. The Court also mentioned that
income from debt instruments that are not deposit substitutes
are nevertheless subject to the regular income tax rates.
(3) NO. The term gains as used in Section 32 does not
include interests which represents forbearance for the use of
money. The exclusion covers gains representing the difference
between the selling price and the purchase price of the
bonds in cases where the said securities are transferred/sold.

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INCOME TAX
CIR vs. St. Lukes Medical Center, Inc.
St. Lukes is a non-stock non-profit hospital. The BIR assessed St.
Lukes based on the argument that Section 27 (B) of the Tax Code
should apply to it and hence all of St. Lukes income should be subject
to the 10% tax therein as it is a more specific provision and should
prevail over Section 30 which is a general provision. St. Lukes
countered by saying that its free services to patients was 65% of its
operating income and that no part of its income inures to the benefit
of any individual.
??? Does Section 27 (B) have the effect of taking proprietary nonprofit hospitals out of the income tax exemption under Section 30 of
the Tax Code and should instead be subject to a preferential rate of
10% on its entire income?
!!! NO. The enactment of Section 27 (B) does not remove the possible
income tax exemption of proprietary non-profit hospitals. The only
thing that Section 27 (B) captures (at 10% tax) in the case of qualified
hospitals is in the instance where the income realized by the hospital
falls under the last paragraph of Section 30 such as when the entity
conducts any activity for profit. The revenues derived by St. Lukes
from pay patients are clearly income from activities conducted for
profit.

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INCOME TAX
ING Bank N.V. vs. CIR
Petitioner accrued some bonuses to be paid to its
employees in 1996 and 1997 and claimed the same as
deductible expenses but did not withhold taxes claiming that
the same were only paid in 1997 and 1998.
??? Is Petitioner liable for deficiency withholding tax on
accrued bonuses for taxable years 1996 and 1997?
!!! YES. The Tax Code expressly requires as a condition for
deductibility of an expense that the tax required to be
withheld on the amount paid or payable is shown to have
been remitted to the BIR by the withholding agent. The
obligation of the payor-employer to deduct and withhold the
related withholding tax arises at the time the income was paid
or accrued or recorded as an expense in the payoremployers books, whichever comes first. As Petitioner
accrued or recorded the bonuses as a deduction in 1996 and
1997, its obligation to withhold arose in those years and not
later (1997 and 1998) when it actually paid the bonuses.

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INCOME TAX
Tambunting Pawnshop vs. CIR
Petitioner claimed losses as deductions arising from the
auction sales it conducted. To prove the same, Petitioner
submitted in evidence its Rematado book containing a
record of items foreclosed and Subasta book containing
a record of the auction sale of pawned items foreclosed.
??? Is Petitioner entitled to the losses as deductions?
!!! NO. Petitioner did not properly prove its losses since the
Subasta books did not reflect the true amounts of the
proceeds and the Rematado books did not reflect the
capital since the only amounts therein were those given to
the pawnees. The losses claimed from fire and theft were
also disallowed since while certifications from the police
and fire departments and a list of the properties lost were
submitted, the Petitioner did not submit sworn
declarations.

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INCOME TAX
Manila Memorial Park, Inc. vs. Secretaries of DSWD &
DOF
??? Is the law providing that the 20% senior citizen discount
may be claimed only as a tax deduction unconstitutional?
!!! NO. The law is a legitimate exercise of police power which
has general welfare for its object. This is despite the claim of
Petitioner that the law has the effect of imposing upon private
entities the burden of partly subsidizing a government
program. Even if the current rule does not provide the entities
providing discounts a peso for peso reimbursement, no
payment of just compensation is warranted for being an
exercise of police power and not eminent domain, which is a
similar characterization for similar rules such as price control
laws.
The law has also not been shown to be unreasonable,
oppressive or confiscatory and doe not necessarily affect
companies rates of return since (1) not all customers are
senior citizens; (2) the level of profit margin of the goods and
services offered to the public; and (3) the entities ability to
recoup the discounts through higher mark-ups or from other
products not subject to discounts.

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INCOME TAX
PAGCOR vs. BIR
??? Did Republic Act 9337 have the effect of totally
withdrawing the income tax exemption of PAGCOR?
!!! NO. The income of PAGCOR from its gaming
operations conducted under its franchise is still subject
only to the 5% franchise tax under PD 1869 while its income
from other related services (such as licensing income,
private internet casino gaming, etc.) is subject to
corporate income tax based on R.A. 9337. The Court ruled
that the grant of exemption under R.A. 8424 was
unnecessary since PAGCORs exemption under its
franchise was retained as having emanated from a
special law. It was only Petitioners income from other
related services that was affected by the provisions of
both R.A. 8424 (grant of exemption) and 9337 (withdrawal
of exemption).

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INCOME TAX
CIR vs. Far East Bank & Trust Company

Far East Bank filed a claim for refund of overpaid

creditable withholding taxes which included CWT on
rental income allegedly earned by the Petitioner as lessor.
??? Can a claim for refund be granted notwithstanding

claimants failure to show in the return that that income

upon which the creditable taxes withheld were based was
in fact reported?
!!! NO. The 3 essential requirements for a claim for refund of
this nature to prosper are (1) filing the same within the 2year period; (2) establishing the fact of withholding with
copies of the CWT certificates; and (3) showing that the
income received was declared as part of gross income.
Here the Petitioner failed to prove (3) as the return in fact
showed Not Applicable under the portion referring to
Rental Income. In addition, some certificates were likewise
not submitted as evidence.

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INCOME TAX
Weinbrenner & Inigo Insurance Brokers, Inc. vs. CIR
??? Is the submission and presentation of the quarterly ITRs
of the succeeding quarters of a taxable year
indispensable in a claim for refund?
!!! NO. While presenting the succeeding quarterly ITRs
significantly help claimants cause in proving that it did not
carry-over the excess income tax, they are not absolutely
needed as Section 76 of the Tax Code does not mandate
it. Also, the 3 requirements (discussed in the Far East Bank
case) for a claim of overpaid income tax does not include
presenting the subsequent quarterly returns. The Court said
that the presentation of the annual ITR would suffice in
proving that prior years excess credits were not utilized for
the current taxable year.

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INCOME TAX
CIR vs. Smart Communications, Inc.
Smart entered into an Agreement with Prism, a
nonresident foreign corporation domiciled in Malaysia,
whereby Prism will provide programming and consultancy
services to Smart. Thinking that the payments to Prism were
royalties, Smart withheld 25% under the RP-Malaysia Tax
Treaty. Smart then filed a refund with the BIR alleging that
the payments were not subject to Philippine withholding
taxes given that they constituted business profits paid to
an entity without a permanent establishment in the
Philippines.
??? Does Smart have the right to file the claim for refund?
!!! YES. The Court reiterated the ruling in Procter & Gamble
stating that a person liable for tax has sufficient legal
interest to bring a suit for refund of taxes he believes were
illegally collected from him. Since the withholding agent is
an agent of the beneficial owner of the payments (i.e.,
nonresident), the authority as agent is held to include the
filing of a claim for refund. The Silkair case was held
inapplicable as it involved excise taxes and not
withholding taxes.

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INCOME TAX
United Airlines, Inc. vs. CIR

Petitioner used to be an online carrier but

ceased operating cargo flights from the Philippines
starting 2001. It is now an offline international air
carrier but has a general sales agent in the
Philippines which sells passage documents for its offline flights for carriage of passengers and cargo. It
filed a claim for refund on the Gross Philippine Billings
(GPB) tax it paid. The CTA ruled that Petitioner was
not liable for the GBP but was liable to pay 32% tax
on its net income derived from the sales of passage
documents in the Philippines.

???
Is Petitioner liable for either the GPB or
the 32% tax?

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INCOME TAX
United Airlines, Inc. vs. CIR
!!! 32% tax. The Court reiterated the ruling in South

African Airways stating that it is the sale of tickets which

is the revenue-generating activity subject to Philippine
tax. The correct interpretation of the applicable rules is
that, if an international air carrier maintains flights to
and from the Philippines, it shall be taxed at the rate of
2 1/2% of its Gross Philippine Billings, while international
air carriers that do not have flights to and from the
Philippines but nonetheless earn income from other
activities in the country will be taxed at the rate of 32%
of such income.
The Court also ruled that to avoid multiplicity of suits
and unnecessary difficulties and expenses the issue of
deficiency tax assessment be resolved jointly with the its
claim for refund and doing so does not violate the
rule against offsetting of taxes.

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INCOME TAX
Republic Act 10653 Increasing the 13th
month pay exclusion

!!! The 13th month pay and other benefits exclusion from
gross income has been increased from P30,000 to P82,000.
!!! This will cover other benefits such as productivity
incentives and Christmas bonus.
!!! The increased amount applies to bonuses and other
benefits paid or accrued beginning January 1, 2015.

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INCOME TAX
Republic Act 10378 Exemption of
International Air Carriers

!!! international air carriers doing business in the Philippines

may avail of a preferential rate or exemption on the basis of a
tax treaty or international agreement to which the Philippines
is a signatory or on the basis of reciprocity such that an
international carrier, whose home country grants income tax
exemption to Philippine carriers, shall likewise be exempt from
the tax on Gross Philippine Billings.
!!! Transport of passengers by international carriers are now
exempt from VAT.

!!! International air and shipping carriers doing business in the

Philippines are now subject to the 3% percentage only on their
gross receipts derived from the transport of cargo and not on
their transport of passengers.

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INCOME TAX
Republic Act 10026 Exemption of Local
Water Districts

!!! Local water districts are now exempt from income taxes
under Section 27 provided that the amount saved by
virtue of the exemption is to be used for capital equipment
expenditure to expand water services coverage

!!! All unpaid taxes starting August 13, 1996 are condoned
provided (1) the BIR establishes financial incapacity of the
LWD and (2) the LWD submits to Congress a program of
internal reforms.

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INCOME TAX
RR 01-2015 Amendment to De Minimis
Benefits

!!! Benefits received by an employee under a CBA and

productivity incentive schemes with a combined
maximum amount of P10,000 per employee.

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INCOME TAX
RMC 51-2014 Inurement Prohibition under
Section 30
!!! Non-profit under Section 30 means that no net income or
asset accrues to or benefits any member or specific person.
Thus, the earnings or assets shall not inure to the benefit of any
of its trustees, organizers, officers, members, or any specific
person.
!!! The following are considered inurements:

payment of compensation, salaries, or honorarium to its

trustees or organizers

payment of exorbitant or unreasonable compensation to its

employees

provision of welfare aid and financial assistance to its

members

donation to any person or entity (except those to other entities

with similar purposes)

purchase of goods or services for amounts in excess of fair

market value from an entity which one of its trustees or officers
has an interest

Where upon dissolution its assets are distributed to its trustees,

organizers, officers, or members

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INCOME TAX
RMC 79-2014 Tax Treatment of Stock Option
Plans
!!! The difference between book value/fair market value of
the shares at the time of the exercise of the option and the
price fixed on the grant date is subject to --

income tax and withholding tax on compensation if

the grantee is a rank-and-file employee

fringe benefits tax if the grantee occupies a

supervisory or managerial position

!!! The transfer of the option is subject to --

CGT if the same is transferred for a consideration

donors tax if transferred without any consideration

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INCOME TAX
RMC 31-2013 --- Taxation of Compensation Income of
Philippine Nationals and Alien Individuals Employed
by Embassies, International Organizations, etc.
!!! Foreign governments, embassies, diplomatic missions,
and international organizations as employers in the
Philippines are immune from being withholding agents on
the salaries of their employees based on international
comity.
!!! However, this immunity does not translate into all
employees of these entities being exempt from income
tax. Only the individuals specifically named in the treaties,
international agreements, and laws are exempt from
income taxes while those not covered are not relieved of
their duty to report their income and pay the taxes but
must do so on their own.

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INCOME TAX
RMC 31-2013 --- Taxation of Compensation Income of
Philippine Nationals and Alien Individuals Employed
by Embassies, International Organizations, etc.
!!! Some examples of those exempted are diplomats
(including family, staff, servants if NOT nationals or
permanent residents of the Philippines).
All employees of the following REGARDLESS of nationality
and residence --- AUSAID / UN / ILO / FAO-UN / UNESCO /
WHO / UNDP.
Philippine nationals claiming exemptions under the above
laws, agreements must file an application for confirmation
of tax exemption with the ITAD of the BIR.
The following entities only exempt those that are not
Philippine nationals --- JICA (must be from Japan) Red
Cross / AUSAID / CIDA / ADB / IMF / IBRD / UNICEF / IRRI /
Ford Foundation / Rockefeller Foundation.

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INCOME TAX
RR 2-2013 Transfer Pricing Guidelines
!!! Critical features of the TP regulations --1) The rules apply to cross border and domestic
transactions.
2) For purposes of applying the rules, the parties are
considered related if one participates directly or indirectly
in the management, control or capital of another. Control
refers to any kind of control, direct or indirect, whether
exercised or not, and shall be assumed if income or
deductions have been arbitrarily shifted.
3) The transactions between related parties must be at
arms length otherwise BIR will make adjustments on the
basis of the rules.

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INCOME TAX
RR 2-2013 Transfer Pricing Guidelines

4) Advance Pricing Arrangement --- either unilateral (only

the taxpayer and the BIR) or bilateral/multilateral (involves
the Philippines and one or more treaty partner/s)
5) The documentation requirements need not be
submitted to the BIR but must be retained. The same must
be contemporaneous which means it exists or is brought
into existence at the time the associated enterprises
implement any arrangement that might raise transfer
pricing issues. The documentation will contain the
organizational structure, nature of business, assumptions,
comparability analysis, TP method, application, etc.
6) There are no safe harbor rates/rules in the TP regulations.

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INCOME TAX
Other Significant Issuances
!!! RMC 9-2013 --- Provides for the possible income tax and
VAT exemption of association dues and income derived
from rentals of homeowners associations properties if (i)
constituted as an association under RA 9904; (ii) the LGU
having jurisdiction certifies that the basic services (i.e.,
security, street lights, maintenance and repair of streets,
garbage disposal, etc.) for which the dues are being used
cannot be provided by the said LGU; and (iii) the
homeowners association presents proof that the dues are
used for the aforesaid basic services.
!!! RR 12-2012 --- For motor vehicles allowed for use of an
employee, the company providing the same can only
take up as a deductible expense (via depreciation) the
amount representing one vehicle and the value of which
should not exceed P2,400,000.

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ESTATE TAX
Dizon vs. CIR
There were claims against the estate which the BIR
contested stating that lower amounts were paid as
compromise payments during the settlement of the estate
and these are amounts that should be considered as
deductions in arriving at the net estate.
??? Will the compromise amounts be the amounts
considered as deductions to the gross estate?
!!! NO. The deductions allowable are the amounts
determined at the time of death. Post-death
developments are not material in determining the amount
of deduction. Thus, the Court applied the date-of-death
valuation rule which is the US rule on deductions and
which is applicable also in the Philippines. The amount
deductible is the debt which could have been enforced
against the deceased in his lifetime.

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AMDG

DONORS TAX
Metro Pacific Corporation vs. CIR
Petitioner sold its shares in Bonifacio Land Corporation
for around P400M when the book value of the unlisted
shares was at around P850M. The BIR assessed the
Petitioner for donors tax on the difference between the
consideration and the book value citing Section 100 of the
Tax Code. The parties claimed that the donors tax is not
due since it was an ordinary commercial transaction
negotiated in good faith between unrelated parties and
motivated by legitimate business reasons.
??? Is the transfer of the shares subject to donors tax?
!!! YES. The Court upheld the use of the book value of the
shares as the fair market value for purposes of applying
Section 100 of the Tax Code. Likewise, the same provision
shows that no exemption/exception is permitted. The
Court also pointed out that the ruling upholding the
Petitioners position cannot be relied upon since it was a
ruling of first impression which was issued by the Assistant
Commissioner and not the CIR herself, in violation of
Section 7 on the non-delegability of the power to issue
rulings of first impression.

+
AMDG

VALUE-ADDED TAX
Mindanao II Geothermal Partnership vs. CIR
??? Is the sale of a fully depreciated motor vehicle an
isolated transaction which should not be subject to VAT in
the hands of a power generation company?
!!! NO. While the sale is admittedly an isolated transaction,
it does not follow that the same cannot be considered as
an incidental transaction which satisfies the requirement to
attract VAT liability. The Court deemed that the sale of the
motor vehicle was in the course of its business of
converting steam into electricity for supply to NPC. The
case of Magsaysay cannot apply since the sale of the
vessels therein was not in the course of business of NDC
and the same was involuntary for having been made
pursuant to the Governments policy of privatization.
(Note: At the time when Magsaysay was decided the Tax
Code did not cover incidental transactions.)

+
AMDG

VALUE-ADDED TAX
CIR vs. Sony Philippines, Inc.
Sony Philippines was ordered examined for the period 1997
and unverified prior years as indicated in the Letter of Authority .
The audit yielded assessments against Sony Philippines for
deficiency VAT and FWT, viz: (1) late remittance of FWT on
royalties for the period January to March 1998 and (2) deficiency
VAT on reimbursable received by Sony Philippines from its offshore
affiliate, Sony International Singapore (SIS).
??? (1) Is Petitioner liable for deficiency VAT?
(2) Was the investigation of its 1998 FWT return valid?
!!! (1) NO. Sony Philippines did in fact incur expenses supported by
valid VAT invoices when it paid for certain advertising costs. This is
sufficient to accord it the benefit of input VAT credits and where
the money came from to satisfy said advertising billings is another
matter but does not alter the VAT effect. In the same way, Sony
Philippines can not be deemed to have received the
reimbursable as a fee for a VAT-taxable activity.

+
AMDG

VALUE-ADDED TAX
CIR vs. Sony Philippines, Inc.
The reimbursable was couched as an aid for Sony Philippines by
SIS in view of the companys dire or adverse economic
conditions. More importantly, the absence of a sale, barter or
exchange of goods or properties supports the non-VAT nature of
the reimbursement. This was distinguished from the COMASERCO
case 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.
!!! (2) NO. A Letter of Authority should cover a taxable period not
exceeding one year and to indicate that it covers unverified prior
years should be enough to invalidate it. In addition, even if the
FWT was covered by Sony Philippines fiscal year ending March
1998, the same fell outside of the period 1997 and was thus not
validly covered by the LOA.
+
AMDG

VALUE-ADDED TAX
Maxicare Healthcare Corporation vs. CIR
Petitioner claims that the portion of the enrollment fees (80%)
which is earmarked for medical/hospital utilization expenses does
not belong nor does it redound to its benefit and should thus not
be considered as part of its gross receipts for VAT purposes.
??? Is the total amount of enrollment fees collected by Petitioner
subject to VAT?
!!! YES. The difference of this case with that of Tours Specialists
where the tourists asked the local tour agency to pay for their
lodging accommodations is that in that case the local agency
had nothing to do at all with contract between the payors
(tourists) and the payees (hotels) and was only making the
payment as an accommodation. On the other hand, in the
instant case, the alleged amounts earmarked for payment form
part and parcel of the entire package offered to its members.
Thus, there is no portion of the funds that go into the hands of the
petitioner is delineated for delivery to a third party. The members
are deemed to have prepaid only the HMO and not the doctors
or hospitals. All these negate the concept of money in trust as
used in Tours Specialists.

+
AMDG

VALUE-ADDED TAX
Kepco Philippines Corporation vs. CIR
Kepco filed a claim for refund of unutilized input VAT based on
its zero-rated sale of power to NPC. A substantial portion of the
claim was disallowed for having been supported by VAT invoices
which only had the TIN-VAT stamped and not printed. There were
also certain sales by Kepco which failed to indicate the words
zero-rated. Lastly, they also alleged that invoices and receipts
are interchangeable and either should suffice as proof of
purchase and consequently as support for a claim for refund.
??? Is Petitioner entitled to the claim for refund on the disallowed
portion?
!!! NO. The requirement that the TIN be imprinted and not merely
stamped is a reasonable requirement imposed by the BIR. More
importantly, the requirement of the appearance of the words
zero-rated on the face of the invoice prevents buyers from
falsely claiming input VAT from their purchases when no VAT was
actually paid. The failure to adhere to the said rules will not only
expose the taxpayer to penalties but should also serve to disallow
the claim. Finally, the Court disagreed with the position that
invoices and receipts are interchangeable since the former
clearly refers to sales of goods while the latter to services.

+
AMDG

VALUE-ADDED TAX
Fort Bonifacio Development Corporation vs. CIR
Petitioner was a real estate developer that bought from the
national government a parcel of land that used to be the Fort
Bonifacio military reservation. At the time of the said sale there
was as yet no VAT imposed so Petitioner did not pay any VAT on
its purchase. Subsequently, Petitioner sold two parcels of land to
Metro Pacific Corp. In reporting the said sale for VAT purposes
(because the VAT had already been imposed in the interim),
Petitioner claimed transitional input VAT corresponding to its
inventory of land. The BIR disallowed the claim of presumptive
input VAT and thereby assessed Petitioner for deficiency VAT.
??? Is Petitioner entitled to claim the transitional input VAT on its
sale of real properties given its nature as a real estate dealer and
if so (i) is the transitional input VAT applied only to the
improvements on the real property or is it applied on the value of
the entire real property and (ii) should there have been a previous
tax payment for the transitional input VAT to be creditable?
+
AMDG

VALUE-ADDED TAX
Fort Bonifacio Development Corporation vs. CIR
!!! YES. Petitioner is entitled to claim transitional input VAT based
on the value of not only the improvements but on the value of the
entire real property and regardless of whether there was in fact
actual payment on the purchase of the real property or not.
The amendments to the VAT law do not show any intention to
make those in the real estate business subject to a different
treatment from those engaged in the sale of other goods or
properties or in any other commercial trade or business. On the
scope of the basis for determining the available transitional input
VAT, the CIR has no power to limit the meaning and coverage of
the term "goods" in Section 105 of the Tax Code without statutory
authority or basis. The transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies.

+
AMDG

VALUE-ADDED TAX
Accenture, Inc. vs. CIR
Accenture filed a VAT claim for refund on unutilized input
VAT premised on its claim that its sales were zero-rated for
being in connection with services rendered to nonresident
recipients. The CIR denied the claim stating that Accenture
failed to prove that its foreign clients did business outside the
Philippines.
??? Is Accenture entitled to the VAT refund?
!!! NO. Accenture failed to prove that services were rendered
for nonresident. The Amex case did not rule that the services
recipients need not be doing business outside the Philippines
but only that the consumption need not be abroad. However,
Accenture failed to prove that the clients/service recipients
are doing business outside the Philippines as they only
submitted SEC certifications showing that their clients have
not established any branch offices in the Philippines and
billing statements issued to the said clients. The Court ruled
that while it did prove that its clients are foreign, there was no
proof that they were doing business outside the Philippines.

+
AMDG

VALUE-ADDED TAX
Luzon Hydro Corporation vs. CIR
Petitioner filed a VAT claim for refund on unutilized input
VAT arising from its alleged zero-rated sales of electricity to
NPC. The claims were denied since Petitioner failed to
show proof of the actual zero-rated sales since they did
not present as evidence the VAT official receipts and VAT
returns.

??? Is Petitioner entitled to the VAT refund?

!!! NO. The Court reiterated the requirements for a valid
input VAT refund from zero-rated sales as follows: (a) the
taxpayer is VAT-registered; (b) the taxpayer is engaged in
zero-rated sales; (c) the input taxes are paid; (d) input
taxes are not transitional input taxes; (e) the input taxes
are attributable to zero-rated transactions; (f) input taxes
have been unapplied; (g) filing the claim within 2 years.

+
AMDG

VALUE-ADDED TAX
Significant issuances

!!! RMC 057-2013 --- Unutilized creditable input taxes

attributable to zero-rated sales can only be recovered
through the application for refund or tax credit. The
practice of claiming as an outright (income tax) expense
accumulated and unapplied input VAT credits after the
expiration of the 2-year period to process to claim does
not have legal basis.
!!! RR 08-2015 --- Only raw cane sugar (natural sugar
extracted from sugarcane through simple mechanical
process by pressing the juice, boiled to crystallize, filtered
using centrifuge)and muscovado shall be considered as
being entitled to VAT exemption.

+
AMDG

REMEDIES
CIR vs. Gonzalez

An investigation was conducted against LMCEC for taxable

years 1997 to 1999. The assessments that came out of the said
investigation was disputed by the taxpayers on the grounds
that (i) the assessment notices issued were invalid for not
bearing serial numbers and (ii) the examinations made on the
books of accounts and other records were done more than
once in the relevant taxable years.
??? Are the assessments invalid?
!!! NO. The formality of a control number in the assessment
notice is not a requirement for its validity but rather it is the
contents which should inform the taxpayer of the deficiency
and which should contain the facts and the laws on the
which the assessment is based. Likewise, this case is an
exception to the general rule of having the books examined
only once in a year. Section 235 of the Tax Code allows the
multiple examinations when (a) there is fraud or irregularity;
(b) the taxpayer requests for reinvestigation; (c) there is a
required verification of compliance with withholding taxes
and capital gains tax liabilities.

+
AMDG

REMEDIES
Rizal Commercial Banking Corporation vs. CIR
??? Whether a taxpayer, by paying the other tax
assessments covered by a Waiver of the Statute of
Limitations, is considered estopped from questioning the
validity of the said waiver (on the basis that the CIR did not
sign it) with respect to the other covered but unsettled
assessments?
!!! YES. RCBC is considered estopped through its partial
payment of the revised assessments within the extended
period provided in the said waivers. Thus, it had impliedly
admitted the validity of the said waivers. Had it believed
that the waiver was invalid and that the period to assess
had effectively prescribed, RCBC could have refused to
make any payment based on any assessment against it.

(Note: In the more recent case of CIR vs. Standard

Chartered Bank, the Court said that the taxpayer did not
waive the defense of prescription based on a defective
waiver as it continued to raise the issue of prescription.)

+
AMDG

REMEDIES
Samar-I Electric Cooperative vs. CIR
The FAN and demand letter issued to Petitioner were not
accompanied by a written explanation of the legal and
factual bases of the deficiency taxes assessed against the
Petitioner. However, the CIRs response to Petitioners protest
of the FAN did explain at length the factual and legal bases
of the deficiency tax assessments in denying the protest.
??? Was the Petitioner accorded the required due process?

!!! YES. Considering the exchange of correspondence and

documents between the parties, the Court found that the
requirement of Section 228 was substantially complied with.
The CIR had fully informed the company in writing of the
factual and legal bases of the assessment which enabled the
taxpayer to file an effective protest, much unlike the
taxpayers situation in Enron. Thus, there was no finding of any
violation of due process.
The Court likewise upheld the application of the Aznar
doctrine in saying that the substantial under declaration of
withholding taxes constituted falsity in the subject returns
which this justified the use of the 10-year period to assess.

+
AMDG

REMEDIES
Fluor Daniel Philippines, Inc. vs. CIR
Fluor Daniel was initially assessed for deficiency EWT on
its software maintenance fees paid to an offshore affiliate.
In response to Petitioners protest, the CIR issued a Final
Decision on Disputed Assessment (FDDA) cancelling the
deficiency EWT assessment but issuing an assessment for
FWT on the same software fees albeit using a lower 15%
rate under the RP-US Tax Treaty.
??? Was the Petitioner deprived of due process when the

FDDA changed the assessment from deficiency EWT to

deficiency FWT?

!!! YES. The change of the assessment in the FDDA itself

constituted a new assessment. As such, the taxpayer
should have been given the chance to dispute the same
via the process laid down in the Tax Code which is by way
of filing a protest. Given that this was not complied with as
what was issued was already an FDDA, the circumstances
certainly deprived the Petitioner of a reasonable
opportunity to be heard and submit evidence in support
of its defense which is a clear violation of due process
requirements.

+
AMDG

REMEDIES
Lascona Land Co., Inc. vs. CIR
Lascona Land appealed a decision by the CIR holding
that the assessment against it has become final and
executory for failure to appeal to the CTA within 30 days
from the lapse of the 180-day period provided for under
the Tax Code.
??? In cases of inaction on disputed assessments, can the

taxpayer still file an appeal with the CTA even after the
lapse of the 180-day period?

!!! YES. In case the CIR fails to act on a disputed

assessment within the 180-day period from the submission
of documents, the taxpayer can either (a) file an appeal
with the CTA within 30 days after the expiry of the 180-day
period or (b) await the final decision of the CIR and then
appeal the same within 30 days. These options are
mutually exclusive and resort to one bars the application
of the other. A taxpayer can not be prejudiced if he
chooses to wait for the final decision of the CIR as this is
the normal expectation when a protest is filed. Thus, an
appeal filed within the 30-day period from the receipt of
the decision, even if made after the 180-day period, is still
considered as having been filed on time.

+
AMDG

REMEDIES
Allied Banking Corporation vs. CIR
Allied Banking Corporation received a PAN from the BIR
which it timely disputed. In response, the BIR issued a
Formal Letter of Demand with Assessment Notices. Instead
of protesting the FAN, the petitioner filed a Petition for
Review with the CTA. The CTA dismissed the Petition stating
that it is neither the assessment nor the formal demand
letter itself that is appealable before it but instead it should
be the decision of the CIR on the disputed assessment.

??? Can the Formal Letter of Demand be construed as the

final decision of the CIR appealable to the CTA under
Republic Act 9282?

+
AMDG

REMEDIES
Allied Banking Corporation vs. CIR
!!! YES. This is considered an exception to the general rule
on exhaustion of administrative remedies since the CIR is
considered estopped from claiming the same principle
applies in its case. The tenor of the demand letter is clear
that the CIR had already made a final decision and that
the remedy of the Petitioner was to appeal the same
within 30 days of receipt. This can be gleaned from the use
of the terms final decision and appeal which were
deemed unequivocal language pointing to the finality of
the decision. While the Court cited the rules relative to (a)
protesting the FAN and not the PAN and (b) counting the
30 day period to appeal to the CTA from receipt of the
decision of the CIR and not issuance of the assessment,
this particular case was deemed a clear exception in view
of the CIRs own actions.

+
AMDG

REMEDIES
V.Y. Domingo Jewellers, Inc. vs. CIR
Petitioner initially received a PAN which it protested. Subsequent to
the filing of the protest and instead of serving a FAN on the taxpayer,
the CIR sent Petitioner a Preliminary Collection Letter (PCL) informing
the Petitioner of the existence of two assessment notices the details of
which may be viewed in the BIRs office. Subsequently, the taxpayer
filed a petition with the CTA attaching the assessment notices. The CIR
moved to dismiss the petition claiming lack of jurisdiction since it is
neither the assessment nor the PCL that is appealable to the CTA but
the decision of the CIR on the disputed assessment.

??? Did the CTA have jurisdiction on the petition filed by the taxpayer?
!!! YES. The contention of the CIR that the taxpayer should have
appealed the decision of the CIR on the disputed assessment cannot
hold water since there was no assessment notice issued by the BIR in
the first place. In fact, the burden is on the CIR to prove that the
taxpayer received the FAN required under Section 228 of the Tax
Code. Thus, the Court allowed the CTA to take cognizance of the
case as it falls under other matters given the peculiarity of the case.

+
AMDG

REMEDIES
CIR vs. Hambrecht & Quist Philippines, Inc.
The assessment against Hambrecht & Quist had
become final and unappelable since there was a failure
to protest the same within the 30-day period provided by
law. However, the CTA held that the BIR failed to collect
within the prescribed time and thus ordered the
cancellation of the assessment notice. The CIR disputed
the jurisdiction of the CTA arguing that since the
assessment had become final and unappealable, the
taxpayer can no longer dispute the correctness of the
assessment even before the CTA.
??? Can the CTA still take cognizance of an assessment
case which has become final and unappealable for
failure of the taxpayer to protest within the 30-day protest
period?
+
AMDG

REMEDIES
CIR vs. Hambrecht & Quist Philippines, Inc.
!!! YES. The appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the CIR on matters
relating to assessments or refunds. The CTA law clearly
bestows jurisdiction to the CTA even on other matters
arising under the National Internal Revenue Code. Thus,
the issue of whether the right of the CIR to collect has
prescribed, collection being one of the duties of the BIR, is
considered covered by the term other matters. The fact
that assessment has become final for failure to protest only
means that the validity or correctness of the assessment
may no longer be questioned on appeal. However, this
issue is entirely distinct from the issue of whether the right
to collect has in fact prescribed.

The Court ruled that the right to collect has indeed

prescribed since there was no proof that the request for
reinvestigation was in fact granted/acted upon by the
CIR. Thus, the period to collect was never suspended.

+
AMDG

REMEDIES
Festo Holdings, Inc. vs. CIR
??? Is the FDDA issued by the Revenue District Officer

(RDO) appealable to the CTA?

!!! NO. The RDOs decision can not be considered as the

CIRs decision appealable to the CTA in the absence of
any proof that the RDO was authorized to decide and act
on behalf of the CIR on the protest of a taxpayer. This is
notwithstanding the fact that Section 7 of the Tax Code
allows the CIR to delegate her vested powers (except
those specifically enumerated as non-delegable) to any
subordinate official with the rank equivalent to a division
chief or higher. Lastly, Sections 11 and 13 of the Tax Code
which enumerate the duties and authority of the RDO do
not, by themselves, provide that an RDO can issue
decisions that are appealable to the CTA.
Note: The RDO has a rank of Division Chief.

+
AMDG

REMEDIES
CIR vs. BASF Coating + Inks Phils., Inc.

??? Is the period to assess suspended if the taxpayer failed

to formally notify of the BIR of its change of address even if
the BIR is in fact aware of the said change?
!!! NO. The rule that the periods to assess and collect are
suspended if the taxpayer cannot be located does not
apply even if the taxpayer failed to follow the process for
the notification on the change of address as long as there
is proof that the BIR in fact was aware of the whereabouts
of the taxpayer. In this case, all indications point to the
fact that the CIR knew of the change in address given
that several submissions of various records already show
the new address and, more importantly, the BIR already
conducted an inspection in the taxpayers new address.
+
AMDG

REMEDIES
China Banking Corporation vs. CIR
Bank of the Philippine Islands vs. CIR

??? Will the filing of an Answer in the case filed before the
CTA by the taxpayer being assessed be considered as
collection on the part of the BIR?
!!! While previous cases have in fact upheld the rule that
the filing of an Answer by the CIR may constitute the
collection contemplated by law required to be done
within the prescribed period, the same must have been
done properly to be effective. In this case, the Answer was
deemed ineffective since the case was filed with the CTA
at the time (i.e., before 2004 or the effective date of R.A.
9282) when the judicial actions for collection of internal
revenue taxes was within the jurisdiction of the regular
courts. Thus, the right to collect had indeed prescribed.
+
AMDG

REMEDIES
People of the Philippines vs. Kintanar
The spouses Kintanar were charged for alleged tax
evasion and non-filing of income tax returns. Gloria
Kintanars defense was that she did not have personal
knowledge of the actual filing of the said returns since it
was her husband who filed their ITRs. The husband in turn
alleged that their ITRs were in fact prepared by their
accountant and that they necessarily just relied on the
said accountant. These facts supposedly contradicted the
claim that their failure to file the returns was willful.
??? Was the defendant guilty of tax evasion?
!!! YES. The elements of a violation under Section 255 have
been satisfied. These are (1) that the accused is a person
required to make or file a return; (2) that the accused
failed to file the return at the time required by law; and (3)
that the failure to file was willful. For (1), as incomegenerating spouses, they were obviously covered by the
filing requirements. For (2), the BIR witnesses presented
showed sufficient proof that indeed no returns were filed in
the RDOs where they should have filed.

+
AMDG

REMEDIES
People of the Philippines vs. Kintanar

For (3), the Court said that the mere fact of having an accountant
prepare ones returns is not enough to show that that there was
no voluntary, intentional or deliberate failure to file. The Court
added that the fact of her being a businesswoman presupposes
that she ought to know and understand all matters concerning
her business including the filing of returns, citing Rule 131 on the
Rules on Evidence which states that it is presumed that a person
takes ordinary care of his concern. More importantly, the Court
found no affirmative acts on the part of defendant to make sure
her obligation to file ITRs had been fully complied with given that
she testified that she does not even know how much her tax
liabilities were. This neglect or omission was considered
tantamount to deliberate ignorance or conscious avoidance.
Lastly, the Court noted that the accountant himself was not even
presented as witness.
+
AMDG

REMEDIES
People of the Philippines vs. Judy Anne Santos
The evidence presented against defendant showed
discrepancies between the income tax return filed and the
documents which showed the amounts she earned from
various companies (ABS-CBN, Viva, Star Cinema, Century
Tuna). The defense forwarded was that she relied on her
manager and CPA in the preparation of her tax returns. The
defendant likewise said that she had signed her contracts
without reading the same since she had put her trust and
confidence in her manager.
??? Was the defendant guilty of tax evasion?
!!! NO. The element of willfulness to find defendant guilty of tax
evasion is not present in this case. At most, the accused was
found guilty of being negligent and there is thus no proof of
guilt beyond reasonable doubt. The accused was merely
made to pay the deficiency assessment against her.

+
AMDG

REMEDIES
CIR vs. Kudos Metal Corporation

CIR assessed Kudos Metal Corporation for taxable year

1998. A Waiver of the Statute of Limitations was executed
on December 2001. The CTA issued a Resolution canceling
the assessment notices issued against Petitioner for having
been issued beyond the prescriptive period as the waiver
purportedly failed to (a) have the valid officer execute the
same (i.e., only the Assistant Commissioner signed it and
not the CIR); (b) the date of acceptance was not
indicated; (c) the fact of receipt by the taxpayer was not
indicated in the original copy.
??? Has the CIRs right to assess prescribed?
+
AMDG

REMEDIES
CIR vs. Kudos Metal Corporation
!!! YES. The requirements for a valid waiver as laid down in RMO
20-90 and RDAO No. 5-01 are mandatory to give effect to Section
222 of the Tax Code. Specifically, the flaws in the waiver executed
by Kudos Metal were as follows: (a) there was no notarized written
authority in favor of the signatory for the company; (b) there is no
stated date of acceptance by the Commissioner or his
representative; and (c) the fact of the receipt of the copy was not
indicated in the original waivers.
Neither can it be said that by merely executing the waiver the
taxpayer is already estopped from disputing an action by the CIR
beyond the statutory 3-year period since the exception under the
Suyoc case (i.e., when the delays were due to taxpayers acts)
does not apply.

Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry

date; (iii) signed by authorized officer of taxpayer and BIR; (iv)
notarized; (v) fact of receipt must be indicated in the copies

+
AMDG

REMEDIES
CIR vs. MERALCO

Respondent obtained a loan from a Singapore branch of ING

Barings and withheld 10% on its interest payments. Subsequently, it
discovered that the lender is a foreign government-owned
financing institution of Germany and then filed a request for ruling
with the BIR seeking confirmation of the tax exempt status of the
lender and consequently their non-liability to withholding taxes.
After the BIR issued the ruling confirming the exemption,
Respondent filed a claim for refund with the CIR. The CIR denied
the claim stating that the claim has prescribed as 2 years has
lapsed from the time the withholding taxes were paid.
??? Has the right to claim refund of the erroneously paid
withholding taxes prescribed?
+
AMDG

REMEDIES
CIR vs. MERALCO
!!! YES. The 2-year period is applied regardless of any supervening
cause that may arise after payment. In this case, the issuance by
the BIR of the ruling is merely confirmatory in nature and is not the
operative act from which an entitlement of refund is determined.
The period also cannot begin to run merely from the discovery by
the taxpayer of erroneous or excessive payment of taxes. Neither
can solution indebiti be used as basis since this legal concept
presupposes that there is no binding relationship between the
payor and the payee. There is clearly a binding relationship since
Respondent is required by law to act as withholding agent on its
payment to the lender-bank.

+
AMDG

REMEDIES
CIR vs. Aichi Forging Company of Asia, Inc.

On September 30, 2004, Aichi Forging filed a claim for

refund/credit of input VAT attributable to its zero-rated sales for
the period July 1, 2002 to September 30, 2002 with the CIR through
the DOF One-Stop Shop. On the same day, Aichi Forging filed a
Petition for Review with the CTA for the same action. The BIR
disputed the claim and alleged that the same was filed beyond
the two-year period given that 2004 was a leap year and thus the
claim should have been filed on September 29, 2004. The CIR also
raised issues related to the reckoning of the 2-year period and the
simultaneous filing of the administrative and judicial claims.
??? (1) Was the Petitioners administrative claim filed out of time?
(2) Was the filing of the judicial claim premature?
+
AMDG

REMEDIES
CIR vs. Aichi Forging Company of Asia, Inc.
!!! (1) NO. The right to claim the refund must be reckoned from the
close of the taxable quarter when the sales were made in this
case September 30, 2004. The Court added that the rules under
Sections 204 (C) and 229 as cross-referred to Section 114 do not
apply as they only cover erroneous payments or illegal collections
of taxes which is not the case for refund of unutilized input VAT.
Thus, the claim was filed on time even if 2004 was a leap year
since the sanctioned method of counting is the number of
months. The period of exception for this rule is from June 8, 2007 to
September 11, 2008 when the 2-year period is reckoned from the
date of the payment of output VAT (Atlas Consolidated Mining vs.
CIR)
(2) YES. Section 112 mandates that the taxpayer filing the refund
must either wait for the decision of the CIR or the lapse of the 120day period provided therein before filing its judicial claim. Failure
to observe this rule is fatal to a claim. Thus, Section 112 (A) was
interpreted to refer only to claims filed with the CIR and not
appeals to the CTA given that the word used is application.
Finally, the Court said that applying the 2-year period even to
judicial claims would render nugatory Section 112 (D) which
already provides for a specific period to appeal to the CTA --- i.e.,
(a) within 30 days after a decision within the 120-day period and
(b) upon expiry of the 120-day without a decision.

+
AMDG

REMEDIES
CIR vs. Mindanao II Geothermal Partnership
December 10, 2003
120 day
waiting
period is
MANDATORY

October 5, 2010

BIR ruling applies: need not

wait for expiration of 120
days (but judicial claim
must be filed within 120+30
from the filing of
administrative claim); So no
premature filing but late
filing still applies

120 day
waiting
period is
MANDATORY

(Notes :
(1) 120 days is reckoned from submission of complete documents which is to be
presumed to be simultaneous with the filing of the administrative claim if no
contrary proof is offered --- Section 112 (C) Tax Code and CIR vs. GST, Philippines,
Inc.)
(2) The rule in the San Roque ruling is to be applied to ALL taxpayers who filed their
judicial claims within the period allowed by the ruling, regardless of whether the
claimant invoked the rule.

+
AMDG

REMEDIES
Aichi, Mirant, Atlas, San Roque, etc.
ADMINISTRATIVE CLAIM
According to Mirant & Aichi (pre-June 8, 2007 & post-September 11, 2008)
Tax Period

Close of Quarter When

Sales Were Made

End of Two-year Prescriptive

Period

First Quarter

March 31, 2015

March 31, 2017

Second Quarter

June 30, 2015

June 30, 2017

According to Atlas (June 8, 2007 to September 11, 2008)

Tax Period

Filing of Returns and

Payment of Taxes

End of Two-year Prescriptive

Period

First Quarter

April 20, 2015

April 20, 2017

Second Quarter

July 20, 2015

July 20, 2017

REMEDIES
Aichi, Mirant, Atlas, San Roque, etc.

JUDICIAL CLAIM BASED ON INACTION (POST-AICHI)

Tax Period

Date of Filing of
Administrative
Claim

End of 120-day
Period for CIR to
Decide

End of 30-day Period

to File Appeal with
CTA

First Quarter

March 31, 2015

August 8, 2015

September 7, 2015

Second Quarter

June 15, 2015

October 13, 2015

November 13, 2015

REMEDIES
Miramar Fish Company, Inc. vs. CIR
Petitioner amended its administrative claims filed with the BIR
claiming that it had revised the amounts contained in the letterclaims. Given this claim, it also argued that that the remedy to
appeal the inaction of the BIR on the claims (using the 120+30
rule) has not yet prescribed.
??? Will the amendment of the administrative claims serve to
extend the period to appeal the inaction with the CTA?
!!! NO and YES. The claims that merely relied on the same
unamended VAT returns cannot be used since both versions of
the claim relied on the figures reflected in the VAT returns. On the
other hand, the claims that were revised relied as well on
amendments made to the VAT returns themselves and as such
are considered as validly justified amendments.
+
AMDG

REMEDIES
United Airlines, Inc. vs. CIR
United Airlines was formerly an online carrier and stopped
being such in 1998 at which time it appointed a sales agent in the
Philippines. They filed a claim for refund in 2002 covering alleged
overpaid income taxes on gross passenger revenues arising from
the years after it became an offline carrier. While the CTA agreed
that the Petitioner can no longer be taxed for gross passenger
revenues starting 1999, it also found that Petitioner erroneously
deducted items from its gross cargo revenues which was not
consistent with the Tax Code. The CTA thus disallowed the refund
by pointing out that Petitioner in fact underpaid its taxes on cargo
revenues by P31 million which amount was higher than the P5
million being claimed for refund.
??? Can the Court, without violating the general principle against
offsetting of taxes, disallow a claim for refund on the ground that
its (Courts) finding of a deficiency assessment against the same
claimant is even higher than that sought to be refunded?
+
AMDG

REMEDIES
United Airlines, Inc. vs. CIR
!!! YES. Section 72 of the Tax Code states that When an
assessment is made in case of any list, statement or return, which
in the opinion of the Commissioner was false or fraudulent or
contained any statement or undervaluation, no tax collected
under such assessment shall be recovered by any suit, unless it is
proved that said list, statement or return was not false nor
fraudulent and did not contain any understatement or
undervaluation. While the Court reiterated and recognized the
rule against offsetting of tax claims upheld in previous cases, it
brought up the point that the grant of a refund is founded on the
assumption that the tax return is valid. It also said that the
practical benefit of dispensing of the issues on the proper
assessment in the same claim for refund case likewise avoids a
multiplicity of proceedings or suits.
Note: The Court apparently did not find it relevant that the Tax
Code provision refers to the Commissioner having such an
opinion/finding since in this case it was the CTA which first brought
up the issue of the tax return not being relied upon.

+
AMDG

REMEDIES
Smart Communications, Inc. vs. Municipality of
Malvar
Petitioner received a closure order from the Respondent for the
non-payment of dues arising out of an ordinance regulating the
establishment of special projects which included Petitioners
telecommunications tower. Petitioner protested and upon denial
of the protest appealed the same to the Regional Trial Court of
Tanauan questioning as well the validity of the ordinance.
Thereafter, Petitioner appealed the RTCs decision to the CTA
which dismissed the same for lack of jurisdiction claiming that it
cannot resolve cases where the constitutionality of a law or rule is
challenged.
??? Does the CTA have jurisdiction over a decision of the RTC on
a purported tax case?
!!! NO. The primary reason for the CTAs lack of jurisdiction is that
what was imposed under the questioned ordinance are not taxes
but are instead regulatory fees, specifically to address the
environmental depredation of the said special projects. As such,
the case that originated from the RTC is not considered a local tax
case over which the CTA has jurisdiction.

+
AMDG

REMEDIES
Philippine American Life and General
Insurance Company vs. CIR
??? To whom are adverse rulings of the Secretary of
Finance appealed?
!!! The CTA. The power of the CTA to rule on decisions of
the SOF is covered by the phrase other matters arising
under the NIRC in Section 7 of R.A. 9282. This decision now
resolves the apparent split jurisdiction where if what is
being questioned are administrative issuances, the same is
appealed to the regular courts (British American
Tobacco), while if is assailed are rulings of the
Commissioner, then the CTA has jurisdiction (Asia
International Auctioneers). The Court very clearly said that
the CTA can now rule not only on the propriety of an
assessment or tax treatment of a certain transaction, but
also on the validity of the revenue regulation or revenue
memorandum circular on which said assessment is based.

+
AMDG

REMEDIES
Clark Investors and Locators Association, Inc.
vs. CIR
??? Can a taxpayer file a petition for certiorari under Rule
65 direct to the Supreme Court to question a revenue
regulation?
!!! NO. The CIR and the Secretary of Finance issued the
regulations on the excise tax on importation of petroleum
products into the BCDA in the exercise of their quasilegislative or rule-making powers, not judicial or quasijudicial functions. Thus, the same is outside the scope of a
petition for certiorari. The Court lastly ruled that it shall not
entertain a direct resort to them unless there are
exceptional and compelling circumstances which is not
present in this case.

+
AMDG

REMEDIES
Commissioner of Customs vs. Marina Sales, Inc.

??? Is a Motion for Reconsideration from the decision of a division

of the CTA mandatory prior to elevating the case to the CTA en
banc
!!! YES. The use of the term must clearly indicates that the
requirement is mandatory and not merely directory. There is no
exigent and persuasive reason (such as relieving a litigant of
injustice) to relax the rules in this case.

+
AMDG

REMEDIES
CIR vs. CBK Power Company Limited

??? May an interlocutory order (Order of Default) issued by a

division of the CTA be brought directly on certiorari to the
Supreme Court even without appealing the same to the CTA en
banc?
!!! YES. The CTA en banc has clear jurisdiction over final orders or
judgments but not over interlocutory orders issued by the CTA in
division. As no appeal can be taken from the questioned order to
declare in default, Petitioners filing of the instant petition for
certiorari with the Supreme Court is in conformity with the rules.
Note: As a general rule, decisions of the CTA in division are still only
appealable to the CTA en banc and not to the Supreme Court.
(Duty Free Philippines vs. BIR)

+
AMDG

REMEDIES
Republic Act 10021 --- Exchange of Information by the
Bureau of Internal Revenue on Internationally-agreed
Tax Standards
!!! The Commissioner can now inquire into bank deposits and
other related information held by financial institutions of a
specific taxpayer or taxpayers subject of a request for supply of
tax information from a foreign tax authority pursuant to an
international convention or agreement on tax matters to which
the Philippines is a signatory or a party. The information may be
used by the BIR for tax assessment, verification, audit, and
enforcement purposes. The exchange of information shall be
done in a secure manner to ensure confidentiality.
!!! The provision of information to a foreign tax authority requires
that the requesting foreign tax authority has provided relevant
information such as the identity of the taxpayer, the tax purpose,
statement that the foreign authority has exhausted all means, etc.
!!! If the subject of the request are income tax returns, the same
shall be open to inspection upon the order of the President of the
Philippines.

+
AMDG

REMEDIES
Executive Order 56 --- Opening of Income Tax Returns
to Implement Republic Act 10021
!!! The authority to order the opening for inspection of the
income tax returns of specific taxpayers for exchange of
information by a foreign tax authority is delegated to the
Secretary of Finance.
!!! Any information received by the foreign tax authority as
a result of the opening of the income tax returns are
absolutely confidential and shall be disclosed only to
persons or authorities involved in the assessment or
collection of, or enforcement or prosecution in respect of
the taxes covered by such conventions/agreements.

+
AMDG

REMEDIES
RR 18-2013 & RMC 11-2014 --- Amending RR 12-99
!!! The significant provisions are as follows ---

1) The Notice of Informal Conference step has been removed.

Thus, first step after examination is the issuance of the PAN
(unless not required)
2) The taxpayer must specify if what is being filed is a request
for reinvestigation or a request for reconsideration. If the
appeal is from the decision of an authorized representative to
the CIR, the only mode of appeal allowed is a request for
reconsideration
3) The modes of service of the PAN, FAN, and FDDA have
been defined --personal service on registered or known address (where
business is conducted)

+
AMDG

REMEDIES
RR 18-2013 & RMC 11-2014 --- Amending RR 12-99

substituted service (where the same is left with the clerk or

person-in-charge if in a place of business or with a person of legal
age if in a house or if there is nobody there or there is refusal to
receive, then 2 barangay officials will witness the service)
service by mail which is either registered or reputable
professional courier service, or, if neither is available, ordinary mail

4) The duly authorized representatives are Revenue Regional Directors,

Assistant Commissioners LTS, and Assistant Commissioner for
Enforcement (Note: This upholds the case of Festo which held that
Revenue District Officers are not authorized representatives for
assessment purposes)
5) The issuance of FLD/FAN reiterating immediate payment of
assessment previously made in the PAN is a denial of the PAN protest
and is thus a decision on disputed assessment which may be
appealed (Note: This upholds the Allied Banking decision that the FAN
and not just the FDDA is appealable to the CTA)

+
AMDG

REMEDIES
Other Significant Issuances
!!! RR 17-2013 --- All taxpayers are required to preserve their
books of accounts and other accounting records
(including invoices, receipts, vouchers, and other source
documents) for a period of ten (10) years reckoned from
the day following the deadline in filing a return or if filed
after the deadline, from the date of actual filing. If there is
a pending examination due to an assessment or a filed
refund claim, the records are to be preserved until the
case is finally resolved.

+
AMDG

LOCAL BUSINESS TAX

Pelizloy Realty Corporation vs. Province of Benguet
??? Can Benguet province impose amusement taxes on
admission fees for resorts, swimming pools, bath houses, hot
springs, tourist spots and other similar places for recreation?
!!! NO. The Court stated that a valid local tax imposition must
(1) be consistent with the principles under Section 130 and (2)
not breach the limitations imposed under Section 133. Even
while Petitioner disputed the imposition of the tax by stating
that Section 133 of the LGC prohibits LGUs to impose
percentage taxes (such as the amusement tax) and/or VAT,
the Court ruled that provinces are not barred from levying
amusement taxes given that the LGC expressly allows them
to levy amusement taxes but only on theaters, cinemas, and
other places of amusement. However, it was ruled that resorts,
pools, hot springs, etc. are not covered by other places of
amusement since the enumeration under Section 140 are all
venues primarily for staging of spectacles which cannot
encompass the facilities of Petitioner.

+
AMDG

LOCAL BUSINESS TAX

City of Manila vs. Colet
??? Can LGUs impose local business tax on transportation
contractors?
!!! NO. Section 133 clearly proscribes LGUs from imposing any
tax on the gross receipts of transportation contractors
engaged in the transport of passengers or freight by hire, and
common carriers by air, land, or water. The supposed omnibus
grant of power to cities and municipalities under Section 143
(h) of the LGC cannot overcome the specific
exception/exemption in Section 133. This does not result in
Section 143 (h) being a hollow decorative provision since
there are still other businesses subject to excise tax, VAT, or
percentage tax which the LGUs can still tax under Section 143
such as hotels, caterers, dealers in securities, franchise holders,
banks, finance companies, amusement places, etc.
+
AMDG

LOCAL BUSINESS TAX

Lepanto Consolidated Mining Company vs.
Ambanloc
Lepanto Consolidated Mining had a mining lease
contract for a mining claim in Benguet. They used the
sand and gravel mined to construct and maintain
concrete structures needed in its mining operations such
as a tailings dam, access roads, and offices. The provincial
treasurer of Benguet then asked Lepanto Consolidated
Mining to pay sand and gravel tax for the quarry materials
extracted from the mining site. The counterargument was
that the said tax applied only to commercial extractions
and since Lepanto did not supply other users for some
profit, the tax should not apply.
??? Is Lepanto liable for the tax imposed by Benguet on
the sand and gravel that it extracted from within the area
of its mining claim used exclusively in its mining operations?
+
AMDG

LOCAL BUSINESS TAX

Lepanto Consolidated Mining Company vs.
Ambanloc

!!! YES. The CTA erred in applying the provision of the Local
Government Code (Section 138) since the basis of Benguet
province emanates from the Revised Benguet Revenue Code
itself. This notwithstanding, the provincial revenue measure still
did not distinguish between commercial and non-commercial
extractions.
In addition, the Petitioners argument that when a company is
taxed on its main business it can no longer be taxable for
engaging in an activity that is but part of, incidental to, and
necessary to such main business, was held to be inapplicable.
The Court said that the cases where the above principle has
been applied involved business taxes and thus the incidental
activities could not be treated as separate and distinct from
the main business. Here the tax being imposed was an excise
tax levied on the privilege of extracting gravel and sand.
+
AMDG

LOCAL BUSINESS TAX

Michigan Holdings, Inc. vs. City Treasurer of Makati
City
??? Are holding companies subject to local business tax
on dividends received from their subsidiaries?
!!! NO. Section 133 of the LGC expressly provides that the
taxing powers of LGUs shall not extend to the levy of
income tax, except when levied on banks and other
financial institutions. In this relation, Section 131 defines
banks and other financial institutions to include lending
investors, investment companies, pawnshops, insurance
companies, stock brokers etc. The same does not cover
holding companies.

+
AMDG

LOCAL BUSINESS TAX

National Power Corporation vs. Bataan

Bataan assessed NPC for franchise tax deficiency basing its

claim on NPCs sale of electricity it generated from the power
plants in Bataan. NPC refused to pay and said that it had
ceased being liable for the tax after the effectivity of the
Electric Power Industry Reform Act (EPIRA) relieving it (NPC) of
the function of generating and supplying electricity.
??? Is NPC still liable for local tax?
!!! NO. The EPIRA transferred to TRANSCO NPCs electrical
transmission function and thus NPC ceased to operated that
business in Bataan by operation of law. Since the local
franchise tax is imposed on the privilege of operating a
franchise, not a tax on the ownership of the transmission
facilities, it is clear that NPC is no longer taxable. The
distribution business was likewise transferred to PSALM Corp.
and as such the liability for the local franchise tax on that end
passed to PSALM.

+
AMDG

LOCAL BUSINESS TAX

Angeles City Vs. Angeles Electric Corporation

??? Can an injunction be issued to enjoin the

collection of local taxes?
!!! YES. The Local Government Code does not specifically
prohibit an injunction enjoining the collection of taxes. This
is different in the case of national taxes where the Tax
Code expressly provides that no court shall have the
authority to grant an injunction to restrain the collection on
national internal revenue tax, fee or charge with the sole
exception of when the CTA finds that the collection
thereof may jeopardize the interest of the government
and/or the taxpayer. Nevertheless, there must still be proof
of the existence of the requirements for injunction to be
issued under the Rules of Court (i.e., clear right to be
protected and urgent necessity to prevent serious
damage).
+
AMDG

LOCAL BUSINESS TAX

City of Manila vs. Grecia-Cuerdo
??? Does the CTA have jurisdiction over a special civil action for
certiorari assailing an interlocutory order (injunction) issued by the
RTC in a local tax case?
!!! YES. While Republic Act 9282 does not contain a categorical
statement which vests to the CTA jurisdiction over petitions for
certiorari on orders by the RTC on local tax cases, the grant of
appellate jurisdiction on local tax cases leads to an assumption
that the law intended to transfer also such power as is deemed
necessary if not indispensable in aid of such appellate jurisdiction.
The Court pointed out that to confer the power over certiorari
petitions to the Court of Appeals would create a split-jurisdiction
situation which is anathema to the orderly administration of
justice. Thus, the power of the CTA to rule on petitions for certiorari
on interlocutory orders issued by the RTC in local tax cases is
included in the powers granted by the Constitution as well as
inherent in the exercise of its appellate jurisdiction.
+
AMDG

LOCAL BUSINESS TAX

National Power Corporation vs. City of
Cabanatuan
Respondent computed the surcharge imposed on the
deficiency local business tax imposed against Petitioner based on
the total unpaid tax for each particular year. For example, if in
1993 the tax due was P1,000,000 (not the true amount ) and in
1994 the tax due was again P1,000,000 (also not true). The
surcharge imposed for 1994 was based on P2,000,000 and not just
P1,000,000. In effect, the Citys computation resulted in the
imposition of the 25% surcharge for every year of default.
??? Did the City compute the imposable surcharge correctly?
!!! NO. There is nothing in the law which would justify the
computation done by the City. The surcharge is to be computed
only against the annual tax due and not compounded. While it is
true that imposing a higher amount may be a more effective
deterrent, it cannot be done as to make it confiscatory and
oppressive since in effect the surcharge would even exceed the
72% limit on the interest imposable. Besides, if the legislative intent
was to make the 25% surcharge proportionate to the period of
delay, the law should have clearly said so.

+
AMDG

LOCAL BUSINESS TAX

Coca-Cola Bottlers Philippines, Inc. vs. City of
Manila
??? Is a writ of execution of the judgment ordering
Respondent either to refund or credit the tax assessed
against Petitioner indispensable?
!!! NO. The decision provided for two options to the
taxpayer to recover the erroneously paid tax refund or
credit in the succeeding years. In either case, the issuance
of a writ of execution is superfluous because the judgment
can neither be considered an award for a specific sum of
money susceptible of execution by levy or garnishment nor
a special judgment. It could not have been the intention
of the law to burden the taxpayer with going though the
process of execution under the Rules of Civil Procedure. If
at all, the City may be allowed to verify documents and
information relative to the grant of the tax refund or tax
credit.

+
AMDG

REAL PROPERTY TAX

Mactan-Cebu International Airport Authority vs. City of
Lapu-Lapu
??? Are the real property of Mactan-Cebu
International Airport Authority subject to RPT ?
!!! NO. Petitioner is an instrumentality of the government
and thus its properties actually, solely, and exclusively
used for public purposes consisting of the airport
terminal building, airfield, runway, taxiway, and the lots
in which they are situated are exempt from RPT. The
decision follows the 2006 MIAA case and not the 1996
MCIAA case. The Court reiterated that MIAA/MCIAA is
not a GOCC (as it is not organized as a stock or nonstock corporation) but a government instrumentality
vested with corporate powers. As properties of public
dominion being for public use, the properties of MCIAA
are not subject to levy, encumbrance, or disposition.
The case likewise cited the previous rulings in the PFDA,
GSIS, and PPA cases.

+
AMDG

REAL PROPERTY TAX

City of Lapu-Lapu vs. Philippine Economic Zone
Authority
??? (1) Is the Philippine Economic Zone Authority exempt from
real property taxes?
(2) What are the remedies of a taxpayer against an RPT
assessment?
!!! (1) YES. PEZA is an instrumentality of the national government.
Even if it is not integrated within the department framework, it is an
agency attached to the DTI. Although PEZA is a body corporate
vested with some corporate powers, it is not a GOCC and is thus
not required to be economically viable. The Court added that a
provision in the Special Economic Zone Act explicitly exempting
PEZA was deemed unnecessary since it assumed the RPT
exemption of the EPZA under the previous law given that PEZA
likewise replicated EPZAs non-profit character. Lastly, the Court
stated that even the lands and buildings whose beneficial use
have been granted to other persons are not subject to RPT since
PEZA only leases its lands and buildings to PEZA-registered
companies which are also not subject to RPT.

+
AMDG

REAL PROPERTY TAX

City of Lapu-Lapu vs. Philippine Economic Zone
Authority
!!! (2) The taxpayer must follow the remedies below.
Pay the tax then file a protest with the local
treasurer within 30 days from payment
Treasurer has 60 days to decide the appeal
Appeal to the LBAA within 60 days from the denial
of the protest or after the lapse of the 60-day
period
LBAA has 120 days to decide the appeal
Appeal to the CBAA within 30 days from the
denial or after the lapse of the 120-day period
Appeal the CBAA decision to the CTA en banc
under Rule 43
Appeal the CTA decision to the Supreme Court
under Rule 45

+
AMDG

REAL PROPERTY TAX

City of Lapu-Lapu vs. Philippine Economic Zone
Authority
!!! In case of an illegal assessment where the same
was issued without authority, exhaustion of remedies
in not necessary and the taxpayer may directly
resort to judicial action by asking the RTC to enjoin
the collection of RPT following the Ty vs. Trampe
case. An appeal may be filed of the RTC decision
with the CTA within 15 days from the RTC decision.
In case the LGU has issued a notice of delinquency,
the taxpayer may ask the court to enjoin the sale. In
case the property has been sold at public auction,
the taxpayer must first deposit with the court the
amount for which the property was sold with a 2%
interest per month from the date of sale and can
then file an action to assail the validity of the sale.

+
AMDG

REAL PROPERTY TAX

City of Lapu-Lapu vs. Philippine Economic Zone
Authority
Note: The decision in the recent case of National
Power Corporation vs. Navotas reiterated the
principle that if the issue with the RPT assessment is
one that deals with a legal issue, then resort to the
LBAA and CBAA are not mandatory and the
taxpayer can go straight to the RTC. This case dealt
with the power of the municipality itself to impose
RPT notwithstanding Petitioner NPCs actual and
direct control and supervision of the power stations.

+
AMDG

REAL PROPERTY TAX

City of Pasig vs. Presidential Commission On Good
Government
MPLDC owned two parcels of land in Pasig City. In 1986, Jose Y.
Campos, the registered owner of MPLDC, voluntarily surrendered
MPLDC to the government. From 2002-2005, Pasig City sent notices
of assessment to MPLDC to demand payment of real property taxes.
PCGG filed with the RTC a petition for prohibition with a prayer for
issuance of a TRO claiming ownership over the said properties.
??? Are the properties owned by PCGG subject to real property
taxes?
!!! Only those portions of the properties leased to taxable entities are
subject to real estate taxes for the period of such leases and may
also be sold at public auctioned to satisfy the tax delinquency.
While it was established that the owner of the properties is now
clearly the Republic of the Philippines given the voluntary surrender,
the Local Government Code clearly states that the exemption will
not apply when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. The Court cited
several cases to support the decision such as Philippine Fisheries,
GSIS, MIAA, and Lung Center.

+
AMDG

REAL PROPERTY TAX

Provincial Assessor of Marinduque vs. Court of
Appeals
The Provincial Assessor issued an assessment against
Marcopper for real property taxes supposedly due on the siltation
dam and decant system. Respondent submitted a DENR
certification stating that the dam is a structure intended primarily
for pollution control of silted materials and hence exempt from
real property taxes.
??? Are the properties exempt from real property tax?
!!! NO. While Section 234 (e) exempts from the real property tax
machinery and equipment used for pollution control, the Court
found that during the period covered by the assessment, no
evidence was presented that the property was used actually,
directly, and exclusively for pollution control purposes. In addition,
the DENR itself characterized the property as a structure rather
than as machinery or equipment which thus takes it away from
the exempting provision.

+
AMDG

REAL PROPERTY TAX

Provincial Assessor of Marinduque vs. Court of
Appeals
Note: The assessment was for years before the law
expanded the definition of pollution control
device to include infrastructure or improvement.
However, the Court said that the owner can not get
the benefit of a retroactive application of the
amendment.

+
AMDG

REAL PROPERTY TAX

Demaala vs. Commission on Audit

??? Can an LGU impose and collect a Special

Education Fund at less than 1%?
!!! YES. The imposition of the SEF is within the taxing
power of local government units and which is
consistent with the guiding constitutional principle of
local autonomy and fiscal flexibility. The permissive
language (use of the term may) of the LGC
provision imposing the SEF supports the authority of
the LGUs to prescribe their own rates and that the 1%
is a maximum rate rather than an immutable edict.

+
AMDG

REAL PROPERTY TAX

National Power Corporation vs. Province of Quezon

NPC is a GOCC that entered into an Energy Conversion

Agreement (ECA) under a build-operate-transfer (BOT)
arrangement with Mirant Pagbilao Corp. Under the agreement,
Mirant will build and finance a thermal power plant in Quezon,
and operate and maintain the same for 25 years, after which,
Mirant will transfer the power plant to the Respondent without
compensation. NPC also undertook to pay all taxes that the
government may impose on Mirant. Quezon then assessed Mirant
real property taxes on the power plant and its machineries.
??? (1) Can Petitioner (NPC) file the protest against the real
property tax assessment?
(2) Can Petitioner claim exemption from the RPT given the
BOT arrangement with Mirant?
(3) Is payment under protest required before an appeal to
the LBAA is made?
+
AMDG

REAL PROPERTY TAX

National Power Corporation vs. Province of Quezon

!!! (1) NO. The two entities vested with personality to

contest an assessment are (a) the owner or (b) the
person with legal interest in the property. NPC is neither
the owner nor the possessor/user of the subject
machineries even if it will acquire ownership of the
plant at the end of 25 years. The Court said that legal
interest should be an interest that is actual and
material, direct and immediate, not simply contingent
or expectant. While the Petitioner does indeed assume
responsibility for the taxes due on the power plant and
its machineries, the tax liability referred to is the liability
arising from law that the local government unit can
rightfully and successfully enforce, not the contractual
liability that is enforceable between the parties to a
contract. The local government units cannot be
compelled to recognize the protest of a tax assessment
from the Petitioner, an entity against whom it cannot
enforce the tax liability.

+
AMDG

REAL PROPERTY TAX

National Power Corporation vs. Province of Quezon

!!! (2) NO. To successfully claim exemption under Section 234

(c) of the LGC, the claimant must prove two elements: a) the
machineries and equipment are actually, directly, and
exclusively used by local water districts and governmentowned or controlled corporations; and b) the local water
districts and government-owned and controlled corporations
claiming exemption must be engaged in the supply and
distribution of water and/or the generation and transmission of
electric power. Since neither the Petitioner nor Mirant satisfies
both requirements, the claim for exemption must fall.
(3) YES. If a taxpayer disputes the reasonableness of an
increase in a real property tax assessment, he is required to
"first pay the tax" under protest. The case of Ty does not apply
as it involved a situation where the taxpayer was questioning
the very authority and power of the assessor, acting solely
and independently, to impose the assessment and of the
treasurer to collect the tax. A claim for tax exemption,
whether full or partial, does not question the authority of local
assessors to assess real property tax.

+
AMDG

REAL PROPERTY TAX

Camp John Hay Development Corporation vs. CBAA

Petitioner was assessed by Baguio City for its buildings within the
John Hay Special Economic Zone. Petitioner protested the same
and raised as defense its alleged exemption from paying all taxes
under the Bases Conversion Act. However, there was no payment
under protest made by the Petitioner.
??? Can the CBAA/CTA assume jurisdiction over a real property
assessment case even if the taxpayer did not pay under protest?
!!! NO. A claim for tax exemption, whether full or partial, does not
deal with the authority of local assessor to assess real property tax.
Such claim questions the correctness of the assessment and
compliance with the provisions of the LGC and as such payment
under protest is mandatory. Neither can Petitioner use the
argument that the rule on paying under protest will not apply to it
since it is not a taxpayer as it is a tax-exempt entity. The Court
replied by stating that the LGC provides for a process by which an
entity claiming exemption can comply with the same and hence
it becomes a question of fact which would require and
administrative determination.

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AMDG

REAL PROPERTY TAX

City Mayor of Quezon City vs.
Rizal Commercial Banking Corporation
An auction sale of the properties of RCBC was conducted
in May 30, 2003. The Certificate of Sale of Delinquent Property
was registered with the Register of Deeds of Quezon City on
February 10, 2004. Respondent tendered payment on June 10,
2004 but the Treasurer of Quezon City refused on the ground
that the one-year redemption period has lapsed.
??? Did the Respondent still have the right to redeem?
!!! YES. While the LGC provides that the one year begins from
the date of sale on which date the delinquent tax and other
fees are paid (in this case May 30, 2003), the local ordinance
of Quezon City provides that the period is reckoned from the
date of annotation of the sale (in this case February 10, 2004).
To reconcile the conflicting provisions, the Court applied the
rule laid down in the special law or the Quezon City
ordinance.

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AMDG

REAL PROPERTY TAX

Executive Orders 27 & 173 - Reduction and
Condonation of Real Property Taxes on Power
Generation Facilities of IPPs Under BOT Contracts
!!! Based on the case of NPC vs. Province of Quezon,
Quezon Province was allowed to impose RPT on
machineries and equipment under a BOT
agreement. Given that the payment of the same
RPT has been contractually assumed by NPC/PSALM
which are GOCCs, the President reduced all RPT
liabilities based on an assessment level of 15%
depreciated at the rate of 2% per annum.
!!! All fines, penalties, and interest on all deficiencies
were likewise condoned.

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AMDG

CUSTOMS
Subic Bay Metropolitan Authority vs. Rodriguez
On September 29, 2001, a shipment described as
agricultural product arrived at Subic Bay Freeport
Zone. On October 23, the BOC issued a Memorandum
stating that upon examination the shipment was found
to contain rice. The representative of the importer then
stated that there was a misshipment and manifested
willingness to pay appropriate duties and taxes. The
BOC then issued a Hold Order on October 25, 2001.
Despite several certifications for its clearance, Petitioner
SBMA refused to allow the release of the rice shipment.
Hence, on June 11, 2002, the respondent-importers filed
with the RTC of Olongapo City a complaint for
Injunction and Damages against SBMA.
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AMDG

??? Did the RTC have jurisdiction over the case?

CUSTOMS
Subic Bay Metropolitan Authority vs. Rodriguez
!!! NO. The Collector of Customs has exclusive jurisdiction
over seizure and forfeiture proceedings and the regular
courts can not interfere nor can it enjoin these
proceedings. This is the rule the moment the imported
goods are in the possession or control of the Customs
authorities even if no warrant for seizure or detention had
previously been issued. The actions of the BOC are then
only appealed to the CTA. The Court also said that this
rule, which is anchored upon the policy of placing no
unnecessary hindrance on the governments drive to
prevent smuggling and fraud and to collect correct
duties, is absolute.
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AMDG

CUSTOMS
Airlift Asia Customs Brokerage, Inc. vs. Court of
Appeals
??? Is Customs Administrative Order (CAO) 3-2006
requiring customs brokers desiring to practice their
profession to apply for accreditation with the BOC valid?
!!! NO. The Customs Brokers Act of 2004 expressly repealed
the TCCP provisions on customs brokers and created the
Professional Regulatory Board for Customs Brokers (PRBCB).
Notably, the COC is not a member of the PRBCB to show
the legislative intent to remove the power he previously
exercised over customs brokers. While the COC has the
mandate to enforce tariff laws and prevent smuggling,
these powers do not include the power to regulate
customs broker profession. This is not the same as tax
agents who are to be accredited by and register with the
BIR Commissioner.

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AMDG

CUSTOMS
Philippine British Assurance Company, Inc. vs.
Bureau of Customs
Philippine British Assurance Company was an insurance
company which regularly issued customs bonds to its
clients in favor of the BOC. The bonds secure the release
of imported goods in order that the goods may be
released without prior payment of duties and taxes. Under
these bonds, Petitioner and its clients jointly bind
themselves to pay BOC the value of the bonds in the
event that the bonds expire without the imported goods
being re-exported or the proper duties being paid. BOC
then filed a collection case alleging that Petitioner had
unliquidated customs bonds. The RTC decided in favor of
BOC but the appeal filed with the Court of Appeals was
dismissed as the CA claimed lack of jurisdiction and said
that the appeal lies with the CTA as a case for collection
of taxes.
??? Did the CA, not the CTA, have jurisdiction over the
appeal filed from the RTC?

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AMDG

CUSTOMS
Philippine British Assurance Company, Inc. vs.
Bureau of Customs
!!! YES. An action to collect on a bond used to secure the
payment of taxes is not a tax collection case but rather a
simple case for enforcement of contractual liability. This
was the same ruling in Mambulao Lumber where to satisfy
its deficiency sales tax, the parties agreed for the taxpayer
to pay in installments and as a security a bond was
executed. Upon default, the government proceeded
against the bond while the taxpayer argued that the 5year period to collect had set in. The Court also ruled that
the prescription rules under the Tax Code do not apply
and instead those under the Civil Code apply.
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AMDG

CUSTOMS
DOF Order 011-2014

!!! The significant provisions of the Order are as follows --1) Post-entry audit is now administered by Fiscal Intelligence
Unit of the DOF and no longer the BOC-PEAG.
2) Except in case of fraud, COC (upon approval by the DOF
with the recommendation of the FIU) may compromise with
the erring importer but the same has to be based to based on
full disclosure that is made prior to the issuance of the Audit
Notification Letter.
3) All importers and brokers are required to keep at their
principal place of business for a period of 10 years (as
amended by DOF Order 011-2014) from the date of
importation all the records of their importations and/or books
of accounts, business and computer systems and all customs
commercial data including payment records relevant to the
verification of the accuracy of the transaction value declared
by the importers/customs brokers on the import entry.

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AMDG

THANK YOU.

GOOD
LUCK!