Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
2015 2016 JURISPRUDENCE
Taxation- Resident Foreign Corporation
AIR CANADA vs. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 169507
RULING: As an offline international carrier
with no landing rights in the Philippines, it is
not liable to tax on Gross Philippine Billings
under Section 28(A) (3) of the 1997
National Internal Revenue Code. Under the
foregoing provision, the 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. Not having
flights to and from the Philippines, petitioner
is clearly not liable for the Gross Philippine
Billings tax. Petitioner, an offline carrier, is a
resident foreign corporation for income tax
purposes, thus, it may be subject to 30% tax
on its taxable income.
MITSUBISHI MOTORS PHILIPPINES
CORPORATION vs. BUREAU OF
CUSTOMS
G.R. No. 209830, June 17, 2015
RULING: Verily, the foregoing provisions
explicitly provide that the CTA has exclusive
appellate jurisdiction over tax collection
cases originally decided by the RTC.
In the instant case, the CA has no jurisdiction
over respondents appeal; hence, it cannot
perform any action on the same except to
order its dismissal pursuant to Section 2,
Rule 50 of the Rules of Court. Therefore, the
act of the CA in referring respondents
wrongful appeal before it to the CTA under
the guise of furthering the interests of
substantial justice is blatantly erroneous, and
thus, stands to be corrected. In Anderson v.
Ho, the Court held that the invocation of
substantial justice is not a magic wand that
would readily dispel the application of
procedural rules
COMMISSIONER OF INTERNAL REVENUE,
vs. AIR LIQUIDE PHILIPPINES, INC.,
G.R. No. 210646, July 29, 2015
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The failure to await the decision of the
Commissioner or the lapse of 120-day
period prescribed in Section 112(C)
amounted to a premature filing.
COMMISSIONER OF INTERNAL REVENUE
vs. STANDARD CHARTERED BANK
RULING: At the outset, the period for
petitioner to assess and collect an internal
revenue tax is limited only to three years.
However, one of the exceptions to the
three-year prescriptive period on the
assessment of taxes is that provided for
under Section 222(b) of the NIRC of 1997,
as amended, which states: If before the
expiration of the time prescribed in Section
203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed
in writing to its assessment after such time,
the tax may be assessed within the period
agreed upon.
It must be kept in mind that the very reason
why the law provided for prescription is to
give taxpayers peace of mind, that is, to
safeguard them from unreasonable
examination, investigation, or assessment.
The law on prescription, being a remedial
measure, should be liberally construed in
order to afford such protection. As a
corollary, the exceptions to the law on
prescription should perforce be strictly
construed.
Seizure Proceedings under the Tariff and
Customs Code of the Philippines
M/V "DON MARTIN" VOY 047 vs. HON.
SECRETARY OF FINANCE
G. R. No. 160206, July 15, 2015
RULING:
1. The CTA had jurisdiction to
resolve the issue on the forfeiture
of the 6,500 sacks of rice and of
the vessel
The petition for review was filed at the time
when the jurisdiction of the CTA was
defined and governed by Section 7 of
Republic Act No. 1125. According to such
provision of the law, the action of the
Collector of Customs was appealable to the
Commissioner of Customs, whose decision
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
was subject to the exclusive appellate
jurisdiction of the CTA, whose decision was
in turn appealable to the CA.
Under Section 2530 (a) and (k) of the TCCP,
the forfeiture of a vehicle, vessel or aircraft is
anchored on its being used unlawfully in the
transport of contraband or smuggled articles
into or from any Philippine port. Thus, the
determination of the legality of the
forfeiture of the M/V Don Martin was
necessarily contingent on whether the
customs authorities had validly and properly
seized the shipment of 6,500 sacks of rice on
account of the rice being smuggled. Given
this logical correlation, the CT A could not
be divested of its jurisdiction to determine
the legality of the forfeiture of the rice.
2. The 6,500 sacks of rice were not
unlawfully imported into the
Philippines; hence, there was no
legal ground for the forfeiture of
the rice and its carrying vessel
In resolving the issue whether the rice
shipment constituted smuggling or unlawful
importation, and thus be subject to
forfeiture, it must be proved that fraud has
been committed by the consignee/importer
to evade the payment of the duties due. To
warrant forfeiture, Section 2530(a) and (f)
of the TCCP requires that the importation
must have been unlawful or prohibited.
As to the issue of legality of forfeiture of the
M/V Don Martin, there, was3 no sufficient
basis to warrant such forfeiture. Under
Section 902 of the TCCP, the right to engage
in the Philippine coastwise trade was limited
to vessels carrying a certificate of Philippine
registry. In order for the vessel to legally
engage in coastwise trade, the owner must
further submit other documents, like the bill
of lading and coastwise manifest.
Collection and assessment of tax within 3
years
CHINA BANKING CORPORATION, vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 172509, February 4, 2015
RULING: The time limit for the government
to collect the assessed tax is set at three
years, to be reckoned from the date when
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the BIR mails/releases/sends the assessment
notice to the taxpayer. Further, the assessed
tax must be collected by distraint or levy
and/or court proceeding within the three-
year period.
To determine prescription, what is essential
only is that the facts demonstrating the lapse
of the prescriptive period were sufficiently
and satisfactorily apparent on the record
either in the allegations of the plaintiffs
complaint, or otherwise established by the
evidence. Under the then applicable Section
319(c) [now, 222(c)] of the National
Internal Revenue Code (NIRC) of 1977, as
amended, any internal revenue tax which
has been assessed within the period of
limitation may be collected by distraint or
levy, and/or court proceeding within three
years following the assessment of the tax.
The assessment of the tax is deemed made
and the three-year period for collection of
the assessed tax begins to run on the date
the assessment notice had been released,
mailed or sent by the BIR to the taxpayer.
Tax refund- barred by prescription
NIPPON EXPRESS (PHILIPPINES) CORP., vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 185666, February 4, 2015
RULING: In case of full or partial denial of
the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to
act on the application within the period
prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of
the decision denying the claim or after the
expiration of the one hundred twenty day
period, appeal the decision or the unacted
claim with the Court of Tax Appeals. A claim
for tax refund or credit, like a claim for tax
refund exemption, is construed strictly
against the taxpayer. One of the conditions
for a judicial claim of refund or credit under
the VAT System is compliance with the
120+30 day mandatory and jurisdictional
periods.
The prescriptive period for filing a tax
refund or credit of unutilized input VAT as
provided in Section 112 of the 1997 Tax
Code, as follows:
(1) An administrative claim must be filed
with the CIR within two years after
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
the close of the taxable quarter when
the zero-rated or effectively zero-
rated sales were made.
(2) The CIR has 120 days from the date
of submission of complete
documents in support of the
administrative claim within which to
decide whether to grant a refund or
issue a tax credit certificate. The 120-
day period may extend beyond the
two-year period from the filing of
the administrative claim if the claim
is filed in the later part of the two
year period. If the 120-day period
expires without any decision from
the CIR, then the administrative
claim may be considered to be
denied by inaction.
(3) A judicial claim must be filed with
the CTA within 30 days from the
receipt of the CIRs decision denying
the administrative claim or from the
expiration of the 120-day period
without any action from the CIR.
CHEVRON PHILIPPINES INC., v.
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 210836, September 01, 2015
RULING: Under Sec. 129 of the NIRC, as
amended, excise taxes are imposed on two
kinds of goods, namely: (a) goods
manufactured or produced in the Philippines
for domestic sales or consumption or for any
other disposition; and (b) things imported.
Undoubtedly, the excise tax imposed under
Section 129 of the NIRC is a tax on
property.
Section 135 of the NIRC states:
SEC. 135. Petroleum Products Sold to
International Carriers and Exempt Entities or
Agencies. - Petroleum products sold to the
following are exempt from excise tax:
xxxx
(c) Entities which are by law exempt from
direct and indirect taxes. (Emphasis
supplied.)
Pursuant to Section 135(c), supra, petroleum
products sold to entities that are by law
exempt from direct and indirect taxes are
exempt from excise tax. The phrase which
are by law exempt from direct and indirect
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taxes describes the entities to whom the
petroleum products must be sold in order to
render the exemption operative. Section
135(c) should thus be construed as an
exemption in favor of the petroleum
products on which the excise tax was levied
in the first place. The exemption cannot be
granted to the buyers - that is, the entities
that are by law exempt from direct and
indirect taxes - because they are not under
any legal duty to pay the excise tax.
The payment of the excise taxes by Chevron
upon its importation of petroleum products
was deemed illegal and erroneous upon the
sale of the petroleum products to CDC.
Section 204 of the NIRC explicitly allowed
Chevron as the statutory taxpayer to claim
the refund or the credit of the excise taxes
thereby paid, viz.:
SEC 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit
Taxes. - The Commissioner may
xxxx
(C) Credit or refund taxes erroneously or
illegally received or penalties imposed
without authority, refund the value of
internal revenue stamps when they are
returned in good condition by the
purchaser, and, in his discretion, redeem or
change unused stamps that have been
rendered unfit for use and refund their value
upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the
Commissioner a claim for credit or refund
within two (2) years after payment of the
tax or penalty: Provided, however, that a
return filed showing an overpayment shall
be considered as a written claim for credit or
refund.
It must be noted that excise taxes are
considered as a kind of indirect tax, the
liability for the payment of which may fall
on a person other than whoever actually
bears the burden of the tax. Simply put, the
statutory taxpayer may shift the economic
burden of the excise tax payment to another
- usually the buyer.
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
CE CASECNAN WATER and ENERGY
COMPANY, INC., vs. THE PROVINCE OF
NUEVA ECIJA, et, al.
G.R. No. 196278, June 17, 2015
The Court of Tax Appeals (CTA) has
exclusive jurisdiction over a special civil
action for certiorari assailing an interlocutory
order issued by the Regional Trial Court
(RTC) in a local tax case.
RULING: It is the CTA which has the power
to rule on a Petition for Certiorari assailing
an interlocutory order of the RTC relating to
a local tax case.
Jurisdiction over the subject matter is
required for a court to act on any
controversy. It is conferred by law and not
by the consent or waiver upon a court. As
such, if a court lacks jurisdiction over an
action, it cannot decide the case on the
merits and must dismiss it.
With respect to the CTA, its jurisdiction was
expanded and its rank elevated to that of a
collegiate court with special jurisdiction by
virtue of Republic Act No. 9282. This
expanded jurisdiction of the CTA includes its
exclusive appellate jurisdiction to review by
appeal the decisions, orders or resolutions of
the RTC in local tax cases originally decided
or resolved by the RTC in the exercise of its
original or appellate jurisdiction.
On the strength of the above constitutional
provisions, it can be fairly interpreted that
the power of the CTA includes that of
determining 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 an interlocutory order in cases
falling within the exclusive appellate
jurisdiction of the tax court. It, thus, follows
that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of
certiorari in these cases.
The RTC injunction case is a local tax case.
The Court finds, that in praying to restrain
the collection of RPT, petitioner also
implicitly questions the propriety of the
assessment of such RPT. This is because in
ruling as to whether to restrain the
collection, the RTC must first necessarily rule
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on the propriety of the assessment. In other
words, in filing an action for injunction to
restrain collection, petitioner was in effect
also challenging the validity of the RPT
assessment.
MACTAN-CEBU INTERNATIONAL
AIRPORT AUTHORITY (MCIAA), v. CITY
OF LAPU-LAPU AND ELENA T. PACALDO,
G.R. No. 181756, June 15, 2015
RULING: MIAA is not a government-owned
or controlled corporation under Section
2(13) of the Introductory Provisions of the
Administrative Code because it is not
organized as a stock or non-stock
corporation. Neither is MIAA a government-
owned or controlled corporation under
Section 16, Article XII of the 1987
Constitution because MIAA is not required
to meet the test of economic viability. MIAA
is a government instrumentality vested with
corporate powers and performing essential
public services pursuant to Section 2(10) of
the Introductory Provisions of the
Administrative Code. As a government
instrumentality, MIAA is not subject to any
kind of tax by local governments under
Section 133(o) of the Local Government
Code. The exception to the exemption in
Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under
the Local Government Code. Such exception
applies only if the beneficial use of real
property owned by the Republic is given to
a taxable entity.
Finally, the Airport Lands and Buildings of
MIAA are properties devoted to public use
and thus are properties of public dominion.
Properties of public dominion are owned by
the State or the Republic.
As properties of public dominion owned by
the Republic, there is no doubt whatsoever
that the Airport Lands and Buildings are
expressly exempt from real estate tax under
Section 234(a) of the Local Government
Code. This Court has also repeatedly ruled
that properties of public dominion are not
subject to execution or foreclosure sale.
EASTERN TELECOMMUNICATIONS
PHILIPPINES, INC., v. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 183531 March 25, 2015

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
RULING: The word zero-rated is required
on the invoices or receipts issued by VAT-
registered taxpayers.
An applicant for a claim for tax refund
or tax credit must not only prove
entitlement to the claim but also compliance
with all the documentary and evidentiary
requirements.
If the claim for refund/TCC is based on the
existence of zero-rated sales by the taxpayer
but it fails to comply with the invoicing
requirements in the issuance of sales invoices
(e.g. failure to indicate the TIN), its claim for
tax credit/refund of VAT on its purchases
shall be denied considering that the invoice
it is issuing to its customers does not depict
its being a VAT-registered taxpayer whose
sales are classified as zero-rated sales.
GAMILLA v. BURGUNDY REALTY
CORPORATION
G.R. No. 212246 January 22, 2015
RULING: The argument is not tenable.
Though the statement of delinquency was
not captioned as "Notice of Delinquency," its
contents nonetheless sufficiently informed
BRC of its deficiency in real property taxes
and the penalty with a reminder to settle its
tax obligation immediately in order to avoid
legal inconvenience. Furthermore, aside
from this statement of delinquency, the City
Treasurer sent to BRC, through personal
service, the Final Notice of Delinquency. In
the said notice, BRC was again reminded of
its unpaid realty taxes and penalties and was
informed that the subject property was
included in the list of delinquent real
properties and was scheduled for auction.
This final notice was followed by the
Warrant of Levy.
Tax Credit/ Refund
HEDCOR, INC. v. COMMISSIONER OF
INTERNAL REVENUE
G. R. No. 207575, July 15, 2015
RULING: Under Section 112(C) of the NIRC,
respondent had 120 days from the date of
submission of complete documents in support
of the application within which to decide on
the administrative claim. After that, the
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Green Notes 2016
Taxation Law
taxpayer affected by the CIRs decision or
inaction may appeal to the CTA within 30
days from the receipt of the decision or from
the expiration of the 120-day period.
Compliance with both periods is jurisdictional.
The period of 120 days is a prerequisite for the
commencement of the 30-day period to
appeal.
The right to appeal is a mere statutory
privilege that requires strict compliance with
the conditions attached by the statute for its
exercise.
PILIPINAS TOTAL GAS, INC. v.
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 207112, December 08, 2015
RULING: The NIRC provides that the CIR has
120 days from the date of submission of
complete documents to decide on the claim
for tax credits. Upon inaction of the BIR after
120 days, the taxpayer may, within 30 days,
appeal on the CTA. The BIR did not give
notice to Total with regard to the documents
submitted on August 2008. Thus the counting
of the 120 day period should start from August
2008 or when Total made its submission of
complete documents to support its application.
The BIR had until December 2008 to decide.
Because of the BIR's inaction, Total had until
January 25, 2009 to file their judicial claim.
WINEBRENNER & IIGO INSURANCE
BROKERS, INC., vs. COMMISSIONER OF
INTERNAL REVENUE,
G.R. No. 206526, January 28, 2015
RULING: The burden of proof to establish
entitlement to refund is on the claimant
taxpayer. Being in the nature of a claim for
exemption, refund is construed in strictissimi
juris against the entity claiming the refund and
in favor of the taxing power. This is the reason
why a claimant must positively show
compliance with the statutory requirements
provided for under the NIRC in order to
successfully pursue ones claim. As
implemented by the applicable rules and
regulations and as interpreted in a vast array
of decisions, a taxpayer who seeks a refund of
excess and unutilized CWT must:
1) File the claim with the CIR within the
two year period from the date of
payment of the tax;
2) Show on the return that the income
received was declared as part of the
gross income; and
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
3) Establish the fact of withholding by a
copy of a statement duly issued by the
payor to the payee showing the
amount paid and the amount of tax
withheld.
There is no question that those who claim
must not only prove its entitlement to the
excess credits, but likewise must prove that no
carry-over has been made in cases where
refund is sought.
Claim for refund/credit of its unutilized input
VAT
PANAY POWER CORPORATION (formerly
AVON RIVER POWER HOLDINGS
CORPORATION), vs. COMMISSIONER OF
INTERNAL REVENUE,
G.R. No. 203351, January 21, 2015
RULING: In case of full or partial denial of the
claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the
application within the period prescribed
above, the taxpayer affected may, within
thirty (30) days from the receipt of the
decision denying the claim or after the
expiration of the one hundred twenty day-
period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
Refund of creditable withholding taxes
PHILIPPINE NATIONAL BANK, vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 206019, March 18, 2015
In claims for excess and unutilized creditable
withholding tax, the submission of BIR Forms
2307 is to prove the fact of withholding of the
excess creditable withholding tax being
claimed for refund. This is clear in the
provision of Section 58.3, RR 2-98, as
amended, and in various rulings of the Court.
In the words of Section 2.58.3, RR 2-98, "That
the fact of withholding is established by a copy
of a statement duly issued by the payor
(withholding agent) to the payee showing the
amount paid and the amount of tax withheld
therefrom."
Tax Refund (VAT)
CARGILL PHILIPPINES, INC., vs.
COMMISSIONER OF INTERNAL REVENUE
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RULING: Allowing the refund or credit of
unutilized input VAT finds its genesis in
Executive Order No. 273 series of 1987, which
is recognized as the Original VAT Law.
Thereafter, it was amended through the
passage of Republic Act No. (RA) 7716, RA
8424, and, finally by RA 9337, which took
effect on November 1, 2005. Considering that
Cargills claims for refund covered periods
before the effectivity of RA 9337, Section 112
of the NIRC, as amended by RA 8424, should,
therefore, be the governing law, the pertinent
portions of which read:
Section 112. Refunds or Tax Credits of Input
Tax.
A. Zero-rated or Effectively Zero-rated
Sales. any VAT-registered person,
whose sales are zero-rated or
effectively zero-rated may, within two
(2) years after the close of the taxable
quarter when the sales were made,
apply for the issuance of a tax credit
certificate or refund of creditable input
tax due or paid attributable to such
sales, except transitional input tax, to
the extent that such input tax has not
been applied against output tax:
xxxx
D. Period within which Refund or Tax
Credit of Input Taxes shall be made.
In proper cases, the Commissioner shall
grant a refund or issue the tax credit
certificate for creditable input taxes
within one hundred twenty (120) days
from the date of submission of
complete documents in support of the
application filed in accordance with
Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for
tax refund or tax credit, or the failure on the
part of the Commissioner to act on the
application within the period prescribed
above, the taxpayer affected may, within
thirty (30) days from the receipt of the
decision denying the claim or after the
expiration of the one hundred twenty day-
period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
In the landmark case of Aichi, it was held that
the observance of the 120-day period is a
mandatory and jurisdictional requisite to the
filing of a judicial claim for refund before the

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
CTA. As such, its non-observance would
warrant the dismissal of the judicial claim for
lack of jurisdiction. It was, withal, delineated
in Aichi that the two (2)-year prescriptive
period would only apply to administrative
claims, and not to judicial claims.36
Accordingly, once the administrative claim is
filed within the two (2)-year prescriptive
period, the taxpayer-claimant must wait for
the lapse of the 120-day period and,
thereafter, he has a 30-day period within
which to file his judicial claim before the CTA,
even if said 120-day and 30-day periods would
exceed the aforementioned two (2)-year
prescriptive period.
ESSENTIAL NOTATIONS IN TAXATION:
A PRE-BAR REVIEW GUIDE
I. GENERAL PRINCIPLES
Q. Define Taxation
Taxation is the inherent power of the
sovereign exercised through the legislature to
impose burdens upon subjects and objects
within its jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of
government.
It is the power by which the sovereign
raises revenue to defray the expenses of
government. It is a way of apportioning the
cost of government among those who in some
measure are privileged to enjoy its benefits and
must bear its burden.
Q. What is the nature of the power of
taxation?
The power of taxation is inherent in
sovereignty as an incident or attribute
thereof, being essential to the existence
of independent government.
It is legislative in character.
It is generally not delegated to
executive or judicial department.
Exceptions:
i. To LGUs in respect to
matters of local concern to
be exercised by the LG
bodies thereof [Sec. 5, Art.
X, 1987 Constitution];
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Taxation Law
ii. When allowed by the
Constitution [Sec. 28[2], Art.
VI, 1987 Constitution];
iii. When the delegation relates
merely to administrative
implementation that may
call for some degree of
discretionary powers under a
set of sufficient standards
expressed by law Cervantes
v. Auditor General, [91 Phil.
359], or implied from the
policy and purpose of the
Act Maceda v. Macaraig,
[197 SCRA 771].
It is subject to constitutional and
inherent limitations.
Q. Explain briefly the theory and basis of
taxation
The power to tax is an attribute of
sovereignty emanating from necessity (Phil.
Guaranty Co. Inc. Vs. Commissioner of
Internal Revenue, G.R. No. L-22074).
Taxation is described as a symbiotic
relationship whereby in exchange of the
benefits and protection that the citizens get
from the government, taxes are paid (CIR vs.
Algue, Inc., G.R. No. L-28896).
Q. Explain the pronouncement of the
Supreme Court that the power of
taxation is purely legislative
Essentially, this means that in the
legislature primarily lies the discretion to
determine the nature (kind), object (purpose),
extent (rate), coverage (subjects) and situs
(place) of taxation. It has the authority to
prescribe a certain tax at a specific rate for a
particular public purpose on persons or things
within its jurisdiction. In other words, the
legislature wields the power to define what tax
shall be imposed, why it should be imposed,
how much tax shall be imposed, against whom
(or what) it shall be imposed and where it
shall be imposed (CREBA v. Romulo, 614
SCRA 605, 626).
Q. Expound on the theory that the power
of taxation is considered as a principal
attribute of sovereignty.
A principal attribute of sovereignty,
the exercise of taxing power derives its source
from the very existence of the state whose
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
social contract with its citizens obliges it to
promote public interest and common good.
The theory behind the exercise of the power
to tax emanates from necessity; without taxes,
government cannot fulfil its mandate of
promoting the general welfare and well-being
of the people (CIR v. BPI, 521 SCRA 373, 387-
388).
Q. Briefly discuss the dictum that the
power to tax involves the power to
destroy.
In Mactan Cebu International Airport
Authority v. Marcos, 261 SCRA 667, 679, the
Supreme Court stressed that taxation 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.
The power to tax includes the power
to destroy if it is used validly as an implement
of the police power in discouraging and in
effect, ultimately prohibiting certain things or
enterprises inimical to the public welfare xxx
(Cruz, Constitutional Law, 2000 Ed., p. 87).
Q. Describe the Scope of the Power to
Tax
The power of taxation is the most
absolute of all powers of the government
(Sison v. Ancheta, 130 SCRA 654).It has the
broadest scope of all the powers of
government because in the absence of
limitations, it is considered as unlimited,
plenary, comprehensive and supreme.
However, the power of taxation
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 (Roxas v. CTA, 23
SCRA 276).
Q. Discuss the meaning an implication of
the LIFEBLOOD DOCTRINE.
1. By enforcing the tax lien, the BIR
availed itself of the most
expeditious way to collect the tax.
Taxes are the lifeblood of the
government and their prompt and
certain availability is an imperious
need (CIR v. Pineda, 21 SCRA 105).
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2. The government is not bound by
the errors committed by its agents.
In the performance of its
government functions, the State
cannot be estopped by the neglect
of its agents and officers. Taxes are
the lifeblood of the nation through
which the government agencies
continue to operate and with
which the state effects its functions
for the welfare of its constituents.
The errors of certain administrative
officers should never be allowed to
jeopardize the governments
financial position (CIR v. CTA, 234
SCRA 348).
3. The BIR is authorized to collect
estate tax deficiency through the
summary remedy of levying upon
the sale of real properties of a
decedent, without the cognition
and authority of the court sitting in
probate over the supposed will of
the decedent, because the
collection of the estate tax is
executive in character. As such, the
estate tax is exempted from the
application of the statute of non-
claims, and this is justified by the
necessity of government funding,
immortalized in the maxim Taxes
are the lifeblood of the
government and should be
collected without unnecessary
hindrance. However, such
collection should be made in
accordance with law as any
arbitrariness will negate the very
reason for government itself
(MARCOS II v. CA, 273 SCRA 47).
4. Taxes are the lifeblood of the
government and so should be
collected without unnecessary
hindrance. Philexs claim that it
had no obligation to pay the excise
tax liabilities within the prescribed
period since it still has pending
claims for VAT input credit/refund
with the BIR is UNTENABLE
(Philex Mining Corporation v. CIR,
294 SCRA 687).
Q. It has been said that the State can
never be in estoppel, and this is
particularly true in matters involving
taxation. Explain the philosophy

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
behind the governments exception, as
a general rule, from the operation of
the principle of estoppel
Taxes are the lifeblood of the
Government and their prompt and certain
availability are imperious need. Upon taxation
depends the Government's ability to serve the
people for whose benefit taxes are collected.
To safeguard such interest, neglect or omission
of government officials entrusted with the
collection of taxes should not be allowed to
bring harm or detriment to the people, in the
same manner as private persons may be made
to suffer individually on account of his own
negligence, the presumption being that they
take good care of their personal affair. This
should not hold true to government officials
with respect to matters not of their own
personal concern.
Q. State the DOCTRINE OF SYMBIOTIC
RELATIONSHIP.
This doctrine is enunciated in the case of
CIR v. ALGUE, INC., 158 SCRA 9, which states
that: Taxes are what we pay for civilized
society. Without taxes, the government would
be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the
natural reluctance to surrender part of ones
hard-earned income to the taxing authorities,
every person who is able to must contribute
his share in the burden of running the
government. The government, for its part, is
expected to respond in the form of tangible
and intangible benefits intended to improve
the lives of the people and enhance their
material and moral values.
Q. When is Taxation considered an
implement of Police Power?
1. In Walter Lutz v. J. Antonio
Araneta, 98 Phil. 148, the SC
upheld the validity of the tax law
increasing the existing tax on the
manufacture of sugar. The
protection and promotion of the
sugar industry is a matter of public
concern; the legislature may
determine within reasonable
bounds what is necessary for its
protection and expedient for its
promotion. If objective and
methods alike are constitutionally
valid, there is no reason why the
state may not levy taxes to raise
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funds for their prosecution and
attainment. Taxation may be
made the implement of the States
police power.
2. In Tio v. Videogram Regulatory
Board, 151 SCRA 208, the levy of a
30% tax under PD 1987, was
imposed primarily for answering
the need for regulating the video
industry, particularly because of
the rampant film piracy, the
flagrant violation of intellectual
property rights, and the
proliferation of pornographic
videotapes, and therefore VALID.
While the direct beneficiary of the
said decree is the movie industry,
the citizens are held to be its
indirect beneficiaries.
Q. May the power of taxation be used as
an implement of the power of eminent
domain?
YES. The Supreme Court in the case of
CIR v. Central Luzon Drug Corp., 456 SCRA
414, 445 held: Tax measures are but
enforced contributions exacted on pain of
penal sanctions and clearly imposed for a
public purpose. In recent years, the power to
tax has indeed become a most effective tool to
realize social justice, public welfare, and the
equitable distribution of wealth.
While it is declared commitment under
Section 1 of RA 7432, social justice cannot be
invoked to trample on the rights of property
owners who under our Constitution and laws
are also entitled to protection. The social
justice consecrated in our [C]onstitution [is]
not intended to take away rights from a
person and give them to another who is not
entitled thereto. For this reason, a just
compensation for income that is taken away
from respondent (Central Luzon Drug Corp.)
becomes necessary. It is in the tax credit (now
tax deduction) that our legislators find support
to realize social justice, and no administrative
body can alter that fact.
PURPOSE OF TAXATION
i. Revenue Basically, the purpose of
taxation is to provide funds or property
with which the State promotes the general
welfare and protection of its citizens. (51
Am. Jur. 71-73) The conservative and

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
pivotal distinction between police power
and power of taxation rests in the purpose
for which the charge is made. If generation
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 revenue is
incidentally raised does not make the
imposition a tax. (Gerochi v. DOE) While
it is true that the power of taxation can be
used as an implement of police power, the
primary purpose of levy is revenue
generation. If the purpose is primarily
revenue, or if revenue is, at least, one of
the real and substantial purposes, then the
exaction is properly called a tax (Planters
Products, Inc. v. Fertiphil Corporation).
ii. Non-Revenue
a. RegulationTaxes may also be
imposed for a regulatory purpose
as, for instance, in the
rehabilitation of a threatened
industry which is affected with
public interest, like the oil industry.
(Caltex Phils. V. COA)
b. Promotion of General Welfare
Taxation may be used as an
implement of the police power in
order to promote the general
welfare of the people. Thus, in the
case of Lutz v. Araneta, the SC
upheld the validity of the Sugar
Adjustment Act, which imposed a
tax on milled sugar since the
purpose of the law was to
strengthen an industry that is so
undeniably vital to the economy
the sugar industry.
c. Reduction of Social Inequality
This is made possible through the
progressive system of taxation
where the object is to prevent the
undue concentration of wealth in
the hands of a few individuals.
Progressivity is keystoned on the
principle that those who are able
to pay should shoulder the bigger
portion of the tax burden.
d. Encouragement of Economic
GrowthTaxation does not only
raise public revenue, but in the
realm of tax exemptions and tax
reliefs, for instance, the purpose is
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to grant incentives or exemptions
in order to encourage investments
and thereby promote the countrys
economic growth.
e. Protectionism
Q. What are the essentials of the principle
of administrative feasibility?
It requires that (a) each tax should be
clear and plain to the taxpayers; (b) capable of
enforcement by an adequate and well-trained
staff of officials; (c) convenient as to time and
manner of payment; and (d) not duly
burdensome upon or discouraging to business
activity.
Q. What does the principle of Fiscal
Adequacy as a characteristic of a sound
tax system require?
It requires that the sources of revenues
must be adequate to meet government
expenditures and their variations (Abakada
Guro, et al. v. Ermita, 469 SCRA 1; Chavez vs
Ongpin, 186 SCRA 331).
Q. What does the principle of theoretical
justice or equality entail?
A good tax system must be based on
the taxpayers ability to pay. This suggests that
taxation must be progressive conformably with
the constitutional mandate that Congress shall
evolve a progressive system of taxation. (Sec.
28[1], Art. VI, 1987 Constitution) It holds that
similarly situated taxpayers should pay equal
taxes, while those who have more should pay
more.
Q. Are taxes subject of set-off?
1. The income tax liability of
Francia cannot be compensated with the
amount owed by the government as
compensation for his expropriated property. A
taxpayer may not set-off taxes due from claims
he may have against the government. Taxes
cannot be the subject of compensation because
the government and taxpayer are not mutually
creditors and debtors of each other and a
claim for taxes is not such debt, demand,
contract or judgment as is allowed to be set-
off. The collection of a tax cannot await the
results of a lawsuit against the government
(Francia v. IAC, 162 SCRA 753).

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
2. The claim of Philex for VAT
refund is still pending litigation, and still has to
be determined by the CTA. A fortiori, the
liquidated debt of Philex to the government
cannot, therefore, be set off against the
unliquidated claim which Philex conceived as
existing in its favor. Debts are due to the
government in its corporate capacity, while
taxes are due to the government in its
sovereign capacity (Philex v. CIR, 294 SCRA
687).
Q. Distinguish direct tax from indirect tax.
Direct tax refers to one assessed upon
the property, person, business income, etc., of
those who pay them, whereas indirect tax
includes those levied on commodities before
they reach the consumer, and are paid by
those upon whom they ultimately fall, not as
taxes, but as part of the market price of the
commodity (Cooley, Tax. 61).
INHERENT LIMITATIONS ON THE POWER
TO TAX
Q. What is meant by public purpose as
an inherent limitation on the power of
taxation?
The term public purpose is not
defined. It is an elastic concept that can be
hammered to fit modern standards.
Jurisprudence states that public purpose
should be given a broad interpretation. It does
not only pertain to those purposes which are
traditionally viewed as essentially government
functions, such as building roads and delivery
of basic services, but also includes those
purposes designed to promote social justice.
Thus, public money may now be used for the
relocation of illegal settlers, low-cost housing
and urban or agrarian reform (Planters
Products, Inc. v. Fertiphil Corporation, 548
SCRA 485 [2008]).
Public v. Private interest
In the case of Pascual v. Secretary of
Public Works, 110 PHIL 331, the SC held that
the appropriation for construction of feeder
roads on land belonging to a private person is
not valid, and donation to the government of
the said land 5 months after the approval and
effectivity of the Act for the purpose of giving
a semblance of legality to the appropriation
does not cure the basic defect. Incidental
advantage to the public or to the State, which
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results from the promotion of private
enterprises, does not justify the use of public
funds.
Tax Situs of Shares of Stock
The SC held that the actual situs of the
shares of stock left by non-resident alien
decedent is in the Philippines. The owner
residing in California has extended activities
here with respect to her intangibles so as to
avail herself of the protection and benefit of
the Philippine laws. Accordingly, the
Philippine government had the jurisdiction to
tax the same (Wells Fargo Bank v. Collector,
70 Phil. 235).
Exemption from Taxation of Government
Agencies
The Constitution is silent on whether
Congress is prohibited from taxing the
properties of the agencies of the government.
In MCIAA v. Marcos, 261 SCRA 667, the
Supreme Court held that nothing can prevent
Congress from decreeing that even
instrumentalities or agencies of the
government performing governmental
functions may be subject to tax.
Tax exemption of property owned by
the Republic of the Philippines refers to
property owned by the government and its
agencies which to do not have separate and
distinct personalities. The government does
not part with its title by reserving them, but
simply gives notice to the world that it desires
them for a certain purpose. As its title
remains with the Republic, the reserved land is
clearly covered by tax exemption.
However, the exemption does not
extend to improvements on the public land.
Consequently, the warehouse constructed on
the reserved land by NDC should properly be
assessed real estate tax as such improvement
does not appear to belong to the public (NDC
v. Cebu City, 215 SCRA 382).
Q. Is Manila International Airport
Authority considered an
instrumentality of the National
Government exempt from local
taxation?
YES. In Manila International Airport
Authority v. Court of Appeals (495 SCRA 591,
615), the Supreme Court held that the real
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega

properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real
estate tax. A government instrumentality like
MIAA falls under Section 133(o) of the Local
Government Code,
exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not
extend to the levy of the following: xxx (o)
Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities and local government units.
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 already taxed
as exports (Atlas Consolidated Mining and
Development Corporation v. CIR, 524 SCRA
73, 103).
Q. Distinguish tax from license fee

This has been echoed in the recent case Tax may be distinguished from license
of Philippine Fisheries Development Authority fee as follows:
v. The Municipality of Navotas, 534 SCRA
490, wherein the Supreme Court ruled that Tax License Fee
PFDA, being an instrumentality of the national Levied for revenue Imposed for
government, is exempt from real property tax
but the exemption does not extend to the regulations
portions of the Navotas Fishing Port Complex Involves exercise of Involves an exercise
(NFPC) that were leased to taxable or private taxing power of police power
persons and entities for their beneficial use. Amount is generally Amount is usually
not limited limited to the
Q. Is Philippine Reclamation Authority necessary expenses of
(PRA) exempt from real property tax? regulation
Imposed on the right Imposed on the right
YES. It is exempt from real property to exercise a to exercise a privilege
tax. First. PRA is not a government-owned or privilege as well as
controlled corporation but an instrumentality to persons and
of the National Government vested with property
corporate powers and performing an essential Enforced Legal compensation
public service pursuant to Section 2(10) of the contribution assessed or reward of an
Introductory Provisions of the Administrative by sovereign officer for public
Code. Second. Real properties of PRA are authority to defray services
owned by the Republic of the Philippines. public expenses
Section 234(a) of the Local Government Code Failure to pay does Failure to pay makes
exempts from real estate tax any [r]eal not necessarily make the act or business
property owned by the Republic of the the business illegal illegal
Philippines. [Republic v. City of Paraaque,
677 SCRA 246 (2012)] Q. Are toll fees considered taxes?
Q. Explicate the Destination Principle in A tax is imposed under the taxing
the imposition of value added tax. power of the government principally for the
purpose of raising revenues to fund public
According to the Destination Principle, expenditures. Toll fees, on the other hand, are
goods and services are taxed only in the collected by private tollway operators as
country where these are consumed. In reimbursement for the costs and expenses
connection with the said principle, the Cross incurred in the construction, maintenance and
Border Doctrine mandates that no VAT shall operation of the tollways, as well as to assure
be imposed to form part of the cost of the them a reasonable margin of income. Although
goods destined for consumption outside the toll fees are charged for the use of public
territorial border of the taxing authority. facilities, therefore, they are not government
Hence, actual export of goods and services exactions that can be properly treated as a
from the Philippines to a foreign country must tax. Taxes may be imposed only by the
be free of VAT while those destined for use or government under its sovereign authority, toll
consumption within the Philippines shall be fees may be demanded by either the
imposed with 10% VAT (Now 12% under R.A. government or private individuals or entities,
No. 9337). Export processing zones are to be as an attribute of ownership (Renato V. Diaz,

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From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
et al. vs. Sec. of Finance, et al., G.R. No.
193007).
Q. Give the sources of tax law
The sources of tax law are: (a)
Constitution; (b) statutes or laws; (c)
presidential decrees; (d) revenue regulation;
(e) administrative rulings and opinions; (f)
judicial decisions; (g) provincial, city, municipal
and barangay ordinances; and (h) treaties or
international agreements.
Q. What is meant by progressive taxation
and what is its basis?
Progressive taxation is built on the
principle of the taxpayers ability to pay
taxation is progressive when its rate goes up
depending on the resources of the person
affected.
CONSTITUTIONAL LIMITATIONS ON THE
TAXING POWER
Q. When does the power of taxation
impinge the due process clause?
The due process clause may be
invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution, as
where it can be shown to amount to a
confiscation of property (Reyes v. Almanzor,
196 SCRA 322).
There is a need for proof of persuasive
character as would lead to a violation thereof.
Absent such a showing, the presumption of
validity must prevail.
Q. Is classification allowed in taxation?
The taxing power has the authority to
make reasonable and natural classification for
purposes of taxation, but the governments act
must not be prompted by a spirit of hostility,
or at the very least discrimination that finds no
support in reason. It suffices then that the laws
operate equally and uniformly on all persons
under similar circumstances or that all persons
must be treated in the same manner, the
conditions not being different both in the
privileges conferred and the liabilities imposed
(Sison v. Ancheta, 130 SCRA 654).
The equal protection clause applies
only to persons or things identically situated
and does not bar a reasonable classification of
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the subject of taxation, and a classification is
reasonable where: (1) it is based on substantial
distinctions which make real differences; (2)
these are germane to the purposes of the law;
(3) the classification applies not only to
present conditions but also to future
conditions; (4) the classification applies only to
those who belong to the same class. In the case
of Ormoc Sugar Company, Inc. v. the
Treasurer of Ormoc City, 22 SCRA 603, the SC
held an ordinance unconstitutional for taxing
only sugar produced and exported by the
Ormoc Sugar Co., Inc.. The classification, to be
reasonable, should be in terms applicable to
future conditions as well. The taxing
ordinance should not be singular and exclusive
as to exclude any substantially established
sugar central, of the same class as plaintiff,
from the coverage of the tax.
The equal protection clause does not
require universal application of the laws on all
persons or things without distinction. What
the clause requires is equality among equals as
determined according to a valid classification.
By classification is meant the group of persons
or things similar to each other in certain
particulars and different from all others in
these same particulars (Abakada Guro Party
List v. Ermita, supra).
Q. A law withdrawing the exemption
granted to the press was challenged as
discriminatory by giving broadcast
media favored treatment.
IT IS NOT DISCRIMINATORY. If the
press is now required to pay VAT, it is not
because it is being singled out but only because
of the removal of the exemption previously
granted by law. Further, the press is taxed on
its transactions involving printing and
publication, which are different from the
transactions of broadcast media. There is a
reasonable basis for the classification
(Tolentino v. Secretary of Finance, 235 SCRA
630).
Q. What is the controlling doctrine on
exemption from taxation of real
property of religious, charitable and
educational institutions?
In the case of Lung Center of the
Philippines v. Quezon City and Constantino P.
Rosas, City Assessor of Quezon City, 433 SCRA
119, the prevailing rule on the application of
tax exemption to properties incidentally used

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
for religious, charitable and educational
purposes, as enunciated in the case of Herrera
v. QC-BAA, 3 SCRA 187, has now been
abandoned. In resolving the issue of whether
or not the portions of the real property of
Lung Center that are leased to private entities
are exempt from real property taxes, the
Supreme Court reexamined the intent of the
constitutional provision granting tax
exemption of properties ACTUALLY,
DIRECTLY AND EXCLUSIVELY USED FOR
RELIGIOUS, CHARITABLE AND
EDUCATIONAL PURPOSES.
Thus, the records of the Constitutional
Commission reveal that what is exempted is
not the institution itself; those exempted from
real estate taxes are lands, buildings and
improvements actually, directly and exclusively
used for religious, charitable or educational
purposes.
Citing the case of St. Louis Young
Mens Christian Association v. Gehner, 47
S.W.2d 776 which held that if real property is
used for one or more commercial purposes, it
is not exclusively used for the exempted
purposes but is subject to taxation, the
Supreme Court explained that What is meant
by actual, direct and exclusive use of the
property for charitable institutions is the direct
and immediate and actual application of the
property itself to the purposes for which the
charitable institution is organized. It is not the
use of the income from the real property that
is determinative of whether the property is
used for tax-exempt purposes.
In sum, the Court ruled that the
portions of the land leased to private entities
as well as those parts of the hospital leased to
private individuals are not exempt from taxes.
In the most recent case of CIR v. St.
Luke's Medical Center, Inc., 682 SCRA 66, the
Supreme Court held that St. Luke's is not
automatically exempt from real property tax
even if it meets the test of charity. To be
exempt, Section 28(3), Article VI of the
Constitution requires that a charitable
institutions use the property actually, directly
and exclusively for charitable purposes.
Q. What is the requisite proof for
exemption from realty taxation?
To be exempt from realty taxation,
there must be proof of actual and direct and
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exclusive use of the lands, buildings and
improvements for religious or charitable
purposes (Province of Abra v. Hernando, 107
SCRA 104).
DOUBLE TAXATION
Q. What is double taxation? When does it
arise? How is it prevented? Is it
unconstitutional?
Double taxation means taxing the
same thing or activity twice during the same
tax period (Villanueva v. City of Iloilo, 26
SCRA 578). It 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.
Tax conventions such as the RP-US Tax
Treaty are drafted with a view towards the
elimination of international juridical double
taxation. In CIR v. S.C. Johnson and Sons, Inc.,
309 SCRA 87, however, it was held that since
the RP-US Tax treaty does not give a matching
credit of 20% for the taxes paid to the
Philippines on royalties as allowed under the
RP-West Germany Tax Treaty, S.C. Johnson
(Phils.) is not entitled to the 10% rate granted
under the latter treaty for the reason that there
is no payment of taxes on royalties under
similar circumstances.
Moreover, double taxation, in general,
is not forbidden by our fundamental law, so
that double taxation becomes obnoxious only
where the taxpayer is taxed twice for the
benefit of the same governmental entity or by
the same jurisdiction for the same purpose, but
not in a case where one tax is imposed by the
State and the other by the city or municipality
(Pepsi-Cola Bottling Company of
the Philippines v. Municipality of Tanauan,
Leyte, 69 SCRA 460).
Q. Define international juridical double
taxation.
It is the imposition of comparable
taxes in two or more states on the same
taxpayer in respect of the same subject matter
and for identical periods. (P. Baker, Double
Taxation Conventions and International Law
[1994], p. 11, citing the Committee on Fiscal
Affairs of the Organization for Economic
Cooperation and Development [OECD]).

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Q. What are the modes of eliminating
double taxation?
The usual methods of avoiding the
occurrence of double taxation are:
1. Allowing reciprocal exemption
either by law or by treaty
2. Allowance of tax credit for foreign
taxes paid
3. Allowance of deduction for foreign
taxes paid; and
4. Reduction of the Philippine tax rate
Q: What is meant by shifting the tax
burden?
Shifting of tax burden is the process by
which the burden of a tax is transferred from
the statutory taxpayer or the one whom the
tax was assessed or imposed to another
without violating the law.
Q: Enumerate the ways of shifting the tax
burden and define each.
1. Forward shiftingwhen the burden of
the tax is transferred from a factor of
production through the factors of
distribution until it finally settles on the
ultimate purchaser or consumer.
2. Backward shiftingwhen the burden
of the tax is transferred from the
consumer or purchaser through the
factors of distribution to the factors of
production.
3. Onward shiftingwhen the tax is
shifted two or more times either
forward or backward.
TAX EVASION
Q. Does an affidavit executed by revenue
officers constitute a tax assessment?
An affidavit executed by revenue
officers stating the tax liabilities of a taxpayer
and attached to a criminal complaint for tax
evasion, is not an assessment that can be
questioned before the CTA. An assessment
contains not only a computation of tax
liabilities, but also a demand for payment
within a prescribed period (CIR v. PASCOR
Realty and Development Corp., 309 SCRA
402).
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Q. Is prior assessment necessary before a
taxpayer may be charged with tax
evasion?
NO. In case of failure to file a return,
the tax may be assessed or a proceeding in
court may be begun without an assessment. An
assessment is not necessary before a taxpayer
may be prosecuted if there is a prima facie
showing of a willful and deliberate attempt to
file a fraudulent return with the intent to
evade and defeat tax. A criminal complaint is
instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax
Code (Ungab v. Cusi, 97 SCRA 877; CIR v.
PASCOR Realty and Development Corp.,
supra).
Q. How are statutory provisions granting
tax exemptions or deductions
construed? State the basis for the rule.
It is an elementary rule in taxation that
exemptions are strictly construed against the
taxpayer and liberally in favor of the taxing
authority. It is the taxpayers duty to justify the
exemption by words too plain to be mistaken
and too categorical to be misinterpreted
(Radio Communications of the Phil. vs
Provincial Assessor of South Cotabato, 456
SCRA 1).
The basis for the rule on strict
construction to statutory provisions granting
tax exemptions or deductions is to minimize
differential treatment and foster impartiality,
fairness and equality of treatment among
taxpayers (Quezon City vs. ABS-CBN
Broadcasting Corporation).
TAX EVASION AND TAX AVOIDANCE
DISTINGUISHED
Tax evasion connotes fraud through
the use of pretenses and forbidden devices to
lessen or defeat taxes. On the other hand, tax
avoidance is a legal means used by the
taxpayer to reduce taxes (Benny v. Commr.,
25 T.Cl.78).
The intention to minimize taxes, when
used in the context of fraud, must be proven
by clear and convincing evidence amounting
to more than mere preponderance. Mere
understatement of tax in itself does not prove
fraud (Yutivo Sons Hardware Co. v. CTA, 1
SCRA 160).

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
A taxpayer has the legal right to
decrease the amount of what otherwise would
be his taxes or altogether avoid them by
means which the law permits. Therefore, a
man may perform an act that he honestly
believes to be sufficient to exempt him from
taxes. He does not incur fraud thereby even if
the act is thereafter found to be insufficient
(Court Holding Co. v. Commr., 2 T.Cl. 531).
Tax evasion connotes the integration
of three factors: (1) the end to be achieved,
i.e., the payment of less than that known by
taxpayer to be legally due, or the non-
payment of tax when it is shown that a tax is
due; (2) an accompanying state of mind which
is described as being evil, in bad faith,
willful, or deliberate and not accidental;
and (3) a course of action or failure of action
which is unlawful (Commissioner of Internal
Revenue v. The Estate of Benigno P. Toda, Jr.,
G.R. No. 147188, September 14, 2004, 438
SCRA 290).
TAXPAYERS SUIT
Q. What is a taxpayers suit? When is it
proper?
A taxpayers suit requires illegal
expenditure of taxpayers money.
Jurisprudence dictates that a taxpayer may be
allowed to sue where there is a claim that
public funds are illegally disbursed or that
public money is being deflected to any
improper purpose, or that public funds are
wasted through the enforcement of an invalid
or unconstitutional law or ordinance. (Remulla
v. Maliksi, 706 SCRA 35, 18 September 2013)
In Maceda v. Macaraig, 197 SCRA 771,
the SC sustained the right of Sen. Maceda as
taxpayer to file a petition questioning the
legality of the tax refund to NPC by way of
tax credit certificates, and the use of tax
certificates by oil companies to pay for their
tax and duty liabilities to the BIR and Bureau
of Customs.
However, in Gonzales v. Marcos, 65
SCRA 624, the SC held that the taxpayer had
no legal personality to assail the validity of
E.O. 30 creating the Cultural Center of the
Philippines as the assailed order does not
involve the use of public funds. The funds
came by way of donations and contributions,
not by taxation.
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Q. Are government contracts covered by
the taxpayers suit?
YES. In the recent case of Abaya v.
Ebdane, Jr. (515 SCRA 720, 757-758), the
Supreme Court stressed that the prevailing
doctrine in the taxpayers suits is to allow
taxpayers to question contracts entered into by
the national government or government-
owned and controlled corporations allegedly
in contravention of law. A taxpayer is allowed
to sue where there is a claim that public funds
are illegally disbursed, or that public money is
being deflected to any improper purpose, or
that there is a wastage of public funds through
the enforcement of an invalid or unconditional
law. Significantly, a taxpayer need not be a
party to the contract to challenge its validity.
Q. How is the plaintiff in a taxpayers suit
differentiated from the plaintiff in a
citizens suit?
The plaintiff in a taxpayers suit is in a
different category from the plaintiff in a
citizens suitin the former, the plaintiff is
affected by the expenditure of public funds,
while in the latter, he is but the mere
instrument of the public concern (David vs.
Macapagal-Arroyo, 489 SCRA 160).
DECISIONAL RULINGS ON REFORMED EVAT
LAW (RA 9337)
No undue delegation of legislative
power
The case before the Court is not a
delegation of legislative power. It is simply
a delegation of ascertainment of facts upon
which enforcement and administration of
the increase rate under the law is
contingent. The legislature has made the
operation of the 12% rate effective
January 1, 2006, contingent upon a
specified fact or condition. It leaves the
entire operation or non-operation of the
12% rate upon factual maters outside of
the control of the executive. No discretion
would be exercised by the President.
Highlighting the absence of discretion is
the fact that the word shall is used in the
common proviso. The use of the word
shall connote a mandatory order. Its use in
a statute denotes an imperative obligation
and is inconsistent with the idea of
discretion. Where the law is clear and
unambiguous, it must be taken to mean
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
exactly what it says, and courts have no
choice but to see to it that the mandate is
obeyed. Thus, it is the ministerial duty of
the President to immediately impose the
12% rate upon the existence of any of the
conditions specified by Congress. This is a
duty which cannot be evaded by the
President. Inasmuch as the law specifically
uses the word shall, the exercise of
discretion by the President does not come
into play. It is a clear directive to impose
the 12% VAT rate when the specified
conditions are present. The time of taking
into effect of the 12% VAT rate is based on
the happening of a certain specified
contingency, or upon the ascertainment of
certain facts or conditions by a person or
body other than the legislature itself.
The Secretary of Finance is an agent of
Congress in making his
recommendation to the President on
the existence of either of the
conditions
In making his recommendation to the
President on the existence of either of the
two conditions, in the present case, the
Secretary of Finance is not acting as the
alter ego of the President or even her
subordinate. In such instance, he is not
subject to the power of control and
direction of the President. He is acting as
the agent of the legislative department, to
determine and declare the event upon
which its expressed will is to take effect.
The Secretary of Finance becomes the
means or tool by which legislative policy is
determined and implemented, considering
that he possesses all the facilities to gather
data and information and has a much
broader perspective to properly evaluate
them. His function is to gather and collate
statistical data and other pertinent
information and verify if any of the two
conditions laid out by Congress is present.
His personality in such instance is in reality
but a projection of that of Congress. Thus,
being the agent of Congress and not of the
President, the President cannot alter or
modify or nullify, or set aside the findings
of the Secretary of Finance and to
substitute the judgment of the former for
that of the latter.
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VAT rates are uniform
Uniformity in taxation means that all
taxable articles or kinds of property of the
same class shall be taxed at the same rate.
Different articles may be taxed at different
amounts provided that the rate is uniform
on the same class everywhere with all
people at all times. In this case, the tax
law is uniform as it provides a standard
rate of 0% or 10% (or 12%) on all goods
and services. Section 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and
108, respectively, of the NIRC, provide for
a rate of 10% (or 12%) on sale of goods
and properties, importation of goods, and
sale of services and use or lease of
properties. These same sections also
provide for a 0% rate on certain sales and
transaction. Neither does the law make
any distinction as to the type of industry
or trade that will bear the 5-year
amortization of input tax paid on purchase
of capital goods or the 5% final
withholding tax by the government. It
must be stressed that the rule of uniform
taxation does not deprive Congress of the
power to classify subjects of taxation, and
only demands uniformity within the
particular class.
VAT rates are equitable
R.A. No. 9337 is also equitable. The law
is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not
apply to sales of goods or services with
gross annual sales or receipts not exceeding
P1, 500,000.00. Also, basic marine and
agricultural food products in their original
state are still not subject to the tax, thus
ensuring that prices at the grassroots level
will remain accessible.
Creditable input tax is a mere statutory
privilege
The input tax is not a property or a
property right within the constitutional
purview of the due process clause. A VAT-
registered persons entitlement to the
creditable input tax is a mere statutory
privilege. The distinction between
statutory privileges and vested rights must
be borne in mind for persons have no
vested rights in statutory privileges. The
state may change or take away rights,
which were created by the law of the
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
state, although it may not take away
property, which was vested by virtue of
such rights. Under the previous system of
single-stage taxation, taxes paid at every
level of distribution are not recoverable
from the taxes payable, although it
becomes part of the cost, which is
deductible from the gross revenue. x x x
It is worth mentioning that Congress
admitted that the spread-out of the
creditable input tax in this case amounts to
a 4-year interest-free loan to the
government. In the same breath, Congress
also justified its move by saying that the
provision was designed to raise an annual
revenue of 22.6 billion. The legislature
also dispelled the fear that the provision
will fend off foreign investments, saying
that foreign investors have other tax
incentives provided by law, and citing the
case of China, where despite a 17.5% non-
creditable VAT, foreign investments were
not deterred. Again, for whatever is the
purpose of the 60-month amortization,
this involves executive economic policy
and legislative wisdom in which the Court
cannot intervene.
5% creditable withholding tax is a
method of collection
With regard to the 5% creditable
withholding tax imposed on payments
made by the government for taxable
transactions, Section 12 of R.A. No. 9337,
which amended Section 114 of the NIRC,
reads: ***Section 114(C) merely provides a
method of collection, or as stated by
respondents, a more simplified VAT
withholding system. The government in
this case is constituted as a withholding
agent with respect to their payments for
goods and services. x x x The Court
observes, however, that the law used the
word final. In tax usage, final, as opposed
to creditable, means full. Thus, it is
provided in Section 114(C): final value-
added tax at the rate of five percent
(5%).
VAT is by its nature, regressive
The VAT is an antithesis of progressive
taxation. By its very nature, it is regressive.
The principle of progressive taxation has
no relation with the VAT system inasmuch
as the VAT paid by the consumer or
business for every goods bought or services
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enjoyed is the same regardless of income.
In other words, the VAT paid eats the
same portion of an income, whether big or
small. The disparity lies in the income
earned by a person or profit margin
marked by a business, such that the higher
the income or profit margin, the smaller
the portion of the income or profit that is
eaten by VAT. A converso, the lower the
income or profit margin, the bigger the
part that the VAT eats away. At the end
of the day, it is really the lower income
group or businesses with low-profit
margins that is always hardest hit.
Imposition of regressive tax like VAT is
not constitutionally prohibited
The Constitution does not really prohibit
the imposition of indirect taxes, like the
VAT. What it simply provides is that
Congress shall evolve a progressive
system of taxation. The Court stated in
the Tolentino case, thus: The Constitution
does not really prohibit the imposition of
indirect taxes which, like the VAT, are
regressive. What it simply provides is that
Congress shall evolve a progressive system
of taxation. The constitutional provision
has been interpreted to mean simply that
direct taxes are to be preferred [and] as
much as possible, indirect taxes should be
minimized. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES
221 [Second ed. 1977]) Indeed, the
mandate to Congress is not to prescribe,
but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are
the oldest form of indirect taxes, would
have been prohibited with the
proclamation of Art. VII, 17 (1) of the
1973 Constitution from which the present
Art. VI, 28 (1) was taken. Sales taxes are
also regressive. Resort to indirect taxes
should be minimized but not avoided
entirely because it is difficult, if not
impossible, to avoid them by imposing
such taxes according to the taxpayers
ability to pay. In the case of the VAT, the
law minimizes the regressive effects of this
imposition by providing for zero rating of
certain transactions (R.A. No. 7716, 3,
amending 102 (b) of the NIRC), while
granting exemptions to other transactions.
II. INCOME TAXATION
Q. Distinguish Global Tax Treatment from
Schedular System of Income Taxation.

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
What system of taxation was adopted
under the NIRC on income taxation?
A global system of taxation is one
where the taxpayer is required to report all
income earned during a taxable period in one
income tax return, which income shall be
taxed under the same rule of income taxation.
The schedular system requires a separate return
for each type of income and the tax is
computed on a per return or per schedule
basis. Schedular system provides for different
tax treatment of different types of income.
The NIRC adopted a semi-global and
semi-schedular tax system.
Q. What are the features of the Philippine
Income Tax Law?
The features are as follows:
1. Income tax is a direct tax because
the burden is borne by the income
recipient upon whom the tax is
imposed.
2. Income tax is a progressive tax
since the tax base increases as the
tax rate increases.
3. The Philippines has adopted the
most comprehensive system of
imposing income tax by adopting
the citizenship principle, resident
principle and the source principle.
4. The Philippines follows the semi-
schedular or semi-global system of
income taxation
Q. What are the criteria in imposing
Income Tax in the Philippines?
The criteria are:
1. Citizenship or nationality principle A
citizen of the Philippines is subject to
Philippine income tax (a) on his
worldwide income, if he resides in the
Philippines (b) only on his Philippine
source income, if he qualifies as a non-
resident citizen where his foreign-
source income shall be tax-exempt.
2. Residence or domicile principle An
alien is subject to Philippine income
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tax because of his residence in the
Philippines. A resident alien is liable to
pay Philippine income tax only from
his income from Philippine sources but
is tax exempt from foreign-source
income.
3. Source of income principle An alien
is subject to Philippine income tax
because he derives income from
sources within the Philippines. Thus, a
non-resident alien or non-resident
foreign corporation is liable to pay
Philippine income tax on income from
sources within the Philippines.
Q. What are the types of Philippine
Income Tax?
The types of Income tax under Title II
of the NIRC are:
1. Graduated income tax on individuals
2. Normal corporate income tax on
corporations
3. Minimum corporate income tax on
corporations
4. Special income tax on certain
corporations (e.g. private educational
institutions, FCDUs, and international
carriers)
5. Capital gains tax on sale or exchange
of unlisted shares of stock of a
domestic corporation classified as a
capital asset
6. Capital gains tax on sale or exchange
of real property located in the
Philippines and classified as a capital
asset
7. Final withholding tax on certain
passive investment incomes
8. Fringe benefit tax
9. Branch profit remittance tax; and
10. Tax on improperly accumulated
earnings.
Q. What is Income?
Income refers to an amount of money
coming to a person within a specified time,
whether as payment for services, interest or
profit from investment. It means cash or its
equivalent. It is gain derived and severed from
capital, from labor or from both combined.
Stock dividends issued by the
corporation are considered unrealized gains,
and cannot be subjected to income tax until
those gains have been realized. Before the

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
realization, stock dividends are nothing but a
representation of an interest in the corporate
properties. As capital, it is not yet subject to
income tax. Capital is wealth or fund; whereas
income is profit or gain or the flow of wealth.
The determining factor for the imposition of
income tax is whether any gain or profit was
derived from a transaction (CIR v. CA, 301
SCRA 152).
Q. What are the requisites of taxable
income?
For income to be taxable, the
following requisites must exist:
1. There must be gain or profit;
2. That the gain or profit is realized
or received, actually or
constructively;
3. It is not exempted by law or treaty
from income tax
Q. What are the sources of income?
The sources of income are: the
property, activity or service that produces 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 (CIR v. BOAC,
149 SCRA 395).
Q. When is income considered realized?
For income tax purposes, income is
realized when the earning process is complete
or virtually complete and an exchange has
taken place.
Q. What is the source of income
considered from within the
Philippines?
In general, for the source of income to
be considered as coming from the Philippines,
it is sufficient that the income is derived from
property, activity or service within the
Philippines.
In CIR vs. BOAC (1987), an off-line
international carrier maintained a sales agent
in the Philippines who sold tickets for flights
flown outside the Philippines. The Supreme
Court considered the sale of tickets in the
Philippines as the activity that produced the
income. The test of taxability is the source;
and the source of an income is that activity
which produced the income. Even if the BOAC
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tickets sold covered the transport of
passengers and cargo to and from foreign
cities it cannot alter the fact that income
from the sale of tickets was derived from the
Philippines. Thus, BOAC was made liable for
revenue derived from the sale of tickets.
Q. What are incomes considered derived
from sources within the Philippines?
Sec. 42(A) of the Tax Code enumerates
the items of gross income from sources within
the Philippines, namely:
(1) Interests paid by residents of the
Philippines, corporate or
otherwise;
(2) Dividends paid by domestic
corporations; or foreign
corporations at least 50% of their
gross income in the last three
taxable years coming from sources
within the Philippines;
(3) Compensation for
services performed in the
Philippines;
(4) Rentals and royalties from
properties located in the
Philippines;
(5) Gains from sale of real properties
located in the Philippines; and
(6) Gains from sale of personal
properties, the sale taking place in
the Philippines.
Q. Who are the income taxpayers?
In general, the income taxpayers are
classified into individual, estate, trust and
corporation. (Sec. 22A, NIRC)
ST. LUKE'S MEDICAL CENTER, INC.,
ORGANIZED AS A NON-STOCK AND NON-
PROFIT CHARITABLE INSTITUTION IS NOT
IPSO FACTO ENTITLED TO A TAX
EXEMPTION
There is no dispute that St. Lukes is
organized as a non-stock and non-profit
charitable institution. However, this does not
automatically exempt St. Lukes from paying
taxes. This only refers to the organization of
St. Lukes. Even if St. Lukes meets the test of
charity, a charitable institution is not ipso facto
tax exempt. To be exempt from income taxes,
Section 30(E) of the NIRC requires that a
charitable institution must be organized and
operated exclusively for charitable purposes.
Likewise, to be exempt from income taxes,

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Section 30(G) of the NIRC requires that the
institution be operated exclusively for social
welfare. [Commissioner of Internal Revenue v.
St. Luke's Medical Center, Inc., 682 SCRA 66
(26 September 2012)]
Q. State the rule on construction of tax
exemptions.
Laws granting exemption from tax are
construed strictissimi juris against the taxpayer
and liberally in favor of the taxing power.
Taxation is the rule and exemption is the
exception. The burden of proof rests upon the
party claiming exemption to prove that it is in
fact covered by the exemption so claimed
(Commissioner v. Mitsubishi Metal Corp., 181
SCRA 215).
Q. Is terminal leave pay taxable?
No. In the case of Re: Request of Atty.
Bernardo Zialcita (Adm. Matter No. 90-6-015-
SC, October 18, 1990; 190 SCRA 851), the SC
held that terminal leave pay is the cash value
of an employees accumulated leave credits,
hence, it cannot be considered compensation
for services rendered; it cannot be viewed as
salary. It falls within the enumerated
exclusions from gross income, and is therefore
not subject to tax.
Q. What are taxable unregistered
partnerships?
The SC in Evangelista v. CIR, 102 Phil.
140, held that Sec. 24 [now Section 22(B)]
covered unregistered partnerships and even
associations or joint accounts which had no
legal personalities apart from their individual
members. xxx Accordingly, a pool of
machinery insurers was a partnership taxable
as a corporation (Afisco Insurance Corp. v. CA,
302 SCRA 1).
Q. Obillos sold his rights over two parcels
of land to his four children so that they
can build their residence, but the latter
after one (1) year sold them and paid
the capital gains. Acting on the theory
that the children had formed an
unregistered taxable partnership or
joint venture, the BIR required the
brothers to pay corporate income tax.
Resolve.
The children should not be treated as
having formed an unregistered partnership and
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taxed corporate income tax on their shares of
the profits from the sale. Their original
purpose was to divide the lots for residential
purposes. If later on they found it not feasible
to build their residences on the lots because of
the high cost of construction, then they had no
choice but to resell the same to dissolve the co-
ownership. The division of the profit was
merely incidental to the dissolution of the co-
ownership which was in the nature of things in
a temporary state (Obillos Jr. v. CIR, 139
SCRA 438, 439).
Q. May a withholding agent file a written
claim for refund?
YES. In CIR v. Procter and Gamble
PMC , 204 SCRA 377, the SC held that a
withholding agent is subject to and liable 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
the law. A person liable for tax has been
held to be a person subject to tax and
properly considered a taxpayer x x x By any
reasonable standard, such a person should be
regarded as a party in interest, or as a person
having sufficient legal interest, to bring a suit
for refund of taxes.
Q. The BIR disallowed PRCs claim for
deduction for failure to prove the
worthlessness of the debts. Is the
disallowance correct?
YES. There was no iota of
documentary evidence (e.g. collection letters,
reports from investigating fieldsman, police
report/affidavit, etc.) to give support to the
allegation of worthlessness. For debts to be
considered worthless, and qualify as bad
debts making them deductible, the taxpayer
should show that:
a. There is valid and subsisting
debt;
b. The debt must be actually
ascertained to be worthless
and uncollectible during the
taxable year;
c. The debt must be charged off
during the taxable year;
d. The debt must arise from the
business or trade of the
taxpayer;
e. The taxpayer must also show
that it is indeed uncollectible
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
even in the future (PRC v. CA,
256 SCRA 667).
f. It must not arise from
transactions between related
taxpayers (RR 5-99, RR 25-
2002).
Q. Is theoretical interest on capital
deductible?
NO. It is not deductible as it does
not represent a charge arising under an
interest-bearing obligation (Sec. 79, Rev. Reg.
No. 2, cited in the case of PICOP v. CA, 250
SCRA 434).
Q. How are assets classified for income
taxpayers?
The assets of a taxpayer are classified
for income tax purposes into ordinary and
capital assets. However, there is no rigid rule
or formula by which it can be determined with
finality whether property sold by a taxpayer
was held primarily for sale to costumers in the
ordinary course of his trade or business or
whether it was sold as a capital asset. A
property initially classified as a capital asset
may thereafter be treated as an ordinary asset
if a combination of factors indubitably tend to
show that the activity was in furtherance of or
in the course of the taxpayers trade or
business. Thus, a sale of inherited property
usually gives capital gain or loss even though
the property has to be subdivided or improved
or both to make it saleable. However, if the
inherited property is substantially improved or
very actively sold or both, it may be treated as
held primarily for sale to customers in the
ordinary course of the heirs business (Calasanz
v. CIR, 144 SCRA 664).
Q. Is an equity investment a capital or
ordinary asset?
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. The gain or loss is
ordinary when the property sold or exchanged
is not a capital asset (China Banking
Corporation v. CA, 336 SCRA 178).
Q. Who are the individual income
taxpayers?
They are the resident citizen,
nonresident citizen, OCW and seamen,
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resident alien (Sec.24A) and non-resident alien
engaged in trade/business or exercise of
profession in the Philippines (Sec 25A).
EXCLUDE non-resident alien NOT
engaged in trade/business or exercise of
profession in the Philippines (Sec. 25A).
Q. How are the incomes of individuals
taxed?
In general, individuals are taxed on the
basis of their taxable income, that is, gross
income less deduction and personal and
additional exemption. This tax is referred to as
ordinary income tax or regular income tax.
(Sec. 24A and 25A in relation to Sec. 31 and
Sec. 32A, NIRC).
By way of exception, final tax, instead
of ordinary tax, shall be imposed on certain
kinds of passive income. Subject to certain
requisites, these are:
a. Interests, royalties, prizes and
winnings;
b. Cash or property dividends;
c. Capital gains derived from the sale
of shares of stocks; and
d. Capital gains derived from the sale
of realty. (Sec. 24B1, 24B2, 24C,
24D1, 25A2 and 25A3, NIRC)
b. Other incomes subject to final tax
are:
a. Fringe benefits (Sec. 33, NIRC)
b. Informers reward (Sec. 282,
NIRC)
Q. Distinguish ordinary tax from final tax
Ordinary tax and final tax are
distinguished as follows:
(a) In the former, the tax base is
taxable income; in the latter, the
tax base is the gross income;
(b) In the former, deductions and
personal or additional exemptions
are allowed; in the latter, no such
deductions and personal or
additional exemptions are
allowed;
(c) The tax base of the former is
computed on the basis of one
taxable year; the tax base of the
latter is usually computed on a per
transaction basis;
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega

tax return for an income tax

(d) The former is paid at the end of the particular return, as
the taxable year; the latter is paid income. prescribed in
at source; Sec. 51 and Sec.
52 of the NIRC,
(e) In the former, liability for payment as amended.
rests on the payee; in the latter,
liability for payment rests on the (Revenue Regulation 2-98, Sec. 2.57A; CREBA
payor; vs. Romulo, 9 March 2010)

(f) In the former, the payee is Q. What is passive income?

required to file an income tax
return; in the latter, the payee is
no longer required to file the
return since it is to be made by the
payor;
(g) Creditable withholding tax is, in
certain cases, imposed on incomes
subject to ordinary tax; final
withholding tax is usually imposed
on incomes subject to final tax.
It is income generated by the
taxpayers assets. The BIR defines passive
income by stating what it is not: if the income
is generated in the active pursuit and
performance of the corporations primary
purposes, the same is not passive income.
(CREBA vs. Romulo, 9 March 2010)
Q. Are all passive incomes subject to
withholding tax?

Q. Distinguish final withholding tax from No. There are only certain kinds of
creditable withholding tax passive income that are subject to final tax
and, consequently, to final withholding tax.
FWT CWT These are specifically enumerated in various
The amount of Taxes withheld provisions of the NIRC (see Sec. 57A, NIRC).
income tax on certain All others are generally considered part of
withheld by the income gross income, and consequently, subject to
withholding payments are ordinary tax wherein creditable withholding
agent is intended to tax is, in particular cases, applicable. Under
constituted as a equal or at least present regulations, creditable withholding tax
full and final approximate the is usually applied to income payments not
payment of the tax due of the involving passive income.
income tax due payee on said
from the payee income. NOTE: From the above, it is clear that not
on the said only passive incomes may be subject to
income. withholding tax. Sec. 57 (A) of the NIRC
The liability for Payee of income expressly states that final tax can be imposed
payment of the is required to on certain kinds of income and enumerates
tax rests report the these as passive income. On the other hand,
primarily on the income and/or Section 57 (B) provides that the Secretary (of
payor as a pay the Finance) can require a CWT on income
withholding difference payable to natural or juridical persons, residing
agent. between the tax in the Philippines. There is no requirement
withheld and that this income be passive income. If that
the tax due on were the intent of Congress, it could have
the income. The easily said so. (See CREBA vs. Romulo, supra)
payee also has
the right to ask Q. Give some example of ordinary
for a refund if incomes subject to CWT
the tax withheld
is more than the Some notable income payments that are
tax due. subject to CWT are (1) wages; (2) professional
The payee is The income fees; (3) rentals of realty; (4) income payments
not required to recipient is still to partners of GPPs and (5) income payment
file an income required to file

Page 23 of 50
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 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
to realtors for the sale of realty. (Sec. 78, NIRC
and Sec. 2.57.2 of RR No. 2-98, as amended)
Q. What is the proper tax treatment of
interest incomes earned by individual?
As a rule, the interests earned by
individuals shall be included in gross income
and, thus, subject to regular income tax. This
includes interest earned by a resident citizen
from sources abroad.
By way of exception, interest from
bank deposit (or monetary benefits from
deposit substitutes or similar arrangements)
DERIVED FROM SOURCES WITHIN shall be
subject to final tax and, correspondingly, final
withholding tax. The rate of tax is 20% for
Peso currency deposit account and 7.5% for
any foreign currency deposit account.
Q. Instances when the tax on interests
from bank deposits is not applicable
(a) When derived from sources abroad
(the bank is a non-resident), except
those earned by resident citizens;
(b) When earned by non-residents from
foreign country deposit accounts; and
(c) When earned from long-term deposit
or investment.
Q. Instances when final tax on prize is not
applicable
(a) When earned from sources abroad,
that is, when the competition or
contest was held abroad; however, the
prize or award received by a resident
citizen form sources abroad is still
included in gross income subject of
ordinary income taxation;
(b) When the amount does not exceed
Php10,000.00, in which case, the
amount is included in gross income
and thus subject to ordinary tax (Sec.
24B1, Sec. 32A, NIRC);
(c) When the prize or award is received
primarily in recognition of religious,
charitable, educational, artistic,
literary, or civic achievement
PROVIDED (1) the recipient was
selected without any action on his part
to enter the contest; and (2) he is not
required to render substantial future
services; This is considered an
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EXCLUSION, and hence, exempt from
tax (Sec. 32B7c, NIRC)
(d) When the prize or award is won by an
athlete in a local or international
sports competition (i.e., the
OLYMPICS) sanctioned by a
recognized national sports association;
This is considered an EXCLUSION and,
hence exempt from tax (Sec. 32B7d,
NIRC).
Q. What is capital asset? What is capital
gain?
The law defines capital asset in the
negative, such that, any property not falling
under the following enumeration (referred to
as ordinary assets) is capital asset:
(a) stock in trade or inventoriable asset;
(b) property primarily held for sale to
customers in the ordinary course of
trade or business;
(c) depreciable asset; and
(d) real property used in trade or business.
(Sec. 39A, NIRC)
On the other hand, a capital gain is the
gain, profit or income realized from a sale or
disposition of capital asset.
Q. What is the proper tax treatment on
capital gain derived from dealings in
property?
Generally, a capital gain is included in
gross income subject of ordinary income
taxation (Sec. 32A, NIRC). By way of
exceptions, the capital gains derived from the
sale of shares of stock issued by a domestic
corporation a sale of real property located in
the Philippines are subject to final tax. (Sec.
24C, 24D1, 25A3, NIRC)
Q. In dealings in capital assets, are gains
to be presumed?
No. Gains are not to be presumed
from sale or disposition of capital assets.
However, in case of sale or other disposition
of real property located in the Philippines and
held as capital asset, the gain is presumed and
such gain is equivalent to the amount of the
zonal value or gross selling price, whichever is
higher. (Sec. 24D1, Sec. 25A3, NIRC)

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Q. What are the tax base and the tax rate
of the applicable tax imposable on
capital gains?
In general, the tax base of the income
tax on capital gain is the net capital gain or net
income, whereas, the tax rate is the graduated
rate of 5%-32%.
For capital gain derived from the sale
of share of stock in a domestic corporation not
traded through the local stock exchange, the
tax base is NET CAPITAL GAIN and the tax
rate is 5% for the first Php100, 000.00 and
10% on any amount in excess thereof. (NOTE:
If sale is through the local stock exchange, the
applicable tax is the percentage tax, also
referred to as the stock transaction tax, under
Sec. 127 of the NIRC. The basis is the GSP and
the rate is of 1%. The payment of this tax is
in lieu of income tax.)
For capital gain presumed to have
been realized from the sale of realty, the tax
base is FMV or GSP, whichever is higher, and
the tax rate is 6%.
Q. A dealer in securities sold unlisted
shares of stocks of a domestic
corporation in 2010 and derived a
gain of P1 Million therefrom. Is the
gain taxable at 5%/10% capital gains
tax based on net capital gain OR at
of 1% stock transaction tax based on
the gross selling price or fair market
value, whichever is higher?
Neither. The 5%/10% capital gains tax
is not applicable because he shares are NOT
capital assets. Shares of stock, like other
securities, would be ordinary assets 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. (China Banking
Corp. vs. CA, G.R. No. 125508, July 19,
2000).
Likewise, he percentage tax, otherwise
known as the stock transaction tax, is not
applicable because the seller is a dealer in
securities. In addition, the shares sold are
unlisted shares. The percentage tax applies on
sale, barter or exchange of shares of stock
LISTED and TRADED through the local stock
exchange OTHER THAN by a dealer in
securities. (Sec. 127, NIRC, emphasis supplied.)
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Q. A resident Filipino citizen (not a dealer
in securities) sold shares of stocks of a
domestic corporation that are listed
and traded in the Philippine Stock
Exchange.
a) The sale is exempt from income
tax but subject to the of 1%
stock transaction tax;
b) The sale is subject to income tax
computed at the graduated
income tax rates of 5% to 32%
on net taxable income;
c) The sale is subject to the stock
transaction tax and income tax;
d) The sale is both exempt from the
stock transaction tax and income
tax.
Explanation:
Under Section 127 (D) of the NIRC,
any gain derived from the sale, barter,
exchange or other disposition of shares of
stock subject to the percentage tax of of 1%
shall be exempt from the final tax and from
the regular individual or corporate income tax.
Q. May the liability for the 6% capital
gains tax be legally avoided? If in the
affirmative, what are the requirements?
Yes. The 6% capital gains tax may be
legally avoided if the subject matter of the sale
is the PRINCIPAL residence and the proceeds
are to be used in acquiring or establishing a
new principal residence within eighteen (18)
calendar months from the date of sale. The
seller must inform the Commissioner of his
intention to avail of the exemption within 30
days from the date of sale. (Sec. 24D2, NIRC).
Additionally, the revenue regulations
require the 6% capital gains tax o be
deposited in an escrow account with an
authorized agent bank and shall only be
released to the transferor if the proceeds of the
sale/disposition have, in fact, been utilized in
the acquisition or construction of a new
principal residence. (RR No. 17-2003)
Q. Instances when the 6% capital gains
tax will not apply
a. when the real property is
ordinary asset;
b. when the real property, even
though classified as capital asset,
is not located in the Philippines;
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
c. when the real property is a
principal residence and the seller
applies for exemption from the
tax;
d. When the real property is sold to
the government and the seller
exercises the option to be taxed
for ordinary tax under Sec. 24A.
(contained in the proviso of
Sec.24D1, NIRC)
Q. What is the importance of the
classification of assets into ordinary
and capital?
The importance lies on the application
of the rules on holding period, loss limitation
and carry-over of the net capital loss. These
rules are relevant only to dealings in capital
assets.
Q. State the rules on holding period, loss
limitation and carry-over of net capital
loss
Pursuant to the rule on holding period,
only fifty percent (50%) of the capital gain, if
any, is taxable; or only 50% of the capital loss,
is deductible, where the property sold has
been held for more than twelve (12) months.
If held in the short-term (less than 12 months),
one hundred percent (100%) of the gain or
loss shall be taxable or deductible, as the case
may be. This rule applies to individuals only.
(Sec. 39B, NIRC).
Under the loss limitation rule, the
capital loss shall be deductible only to the
extent of the capital gains derived within the
taxable year. This rule applies to both
individuals and corporations. (Sec. 39C in
relation to Sec.34D4, NIRC).
If during the taxable year, there is
excess of capital losses over capital gains, the
excess (net capital loss) may be carried over to
and deducted from capital gains in the
succeeding taxable year. The privilege of carry-
over of net capital loss is available only to
individuals. (Sec. 39D, NIRC)
Q. Are the rules on holding period, loss
limitation and carry-over of net capital
loss applicable in a sale or disposition
of real property located in the
Philippines?
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No. By express provision under the
law, the holding period is inapplicable to a
sale of real property where the 6% capital
gains tax applies. In this case, the gain is
presumed by law. The loss that may have been
actually incurred, if there be any, is not
recognized. Consequently, the rules on loss
limitation and carry-over of net capital loss
also find no application. (See the exception
clause in Sec. 24D1, NIRC)
NOTE: The holding period is also not
applicable to a sale of shares of stock in a
domestic corporation not traded through the
local stock exchange. This is also by express
exclusion under the law. (Sec. 24C and allied
provisions, NIRC)
Q. Who are the corporate taxpayers?
They are classified into domestic
corporation (DC), resident foreign corporation
(RFC) and non-resident foreign corporation
(NRFC).
Q. What is a resident foreign corporation?
Give an example
It is a foreign corporation engaged in
the trade or business in the Philippines (Sec.
22H, NIRC). An example is one organized
under the laws of a foreign country that
engages in business in Makati City, Philippines.
Q. How are the corporations taxed?
In general, domestic corporations and
resident foreign corporations are taxed on
their taxable income, i.e. gross income less
deductions; or in lieu thereof, the Minimum
Corporate Income Tax (MCIT).
By way of exceptions, final tax shall be
imposed on certain kinds of passive income
such as interest on bank deposits, royalties,
capital gains form sale or disposition of land or
building located in the Philippines. (Sec. 27D1,
27D2, 27D5; Sec. 28A7a, 28A7c)
For non-resident corporations, their
income from all sources within the Philippines
are taxed via the final withholding tax. The
rate applied is 30%, except interest on foreign
loan (20%), dividend from domestic
corporations (15%, subject to condition) and
capital gain from sale of shares of stock in a
domestic corporation (5% and 10%).
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega

EXCLUDE Non-resident cinematographic film
owner, lessor or distributor (Sec. 28B2, Non-
resident owner or lessor of vessels chartered by
Philippine nationals (Sec. 28B3), and Non-
resident owner or lessor of aircraft machineries
and other equipment (Sec. 28B4)
public sector. (CREBA vs. Romulo, 9 March
2010)
Q. What are the perceived advantages of
pegging the tax base of the MCIT to a
corporations gross income?

Q. Under the NIRC, who are the exempt As a tax on gross income, the MCIT
corporations? prevents tax evasion and minimizes tax
avoidance schemes achieved through
Under, Sec. 27 (C) of the NIRC, the sophisticated and artful manipulations of
following are absolutely exempted from deductions and other stratagems. It is also
income tax: simple and effective in addressing liquidity
problems of the government. (See CREBA vs.
(a) SSS Romulo, supra)
(b) GSIS
(c) PHIC Q. Instances when the MCIT will not
(d) PCSO apply
(e) Local water districts (R.A. No. 10026)
(a) during the infant stages of the
Under Sec. 30 of the NIRC, certain corporation; the tax shall apply only
kinds of non-stock and non-profit beginning the fourth taxable year
organizations are exempt from income tax in immediately following the taxable
respect to income derived by them as such year in which such corporation
organizations. However, their income from commenced its business operations;
property, real or personal, or from any of
their activities conducted for profit regardless (b) when by authority of the Secretary of
of the disposition made of such income, are Finance, the imposition of the MCIT
still taxable. is suspended upon submission of
proof by the applicant corporation
But a non-stock and non-profit that the corporation sustained
educational institution may be exempt from substantial losses
tax provided that its income, regardless of (1) on account of a prolonged
source, is used actually, directly, and labor dispute; or
exclusively for educational purposes. (See par. (2) because of force majeure;
3, Sec. 4, Art.XIV, 1987 Constitution) or
(3) because of legitimate
A proprietary educational institution business reverses;
or hospital is not exempted but it enjoys a (c) when the corporation is not subject
preferential rate of tax at 10% based on to normal income tax (tax based on
taxable income PROVIDED not more than fifty taxable income at the normal rate of
(50%) of its income from unrelated trade, 30%), such as
business or other activity exceeds its gross (1) a proprietary educational
income. (Sec. 27B, NIRC) institution or hospital
enjoying 10% tax on their
Q. What is the rationale behind the taxable income;
MCIT? (2) an FCDU;
(3) an OBU;
The MCIT came about as a result o the (4) regional operating
perceived inadequacy of the self-assessment headquarter of a
system in capturing the true income of multinational company
corporations. It was devised as a relatively (ROH);
simple and effective revenue-raising instrument (5) A firm that is taxed under a
compared to the normal income tax which is special tax regime like an
more difficult to control and enforce. It is a enterprise registered with
means to ensure that everyone will make some the PEZA Law (RA No.
minimum contribution to the support of the 7916) or Bases Conversion

Page 27 of 50
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 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Development Act (RA No.
7227).
Q. Explain the concept and rationale of
the Improperly Accumulated Earnings
Tax (IAET)
The IAET equal to 10% of the
improperly accumulated taxable income is
imposed on corporations formed or availed of
for the purpose of avoiding the income tax
with respect to its shareholders or the
shareholders of any other corporation, by
permitting the earnings and profits of the
corporation to accumulate instead of dividing
them among or distributing them to the
shareholders. The rationale is that if the
earnings and profits were distributed, the
shareholders would then be liable to income
tax thereon, whereas if the distribution were
not made to them, they would incur no tax in
respect to the undistributed earnings and
profits of the corporation. (See Sec. 29, NIRC
and Sec. 2, RR No. 2-2001)
Q. Who are exempt from IAET?
The IAET shall not apply to the following
corporations:
a. Banks and other non-bank financial
intermediaries;
b. Insurance companies;
c. Publicly-held corporations;
d. Taxable partnerships;
e. General professional partnerships;
g. Non- taxable joint ventures; and
h. Enterprises duly registered with the
Philippine Economic Zone
Authority (PEZA) under R.A. 7916,
and enterprises registered pursuant
to the Bases Conversion and
Development Act of 1992 under
R.A. 7227, as well as other
enterprises duly registered under
special economic zones declared
by law which enjoy payment of
special tax rate on their registered
operations or activities in lieu of
other taxes, national or local. (Sec.
29, NIRC and Sec. 4, RR No. 2-
2001)
Q. For covered corporations, how can
liability for IAET be avoided?
It may be avoided if the corporation
has accumulated income for the reasonable
needs of the business. By reasonable needs of
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the business, it means the immediate needs of
the business, including reasonably anticipated
needs. (Sec. 3, RR No. 2-2001)
DEDUCTIONS
Q. What are the deductions recognized
under the law?
The deductions are those found in Sec.
34 (items of deduction or optional standard
deduction) and in Sec. 35 (personal and
additional exemptions) of the NIRC. Special
deductions are also provided for insurance
companies under Sec. 37 of the NIRC.
Q. Who are entitled to deductions?
Individuals and corporations subject to
the regular income tax are entitled to claim
deductions. Those who may avail of the
deductions are usually engaged in
trade/business or in the exercise of a
profession. However, only individuals may
claim personal and additional exemptions.
Q. May pure compensation income
earners claim deductions?
Yes, but only premium payments on
health and/or hospitalization insurance not to
exceed Php2, 400.00 per annum (or
Php200.00 per month) may be claimed as
deduction. All other items of deduction and
the optional standard deduction are not
available to pure compensation income
earners. In addition, however, they may claim
personal and additional exemptions under Sec.
35 of the NIRC.
Q. What are the different items of
deduction?
They are:
(a) Business expense;
(b) Interest expense
(c) Tax;
(d) Loss
(e) Bad debt;
(f) Depreciation;
(g) Depletion of oil and gas wells and
mines;
(h) Charitable contribution;
(i) Research and development; and
(j) Pension trust
Q. Some income payments, which
correspond to expenses of payors, are

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
subject to creditable withholding tax
under RR 2-98, as amended. On the
part of the payor, what is the effect of
the non-withholding or under-
withholding of the income payment?
The expense, which is recognized as
deduction for tax purposes, may be disallowed
if such was not subjected to withholding tax.
However, a deduction may still be allowed
despite non-withholding or under-withholding
if at the time of the audit or investigation, the
withholding tax is paid.
Q. During the audit conducted by the BIR
official, it was found that the rental
income claimed by the corporation
was not subjected to expanded
withholding tax. May the claimed
rental expense be allowed as
deduction from the gross income of
the corporation?
Yes, provided that the 5% expanded
withholding tax is paid by the corporation
during the audit.
Q. State the rule on optional treatment of
interest expense.
At the option of the taxpayer, interest
incurred to acquire property used in trade,
business or exercise of a profession may be
allowed as a deduction or treated as a capital
expenditure. (Sec. 34B [B] [3], NIRC)
Q. Amounts of income accrue where the
right to receive them become fixed,
where there is created an enforceable
liability. Similarly, liabilities are accrued
when fixed and determinable in
amount, without regard
indeterminacy merely of time of
payment. For a taxpayer using the
accrual method, when do the facts
present themselves in such a manner
that the taxpayer must recognize
income or expense?
The accrual of income and expense is
permitted when the ALL-EVENTS TEST has
been met. This test requires: (1) fixing of a right
to income or liability to pay; and (2) the
availability of the reasonable accurate
determination of such income or liability. The
all-events test requires the right to income or
liability be fixed, and the amount of such
income or liability be determined with
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Taxation Law
reasonable accuracy. (CIR vs. Isabela Culutral
Corp., G.R. No. 172231, February 12, 2007)
Q. The all events test refers to:
(a) A person who uses the cash method
where vall sales have been fully paid
by the buyers thereof;
(b) A person who uses the instalment sales
method, where the full amount of
consideration is paid in full by the
buyer thereof within the year of sale;
(c) A person who uses the accrual method,
whereby an expense is deductible for
the taxable year in which all the events
had occurred which determined the
fact of the liability and the amount
thereof could be determined with
reasonable accuracy;
(d) A person who uses the completed
method, whereby the construction
project has been completed during the
year the contract was signed.
Q. What is the optional standard
deduction (OSD) and what are its
advantages?
The optional standard deduction is a
privilege available to a citizen, resident alien or
corporation subject to the normal income tax
to deduct, in lieu of itemized deduction, forty
percent (40%) of taxpayers gross sales or
receipts (in the case of individual) or gross
income (in the case of corporation) in the
computation of taxable income.
The OSD has its advantages. As an
to alternative to itemized deduction, it provides
taxpayers with low itemizable expenses a
higher amount of deduction and, thus, more
tax savings. Also, its computation is relatively
simple and, unlike itemized deduction, the
OSD dispenses with the substantiation
requirement. This relieves taxpayers of the
difficulty of computation usually attendant to
itemized deduction as well as the added
burden of record-keeping.
Q. Important concepts relating to the
OSD
(a) The OSD is available only to citizens,
resident aliens, and corporations
subject to the regular income tax (DC
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
and RFC). Before the amendment in
RA 9504, corporations were not
entitled to OSD.
(b) The standard deduction is optional. If
the taxpayer does not elect OSD, he is
considered as having availed of the
itemized deduction.
(c) The election for OSD shall be
irrevocable for the year in which it is
made.
(d) Proof is not required.
(e) The rate has been increased from 10%
to 40% under the amendment in RA
9504.
Q. Personal and Additional Exemptions
Under Sec. 36 (A) (1) of the NIRC,
personal, living and family expenses are non-
deductible expenses. Exemptions under Sec. 35
are intended as substitutes for personal and
living expenses. They are roughly equivalent to
the minimum of subsistence (Madrigal vs.
Rafferty, 7 August 1918). Under the prevailing
law, the amount fixed for personal exemption
is Php50,000.000, regardless of the status of
the taxpayer (whether single, head of the
family or married), and additional exemption
in the amount of Php25,000.00 for each
qualified dependent up to a maximum of four.
Q. Who is a qualified dependent?
A dependent means a legitimate,
illegitimate or legally adopted child chiefly
dependent upon and living with the taxpayer
if such dependent is not more than twenty-one
(21) years of age, unmarried and not gainfully
employed or if such dependent, regardless of
age, is incapable of self-support because of
mental or physical defect.
Q. How is the Standard Deduction for
estate tax purposes differentiated from
the Optional Standard Deduction for
income tax purposes?
(1) The former is automatic whereas the
latter is optional on the part of the
taxpayer.
(2) The former is a fixed amount of Php1
million whereas the latter is fixed at
40% of the taxpayers gross sales or
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gross receipts (individual) or gross
income (corporation).
(3) The former is a deduction available to
estates of citizens of the Philippines
whereas the latter is a deduction
available to income taxpayers [other
than nonresident aliens not engaged in
the trade or business of the Philippines
(NRANETB) and nonresident foreign
corporations (NRFC)] who are
engaged in trade or business or
exercise of profession.
OPTIONAL STANDARD DEDUCTION (OSD)
FOR INDIVIDUAL AND CORPORATE
TAXPAYERS
A. Individual Taxpayers
The OSD allowed to individual
taxpayers shall be a maximum of forty percent
(40%) of gross sales or gross receipts during
the taxable year. It should be emphasized that
the cost of sales in case of individual seller of
goods, or the cost of services in the case of
individual seller of services, is not allowed to
be deducted for purposes of determining the
basis of the OSD pursuant to this Section
inasmuch as the law (RA 9504) is specific as to
the basis thereof which states that for
individuals, the basis of the 40% OSD shall be
the gross sales or gross receipts and not
gross income (Revenue Regulations No. 16-
2008).
B. Corporate Taxpayers
In the case of corporate taxpayers
subject to tax under Sections 27(A) and
28(A)(1) of the Code, as amended, the OSD
allowed shall be in an amount not exceeding
forty percent (40%) of their gross income.
For purposes of these Regulations,
Gross Income shall mean the gross sales less
sales returns, discounts and allowances and
cost of goods sold. Gross sales shall include
only sales contributory to income taxable
under Sec. 27(A) of the Code. Cost of goods
sold shall include the purchase price or cost to
produce the merchandise and all expenses
directly incurred in bringing them to their
present location and use (Revenue Regulations
No. 16-2008).
Q. Requirements for expenses to be
deductible against gross estate

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
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. (CIR vs. CA et al., G.R. No. 123206,
March 22, 2000)
Q. Expenditures which are not allowed to
be deducted
Expenditures incurred for the
individual benefit of the heirs, devisees or
legatees are not deductible. (CIR vs. CA et al.,
G.R. No. 123206, March 22, 2000)
DE MINIMIS BENEFITS
Revenue Regulations No. 5-2011
further amended Revenue Regulation Nos. 5-
2008, 5-2010, 10-2000 and 3-98, with respect
to De Minimis Benefits.
Rice subsidy of P1, 500 or one sack of
50 kg. rice per month amounting to not more
than P1,500 and uniform and clothing
allowance not exceeding P5,000 per annum
(RR 8-2012) are considered as de minimis
benefits, which are not subject to the fringe
benefits tax (per Section 2.33(c) of Revenue
Regulations No. 3-98) and Income Tax as well
as withholding tax on corporation income of
both managerial and rank and file employees
(per Section 2.78.1 (A)(3)(c) and (d) of
Revenue Regulations No. 298).
Monetary value of fruits, flowers or
books given on special occasions are deleted.
Any other benefit not included in the
enumeration shall not be considered de
minimis benefits and are therefore subject to
income tax and withholding tax on
compensation income.
MINIMUM WAGE EARNERS ARE NOT
REQUIRED TO FILE AN INCOME TAX
RETURN
Minimum wage earner shall refer to a
worker in the private sector paid the statutory
minimum wage, or to an employee in the
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public sector with compensation income of not
more than the statutory minimum wage in the
non-agricultural sector where he/she is
assigned. He is not required to file an income
tax return (Sec. 5, R.A. No. 9504).
Q. Explain the nature of personal
exemptions.
Personal exemptions are the
theoretical personal, living and family expenses
of an individual allowed to be deducted from
the gross or net income of an individual
taxpayer. These are arbitrary amounts which
have been calculated by our lawmakers to be
roughly equivalent to the minimum of
subsistence, taking into account the personal
status and additional qualified dependents of
the taxpayer. They are fixed amounts in the
sense that the amounts have been
predetermined by our lawmakers as provided
under Section 35 (A) and (B). Unless and until
our lawmakers make new adjustments on
these personal exemptions, the amounts
allowed to be deducted by a taxpayer are
fixed as predetermined by Congress (Pansacola
v. Commissioner of Internal Revenue, 507
SCRA 81).
ALLOWANCE OF PERSONAL EXEMPTION
FOR INDIVIDUAL TAXPAYERS
There shall be allowed a basic personal
exemption amounting to Fifty Thousand Pesos
(P50, 000) for each individual taxpayer. In the
case of married individual where only one of
the spouses is deriving gross income, only such
spouse shall be allowed the personal
exemption (Sec. 4(A), R.A. No. 9504).
ADDITIONAL EXEMPTION FOR
DEPENDENTS
There shall be allowed an additional
exemption of Twenty-Five Thousand Pesos
(P25, 000) for each dependent not exceeding
four (4). The additional exemption for
dependents shall be claimed by only one of
the spouses in the case of married individuals.
In the case of legally separated
spouses, additional exemptions may be
claimed only by the spouse who has custody
of the child or children: Provided, that the
total amount of additional exemptions that
may be claimed by both shall not exceed the
maximum additional exemptions.
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
A dependent means a legitimate,
illegitimate or legally adopted child chiefly
dependent upon and living with the taxpayer
if such dependent is not more than twenty-one
(21) years of age, unmarried and not gainfully
employed or if such dependent, regardless of
age, is incapable of self-support because of
mental or physical defect (Sec. 4(B), R.A. No.
9504).
Q. Are advertising expenses incurred to
protect Brand Franchise deductible?
Advertising is generally of two kinds:
(1) advertising to stimulate the current sale of
merchandise or use of services and (2)
advertising designed to stimulate the future
sale of merchandise or use of services. The
second type involves expenditures incurred, in
whole or in part, to create or maintain some
form of goodwill for the taxpayer's trade or
business or for the industry or profession of
which the taxpayer is a member. If the
expenditures are for the advertising of the first
kind, then, except as to the question of the
reasonableness of amount, there is no doubt
such expenditures are deductible as business
expenses. If, however, the expenditures are for
advertising of the second kind, then normally
they should be spread out over a reasonable
period of time.
The protection of branch franchise is
analogous to the maintenance of goodwill or
title to one's property. This is a capital
expenditure which should be spread out over
a reasonable period of time.
Respondent Corporations venture to
protect its brand franchise was tantamount to
efforts to establish a reputation. This was akin
to the acquisition of capital assets and
therefore expenses related thereto were not to
be considered as business expenses but as
capital expenditures. [Commissioner of
International Revenue v. General Foods
(Phils.), Inc., 401 SCRA 545, (2003)]
III. TAX REMEDIES
Q. What are the remedies available to an
aggrieved taxpayer under the Tax
Code?
1. Administrative (Extra-
Judicial)
2. Judicial
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Two administrative remedies
accorded to the taxpayer
under the Tax Code:
b. administrative protest,
which is a protest against
the assessment and is filed
before payment; and,
c. Claim for refund filed with
the CIR after payment.
THE SENDING OF A PRELIMINARY
ASSESSMENT NOTICE (PAN) TO TAXPAYER
TO INFORM HIM OF THE ASSESSMENT
MADE IS BUT PART OF THE DUE PROCESS
REQUIREMENT IN THE ISSUANCE OF A
DEFICIENCY TAX ASSESSMENT, THE
ABSENCE OF WHICH RENDERS NUGATORY
ANY ASSESSMENT MADE BY THE TAX
AUTHORITIES
The use of the word shall in
subsection 3.1.2 of Revenue
Regulations 12-99 describes the
mandatory nature of the service of a
PAN. The persuasiveness of the right to
due process reaches both substantial
and procedural rights and the failure of
the CIR to strictly comply with the
requirements laid down by law and its
own rules is a denial of Metro Star's
right to due process. Thus, for its
failure to send the PAN stating the
facts and the law on which the
assessment was made as required by
Section 228 of R.A. No. 8424, the
assessment made by the CIR is void.
[Commissioner of Internal Revenue v.
Metro Star Superama, Inc., 637 SCRA
633, (2010)]
ASSESSMENT IS A WRITTEN NOTICE AND
DEMAND
In the context in which it is used in the
NIRC, an assessment is a written notice and
demand made by the BIR on the taxpayer for
the settlement of a due tax liability that is
there definitely set and fixed. A written
communication containing a computation by a
revenue officer of the tax liability of a
taxpayer and giving him an opportunity to
contest or disprove the BIR examiner's findings
is not an assessment since it is yet indefinite.
We rule that the recommendation letter of the
Commissioner cannot be considered a formal
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
assessment. Even a cursory perusal of the said
letter would reveal three key points: 1. It was
not addressed to the taxpayers. 2. There was
no demand made on the taxpayers to pay the
tax liability, nor a period for payment set
therein. 3. The letter was never mailed or sent
to the taxpayers by the Commissioner. In fine,
the said recommendation letter served merely
as the prima facie basis for filing criminal
informations that the taxpayers had violated
Section 45 (a) and (d), and 110, in relation to
Section 100, as penalized under Section 255,
and for violation of Section 253, in relation to
Section 252 9(b) and (d) of the Tax Code.
[Adamson v. Court of Appeals, 588 SCRA 27
(2009)]
A MOTION FOR RECONSIDERATION OF THE
DENIAL OF THE ADMINISTRATIVE PROTEST
DOES NOT TOLL THE 30-DAY PERIOD TO
APPEAL TO THE COURT OF TAX APPEALS
In the case at bar, petitioner's
administrative protest was denied by Final Decision
on Disputed Assessment dated August 2, 2005
issued by respondent and which petitioner received
on August 4, 2005. Under the above-quoted
Section 228 of the 1997 Tax Code, petitioner had
30 days to appeal respondent's denial of its protest
to the CTA. Since petitioner received the denial of
its administrative protest on August 4, 2005, it had
until September 3, 2005 to file a petition for
review before the CTA Division. It filed one,
however, on October 20, 2005, hence, it was filed
out of time. For a motion for reconsideration of
the denial of the administrative protest does not
toll the 30-day period to appeal to the CTA.
[Fishwealth Canning Corporation v. Commissioner
of Internal Revenue, 610 SCRA 524 (2010)]
Q. When may tax refund be claimed?
The taxpayer may file a claim for
refund or credit with the BIR within 2 years
after payment of the tax, before any suit in the
CTA is commenced. The 2-year prescriptive
period should be computed from the time of
filing of the Adjustment Return (or Annual
Income Tax Return) and final payment of the
tax for the year (PBCom v. CIR, 301 SCRA
241; BPI v. CIR, 363 SCRA 840; CIR v. TMX
Sales, 205 SCRA 184).
The date of payment in ACCRAINs
case was when its tax liability, if any, fell due
upon its filing of its final adjustment return
(ACCRA Investments Corporation v. CA, 204
SCRA 957).
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The prescriptive period of two years
should commence to run only from the time
that the refund is ascertained, which can only
be determined after a final adjustment return is
accomplished (CIR v. PHILAMLIFE Insurance
Co., 244 SCRA 446).
Therefore, the filing of quarterly
income tax returns and payment of quarterly
income tax should only be considered mere
installments of the annual tax due. These
quarterly tax payments should be treated as
advances or portions of the annual income tax
due, to be adjusted at the end of the calendar
or fiscal year (CIR v. TMX Sales, Inc., supra).
In the case of a corporate dissolution,
the two year prescriptive period should be
counted 30 days after the approval by the SEC
of its plan for dissolution (BPI v. CIR, supra)
Q. Does taxpayer's deficiency income tax
constitute a bar to his claim for refund
of income tax?
No. In the case of CIR v. Citytrust
Banking Corporation, 499 SCRA 477, 482, the
Supreme Court accorded judicial imprimatur to
the following ratiocination of the CTA:
[W]e refuse to take
cognizance of petitioner's
deficiency tax assessment
because to do so would create
utter confusion among
taxpayers. It is of common
knowledge that the laws or rules
governing claims for refund are
separate and distinct from those
applicable to assessment appeals.
For example, the period of time
to appeal a refund case is within
(2) years from the date of
payment, while the filing of an
assessment appeal requires the
observance of thirty (30) days
from the date of receipt of
denial of protest. Using this
example for illustration, let us
take a taxpayer who has an
erroneously paid capital gains
tax in August 1992. Sometime in
August 1994, an assessment was
issued against him for deficiency
income tax for the same taxable
year. Supposing, he immediately
protested the said assessment but

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
the BIR did not immediately act
on his protest, will he still wait
for the [BIR's] decision before he
can go to [the CTA] to file his
claim for refund? What about if
the two-year period to appeal
his refund is [nearing expiration],
will he still wait indefinitely for
the decision on his protest, so he
can file both suits simultaneously
with this Court? Of course, the
answer will be No.
Now, let us reverse the
scenario. Supposing, the [BIR's]
assessment came first but this
time no protest was made by the
taxpayer. [H]ence, the
assessment became final and
executory and so, the [BIR] filed
a collection case in the regular
trial court. During the pendency
of the collection suit, taxpayer
discovered that he made an
erroneous payment of a
different kind of tax. To avoid
multiplicity of suits, will the
[BIR] allow the taxpayer to
ventilate his claim for refund in
the same collection case? Of
course, the [BIR] will object on
the ground of jurisdiction.
In claims for refund, it is necessary that
the tax be paid in full, and that the
claim for refund in the BIR as well as
the proceedings in the CTA be
commenced within two years counted
from the payment of the tax.
A taxpayer who has paid the tax,
whether under protest or not, and
who is claiming a refund of the same,
must:
(1) file a written claim for
refund with the CIR
within 2 years from the
date of his payment of the
tax, and
(2) Appeal to the CTA within
30 days from receipt of
the CIRs decision or
ruling denying his claim
for refund (Sec. 11, RA
1125). The 30-day period
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Taxation Law
to appeal should be
within the 2-year period.
If, however, the CIR takes time in
deciding the claim, and the period of
two years is about to end, the suit or
proceeding must be started in the CTA
BEFORE the end of the two-year
period without awaiting the decision
of the CIR (Gibbs v. CTA, 107 Phil
232).
TAX REFUNDS ARE NOT FOUNDED
PRINCIPALLY ON LEGISLATIVE GRACE
Tax refunds are not founded
principally on legislative grace but on the legal
principle which underlies all quasi-contracts
abhorring a persons unjust enrichment at the
expense of another. The dynamic of erroneous
payment of tax fits to a tee the prototypic
quasi-contract, solutio indebiti, which covers
not only mistake in fact but also mistake in
law.
Under the Tax Code itself, apparently
in recognition of the pervasive quasi-contract
principle, a claim for tax refund may be based
on the following: (a) erroneously or illegally
assessed or collected internal revenue taxes; (b)
penalties imposed without authority; and (c)
any sum alleged to have been excessive or in
any manner wrongfully collected. (CIR v.
Fortune Tobacco Corporation, 559 SCRA 160
[2008]).
THE TWO-YEAR PRESCRIPTIVE PERIOD FOR
THE FILING OF TAX REFUND IS RECKONED
FROM THE FILING OF THE FINAL
ADJUSTED RETURN. HOW SHOULD THE
TWO-YEAR PERIOD BE COMPUTED?
Both Article 13 of the Civil Code and
Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the
same subject matterthe computation of legal
periods. Under the Civil Code, a year is
equivalent to 365 days whether it be a regular
year or a leap year. Under the Administrative
Code of 1987, however, a year is composed of
12 calendar months. Needless to state, under
the Administrative Code of 1987, the number
of days is irrelevant. There obviously exists a
manifest incompatibility in the manner of
computing legal periods under the Civil Code
and the Administrative Code of 1987. For this
reason, we hold that Section 31, Chapter VIII,
Book I of the Administrative Code of 1987,
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
being the more recent law, governs the
computation of legal periods. Lex posteriori
derogat priori (CIR v. Primetown Property
Group, Inc., 531 SCRA 436 [2007]).
THE PROPER PARTY TO SEEK A REFUND OF
INDIRECT TAX IS THE STATUTORY
TAXPAYER
Excise taxes, which apply to articles
manufactured or produced in the Philippines for
domestic sale or consumption or for any other
disposition and to things imported into the
Philippines, is basically an indirect tax. While the
tax is directly levied upon the
manufacturer/importer upon removal of the
taxable goods from its place of production or from
the customs custody, the tax, in reality, is actually
passed on to the end consumer as part of the
transfer value or selling price of the goods, sold,
bartered or exchanged. In early cases, we have
ruled that for indirect taxes (such as valued-added
tax or VAT), the proper party to question or seek a
refund of the tax is the statutory taxpayer, the
person on whom the tax is imposed by law and
who paid the same even when he shifts the burden
thereof to another. Thus, in Contex Corporation v.
Commissioner of Internal Revenue, we held that
while it is true that petitioner corporation should
not have been liable for the VAT inadvertently
passed on to it by its supplier since their transaction
is a zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such
VAT refund. Rather, it is the petitioners suppliers
who are the proper parties to claim the tax credit
and accordingly refund the petitioner of the VAT
erroneously passed on to the latter. [Silkair
(Singapore) Pte. Ltd. v. Commissioner of
Internal Revenue, 664 SCRA 33 (2012)]
Commissioner of Internal Revenue v. PERF
Realty Corporation
557 SCRA 165 (2008)
The CTA, citing Section 10 of Revenue
Regulations 6-85 and Citibank, N.A. v. Court
of Appeals, determined the requisites for a
claim for refund, thus: 1) That the claim for
refund was filed within the two (2) year
period as prescribed under Section 230 of the
National Internal Revenue Code; 2) That the
income upon which the taxes were withheld
were included in the return of the recipient; 3)
That the fact of withholding is established by a
copy of a statement (BIR Form 1743.1) duly
issued by the payor (withholding agent) to the
payee, showing the amount paid and the
amount of tax withheld therefrom.
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Section 76 offers two options: (1) filing
for tax refund and (2) availing of tax credit.
The two options are alternative and the choice
of one precludes the other. However, in
Philam Asset Management, Inc. v.
Commissioner of Internal Revenue, 447 SCRA
772 (2005), the Court ruled that failure to
indicate a choice, however, will not bar a valid
request for a refund, should this option be
chosen by the taxpayer later on. The
requirement is only for the purpose of easing
tax administration particularly the self-
assessment and collection aspects.
Commencement of 30-day within which to
appeal to the CTA
A. Where the Commissioner has
not acted on the taxpayers
protest within a period of 180
days from submission of all
relevant documents, then the
taxpayer has a period of 30
days from the lapse of said 180
days within which to file a
petition for review with the
CTA.
B. Should the Commissioner deny
the taxpayers protest, then he
has a period of 30 days from
receipt of said denial within
which to file a petition for
review with the CTA.
The subject of a JUDICIAL REVIEW is
the decision of the CIR on the protest
against assessment, not the assessment
itself (CIR v. Villa, 22 SCRA 3).
APPLICATION FOR THE ISSUANCE OF A TAX
CREDIT CERTIFICATE OR REFUND OF
CREDITABLE INPUT TAX DUE OR PAID
ATTRIBUTABLE TO ZERO-RATED SALES
MUST BE FILED WITH THE COMMISSIONER
OF INTERNAL REVENUE WITHIN TWO
YEARS AFTER THE CLOSE OF THE TAXABLE
QUARTER
Applying the two-year period to
judicial claims would render nugatory Section
112(D) (now Section 112 (C)) of the NIRC,
which already provides for a specific period
within which a taxpayer should appeal the
decision or inaction of the CIR. The second
paragraph of Section 112(C) of the NIRC, as
amended, envisions two scenarios: (1) when a
decision is issued by the CIR before the lapse
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
of the 120-day period; and (2) when no
decision is made after the 120-day period. In
both instances, the taxpayer has 30 days
within which to file an appeal with the CTA.
Indeed, the 120-day period is crucial in filing
an appeal with the CTA. [See Commissioner of
Internal Revenue v. AICHI Forging Company
of Asia, Inc., 632 SCRA 422, (2010)]
COMPLIANCE WITH THE 120-DAY WAITING
PERIOD IS MANDATORY AND
JURISDICTIONAL
Section 112(C) provides that the
Commissioner shall decide the application for
refund or credit within one hundred twenty (120)
days from the date of submission of complete
documents in support of the application filed in
accordance with Subsection (A). The reference in
Section 112(C) of the submission of documents in
support of the application filed in accordance with
Subsection (A) means that the application in
Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in
Section 112(A) refers to the period within which the
taxpayer can file an administrative claim for tax
refund or credit. Stated otherwise, the two-year
prescriptive period does not refer to the filing of
the judicial claim with the CTA but to the filing of
the administrative claim with the Commissioner.
[Commissioner of Internal Revenue v. San Roque
Power Corporation, 690 SCRA 336, (12 February
2013]
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 SHALL BE CONSIDERED
IRREVOCABLE FOR THAT TAXABLE PERIOD
Section 76 provides that a taxpayer has
the option to file a claim for refund or to carry-
over its excess income tax payments. The option to
carry-over, however, is irrevocable. Thus, once a
taxpayer opted to carry-over its excess income tax
payments, it can no longer seek refund of the
unutilized excess income tax payments. The
taxpayer, however, may apply the unutilized
excess income tax payments as a tax credit to the
succeeding taxable years until such has been fully
applied pursuant to Section 76 of the NIRC.[Belle
Corporation v. Commissioner of Internal
Revenue, 644 SCRA 433 (2011)
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Commissioner of Internal Revenue v.
Philippine National Bank
474 SCRA 303
Tax payment in advance does not
amount to erroneous or illegal collection
1. Section 230 of the Tax Code (now
Section 229), as couched, particularly
its statute of limitations component, is,
in context, intended to apply to suits
for the recovery of internal revenue
taxes or sums erroneously, excessively,
illegally or wrongfully collected. Black
defines the term erroneous or illegal
tax as one levied without statutory
authority. In the strict legal viewpoint,
therefore, PNBs claim for tax credit
did not proceed from, or is a
consequence of overpayment of tax
erroneously or illegally collected. It is
beyond cavil that respondent PNB
issued to the BIR the check for P180
Million in the concept of tax payment
in advance, thus eschewing the notion
that there was error or illegality in the
payment. What in effect transpired
when PNB wrote its July 28, 1997
letter was that respondent sought the
application of amounts advanced to
the BIR to future annual income tax
liabilities, in view of its inability to
carry-over the remaining amount of
such advance payment to the four (4)
succeeding taxable years, not having
incurred income tax liability during
that period.
Prescriptive period for tax credit is 10
years
2. In Commissioner v. Phil-Am Life, the
Court ruled that an availment of a tax
credit due for reasons other than the
erroneous or wrongful collection of
taxes may have a different prescriptive
period. Absent any specific provision
in the Tax Code or special laws, that
period would be ten (10) years under
Article 1144 of the Civil Code.
Significantly, Commissioner v. Phil-Am
Life is partly a reiteration of a previous
holding that even if the two (2)-year
prescriptive period, if applicable, had
already lapsed, the same is not
jurisdictional any may be suspended
for reasons of equity and other special
circumstances.
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Q. State the remedies available to the
government to enforce collection of
taxes, fees and charges.
1. Distraint of personal property
such as goods, chattels, or
effects, including stocks and
other securities, debts, credits,
bank accounts and interest in
and rights to personal property
[Sec. 207(A)]
2. Levy or seizure of real
properties and interest in or
rights to real property (Sec.
207(B), NIRC)
3. Tax Lien (Sec. 219, NIRC)
4. Civil or Criminal action (Sec.
205, NIRC)
5. Compromise (Sec. 204, NIRC)
6. Forfeiture (Sec. 224, NIRC)
7. Civil Penalties (Sec. 248, NIRC)
The Commissioner has the power to
approve the filing of tax collection cases
(Republic v. Hizon, 320 SCRA 574).
The BIR is authorized to issue a warrant
of garnishment against the bank account
of a taxpayer despite the pendency of a
protest (Yabes v. Flojo, 15 SCRA 278).
Nowhere in the Tax Code is the
Commissioner required to rule first on
the protest before he can institute
collection proceedings on the tax
assessed. The legislative policy is to give
the Commissioner much latitude in the
speedy and prompt collection of taxes
because taxes are the lifeblood of the
government (Republic v. Lim Tian Teng
Sons., Inc., 16 SCRA 584).
In Marcos II v. CA, 273 SCRA 47, the SC
ruled that the approval of the court
sitting in probate is not a mandatory
requirement in the collection of estate
taxes.
The 3-year prescriptive period for
assessment of the tax liability commences
to run after the last day prescribed by
law for the filing of the return; but if the
return was amended substantially, the
period starts from the filing of the
amended return (CIR v. Phoenix
Assurance, Co. Ltd., 14 SCRA 52).
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Cases Which Cannot Be Compromised
1. Withholding tax cases, unless the
applicant-taxpayer invokes
provisions of law that cast doubt
on the taxpayers obligation to
withhold;
2. Criminal tax fraud cases confirmed
as such by the Commissioner of
Internal Revenue or his duly
authorized representative;
3. Criminal violation already filed in
court;
4. Delinquent accounts with duly
approved schedule of installment
payments;
5. Cases where final reports of
reinvestigation or reconsiderations
have been issued resulting to
reduction in the original
assessment and the taxpayer is
agreeable to such decision by
signing the required agreement
form for the purpose. On the
other hand, other protested cases
shall be handled by the Regional
Evaluation Board (REB) or the
National Evaluation Board (NEB)
on a case to case basis;
6. Cases which become final and
executory after final judgment of
a court, where compromise is
requested on the ground of
doubtful validity of the
assessment; and
7. Estate tax cases where
compromise is requested on the
ground of financial incapacity of
the taxpayer (Rev. Regs. No. 30-
2002).
Commissioner of Internal Revenue v. Hantex
Trading Co., Inc.
454 SCRA 301
Meaning of best evidence obtainable
1. The best evidence envisaged in
Section 16 of the 1977 NIRC (now Sec.
6) includes the corporate and
accounting records of the taxpayer
who is the subject of the assessment
process, the accounting records of
other taxpayers engaged in the same
line of business, including their gross
profit and net profit sales. Such
evidence also includes data, record,
paper, document or any evidence
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
gathered by internal revenue officers
from other taxpayers who had
personal transactions or from whom
the subject taxpayer received any
income; and record, data, document
and information secured from
government offices or agencies, such as
the SEC, the Central Bank of the
Philippines, the Bureau of Customs,
and the Tariff and Customs
Commission.
BIR is not bound by the technical rules
of evidence
2. The best evidence obtainable may
consist of hearsay evidence, such as the
testimony of third parties or accounts
or other records of other taxpayers
similarly circumstanced as the taxpayer
subject of the investigation, hence,
inadmissible in a regular proceeding in
the regular courts. Moreover, the
general rule is that administrative
agencies such as the BIR are not bound
by the technical rules of evidence. It
can accept documents which cannot be
admitted in a judicial proceeding
where the Rules of Court are strictly
observed. It can choose to give weight
or disregard such evidence, depending
on its trustworthiness.
Photocopies of records/documents
inadmissible in evidence
3. The best evidence obtainable under
Section 16 of the 1977 NIRC, as
amended, does not include mere
photocopies of records/documents.
The BIR, in making a preliminary and
final tax deficiency assessment against a
taxpayer, cannot anchor the said
assessment on mere machine copies of
records/documents. Mere photocopies
of the Consumption Entries have no
probative weight if offered as proof of
the contents thereof. The reason for
this is that such copies are mere scraps
of paper and are of no probative value
as basis for any deficiency income or
business taxes against a taxpayer.
Estimation may be the basis of tax
liability.
4. The rule is that in the absence of the
accounting records of a taxpayer, his
Page 38 of 50
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tax liability may be determined by
estimation. The petitioner is not
required to compute such tax liabilities
with mathematical exactness.
Approximation in the calculation of
the taxes due is justified. To hold
otherwise would be tantamount to
holding that skillful concealment is an
invincible barrier to proof. However,
the rule does not apply where the
estimation is arrived at arbitrarily and
capriciously.
PRESCRIPTION (Suspension of the
Statutory Period for Collection).
Section 229 (now 228) of the Tax
Code mandates that a request for
reconsideration must be made within
30 days from the taxpayers receipt of
the tax deficiency assessment,
otherwise the assessment becomes
final, unappealable and therefore
demandable (Republic v. Hizon,
supra).
A valid waiver of the statute of
limitations under paragraphs (b) and (d)
of Section 224 of the Tax Code of 1977
(Sec. 223, NIRC as amended by RA
8424), as amended, must be: (1) in
writing; (2) agreed to by both the
Commissioner and the taxpayer; (3)
before the expiration of the ordinary
prescriptive periods for assessment and
collection; and (4) for a definite period
beyond the ordinary prescriptive periods
for assessment and collection. The
period agreed upon can still be extended
by subsequent written agreement,
provided that it is executed prior to the
expiration of the first period agreed
upon (BPI v. CIR, 473 SCRA 205).
With the issuance of RR No. 12-85 on 27
November 1985 providing the above-
quoted distinctions between a request
for reconsideration and a request for
reinvestigation, the two types of protest
can no longer be used interchangeably
and their differences so lightly brushed
aside. It bears to emphasize that under
Section 224 of the Tax Code of 1977
(now Sec. 223), the running of the
prescriptive period for collection of taxes
can only be suspended by a request for
reinvestigation, not a request for
reconsideration. Undoubtedly, a
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
reinvestigation, which entails the
reception and evaluation of additional
evidence, will take more time than a
reconsideration of a tax assessment,
which will be limited to the evidence
already at hand; this justifies why the
former can suspend the running of the
statute of limitations on collection of the
assessed tax, while the latter cannot.
IV. THE NEW COURT OF TAX APPEALS
EXPANDED JURISDICTION OF THE CTA
1. Exclusive original jurisdiction over
criminal cases arising from
violations of the NIRC or the
Tariff and Customs Code and
other laws administered by the
BIR and the BOC where the
principal amount of taxes and
penalties involved is P1 million or
more and appellate jurisdiction in
lieu of the Court of Appeals over
decisions of the Regional Trial
Court where the amount is less
than P1 million;
2. Exclusive original jurisdiction over
tax collection cases where the
principal amount of taxes and
penalties involved is P1 million or
more and the appellate
jurisdiction over decisions of the
Regional Trial Court where the
amount is less than P1 million;
3. Appellate jurisdiction over
decisions of the Regional Trial
Courts in local tax cases; and
4. Appellate jurisdiction over
decisions of the Central Board of
Assessment Appeals over cases
involving the assessment of
taxation of real property.
JURISDICTION OVER BOTH CIVIL
AND CRIMINAL ASPECTS
The vesting of jurisdiction over both
the civil and criminal aspects of a tax case in
one court will likewise effectively enhance and
maximize the development of jurisprudence
and judicial precedence on tax matters which is
of vital importance to revenue administration.
The concentration of tax cases in one court
will enhance the disposition of these cases
since it will take them out of the jurisdiction of
regular courts which, admittedly, do not have
the expertise in the field of taxation.
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OUTLINE OF JURISDICTION
[Section 7, R.A. 9282]
I. Exclusive Appellate Jurisdiction to
review by appeal
(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
NIRC or other laws
administered by the BIR [via a
petition for review under Rule
42].
(2) Inaction by 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
NIRC or other laws
administered by the BIR,
where the NIRC provides a
specific period for action, in
which case the inaction shall be
deemed a denial [via a petition
for review under Rule 42].
(3) Decisions, orders or resolutions
of the RTC in local tax cases
originally decided or resolved
by them in the exercise of their
original or appellate
jurisdiction [via a petition for
review under Rule 43].
(4) Decisions of the Commissioner
of Customs in cases involving
liability of customs duties, fees
or other money charges,
seizure, detention or release of
property affected, fines,
forfeitures or other penalties in
relation thereto, or other
matters arising under the
Customs Law or other laws
administered by the Bureau of
Customs [via a petition for
review under Rule 42].
(5) Decisions of the Central Board
of Assessment Appealsin the
exercise of its appellate
jurisdiction over cases
involving the assessment and
taxation of real property
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
originally decided by the
Provincial or City Board of
Assessment Appeals [via a
petition for review under Rule
43].
(6) Decisions of the Secretary of
Finance in customs cases
elevated to them automatically
for review from decisions of
the Commissioner of Customs
which are adverse to the
government under Section
2315 of the Tariff and Customs
Code [via a petition for review
under Rule 42]
(7) Decisions of the Secretary of
Trade and Industry in cases of
non-agricultural product,
commodity or article, and the
Secretary of Agriculture in cases
of agricultural product,
commodity or article involving
dumping and countervailing
duties under Sections 301 and
302 of the Tariff and Customs
Code, respectively, and
safeguard measures under RA.
8808, where either party may
appeal the decision to impose
or not to impose said duties
[via a petition for review
under Rule 42].
Who may appeal?
Any party adversely affected by a
decision, ruling or inaction of the
Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of
Finance, the Secretary of Trade and Industry,
the Secretary of Agriculture or the Regional
Trial Court, may file an appeal with the CTA:
(a.) within thirty (30) days after
receipt of such decision or ruling;
OR
(b.) after the expiration of the period
fixed by law for action referred to
in Section 7 (a) (2) of RA. 9282,
in which case the inaction shall be
deemed a denial.
What are the modes of appeal?
(1.) Appeal may be made by filing a
petition for review before the CTA
under a procedure analogous to
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that provided for under Rule 42
of the 1997 Rules of Civil
Procedure, within 30 days from
the receipt of the decision or
ruling or from the expiration of
the period fixed by law for the
official concerned to act in cases of
inaction. A division of the CTA
shall hear the appeal.
All other cases involving rulings,
orders or decisions filed with the
CTA as provided for in Section 7
of RA 9282 shall be raffled to its
divisions. A party adversely
affected by a ruling, order or
decision of a division of the CT A
may file a motion for
reconsideration or new trial
before the same division.
(2.) Appeals with respect to decisions
or rulings of the Central Board of
Assessment Appeals and the
Regional Trial Court in the
exercise of its appellate
jurisdiction, may be made by filing
a petition for review under a
procedure analogous to that
provided for under Rule 43 of the
1997 Rules of Civil Procedure with
the CTA which shall hear the case
en banc
A party adversely affected by a
resolution of a division of the
CTA on a motion for
reconsideration or new trial, may
file a petition for review with the
CTA en banc.
(3.) A Petition for Review on Certiorari
may be filed by a party adversely
affected by a decision or ruling of
the CTA en banc, through a
verified petition before the
Supreme Court pursuant to Rule
45 of the 1997 Rules of Civil
Procedure.
Q. What may be appealed?
It is the decision of the CIR on the
protest of the taxpayer against assessment, not
the assessment itself, which is appealable to the
CTA. A letter of the Commissioner reminding
a taxpayer of his obligation to pay taxes which
reiterates a previous demand for the
settlement of an assessment is in effect a
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
decision on the disputed assessment. This letter
is tantamount to a denial of the request for
reconsideration or protest of the taxpayer (CIR
v. Ayala Securities Corp., 70 SCRA 204).
Findings and conclusions of the CTA are
accorded highest respect
The findings and conclusions of the
Court of Tax Appeals (CTA) are accorded the
highest respect and will not be lightly set aside.
The CTA, by the very nature of its functions, is
dedicated exclusively to the resolution of tax
problems and has accordingly developed an
expertise on the subject unless there has been
an abusive or improvident exercise of
authority. Consequently, its conclusions will
not be overturned unless there has been an
abuse or improvident exercise of authority. Its
findings can only be disturbed on appeal if
they are not supported by substantial evidence
or there is a showing of gross error or abuse
on the part of the Tax Court. In the absence of
any clear and convincing proof to the
contrary, the Court must presume that the
CTA rendered a decision which is valid in
every respect. [Commissioner of Internal
Revenue v. Team (Philippines) Operations
Corporation (formerly Mirant Phils.,
Operation Corporation)]
Q. What may constitute Administrative
Decision on a Disputed Assessment?
The decision of the Commissioner or
his duly authorized representative shall: (a)
state the facts, the applicable law, rules and
regulations, or jurisprudence on which such
decision is based, otherwise, the decision shall
be void, in which case, the same shall not be
considered a decision on a disputed
assessment; and (b) that the same is his final
decision (Sec. 3, 3.1.6, Revenue Regulations
12-99).
Oceanic Wireless Network, Inc. v.
Commissioner of Internal Revenue
477 SCRA 205
RULINGS
1. A demand letter for payment of
delinquent taxes may be considered a
decision on a disputed or protested
assessment. The determination on
whether or not a demand letter is final
is conditioned upon the language used
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or the tenor of the letter being sent to
the taxpayer.
2. We laid down the rule that the
Commissioner of Internal Revenue
should always indicate to the taxpayer
in clear and unequivocal language
what constitutes his final
determination of the disputed
assessment, thus: . . . we deem it
appropriate to state that the
Commissioner of Internal Revenue
should always indicate to the taxpayer
in clear an unequivocal language
whenever his action on an assessment
questioned by a taxpayer constitutes
his final determination on the disputed
assessment, as contemplated by
Sections 7 and 11 of Republic Act No.
1125, as amended. On the basis of his
statement indubitably showing that the
Commissioners communicated action
is his final decision on the contested
assessment, the aggrieved taxpayer
would then be able to take recourse to
the tax court at the opportune time.
Without needless difficulty, the
taxpayer would be able to determine
when his right to appeal to the tax
court accrues.
3. The general rule is that the
Commissioner of Internal Revenue
may delegate any power vested upon
him by law to Division Chiefs or to
officials of higher rank. He cannot,
however, delegate the four powers
granted to him under the National
Internal Revenue Code (NIRC)
enumerated in Section 7.
4. The authority to make tax assessments
may be delegated to subordinate
officers. Said assessment has the same
force and effect as that issued by the
Commissioner himself, if not reviewed
or revised by the latter such as in this
case.
In Commissioner of Internal Revenue
v. Isabela Cultural Corporation, 361 SCRA 71,
the Supreme Court held that a final demand
letter from the Bureau of Internal Revenue,
reiterating to the taxpayer the immediate
payment of a tax deficiency assessment
previously made, is tantamount to a denial of
the taxpayers request for reconsideration.
Such letter amounts to a final decision on a
disputed assessment and is thus appealable to
the Court of Tax Appeals.
 Green Notes 2016
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
THE CTA HAS JURISDICTION OVER DISPUTE
BETWEEN PNB AND BIR RELATIVE TO
DEFICIENCY WITHHOLDING TAX
ASSESSMENT
PNB sought the suspension of the
proceedings in CTA Case No. 4249, after it
contested the deficiency withholding tax
assessment against it and the demand for
payment thereof before the DOJ, pursuant to
P.D. No. 242. The CTA, however, correctly
sustained its jurisdiction and continued the
proceedings in CTA Case No. 4249; and, in
effect, rejected DOJs claim of jurisdiction to
administratively settle or adjudicate BIRs
assessment against PNB.
Sustained herein is the contention of
private respondent Savellano that P.D. No.
242 is a general law that deals with
administrative settlement or adjudication of
disputes, claims and controversies between or
among government offices, agencies and
instrumentalities, including government-owned
or controlled corporations. Its coverage is
broad and sweeping, encompassing all
disputes, claims and controversies. It has been
incorporated as Chapter 14, Book IV of E.O.
No. 292, otherwise known as the Revised
Administrative Code of the Philippines. On the
other hand, R.A. No. 1125 is a special law
dealing with a specific subject matter the
creation of the CTA, which shall exercise
exclusive appellate jurisdiction over the tax
disputes and controversies enumerated therein.
Following the rule on statutory
construction involving a general and a special
law previously discussed, then P.D. No. 242
should not affect R.A. No. 1125, specifically
Section 7 thereof on the jurisdiction of the
CTA, constitutes an exception to P.D. No. 242.
Disputes, claims and controversies falling under
Section 7 of R.A. No. 1125, even though solely
among government offices, agencies, and
instrumentalities, including government-owned
and controlled corporations, remain in the
exclusive appellate jurisdiction of the CTA.
Such a construction resolves the alleged
inconsistency or conflict between the two
statutes, and the fact that P.D. No. 242 is the
more recent law is no longer significant
(Philippine National Oil Company v. Court of
Appeals, 457 SCRA 32, 76-81).
A FORMAL LETTER OF DEMAND WITH
ASSESSMENT NOTICES STATING THAT IT IS
BIR'S FINAL DECISION BASED ON
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INVESTIGATION IS APPEALABE TO THE CTA
Allied Banking Corporation received
the Formal Letter of Demand with Assessment
Notices, which partly reads:
It is requested that the above
deficiency tax be paid
immediately upon receipt
hereof, inclusive of penalties
incident to delinquency. This is
our final decision based on
investigation. If you disagree,
you may appeal the final
decision within thirty (30) days
from receipt hereof, otherwise
said deficiency tax assessment
shall become final, executory
and demandable.
A careful reading of the Formal Letter
of Demand with Assessment Notices leads us
to agree with Allied Banking Corporation that
the instant case is an exception to the rule on
exhaustion of administrative remedies, i.e.,
estoppel on the part of the administrative
agency concerned. [Allied Banking
Corporation v. Commissioner of Internal
Revenue, 611 SCRA 692 (2010)]
TAXPAYER HAS TWO OPTIONS IN CASE
THE BIR COMMISSIONER FAILED
TO ACT ON THE DISPUTED ASSESSMENT
WITHIN THE 180-DAY PERIOD FROM THE
DATE OF SUBMISSION OF DOCUMENTS
In RCBC v. CIR, the Court has held that in
case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of
submission of documents, a taxpayer can either: (1)
file a petition for review with the Court of Tax
Appeals within 30 days after the expiration of the
180-day period; or (2) await the final decision of
the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax
Appeals within 30 days after receipt of a copy of
such decision.[Lascona Land Co., Inc. v.
Commissioner of Internal Revenue, 667 SCRA
455 (2012)]
V. ESTATE AND DONORS TAX
The gifts referred to in Section 1540 of
the Revised Administrative Code are those
donations inter vivos that take effect
immediately or during the lifetime of the
donor but are made in consideration or in
contemplation of death. Gifts inter vivos, the

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
transmission of which is not made in
contemplation of the donors death, should
not be included within the said legal provision
for it would amount to imposing a direct tax
on property and not on the transmission
thereof. The law considers such transmissions
in the form of gifts inter vivos, as advances on
inheritance and nothing therein violates any
constitutional provision, inasmuch as said
legislation is within the power of the
Legislature (Vidal de Roces v. Posadas, 58 Phil.
111, 113).
Q. What are deductible funeral expenses?
The term FUNERAL EXPENSES is not
confined to its ordinary or usual meaning.
They include:
(a) The mourning apparel of the
surviving spouse and
unmarried minor children of
the deceased bought and used
on the occasion of the burial;
(b) Expenses for the deceaseds
wake, including food and
drinks;
(c) Publication charges for death
notices;
(d) Telecommunication expenses
incurred in informing relatives
of the deceased;
(e) Cost of burial plot,
tombstones, monument or
mausoleum but not their
upkeep. In case the deceased
owns a family estate or several
burial lots, only the value
corresponding to the plot
where he is buried is
deductible;
(f) Interment and/or cremation
fees and charges; and
(g) All other expenses incurred for
the performance of the rites
and ceremonies incident to
interment.
Expenses incurred after the interment,
such as for prayers, masses, entertainment, or
the like are not deductible. Any portion of the
funeral and burial expenses borne or defrayed
by relatives and friends of the deceased are not
deductible.
Q. What are the requisites for
deductibility of claims against the
estate?
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Taxation Law
Requisites for Deductibility of Claims
against the Estate:
(a) The liability represents a
personal obligation of the
deceased existing at the time of
his death except unpaid
obligations incurred incident to
his death such as unpaid
funeral expenses (i.e., expenses
incurred up to the time of
interment) and unpaid medical
expenses which are classified
under a different category of
deductions pursuant to these
Regulations;
(b) The liability was contracted in
good faith and for adequate
and full consideration in
money or moneys worth;
(c) The claim must be a debt or
claim which is valid in law and
enforceable in court;
(d) The indebtedness must not
have been condoned by the
creditor or the action to collect
from the decedent must not
have prescribed.
Q. What are the conditions for the
allowance of family home as
deduction from the gross estate?
Conditions for the allowance of
FAMILY HOME as deduction from the gross
estate:
1. The family home must be the
actual residential home of the
decedent and his family at the
time of his death, as certified by
the Barangay Captain of the
locality where the family home is
situated;
2. The total value of the family
home must be included as part of
the gross estate of the decedent;
and
3. Allowable deduction must be in
an amount equivalent to the
current fair market value of the
family home as declared or
included in the gross estate, or the
extent of the decedents interest
(whether conjugal/ community or
exclusive property), whichever is
lower, but not exceeding P1,
000,000.

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
VI. VALUE ADDED TAX
TOLL FEES COLLECTED BY TOLL OPERATORS
MAY BE SUBJECTED TO VALUE-ADDED TAX
Section 108(A) of the Code clearly
states that services of all other franchise
grantees are subject to VAT, except as
may be provided under Section 119 of
the Code. Tollway operators are not
among the franchise grantees subject to
franchise tax under the latter
provision. Neither are their services
among the VAT-exempt transactions
under Section 109 of the Code.
x x x The grant of tax exemption is a
matter of legislative policy that is
within the exclusive prerogative of
Congress. The Court's role is to merely
uphold this legislative policy, as
reflected first and foremost in the
language of the tax statute. Thus, any
unwarranted burden that may be
perceived to result from enforcing such
policy must be properly referred to
Congress. The Court has no discretion
on the matter but simply applies the
law.
The VAT on franchise grantees has
been in the statute books since 1994
when R.A. 7716 or the Expanded
Value Added Tax law was passed. It is
only now, however, that the executive
has earnestly pursued the VAT
imposition against tollway operators.
The executive exercises exclusive
discretion in matters pertaining to the
implementation and execution of tax
laws. Consequently, the executive is
more properly suited to deal with the
immediate and practical consequences
of the VAT imposition. [Diaz v.
Secretary of Finance, 654 SCRA 96,
(2011)]
TRANSITIONAL INPUT TAX CREDIT
OPERATES TO BENEFIT NEWLY VAT-
REGISTERED PERSONS
It is apparent that the transitional input
tax credit operates to benefit newly VAT-
registered persons, whether or not they
previously paid taxes in the acquisition of their
beginning inventory of goods, materials and
supplies. During that period of transition from
non-VAT to VAT status, the transitional input
tax credit serves to alleviate the impact of the
VAT on the taxpayer. At the very beginning,
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Taxation Law
the VAT-registered taxpayer is obliged to remit
a significant portion of the income it derived
from its sales as output VAT. The transitional
input tax credit mitigates this initial diminution
of the taxpayer's income by affording the
opportunity to offset the losses incurred
through the remittance of the output VAT at a
stage when the person is yet unable to credit
input VAT payments.
There is another point that weighs
against the CTA's interpretation. Under Section
105 of the Old NIRC, the rate of the
transitional input tax credit is 8% (now 2%)
of the value of such inventory or the actual
value-added tax paid on such goods, materials
and supplies, whichever is higher. If indeed
the transitional input tax credit is premised on
the previous payment of VAT, then it does not
make sense to afford the taxpayer the benefit
of such credit based on 8% (now 2%) of the
value of such inventory should the same
prove higher than the actual VAT paid. This
intent that the CTA alluded to could have
been implemented with ease had the
legislature shared such intent by providing the
actual VAT paid as the sole basis for the rate of
the transitional input tax credit. [Fort
Bonifacio Development Corporation v.
Commissioner of Internal Revenue, et al., 583
SCRA 168 (2009)]
PRIOR PAYMENT OF VALUE-ADDED TAXES
IS NOT A PREREQUISITE BEFORE A
TAXPAYER COULD AVAIL OF THE
TRANSITIONAL INPUT TAX CREDIT
A transitional input tax credit is not a
tax refund per se but a tax credit. Logically,
prior payment of taxes is not required before a
taxpayer could avail of transitional input tax
credit. It is settled that 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. [Fort Bonifacio Development
Corporation v. Commissioner of Internal
Revenue, 689 SCRA 76 (22 January 2013)]
REVENUE REGULATIONS 16-2011
INCREASE THE THRESHOLD AMOUNTS
Sale of residential lot from P1,500,000
to P1,919,500 (Selling Price)

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Sale of house and lot from P2,500,000
to P3,199,200 (Selling Price)
Lease of residential unit from P10,000
to P12,800/month
Sale or lease of goods or properties or
performance of services from
P1,500,000 to P1,919,500 (Gross
Annual Sales or Receipts)
VII. LOCAL TAXATION
Q. Explain the doctrine of supremacy of
the National Government over local
governments.
Local governments have no power to
tax instrumentalities of the National
Government. Settled is the rule that the states
have no power by taxation or otherwise, to
retard, impede, burden or any manner control
the operation of constitutional laws enacted
by Congress to carry into execution the
powers vested in the federal government
(McCulloch v. Maryland, 4 Wheat 316, 4 L Ed.
597)
Taxing Power of LGUs
In case of doubt, any tax ordinance or
revenue measure shall be construed strictly
against the local government unit enacting it
and liberally in favor of the taxpayer. Any tax
exemption, incentive or relief granted by any
local government shall be construed strictly
against the person claiming it (Sec. 5(b), RA
7160).
In interpreting statutory provisions on
municipal taxing powers, doubts should be
resolved in favor of municipal corporations
(PLDT v. Province of Laguna, 467 SCRA 93).
Section 193 of the Local Government
Code buttresses the withdrawal of extant tax
exemption privileges. The general rule is that
tax exemptions or incentives granted to or
presently enjoyed by natural or juridical
persons are withdrawn upon the effectivity of
the LGC except with respect to those entities
expressly enumerated. In the same vein, the
express withdrawal upon effectivity of the LGC
of all exemptions except only as provided
therein, can no longer be invoked by
MERALCO to disclaim liability for the local tax
(Mactan Cebu International Airport Authority
v. Marcos, 261 SCRA 667; City Government of
San Pablo, Laguna v. Reyes, 305 SCRA 362).
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Q. Section 12 of RA 7082 embodies the
so-called in-lieu-of-all taxes clause,
whereunder PLDT shall pay a franchise
tax equivalent to three percent (3%)
of all its gross receipts, which franchise
tax shall be in lieu of all taxes.
Invoking its authority under Section
137 of RA 7160, the Province of
Laguna, through its Local Legislative
Assembly enacted Provincial
Ordinance No. 01-92, imposing a
franchise tax upon all businesses
enjoying a franchise, PLDT included.
PLDT invoked the in-lieu-of-all-taxes
clause and Section 23 of RA No. 7925
also known as the most-favored
treatment clause providing for an
equality of treatment in the
telecommunications industry.
RESOLVE.
PLDT is subject to franchise tax. The
Supreme Court rejected PLDTs contention that
in-lieu-of-all taxes clause does not refer to
tax exemption but to tax exclusion and
hence, the strictissimi juris rule does not apply.
The en banc explains that these two terms
actually mean the same thing, such that the
rule that tax exemption should be applied in
strictissimi juris against the taxpayer and
liberally in favor of the government applies
equally to tax exclusions:
Indeed, both in their
nature and in their effect
there is no difference
between tax exemption and
tax exclusion. Exemption is
an immunity or privilege; it
is freedom from a charge or
burden to which others are
subjected. Exclusion, on the
other hand, is the removal
of otherwise taxable items
from the reach of taxation,
e.g., exclusions from gross
income and allowable
deductions. Exclusion is
thus also an immunity or
privilege which frees a
taxpayer from a charge to
which others are subjected.
Consequently, the rule that
tax exemption should be
applied in strictissimi juris
against the taxpayer and
liberally in favor of the
government applies equally

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
to tax exclusions. To
construe otherwise the in
lieu of all taxes provision
invoked is to be inconsistent
with the theory that R.A.
No. 7925, 23 grants tax
exemption because of a
similar grant to Globe and
Smart (PLDT v. City of
Bacolod, 463 SCRA 528,
540).
Q. Discuss the meaning of the doctrine of
pre-emption in local government
taxation.
Pre-emption in the matter of taxation
simply refers to an instance where the national
government elects to tax a particular area,
impliedly withholding from the local
government the delegated power to tax the
same field. This doctrine rests upon the
intention of Congress. Conversely, should
Congress allow municipal corporations to
cover fields of taxation it already occupies,
then the doctrine of pre-emption will not
apply (Victorias Milling Co., Inc. v.
Municipality of Victorias, Negros Occidental,
25 SCRA 192).
LOCAL GOVERNMENT UNIT (LGU) HAS NO
POWER TO IMPOSE BUSINESS TAXES ON
PERSONS OR ENTITIES ENGAGED IN THE
SALE OF PETROLEUM PRODUCTS
Section 133 prescribes the limitations
on the capacity of local government units to
exercise their taxing powers otherwise granted
to them under the LGC. Apparently, paragraph
(h) of the Section mentions two kinds of taxes
which cannot be imposed by local government
units, namely: excise taxes on articles
enumerated under the National Internal
Revenue Code [(NIRC)], as amended; and
taxes, fees or charges on petroleum
products.
The language of Section 133(h) makes
plain that the prohibition with respect to
petroleum products extends not only to excise
taxes thereon, but all taxes, fees and charges.
The earlier reference in paragraph (h) to excise
taxes comprehends a wider range of subjects
of taxation: all articles already covered by
excise taxation under the NIRC, such as
alcohol products, tobacco products, mineral
products, automobiles, and such non-essential
goods as jewelry, goods made of precious
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metals, perfumes, and yachts and other vessels
intended for pleasure or sports. In contrast, the
later reference to taxes, fees and charges
pertains only to one class of articles of the
many subjects of excise taxes, specifically,
petroleum products. While local
government units are authorized to burden all
such other class of goods with taxes, fees and
charges, excepting excise taxes, a specific
prohibition is imposed barring the levying of
any other type of taxes with respect to
petroleum products (Petron Corporation v.
Tiangco, 551 SCRA 484 [2008]).
AN APPEAL SHALL NOT SUSPEND THE
COLLECTION OF REALTY TAXES EXCEPT
WHERE THE TAXPAYER HAS SHOWN A
CLEAR AND UNMISTAKABLE RIGHT TO
REFUSE OR HOLD IN ABEYANCE THE
PAYMENT OF TAXES
We are not unaware of the doctrine
that taxes are the lifeblood of the government,
without which it cannot properly perform its
functions; and that appeal shall not suspend
the collection of realty taxes. However, there
is an exception to the foregoing rule, i.e.,
where the taxpayer has shown a clear and
unmistakable right to refuse or to hold in
abeyance the payment of taxes. In this case we
note that respondent contested the revised
assessment on the following grounds: that the
subject assessment pertained to properties that
have been previously declared; that the
assessment covered periods of more than 10
years which is not allowed under the LGC; that
the fair market value or replacement cost used
by petitioner included items which should be
properly excluded; that prompt payments of
discounts were not considered in determining
the fair market value; and that the subject
assessment should take effect a year after or on
January 1, 2008. To our mind, the resolution
of these issues would have a direct bearing on
the assessment made by petitioner. Hence, it is
necessary that the issues must first be passed
upon before the properties of respondent are
sold in public auction. (Talento v. Escalada, Jr.,
556 SCRA 491, 500-501 [2008]).
A TAX ORDINANCE MAY BE ASSAILED
BEFORE THE SECRETARY OF JUSTICE
WITHIN THIRTY (30) DAYS
FROM EFFECTIVITY THEREOF
Clearly, the law requires that the
dissatisfied taxpayer who questions the validity
or legality of a tax ordinance must file his

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
appeal to the Secretary of Justice, within 30
days from effectivity thereof. In case the
Secretary decides the appeal, a period also of
30 days is allowed for an aggrieved party to
go to court. But if the Secretary does not act
thereon, after the lapse of 60 days, a party
could already proceed to seek relief in court.
These three separate periods are clearly given
for compliance as a prerequisite before seeking
redress in a competent court. Such statutory
periods are set to prevent delays as well as
enhance the orderly and speedy discharge of
judicial functions. For this reason, the courts
construe these provisions of statutes as
mandatory. [Cagayan Electric Power and Light
Co., Inc. v. City of Cagayan De Oro, 685
SCRA 609, (14 November 2012)]
THERE IS NO EXPRESS PROVISION IN THE
LGC PROHIBITING COURTS FROM ISSUING
AN INJUNCTION TO RESTRAIN LOCAL
GOVERNMENTS FROM COLLECTING TAXES
A principle deeply embedded in our
jurisprudence is that taxes being the lifeblood
of the government should be collected
promptly, without unnecessary hindrance or
delay. In line with this principle, the National
Internal Revenue Code of 1997 (NIRC)
expressly provides that no court shall have the
authority to grant an injunction to restrain the
collection of any national internal revenue tax,
fee or charge imposed by the Code. An
exception to this rule obtains only when in the
opinion of the Court of Tax Appeals (CTA) the
collection thereof may jeopardize the interest
of the government and/or the taxpayer.
Unlike the National Internal Revenue Code,
the Local Tax Code does not contain any
specific provision prohibiting courts from
enjoining the collection of local taxes. Such
statutory lapse or intent, however it may be
viewed, may have allowed preliminary
injunction where local taxes are involved but
cannot negate the procedural rules and
requirements under Rule 58. [Angeles City v.
Angeles Electric Corporation, 622 SCRA 43
(2010)]
LOCAL BUSINESS TAX SHALL BE BASED ON
GROSS RECEIPTS
The imposition of local business tax
based on gross revenue will inevitably result in
the constitutionally proscribed double
taxationtaxing of the same person twice by
the same jurisdiction for the same thing
inasmuch as petitioners gross revenue or
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income for a taxable year will definitely
include its gross receipts already reported
during the previous year and for which local
business tax has already been paid.
Gross revenue covers money or its
equivalent actually or constructively received,
including the value of services rendered or
articles sold, exchanged or leased, the payment
of which is yet to be received. This is in
consonance with the International Financial
Reporting Standards, which defines revenue as
the gross inflow of economic benefits (cash,
receivables, and other assets) arising from the
ordinary operating activities of an enterprise
(such as sales of goods, sales of services,
interest, royalties, and dividends), which is
measured at the fair value of the consideration
or receivable (Ericsson Telecommunications,
Inc. v. City of Pasig, 538 SCRA 99 [2007]).
Q. Can the National Power Corporation
(NPC), a government-owned and
controlled corporation, claim tax
exemption under Section 234 of the
Local Government Code for the taxes
due from Mirant Pagbilao Corporation
(Mirant) whose tax liabilities the NPC
has contractually assumed?
The stipulation between NPC and
Mirant does not bind third persons who are
not privy to the contract between these
parties. There is no privity between the local
government units and the NPC, even though
both are public corporations. The tax due will
not come from one pocket and go to another
pocket of the same governmental entity.
Only the parties to the agreement can
exact and demand the enforcement of the
rights and obligations it establishedonly
Mirant can demand compliance from the NPC
for the payment of the real property tax the
NPC assumed to pay. The local government
units cannot demand payment from the NPC.
The government-owned or controlled
corporation claiming exemption must be the
entity actually, directly, and exclusively using
the real properties, and the use must be
devoted to the generation and transmission of
electric power. Although the plant's
machineries are devoted to the generation of
electric power, by the NPC's own admission
and as previously pointed out, Miranta
private corporationuses and operates them.
That Mirant operates the machineries solely in
 Green Notes 2016
Taxation Law
From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega

compliance with the will of the NPC only

underscores the fact that NPC does not 1. Regular Duties those imposed and
actually, directly, and exclusively use them. collected merely as a source of
revenue.
The test of exemption is the use, not a. Ad valorem Duty Based
the ownership of the machineries devoted to on the value of imported
the generation and transmission of electric article.
power. [National Power Corporation v. b. Specific Duty based on
Province of Quezon and Municipality of dutiable weight of goods.
Pagbilao, 593 SCRA 47 (2009)] c. Alternating Duties which
alternates ad valorem and
VII. TARIFF AND CUSTOMS CODE specific.
d. Compound Duty
Seizure and forfeiture proceedings are consisting of ad valorem
within the exclusive jurisdiction of the and specific.
Collector of Customs to the exclusion of
regular courts. Regional Trial Courts are 2. Special Duties those imposed in
devoid of competence to pass upon the additional to the ordinary customs
validity or regularity of seizure and duties usually to protect local industries
forfeiture proceedings conducted by the against foreign competition.
Bureau of Customs and to enjoin or a. Anti-Dumping Duty
otherwise interfere with these proceedings Imposed upon foreign
(Jao v. CA, 249 SCRA 36). products with value lower
The customs authorities do not have to than their fair market value
prove to the satisfaction of the court that to the detriment of local
the articles on board a vessel were products; it is the difference
imported from abroad or are intended to between the export price
be shipped abroad before they may and the normal value of
exercise the power to effect customs such product, commodity
searches, seizures or arrests provided by or article.
law and continue with the administrative Imposing authority
hearings. As held in Ponce v. Vinuya: The The Secretary of Trade
governmental agency concerned, the and Industry (non-
Bureau of Customs, is vested with exclusive agricultural products)
authority. Even if it be assumed that in the OR Secretary of
exercise of such exclusive competence a Agriculture (agricultural
taint of illegality may be correctly products) after formal
imputed, the most that can be said is that investigation and
under certain circumstances the grave affirmative finding of
abuse of discretion conferred may oust it the Tariff Commission.
of such jurisdiction. It does not mean b. Countervailing Duty
however that correspondingly a CFI (now Imposed upon foreign
RTC) is vested with competence when goods enjoying subsidy thus
clearly in the light of the above decisions allowing them to sell at
the law has not seen fit to do so. The lower prices to the
proceeding before the Collector of detriment of local products
Customs is not final. An appeal lies to the similarly situated; it is
Commissioner of Customs and thereafter equivalent to the value of
to the Court of Tax Appeals. It may even the subsidy.
reach (the Supreme Court) through the Imposing authority
appropriate petition for review. The Secretary of Trade and
proper ventilation of the legal issues raised Industry (non-
is thus indicated. Certainly a CFI (now agricultural products);
RTC) is not therein included. It is devoid Secretary of Agriculture
of jurisdiction (Rallos v. Gako, 344 SCRA (agricultural products)
175). after formal
investigation and
Classification of Customs Duties

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From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
affirmative finding of
the Tariff Commission.
d. Marking Duty Imposed
upon those not properly
marked as to place of
origin of the goods.
Imposing authority
Commissioner of
Customs.
e. Discriminatory Duty
Imposed upon goods
coming from countries that
discriminate against
Philippine products.
Imposing authority
President of the
Philippines.
Flexible Tariff Clause
Under Sec. 28, Article VI, 1987
Constitution the Congress may, by law,
authorize the President to fix, within
specified limits, and subject to such
limitations and restrictions as it may
impose:
a. Tariff rates, imports and export
quotas, tonnage and wharfage
dues;
b. Other duties or imposts within
the framework of the national
development program of the
Government.
Under the Tariff and Customs Code Sec.
401 in the interest of national economy,
general welfare and/or national security,
the President, upon recommendation by
NEDA, is empowered:
a. To increase, reduce or remove
existing protective rates of
import duty, provided that the
increase shall not be higher than
100% ad valorem;
b. To establish import quota or to
ban imports to any commodity;
c. To impose additional duty on all
imports not exceeding 10% ad
valorem;
d. To modify the forms of duty,
whether ad valorem or specific.
Exemption from payment of all duties and
taxes of officer or employee returning from
regular assignment abroad for reassignment to
the home office
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Any officer or employee returning
from a regular assignment abroad for
reassignment to the home office x x x shall be
exempt from the payment of all duties and
taxes on his personal and household effects,
including one (1) used motor car duly
registered in his name for at least six (6)
months: Provided, however, That the
exemption shall apply only to the value of the
motor car and to the aggregate assessed value
of said personal and household effects, the
latter not to exceed fifty percent (50%) of the
total amount received by such officer or
employee in salary and allowances during his
latest assignment abroad but not to exceed
four (4) years: Provided, further, That this
exception shall not be availed of more often
than once every four (4) years(Republic Act
No. 7157, Section 81).
IMPORTERS FAILURE TO FILE REQUIRED
ENTRIES WITHIN A NON-EXTENDIBLE
PERIOD OF 30 DAYS FROM DATE OF
DISCHARGE OF THE LAST PACKAGE
CONSTITUTES IMPLIED ABANDONMENT OF
ITS IMPORTATIONS
An importers failure to file the
required entries within a non-extendible
period of 30 days from date of discharge of
the last package from the carrying vessel
constitutes implied abandonment of its
importations. After the lapse of this 30-day
period, the abandoned shipments become
government property.
Under the Tariff and Customs Code
(TCC), imported articles must be entered
within a non-extendible period of 30 days
from the date of discharge of the last package
from a vessel. Otherwise, the BOC will deem
the imported goods impliedly abandoned in
favor of the government. Chevron argued that
the import entry declarations (IED) it filed
within the 30-day period for some of its oil
shipments is the entry contemplated by the
TCC, and not the import entry and internal
revenue declaration (IEIRD), which it failed to
file within the same period. The SC disagreed,
holding that both the IED and IEIRD should be
filed within 30 days from the date of discharge
of the last package from the vessel or aircraft
(Chevron Phils. Inc. v. Commissioner of the
Bureau of Customs, 561 SCRA 710, 721-722,
728, 742).

From the notes of: Justice Japar B. Dimaampao and Atty. Noel M. Ortega
Q. When does importation begin and
when is it terminated?
Importation begins when the carrying
vessel or aircraft enters the jurisdiction of the
Philippines with intention to unlade therein.
Importation is deemed terminated upon
payment of the duties, taxes and other charges
due upon the articles, or secured to be paid, at
a port of entry and the legal permit for
withdrawal shall have been granted, or in case
said articles are free of duties, taxes and other
charges, until they have legally left the
jurisdiction of the customs. (Section 1202 of
the TCCP)
UPDATES in TAXATION
By Dr. Virginia Jeannie P. Lim
RA 10653 / RR No. 0-2015 (March 13,
2015)Increase of the Total Amount of
Exclusion to Php82, 000 for 13th Month Pay
and Other Benefits from Gross Income
Salient features:
The Php30, 000 exclusion on the 13th
month pay and other benefits from
gross income provided in Sec. 32 (B) is
now increased to Php82, 000.
This shall take effect for income earned
beginning 2015.
The Php82k exclusion applies only to
compensation received by an
employee under an employee-
employer relationship.
The Php82k is applicable to the 13th
month pay and other benefits but not
to the basic salary and other
allowances.
This Php82k does not apply to self-
employed individuals and income
generated from business.
Employers must issue Certificate of
Compensation/Tax Withheld (BIR
Form 2316) to employees on or before
January 31 of the succeeding calendar
year showing the correct computation
and application of the said increase on
the 13th month and other benefits.
In case an employee resigns or leaves
his job before the end of the calendar
year, and subsequently is employed by
another employer also before the close
of the calendar year, he shall furnish
the new employer the accomplished
BIR form issued by the previous
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employer for the appropriate
withholding tax computation.
RR No. 17-2013, September 27, 2013
On preservation of books of accounts,
accounting records and other business records
of businessmen and professionals.
All taxpayers are required to preserve
their books of accounts including
subsidiary books and other accounting
records for a period of TEN (10)
YEARS reckoned from the day
following the due date of the return or
if filed after the deadline from the date
of filing of the return for the taxable
year when the last entry was made in
the books of accounts.
All books must at all times be kept at
the place of business of the taxpayer.
Examination and inspection of books
of accounts and other accounting
records shall be done at the (a)
taxpayers office, (b) place of business,
or (c) in the office of the BIR.
Certified Public Accountants (CPAs)
who audited the records and certified
the financial statements of the taxpayer
must also preserve their records for the
same ten (10) year period.
RR No. 12-2013, July 12, 2013on
requirements of deductibility of business or
professional expenses.
Any income payment which is
otherwise deductible under the Tax
Code shall be allowed as deduction
from the payors gross income only if
it is shown that the income tax
required to be withheld has been paid
to the BIR in accordance with Sec. 57
and 58 of the Tax Code.
--- God Bless ---