C e n t e r f o r L e g a l E d u c a t i o n A n d R e s e a r c h

ARELLANO BAR REVIEW PROGRAM HANDOUT NO. 16

2018
Doctrines on Taxation for the 2018 Bar Examinations

I. General Principles

Taxpayer’s Suit

1.a. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that
the public money is being deflected to any improper purpose, or that there is wastage of public funds
through the enforcement of an invalid or unconstitutional law. A person suing as a taxpayer, however,
must show that the act complained of directly involves the illegal disbursement of public funds derived
from taxation. He must also prove that he has sufficient interest in preventing the illegal expenditure of
money raised by taxation and that he will sustain a direct injury because of the enforcement of the
questioned statute or contract.

1.b. For a taxpayer’s suit to prosper, two requisites must be met: (1) public funds derived from taxation
are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some
irregularity is committed; and, (2) the petitioner is directly affected by the alleged act . As to the second
requisite, the Supreme Court, in recent cases, has relaxed the stringent "direct injury test" bearing in
mind that locus standi is a procedural technicality. By invoking "transcendental importance", "paramount
public interest", or "far-reaching implications", ordinary citizens and taxpayers were allowed to sue even
if they failed to show direct injury. In cases where serious legal issues were raised or where public
expenditures of millions of pesos were involved, the Supreme Court did not hesitate to give standing to
taxpayers.

1.c. A taxpayer need not be a party to the contract to challenge its validity. As long as taxes are
involved, people have a right to question contracts entered into by the government. (J. del Castillo,
Mamba vs. Lara, GR No. 165109 dated December 14, 2009)

Tax vs. Fee

2. An ordinance which imposes a fee to regulate certain construction activities of identified special
projects, including "cell sites" or telecommunications towers is regulatory in nature, and not primarily
revenue-raising. Thus, the fee imposed in the said ordinance is not a tax. If the generating of revenue is
the primary purpose of the ordinance and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the
imposition a tax. (Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated February 18, 2014)

Tax Treaties

3. The BIR cannot deprive a taxpayer the benefits of a lower tax rate under a tax treaty for failure to
strictly comply with a treaty relief application under Revenue Memorandum Order (“RMO”) No. 1-2000.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.
The BIR must not impose additional requirements that would negate the availment of the reliefs provided
for under international agreements. More so, when the tax treaty does not provide for any pre-requisite
for the availment of the benefits under said agreement. (Deutsche Bank AG Manila Branch vs. CIR, GR
No. 188550 dated August 19, 2013)
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Non-retroactivity of Rulings Rule under Sec. 246 of the NIRC

4.a. Any revocation, modification or reversal of a ruling or circular issued by the Commissioner of Internal
Revenue (“CIR”)shall not be given retroactive application if the revocation, modification or reversal will be
prejudicial to a taxpayer, except: (a) where the taxpayer deliberately misstates or omits material facts
from his return or any document required of him by the Bureau of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which
the ruling is based; or (c) where the taxpayer acted in bad faith. (Sec. 246 of the NIRC)

4.b. Under Sec. 246, taxpayers may rely upon a rule or ruling issued by the CIR from the time the rule or
ruling is issued up to its reversal by the CIR or the Supreme Court. The reversal is not given retroactive
effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or ruling issued
by the CIR that is relied upon by the taxpayer in good faith. A mere administrative practice, not
formalized into a rule or ruling, will not suffice because such a mere administrative practice may not be
uniformly and consistently applied. An administrative practice, if not formalized as a rule or ruling, will not
be known to the general public and can be availed of only by those within formal contacts with the
government agency. (CIR vs. San Roque Power Corporation, GR No. 187485 dated October 8, 2013)

4.c. In order for Sec. 246 to apply, the ruling must be issued to the taxpayer invoking the same. (CIR vs.
Filinvest Development Corporation, GR No. 163653 dated July 19, 2011) But, if the ruling issued is a
general interpretative rule, all taxpayers may rely on the ruling and invoke Sec. 246, if proper.

An example of a general interpretative rule is BIR Ruling No. DA-489-03 dated December 10, 2003. BIR
Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by
a particular taxpayer, but by a government agency tasked with processing tax refunds and credits , that
is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This
government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the CIR the administrative claim of Lazi Bay
Resources Development, Inc., the agency was in fact asking the CIR what to do in cases like the tax
claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-
day period. (CIR vs. San Roque Power Corporation, GR No. 187485 dated February 12, 2013)

4.d. Sec. 246 is not limited to a reversal only by the CIR because this Section expressly states,
"Any revocation, modification or reversal" without specifying who made the revocation, modification or
reversal. Hence, a reversal by the Supreme Court is covered under Sec. 246. (CIR vs. San Roque, GR No.
187485 dated February 12, 2013)

Tax Rulings

5.a. The powers of the Commissioner may be delegated, subject to certain exceptions, to a subordinate
official with a rank of division chief or higher . Thus, as a general rule, a BIR ruling need not be signed or
issued by the CIR. However, there are two (2) rulings which must be issued or signed by the CIR in order
to be valid: (1) rulings of first impression; and, (2)rulings which reverse, revoke or modify any existing
ruling of the BIR. (Sec. 7(b) of the NIRC)

5.b. A ruling of the CIR may be appealed to the Secretary of Finance (“SOF”) by filing a Request for
Ruling Review within thirty (30) days from receipt of the unfavorable ruling. (DOF Department Order No.
23-2001 dated October 25, 2001)

5.c.The rule on exhaustion of administrative remedies, particularly, appeal to the SOF, may be dispensed
with if, among others: (1) the question involved is purely legal; (2) when there are circumstances
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indicating the urgency of judicial intervention; and, (3) when exhaustion will result in an exercise in
futility.(BDO vs. Republic, GR No. 198756 dated January 13, 2015)

5.d. The ruling of the SOF or the ruling of the CIR(if appeal to the SOFmay be dispensed with) is
appealable to the Court of Tax Appeals (“CTA”). The CTA has undoubted jurisdiction to pass upon the
constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in
disputing or contesting an assessment or claiming a refund.The CTA may likewise take cognizance of
cases directly challenging the constitutionality or validity of a tax law or regulation or administrative
issuance (revenue orders, revenue memorandum circulars, rulings).Jurisdictional basis under RA No. 9282
is “other matters arising under the NIRC or other laws administered by the BIR.” (BDO vs. Republic, GR
No. 198756 dated August 16, 2016)

Compromise and Abatement

6.a. The taxpayer may compromise a tax liability by: (a) paying 40% of the basic assessed tax on the
ground of doubtful validity of an assessment; or (b) paying 10% of the basic assessed tax on the ground
of financial incapacity. A criminal violation that has already been filed in court or a criminal violation
involving fraud cannot be the subject of a compromise between the BIR and the taxpayer. (Sec. 204(A)
of the NIRC)

6.b. A compromise penalty is an amount paid by the taxpayer in lieu of criminal prosecution. It is an
amount paid to compromise a violation of the penal provisions of the NIRC. Since a compromise is in the
nature of a contract,it is now a well settled doctrine that a compromise penalty cannot be imposed or
collected without the agreement or conformity of the taxpayer. (Wonder Mechanical Engineering
Corporation vs. CTA, GR Nos. L-22805 & L-27858 datedJune 30, 1975)

6.c. Good faith and honest belief that one is not subject to tax on the basis of previous interpretation of
government agencies tasked to implement the tax law, are sufficient justification to delete the imposition
of surcharges and interest.(CIR vs. St. Luke’s Medical Center, Inc., GR Nos. 195909 and 195960 dated
September 26, 2012)

7.a. The CIR may abate or cancel a tax liability when: (a) the tax or any portion thereof appears to be
unjustly or excessively assessed; or (b) the administration and collections costs involved do not justify the
collection of the amount due. The CIR has the sole power or authority to abate taxes.(Sec. 204(B)and
Sec. 7(c) of the NIRC)

7.b. Under Revenue Regulations (“RR”) No. 15-2006 dated September 27, 2006, an application for
abatement is considered approved only upon issuance of a termination letter. Based on the guidelines of
RR No. 15-2006, the last step in the tax abatement process is the issuance of the termination letter. The
presentation of the termination letter is essential as it proves that the taxpayer's application for tax
abatement has been approved. Thus, without a termination letter, a tax assessment cannot be
considered closed and terminated. (J. del Castillo, Asiatrust Development Bank, Inc. vs. CIR, GR No.
201530 dated April 19, 2017)

Concept of “Excise Tax”

8. Excise tax may refer to: (a) specific and ad valorem tax on articles enumerated under the NIRC or on
goods manufactured or produced in the Philippines for domestic sale or consumption or for any other
disposition and to things imported; or (b) a tax imposed upon the performance of an act, the enjoyment
of a privilege, or the engaging in an occupation, profession or business. (CIR vs. Pilipinas Shell Petroleum
Corporation, GR No. 188497 dated February 19, 2014)
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Tax Treatment of the 20% Senior Citizen’s Discount

9.a.The grant of a tax deduction scheme covering the 20% Senior Citizen’s discount under Republic Act
(“RA”) No. 9257 is constitutional as a valid exercise of police power. Even if RA No. 9258 does not
provide for a peso for peso reimbursement of the 20% discount given by private establishments, no
constitutional infirmity obtains because, being a valid exercise of police power, payment of just
compensation is not warranted. The 20% discount is intended to improve the welfare of senior citizens
who, at their age, are less likely to be gainfully employed, more prone to illnesses and other disabilities,
and, thus, in need of subsidy in purchasing basic commodities. It may not be amiss to mention also that
the discount serves to honor senior citizens who presumably spent the productive years of their lives on
contributing to the development and progress of the nation. This distinct cultural Filipino practice of
honoring the elderly is an integral part of this law.

9.b. The grant of the 20% discount as a tax deduction scheme is not an exercise of the power of eminent
domain. It does not purport to appropriate or burden specific properties, used in the operation or conduct
of the business of private establishments, for the use or benefit of the public, or senior citizens for that
matter, but merely regulates the pricing of goods and services relative to, and the amount of profits or
income/gross sales that such private establishments may derive from, senior citizens. (J. del Castillo,
Manila Memorial Park Inc. vs. DSWD, GR No. 175356 dated December 3, 2013)

Non-impairment Clause of the Constitution

10. A subsequent law may repeal a tax exemption under a franchise or special law and the same will not
violate the non-impairment clause under the Constitution.A franchise partakes the nature of a grant,
which is beyond the purview of the non-impairment clause of the Constitution. While the Supreme Court
has, not too infrequently, referred to tax exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature.

Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the
Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts , such as
those contained in government bonds or debentures, lawfully entered into by them under enabling laws
in which the government, acting in its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the
obligations of contracts. Article XII, Sec. 11, of the 1987 Constitution, like its precursor provisions in the
1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall be subject to amendment, alteration or
repeal by Congress as and when the common good so requires. (MERALCO vs. Province of Laguna, GR
No. 131359 dated May 5, 1999)

CIR’s Power to Interpret the Provisions of the NIRC

11. The Voluntary Arbitrator has no jurisdiction to settle tax matters . The Voluntary Arbitrator’s
jurisdiction is limited to labor disputes. The issues raised before the Panel of Voluntary Arbitrators are:
(1) whether the cash conversion of the gasoline allowance shall be subject to fringe benefit tax or the
graduated income tax rate on compensation; and, (2) whether the company wrongfully withheld income
tax on the converted gas allowance. Under Sec. 4 of the NIRC, the CIR shall have the exclusive and
original jurisdiction to interpret the provisions of the NIRC and other tax laws, subject to review by the
SOF. Consequently, if the company and/or the union desire/s to seek clarification of these issues, it/they
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should have requested for a tax ruling from the BIR. (Honda Cars Philippines, Inc. vs. Honda Cars
Technical Specialist Supervisors Union, GR No. 204142 dated November 19, 2014)

II. Income Tax

Proprietary Non-profit Hospitals under Sec. 27(B) vs. 30(E) of the NIRC

12.a. In order to be exempt from income tax as a charitable institution under Sec. 30(E), the charitable
institution must be: (1) A non-stock corporation or association; (2) Organized exclusively for charitable
purposes; (3) Operated exclusively for charitable purposes; and, (4) No part of its net income or asset
shall belong to or inure to the benefit of any member, organizer, officer or any specific person.

12.b. In order to be exempt from income tax as a charitable Institution under Sec. 30(E) of the NIRC, the
non-stock non-profit hospital must be “organized and operated exclusively” for charitable purposes.It
cannot be disputed that a hospital which receives approximately P1.73 billion from paying patients is not
an institution "operated exclusively" for charitable purposes. Thus, insofar as its as its revenues from
paying patients are concerned, St. Luke’s is not “operated exclusively” for charitable purposes.

12.c. Income from paying patients is considered income from an activity conducted for profit. The last
paragraph of Sec. 30 of the NIRC provides that: “income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from any of their activities conducted for
profit regardless of the disposition made of such income, shall be subject to income tax.” Based on the
foregoing, the hospital, insofar as its income from paying patients, is considered a proprietary non-profit
hospital which is subject to the 10% income tax based on taxable income under Sec. 27(B) of the
NIRC.(J. del Castillo, CIR vs. St. Luke’s Medical Center, Inc., GR No. 203514 dated February 13, 2017;
CIR vs. St.Luke’s Medical Center, Inc., GR Nos. 195909 and 195960 dated September 26, 2012)

Proprietary Non-profit Educational Instutions under Sec. 27(B) of the NIRC

13. A proprietary educational institution is entitled only to the reduced rate of 10% corporate income tax.
The reduced rate is applicable only if: (1) the proprietary educational institution is non-profit; and, (2) its
gross income from unrelated trade, business or activity does not exceed 50% of its total gross income.
(CIR vs. De La Salle University, GR No. 196596 dated November 9, 2016)

Non-stock Non-profit Educational Institutions under the Constitution vs. Sec. 30(H) of the NIRC

14.a. All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. (Sec. 4(3), Art. XIV of the
Constitution)

14.b. The last paragraph of Sec. 30 of the NIRC is without force and effectwith respect to non-stock,
non-profit educational institutions, provided, that the non-stock, non-profit educational institutions prove
that its assets and revenues are used actually, directly and exclusively for educational purposes. The tax-
exemption constitutionally-granted to non-stock, non-profit educational institutions, is not subject to
limitations imposed by law.The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive use of their assets,
revenues and income for educational purposes.To avail of the exemption, the taxpayer must factually
prove that it used actually, directly and exclusively for educational purposes the revenues or income
sought to be exempted.
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14.c. A plain reading of the Constitution would show that Article XIV, Sec. 4(3) does not require that the
revenues and income must have also been sourced from educational activities or activities related to the
purposes of an educational institution. The phrase all revenues is unqualified by any reference to the
source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively
for educational purposes, then said revenues and income shall be exempt from taxes and duties. (CIR vs.
De La Salle University, GR No. 196596 dated November 9, 2016)

Deposits and Deposit Substitutes

15.a. A Bureau of Internal Revenue (“BIR”) ruling which states that all government bonds are deposit
substitutes regardless of the number of lenders is not valid because it completely disregardsthe “20 or
more lender rule” found under Sec. 22(Y) of the NIRC. The term “deposit substitutes” means an
alternative form of obtaining funds from the public. The term “public” means borrowing from twenty (20)
or more individual or corporate lenders at any one time . Moreover, the phrase "at any one time" does not
mean at the point of origination alone. From the point of view of the financial market, the phrase “at any
one time” for purposes of determining the “20 or more lender rule” would mean every transaction
executed in the primary or secondary market in connection with the purchase or sale of securities.

15.b. If the bonds are considered deposit substitutes (20 or more lenders), the interest income is
generally subject to the 20% Final Withholding Tax.If the bonds are not considered deposit substitutes
(19 or less lenders), the interest income forms part of gross income and is subject to the regular income
tax rates.(BDO vs. Republic, GR No. 198756 dated January 13, 2015)

16.a. Sec. 24(B)(1) of the NIRC provides that interest from any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from trust funds and similar arrangements is subject
to a 20% Final Withholding Tax.

16.b. Interest of members’ savings and time deposits with duly registered cooperatives are not subject to
income and withholding tax. Sec. 24(B)(1) of the NIRC applies to interest paid by banks and does not
cover interest paid by cooperatives. Moreover,members’ deposits with the cooperatives are not currency
bank deposits nor deposit substitutes.

16.c. The legislative intent under RA No. 6938 (“Cooperative Code of the Philippines”) is to give
cooperatives a preferential tax treatment and tax exemption under Arts. 61 and 62 of RA No. 6938. This
tax exemption should be construed to extend to members of cooperatives. Subsequently, Article 61 of RA
9520 (which amends RA No. 6938), now specifically provides that members of cooperatives are not
subject to final taxes on their deposits. This affirms the previous interpretation of the BIR (in two BIR
Rulings cited by the Supreme Court) that Sec. 24(B)(1) of the NIRC does not apply to cooperatives and
confirms that such ruling/interpretation carries out the legislative intent. (J. del Castillo, Dumaguete
Cathedral Credit Cooperative vs. CIR, GR No. 182722 dated January 22, 2010)

Capital Gains Tax

17. For domestic corporations, the 6% capital gains tax only applies to the sale of land and/or buildings
in the Philippines held as a capital asset. It does not include the sale of machineries and equipment which
should be subject to the 30% Regular Corporation Income Tax. (SMI-ED Technology Corporation, Inc. vs.
CIR, GR No. 175410 dated November 12, 2014)

18.a. It is settled that the transfer of property through expropriation proceedings is a sale or exchange
within the meaning of Secs. 24(D) and 56(A)(3) of the NIRC, and profit from the transaction constitutes
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capital gain. Since capital gains tax is a tax on passive income, it is the seller, or respondents in this case,
who are liable to shoulder the tax.

18.b. In fact, the BIR, in BIR Ruling No. 476-2013 dated December 18, 2013, has constituted the DPWH
as a withholding agent tasked to withhold the 6% final withholding tax in the expropriation of real
property for infrastructure projects. Thus, as far as the government is concerned, the capital gains tax in
expropriation proceedings remains a liability of the seller, as it is a tax on the seller's gain from the sale
of real property.

18.c. If only part of the property of the owners was expropriated, the amount of capital gains tax cannot
be awarded to the owners as consequential damages. Consequential damages are only awarded if as a
result of the expropriation, the remaining property of the owner suffers from an impairment or decrease
in value. Given that the payment of capital gains tax on the transfer of the subject property has no effect
on the increase or decrease in value of the remaining property, it can hardly be considered as
consequential damages that may be awarded to owners. (J. del Castillo, Republic vs. Spouses Salvador,
GR No. 205428 dated June 7, 2017)

Gross Philippine Billings Tax

19.a.An offline international carrier with no landing rights in the Philippines, is not liable to the 2.5%
Gross Philippine Billings Tax (“GPBT”). The Gross Philippine Billings Tax attaches only when the carriage
of persons, excess baggage, cargo, and mail originated from the Philippines in a continuous and
uninterrupted flight, regardless of where the passage documents were sold. Thus, to be liable to the
2.5% GPBT, the international carrier must have landing rights in the Philippines. If the offline carrier
(has no landing rights in the Philippines) sells tickets in the Philippines through an agent, the offline
carrier becomes as a resident foreign corporation subject to the 30% Regular Corporate Income Tax. If a
tax treaty is applicable, it must be considered in applying the correct income tax rate.(Air Canada vs. CIR,
GR No. 169507 dated January 11, 2016)

19.b. Sec. 28(A)(3)(a) of the NIRC as amended by RA No. 10378 provides that international carriers
doing business in the Philippines may avail of a preferential rate or exemption from the 2.5% Gross
Philippine Billings Tax on the basis of an applicable 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 2.5% Gross
Philippine Billings Tax. (Sec. 1 of RA No. 10378 dated July 23, 2012)

Withholding Taxes

20. If the taxpayer claims bonuses as a deduction in its income tax return, the withholding tax on the
said bonuses should be withheld and remitted to the BIR in the year of accrual and not during the year of
payment. The obligation of the payor/employer to deduct and withhold the related withholding tax on
bonuses arises at the time the income was paid or accrued or recorded as an expense in the
payor’s/employer’s books, whichever comes first.(ING Bank N.V. vs. CIR, GR No. 167679 dated July 22,
2015)

Fringe Benefits Tax

21.a. PAGCOR’s exemption from direct and indirect taxes under its Charter – Presidential Decree No.
1869 does not cover exemption from Fringe Benefits Tax (“FBT”). The FBT is treated as a final income
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tax on the employee that shall be withheld and paid by the employer on a calendar quarterly basis. As
such, PAGCOR is a mere withholding agent inasmuch as the FBT is imposed on PAGCOR's employees who
receive the fringe benefit. PAGCOR's liability as a withholding agent is not covered by the tax exemptions
under its Charter.

21.b. A fringe benefit may be exempt from FBT if the same is required by the nature of, or is necessary
to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or
advantage of the employer.

21.c. The amount paid by PAGCOR for amenities such as playing rights to golf clubs is not a fringe
benefit subject to the FBT. The membership of PAGCOR to these golf clubs and other organizations are
intended to benefit its customers and not its employees. Aside from this, the membership is under the
name of PAGCOR, and as such, cannot be considered as fringe benefits because it is the customers and
not the employees of PAGCOR who benefit from such memberships. Considering that the payments of
membership dues and fees are not borne by PAGCOR for its employees, they cannot be considered as
fringe benefits which are subject to FBT under Sec. 33 of the NIRC. (CIR vs. Secretary of Justice and
PAGCOR, GR No. 177387 dated November 9, 2016)

Capital Assets

22.a.The term “capital assets” means property held by the taxpayer (whether or not connected with his
trade or business), but does not include stock in trade of the taxpayer or other property of a kind which
would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or
business, or property used in the trade or business, of a character which is subject to the allowance for
depreciation provided in Sec. 34(F); or real property used in trade or business of the taxpayer. (Sec.
39(A)(1) of the NIRC)

22.b. An equity investment is a capital, not ordinary, asset of the investor the sale or exchange of which
results in either a capital gain or a capital loss. Shares of stock like the other securities defined in Sec.
22(T) of the NIRC, would be ordinary assets only to a dealer in securities or a person engaged in the
purchase and sale of, or an active trader (for his own account) in, securities. In the hands, however, of
another who holds the shares of stock by way of an investment, the shares to him would be capital
assets. When the shares held by such investor become worthless, the loss is deemed to be a loss from
the sale or exchange of capital assets.

22.c. The loss limitation rule under Sec. 39(C) of the NIRC provides thatcapital losses are allowed to be
deducted only to the extent of capital gains, i.e., gains derived from the sale or exchange of capital
assets, and not from any other income of the taxpayer. (China Banking Corporation vs. CA, GR No.
125508 dated July 19, 2000)

23. The buildings, machineries and equipment of a Philippine Economic Zone Authority (“PEZA”)-
registered corporation whose primary purpose is "to engage in the business of manufacturing ultra high-
density microprocessor unit package" but did not commence business operations are capital assets. They
are not among the exclusions enumerated in Sec. 39(A)(1) of the NIRC. None of the properties were
used in the taxpayer’s trade or ordinary course of business because the taxpayer never commenced
operations. They were not part of the inventory. None of them were stocks in trade. Based on the
definition of capital assets under Sec. 39 of the NIRC, they are capital assets. (SMI-ED Technology
Corporation, Inc. vs. CIR, GR No. 175410 dated November 12, 2014)

Deductions
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24.a. In order to be considered as a deductible business expense, the following requisites must concur:
(a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the
taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer;
and, (d) it must be supported by receipts, records or other pertinent papers.

24.b. On the other hand, a sworn declaration of loss must be filed with the BIR within forty-five (45) days
from the date of occurrence in order to substantiate a deduction for casualty loss. (H. Tambunting
Pawnshop, Inc. vs. CIR, GR No. 173373 dated July 29, 2013)

24.c. Any amount paid or payable which is otherwise deductible from, or taken into account in computing
gross income shall be allowed as a deduction only if it is shown that the withholding tax required to be
deducted and withheld therefrom has been paid to the BIR.(Sec. 34(K) of the NIRC)

III. Estate and Donor’s Taxation

Deductions from the Gross Estate

25.a.Judicial expenses are expenses of administration. Administration expenses, as an allowable

deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate,
have been construed by the federal and state courts of the United States to include all expenses
"essential to the collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it."In other words, the expenses must be essential to the proper settlement of the
estate.

25.b. Thus, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such
settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's
fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible judicial expense. PNB provided a detailed accounting of decedent's property
and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

25.c. The following expenses are not deductible for estate tax purposes: (a) Expenditures incurred for the
individual benefit of the heirs, devisees or legatees; (b) Compensation paid to a trustee of the decedent's
estate when it appears that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir; (c) Premiums paid on the bond filed by the administrator
as an expense of administration since the giving of a bond is in the nature of a qualification for the office,
and not necessary in the settlement of the estate; and, (d) Attorney's fees incident to litigation incurred
by the heirs in asserting their respective rights.Thus, expenditures incurred for the individual benefit of
the heirs, devisees or legatees are not deductible.(CIR vs. CA and Pajonar, GR No. 123206 dated March
22, 2000)

26. In determining the amount of deductible claims against the estate, it is the amount of the claim at
the time of the decedent’s death that is deductible and not the amount actually paid to settle the
obligation or claim after the decedent’s death. We follow the date of death valuation principle made
pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States. First. There is no
law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. Any doubt on whether a person, article or activity is taxable is generally
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resolved against taxation. Second. Such construction finds relevance and consistency in our Rules on
Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore,
the claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. (Dizon vs. CTA, GR No. 140944 dated April 30, 2008)

27. In order to claim Vanishing Deduction for Estate Tax purposes, the following requisites must concur:
(a) The property respecting which the deduction is sought must have been received by the decedent as a
gift within five (5) years from the date of his death, or received by him by bequest, devise or inheritance
from a prior decedent who died within five (5) years from the date of the decedent’s death; (b) The
property with respect to which deduction is claimed must have formed part of the Gross Estate situated
in the Philippines of the prior decedent or taxable gift of the donor; (c) The property must be the same
property received from the prior decedent or donor or the one received in exchange therefor; (d) Estate
Tax and Donor’s Tax on the previous transfer must have been paid; and, (e) No vanishing deduction on
the property was allowed to the prior estate. (Sec. 86(A)(2) of the NIRC)

Exemption of Certain Transmissions

28. The following transfers are exempt from Estate Tax: (a) The merger of usufruct in the owner of the
naked title; (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommissary; (c) The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and, (d) All bequests, devises, legacies or
transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures
to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.(Sec. 87 of the NIRC)
Release of Decedent’s Bank Deposit

29.a. If a bank has knowledge of the death of a person, who maintained a bank deposit account alone,
or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the CIR
has certified that the Estate Tax has been paid . However, the administrator of the estate or any one of
the heirs of the decedent may, upon authorization by the CIR, withdraw an amount not exceeding
Twenty thousand pesos (P20,000.00) without certification that the Estate tax has been paid. (Sec. 97 of
the NIRC)

29.b. Taxes are created primarily to generate revenues for the maintenance of the government.
However, this particular tax may also serve as guard against the release of deposits to persons who have
no sufficient and valid claim over the deposits. Based on the assumption that only those with sufficient
and valid claim to the deposit will pay the taxes for it, requiring the certificate from the BIR(that the
Estate Tax has been paid) increases the chance that the deposit will be released only to them. (PNB vs.
Santos, GR No. 208295 dated December 10, 2014)

Transfer for Insufficient Consideration

30.a. If property, whether real or personal, is sold below its fair market value, the difference between the
fair market value and the selling price is considered a donation subject to donor’s tax. The only exception
would be the sale of real property subject to the 6% capital gains tax. (Sec. 100 of the NIRC)

30.b. If a person sells property below its fair market value, except for real property subject to the 6%
capital gains tax, even if there is no actual donation, the difference between the fair market value and
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the selling price is considered a donation by fiction of law. (Philamlife Company vs. SOF, GR No. 210987
dated November 24, 2014)

Rules on Political Contributions

31.a. Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes, provided the same is duly reported to the COMELEC, is exempt from donor’s
tax.(Sec. 99(C) of the NIRC in relation to Sec. 13 of RA No. 7166)

31.b. Unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s campaign
expenditures, shall be considered as subject to income tax. Corollary thereto, failure to submit statement
of expenditures to the COMELEC subjects the entire contributions to income tax. Since, the candidate will
be precluded from claiming expenditures as “deductions” from his campaign contributions. (Revenue
Regulations No. 7-2011 dated February 16, 2011)

31.c. Political contributions which are not utilized during the campaign periodis subject to Donor’s tax.
Also, political contributions made by a corporation is subject to Donor’s tax. (Revenue Memorandum
Circular No. 30-2016 dated March 14, 2016)

Rules on Renunciation of the Conjugal/Community Share and Share in the Inheritance

32.a.Renunciation by the Surviving Spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of marriage in favor of the heirs of the deceased spouse or any other
person is subject to Donor’s Tax.

32.b. General Renunciation by an heir, including the surviving spouse, of his/her share in the hereditary
estate is not subject to Donor’s tax, unlessspecifically and categorically done in favor of identified heir/s
to the exclusion or disadvantage of the other co-heirs in the hereditary estate. (Revenue Regulations No.
2-2003 dated December 16, 2002)

IV. Value-added Tax

Destination Principle and Cross Border Doctrine

32. The Destination Principle provides that goods and services are taxed only in the country where these
are consumed. In connection with the said principle, the Cross Border Doctrine mandates that no VAT
shall be imposed to form part of the cost of the goods destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT, while those destined for use or consumption within the Philippines
shall be imposed with 12% VAT. Export processing zones are to be managed as a separate customs
territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign
territory. For this reason, sales by persons from the Philippine customs territory to those inside the export
processing zones are taxed as exports. (Atlas Consolidated Mining and Development Corporation, GR
Nos. 141104 and 148763 dated June 8, 2007)

33. Under the Cross Border Doctrine and Destination Principle, the sale of goods by a VAT-registered
person located outside the Economic Zone (“ECOZONE”) to a taxpayer located inside the ECOZONE is
subject to zero-percent (0%) VAT. Since the transaction does not result to input VAT on the part of the
buyer, the buyer is not entitled to a claim for refund. The buyer’s remedy is to go after the seller for the
erroneously passed on VAT. (Coral Bay Nickel Corporation vs. CIR, GR No. 190506 dated June 13, 2016)
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34.a. RR No. 2-2012 dated February 17, 2012 which requires payment of VAT and excise tax on the
importation of all petroleum and petroleum products coming directly from abroad and brought into the
Philippines, including Freeport and economic zones (“FEZs”) is invalid and unconstitutional despite
allowinga credit or refund of any VAT or excise tax paid if the taxpayer proves that the petroleum
previously brought in has been sold to a duly registered FEZ locator and used pursuant to the registered
activity of such locator.

34.b. RR No. 2-2012 is invalid because it illegally imposes taxes upon FEZ enterprises, which, by law,
enjoy tax-exempt status. It effectively amends the law (i.e., RA 7227, as amended by RA 9400) which
provides that importations of raw materials and capital equipment into the FEZs shall be tax and duty-
free. It is the specific transaction (i.e., importation) that is exempt from taxes and duties. The law also
grants FEZ enterprises tax and duty-free importation and a preferential rate in the payment of income
tax, in lieu of all national and local taxes. These incentives exempt the establishment itself from taxation.
In line with this comprehensive interpretation, the tax exemption enjoyed by FEZ enterprises covers
internal revenue taxes imposed on goods brought into the FEZ, including the Clark FEZ, such as VAT and
excise tax.

Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT and excise tax, it
follows and we accordingly rule that the taxes imposed by Sec. 3 of RR 2-2012 directly contravene these
exemptions. First, the regulation erroneously considers petroleum and petroleum products brought into a
FEZ as taxable importations. Second, it unreasonably burdens FEZ enterprises by making them pay the
corresponding taxes - an obligation from which the law specifically exempts them - even if there is a
subsequent opportunity to refund the payments made.

Notably, the Philippine VAT system adheres to the Cross Border Doctrine. Under this rule, no VAT shall be
imposed to form part of the cost of the goods destined for consumption outside the Philippine customs
territory. Thus, the Supreme Court has ruled before that an FEZ enterprise cannot be directly charged for
the VAT on its sales, nor can VAT be passed on to them indirectly as added cost to their purchases.

34.c. RR No. 2-2012 is unconstitutional because encroaches upon the legislative authority reserved
exclusively by the Constitution for Congress. The power to enact, amend, or repeal laws belong
exclusively to Congress. In passing RR No. 2-2012, the SOF and the CIR illegally amended the law - a
power solely vested on the Legislature.

34.d. RR No. 2-2012 which allows a credit or refund of the VAT and excise tax paid if the taxpayer proves
that the petroleum previously brought in has been sold to a duly registered FEZ locator and used
pursuant to the registered activity of such locator does not amount to a tax exemption.

The essence of a tax exemption is the immunity or freedom from a charge or burden to which others are
subjected. It is a waiver of the government's right to collect the amounts that would have been collectible
under our tax laws. Thus, when the law speaks of a tax exemption, it should be understood as freedom
from the imposition and payment of a particular tax.

Based on this premise, the refund mechanism provided by RR No. 2-2012 does not amount to a tax
exemption. Even if the possibility of a subsequent refund exists, the fact remains that FEZ enterprises
must still spend money and other resources to pay for something they should be immune to in the first
place. This completely contradicts the essence of their tax exemption. (Secretary of Finance vs. Lazatin,
GR No. 210588 dated November 29, 2016)

Persons Liable for VAT

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35.a. As long as an entity renders services in the Philippines for a fee, its services are subject to VAT. It is
immaterial whether profit is derived from rendering the service. Thus, an entity which renders service in
the Philippines to its affiliates on a reimbursement-of-cost basis is liable to VAT on its sale of services.
(CIR vs. CA and COMASERCO, GR No. 125355 dated March 30, 2000)

35.b. Subsidized advertising expenses paid for by a parent company for a subsidiary which was treated
as income by the subsidiary for income tax purposes is not subject to VAT.Under Sec. 105 of the NIRC,
there must be a sale, barter or exchange of goods or propertiesbefore any VAT may be levied. Certainly,
there was no such sale, barter or exchange in the subsidy given by the parent company to the subsidiary.
It was but a dole out by the parent company and not in payment for goods or properties sold, bartered
or exchanged by the subsidiary. (CIR vs. Sony Philippines, Inc., GR No. 178697 dated November 17,
2010)

VAT on Services

36.a. Amounts earmarked and eventually paid by HMOs (MEDICARD) to medical service providers do not
form part of gross receipts for VAT purposes. The definition of gross receipts of HMOs under RR No. 16-
2005 merely presumed that the amount received by an HMO as membership fee is the HMO's
compensation for their services. As a mere presumption, an HMO is, thus, allowed to establish that a
portion of the amount it received as membership fee does not actually compensate it but some other
person, which in this case are the medical service providers themselves.

36.b. Under RR No. 4-2007, “Gross receipts” refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, xxx and deposits applied as payments for
services rendered and advance payments actually or constructively received during the taxable period for
the services performed or to be performed for another person, excluding the VAT, except those amounts
earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment
on behalf of another which do not redound to the benefit of the payor.

36.c. An HMO per se does not render medical services. However, if the HMO has laboratory facilities, its
fees received for laboratory and diagnostic services is exempt from VAT under Sec. 109(1)(G) of the
NIRC. Sec. 109(1)(G) of the NIRC provides that medical, dental, hospital and veterinary services except
those rendered by professionals are exempt from VAT. (MEDICARD Phils., Inc. vs, CIR, GR No. 222743
dated April 5, 2017)
37.a. A cursory reading of Sec. 108 of the NIRC clearly shows that the enumeration of the sale or
exchange of services subject to VAT is not exhaustive. The words, “including,” “similar services,” and
“shall likewise include,” indicate that the enumeration is by way of example only.

37.b. Since the activity of showing motion pictures, films or movies by cinema/theater operators or
proprietors is not included in the enumeration, it is incumbent to the determine whether such activity falls
under the phrase “similar services.” The intent of the legislature must therefore be ascertained.

37.c. The legislature never intended operators or proprietors of cinema/theater houses to be covered by
VAT. Only lessors or distributors of cinematographic films are included in the coverage of VAT. Thus, the
gross receipts derived by cinema/ theater operators or proprietors from admission tickets in showing
motion pictures, film or movie are not subject to VAT. (J. del Castillo, CIR vs. SM Prime Holdings, Inc., GR
No. 183505 dated February 26, 2010)

VAT Exemption
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38.a.Under Sec. 109(1)(A) of the NIRC, the sale of agricultural food products in their original state is
exempt from VAT. Agricultural food products that have undergone simple processes of preparation or
preservation for the market are nevertheless considered to be in their original state. Sugar is an
agricultural food product. For internal revenue purposes, the sale of raw cane sugar is exempt from VAT
because it is considered to be in its original state. On the other hand, refined sugar is an agricultural
product that can no longer be considered to be in its original state because it has undergone the refining
process, its sale is thus subject to VAT.

38.b. Although the sale of refined sugar is generally subject to VAT, such transaction may nevertheless
qualify as a VAT-exempt transaction if the sale is made by a cooperative. Under Sec. 109(1)(L) of the
NIRC, sales by agricultural cooperatives are exempt from VAT provided the following conditions concur:
(1) the seller must be an agricultural cooperative duly registered with the Cooperative Development
Authority (“CDA”); and, (2) the cooperative must sell either: (a) exclusively to its members; or (b) to both
members and non-members, its produce, whether in its original state or processed form.

The second requisite differentiates cooperatives according to its customers. If the cooperative transacts
only with members, all its sales are VAT-exempt, regardless of what it sells. On the other hand, if it
transacts with both members and non-members, the product sold must be the cooperative's own produce
in order to be VAT-exempt. Stated differently, if the cooperative only sells its produce or goods that it
manufactures on its own, its entire sales is VAT-exempt. (CIR vs. United Cadiz Sugar Farmers Association
Multi Purpose Cooperative, GR No. 209776 dated December 7, 2016)

Transitional Input VAT

39.a.A person who becomes liable to VAT or any person who elects to be a VAT-registered person shall,
subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, be allowed a transitional input tax on his beginning
inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory
or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax. (Sec. 111(A) of the NIRC)

39.b. Under RR No. 16-2005, the following taxpayers may claim transitional input VAT under Sec. 111(A)
of the NIRC: (a) Taxpayers who became VAT-registered persons upon exceeding the minimum turnover
of P1,919,500.00 in any 12-month period, or (b)Taxpayers who voluntarily register even if their turnover
does not exceed P1,919,500.00 (except franchise grantees of radio and television broadcasting whose
threshold is P10,000,000.00).

39.c. Prior payment of VAT is not necessary in order to claim transitional input VAT credit under Sec.
111(A) of the NIRC. What the NIRC merely requires is the filing of a beginning inventory with the BIR.
Since Sec. 111(A) does not require prior payment of VAT in order to claim transitional input VAT, to
require the samewould tantamount to judicial legislation.Moreover, prior payment of taxes is not required
to avail of the transitional input tax credit because it is not a tax refund per se but a tax credit. Tax credit
is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus
returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from
one’s total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to
encourage investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a
tax credit.(J. del Castillo, Fort Bonifacio Development vs. CIR, GR No. 173425 dated September 4, 2012)

Rules on Claim for Refund under Sec. 112 of the NIRC

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40.a Rules on Administrative claim for refund under Sec. 112(A) of the NIRC : The period to file a claim
for refund with the BIR for excess input VAT attributable to a zero-rated transaction is two (2) years
counted from the close of the taxable quarter when the zero-rated sales are made. As an exception to
the said rule, from June 8, 2007 up to September 12, 2008, the 2-year period to file the administrative
claim for refund may be reckoned from the filing of the quarterly VAT return.

40.b.Rules on Judicial claim for refundunder Sec. 112(C) of the NIRC : There is premature filing if the
taxpayer files an appeal to the CTA during the 120-day period counted from complete submission of
documents without a decision on the part of the BIR. As an exception to the said rule, premature filing is
allowed under BIR Ruling No. DA-489-03 from December 10, 2003 and October 5, 2010. There is late
filing if the taxpayer files an appeal with the CTA beyond thirty (30) days from the lapse of the 120-day
period. There is no exception to the rule on late filing.

In addition, the judicial claim for refund or appeal with the CTA under Sec. 112(C) need not be filed
within the 2-year period under Sec. 112(A). The 2-year period only applies to the administrative claim for
refund with the BIR. (CIR vs. San Roque Power Corporation, GR No. 187485 dated February 12, 2013)

41.a. Starting June 11, 2014, the reckoning of the 120-day period is from the filing of the administrative
claim for refund under Sec. 112(A). Under Revenue Memorandum Circular (“RMC”) No. 54-2014 dated
June 11, 2014, the application for VAT refund/tax credit with the BIR must be accompanied by complete
supporting documents. In addition, the taxpayer shall attach a statement under oath attesting to the
completeness of the submitted documents. The affidavit shall further state that the said documents are
the only documents which the taxpayer will present to support the claim.

41.b. Prior to June 11, 2014, the taxpayer determines completeness of documents for purposes of the
running of the 120-day period. Whatever documents a taxpayer intends to file to support his claim must
be completed within the two-year period under Sec. 112(A) of the NIRC. (Pilipinas Total Gas, Inc. vs.
CIR, GR No. 207112 dated December 8, 2015)

42. A taxpayer cannot claim the unutilized input VAT credits as an expense for income tax purposes. The
unutilized creditable input tax related to zero-rated sales can only be recovered through the application
for refund or tax credit. Nowhere in the NIRC can we find a specific provision expressly providing for
another mode for recovering unapplied input taxes, particularly that unapplied input taxes may be treated
outright as deductible expense for income tax purposes. (RMC No. 57-2013 dated August 23, 2013)

Substantiation Rules on VAT Refund

43. The Authority to Print (“ATP”) from the BIR need not be reflected or indicated in the invoices or
receipts because there is no law or regulation requiring it. Thus, in the absence of such law or regulation,
failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the
invalidation of the invoices or receipts for purposes of claiming a refund. However, since the ATP is not
indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly
registered is by requiring the claimant to present its ATP from the BIR . Without this proof, the invoices or
receipts would have no probative value for the purpose of refund. (J. del Castillo, Silicon Philippines, Inc.
vs. CIR, GR No. 172378 dated January 17, 2011)

44.a. Prior to the year 2005, RR No. 7-95 required that the word “zero-rated” be printed on the
invoices/receipts covering zero-rated sales. Such requirement is valid even if the law at that time did not
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require the same. This proceeds from the rule-making authority granted to the Secretary of Finance
under the NIRC for the efficient enforcement of the NIRC and of course its amendments. The
requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of
goods and services.

44.b. Starting the year 2005 and pursuant to the amendments introduced by RA No. 9337, Sec. 113 of
the NIRC now expressly provides that If the sale is subject to zero percent (0%) value-added tax, the
term "zero-rated sale" shall be written or printed prominently on the invoice or receipt.

44.c. Failure to print the word "zero-rated" in the invoices/receipts is fatal to a claim for credit/refund of
input VAT on zero-rated sales. The appearance of the word zero-rated on the face of invoices covering
zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful claim for input VAT is made, the government would be
refunding money it did not collect. Further, the printing of the word zero-rated on the invoice helps
segregate sales that are subject to 12% VAT from those sales that are zero-rated.(J. del Castillo, J.R.A.
Philippines, Inc. vs. CIR, GR No. 177127 dated October 11, 2010)

V. Remedies under the NIRC

Letter of Authority

45.a. A Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to
perform assessment functions. It empowers or enables said revenue officer to examine the books of
account and other accounting records of a taxpayer for the purpose of collecting the correct amount of
tax.

45.b. The statutory basis for the requirement of a Letter of Authority is Sec. 6(A) of the NIRC particularly
the phrase: “xxxthe CIR or his duly authorized representative may authorize the examination of any
taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a
return shall not prevent the CIR from authorizing the examination of any taxpayer.”

45.c. The BIR cannot issue an assessment for the year 1998 if the Letter of Authority granted to the BIR
examiners covers only the year 1997. Under Sec. 6(A) of the NIRC, there must be a grant of authority
before any revenue officer can conduct an examination or assessment. Equally important is that the
revenue officer so authorized must not go beyond the authority given. In the absence of such an
authority, the assessment or examination is a nullity. (CIR vs. Sony Phils., Inc., GR No. 178697 dated
November 17, 2010)

46.a. Sec. C of Revenue Memorandum Order (“RMO”) No. 43-90 dated September 20, 1990, provides
that: “A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of
issuing L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall
include more than one taxable period, the other periods or years shall be specifically indicated in the
L/A.”

46.b. A Letter of Authority whose covered period provides: “Fiscal Year Ending 2003 and Unverified Prior
Years”does not strictly comply with RMO No. 43-90 but it is not entirely void. The LOA covering the year
2003 is valid. What RMO No. 43-90 clearly prohibits is the practice of issuing LOAs covering audit of
unverified prior years but it does not say that an LOA which contains unverified prior years is void.

RMO No. 43-90 requires that if the audit includes more than one taxable period, the other periods or
years must be specified. The provision read as a whole requires that if a taxpayer is audited for more
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than one taxable year, the BIR must specify each taxable year or taxable period on separate LOAs. This
is to inform the taxpayer of the extent of the audit and scope of the revenue officer’s authority.Without
this rule, a revenue officer can unduly burden the taxpayer by demanding random accounting records
from random unverified years, which may include documents from as far back as 10 years in cases of a
fraud audit.

46.c. If the BIR issues assessments for the years 2001, 2002 and 2003 pursuant to an LOA whose
covered period provides: “Fiscal Year Ending 2003 and Unverified Prior Years”, the assessment for year
2003 is valid because this taxable period was specified in the LOA. The taxpayer was fully apprised that it
was being audited for taxable year 2003.On the other hand, the assessments for taxable years 2001 and
2002 are void for having been unspecified on separate LOAs as required under RMO No. 43-90. (CIR vs.
De La Salle University, GR No. 196596 dated November 9, 2016)

47. An assessment based on a mere Letter Notice or computerized matching of the taxpayers’ records
without an LOA is null and void. An LOA cannot be dispensed with just because none of the financial
books or records being physically kept by the taxpayer was examined. To begin with, Sec. 6(A) of the
NIRC requires an authority from the CIR or from his duly authorized representatives before an
examination "of a taxpayer" may be made. The requirement of authorization is therefore not dependent
on whether the taxpayer may be required to physically open his books and financial records but only on
whether a taxpayer is being subject to examination . (MEDICARD Phils., Inc. vs, CIR, GR No. 222743
dated April 5, 2017)

Assessment

48.An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and protests begin to accrue against
the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it
must be served on and received by the taxpayer. Thus, a complaint-affidavit for tax evasion filed with the
Department of Justice is not an assessment even if it contains a computation of taxes. The complaint-
affidavit does not contain a demand to pay.(CIR vs. Pascor Realty, GR No. 128315 dated June 29, 1999)

49.a. A Final Assessment Notice (“FAN”) which states that the amount of deficiency tax is adjustable
depending on when the taxpayer pays is not a valid assessment. It lacks the definite amount of tax
liability for which the taxpayer is accountable. It does not purport to be a demand for payment of tax
due, which a FAN should supposedly be. Although the assessment provides for the computations of the
taxpayer’s tax liability, the amount remains indefinite. It only provides that the tax due is still subject to
modification, depending on the date of payment.

49.b. A FAN which does not contain a due date for payment is also not valid. If there are no due dates on
the FAN, this negates the BIR's demand for payment.(CIR vs. Fitness By Design, GR No. 215957 dated
November 9, 2016)
Prescriptive Period to Assess

50.a. As a general rule, the BIR has three (3) years counted from: (a) the actual date of filing of the
return or (b) the deadline for filing of the return, whichever comes later, to make a deficiency tax
assessment. As an exception to said rule, the prescriptive period to assess is extended to ten (10) years if
there is an omission to file a return, there is filing of a false return or a fraudulent return with intent to
evade taxes. The 10-year period starts to run from the discovery of the omission, falsity or fraud. (Secs.
203 and 222(a) of the NIRC)
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50.b. If the BIR alleges that the taxpayer filed a fraudulent return with intent to evade tax in order to
avail of the 10-year prescriptive period to assess, it is indispensable for the CIR to include the basis for its
allegations of fraud in the assessment notice. (CIR vs. Fitness By Design, GR No. 215957 dated
November 9, 2016)

51.a.Under Sec. 248(B) of the NIRC, failure to report sales, receipts or income in an amount exceeding
thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding thirty
(30%) of actual deductions, shall constitute prima facie evidence of a false or fraudulent return.

51.b. A prima facie evidence is one which that will establish a fact or sustain a judgment unless
contradictory evidence is produced. In other words, when there is a showing that a taxpayer has
substantially underdeclared its sales, receipt or income, there is a presumption that it has filed a false
return. As such, the CIR need not immediately present evidence to support the falsity of the return,
unless the taxpayer fails to overcome the presumption against it. Failure of the taxpayer to refute the
presumption warrants the application of the application of the ten (10)-year prescriptive period for
assessment under Sec. 222(a) of the NIRC. (CIR vs. Asalus Corporation, GR No. 221590 dated February
22, 2017)

52. While the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional
and done with intent to evade the taxes due, the filing of a false return can be intentional or due to
honest mistake. (CIR vs. Philippine Daily Inquirer, GR No. 213943 dated March 22, 2017)

53.a. For the ten (10) year period under Sec. 222(a) to apply, it is not enough that fraud is alleged in the
complaint, it must be established by clear and convincing evidence.

53.b. If the three (3) year period to assess a tax return under Sec. 203 has already lapsed, the BIR can
no longer file a complaint for tax evasion on the basis of such return.A reading of Sec. 203 will show that
it prohibits two acts after the expiration of the three-year period. First, an assessment for the collection
of the taxes in the return, and second, initiating a court proceeding on the basis of such return. The State
Prosecutor was correct in dismissing the complaint for tax evasion since it was clear that the prescribed
return cannot be used as basis for the case. (Republic vs. GMCC United Corporation, GR No. 191856
dated December 7, 2016)

54.a. The prescriptive period to assess and/or collect is suspended, among others, when the taxpayer
cannot be located in the address given by him in the return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running
of the prescriptive period will not be suspended. (Sec. 223 of the NIRC)

54.b. If the taxpayer fails to notify the BIR in writing of a change in its address, the prescriptive period to
assess and/or collect shall only be suspended if the BIR is unaware of the whereabouts of the taxpayer.
If the BIR knows the actual whereabouts of the taxpayer but still sends the assessment notices to the
taxpayer’s old address, the prescriptive period to collect is not suspended. (CIR vs. BASF Coating + Inks
Phils., GR No. 198677 dated November 26, 2014)

Waiver of the Statute of Limitations

55.a. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of
prescription. It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. (Philippine Journalists, Inc. vs. CIR,
GR No. 162852 dated December 16, 2004)
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55.b. On April 4, 2016, the BIR issued RMO No. 14-2016 amending the requirements for a valid waiver of
the statute of limitations under the NIRC. Currently, a valid waiver must comply with the following
requirements: (1) the waiver must be executed by the taxpayer and accepted by the BIR before the
expiration of the period to assess or collect taxes (or before the lapse of the period agreed upon in case a
subsequent agreement is executed); (2) the waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver must be signed by any of its
responsible officials; (3) the expiry date of the period agreed upon to assess/collect the tax after the
regular three-year period of prescription should be indicated; (4) the waiver of the prescriptive period to
collect must indicate the particular taxes assessed. The waiver of prescriptive period to assess may simply
state “all internal revenue taxes;” and, (5)two material dates must appear on the waiver: (a) the date of
execution; and, (b) the expiry date of the period the taxpayer waives the statute of limitations.

55.c. The Doctrine of Estoppel is not applicable, as a rule, to validate a defective waiver. Failure to strictly
comply with the requirements of a valid waiver invalidates the waiver and does not extend the
prescriptive period to assess or collect.The BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO No. 20-90 and RDAO No. 05-01, which the BIR itself issued. Having caused
the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer.
To stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security
against prolonged and unscrupulous investigations, must be carefully and strictly construed. (J. del
Castillo, CIR vs. Kudos Metal, GR No. 178087 dated May 5, 2010)

55.d. However, in two (2) cases, the Supreme Court declared valid a defective waiver on the ground of
Estoppel: (1) partial payment of an assessment which is covered by a defective waiver. RCBC, through
its partial payment of the assessment impliedly admitted the validity of those waivers. Had RCBC truly
believed that the waivers were invalid and that the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount of taxes in the revised assessment. RCBC’s
subsequent action effectively belies its insistence that the waivers are invalid. (RCBC vs. CIR, GR No.
170257 dated September 7, 2011) ; and,(2) When the application of estoppel would promote the
administration of the law, prevent injustice and avert the accomplishment of a wrong and undue
advantage. In this case, the taxpayer executed five Waivers and delivered them to the BIR, one after the
other when the signatory of the waiver was not authorized to sign the same . It allowed the BIR to rely on
them and did not raise any objection against their validity until the BIR assessed taxes and penalties
against it. Moreover, the application of estoppel is necessary to prevent the undue injury that the
government would suffer because of the cancellation of petitioner's assessment of respondent's tax
liabilities. (CIR vs. Next Mobile, Inc., GR No. 212825 dated December 7, 2015)

Tax Evasion

56. Tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent
return with intent to evade and defeat a part or all of the tax. Corollarily, an assessment of the tax
deficiency is not required in a criminal prosecution for tax evasion. However, the Supreme Court clarified
that although a deficiency assessment is not necessary, the fact that a tax is due must first be proved
before one can be prosecuted for tax evasion. (J. del Castillo,BIR vs. CA and Spouses Manly, GR No.
197590 dated November 24, 2014 citing Ungab v. Cusi, Jr., GR No. L-41919-24 dated May 30, 1980; and
CIR vs. CA, GR No. 119322 dated June 4, 1996)

Submission of Documents During the 60-day period

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57. Failure to submit relevant supporting documents in support of a request for reinvestigation does not
render the assessment final and executory . For failure to submit documents, the request for
reinvestigation will be denied with the issuance of a Final Decision on a Disputed Assessment (“FDDA”).
Moreover, the term "relevant supporting documents" means documents necessary to support the legal
basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer
to submit additional documents. The BIR cannot demand what type of supporting documents should be
submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit.(CIR vs. First Express Pawnshop, GR Nos. 172045-06 dated
June 16, 2009 and RR No. 18-2013)

Remedies of the Taxpayer

58.a. The CTA has jurisdiction covering decisions on disputed assessments. In order for the FAN to be
disputed it must be protested within thirty (30) days from receipt thereof.

58.b. A FAN which tells the taxpayer to appeal if he does not agree with it and uses the words “final
decision”can be considered the decision on a disputed assessment appealable to the CTA even if the FAN
was not protested. This is a case of estoppel on the part of the BIR and considered as an exception to
the rule on exhaustion of administrative remedies.

The words used, specifically the words "final decision" and "appeal", taken together led the taxpayer to
believe that the FAN was in fact the final decision of the CIR on the letter-protest it filed (on the
Preliminary Assessment Notice) and that the available remedy was to appeal the same to the CTA. (J. del
Castillo, Allied Banking Corporation vs. CIR, GR No. 175097 dated February 5, 2010)

59.a. In case of inaction of the BIR during the one hundred eighty (180) day period, the taxpayer has
two (2) options: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-
day period; or (2) await the final decision of the CIR on the disputed assessment and appeal such final
decision to the CTA within 30 days from receipt of a copy of such decision. These options are mutually
exclusive and resort to one bars the application of the other. (Lascona Land vs. CIR, GR No. 171251
dated March 5, 2012; RCBC vs. CIR, GR No. 168498 dated April 24, 2007)

59.b. As a rule, in case the BIR issues an FDDA on the pending protest, the taxpayer has thirty (30) days
to appeal the FDDA to the CTA. (Sec. 228 of the NIRC)

59.c. If the FDDA is issued by the CIR’s duly authorized representative, the taxpayer may appeal the
FDDA with the CIR within thirty (30) days from receipt of the FDDA. The administrative appeal with the
CIR is only limited to a request for reconsideration. No new issues shall be entertained by the CIR. The
CIR’s decision on the administrative appeal may be appealed to the CTA within thirty (30) days from
receipt thereof. (RR No. 12-99 as amended by RR No. 18-2013)

59.d. To summarize, Sec. 228 and the regulations of the BIR gives a protesting taxpayer only three
options: (1) If the protest is wholly or partially denied by the CIR or his authorized representative, then
the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the
protest; (2) If the protest is wholly or partially denied by the CIR's authorized representative, then the
taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest;
(3) If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30
days from the lapse of the 180-day period.
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To further clarify the three options: A whole or partial denial by the CIR's authorized representative may
be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The
CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no
mention of an appeal to the CIR from the failure to act by the CIR's authorized representative. (PAGCOR
vs. BIR, GR No. 208731 dated January 27, 2016)

60. An FDDA must state the facts and law on which it is based to provide the taxpayer the opportunity to
file an intelligent appeal. An FDDA which contains a taxpayer’s supposed tax liabilities, without providing
any details on the specific transactions which gave rise to its supposed tax deficiencies is void. The FDDA
differs from the FAN. The nullity of the FDDA does not extend to the FAN. (CIR vs. Liquigaz Phils.
Corporation, GR No. 215534 dated April 18, 2016)

Court of Tax Appeals

61. Mere appeal to the CTA contesting the validity of an assessment does not suspend collection of the
deficiency taxes. The taxpayer should file a motion to suspend collection on the ground that collection will
jeopardize the interests of the taxpayer. If granted, the CTA will require the taxpayer to post a cash bond
in an amount equivalent to the basic assessed tax or a surety bond equivalent to not more than double
the basic assessed tax. The bond requirement should be dispensed with if: (a) prescription has set or (b)
whenever it is determined by the courts that the method employed by the Commissioner in the collection
of tax is not sanctioned by law. (Spouses Pacquiao vs. The CTA, GR No. 213394 dated April 6, 2016.)

62. The CTA gravely abused its discretion because it fixed the amount of the bond required to suspend
collection of the assessment at nearly five (5) times the net worth of the taxpayer without conducting a
preliminary hearing to ascertain whether there were grounds to suspend the collection of the deficiency
assessment. The CTA should have considered other factors recognized by the law itself towards
suspending the collection of the assessment, like whether or not the assessment would jeopardize the
interests of the taxpayer, or whether the means adopted by the CIR in determining the liability of the
taxpayer was legal and valid. Simply prescribing such high amount of the bond like the initial 150% of
the deficiency assessment or later on even reducing the amount of the bond to equal the deficiency
assessment would practically deny to the petitioner the meaningful opportunity to contest the validity of
the assessments, and would likely even impoverish it as to force it out of business.

Moreover, the requirement of the bond as a condition precedent to suspension of the collection applies
only in cases where the processes by which the collection sought to be made by means thereof are
carried out in consonance with the law, not when the processes are in plain violation of the law that they
have to be suspended for jeopardizing the interests of the taxpayer. (Tridharma Marketing Corporation
vs. CTA, GR No. 215950 dated June 20, 2016)

63.a.The CTA has exclusive original jurisdiction over all criminal offenses arising from violations of the
National Internal Revenue Code or the Tariff and Customs Code (now the CMTA) and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Where the principal amount
of taxes and fees, exclusive of charges and penalties, claimed is One million pesos (P1,000,000.00) or
more.

63.b. The following cases are directly appealable to the CTA En Banc: (a) Decisions by the Central Board
of Assessment Appeals in Real Property Tax Cases; (b) Decisions by the Regional Trial Court in the
exercise of its appellate jurisdiction in local tax cases; (c) Decisions by the Regional Trial Court in the
exercise of its appellate jurisdiction in tax collection cases; and, (d) Decisions by the Regional Trial Court
in the exercise of its appellate jurisdiction in criminal cases. (Sec. 7 of RA No. 9282 dated March 30,
2004)
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63.c. (In civil cases), in order for the CTA En Banc to take cognizance of an appeal via a petition for
review, a timely motion for reconsideration or new trial must first be filed with the CTA Division that
issued the assailed decision or resolution. Failure to do so is a ground for the dismissal of the appeal as
the word "must" indicates that the filing of a prior motion is mandatory, and not merely directory. The
foregoing rule also applies to an amended decision. An amended decision is a different decision and is a
proper subject of a motion for reconsideration.Thus, if an amended decisionis rendered by the CTA
Division disposing of the motion for reconsideration filed by the taxpayer and the CIR, the amended
decision must also be contested by way of a motion for reconsideration before any appeal can be made
to the CTA En Banc. (J. del Castillo, CIR vs. Asiatrust Development Bank, GR Nos. 201680-81 dated April
19, 2017)

Refunds in General

64. The taxpayer must file a written claim for refund with the CIR prior to filing a judicial claim for refund
with the CTA. (Sec. 204(C) of the NIRC)Both the administrative claim for refund with the CIR and the
judicial claim for refund with the CTA must be filed within 2 years from the date of payment regardless of
any supervening event. (Sec. 204(C) and Sec. 229 of the NIRC)

65. A written claim for refund is not necessary if: (a) the tax return filed shows an overpayment; (Sec.
204(C) of the NIRC; or (b) the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid. (Sec. 229 of the NIRC)

66.a. The period to file a claim for refund under Sec. 229 is two (2) years counted from the date of
payment regardless of any supervening event and not from the date of discovery of the erroneous
payment.

66.b. In the case of erroneously paid withholding taxes, the six (6) year prescriptive period under Art.
1145 of the Civil Code on solutio indebiti is not applicable because the first requisite of solutio indebiti is
not present, i.e., payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment. Here, there is a binding relation between the BIR
as the taxing authority and MERALCO which is bound under the law to act as a withholding agent of the
principal taxpayer. Also, the provisions of the NIRC, being a special law prevails over the provisions of the
Civil Code, being a general law. (CIR vs. Meralco, GR No. 181459 dated June 9, 2014)

Proper Party to File the Claim for Refund

67.a. A withholding agent has a legal right to file a claim for refund on behalf of the principal taxpayer for
two reasons: (1) He is considered a taxpayer under the NIRC as he is personally liable for the withholding
tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax
withheld be finally found to be less than the amount that should have been withheld under law; and, (2)
As an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax
withheld to the government impliedly includes the authority to file a claim for refund and to bring an
action for recovery of such claim.

67.b. Relation between the taxpayer and the withholding agent is a factor that increases the latter's legal
interest to file a claim for refund, but there is nothing (in the Procter and Gamble decision) to suggest
that such relationship is required or that the lack of such relation deprives the withholding agent of the
right to file a claim for refund. Rather, what is clear (in the Procter and Gamble decision) is that a
withholding agent has a legal right to file a claim for refund for two reasons mentioned above.
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67.c. While the withholding agent has the right to recover the taxes erroneously or illegally collected, he
nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer,
it is his duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the
expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his
legal right to file a claim for refund. (J. del Castillo, CIR vs. Smart Communication, Inc. vs. GR Nos.
179045-46 dated August 25, 2010)
68. In indirect taxation, as a general rule, it is the statutory taxpayer who is the proper party to file a
claim for refund. However, if the law confers an exemption from both direct or indirect taxes, a claimant
is entitled to a tax refund even if it only bears the economic burden of the applicable tax. (CIR vs.
Philippine Associated Smelting and Refining Corporation, GR No. 186223 dated October 1, 2014)

69. If the employee alleges that the employer over-withheld and over-remitted withholding tax on
compensation income, the employee has no cause of action for a tax refund against the employer. The
claim for refund should be filed with the BIR. (Honda Cars Philippines, Inc. vs. Honda Cars Technical
Specialist Supervisors Union, GR No. 204142 dated November 19, 2014)

Claim for Refund of Excess Creditable Withholding Tax

70. Requisites of claim for refund of excess Creditable Withholding Tax (“CWT”): (a) The claim must be
filed with the CIR within the two-year period from the date of payment of the tax; (b) It must be shown
on the return that the income received was declared as part of the gross income; and, (c) The fact of
withholding must be established by a copy of a statement (BIR Form 2307) duly issued by the payor to
the payee showing the amount paid and the amount of the tax withheld. (J. del Castillo, CIR vs. Far East
Bank, GR No. 173854 dated March 15, 2010).

71.a. Irrevocability rule under Sec. 76: “Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding taxable years has been
made, such option shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor.”

71.b. The phrase "for that taxable period" under Sec. 76 merely identifies the excess income tax, subject
of the option, by referring to the taxable period when it was acquired by the taxpayer. It is not a
prescriptive period for the irrevocability rule.

71.c. A denial of a claim for refund on ground that the irrevocability rule under Sec. 76 does not amount
to unjust enrichment on the part of the government. There would be no unjust enrichment in the event
of denial of the claim for refund, because there would be no forfeiture of any amount in favor of the
government. The amount being claimed as a refund would remain in the account of the taxpayer until
utilized in succeeding taxable years, as provided in Sec. 76 of the NIRC of 1997. (CIR vs. BPI, GR No.
178490 dated July 7, 2009)

71.d. Once the taxpayer opts to carry-over its unutilized CWT to the succeeding taxable quarters or
years, the option to carry-over could no longer be converted into a claim for tax refund because of the
irrevocability rule provided in Sec. 76 of the NIRC. The taxpayer is barred from claiming a refund. Despite
the irrevocable choice, the taxpayer remains entitled to utilize the CWT as a tax credit in the succeeding
taxable years until fully exhausted. In this regard, prescription does not bar the taxpayer from applying
the amount as a tax credit considering that there is no prescriptive period for the carrying over of the
amount as a tax credit in the subsequent taxable years. (CIR vs. PL Management International
Philippines, Inc., GR No. 160949 dated April 4, 2011)
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71.e. Presentation by the taxpayer of thequarterly Income Tax Returns(“ITRs”) of the succeeding taxable
year is not necessaryto prove non-carry over. What Sec. 76 requires, just like in all civil cases, is to prove
the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to
the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly
ITRs are absolutely needed. (Winebrenner & Inigo Insurance Brokers, Inc. vs. CIR, GR No. 206526 dated
January 28, 2015)The BIR should present the quarterly ITRs as rebuttal evidence in order to shift the
burden of evidence back to the taxpayer. (Republic vs. Team (Phils.) Energy Corporation, GR No. 188016
dated January 14, 2015)

71.f. Where, however, the corporation permanently ceases its operations before full utilization of the tax
credits it opted to carry over, it may then be allowed to claim the refund of the remaining tax credits. In
such a case, the remaining tax credits can no longer be carried over and the irrevocability rule ceases to
apply. (Systra Phils. Inc. vs. CIR, GR No. 176290, September 21, 2007)

VI. Other Taxes under the NIRC

Percentage Tax

72. Percentage Tax is a national tax measured by a certain percentage of the gross selling price or gross
value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any
person engaged in the sale of services. (CIR vs. Citytrust Investment Phils., Inc., GR No. 139786 dated
September 27, 2006)

73. The sale of goods and services are subject to the 3% percentage tax under Sec. 116 of the NIRC only
if the sale of the goods and services are exempt from VAT under Sec. 109(1)(W) of the NIRC.

74.a. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries are subject to percentage tax, such as money changers and
pawnshops. (Secs. 121 and 122 of the NIRC)

74.b. Pawnshops are considered non-bank financial intermediaries. Its services, together with banks and
other non-bank financial intermediaries were only subject to VAT in the year 2003.(J. del Castillo, TFS,
Inc. vs. CIR, GR No. 166829 dated April 19, 2010)

74.c. Services subject to percentage tax under Title V of the NIRC are exempt from VAT. (Sec. 109(1)(E)
of the NIRC)

Documentary Stamp Tax

75. Documentary Stamp Tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto. A DST is actually an excise tax because it is imposed on the transaction rather than on the
document. A DST is also levied on the exercise by person of certain privileges conferred by law for the
creation, revision or termination of specific legal relationships through the execution of specific
instruments. Hence, in imposing the DST, the Supreme Court considers not only the document but also
the nature and character of the transaction. (Philippine Banking Corporation vs. CIR, GR No. 170574
dated January 30, 2009)

76. Documentary Stamp Tax is imposed on the exercise of (these) privileges through the execution of
specific instruments, independently of the legal status of the transactions giving rise thereto. The DST
must be paid upon issuance of these instruments, without regard to whether the contracts which gave
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rise to them are rescissible, void, voidable, or unenforceable. (CIR vs. Manila Bankers’ Life Insurance
Corporation, GR No. 169103 dated March 16, 2011)

77.a. As a general rule, any of the parties to a transaction shall be liable for the full amount of the
documentary stamp tax due, unless they agree among themselves on who shall be liable for the same.
(Republic vs. Soriano, GR No. 211666 dated February 25, 2015)

77.b. Should (any of) these parties be exempted from paying tax, the other party who is not exempt
would then be liable. (Philacor Credit Corporation vs. CIR, GR No. 169899 dated February 6, 2013)

78.a. A “time deposit” account which is payable on demand and evidenced by a passbook(not by a
“certificate of deposit”) is subject to DST. Sec. 179 (then Sec. 180) of the NIRC imposes DST on all loan
agreements including certificates of deposits drawing interest.The fact that the “time deposit” account is
evidenced by a passbook likewise cannot remove its coverage from Sec. 179 (then Sec. 180) of the NIRC,
as amended. A document to be considered a certificate of deposit need not be in a specific form . Thus, a
passbook issued by a bank qualifies as a certificate of deposit drawing interest because it is considered a
written acknowledgement by a bank that it has accepted a deposit of a sum of money from a depositor.

Note that Sec. 179 of the NIRC as currently worded now provides that the term debt instrument shall
mean instruments representing borrowing and lending transactions including but not limited to xxx
deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing
interest significantly higher than the regular savings deposit taking into consideration the size of the
deposit and the risks involved or drawing interest and having a specific maturity date. (J. del Castillo,
Prudential Bank vs. CIR, GR No. 180390 dated July 27, 2011)

78.b. Bank deposit accounts without a fixed term or maturity are exempt from DST (Sec. 199(k) of the
NIRC). An example of this is a regular savings account evidenced by a passbook.

79.a. The transfer of real properties from the absorbed corporation to the surviving corporation via
merger is not subject to DST.

The phrase "granted, assigned, transferred or otherwise conveyed" under Sec. 196 of the NIRC is
qualified by the word "sold" which means that the DST is imposed on the transfer of realty by way of sale
and does not apply to all conveyances of real property. The fact that Sec. 196 of the NIRC refers to
words "sold", "purchaser" and "consideration" undoubtedly leads to the conclusion that only sales of real
property are contemplated therein.

In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could
not be considered as "purchaser" of realty since the real properties subject of the merger were merely
absorbed by the surviving corporation by operation of law and these properties are deemed automatically
transferred to and vested in the surviving corporation without further act or deed. (J. del Castillo, CIR vs.
La Tondena Distillers, Inc., GR No. 175188 dated July 15, 2015)

79.b. When the DST provisions of the Tax Code was amended in 2004, Sec. 199(m) of the Tax Code now
expressly provides that the transfer of property pursuant to Section 40(c)(2) of the NIRC is not subject to
DST. Sec. 40(c)(2) of the NIRC includes transfer of property by way of merger, among others.

Excise Tax

80.a. Petroleum products soldto the following are exempt from excise tax: (a) International carriers of
Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the
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petroleum products sold to these international carriers shall be stored in a bonded storage tank and may
be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner; (b) Exempt entities or agencies covered by tax
treaties, conventions and other international agreements for their use of consumption: Provided,
however, That the country of said foreign international carrier or exempt entities or agencies exempts
from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and, (c) Entities
which are by law exempt from direct and indirect taxes. (Sec. 135 of the NIRC)

80.b. Excise tax on petroleum products is essentially a tax on property, the direct liability for which
pertains to the statutory taxpayer (i.e., manufacturer, producer or importer). Any excise tax paid by the
statutory taxpayer on petroleum products sold to any of the entities or agencies named in Sec. 135 of the
NIRC exempt from excise tax is deemed illegal or erroneous, and should be credited or refunded to the
payor pursuant to Sec. 204 of the NIRC. This is because the exemption granted under Sec. 135 of the
NIRC must be construed in favor of the property itself, that is, the petroleum products. (Chevron
Philippines, Inc. vs. CIR, GR No. 210836 dated September 1, 2015)

VII. Local and Real Property Taxation

Local Fiscal Autonomy under the Constitution

81. A law which provides that the amusement tax levied by local government units (“LGUs”) be given to
the Film Development Council of the Philippines (“FDCP”) violates the local fiscal autonomy provision of
the Constitution because the taxes, fees and charges levied by the LGUs should accrue exclusively to
them. What Congress did in this instance was not to exclude the authority to levy amusement taxes from
the taxing power of the covered LGUs, but to earmark, if not altogether confiscate, the income to be
received by the LGU from the taxpayers in favor of and for transmittal to FDCP, instead of the taxing
authority. (Film Development Council of the Philippines vs. Colon Heritage Realty Corporation, GR No.
203754 dated June 16, 2015)

Common Limitations under Sec. 133 of the LGC

82. An LGU cannot impose business tax on the sale of petroleum products. Sec. 133(h) of the Local
Government Code (“LGC”) provides that the taxing powers of LGUs shall not extend to taxes fees and
charges on petroleum products. (Petron Corp. vs. Tiangco, GR No. 158881 dated April 16, 2008)

83. An LGU cannot impose business tax on common carriers. Sec. 133(j) of the LGC provides that the
taxing powers of LGUs shall not extend to taxes on gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and common carriers. (City of
Manila vs. Colet, GR No. 120051 dated December 10, 2014)

Amusement Tax

84.a. An LGU cannot impose amusement tax on an operator of a resort. In order to be subject to
amusement tax, the venue must be an amusement place where one seeks admission to entertain oneself
by seeing or viewing a show or performance. It must be a venue primarily used to stage spectacles or
hold public shows, exhibitions, performances, and other events meant to be viewed by an audience.
(Pelizloy Realty Corporation vs. Province of Benguet, GR No. 183137 dated April 10, 2013)

84.b. An LGU cannot impose amusement tax on an operator of a golf course. In order to be subject to
amusement tax, the venue must be an amusement place where one seeks admission to entertain oneself
by seeing or viewing a show or performance. People do not enter a golf course to see or view a show or
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performance. The proprietor or operator of the golf course does not actively display, stage, or present a
show or performance. People go to a golf course to engage themselves in a physical sport activity, i.e., to
play golf. (Alta Vista Golf and Country Club vs. The City of Cebu, GR No. 180235 dated January 20, 2016)

Business Tax

85. If a business is already paying business tax as a retailer under Sec. 143(a) of the LGC, it is no longer
liable to pay business tax on businesses subject to VAT and Percentage Tax under Sec. 143(h) of the
LGC. Sec. 143(h) of the LGC may invoked by the Local Government Unit if the business is not otherwise
specified in the preceding paragraphs (Secs. 143(a) to (g) of the LGC). (Nursery Care Corporation vs.
Acevedo, GR No. 180651 dated July 30, 2014)

Constitutionality or Validity of a Tax Ordinance

86. Sec. 187 of the LGC, which requires that the constitutionality of an ordinance be questioned before
the Secretary of Justice, only applies to a tax ordinance and does not apply to an ordinance which
imposes a regulatory fee. (Smart vs. Municipality of Malvar, Batangas, GR No. 204429 dated February 18,
2014)

Collection of Local Tax

87. Unlike the NIRC, the Local Tax Code (now Local Government Code) does not contain any specific
provision prohibiting courts from enjoining the collection of local taxes. Nevertheless, it must be
emphasized that although there is no express prohibition in the LGC, injunctions enjoining the collection
of local taxes are frowned upon. Courts therefore should exercise extreme caution in issuing such
injunctions. (J. del Castillo, Angeles City vs. Angeles City Electric Corporation, GR No. 166134 dated June
29, 2010)

Machinery for Real Property Tax Purposes

88. Transformers, electric posts, transmission lines, insulators and electric meters owned and used by
Meralco may be considered as machineries subject to real property tax. Under Sec. 199 (o) of the LGC,
machinery, to be deemed real property subject to real property tax, need no longer be annexed to the
land or building as these "may or may not be attached, permanently or temporarily to the real property,"
and in fact, such machinery may even be "mobile."The same provision requires that the machinery: (a)
must be actually, directly, and exclusively used to meet the needs of the particular industry, business, or
activity; and (b) by their very nature and purpose, are designed for, or necessary for manufacturing,
mining, logging, commercial, industrial, or agricultural purposes. Therefore, in determining whether
machinery is real property subject to real property tax, the definition and requirements under the LGC
(not the Civil Code) are controlling. (Meralco vs. The City Assessor and City Treasurer of Lucena City, GR
No. 166102 dated August 5, 2015)

89. Submarine or undersea communications cables are akin to electric transmission lines and are
considered as machinery subject to real property tax. There is no reason to distinguish between
submarine cables used for communications and aerial or underground wires or lines used for electric
transmission, so that both pieces of property do not merit a different treatment in the aspect of real
property taxation. (Capitol Wireless, Inc. vs. The Provincial Treasurer of Batangas, GR No. 180110 dated
May 30, 2016)
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90. The road equipment and mini haulers owned and used by Filipinas Palm Oil in its Palm Oil business
are real properties subject to real property tax. Sec. 199(o) of the LGC provides that “Machinery"
includes the physical facilities for production, the installations and appurtenant service facilities, those
which are mobile, self-powered or self propelled, and those not permanently attached to the real
property which are actually, directly, and exclusively used to meet the needs of the particular industry,
business or activity and which by their very nature and purpose are designed for, or necessary to its
manufacturing, mining, logging, commercial, industrial or agricultural purposes.

The phrase pertaining to physical facilities for production is comprehensive enough to include the road
equipment and mini haulers as actually, directly, and exclusively used by respondent to meet the needs
of its operations in palm oil production. Moreover, "mini-haulers are farm tractors pulling attached trailers
used in the hauling of seedlings during planting season and in transferring fresh palm fruits from the farm
[or] field to the processing plant within the plantation area." The indispensability of the road equipment
and mini haulers in transportation makes it actually, directly, and exclusively used in the operation of
respondent's business. (Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation, Inc., GR
No. 183416 dated October 5, 2016)

Notice of Assessment

91.a. Sec. 223 of the LGC provides that when real property is assessed for the first time or when an
existing assessment is increased or decreased, the assessor shall within thirty (30) days give written
notice of such new or revised assessment to the person in whose name the property is declared.

91.b. If in relation to Sec. 223, the LGU issues a notice of collection instead of a notice of assessment,
the same is not valid.A notice of collection is not the same as a notice of assessment. For failure to issue
the notice of assessment, the appraisal and assessment of the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO not being in compliance with the LGC, are attempts at
deprivation of property without due process of law and, therefore, null and void. (Meralco vs. The City
Assessor and City Treasurer of Lucena City, GR No. 166102 dated August 5, 2015)

Exemption from Real Property Tax

92. The following are real property exempt from real property tax:(a) Real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person;(b) Charitable institutions, churches,
parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands,
buildings, and improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;(d) All real propertyowned by
duly registered cooperatives as provided for under R.A. No. 6938; and,(e) Machinery and equipment used
for pollution control and environmental protection. (Sec. 234 of the LGC)

93. The airport lands and buildings being administered by MIAA, an instrumentality, is exempt from real
property tax under Sec. 234(a) of the LGC. The airport is considered owned by the Republic since it is
property of public dominion under Art. 420 of the Civil Code. MIAA, an instrumentality of the national
government is also exempt from the payment of the real property tax. Under Sec. 133(o) of the LGC,
LGUs are prohibited from imposing taxes, fees and charges on the national government, its agencies,
instrumentalities and local government units.
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However, the portion of the airport leased to commercial establishments are taxable since the beneficial
use has been granted to a taxable person for consideration. (MIAA vs. CA, GR No. 155650 dated July 20,
2006)

94. In order to be exempt from execution sales, the property owned by the Republic must be considered
property of public dominion. Thus, sequestered real property which is now owned by the Republic but is
used as a commercial establishment cannot be considered as property of public dominion under Art. 420
of the Civil Code. In case of real property tax delinquency, notwithstanding being owned by the Republic,
the same can be sold at public auction. (City of Pasig vs. Republic, GR No. 185023 dated August 24,
2011)

95. if a university leases a portion of its school building to a bookstore or cafeteria, the leased portion is
not actually, directly and exclusively used for educational purposes , even if the bookstore or canteen
caters only to university students, faculty and staff.

The leased portion of the building may be subject to real property tax, as held in Abra Valley College, Inc.
v. Aquino. The Supreme Court ruled in that case that the test of exemption from taxation is the use of
the property for purposes mentioned in the Constitution. The Supreme Court also held that the
exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment
of the main purposes.
In concrete terms, the lease of a portion of a school building for commercial purposes, removes such
asset from the property tax exemption granted under the Constitution. There is no exemption because
the asset is not used actually, directly and exclusively for educational purposes. The commercial use of
the property is also not incidental to and reasonably necessary for the accomplishment of the main
purpose of a university, which is to educate its students.(CIR vs. De La Salle University, GR No. 196596
dated November 9, 2016)

96. To successfully claim exemption under Sec. 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 government-owned 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. (NPC vs. Province of
Quezon, GR No. 171586 dated July 15, 2009)

97. Sec. 234(d) of the LGC exempts all real property owned by cooperatives without distinction. Nothing
in the law suggests that the real property tax exemption only applies when the property is used by the
cooperative itself. Similarly, the instance that the real property is leased to either an individual or
corporation is not a ground for withdrawal of tax exemption. The basis of exemption under Sec. 234(d) is
ownership and not use. (Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil Plantation, Inc., GR
No. 183416 dated October 5, 2016)

Remedies on Real Property Tax Assessments

98.a. An erroneous assessment for real property tax “presupposes that the taxpayer is subject to the tax
but is disputing the correctness of the amount assessed.” To contest the erroneous assessment,
taxpayer must exhaust administrative remedies before resorting to judicial action: Payment under Protest
– Filing of Protest – Local Board of Assessment Appeals – Central Board of Assessment Appeals – CTA En
Banc – Supreme Court.

98.b. On the other hand, an assessment for real property tax is illegal if it was made without authority
under the law. In case of an illegal assessment, the taxpayer may directly resort to judicial action
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without paying under protest the assessed tax and filing an appeal with the Local and Central Board of
Assessment Appeals. Thus, the illegal assessment is contested, as follows: Regional Trial Court – CTA
Division – CTA En Banc – Supreme Court. (City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November
26, 2014)

99. The CTA Division has jurisdiction over real property tax cases (illegal assessments) decided by the
RTC. Basis is: “Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or
resolved by them in the exercise of their original jurisdiction.” The term "local taxes" in the
aforementioned provision should be considered in its general and comprehensive sense, which embraces
real property tax assessments. (NPC vs. Municipal Government of Navotas, GR No. 192300 dated
November 24, 2014)

100. If the RTCdenies a taxpayer’s prayer for issuance of a writ of preliminary injunction relative to a
complaint for injunction filed with the RTC to contest an illegal real property tax assessment, the taxpayer
may question the order denying the said prayer by filing a special civil action for Certiorari with the CTA
Division and not with the Court of Appeals (“CA”). As held by the Supreme Court in City of Manila vs.
Cuerdo, the CTA likewise has the jurisdiction to issue writs of certiorari or to determine whether there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in
issuing an interlocutory order in cases falling within the CTA’s exclusive appellate jurisdiction.The
rationale (why it is the CTA and not the CA which has jurisdiction) is to a avoid split-jurisdiction situation
or an absurd situation where one court decides an appeal in the main case while another court rules on
an incident in the very same case.

Considering that the main case (injunction case) is considered a local tax case, a decision rendered by
the RTC relative to the main case is appealable to the CTA Division. On the other hand, a Certiorari
petition (incident to the main case) questioning an interlocutory order issued in a local tax case falls
under the jurisdiction of the CTA. Thus, the CA correctly dismissed the Petition for Certiorari before it for
lack of jurisdiction. (J. del Castillo, CE Casecnan Water and Energy Company, Inc., vs. The Province of
Nueva Ecija, GR No. 196278 dated June 17, 2015)

101.a. Sec. 226 of the LGC lists down the two entities vested with the personality to contest an
assessment: (1) the owner and, (2) the person with legal interest in the property. A person legally
burdened with the obligation to pay for the tax imposed on a property has legal interest in the property
and the personality to protest a tax assessment on the property.

101.b. On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power plant
and its machineries, specifically, "all real estate taxes and assessments, rates and other charges in
respect of the site, the buildings and improvements thereon and the [power plant]." At first blush, this
contractual provision would appear to make the NPC liable and give it standing to protest the
assessment. The tax liability referred above, however, 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 as discussed below. By law, the tax liability rests on Mirant based on its
ownership, use, and possession of the plant and its machineries.

Contractual stipulation to assume payment of the real property tax does not clothe the party legal
interest for purposes of contesting an assessment. Corollary thereto, the local government units can
neither be compelled to recognize the protest of a tax assessment from an entity against whom it cannot
enforce the tax liability. (NPC vs. Quezon, GR No. 171586 dated July 15, 2009 and January 25, 2010)

VIII. Customs Modernization and Tariff Act (CMTA)

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Jurisdiction on Seizure and Forfeiture Cases

102. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to
hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional
Trial Courts are precluded from assuming cognizance over such matters even through petitions of
certiorari, prohibition or mandamus.

The rule that Regional Trial Courts have no review powers over such proceedings is anchored upon the
policy of placing no unnecessary hindrance on the government's drive, not only to prevent smuggling and
other frauds upon Customs, but more importantly, to render effective and efficient the collection of
import and export duties due the State, which enables the government to carry out the functions it has
been instituted to perform. (Jao vs. CA, GR No. 104604 dated October 6, 1995)

Exempt Importations

103. No duties and taxes shall be collected on importations with a value of ten thousand pesos
(P10,000.00) or below. (Sec. 423 of the CMTA)

104. Non-resident Filipinos, OFWs and Returning Residents while abroad are allowed to send to their
families or relatives in the Philippines or bring with them, Balikbayan Boxes which shall be exempt from
the payment of duties and taxes, up to three (3) times in a calendar year with a total value of one
hundred fifty thousand pesos (P150,000.00). (Sec. 800 of the CMTA and CAO 5-2016 dated December 2,
2016)

Abandonment

105.a. There is an express abandonment when the owner, importer or consignee signifies with the
Collector of Customs in writing his intention to abandon his importation in favor of the government.

105.b. There is an implied abandonment when: (1) The importer, owner, consignee or interested party
after due notice, fails to file a goods declaration for the importation within a period of fifteen (15) days
from the date of the discharge of the last package from the vessel or aircraft. The period to file the goods
declaration may, upon request, be extended on valid grounds for another fifteen (15) days; (2) Having
filed an entry for shipment, an interested party fails to pay the assessed duties, taxes and other charges
thereon, or if the regulated goods failed to comply with Sec. 117 of the CMTA, within fifteen (15) days
from the date of final assessment: Provided, That if such regulated goods are subject of an alert order
and the assessed duties, taxes and other charges thereof are not paid within fifteen (15) days from
notification by the Bureau of Customs of the resolution of the alert order, the same shall also be deemed
abandoned claim his importation within a non-extendible period of fifteen (15) days from the date of
posting of the notice to claim such importation; (3) Having paid the assessed duties, taxes and other
charges, the owner, importer or consignee or interested party after due notice, fails to claim the goods
within thirty (30) days from payment; and, (4) When the owner or importer fails to claim goods in
customs bonded warehouses within the prescribed period. (Sec. 1129 of the CMTA)

105.c. Expressly abandoned goods shall be ipso facto be deemed the property of the government and to
be disposed off in accordance with the CMTA. If the Bureau of Customs has not disposed of the
abandoned goods, the owner or importer of goods impliedly abandoned may, at any time within thirty
(30) days after the lapse of the prescribed period to file the declaration, reclaim the goods provided that
all legal requirements have been complied with and the corresponding duties, taxes and other charges,
without prejudice to charges and fees due to the port or terminal operator, as well as expenses incurred
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have been paid before the release of the goods from customs custody. When the Bureau of Customs sells
goods which have been impliedly abandoned, although no offense has been discovered, the proceeds of
the sale, after deduction of any duty and tax and all other charges and expenses incurred as provided in
Sec. 1143 of the CMTA, shall be turned over to those persons entitled to receive them or, when this is
not possible, held at their disposal for a specified period. After the lapse of the specified period, the
balance shall be transferred to the forfeiture fund as provided in Sec. 1151 of the CMTA. (Sec. 1130 of
the CMTA)

************Good Luck and God Bless************