SAMPLEX

1 QUESTION:
For S.C. Johnson (Phils.) to use the trademark and technology of S.C. Johnson and Sons, USA, it was obliged to pay
the U.S. counterpart royalties based on a percentage of net sales and subjected the same to 25% withholding tax
on royalty payments. Subsequently, it filed a claim for refund of overpaid withholding tax on royalties arguing
that it is entitled to the concessional rate of 10% withholding tax pursuant to the Most- Favored-Nation Clause of
the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty.
Petitioner CIR contends that S.C. Johnson (Phils.) is not entitled to avail of the concessional rate of 10% tax on
royalties
under Art. 13(2)(b)(iii) of the RP-US Tax Treaty since the taxes upon royalties under the RP-US Tax Treaty are
not paid under circumstances similar to those in the RP-West Germany Tax treaty since there is no provision for
a 20% matching credit in the former convention.
DECIDE.
ANSWER:
S.C. Johnson (Phils.) is not entitled to the concessional rate of 10%.
Tax conventions, such as the RP-US Tax Treaty, are drafted with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in
respect to the same subject matter and for identical periods.

2. QUESTION:
What is double taxation? How does a Tax Treaty eliminate double taxation?
ANSWER:
Double taxation usually takes place when a person is a resident of a contracting state and derives income from, or owns
capital in, the other contracting state and both states impose tax on that income or capital.
In order to eliminate double taxation, a tax treaty resorts to several methods. FIRST, it sets out the respective rights to tax
of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some
cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital,
both states are given the right to tax, although the amount of tax that may be imposed by the state of source is limited.
The SECOND method for the elimination of double taxation applies whenever the state of source is given a full or limited
right to tax together with the state of residence.
In this case, the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation.
There are two methods of relief — the exemption method and the credit method. In the exemption method, the income or
capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it
may be taken into account in determining the rate of tax applicable to the taxpayer's remaining income or capital. On the
other hand, in the credit method, although the income or capital which is taxed in the state of source is still taxable in the
state of residence, the tax paid in the former is credited against the tax levied in the latter. The basic difference between
the two methods is that in the exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax. (Ibid.)

Reasons for granting tax exemption through a treaty

1. Reciprocity
2. To lessen the rigors of international juridical double taxation

Modes of eliminating double taxation

Local legislation and tax treaties may provide for:
1. Tax credit – an amount subtracted from taxpayer’s tax liability in order to arrive at the net tax due.
2. Tax deduction – an amount subtracted from the gross amount on which a tax is calculated.
3. Tax exemption – a grant of immunity to particular persons or entities from the obligation to pay taxes.
4. Imposition of a rate lower than the normal domestic rate
5. Tax treaty - The purpose is to reconcile the national fiscal legislation of the contracting parties in order to help
the taxpayer avoid simultaneous taxation in two different jurisdictions (international double taxation). This is to
encourage the free flow of goods and services and the movement of capital, technology and persons between
countries, conditions deemed vital in creating robust and dynamic economies.

Tax treaty resorts to several methods:

1. First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to
certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states;
however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may
be imposed by the state of source is limited;
2. The second method for the elimination of double taxation applies whenever the state of source is given a full or limited
right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state of residence to
allow relief in order to avoid double taxation. There are two methods of relief:
a. Exemption method - the income or capital which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in determining the rate of tax applicable to the
taxpayer's remaining income or capital;
b. Credit method - although the income or capital which is taxed in the state of source is still taxable in the state of
residence, the tax paid in the former is credited against the tax levied in the latter.

The basic difference between the two methods is that in the exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax (CIR v. S.C. Johnson and Son, Inc., G.R. No. 127105, 1999).

Most Favored Nation Clause

This grants to the contracting party treatment not less favorable than which has been or may be granted to the most
favored among other countries. It allows the taxpayer in one state to avail of more liberal provisions granted in another
tax treaty to which the country of residence of such taxpayer is also a party; provided that the subject matter of taxation is
the same as that in the tax treaty under which the taxpayer is liable (CIR v. SC Johnson and Son Inc., G.R. No. 127105, June
25, 1999).

II
Stock dividends, strictly speaking, represent capital and do not constitute income to its recipient. So that the mere
issuance thereof is not subject to income tax as they are nothing but enrichment through increase in value of capital
investment. In a loose sense, stock dividends issued by the corporation, are considered unrealized gain, and cannot be
subjected to income tax until that gain has been realized. Before the realization, stock dividends are nothing but a
representation of an interest in the corporate properties (Commissioner v. ANSCOR, G.R. No. 108576, January 20, 1999).
XPNs:
1. Change in the stockholder’s equity, right/interest in the net assets of the corporation;
2. Recipient is other than the shareholder;
3. Cancellation or redemption of shares of stock;
4. Distribution treasury shares;
5. Dividends declared in the guise of treasury stock dividend to avoid the effects of income taxation; and
6. Different classes of stock were issued.

NOTE: A stock dividend does not constitute taxable income if the new shares did not confer new rights nor interests than
those previously existing, and that the recipient owns the same proportionate interest in the net assets of the corporation
(RR No. 2, Sec. 252).
Q: Fred, was a stockholder in the Philippine American Drug Company. Said corporation declared a stock dividend
and that a proportionate share of stock dividend was issued to Fred. The CIR, demanded payment of income tax
on the aforesaid dividends. Fred protested the assessment made against him and claimed that the stock
dividends in question are not income but are capital and are, therefore, not subject to tax. Are stock dividends
income?
A: NO. Stock dividends are not income and are therefore not taxable as such. A stock dividend, when declared, is merely a
certificate of stock which evidences the interest of the stockholder in the increased capital of the corporation. A
declaration of stock dividend by a corporation involves no disbursement to the stockholder of accumulated earnings and
the corporation parts with nothing to its stockholder. The property represented by a stock dividend is still that of the
corporation and not of the stockholder. The stockholder has received nothing but a representation of an interest in the
property of the corporation and as a matter of fact, he may never receive anything, depending upon the final outcome of
the business of the corporation (Fisher v. Trinidad, G,R, No. L-21186, February 27, 1924).

III
Q: Do co-heirs who own inherited properties which produce income automatically be considered as partners of
an unregistered corporation hence subject to income tax?
A: No, for the following reasons:
a. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the returns are derived. There must be an unmistakable
intention to form a partnership or joint venture (Obillos, Jr. v. CIR, 139 SCRA 436).
b. There is no contribution or investment of additional capital to increase or expand the inherited properties, merely
continuing the dedication of the property to the use to which it had been put by their forebears (Ibid.).
c. Persons who contribute property or funds to a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not
thereby rendered partners. They have no common stock capital, and no community of interest as principal proprietors in
the business itself from which the proceeds were derived (Pascual v. CIR, 166 SCRA 560).

NOTE: The income from the rental of the house, bought from the earnings of co-owned properties, shall be treated as the
income of an unregistered partnership to be taxable as a corporation because of the clear intention of the co-owners to
join together in a venture for making money out of rentals.

As a rule, co-ownership is tax exempt. It becomes taxable if it is converted into an unregistered partnership. It is
converted into partnership if the properties and income are used as common fund with the intention to produce profits. If
after partition, the shares of the heirs are held under a single management for profit making, unregistered partnership is
formed (Ona v. CIR, 45 SCRA 74).
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto, nor does an agreement to share
the profits and losses on the sale of land create a partnership; the parties are only tenants in common. Where the
transactions are isolated, in the absence of other circumstances showing a contrary intention, the case can only give rise
to a co-ownership (Pascual v. CIR, 166 SCRA 560).
Co-heirs who own inherited properties which produce income should not automatically be considered as partners of an
unregistered partnership or corporation subject to income tax. REASONS: Sharing of gross returns does not by itself
establish a partnership; there must be an unmistakable intention to form a partnership or joint venture. There is no
contribution or investment of additional capital to increase or expand the inherited properties, merely continuing the
dedication of the property to the use to which it had not been put by their forbears (Obillos Jr. v. CIR, 139 SCRA 436).
Co-ownership is not taxable if the activities of the co-owners are limited to the preservation of the property and the
collection of income. In such case, the co-owners shall be taxed individually on their distributive share in the income of
the co-ownership.
Co-owners investing the income in a business for profit
If the co-owners invest the income in a business for profit they would constitute themselves into a partnership and such
shall be taxable as a corporation.
---
Q: Brothers A, B, and C borrowed a sum of money from their father which amount together with their personal
monies was used by them for the purpose of buying real properties. The real properties they bought were leased
to various tenants. The BIR demanded the payment of income tax on corporations, real estate dealer’s tax, and
corporation residence tax. However, A, B. and C seek to reverse the letter of demand and be absolved from the
payment of taxes in question. Are they subject to tax on corporations?
A: YES. As defined in the NIRC, the term “corporation includes partnership, no matter how created or organized”. This
qualifying expression clearly indicates that a joint venture need not be taken in any of the standard form, or conformity
with the usual requirements of the law on partnerships, in order that one could be deemed constituted for the purposes of
the tax on corporations (Evangelista v. Collector of Internal Revenue, G.R. No. L-9996, October 15, 1957).
---
---
Q: Pascual and Dragon bought 2 parcels of land from Bernardino and 3 from Roque. Thereafter, the first two were
sold to Meirenir Development Corporation and the remaining were sold to Reyes and Samson. They divided the
profits between the two (2) of them. The Commissioner contended that they formed an unregistered partnership
or joint venture taxable as a corporation under the Code and its income is subject to the NIRC. Is there an
unregistered partnership formed?
A: NONE. The sharing of returns does not in itself establish a partnership whether or not the sharing therein has a joint or
common right or interest in the property (NCC, Art. 1769). There is no adequate basis to
support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby
they purchased properties and sold the same few years thereafter did not make them partners. The transactions were
isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present (Pascual
and Dragon v. CIR, G.R. No. 78133, October 18, 1988).
---
---
Q: On March 2, 1973, Joe Obillos Sr. transferred his rights under contract with Ortigas Co. to his 4 children to
enable them to build residences on the lots. TCTs were issued. Instead of building houses, after a year, Obillos
children sold them to Walled City Securities Corporation and Olga Cruz Canda. The BIR required the children to
pay corporate income tax under the theory that they formed an unregistered partnership or joint venture. Are
they liable for corporate income tax?
A: NO. The Obillos children are co-owners. It is an isolated act which shows no intention to form a partnership. It appears
that they decided to sell it after they found it expensive to build houses. The division of profits was merely incidental to
the dissolution of the co-ownership, which was in the nature of things a temporary state (Obillos, Jr. v. CIR, G.R. No. L-
68118, October 29, 1985).

IV
Q: X Corporation enjoys a blanket tax exemption under PD 1869 (the Charter creating PAGCOR). X rents a
building from Y where it operates its casino activities. Y passes to X the VAT on lease as required by law. X
refused to pay invoking its blanket tax exemption. Y paid the subject taxes for fear of the legal consequences of
non-payment of the tax to the BIR. Thereafter, albeit belatedly Y realized it should not have paid because the
transactions it had with X is subject to “zero-rated” VAT. Immediately, Y filed an administrative claim for tax
refund with the CIR, but the latter failed to resolve in favor of Y. Is the refusal of the CIR on Y’s claim for refund
valid? Reason.
A: NO. The blanket tax exemption of X under PD 1869 applies to both direct and indirect taxes that extend to entities and
individuals dealing with it in its casino operations. Considering that Y paid the tax under a mistake of fact and was not
aware at the time of payment that the transactions it has with X is “zero-rated”, the invalid payment can be recovered or
refunded. The principle of solutio indebiti applies to the Government as well, the basis thereto is grounded upon the right
of recovery of money paid through misapprehensions of facts belongs in equity and in good conscience to the person who
paid it and the government cannot enrich itself at the expense of another (CIR v Acecite (Phils.) Hotel Corporation, 516
SCRA 93).

NOTE: PAGCOR is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs
that are exempt from the payment of the income tax. Nevertheless, PAGCOR’s tax privilege of paying five percent (5%)
franchise tax in lieu of all other taxes with respect to its income from gaming operations, pursuant to P.D. 1869, as
amended, is not repealed or amended by Section 1(c) of R.A. No. 9337. Also, PAGCOR’S income from gaming operations is
subject to the five percent (5%) franchise tax only and its income from other related services is subject to corporate
income tax (PAGCOR v. BIR, G.R. No. 215427, December 10, 2014).

In view of the withdrawal of its tax privilege, is PAGCOR’s income tax liability applicable to all types
of its income?
NO. PAGCOR’s income is classified into two: (1) income from its operations conducted under its Franchise
(income from gaming operations); and (2) income from its operation of necessary and related services (income
from other related services). Under its charter, P.D. 1869, PAGCOR is subject to income tax only with respect to its income
from other related services, while income from gaming operations is subject to the five percent (5%) franchise tax only
(PAGCOR vs. BIR, GR No. 215427, December 10, 2014, J. Peralta)

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in
the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR
should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.
The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide
by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987
Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose
taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. Besides, the
principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987
Constitutional Commission, pp. 436-436, as cited in Bernas, TheConstitution of the Republic of the Philippines, Vol. II,
First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio." "Local
Government has been described as a political subdivision of a nation or state which is constituted by law and has
substantial control of local affairs. In a unitary system of government, such as the government under the Philippine
Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation,it cannot be
an imperium in imperio.Local government in such a system can only mean a measure of decentralization of the function of
government. As to what state powers should be "decentralized" and what may be delegated to local government units
remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA 539).What is settled is that the matter of regulating, taxing or otherwise
dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local
governments.||| (Basco v. Philippine Amusements and Gaming Corp., G.R. No. 91649, [May 14, 1991], 274 PHIL 323-346)

V
The second and last objections are manifestly devoid of merit. Indeed — independently of whether or not the tax in
question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on
which we need not and do not express any opinion — double taxation, in general, is not forbidden by our fundamental
law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United
States and of some States of the Union. 1 Then, again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers 2 is subject to one well-established exception, namely: legislative
powers may be delegated to local governments — to which said theory does not apply 3 — in respect of matters of local
concern||| (Pepsi-Cola Bottling Company of the Philippines, Inc. v. City of Butuan, G.R. No. L-22814, [August 28, 1968], 133
PHIL 776-783)

Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing
the same person twice by the same jurisdiction for the same thing". It is obnoxious when the taxpayer is taxed twice,
when it should be but once. Otherwise described as "direct duplicate taxation", the two taxes must be imposed on the
same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and the taxes must be of the same kind or character. 18
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1)
on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to
make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing
authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of
the City of Manila; (5) for the same taxing periods — per calendar year; and (6) of the same kind or character — a
local business tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance
No. 7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and
cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must
conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143 (a)
of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under
Section 143 (h) of the same Code. Section 143 (h) may be imposed only on businesses that are subject to excise tax,
VAT, or percentage tax under the NIRC, and that are "not otherwise specified in preceding paragraphs". In the same
way, businesses such as respondent's, already subject to a local business tax under Section 14 of Tax Ordinance No.
7794 [which is based on Section 143 (a) of the LGC], can no longer be made liable for local business tax under Section
21 of the same Tax Ordinance [which is based on Section 143 (h) of the LGC].
||| (City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, [August 4, 2009], 612 PHIL 609-633)

VI
Where does one seek immediate recourse from the adverse ruling of the Secretary of Finance in its exercise of its
power of review under Sec. 4?
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA|||

Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of
Finance under the adverted NIRC provision is appealable to. However, We find that Sec. 7 (a) (1) of RA 1125, as
amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA
petition as "other matters" arising under the NIRC or other laws administered by the BIR. As stated:
Sec. 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue. (emphasis supplied)

Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is,
nonetheless, sufficient enough to include appeals from the Secretary's review under Sec. 4 of the NIRC.
||| Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to taxpayers
prejudiced by his adverse rulings. To remedy this situation, We imply from the purpose of RA 1125 and its amendatory
laws that the CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken
as a derogation of the power of the Office of President but merely as recognition that matters calling for technical
knowledge should be handled by the agency or quasi-judicial body with specialization over the controversy. As the
specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases, there can be no other court
of appellate jurisdiction that can decide the issues raised in the CA petition, which involves the tax treatment of the shares
of stocks sold.||| (The Philippine American Life and General Insurance Co. v. The Secretary of Finance, G.R. No. 210987,
[November 24, 2014])

VII
VIII
The source of an income is the property, activity or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.
In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands
here and payments for fares were also made here in Philippine currency. The site of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of
supporting the government. (Commissioner vs BOAC)

IX
Q: May the CIR compromise the payment of withholding tax where the financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax? (1998 Bar)
A: NO. A taxpayer who is constituted as withholding agent who has deducted and withheld at source the tax on the
income payment made by him holds the taxes in trust for the government (Sec. 58 [D], NIRC) and is obligated to remit
them to the BIR. The subsequent inability of the withholding agent to pay/remit the taxes withheld is not a ground for
compromise because the withholding tax is not a tax upon the withholding agent but it is only a procedure for the
collection of a tax.

X
Q: Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? (2005 Bar)
A: YES, the deficiency tax assessment is a bar to a tax refund or credit. The taxpayer cannot be entitled to a refund and at
the same time liable for a tax deficiency assessment for the same year. The deficiency assessment creates a doubt as to the
truth and accuracy of the Tax Return. Said Return cannot therefore be the basis of the refund (CIR v. CA, G.R. No. 106611,
July 21, 1994).
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Q: On June 16, 1997, the BIR issued against the Estate of Mott a notice of deficiency estate tax assessment,
inclusive of surcharge, interest and compromise penalty. The Executor of the Estate of Mott filed a timely protest
against the assessment and requested for waiver of the surcharge, interest and penalty. The protest was denied
by the CIR with finality on Sept. 13, 1997. Consequently, the Executor was made to pay the deficiency assessment
on Oct. 10, 1997. The following day, the Executor filed a Petition with the CTA praying for the refund of the
surcharge, interest and compromise penalty. The CTA took cognizance of the case and ordered the CIR to make a
refund. The CIR filed a Petition for Review with the CA assailing the jurisdiction of the CTA and the Order to make
refund to the Estate on the ground that no claim for refund was filed with the BIR.
a. Is the stand of the CIR correct?

b. Why is the filing of an administrative claim with the BIR necessary? (2000 Bar)
A:
a. YES, for there was no claim for refund or credit that has been duly filed with the CIR which is required before a suit or
proceeding can be filed in any court

(Sec. 229, NIRC). The denial of the claim by the CIR is the one which will vest the CTA jurisdiction over the refund case
should the taxpayer decide to appeal on time.

b. The filing of an administrative claim for refund with the BIR is necessary in order:
i. To afford the CIR an opportunity to consider the claim and to have a chance to correct the errors of subordinate officers
(Gonzales v. CTA, G.R. No. 14532, May 26, 1965); and
ii. To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating
the revenue available for expenditures (Bermejo v. Collector, G.R. No. L-3028, July 29, 1950).

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Q: Is PEZA a government instrumentality or a GOCC? Is it exempt from real property taxation?
A: PEZA is an instrumentality of the government. Being an instrumentality of the national government, it cannot be taxed by
local government units. Instrumentality is "any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter." Examples of instrumentalities of the national
government are the MIAA, Philippine Fisheries Development Authority, GSIS, and Philippine Reclamation Authority. These
entities are not integrated within the department framework but are nevertheless vested with special functions to carry out a
declared policy of the national government.

Q: Are the airport lands and buildings of Manila International Airport Authority (MIAA) exempt from real estate
tax under existing laws?
A: YES. First, MIAA is not a GOCC but an instrumentality of the National Government and thus exempt from local taxation.
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality; the only difference is that MIAA is vested with corporate powers. Second, the real
properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. Airport lands and
buildings are outside the commerce of man. The airport lands and buildings of MIAA are devoted to public use and thus are
properties of public dominion (MIAA v. CA, City of Paranaque, et al., G.R. No. 155650, July 20, 2006).

Q: Is GSIS exempt from real property taxes?

A: YES. Pursuant to Sec. 33 of P.D. 1146, GSIS enjoyed tax exemption from real estate taxes, among other tax burdens, until
January 1, 1992 when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges granted under
PD 1146. R.A. 8291 restored in 1997 the tax exempt status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D.
1146. If any real estate tax is due, it is only for the interim period, or from 1992 to 1996, to be precise (GSIS v. City Treasurer
and City Assessor of the City of Manila, G.R. No. 186242, Dec. 23, 2009).

Instances where CTA (En Banc) has exclusive appellate jurisdiction over cases filed with CBAA
1. In the exercise of its appellate jurisdiction
2. Over cases involving the assessment and taxation of real property
3. Originally decided by the provincial or CBAA

FLEXIBLE TARIFF CLAUSE

Flexible Clause refers to the power of the President under Sec. 102(u) of the CMTA, which is the enabling law that made
effective the delegation of the taxing power to the President under the Constitution.
Upon recommendation of the National Economic and Development Authority (NEDA) the President has the power to:
1. to increase, reduce or remove existing protective tariff rates of import duty, but in no case shall be higher than one
hundred percent (100%) ad valorem;
2. to establish import quota or to ban importation of any commodity as may be necessary; and
3. to impose additional duty on all import not exceeding ten percent (10%) ad valorem, whenever necessary (Sec. 1608,
CMTA)

Q: Does the CTA have jurisdiction over a special civil action for certiorari assailing an interlocutory order issued
by the RTC in a local tax case?
A: YES. Although there is no categorical statement under RA 1125 as well as the amendatory RA 9282, which provides that the
CTA has jurisdiction over petitions for certiorari assailing interlocutory orders issued by the RTC in local tax cases filed before it,
the prevailing doctrine is that a court may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction
to review, by appeal or writ of error, the final orders or decisions of the lower court (The City Of Manila vs. Hon. Caridad H.
Grecia-Cuerdo, G.R. No. 175723, February 4, 2014).
Q: Does the CTA have jurisdiction to rule on validity of a Rule or Regulation issued by an administrative agency?
A: NO. While the law confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where
the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular
courts have jurisdiction to pass upon the same (British American Tobacco v. Camacho, G.R. No. 163583, August 20, 2008).

Q: May regular court issue injunction to restrain LGUs from collecting taxes?
A: YES. The LGC does not specifically prohibit an injunction enjoining the collection of local taxes unlike in the NIRC
where there is an express prohibition. Nevertheless, the Court noted that injunctions enjoining the collection of local taxes
are frowned upon and should therefore be exercised with extreme caution.

Q: A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding payment within 10
days; otherwise, it would collect through summary remedies. The taxpayer requested for a reconsideration
stating the grounds therefor. Instead of resolving the request for reconsideration, the BIR sent a Final Notice
before Seizure to the taxpayer.
May this action of the Commissioner of Internal Revenue be deemed a denial of the request for reconsideration of
the taxpayer to entitle him to appeal to the CTA? Decide with reasons. (2005 Bar)
A: YES. The Final Notice before Seizure constitutes as a decision on a disputed or protested assessment, hence, appealable
to the CTA. The Final Notice before Seizure should be considered as the CIR’s decision of disposing the request for
reconsideration. The content and tenor of the letter itself supports the theory that it was the BIR's final act regarding the
request for reconsideration (CIR v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001).
NOTE: A final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested
assessment.

Method of collection contrary to law

It is clear that the authority of the courts to issue injunctive writs to restrain the collection of tax and to dispense with the
deposit of the amount claimed or the filing of the required bond is not simply confined to cases where prescription
has set in. CTA has ample authority to issue injunctive writs to restrain the collection of tax and to even dispense with
the deposit of the amount claimed or the filing of the required bond, whenever the method employed by the CIR in
the collection of tax jeopardizes the interests of a taxpayer for being patently in violation of the law (Sps. Pacquiao v.
CTA, G.R. No. 213394, April 06, 2016).
It would certainly be an absurdity on the part of the CTA to declare that the collection by the summary methods of
distraint and levy was violative of the law, and then, on the same breath, require the petitioner to deposit or file a bond as
a pre-requisite of the issuance of a writ of injunction (Collector v. Zulueta, 100 Phil. 872 [1957]).

Q: The City of Liwliwa assessed local business taxes against Talin Company. Claiming that there is double
taxation, Talin Company filed a Complaint for Refund or Recovery of Illegally and/or Erroneously-collected Local
Business Tax; Prohibition with Prayer to Issue Temporary Restraining Order and Writ of Preliminary Injunction
with the Regional Trial Court (RTC). The RTC denied the application for a Writ of Preliminary Injunction. Since its
motion for reconsideration was denied, Talin Company filed a special civil action for certiorari with the Court of
Appeals (CA). The government lawyer representing the City of Liwliwa prayed for the dismissal of the petition on
the ground that the same should have been filed with the CTA. Talin Company, through its lawyer, Atty. Frank,
countered that the CTA cannot entertain a petition for certiorari since it is not one of its powers and authorities
under existing laws and rules. Decide. (2014 Bar)
A: The petition for certiorari before the CA must be dismissed, since such petition should have been filed with the CTA. As
stated in City of Manila v. Caridad H. Grecia-Cuerdo (G.R. No. 175723, February 2, 2014, 715 SCRA 182), the CTA has the
power to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of the RTC in issuing interlocutory orders in cases falling within the CTA’s exclusive appellate jurisdiction. The
CTA therefore has jurisdiction to issue writs of certiorari in such cases. Furthermore, its authority to entertain petitions
for certiorari questioning interlocutory orders issued by the RTC is included in the powers granted by the Constitution
and inherent in the exercise of its appellate jurisdiction.

Excess input VAT (Sec. 112) vs. Excessively collected tax (Sec. 229):
In a claim for refund or credit of “excess” input VAT under Section 110(B) and Section 112(A), the input VAT is not
“excessively” collected as understood under Section 229. At the time of payment of the input VAT the amount paid is the
correct and proper amount. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the
mere existence of an “excess” input VAT. The term “excess” input VAT simply means that the input VAT available as credit
exceeds the output VAT.
From the plain text of section 229, it is clear that what can be refunded or credited is a tax that is “erroneously, illegally,
excessively or in any manner wrongfully collected.” In short, there must be a wrongful payment because what is paid, or
part of it, is legally due.

Distinction between the application of the 2-Year prescriptive period under Sec. 112 and Sec. 229
1. Under Sec. 112, the 2-year prescriptive period applies only to the administrative claim before the CIR and not to judicial
claim before the CTA because the taxpayer always has 30 days from the decision of the CIR or from the lapse of the 120-
day period even after the lapse of 2 years from the taxable quarter where the sales were made (CIR v. Mindanao
Geothermal II Partnership, 713 SCRA 645, [2014]).

Thus, it is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim need
not fall within the two-year prescriptive period.
2. Under Section 229, the decision of the CIR is appealable to the CTA sitting in division within 30 days after the receipt
but must be within the 2-year period from payment or filing of the final adjusted return. Thus, if the Commissioner denies
the claim for refund within the 2-year period, the remedy is to file an appeal with the CTA 30 days from the receipt of such
denial. But, such 30-day period must also be within the 2-year period. For example, if there are only 10 days left within
such 2-year period, then, the taxpayer has only 10 days within which to appeal his claim. However, if there is an inaction
on the part of the Commissioner and the 2-year period is about to lapse, the remedy is to file an appeal also with the CTA.

Proper party to question/seek a tax refund in indirect taxes

The proper party is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the tax even
when he shifts the burden thereof to another because once shifted, it is no longer in the nature of a tax, but part of the
purchase price or the cost of goods or services sold (Exxon Mobil Petroleum and Chemical Holdings, Inc. vs. CIR, G.R. No.
180909, January 19, 2011; Silkair (Singapore) Pte., Ltd. v. CIR, G.R. No. 166482, January 25, 2012).
---
Q: Silkair purchased aviation jet fuel from Petron for use on Silkair international flights. Silkair, contending that
it is exempt from the payment of excise taxes, filed a formal claim for refund with the CIR. Silkair claims that it is
exempt from the payment of excise tax under the NIRC, specifically Sec. 135, and under Art. 4 of the Air Transport
Agreement between the Governments of the Republic of the Philippines and the Republic of Singapore (Air
Agreement). The CIR denied the claim contending that since the liability for the excise tax payment is imposed by
law on Petron as the manufacturer of the petroleum products, any claim for refund should only be made by
Petron as the statutory taxpayer.
a. Decide whether or not Silkair is the proper party to claim a refund for the excise taxes paid.

b. What is the proper remedy of the Silkair?

A:
a. Silkair is not the proper party to claim a refund for the excise taxes paid. The SC held that “the proper party to question,
or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid
the same even if he shifts the burden thereof to another.”

Excise tax on petroleum is an indirect tax. Although the burden to pay an indirect tax can be passed on to the purchaser of
the goods, the liability to pay the indirect tax remains with the petroleum manufacturer or seller. When the manufacturer
or seller decides to shift the burden of the excise tax to the tax-exempt purchaser, the tax becomes a part of the price of
the commodity. Thus, in this case, the petroleum manufacturer who is the statutory taxpayer is the proper party to claim
the refund.
b. The exempt entity’s remedy is to invoke its tax exemption before buying the petroleum so that the petroleum
manufacturer would not pass on the excise taxes as part of the purchase price (Silkair Singapore PTE. Ltd. v. CIR, GR
171383 & 172379, Nov. 14, 2008).

Q: Does a withholding agent have the right to file an application for tax refund? Explain. (2005 Bar)
A: YES. A withholding agent should be allowed to claim for tax refund, because under the law said agent is the one who is
held liable for any violation of the withholding tax law should such violation occur (Commissioner of Internal Revenue v.
Wander Philippines Inc., 160 SCRA 570, 1988).
Furthermore, since the withholding agent is made personally liable to deduct and withhold any tax under Section 53(c) of
the NIRC, it is imperative that he be considered the taxpayer for all legal intents and purposes. Thus, by any reasonable
standard, such person should be regarded as a party in interest to bring suit for refund of taxes (Commissioner of Internal
Revenue v. Procter and Gamble Philippines Manufacturing Corporation and CTA, 204 SCRA 377, 1991).

Q: Is assessment necessary before a taxpayer may be prosecuted for willfully attempting in any manner to evade
or defeat any tax imposed by the NIRC? (1998 Bar)
A: NO, provided there is a prima facie showing of a willful attempt to evade taxes as in the taxpayer’s failure to declare a
specific item of taxable income in his income tax returns. A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and defeat the tax (Ungab v. Cusi, G.R. No. L-41919-24, May 30,
1980).
However, 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 (BIR vs. CA, G.R. No. 197590, November 24, 2014).

Q: TY Corp. filed its final adjusted income tax return for 1993 on Apr. 12, 1994 showing a net loss. After
investigation, the BIR issued a pre-assessment notice on Mar. 30, 1996. A final notice and demand letter dated
Apr. 15, 1997 was issued, personally delivered to and received by the company's chief accountant. For willful
refusal and failure of TY Corp. to pay the tax, warrants of distraint and levy on its properties were issued and
served upon it. On Jan. 10, 2002, a criminal charge for violation of the NIRC was instituted in the RTC with the
approval of the CIR.
The company moved to dismiss the criminal complaint on the ground that an act for violation of any provision of
the NIRC prescribes after 5 years and, in this case, the period commenced to run on Mar. 30, 1996 when the pre-
assessment was issued. How will you resolve the motion? (2002 Bar)
A: The motion to dismiss should not be granted. It is only when the assessment has become final and unappealable that
the 5-year period to file a criminal action commences to run (Tupaz v. Ulep, G.R. No. 127777, Oct. 1, 1999). The pre-
assessment notice issued on Mar. 30, 1996 is not a final assessment which is enforceable by the BIR. It is the issuance of
the final notice and demand letter dated Apr. 15, 1997 and the failure of the taxpayer to protest within 30 days from
receipt thereof that made the assessment final and unappealable. The earliest date that the assessment has become final
is May 16, 1997 and since the criminal charge was

Q: May legislative bodies enact laws to raise revenues in the absence of constitutional provisions granting said
body the power of tax? Explain. (2005 Bar)
A: YES. The constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to
the government, but instead merely constitute a limitation upon a power which would otherwise be practically without
limit.
Moreover, it is inherent in nature, being an attribute of sovereignty. There is, thus, no need for a constitutional grant for
the State to exercise this power.

Q: Galaxia Telecommunications Company constructed a telecommunications tower for the purpose of receiving
and transmitting cellular communications. Meanwhile, the municipal authorities passed an ordinance entitled
“An Ordinance Regulating the Establishment of Special Projects” which imposed fees to regulate activities
particularly related to the construction and maintenance of various structures, certain construction activities of
the identified special projects, which includes “cell sites” or telecommunications towers. Is the imposition of the
fee an exercise of the power of taxation?
A: NO. The designation given by the municipal authorities does not decide whether the imposition is properly a license
tax or a license fee. The determining factors are the purpose and effect of the imposition as may be apparent from the
provisions of the ordinance. If the generating of revenue is the primary purpose 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 (Gerochi v. Department of Energy, 527 SCRA 696, 2007).
The fees in the ordinance are not impositions on the building or structure itself; rather, they are impositions on the
activity subject of government regulation, such as the installation and construction of the structures. It is primarily
regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the
municipality, this effect is merely incidental. Thus, the fees imposed in the said ordinance are not taxes (Smart
Communications, Inc., v. Municipality of Malvar, Batangas, G.R. No. 204429, February 18, 2014).

Are subsequent laws, which convert a public fund to private properties, valid?
A: NO. Taxes could be exacted only for a public purpose; they cannot be declared private properties of individuals
although such individuals fall within a distinct group of persons (Pambansang Koalisyon ng mga Samahang Magsasaka at
Manggagagawa sa Niyugan v. Exec. Sec., G.R. Nos. 147036-37, April 10, 2012).

Q: A law was passed exempting doctors and lawyers from the operation of the value-added tax. Other
professionals complained and filed a suit questioning the law for being discriminatory and violative of the equal
protection clause of the Constitution since complainants were not given the same exemption. Is the suit
meritorious or not? Reason briefly (2004 Bar).
A: YES, the suit is meritorious. The VAT is designed for economic efficiency; hence, should be neutral to those who belong
to the same class. Professionals are a class of taxpayers by themselves who, in compliance with the rule of equality of
taxation, must be treated alike for tax purposes. Exempting lawyers and doctors from a burden to which other
professionals are subjected will make the law discriminatory and violative of the equal protection clause of the
Constitution. While singling out a class for taxation purposes will not infringe upon this constitutional limitation (Shell v.
Vano, 94 Phil. 389 [1954]), singling out a taxpayer from a class will no doubt transgress the constitutional limitation
(Ormoc Sugar Co. Inc., v. Treasurer of Ormoc City, 22 SCRA 603 [1968]). Treating doctors and lawyers as a different class of
professionals will not comply with the requirements of a reasonable, hence valid classification, because the classification
is not based upon substantial distinction which makes real differences. The classification does not comply with the
requirement that it should be germane to the purpose of the law either (Pepsi-Cola Bottling Co., Inc. v. City of Butuan, 24
SCRA 789 [1968]).

Q: The Roman Catholic Church owns a 2 hectare lot in a town in Tarlac province. The southern side and middle
part are occupied by the church and a convent, the eastern side by the school run by the church itself. The south
eastern side by some commercial establishments, while the rest of the property, in particular, the northwestern
side, is idle or unoccupied. May the church claim tax exemption on the entire land? (2005 Bar)
A: NO. The portion of the land occupied and used by the church, convent and school run by the church are exempt from
real property taxes while the portion of the land occupied by commercial establishments and the portion, which is idle,
are subject to real property taxes. The “usage” of the property and not the “ownership” is the determining factor whether
or not the property is taxable (Lung Center of the Philippines v. Quezon City, G.R. No. 144104, June 29, 2004).

Q: A law was passed granting tax exemptions to certain industries and investments for a period of 5 years but 3
years later, the law was repealed. With the repeal, the exemptions were considered revoked by the BIR, which
assessed the investing companies for unpaid taxes effective on the date of the repeal of the law.
NPC and KTR companies questioned the assessments on the ground that, having made their investments in full
reliance with the period of exemption granted by the law, its repeal violated their Constitutional right against the
impairment of the obligations and contracts. Is the contention of the company tenable or not? (2004 Bar)
A: The contention is untenable. The exemption granted is in the nature of a unilateral exemption. Since the exemption
given is spontaneous on the part of the legislature and no service or duty or other remunerative conditions have been
imposed on the taxpayer receiving the exemption, it may be revoked by will by the legislature (Christ Church v.
Philadelphia, 24 How 300 [1860]). What constitutes an impairment of the obligation of contracts is the revocation of an
exemption which is founded on a valuable consideration because it takes the form and essence of a contract (Casanovas v.
Hord, 8 Phil. 12 [1907]; Manila Railroad Co. v. Insular Collector of Customs [1915]).

Q: Differentiate between double taxation in the strict sense and in a broad sense and give an example of each
(2015 Bar).
A: Double taxation in the strict sense pertains to the direct double taxation. This means that the taxpayer is taxed twice by
the same taxing authority, within the same taxing jurisdiction, for the same property and same purpose. On the other
hand, double taxation in broad sense pertains to indirect double taxation. This extends to all cases in which there is a
burden of two or more impositions. It is the double taxation other than those covered by direct double taxation.

Q: Under the NIRC, the earnings of banks from “passive” income are subject to a 20% final withholding tax (FWT).
Apart from the FWT, banks are also subject to a 5% gross receipts tax (GRT) which is imposed by the NIRC on
their gross receipts, including the “passive” income. Is there double taxation on the banks’ “passive” income?
A: NONE. Subjecting interest income to FWT and including it in the computation of the GRT is not double taxation. Firstly,
the taxes herein are imposed on two different subject matters as FWT is the passive income generated in the form of
interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in
the business of banking.
Secondly, although both taxes are national in scope because they are imposed by the same taxing authority, the taxing
periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only
after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters as the FWT is an income tax subject to withholding, while the
GRT is a percentage tax not subject to withholding (CIR v. Solidbank Corporation, G.R. No. 148191, November 25, 2003).

Q: Under the R.A. 103511 or the Sin Tax Law, stemmed leaf tobacco, a partially prepared tobacco, is subject to an
excise tax for each kilo thereof. On the other hand, cigars and cigarettes, of which stemmed leaf tobacco is a raw
material, are also subjected to specific tax under Sec. 142 of the 1997 NIRC. Is there double taxation in prohibited
sense when excise specific tax is imposed on stemmed leaf tobacco and again on the finished product of which
stemmed leaf tobacco is a raw material?
A: NONE. In this case, there is no double taxation in the prohibited sense despite the fact that they are paying the specific
tax on the raw material and on the finished product in which the raw material was a part, because the specific tax is
imposed by explicit provisions of the NIRC on two different articles or products: (1) on the stemmed leaf tobacco; and (2)
on cigar or cigarette (La Suerte Cigar & Cigarette Factory v. CA, G.R. No. 125346, November 11, 2014).
Is the power to tax a power to destroy?
A: There are two views on this:
1. US Chief Justice Marshall dictum - The power to tax involves the power to destroy.

It is a destructive power which interferes with the personal and property rights of the people and takes from them a
portion of their property for the support of the government (Paseo Realty & Development Corporation v. CA, G.R. No.
119286, October 13, 2004).
Therefore, it should be exercised with caution to minimize injury to the proprietary rights of the taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the ‘hen that lays the golden egg’ (McCulloch v. Maryland,
4 Wheat, 316 4 L ed. 579, 607) (Roxas v. CTA, 23 SCRA 276).
NOTE: It is more reasonable to say that the maxim “the power to tax is the power to destroy” is to describe degree of
vigor with which the taxing power may be employed in order to raise revenue, and not the purposes for which the taxing
power may be used (Cooley, 1876).
2. Justice Holmes dictum – “The power to tax is not the power to destroy while this Court sits.”

While taxation is said to be the power to destroy, it is by no means unlimited. When a legislative body having the power to
tax a certain subject matter actually imposes such a burdensome tax as effectually to destroy the right to perform the act
or to use the property subject to the tax, the validity of the enactment depends upon the nature and character of the right
destroyed. If so great an abuse is manifested as to destroy natural and fundamental rights which no free government
consistently violate, it is the duty of the judiciary to hold such an act unconstitutional.
---
Reconciliation of the two dicta
Marshall’s view refers to a valid tax while Holmes’ view refers to an invalid tax.
The power to tax involves the power to destroy since the power to tax includes the power to regulate even to the
extent of prohibition or destruction, when it is used validly as an implement of police power in discouraging and
prohibiting certain things or enterprises inimical to the public welfare.
However, if it is employed solely to raise revenues, the modern view is that it cannot be allowed to confiscate or destroy.
If this is to be done, the tax may be successfully attacked as an unconstitutional exercise of discretion, which is usually
vested in the legislature (Cruz, 2007).
While the power to tax is so unlimited in force and so searching in extent that the courts scarcely venture to declare that it
is subject to any restrictions whatever, it is subject to the inherent and constitutional limitations which are intended to
prevent abuse on the exercise of the otherwise plenary and unlimited powers. It is the court’s role to see to it that the
exercise of the power does not transgress these limitations (Tio v. Videogram Regulatory Board et al., 151 SCRA 213).
In order to maintain the general public’s trust and confidence in the government, this power must be used justly and not
treacherously (Roxas y Cia v. CTA, 23 SCRA 276). It should be exercised with caution to minimize injury to the proprietary
rights of the taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kills the ‘hen that lays the
golden egg’ (CIR v. SM Prime Holdings, Inc., 613 SCRA 774 (2010)).
Taxpayers may seek redress before the courts in case of illegal imposition of taxes and irregularities as the Constitution
overrides any legislative or executive act that runs counter to it (Sison Jr. v. Ancheta, G.R. No. L-59431, July 25, 1984).

Q: Gloria Kintanar who is engaged in the business of distribution of Forever Living Products, was charged of
violation of Art. 255 of the NIRC, with the obligation to file her ITR for the year 2000 and 2001 with the BIR, to the
prejudice of the government. Petitioner Kintanar averred that she has no personal knowledge of actual filing of
said returns because it was her husband who filed their ITRs, through their hired accountant. Petitioner has no
record of filing of the required ITRs within the reglementary period. Is Gloria Kintanar guilty of tax evasion and
be held liable?
A: YES. Supreme Court, in its resolution, affirmed the conviction of a taxpayer for tax evasion due to non-filing of income
tax returns (ITR). The accused Gloria Kintanar was not able to satisfactorily convince the court that she did not
deliberately and willfully neglect to file her ITR, considering that she entrusted the filing to her husband who caused the
filing through an accountant. The court believed that the accused was not relieved from her criminal liability. As principal,
she must assume responsibility over the acts of her accountant (Sec. 51(f) NIRC). The CTA doctrine on willful blindness
simply means that an individual or corporation can no longer say that the errors on their tax returns are not their
responsibility or that it is the fault of the accountant they hired.
Hence, the natural presumption is that the petitioner knows what are her tax obligations under the law. As a
businesswoman, she should have taken ordinary care of her tax duties and obligations and she should know that their
ITRs should be filed, and should have made sure that their ITRs were filed. She cannot just left entirely to her husband the
filing of her ITR. Petitioner also testified that she does not know how much was her tax obligations, nor did she bother to
inquire or determine the facts surrounding the filing of her ITR. Such neglect or omission as aptly found by the former
second division is tantamount to “deliberate ignorance or conscious avoidance.” Further, such non-compliance with
the BIR’s notices clearly shows petitioner’s intent not to file her ITR (People v. Kintanar, G.R. No. 196340, August 26, 2009).
Q: Can an assessment for a local tax be the subject of set-off or compensation against a final judgment for a sum of
money obtained by a taxpayer against the local government that made the assessment? (2005 Bar)
A: NO. Taxes and debts are of different nature and character. Taxes cannot be subject to compensation for the simple
reason that the Government and the taxpayers are not creditors and debtors of each other, debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity (South African
Airways v. CIR, 612 SCRA 665, 2010). The taxes assessed or the obligation of the taxpayer arising from law, while the
money judgment against the government is an obligation, arising from contract, whether express or implied. Inasmuch as
taxes are not debts, it follows that the two obligations are not susceptible to set-off or legal compensation. Hence, no set-
off or compensation between the two different classes of obligations is allowed (Francia v. IAC, 162 SCRA 753, 1988).
---
NOTE: It is only when the local tax assessment and the final judgment are both overdue, demandable, as well fully
liquidated may set-off or compensation be allowed (Domingo v. Garlitos, 8 SCRA 443, 1963).

Q: Can a taxpayer claim tax amnesty if he is a withholding tax agent?

A: The claim of a taxpayer under a tax amnesty shall be allowed when the liability involves the deficiency in payment of
income tax. However, it must be disallowed when the taxpayer is assessed on his capacity as a withholding tax agent
because the person who earned the taxable income was another person other than the withholding agent (LG Electronics
Philippines, Inc. v. CIR, G.R. No. 165451, December 3, 2014).

Q: The BIR assessed Garments Co deficiencies on taxes for non-payment of VAT on its undeclared sales. While the
case was pending before the SC, Garment Co filed a Manifestation and Motion that it had availed and was able to
comply with the government’s tax amnesty program under the 2007 Tax Amnesty Law. However, BIR contends
that Garment Co is disqualified per “BIR RMC 19-2008” or “A Basic Guide on the Tax Amnesty Act of 2007” which
disqualifies taxpayers with issues and cases that were ruled by any court (even without finality) in favor of the
BIR prior to amnesty availment of the taxpayer. Did Garment Co qualify for the tax amnesty program?
A: YES. While tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in
favor of the taxing authority, it is also a well-settled doctrine that the rule-making power of administrative agencies
cannot be extended to amend or expand statutory requirements or to embrace matters not originally encompassed by the
law. Administrative regulations should always be in accord with the provisions of the statute they seek to carry into effect,
and any resulting inconsistency shall be resolved in favor of the basic law. Thus, BIR RMC 19-2008 is invalid as the
exception goes beyond the scope of the provisions of the 2007 Tax Amnesty Law (CS Garment, Inc. v. CIR, G.R. No. 182399,
March 12, 2014).

What are the requisites for valid BIR rules and regulations?
ANSWER: (CRUP)
They are as follows:
1. Consistent and in harmony with law;
2. Reasonable;
3. Useful and necessary; and
4. Published in the Official Gazette, or a newspaper of general circulation.

Define capital asset.

ANSWER: (SOUR)
Capital asset means property held by the taxpayer (whether or not connected with his trade or business), but does not
include:
a) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory
of the taxpayer;
b) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;
c) property used in the trade or business and subject to the allowance for depreciation; and
d) real property used in trade or business of the taxpayer.

Do funds deposited in a joint saving current account subject of survivorship agreement form part of the gross
estate of the
decedent (husband)?
ANSWER:
The funds are considered the exclusive property of the surviving spouse. The survivorship agreement not having
executed for unlawful purpose, its "winner-take-all" feature is permitted by the Civil Code which considers the same as a
mere obligation with a term. Being the separate property of the wife, they form no part of estate of the deceased husband.
Briefly explain the following doctrines: lifeblood doctrine; necessity theory; benefits received
principle; and, doctrine of symbiotic relationship. (2016 BAR)
The following doctrines, explained:
Lifeblood doctrine - Without revenue raised from taxation, the government will not survive, resulting in
detriment society. Without taxes, the government would be paralyzed for lack of motive power to
activate and operate it (CIR v. Algue, Inc. 158 SCRA 9
[1988]).
Necessity theory - The exercise of the power to tax emanates from necessity, because without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people (CIR
v. Bank of Philippine Islands, 521 SCRA 373 [2007]).
Benefits received principle - Taxpayers receive benefits from taxes through the protection the state affords to them.
For the protection they get arises their obligation to support the government through payment of taxes (CIR v. Algue, Inc.
158 SCRA 9 [1988]).
Doctrine of symbiotic relationship - Taxation arises because of the reciprocal relation of protection and
support between the state and taxpayers. The state gives protection and for it to continue giving
protection, it must be supported by the taxpayers in the form of taxes (CIR v. Algue, Inc. 158 SCRA 9 [1988]).

Q: Under Art. XIV, Sec. 4(3) of the 1987 Constitution, all revenues and assets of non-stock, non-profit educational
institutions, used actually, directly and exclusively for educational purposes, are exempt from taxes and duties.
Are incomes derived from dormitories, canteens and bookstores as well as interest income on bank deposits and
yields from deposit substitutes automatically exempt from taxation? (2000 Bar)
A: NO. The interest income on bank deposits and yields from deposit substitutes are not automatically exempt from
taxation. There must be a showing that the incomes are used actually, directly, and exclusively for educational purposes.
The income derived from dormitories, canteens and bookstores are not also automatically exempt from taxation. There is
still a requirement for evidence to show actual, direct and exclusive use for educational purposes.
NOTE: The 1987 Constitution does not distinguish with respect to the source or origin of the income. The distinction is
with respect to the use which should be actual, direct and exclusive for educational purposes. Where the Constitution
does not distinguish with respect to source or origin, the NIRC should not make distinctions (Mamalateo, 2008).

Q: Under the R.A. 103511 or the Sin Tax Law, stemmed leaf tobacco, a partially prepared tobacco, is subject to an
excise tax for each kilo thereof. On the other hand, cigars and cigarettes, of which stemmed leaf tobacco is a raw
material, are also subjected to specific tax under Sec. 142 of the 1997 NIRC. Is there double taxation in prohibited
sense when excise specific tax is imposed on stemmed leaf tobacco and again on the finished product of which
stemmed leaf tobacco is a raw material?
A: NONE. In this case, there is no double taxation in the prohibited sense despite the fact that they are paying the specific
tax on the raw material and on the finished product in which the raw material was a part, because the specific tax is
imposed by explicit provisions of the NIRC on two different articles or products: (1) on the stemmed leaf tobacco; and (2)
on cigar or cigarette (La Suerte Cigar & Cigarette Factory v. CA, G.R. No. 125346, November 11, 2014).

Best evidence obtainable

Pursuant to CIR’s power to make assessment, the CIR shall assess the proper tax on the best evidence obtainable: (FINE)
1. When a report required by law as a basis for assessment of any internal revenue tax shall not be forthcoming within the
time fixed by law or regulation, or
2. Any such report is false, incomplete or erroneous (Sec. 6(B), NIRC).