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TAXATION LAW
Pre-week Notes 2017
ACADEMICS COMMITTEE
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TAXATION LAW
What are de minimis benefits and how are these the schedule of values fixed by the provincial or city
taxed? Give three (3) examples of de minimis assessors. In this case, for the purpose of computing
benefits. (2015 BAR) donor’s tax, the proper valuation is the value prepared
De minimis benefits are facilities and privileges by the City Assessors amounting to P2,500,000 because
furnished or offered by an employer to his employees, it is higher than the FMV determined by the CIR (Sec.
which are not considered compensation subject to 102 in relation to Sec. 88(B), NIRC).
income tax and consequently to withholding tax, if such
facilities or privileges are of relatively small value and
PART I: GENERAL PRINCIPLES OF
are offered or furnished by the employer merely as
means of promoting the health, goodwill, contentment, TAXATION
or efficiency of his employees. If received by rank-and-
file employees, they are exempt from income tax on Briefly explain the following doctrines: lifeblood
wages, if received by supervisory or managerial doctrine; necessity theory; benefits received
employees, they are exempt from the fringe benefit tax principle; and, doctrine of symbiotic relationship.
(RR No. 2-98, as amended by RR No. 8-2000). (2016 BAR)
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TAXATION LAW
YES. The sale of the property by Lucky to Rainer and same jurisdiction, during the same taxing period, with
consequently the sale by Rainer to HSC being prompted the same kind or character of a tax (84 C.J.S. 131-132). It
more on the mitigation of tax liabilities than for is permissible if taxes are of different nature or
legitimate business purposes, therefore, constitutes tax character, or the two taxes are imposed by different
evasion. The real buyer from Lucky is HSC as evidenced taxing authorities (Villanueva v. City of Iloilo, 26 SCRA
by the direct receipt of payments by the former from the 578 [1968]).
latter where the latter recorded “other investments –
Lucky Building.” The scheme of resorting to a two-step The City of Manila assessed and collected taxes from
transaction in selling the property to the ultimate buyer taxpayers pursuant to Sec. 15 (Tax on Wholesalers,
in order to escape paying higher taxes is considered as Distributors, or Dealers) and Sec. 17 (Tax on
outside of those lawful means allowed in mitigating tax Retailers) of the Revenue Code of Manila (Ordinance
liabilities which makes Lucky criminally and civilly No. 7794). At the same time, the City of Manila
liable. Hence, the BIR is correct in assessing taxes on imposed additional taxes upon the taxpayers
Lucky (CIR v. Estate of Benigno P. Toda, Jr., 438 SCRA 290 pursuant to Sec. 21 of the Revenue Code of Manila,
[2004]). which imposes tax on a person who sold goods and
services in the course of trade or business based on
May the collection of taxes be barred by a certain percentage of his gross sales or receipts in
prescription? (2001 BAR) the preceding calendar year, as a condition for the
renewal of their respective business licenses for the
YES. The collection of taxes may be barred by year 1999. Is there double taxation?
prescription. The prescriptive periods for collection of
taxes are governed by the tax law imposing the tax. YES. All the elements of double taxation concurred upon
However, if the tax law does not provide for the City of Manila’s assessment on and collection from
prescription, the right of the government to collect taxes the petitioners of taxes pursuant to Sec. 21 of the
becomes imprescriptible. Revenue Code of Manila. Firstly, because Sec. 21 of the
Revenue Code of Manila imposed the tax on a person
Distinguish a direct from an indirect tax. Give who sold goods and services in the course of trade or
examples (1994, 2000, 2001, 2006BAR). business based on a certain percentage of his gross sales
or receipts in the preceding calendar year, while Sec. 15
Direct taxes are demanded from the very person who, and Sec. 17 likewise imposed the tax on a person who
as intended, should pay the tax which he cannot shift to sold goods and services in the course of trade or
another. Income tax, estate and donor's tax are business but only identified such person with
considered as direct taxes. Indirect taxes, on the other particularity, namely, the wholesaler, distributor or
hand, are demanded in the first instance from one dealer (Sec. 15), and the retailer (Sec. 17), all the taxes
person with the expectation that he can shift the burden — being imposed on the privilege of doing business in
to someone else, not as a tax but as a part of the the City of Manila in order to make the taxpayers
purchase price. Value-added tax, excise tax, other contribute to the city’s revenues — were imposed on the
percentage taxes are indirect taxes. same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing
How to determine if a tax is direct or indirect authority (the City of Manila) and within the same
jurisdiction in the same taxing period (i.e., per calendar
It is direct taxes when the impact or liability for the year). Thirdly, the taxes were all in the nature of local
payment of tax as well as incidence or burden of tax falls business taxes.
on the same person. On the other hand, it is indirect
taxes when the impact or liability for the payment of tax In fine, the imposition of the tax under Section 21
falls on one person but the incidence or burden thereof constituted double taxation, and the taxes collected
can be shifted or passed to another. pursuant thereto must be refunded (Nursery Care
Corporation v. Acevedo, 731 SCRA 280, G.R. No. 180651,
NOTE: In indirect taxation, a distinction is made July 30, 2014, J. Bersamin).
between the liability for the tax and burden of the tax:
The seller who is liable for the VAT may shift or pass on Under the Sin Tax Law, stemmed leaf tobacco, a
the amount of VAT it paid on goods, properties or partially prepared tobacco, is subject to an excise
services to the buyer. In such a case, what is transferred tax for each kilo thereof. On the other hand, cigars
is not the seller's liability but merely the burden of the and cigarettes, of which stemmed leaf tobacco is a
VAT (Diaz v. The Secretary of Finance, G.R. No. 193007, raw material, are also subjected to specific tax under
July 19, 2011). Where the burden of the tax is shifted to Sec. 142 of the Tax Code. Is there double taxation in
the purchaser, the amount passed on to it is no longer a prohibited sense when excise specific tax is imposed
tax but becomes an added cost on the goods purchased, on stemmed leaf tobacco and again on the finished
which constitutes a part of the purchase price. (Silkair v. product of which stemmed leaf tobacco is a raw
CIR, G.R. No. 166482, January 25, 2012). material?
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YES. The exercise of the taxing power of LGUs is subject PAGCOR argues that the withdrawal of its exemption
to the limitations enumerated in Sec. 133 of the LGC. from corporate income tax has the effect of changing
Under Sec. 133(o)3 of the LGC, LGUs have no power to the main consideration and inducement for the
(o) Taxes, fees or charges of any kind on the National Government, its
3“SEC. 133.Common Limitations on the Taxing Powers of Local agencies and instrumentalities and local government units.”
Government Units. — Unless otherwise provided herein, the exercise of (Emphasis supplied)
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following: xxx
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TAXATION LAW
transactions of private parties with it; thus, the NO. Section 13 of the PAGCOR Charter states that
amendatory provision is violative of the non- payment of the 5% franchise tax by PAGCOR and its
impairment clause of the Constitution. Is PAGCOR’s contractees and licensees exempts them from payment of
contention tenable? any other taxes, including corporate income tax. Said
provision was neither amended nor repealed by any
NO. As regards franchises, Section 11, Article XII of the subsequent laws (i.e. Section 1 of R.A. No. 9337); hence,
Constitution provides that no franchise or right shall be it is still in effect.
granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Thus, like PAGCOR, its contractees and licensees remain
Congress when the common good so requires. exempted from the payment of corporate income tax
and other taxes. As the PAGCOR Charter states in
In this case, PAGCOR was granted a franchise to operate unequivocal terms that exemptions granted for earnings
and maintain gambling casinos, clubs and other derived from the operations conducted under the
recreation or amusement places, sports, gaming pools, franchise specifically from the payment of any tax,
i.e., basketball, football, lotteries, etc., whether on land or income or otherwise, as well as any form of charges, fees
sea, within the territorial jurisdiction of the Republic of or levies, shall inure to the benefit of and extend to
the Philippines. Under Section 11, Article XII of the corporation(s), association(s), agency(ies), or
Constitution, PAGCORs franchise is subject to individual(s) with whom the PAGCOR or operator has
amendment, alteration or repeal by Congress such as the any contractual relationship in connection with the
amendment under Section 1 of R.A. No. 9337. Hence, the operations of the casino(s) authorized to be conducted,
provision in Section 1 of R.A. No. 9337, amending so it must be that all contractees and licensees of
Section 27 (c) of R.A. No. 8424 by withdrawing the PAGCOR, upon payment of the 5% franchise tax, shall
exemption of PAGCOR from corporate income tax, which likewise be exempted from all other taxes, including
may affect any benefits to PAGCORs transactions with corporate income tax realized from the operation of
private parties, is not violative of the non-impairment casinos.
clause of the Constitution (PAGCOR vs. BIR, GR No.
172087, March 15, 2011, J. Peralta). However, the contractees and licensees, like PAGCOR,s
hall be liable for corporate income tax for income
In view of the withdrawal of its tax privilege, is derived from "other related services" (Bloomberry
PAGCOR’s income tax liability applicable to all types Resorts and Hotels, Inc. vs. BIR, G.R. No. 212530, August
of its income? 10, 2016, J. Perez).
NO. PAGCOR’s income is classified into two: (1) income TAXPAYER’S SUIT
from its operations conducted under its Franchise
(income from gaming operations); and (2) income from What is a taxpayer’s suit?
its operation of necessary and related services (income
from other related services). It is a case where the act complained of directly involves
the illegal disbursement of public funds collected
Under its charter, P.D. 1869, PAGCOR is subject to through taxation.
income tax only with respect to its income from other
related services, while income from gaming operations What are the requisites of a taxpayer’s suit?
is subject to the five percent (5%) franchise tax only
(PAGCOR vs. BIR, GR No. 215427, December 10, 2014, J. 1. Public funds derived from taxation are disbursed by
Peralta). a political subdivision or instrumentality and in
doing so, a law is violated or some irregularity is
On 8 April 2009, PAGCOR granted to Bloomberry committed; and
Resorts and Hotels, Inc. a license to establish and 2. The petitioner is directly affected by the alleged act.
operate an integrated resort and casino complex at
the Entertainment City, project site of PAGCOR. NOTE: A taxpayer’s suit would fail if what are alleged to
Thus, being one of its licensees, Bloomberry only be illegally disposed of are object which were acquired
pays PAGCOR license fees, in lieu of all taxes, from private sources (Joya, et al. v. PCGG, et al., G.R. No.
consistent with the PAGCOR Charter (P.D. No. 1869) 96541, August 24, 1993).
providing for the exemption from taxes of persons
or entities contracting with PAGCOR in casino Distinguish taxpayer’s suit from a citizen’s suit
operations.
In the case of a taxpayer’s suit, plaintiff is allowed to sue
However, when the Tax Code was amended to where there is a claim that public funds are illegally
exclude PAGCOR from the enumeration of GOCCs disbursed, or that public money is being deflected to any
exempt from paying corporate income tax, BIR improper purpose, or that there is a wastage of public
issued RMC No. 33-2013, which is being assailed by funds through the enforcement of an invalid or
Bloomberry as invalid, stating among others that unconstitutional law.
PAGCOR's contractees and licensees are subject to
income tax under the Tax Code. In a citizen’s suit, the interest of the petitioner assailing
the constitutionality of a statute must be direct and
Is the assailed RMC subjecting the contractees and personal. He must be able to show, not only that the law
licensees of PAGCOR to income tax valid considering or any government act is invalid, but also that he
that PAGCOR Charter grants tax exemptions to such sustained or is in imminent danger of sustaining some
contractees and licensees? direct injury as a result of its enforcement, and not
merely that he suffers thereby in some indefinite way. It
must appear that the person complaining has been or is
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NO. The activity which gives rise to the income is the What are the instances where tax benefit rule
sale of ticket in the Philippines, hence, the income from applies?
sale of tickets is an income derived from Philippines
sources which is subject to the Philippine income tax. 1. Recovery of bad debts–The recovery of bad debts
Accordingly, there is no violation of the principle of previously allowed as deduction in the preceding
territoriality in taxation (Air Canada v. CIR, 778 SCRA year or years shall be included as part of the
131, [2016]). taxpayer’s gross income in the year of such recovery
to the extent of the income tax benefit of said
Summary rules on determination of situs according deduction.
to kinds of income
If the taxpayer did not benefit from deduction of the
Kinds of income Tax situs bad debt written-off because it did not result in any
Service or compensation Place of performance of reduction of his income tax in the year of such
income service deduction as in the case where the result of the
Rent Location of property (real taxpayer’s business operation was a net loss even
or personal) without deduction of the bad debts written-off, his
Royalties Place of use of intangibles subsequent recovery thereof shall be treated as a
Merchandising Place of sale mere recovery or a return of capital, hence, not
treated as receipt of realized taxable income.
Gain on sale of personal Place of sale
property
Gain on sale of real Location of property
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TAXATION LAW
2. Receipt of tax refunds or credit –If a taxpayer a. YES. A citizen of the Philippines residing therein is
receives tax credit certificate or refund for taxable on all income derived from sources within
erroneously paid tax which was claimed as a and without the Philippines (Sec. 23 A, NIRC). Mr. A,
deduction from his gross income that resulted in a being a resident citizen, is taxable on the prize he
lower net taxable income or a higher net operating received in United States.
loss that was carried over to the succeeding taxable b. NO. All prizes and awards granted to athletes in
year, he realizes taxable income that must be local and international sports competitions and
included in his income tax return in the year of tournaments, whether held in the Philippines or
receipt. abroad, and sanctioned by their national sports
associations are excluded from gross income. The
The foregoing principle does not apply to tax credits exclusion find application only to amateur athletes
or refunds of the following taxes since these are not where the prize was given in an event sanctioned by
deductible from gross income: the appropriate national sports association affiliated
with the Philippine Olympic Committee and not to
a. Income tax; professional athletes like Mr. A. Therefore, the prize
b. Estate tax; money would not qualify as an exclusion from Mr.
c. Donor’s tax; and A’s gross income (Sec. 32 B [7] [d], NIRC).
d. Special assessments. c. Mr. A has the option to claim foreign income tax
either as a deduction from gross income or as a tax
Patrick is a successful businessman in the United credit. The option of Mr. A is mutually exclusive.
States and he is a sole proprietor of a supermarket
which has gross sales of $10 million and an annual If the option of Mr. A is a deduction from gross
income of $3 million. He went to the Philippines on a income, the income tax on his prize money imposed
visit and, in a party, he saw Atty. Agaton who boasts in US is included among the itemized deductions of
of being a tax expert. Patrick asks Atty. Agaton: if he the taxpayer. If Mr. A signifies in his return his
(Patrick) decides to reacquire his Philippine desire to avail of the tax credit, he will be allowed a
citizenship under RA 9225, establish residence in credit on his tax due an amount equivalent to the
this country, and open a supermarket in Makati City, income tax paid or incurred in US during the taxable
will the BIR tax him on the income he earns from his year but not to exceed the limitation prescribed by
U.S. business? If you were Atty. Agaton, what advice law (Sec. 34 [C][1][b], NIRC).
will you give Patrick? (2016 BAR)
BBB, Inc., a domestic corporation, enjoyed a
I will advise Patrick that once he re-acquires his particularly profitable year in 2014. In June 2015, its
Philippine citizenship and establishes his residence in Board of Directors approved the distribution of cash
this country, his income tax classification would then be dividends to its stockholders. BBB, Inc. has
a ‘resident citizen’. A resident citizen is taxable on all his individual and corporate stockholders. What is the
income, whether derived within or without the tax treatment of the cash dividends received from
Philippines; accordingly, the income he earns from his BBB, Inc. by the following stockholders?
business abroad will now be subject to the Philippine
income tax (Sec. 23, NIRC). a. A resident citizen
b. Non-resident alien engaged in trade or business
Alternative Answer c. Non-resident alien not engaged in trade or
business
If Patrick becomes a dual citizen under RA 9225 in our d. Domestic corporation
country, he shall be allowed to acquire real properties e. Non-resident foreign corporation (2015 BAR)
and engage himself in business here just like an ordinary
Filipino without renouncing his foreign citizenship. In a. A final withholding tax of 10% shall be imposed
addition, his income abroad will not be taxed here. upon cash dividends actually or constructively
These are among the incentives we have extended to received by a resident citizen from BBB, Inc. [Sec. 24
former Filipinos under the Dual Citizenship Law so that (b) (2), NIRC].
they will be encouraged to come home and invest their b. A final withholding tax of 20% shall be imposed
money in our country. upon cash dividends actually or constructively
received by a non-resident alien engaged in trade or
Mr. A, a citizen and resident of the Philippines, is a business from BBB, Inc. [Sec. 24 (a) (2), NIRC].
professional boxer. In a professional boxing match c. A final withholding tax equal to 25% of the entire
held in 2013, he won prize money in United States income received from all sources within the
(US) dollars equivalent to P300,000,000. Philippines, including the cash dividends received
from BBB, Inc. [Sec. 25 (b), NIRC].
a. Is the prize money paid to and received by Mr. A d. Dividends received by a domestic corporation from
in the US taxable in the Philippines? Why? another domestic corporation, such as BBB, Inc.,
b. May Mr. A's prize money qualify as an exclusion shall not be subject to tax [Sec. 27 (d) (4), NIRC].
from his gross income? Why? e. Dividends received by a non-resident foreign
c. The US already imposed and withheld income corporation from a domestic corporation are
taxes from Mr. A's prize money. How may Mr. A generally subject to an income tax of 30% to be
use or apply the income taxes he paid on his withheld at source [Sec. 28 (b)(1), NIRC]. However, a
prize money to the US when he computes his final withholding tax of 15% is imposed on the
income tax liability in the Philippines for 2013? amount of cash dividends received from domestic
(2015 BAR) corporation like BBB, Inc. if the tax sparing rule
applies [Sec. 28(B)(5)(b), NIRC].Pursuant to this rule,
the lower rate of tax would apply if the country in
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which the non-resident foreign corporation is accounted for in the period they are incurred and not in
domiciled would allow as a tax credit against the tax the period they are paid (Domondon, 2013). Amounts of
due from it, taxes deemed paid in the Philippines of income accrue where the right to receive them become
15% representing the difference between the fixed, where there is created an enforceable liability.
regular income tax rate and the preferential rate. Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to
KKK Corp. secured its Certificate of Incorporation indeterminacy merely of time of payment (CIR v. Isabela
from the Securities and Exchange Commission on Cultural Corp., G.R. No. 172231, 2007).
June 3, 2013. It commenced business operations on
August 12, 2013. In April 2014, Ms. J, an employee of Does the law provide for specific method of
KKK Corp. in charge of preparing the annual income accounting to be employed by the taxpayer?
tax return of the corporation for 2013, got confused
on whether she should prepare payment for the As a general rule, the law does not provide for a specific
regular corporate income tax or the minimum method of accounting to be employed by the taxpayer.
corporate income tax. The law only authorizes the CIR to employ particular
method of accounting of income where:
a. As Ms. J's supervisor, what will be your advice?
b. What are the distinctions between regular a. The taxpayer does not employ a method for
corporate income tax and minimum corporate computing income, or
income tax (MCIT)? (2015 BAR) b. The taxpayer’s method for accounting does not
clearly reflect the income (Domondon, 2015, citing
a. As Ms. J’s supervisor, I will advise that KKK Corp. Sec. 43 of Tax Code).
should prepare payment for the regular corporate
income tax and not the MCIT. Under the Tax Code, Isabela Cultural Corporation (ICC) incurred
MCIT is only applicable beginning the 4th taxable professional fees for legal and auditing services that
year following the commencement of business pertain to taxable years 1984 and 1985. ICC did not
operation [Sec. 27(e)(1), NIRC]. (Note: 5th year of claim deductions for said expenses in 1984 and
operation) 1985 since the cost of the services was not yet
b. The distinctions between regular corporate income determinable at that time. It claimed deductions
tax and the minimum corporate income tax are the only in 1986 when ICC received the billing
following: statements for said services. BIR, however, contends
that since ICC is using the accrual method of
1. As to taxpayer: Regular corporate income tax accounting, the expenses for the professional
applies to all corporate taxpayers while services that accrued in 1984 and 1985, should have
minimum corporate income tax applies to been declared as deductions from income during the
domestic corporations and resident foreign said years and the failure of ICC to do so bars it from
corporations. claiming said expenses as deduction for the taxable
2. As to tax rate: Regular corporate income tax is year 1986. Decide.
30% while minimum corporate income tax is
2%. The expenses should have been claimed as deductions in
3. As to tax base: Regular corporate income tax is 1984 and1985. For a taxpayer using the accrual method,
based on the net taxable income while the accrual of income and expense is permitted when
minimum corporate income tax is based on the all-events test has been met.
gross income.
4. As to period of applicability: Regular corporate The all-events test requires the right to income or
income tax is applicable once the corporation liability be fixed, and the amount of such income or
commenced its business operation, while liability be determined with reasonable accuracy.
minimum corporate income tax is applicable However, the test does not demand that the amount of
beginning on the 4th taxable year following the income or liability be known absolutely, only that a
commencement of business operations. taxpayer has at his disposal the information necessary
5. As to imposition: The minimum corporate to compute the amount with reasonable accuracy. The
income tax is imposed whenever it is greater amount of liability does not have to be determined
than the regular corporate income tax of the exactly; it must be determined with "reasonable
corporation (Sec. 27(A) and (E), NIRC; RR No. 9- accuracy."
98).
The propriety of an accrual must be judged by the facts
Methods of Accounting that a taxpayer knew, or could reasonably be expected
to have known, at the closing of its books for the taxable
Distinguish cash method from accrual method of year. From the nature of the claimed deductions and the
accounting. span of time during which the firm was retained, ICC can
be expected to have reasonably known the retainer fees
In cash method, income is recognized only upon actual charged by the firm as well as the compensation for its
or constructive receipt of cash payments or property but legal services. The failure to determine the exact amount
no deductions are allowed from the cash income unless of the expense during the taxable year when they could
actually disbursed through an actual or constructive have been claimed as deductions cannot thus be
payment in cash or property. attributed solely to the delayed billing of these liabilities
by the firm. For one, ICC, in the exercise of due diligence
Meanwhile, in accrual method, income is recognized in could have inquired into the amount of their obligation
the period it is earned, regardless of whether it has been to the firm, especially so that it is using the accrual
received or not. In the same manner, expenses are method of accounting. For another, it could have
reasonably determined the amount of legal and retainer
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TAXATION LAW
Income from Dealings in Property The taxpayer has the option to either:
Distinguish “capital asset” from “ordinary asset.” a. Include as part of gross income subject allowable
(2003 BAR) deductions and personal exemptions, then subject
to the schedular tax (not available to a corporate
Ordinary assets refer to properties held by the taxpayer taxpayer); or
used in connection with his trade or business which b. Subject to final tax of 6% on capital gains (Sec. 24
includes the following: [SOUR] [D], NIRC).
a. Stock in trade of the taxpayer or other property of a 3. From Sale of Other Capital Assets– the rules on
kind which would properly be included in the capital gains and losses apply in the determination of
inventory of the taxpayer if on hand at the close of the amount to be included in gross income subject to
the taxable year; the graduated rates of 5 - 32% for individuals and
b. Property held by the taxpayer primarily for sale to the normal corporate income tax of 30% for
customers in the Ordinary course of trade or corporations, and not subject to capital gains tax.
business;
c. Property Used in the trade or business of a character State with reason the tax treatment of the following
which is subject to the allowance for depreciation in the preparation of annual income tax returns:
provided in the NIRC; and Income realized from sale of:
d. Real property used in trade or business of the
taxpayer. a. Capital assets; and
b. Ordinary assets. (2005 BAR)
Capital assets, on the other hand, include property held
by the taxpayer (whether or not connected with his a. Generally, income realized from the sale of capital
trade or business) other than ordinary assets [SOUR] assets are not reported in the income tax return as
above (Sec 39 (a) (1)). they are already subject to final taxes (capital gains
tax on real property and shares of stocks not traded
What is the difference between capital gains and in the stock exchange). What are to be reported in
ordinary gains? (1995 BAR) the annual income tax return are the capital gains
derived from the disposition of capital assets
Capital gains are gains realized from the sale or other than real property or shares of stocks in
exchange of capital assets, while ordinary gains refer to domestic corporations, which are not subject to final
gains realized from the sale or disposition of ordinary tax.
assets. b. Income realized from sale of ordinary assets is part
of Gross Income, included in the Income Tax Return
Discuss the tax treatment of capital gains and losses. (NIRC, Sec. 32 A [3]).
1. Capital gains from Sale of Stocks of Corporations NOTE: Ordinary assets and capital assets are subject to
different rules. There are special rules that apply only to
a. Stocks Listed and Traded in the Stock Exchange – capital transactions, to wit:
subject to stock transaction tax of ½ of 1% on its
gross selling price (Percentage Tax). 1. Holding period rule
b. Stocks Not Listed and Traded in the Stock 2. Capital loss limitation
Exchange – subject to Capital Gains Tax of 5% for 3. Net capital loss carry-over (NELCO)
100K, and 10% in excess of 100K.
What is Holding Period Rule?
The holding period notwithstanding, a final tax at
the rates prescribed below is imposed upon the Where the taxpayer held the capital asset sold for more
net capital gains realized during the taxable year than 12 months, the gain derived therefrom is taxable
from the sale, barter or exchange or other only to the extent of 50%. Consequently, if the taxpayer
disposition of shares of stock in a domestic held the capital asset sold for a year or less, the whole
corporation which are not traded in the stock gain shall be taxable. The same also applies to capital
exchange (NIRC, Sec. 24 [C]): loss. It is a form of tax avoidance since the taxpayer can
exploit it in order to reduce his tax due (NIRC, Sec. 39
Not over ₱100K …..……………….………..……5% [B]).
On any amount in excess of ₱100K ……10%
Only individual taxpayers can avail of the holding period
2. From Sale of Real Properties / Land and/or rule. It is not allowed to corporations.
Buildings in the Philippines4 – capital gain derived
is subject to 6% capital gains tax based on the gross NOTE: Holding period does not find application in the
selling price or current fair market value, case of disposition of:
whichever is higher. No loss is recognized because
1. shares of stock, and
gain is presumed.
2. real property considered as capital asset, whether
the seller is an individual, trust, estate or a private
4 The Tax Code speaks of real property with respect to individual corporation.
taxpayers, estate and trust but only speaks of land and/or building
with respect to domestic corporations.
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What is Capital Loss Limitation Rule? As to tax implication, distinguish shares of stocks
not listed and traded through stock exchange from
Losses from sale or exchanges of capital assets shall be those listed and traded through stock exchange.
allowed only to the extent of the gains from such sales or (2008, 2011 BAR)
exchanges [NIRC, Sec. 39 (C)].
NOT listed Listed and
Thus, capital loss is deductible only to the extent of and traded traded
capital gain. The taxpayer can only deduct capital loss As to nature Income Business
from capital gain. If there is no capital gain, then no
deduction is allowed because you cannot deduct capital As to kind of Capital gains Percentage tax
tax tax
loss from ordinary gain.
As to rate Not ½ of 1%
Where the capital loss limitation rule will NOT apply: over₱100,000
= 5%
a. If a bank or trust company incorporated under the In excess of
laws of the Philippines, ₱100,000 =
b. a substantial part of whose business is the receipt of 10%
deposits, As to tax base Net capital Gross selling price
c. sells any bond, debenture, note or certificate or gain
other evidence of indebtedness issued by any
corporation, with interest coupons or in registered
form, What is the tax treatment on sale or disposition of
d. any losses resulting from such sale shall not be real property located in the Philippines treated as
subject to the above limitations and shall not be capital asset?
included in determining the applicability of such
limitation to other losses (NIRC, Sec. 39 [C]). A final tax of 6% shall be imposed based on the higher
amount between:
What is Net Loss Carry Over (NELCO) rule?
1. The gross selling price; or
If any taxpayer, other than a corporation, sustains in any 2. Whichever is higher between the current fair market
taxable year a net capital loss, such loss (in an amount value as determined by:
not in excess of the net income for such year) shall be 3.
treated in the succeeding taxable year as a loss from the a. Zonal Value – prescribed zonal value of real
sale or exchange of a capital asset held for not more than properties as determined by the CIR; or
12 months (NIRC, Sec. 39 [D]). b. Assessed Value – the fair market value as shown
in the schedule of values of the Provincial and
Rules with regard to NELCO: City assessors (NIRC, Sec. 24 D [1]).
1. NELCO is allowed only to individuals, including NOTE: Actual gain or loss is immaterial since there is a
estates and trusts. conclusive presumption of gain. Also, the above rule
2. The net loss carry-over shall not exceed the net shall apply only to domestic corporations, since foreign
income for the year sustained and is deductible only corporations (RFC and NRFC) cannot own properties in
for the succeeding year. the Philippines.
3. The capital assets must not be real property or
stocks listed and traded in the stock exchange. What if the real property, which is a capital asset, is
4. Capital asset must be held for not more than 12 not located in the Philippines?
months.
Gains realized from the sale, exchange or other
Distinguish NELCO from Net Operating Loss Carry disposition of real property, not located in the
Over (NOLCO) Philippines by resident citizens or domestic
corporations shall be subject to ordinary income
BASIS NELCO NOLCO taxation (RR 7-2003, Sec. 4. [F]) but subject to foreign
tax credits.
As to source Arises from Arises from
capital ordinary
Such income may be exempt in case of non-resident
transactions transactions
citizens, alien individuals and foreign corporations (RR
meaning meaning involving
7-2003, Sec. 4. [F]).
involving ordinary asset
capital asset
Hopeful Corporation obtained a loan from Generous
As to who can Can be availed Can be availed of
Bank and executed a mortgage on its real property
avail of by by individual and
to secure the loan. When Hopeful Corporation failed
individual corporate
to pay the loan, Generous Bank extrajudicially
taxpayer only taxpayer
foreclosed the mortgage on the property and
As to period May be Allows carry-over
acquired the same as the highest bidder. A month
of carry-over carried over of operating loss
after the foreclosure, Hopeful Corporation exercised
only in the in 3 succeeding
its right of redemption and was able to redeem the
next taxable years or in
property. Is Generous Bank liable to pay capital
succeeding case of mining
gains tax as a result of the foreclosure sale? Explain.
taxable year companies, 5
(2014 BAR)
years
11
TAXATION LAW
NO. In a foreclosure of a real estate mortgage, the capital 5. Income exempt under treaty
gains tax accrues only after the lapse of the redemption 6. Compensation for injuries or sickness
period because it is only then that there exists a transfer 7. Miscellaneous items (13P2IG3)
of property. Thus, if the right to redeem the foreclosed a. 13thmonth pay and other Benefits;
property was exercised by the mortgagor before the b. Prizes and awards
expiration of the redemption period, as in this case, the c. Prizes and awards in sports competitions
foreclosure is not a taxable event (See RR No. 4-99; d. Income derived by foreign government
Supreme Transliner, Inc. v. BPI Family Savings Bank, Inc. e. Income derived by the government or its
G.R. No. 165617, February 25, 2011). political subdivisions
f. GSIS, SSS, Medicare and other contributions
What is principal residence? g. Gains from the sale of bonds, debentures or
other certificate of indebtedness
Principal residence refers to the dwelling house, h. Gains from redemption of shares in mutual fund
including the land on which it is situated, where the (NIRC, Sec. 32 [B]).
individual and members of his family reside, and
whenever absent, the said individual intends to return. Distinguish "Exclusion from Gross Income" from
Actual occupancy is not considered interrupted or "Deductions from Gross Income." Give an example of
abandoned by reason of temporary absence due to each. (2001BAR)
travel or studies or work abroad or such other similar
circumstances (RR No. 14-00). Exclusions from gross income refer to a flow of wealth
to the taxpayer which are not treated as part of gross
Is sale of principal residence by an individual income, for purposes of computing the taxpayer’s
subject to capital gains tax? (2015 BAR) taxable income, due to the following reasons: (1) It is
exempted by the fundamental law; (2) It is exempted by
A sale of principal residence by an individual is exempt statute; and (3) It does not come within the definition of
from capital gains tax provided the following requisites income (Sec. 61, RR No. 2).
are present:
Deductions from gross income, on the other hand, are
1. Sale or disposition of the old actual principal the amounts, which the law allows to be deducted from
residence; gross income in order to arrive at net income.
2. By a citizen or resident alien;
3. Proceeds from which is fully utilized in acquiring or Exclusions pertain to the computation of gross income,
constructing a new principal residence within 18 while deductions pertain to the computation of net
calendar months from the date of sale or disposition; income.
4. Notify the CIR within 30 days from the date of sale or
disposition through a prescribed return of his Exclusions are something received or earned by the
intention to avail the tax exemption; taxpayer which do not form part of gross income while
5. Can be availed of once every 10 years; deductions are something spent or paid in earning gross
6. The historical cost or adjusted basis of his old income.
principal residence shall be carried over to the cost
basis of his new principal residence; Example of an exclusion from gross income is proceeds
7. If there is no full utilization, the portion of the gains of life insurance received by the beneficiary upon the
presumed to have been realized shall be subject to death of the insured. Example of a deduction is business
capital gains tax; and rental.
8. The 6% capital gains tax due shall be deposited with
an authorized agent bank subject to release upon Deductions from Gross Income
certification by the RDO that the proceeds of the sale
have been utilized (R.R. No. 14-00). Enumerate the itemized deductions under Tax Code.
NOTE: Money earned from sale cannot be used for rent. Except for taxpayers earning compensation income
arising from personal services rendered under an
If the taxpayer constructed a new residence and employer-employee relationship where no deductions
then sold his old house, is the transaction subject to shall be allowed other than premium payments on
capital gains tax? health and/or hospitalization insurance, in computing
taxable income subject to income tax there shall be
YES. Exemption from capital gains tax does not find allowed the following deductions from gross income:
application since the law is clear that the proceeds
should be used in acquiring or constructing a new 1. Expenses
principal residence. Thus, the old residence should first 2. Interest
be sold before acquiring or constructing the new 3. Taxes
residence. 4. Losses
5. Bad debts
Exclusions from Gross Income 6. Depreciation
8. Depletion of Oil and Gas Wells and Mines
Enumerate those excluded in gross income under 9. Charitable and other Contributions
the Tax Code. [GLAM-RIC] 10. Research and Development
11. Contributions to Pension Trusts (Sec. 34)
1. Gifts, bequests and devises
2. Life insurance proceeds
3. Amount received by insured as return of premium NOTE: To be entitled to claim a tax deduction, the
4. Retirement benefits, pensions, gratuities, etc. taxpayer must competently establish the factual and
12
UST LAW PRE-WEEK NOTES 2017
documentary bases of its claim. (H. Tambunting Rule on the above contentions by Tambunting.
Pawnshop vs. CIR, G.R. No. 173373, July 29, 2013, J.
Bersamin). The contentions of Tambunting are without merit. First,
the provisions of the 1997 Tax Code are not applicable
What is the “Matching Concept” of deductibility? because the transactions involved occurred prior to its
effectivity. Instead, what governs is the provisions of
This posits that the deductions must, as a general rule, P.D. 1158 or the 1977 Tax Code.
“match” the income, i.e. helped earn the income
(Domondon, 2013). Second, tax deductions, being in the nature of tax
exemptions, are to be construed in strictissimi juris
Ordinary and necessary expenses must have been paid against the taxpayer. Corollary to this rule is the
or incurred during the taxable year for it to be principle that when a taxpayer claims a deduction, he
deductible from gross income. Further, the deduction must point to some specific provision of the statute in
shall be taken for the taxable year in which 'paid or which that deduction is authorized and must be able to
accrued' or 'paid or incurred.' Otherwise, the expenses prove that he is entitled to the deduction which the law
are barred as deductions in subsequent years (CIR v. allows. In this case, Tambunting failed to substantiate
Isabela Cultural Corporation, G.R. No. 172231, February the deductions with sufficient evidence.
12, 2007).
a) Loss on auction sales-The subasta books were not the
Distinguish Allowable Deductions from Personal proper evidence of such losses from the auctions
Exemptions. Give an example of an allowable because they did not reflect the true amounts of the
deduction and another example for personal proceeds of the auctions due to certain items having
exemption. (2001 BAR) been left unsold after the auctions. The rematado books
did not also prove the amounts of capital because the
The distinction between allowable deductions and figures reflected therein were only the amounts given to
personal exemptions are as follows: the pawnees.
a. As to amount — Allowable deductions generally refer b) Business expenses - The requisites for the deductibility
to actual expenses incurred in the pursuit of trade, of ordinary and necessary trade or business expenses,
business or practice of profession while personal like those paid for security and janitorial services,
exemptions are arbitrary amounts allowed by law. management and professional fees, and rental expenses,
b. As to nature — Allowable deductions constitute are that:
business expenses while personal exemptions
pertain to personal expenses. a. the expenses must be ordinary and necessary;
c. As to purpose — Deductions are allowed to enable b. they must have been paid or incurred during the
the taxpayer to recoup his cost of doing business taxable year;
while personal exemptions are allowed to cover c. they must have been paid or incurred in carrying on
personal, family and living expenses. the trade or business of the taxpayer; and
d. As to claimants — Allowable deductions can be d. they must be supported by receipts, records or
claimed by all taxpayers, corporate or otherwise, other pertinent papers.
while personal exemptions can be claimed only by
individual taxpayers. Tambunting did not discharge its burden of
substantiating its claim for deductions due to the
Tambunting was assessed for deficiency income tax inadequacy of its documentary support of its claim. Its
as a result of disallowance of deductions from gross reliance on withholding tax returns, cash vouchers,
income on the ground that Tambunting had not lessor’s certifications, and the contracts of lease was
substantiated them by sufficient evidence. futile because such documents had scant probative
Tambunting argues against the assessment that: value. The law required Tambunting to support its claim
for deductions with the corresponding official receipts
1. It had been able to point out the provisions of issued by the service providers concerned.
law authorizing the deductions, and that the
provisions of Section 34 (A)(1)(b) of the 1997 c) Loss due to fire and theft - The documents submitted
Tax Code, governing the types of evidence to to support the claim were not enough. What were
prove a claim for deduction of expenses, were required were for Tambunting to submit the sworn
applicable because the law took effect during the declaration of loss mandated by RR 12-77. Its failure to
pendency of the case in the CTA; do so was prejudicial to the claim because the sworn
2. It proved its entitlement to the deductions declaration of loss was necessary to forewarn the BIR
through all the documentary and testimonial that it had suffered a loss whose extent it would be
evidence presented in court, namely: claiming as a deduction of its tax liability, and thus
a) Loss on auction sales – subasta books and enable the BIR to conduct its own investigation of the
rematado; incident leading to the loss. Indeed, the documents
b) Business expenses - withholding tax returns, Tambunting submitted to the BIR could not serve the
cash vouchers, lessor’s certifications, and the purpose of their submission without the sworn
contracts of lease; declaration of loss (H. Tambunting Pawnshop vs. CIR, G.R.
c) Loss due to fire and theft - certification from No. 173373, July 29, 2013, J. Bersamin).
the Bureau of Fire Protection, the
certification from the Police Station, Congress issued a law allowing a 20% discount on
accounting entry for the losses, and list of the purchases of senior citizens from, among others,
properties lost. recreation centers. This 20% discount can then be
used by the sellers as a "tax credit." At the initiative
of BIR, however, RA No. 9257 was enacted amending
13
TAXATION LAW
the treatment of the 20% discount as a "tax judgement that there remained no practical, but only
deduction." Equity Cinema filed a petition with the vaguely theoretical prospect that the debt would ever be
RTC claiming that RA 9257 is unconstitutional as it paid (Collector of Internal Revenue v. Goodrich
forcibly deprives sellers a part of the price without International Rubber Co., 21 SCRA 1336 [1967]). A bad
just compensation. debt deductible if it complies with the following
requisites:
a. What is the effect of converting the 20% discount
from a "tax credit" to a "tax deduction"? a. There must be a valid and subsisting debt.
b. If you are the judge, how will you decide the case? b. The obligation is connected with the taxpayer’s trade
Briefly explain your answer. (2016 BAR) or business and is not between related parties.
c. There is an actual ascertainment that the debt is
a. The effect of converting the 20% discount from a “tax worthless.
credit” to a tax deduction” is that the tax benefit d. The debt is charged-off during the taxable year. A
enjoyed by sellers of goods and services to senior partial write-off is not allowed (PRC v. CA, 256 SCRA
citizens is effectively reduced. A tax credit reduces 667[1996]).
the tax liability while a tax deduction merely reduces
the tax base. Peter is the Vice-President for Sales of Golden
Dragon Realty Conglomerate, Inc. (Golden Dragon).
Under the tax credit scheme, the establishments are A group of five (5) foreign investors visited the
paid back 100% of the discount they give to senior country for possible investment in the condominium
citizens while under the tax deduction scheme, they units and subdivision lots of Golden Dragon. After a
are only paid back about 32% of the 20% discount tour of the properties for sale, the investors were
granted to senior citizens. wined and dined by Peter at the posh Conrad's Hotel
at the cost of P150,000.00. Afterward, the investors
b. I will decide in favor of the constitutionality of the were brought to a party in a videoke club which cost
law. The 20% discount as well as the deduction the company P200,000.00 for food and drinks, and
scheme is a valid exercise of the police power of the the amount of P80,000.00 as tips for business
State (Manila Memorial Park Inc. v. Department of promotion officers. Expenses at Conrad's Hotel and
Social Welfare and Development, 711 SCRA 302 the videoke club were receipted and submitted to
[2013]). support the deduction for representation and
entertainment expenses. Decide if all the
Freezy Corporation, a domestic corporation engaged representation and entertainment expenses claimed
in the manufacture and sale of ice cream, made by Golden Dragon are deductible. Explain. (2016
payments to an officer of Frosty Corporation, a BAR)
competitor in the ice cream business, in exchange
for said officer’s revelation of Frosty Corporation’s Reasonable allowance for entertainment, amusement,
trade secrets. May Freezy Corporation claim the and recreation expenses during the taxable year that are
payment to the officer as deduction from its gross directly connected or related to the operation or
income? Explain. (2014 BAR) conduct of the trade, business or profession, or that are
directly related to or in furtherance of the conduct of
NO. Payments made in exchange for the revelation of a his/her trade, business, or exercise of a profession not to
competitor’s trade secrets is considered as an expense exceed such ceilings prescribed by rules and regulations,
which is against law, morals, good customs or public are allowed as deduction from gross income.
policy, which is not deductible (3M Philippines, Inc. v.
CIR, G.R. No. 82833, September 26, 1988). In this case, the expenses incurred were to entertain the
investors of Golden Dragon; thus, the amount deductible
Also, the law will not allow the deduction of bribes, for entertainment, amusements and recreation expenses
kickbacks and other similar payments. Applying the is limited to the actual amount of paid or incurred but in
principle of ejusdem generis, payment made by Freezy no case shall the deduction exceed 0.50% of net sales for
Corporation would fall under “other similar payments” taxpayers engaged in the sale of goods or properties
which are not allowed as deduction from gross income (Sec. 34(A)(1)(a)(iv), NIRC as implemented by RR No. 10-
[Section 34(A)(1)(c), NIRC]. 2002).
Rakham operates the lending company that made a Henry, a U.S. naturalized citizen, went home to the
loan to Alfonso in the amount of P120,000.00 subject Philippines to reacquire Philippine citizenship
of a promissory note which is due within one (1) under RA 9225. His mother left him a lot and
year from the note’s issuance. Three years after the building in Makati City and he wants to make use of
loan became due and upon information that Alfonso it in his trading business. Considering that he needs
is nowhere to be found, Rakham asks you for advice money for the business, he wants to sell his lot and
on how to treat the obligation as "bad debt." Discuss building and make use of the consideration.
the requisites for deductibility of a "bad debt?" However, the lot has sentimental value and he wants
(2016 BAR) to reacquire it in the future. A friend of Henry told
him of the "sale-leaseback transaction" commonly
I will advise Rakham that that the obligation of Alfonso used in the U.S., which is also used for tax reduction.
may now be considered as bad debts for having met the Under said transaction, the lot owner sells his
yardstick of a debt which had become worthless. In property to a buyer on the condition that he leases it
order to be considered worthless, the taxpayers should back from the buyer. At the same time, the property
establish that during the year from which a deduction is owner is granted an option to repurchase the lot on
sought, a situation developed as a result of which it or before an agreed date. Henry approaches you as a
became evident the exercise of sound, objective business tax lawyer for advice.
14
UST LAW PRE-WEEK NOTES 2017
Explain what tax benefits, if any, can be obtained by exemption for each dependent not exceeding four
Henry and the buyer from the sale-leaseback from P8,000 to P25,000. Are the increased personal
transaction? (2016 BAR) and additional exemptions applicable to the entire
taxable year 2008 or prorated, considering that R.A.
Henry will be entitled to claim rental expense as a 9504 took effect only on 6 July 2008?
deduction from his gross income in the trading business.
His lease payments plus interest would be substantially The increased personal and additional exemptions
higher than the depreciation expense he may claim in should be applied to the entire taxable year 2008.
computing his taxable income; hence, the lease would
result in the additional benefit of increasing his Nothing expressly provides or even suggests a prorated
additional tax deductions. The buyer will be deriving application of the exemptions for taxable year 2008.
rental income from the property and be able to claim Thus, there’s no reason to make any distinction between
business deductions such as real property taxes, repairs the income earned prior to the effectivity of the
and maintenance, depreciation and other expenses amendment (from 1 January 2008 to 5 July 2008) and
necessary for the renting out of the property. that earned thereafter (from 6 July 2008 to 31 December
2008) as none is indicated in the law. The principle that
In 2012, Dr. K decided to return to his hometown to the courts should not distinguish when the law itself
start his own practice. At the end of 2012, Dr. K does not distinguish squarely applies to this case.
found that he earned gross professional income in
the amount of P1,000,000.00; while he incurred Moreover, the legislative policy of full taxable year
expenses amounting to P560,000.00 constituting treatment of the personal and additional
mostly of his office space rent, utilities, and exemptions has been in our jurisdiction as established,
miscellaneous expenses related to his medical not by the amendments introduced by R.A. 9504, but by
practice. However, to Dr. K’s dismay, only the provisions of Section 35 the 1997 NIRC. Said
P320,000.00 of his expenses were duly covered by provision does not allow the prorating of the personal
receipts. What are the options available for Dr. K so and additional exemptions even in case a status-
he could maximize the deductions from his gross changing event occurs during the taxable year.
income? (2015 BAR) Rather, it allows the taxpayer the maximum exemptions
that can be availed, notwithstanding the fact that the
Dr. K may opt to use the optional standard deduction latter's actual status would qualify only for a lower
(OSD) in lieu of the itemized deduction. OSD is a exemption if prorating were employed (Soriano v.
maximum of forty percent (40%) of gross receipts Secretary of Finance, G.R. Nos. 184450, 184508, 184538 &
during the taxable year. Proof of actual expenses is not 185234, January 24, 2017).
required, but Dr. K shall keep such records pertaining to
his gross receipts. Minimum Wage Earners
Personal and Additional Deductions R.A. 9504 was approved and took effect on 6 July
2008. The law granted MWEs exemption from
Mr. E and Ms. F are both employees of AAA Corp. payment of income tax on their minimum wage,
They got married on February 14, 2011. On holiday pay, overtime pay, night shift differential
December 29, 2011, the couple gave birth to triplets. pay and hazard. On 24 September 2008, the BIR
On June 25, 2013, they had twins. What were the issued RR 10-2008 implementing the provisions of
personal exemptions/deductions which Mr. E and R.A. 9504. Decide the following:
Ms. F could claim in the following taxable years:
k. For 2012, Mr. E and Ms. F are each entitled to basic a. NO. The MWE is exempt for the entire taxable year
personal exemptions of P50,000. In addition, Mr. E. 2008. As it stands, the calendar year 2008 remained
could claim additional exemptions for four as one taxable year for an individual taxpayer.
(4)qualified dependent children in the amount Therefore, RR 10-2008 cannot declare the income
ofP25,000 for each child [Sec. 35(B), NIRC]. earned by a minimum wage earner from 1 January
2008 to 5 July 2008 to be taxable and those earned
On 17 June 2008, R.A. 9504 was approved and by him for the rest of that year to be tax-exempt. To
signed into law. The law increased the basic do so would be to contradict the NIRC and
personal exemption from P20,000 for a single jurisprudence, as taxable income would then cease
individual, P25,000 for the head of the family, and to be determined on a yearly basis.
P32,000 for a married individual to P50,000 for each
individual. It also increased the additional NOTE: The above ruling that the MWE exemption is
available for the entire taxable year 2008 is premised
15
TAXATION LAW
16
UST LAW PRE-WEEK NOTES 2017
In its 1997 ITR, PM Management International Inc. Philippines, whose income taxes have been
expressly signified that it had a CWT of P1.2M for correctly withheld.
taxable year 1997 to be claimed as tax credit in d. Resident citizen who falls under the
taxable year 1998. However, due to its net-loss classification of minimum wage earners.
position in 1998, the taxpayer was unable to claim e. An individual whose sole income has been
the P1.2M as tax credit. subjected to final withholding tax. (2015 BAR)
On April 12, 2000, the taxpayer filed with BIR a a. Not required. The income of a non-resident Filipino
written claim for the refund of the P1.2M unutilized citizen is taxable only on income sourced within the
CWT for taxable year 1997. Is the taxpayer entitled Philippines. Accordingly, his income from sources
to refund? outside the Philippines is exempt from income tax
[Sec. 51(A)(1)(b), NIRC]
NO. Inasmuch as the respondent already opted to carry b. Required. A resident alien is taxable only on income
over its unutilized CWT of P1.2M to taxable year 1998, derived from sources within the Philippines
the carry-over could no longer be converted into a claim [Sec.51(A)(1)(c), NIRC].
for tax refund because of the irrevocability rule c. Required. A resident citizen who is earning purely
provided in Section 76 of the NIRC of 1997. Thereby, the compensation income from two employers should
respondent became barred from claiming the refund. file income tax return. If the compensation income is
received concurrently from two employers during
However, in view of its irrevocable choice, the the taxable year, the employee is not qualified for
respondent remained entitled to utilize that amount of substituted filing[Sec.51(A)(2)(b), NIRC].
P1.2M as tax credit in succeeding taxable years until d. Not required. Under the law, all minimum wage
fully exhausted. In this regard, prescription did not bar it earners in the private and public sector shall be
from applying the amount as tax credit considering that exempt from payment of income tax [Sec.
there is no prescriptive period for the carrying over of 51(A)(2)(d), NIRC in relation to R.A. No. 9504].
the amount as tax credit in subsequent taxable years e. Not required. Under the law, an individual whose
(CIR vs. PL Management International Philippines, Inc., sole income has been subjected of final withholding
April 4, 2011, J. Bersamin). tax pursuant to Sec. 57(A), NIRC, need not file a
return. What he received is a tax paid income [Sec.
What is the effect of failure to signify preference in 51(A)(2)(c), NIRC].
the return?
WITHHOLDING TAX
Failure to signify preference in the return does not bar
outright a claim for refund. Discuss the nature and purpose of withholding tax
system under the law.
The corporation must signify its intention by marking
the corresponding option box provided in the final The purpose of the withholding tax system is threefold:
adjustment return (FAR). While a taxpayer is required to (1) to provide the taxpayer with a convenient way of
mark its choice in the form provided by the BIR, this paying his tax liability; (2) to ensure the collection of tax,
requirement is only for facilitating tax collection to ease and (3) to improve the government’s cashflow.
tax administration, particularly the self-assessment and
collection aspects. Under the withholding tax system, the payor is the
taxpayer upon whom the tax is imposed, while the
Failure to signify one's intention in the FAR does not withholding agent simply acts as an agent or a collector
mean outright barring of a valid request for a refund, of the government to ensure the collection of taxes. It is,
should one still choose this option later on. Despite the therefore, indisputable that the withholding agent is
failure of taxpayer to make the appropriate marking in merely a tax collector and not a taxpayer. The liability of
the BIR form, the filing of its written claim effectively the withholding agent is independent from that of the
serves as an expression of its choice to request a tax taxpayer. The former cannot be made liable for the tax
refund, instead of a tax credit. To assert that any future due because it is the latter who earned the income
claim for a tax refund will be instantly hindered by a subject to withholding tax. The withholding agent is
failure to signify one's intention in the FAR is to render liable only insofar as he failed to perform his duty to
nugatory the clear provision that allows for a two-year withhold the tax and remit the same to the government.
prescriptive period (Philam Asset Management Inc. v. The liability for the tax, however, remains with the
CIR, G.R. Nos. 156637/162004, December 14, 2005). taxpayer because the gain was realized and received by
him.
Filing of income tax return
While the withholding agent can be held accountable for
Indicate whether each of the following individuals is its negligence in performing its duty to withhold the
required or not required to file an income tax amount of tax due on the transaction, the taxpayer and
return: the one which earned income on the transaction,
remains liable for the payment of tax as the taxpayer
a. Filipino citizen residing outside the Philippines shares the responsibility of making certain that the tax is
on his income from sources outside the properly withheld by the withholding agent, so as to
Philippines. avoid any penalty that may arise from the non-payment
b. Resident alien on income derived from sources of the withholding tax due(Rizal Commercial Banking
within the Philippines. Corporation vs. CIR, G.R. No. 170257, September 7, 2011, J.
c. Resident citizen earning purely compensation Mendoza).
income from two employers within the
17
TAXATION LAW
Note that withholding tax is merely a method of 3. Subsequent sale or trading by a bondholder to
collecting income tax in advance. The perceived tax is another lender/investor in the secondary market
collected at the source of income payment to ensure usually through a broker or dealer; or
collection. Consequently, those subjected to the final 4. Sale by a financial intermediary-bondholder of its
withholding tax are no longer subject to the regular participation interests in the bonds to individual or
income tax (Banco de Oro vs. Republic of the Philippines, corporate lenders in the secondary market.
G.R. No. 198756 (Resolution), August 16, 2016, J. Leonen).
When, through any of the foregoing transactions, funds
In 2011, the BIR issued a Ruling where it declared are simultaneously obtained from 20 or more
that all treasury bonds (including PEACe Bonds), lenders/investors, there is deemed to be a public
regardless of the number of purchasers/lenders at borrowing and the bonds at that point in time are
the time of origination/issuance are considered deemed
deposit substitutes. The PEACe Bonds are thus deposit substitutes. Consequently, the seller is required
subject to 20% final withholding tax on interest to withhold the 20%final withholding tax on the
income from deposit substitutes. Is the BIR ruling imputed interest income from the bonds (Banco de Oro
valid? vs. Republic of the Philippines, G.R. No. 198756, January
15, 2015, J. Leonen).
NO. Under Sections 24(B)(1), 27(D)(1), and 28(A)(7) of
the Tax Code of 1997, a final withholding tax at the rate NOTE: Debt instruments that do not qualify as deposit
of 20% is imposed on interest on any currency bank substitutes are subject to the regular income tax.
deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar Distinguish indirect taxes from withholding taxes.
arrangements.
Indirect taxes, like VAT and excise tax, are different from
Deposit substitutes are defined under Section 22(Y)5 of withholding taxes (direct taxes). To distinguish, in
the Tax Code with the addition of the qualifying phrase indirect taxes, the incidence of taxation falls on one
for public – borrowing from 20 or more individual or person but the burden thereof can be shifted or passed
corporate lenders at any one time. Hence, the number of on to another person, such as when the tax is imposed
lenders is determinative of whether a debt instrument upon goods before reaching the consumer who
should be considered a deposit substitute and ultimately pays for it. On the other hand, in case of
consequently subject to the 20% final withholding withholding taxes, the incidence and burden of taxation
tax(Banco de Oro vs. Republic of the Philippines, G.R. No. fall on the same entity, the statutory taxpayer. The
198756, January 15, 2015, J. Leonen). burden of taxation is not shifted to the withholding
agent who merely collects, by withholding, the tax due
Based on the definition of deposit substitutes, what from income payments to entities arising from certain
is the meaning of “at any one time”? transactions and remits the same to the
government(Asia International Auctioneers, Inc. v. CIR,
The phrase “at any one time” for purposes of G.R. No. 179115, September 26, 2012).
determining the “20 or more lenders” would mean every
transaction executed in the primary or secondary FRINGE BENEFITS TAX (FBT)
market in connection with the purchase or sale of
securities. What is fringe benefit?
For example, where the financial assets involved are Fringe benefit is any good, service or other benefit
government securities like bonds, the reckoning of “20 furnished or granted by an employer in cash or in kind
or more lenders/investors” is made at any transaction in in addition to basic salaries, to an individual employee,
connection with the purchase or sale of the Government except a rank and file employee, such as but not limited
Bonds, such as: to:[HEV-HIM-HEEL]
1. Issuance by the Bureau of Treasury of the bonds to 1. Housing
GSEDs in the primary market; 2. Expense account
2. Sale and distribution by GSEDs to various 3. Vehicle of any kind
lenders/investors in the secondary market; 4. Household personnel such as maid, driver and
others
5. Interest on loans at less than market rate to the
extent of the difference between the market rate
5SEC. 22. Definitions - When used in this Title: xxx (Y) The term ‘deposit and the actual rate granted
substitutes’ shall mean an alternative form of obtaining funds from the 6. Membership fees, dues and other expenses athletic
public (the term 'public' means borrowing from twenty (20) or clubs or other similar organizations
more individual or corporate lenders at any one time) other than
deposits, through the issuance, endorsement, or acceptance of debt 7. Expenses for foreign travel
instruments for the borrower’s own account, for the purpose of 8. Holiday and vacation expenses
relending or purchasing of receivables and other obligations, or 9. Educational assistance to the employee or his
financing their own needs or the needs of their agent or dealer. These dependents
instruments may include, but need not be limited to, bankers’
acceptances, promissory notes, repurchase agreements, including 10. Life or health insurance and other non-life
reverse repurchase agreements entered into by and between the insurance premiums or similar amounts in excess of
Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, what the law allows (NIRC, Sec. 33 [B]; R.R. 3-98, Sec.
certificates of assignment or participation and similar instruments 2.33 [B]).
with recourse: Provided, however, That debt instruments issued for
interbank call loans with maturity of not more than five (5) days to
cover deficiency in reserves against deposit liabilities, including those What is the tax treatment of fringe benefits?
between or among banks and quasi-banks, shall not be considered as
deposit substitute debt instruments.
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If the benefit is not tax-exempt and the recipient is: employee, and, consequently, to avoid the withholding
of the payment thereof by the employer, PAGCOR must
1. A rank and file employee– the value of such fringe sufficiently establish that the fringe benefit is required
benefit shall be considered as part of the by the nature of, or is necessary to the trade, business or
compensation income of such employee subject to profession of the employer, or when the fringe benefit is
tax payable by the employee; for the convenience or advantage of the employer, which
2. A managerial or supervisory employee – the value PAGCOR failed to establish.
shall not be included in the compensation income of
such employee subject to tax. The FBT is payable by Accordingly, PAGCOR should have withheld the FBT
the employer on behalf of the employee (NIRC, Sec. from the officers who have availed themselves of the
33). benefits of the car plan and remitted the same to the BIR
(CIR v. Secretary of Justice, G.R. No. 177387, November 9,
NOTE: Both the fringe benefits and FBT are deductible 2016, J. Bersamin).
from gross income by the employer.
Is PAGCOR’s payment of membership dues and fees
What is the nature of FBT? to cover various memberships in social, athletic
clubs and similar organizations subject to FBT?
FBT is imposed on the grossed-up monetary value
(GMV) of fringe benefit furnished, granted or paid by the NO. PAGCOR’s nature of business is casino operations
employer to the employee, except rank and file and it derives business from its customers who play at
employees (R.R. 3-98, Sec. 2.33 [A]). the casinos. In furtherance of its business, it usually
attends its VIP customers, amenities such as playing
FBT is treated as a final income tax on the employee that rights to golf clubs. The membership of PAGCOR to these
shall be withheld and paid by the employer on a golf clubs and other organizations are intended to
calendar quarterly basis(CIR v. Secretary of Justice, G.R. benefit customers and not its employees. Moreover, the
No. 177387, November 9, 2016, J. Bersamin). membership is under the name of PAGCOR, and as such,
cannot be considered as fringe benefits because it is the
What are the fringe benefits exempt from FBT? customers and not the employees of PAGCOR who
benefit from such memberships.
1. Fringe benefits which are authorized and exempted
from tax under the NIRC or special laws (e.g. Considering that the payments of membership dues and
separation benefits which are given to employees fees are not borne by PAGCOR for its employees, they
who are involuntarily separated from work); cannot be considered as fringe benefits which are
2. Contributions of the employer for the benefit of the subject to FBT. Hence, PAGCOR is not liable to withhold
employee to retirement, insurance and FBT from its employees (CIR v. Secretary of Justice, G.R.
hospitalization benefit plans; No. 177387, November 9, 2016, J. Bersamin).
3. Benefits given to the rank and file employees,
whether granted under a collective bargaining Mapagbigay Corporation grants all its employees
agreement or not; (rank and file, supervisors, and managers) 5%
4. De minimis benefits, whether given to rank and file discount of the purchase price of its products.
employees or to supervisory or managerial During an audit investigation, the BIR assessed the
employees; company the corresponding tax on the amount
5. Fringe benefits granted to employee as required by equivalent to the courtesy discount received by all
the nature of, or necessary to the trade, business or the employees, contending that the courtesy
profession of the employer; discount is considered as additional compensation
6. Fringe benefits granted for the convenience of the for the rank and file employees and additional fringe
employer (Employer’s Convenience Rule) (NIRC, Sec. benefit for the supervisors and managers. In its
32; R.R. 3-98, Sec. 2.33 [C]). defense, the company argues that the discount given
to the rank and file employees is a de minimis
NOTE: Although a fringe benefit may be exempted from benefit and not subject to tax. As to its managerial
the FBT, it may still fall under a different tax under employees, it contends that the discount is nothing
another law, such as the compensation income tax or the more than a privilege and its availment is restricted.
like.
Is the BIR assessment correct? Explain. (2016 BAR)
PAGCOR extends car plan extended by PAGCOR to its
qualified officers. It asserts that the car plan was NO. The courtesy discounts given to rank and file
granted "not only because it was necessary to the employees are considered “de minimis benefits” falling
nature of the trade of PAGCOR but it was also under the category of other facility and privileges
granted for its convenience." Is PAGCOR liable to furnished or offered by an employer to his employees
withhold FBT on its car plan? which are of relatively small value intended to promote
the health, goodwill, contentment or efficiency of the
YES. For FBT, PAGCOR is a mere withholding agent employee. These benefits are not considered as
inasmuch as the FBT is imposed on PAGCOR's compensation subject to income tax and consequently to
employees who receive the fringe benefit. PAGCOR's withholding tax(Sec.2.78.1 of RR No. 10-2008). If these
liability as a withholding agent is not covered by the tax “de minimis benefits” are furnished to supervisors and
exemptions under its Charter. managers, the same are also exempt from the fringe
benefits tax (RR No. 3-98; Sec. 33, NIRC).
The car plan extended by PAGCOR to its qualified
officers is evidently considered a fringe benefit as Alternative Answer:
defined under Section 33 of the Tax Code. To avoid the
imposition of the FBT on the benefit received by the
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TAXATION LAW
YES, the BIR assessment is correct. De minimis benefits The Internal Revenue Service (IRS) of the U.S. taxed
are benefits of relatively small values provided by the the shares on the ground that Janina was domiciled
employers to the employee on top of the basic in the U.S. at the time of her death.
compensation intended for the general welfare of the
employees. It is considered exempt from income tax on Can the CIR of the Philippines also tax the same
compensation as well as from fringe benefit tax, shares? Explain. (2016 BAR)
provided it does not exceed P10,000 per employee per
taxable year. YES. The property being a property located in the
Philippines, it is subject to the Philippine estate tax
This list of de minimis benefits is exclusive and anything irrespective of the citizenship or residence of the
that is given which is not on the list shall not be decedent (Sec. 85, NIRC). However, if Janina is a non-
considered de minimis. The 5% discount of purchase resident alien at the time of her death, the transmission
price of its products, not being in this enumeration, is of the shares of stock can only be taxed applying the
subject to tax as well as to withholding tax on principle of reciprocity (Sec. 104, NIRC).
compensation.
What is a judicial expense for purposes of
TRANSFER TAX deductions from the gross estate of the decedent?
Jennifer is the only daughter of Janina who was a BIR issued an Estate Tax Assessment Notice
resident in Los Angeles, California, U.S.A. Janina died demanding payment of the deficiency estate tax
in the U.S. leaving to Jennifer one million shares of against Jose Fernandez’s estate. The administrator
SunLife (Philippines), Inc., a corporation organized claims that in as much as the valid claims of
and existing under the laws of the Republic of the creditors against the estate are in excess of the gross
Philippines. Said shares were held in trust for Janina estate, no estate tax was due.
by the Corporate Secretary of Sun Life and the latter
can vote the shares and receive dividends for Janina. May the actual claims of the creditors be fully
allowed as deductions from the gross estate of Jose
despite the fact that the claims were reduced or
20
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condoned through compromise agreements entered exclusively to members or their guests), or government
into by the Estate with its creditors? entity (Sec. 105, NIRC).
YES. Under the date-of-death valuation rule, claims There should be:
existing at the time of death should be made the basis of 1. Commercial or economic activity– It implies that a
the determination of allowable deductions. Thus, post- transaction is conducted for profit; and
death developments, such as condonation in this case, 2. Regularity or habituality in the action–Regularity
are not material in determining the amount of the involves more than one isolated transaction and
deduction (Dizon, et. al v. CA, G.R. No. 140944, April 30, involves repetition and continuity of action (Ingles,
2008). 2015).
21
TAXATION LAW
from members including the amount earmarked and merely held in trust by the condominium
eventually paid by MEDICARD to the medical service corporations exclusively for their members and
providers. The CIR contends that the act of used solely for administrative expenses in
earmarking or allocation is by itself an act of implementing the condominium corporations’
ownership and management over the funds. Is BIR purposes. Accordingly, the condominium
correct? corporations, do not actually render services for a
fee subject to VAT.
NO. For purposes of determining the VAT liability of an
HMO, the amounts earmarked and actually spent for Whose argument is correct? Decide. (2014BAR)
medical utilization of its members should not be
included in the computation of its gross receipts. The lawyer of the condominium corporations is correct.
The association dues, membership fees, and other
By earmarking or allocating 80% of the amount, assessment/charges do not constitute income payments
MEDICARD unequivocally recognizes that its possession because they were collected for the benefit of the unit
of the funds is not in the concept of owner but as a mere owners and the condominium corporation is not created
administrator of the same. For this reason, at most, as a business entity. The collection is the money of the
MEDICARD's right in relation to these amounts is a mere unit owners pooled together and will be spent
inchoate owner which would ripen into actual exclusively for the purpose of maintaining and
ownership if, and only if, there is underutilization of the preserving the building and its premises which they
membership fees at the end of the fiscal year. Prior to themselves own and possess (First e-Bank Tower
that, MEDICARD is bound to pay from the amounts it Condominium Corp., v. BIR, Special Civil Action No. 12-
had allocated as an administrator once its members 1236, RTC Br. 146, Makati City).
avail of the medical services of MEDICARD's healthcare BIR issued RR No. 16-2005,specifically identifying
providers (Medicard Philippines, Inc. vs. CIR, G.R. No. PAGCOR as one of the franchisees subject to VAT
222743, April 5, 2017, J. Reyes). imposed under the Tax Code of 1997, as amended by
R.A. No. 93376. Is said regulation valid?
In June 2013, DDD Corp., a domestic corporation
engaged in the business of leasing real properties in NO. The provision in RR No. 16-2005 subjecting
the Philippines, entered into a lease agreement of a PAGCOR to VAT is invalid for being contrary to R.A. No.
residential house and lot with EEE, Inc., a non- 9337.
resident foreign corporation. The residential house
and lot will be used by officials of EEE, Inc. during Nowhere in R.A. No. 9337 is it provided that petitioner
their visit tithe Philippines. The lease agreement can be subjected to VAT. The law is clear as to the
was signed by representatives from DDD Corp. and removal of petitioner's exemption from the payment of
EEE, Inc. in Singapore. DDD Corp. did not subject the corporate income tax only. The RR No. 16-2005,
said lease to VAT believing that it was not a domestic therefore, cannot go beyond the provisions of R.A. No.
service contract. Was DDD Corp. correct? Explain. 9337. Since PAGCOR is exempt from VAT under R.A. No.
(2015 BAR) 9337, the BIR exceeded its authority in subjecting
PAGCOR to VAT under RR No. 16-2005; hence, the said
DDD Corp. is not correct. Lease of properties shall be regulatory provision is null and void (PAGCOR vs. BIR, GR
subject to VAT irrespective of the place where the No. 172087, March 15, 2011, J. Peralta).
contract of lease was executed if the property is leased
or used in the Philippines. According to the BIR, R.A. No. 77167 has expressly
repealed, amended, or withdrawn the 5% franchise
Is a pawnshop operator liable for VAT? tax provision in PAGCOR's Charter; hence, PAGCOR
was liable for VAT. The CIR argues that PAGCOR's
NO. It is now settled that for purposes of determining gambling operations are embraced under the phrase
their tax liability, pawnshops are treated as non-bank sale or exchange of services, including the use or
financial intermediaries. Being as such, it is no longer lease of properties; that such operations are not
liable for VAT but it is subject to percentage tax on gross among those expressly exempted from VAT under
receipts from 0% to 5%, as the case may be, by virtue of Section 38 of R.A. No. 7716; and that the legislative
R.A. No. 9238 (H. Tambunting Pawnshop, Inc. v. CIR, G.R.
No. 172394, October 13, 2010, J. Bersamin).
6 An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,
The BIR issued RMC No. 65-2012 imposing VAT on 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the
association dues and membership fees collected by National Internal Revenue Code of 1997, As Amended, and For Other
Purposes
condominium corporations from its member
condominium-unit owners. The RMC’s validity is 7 An Act Restructuring the Value Added Tax (VAT) System, Widening
challenged before the Supreme Court by the its Tax Base and Enhancing its Administration, and for these Purposes
condominium corporations. Amending and Repealing the Relevant Provisions of the National
Internal Revenue Code, as Amended, and For Other Purposes
The Solicitor General, counsel for BIR, claims that 8SEC. 3. Section 102 of the National Internal Revenue Code, as
association dues, membership fees, and other amended, is hereby further amended to read as follows:
assessment/ charges collected by a condominium "SEC. l 02. Value-added tax on sale of services and use or lease of
properties. - (a) Rate and base of tax. - There shall be levied,
corporation are subject to VAT since they constitute assessed and collected, a value-added tax equivalent to 10% (now
income payments or compensation for the beneficial at 12%) of gross receipts derived from the sale or exchange of
services it provides to its members and tenants. services, including the use or lease of properties.
22
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purpose to withdraw PAGCOR's 5% franchise tax are exempt from customs duties under the Tariff and
was manifested by the language used in Section 20 9 Customs Code of the Philippines;
okra. No.7716. Is the contention of the BIR tenable?
(D) Importation of professional instruments and
NO. Firstly, a basic rule in statutory construction is that implements, wearing apparel, domestic animals, and
a special law cannot be repealed or modified by a personal household effects (except any vehicle, vessel,
subsequently enacted general law in the absence of any aircraft, machinery other goods for use in the
express provision in the latter law to that effect. A manufacture and merchandise of any kind in
special law must be interpreted to constitute an commercial quantity) belonging to persons coming to
exception to the general law in the absence of special settle in the Philippines, for their own use and not for
circumstances warranting a contrary conclusion. R.A.No. sale, barter or exchange, accompanying such persons, or
7716, a general law, did not provide for the express arriving within ninety (90) days before or after their
repeal of PAGCOR's Charter, which is a special law. arrival, upon the production of evidence satisfactory to
the Commissioner, that such persons are actually
Secondly, R.A. No. 7716 indicates that Congress has not coming to settle in the Philippines and that the change of
intended to repeal PAGCOR's privilege to enjoy the 5% residence is bona fide;
franchise tax in lieu of all other taxes. The law does not
specifically exclude PAGCOR's exemption under P.D. No. (E) Services subject to percentage tax;
1869 from the grant of exemptions from VAT; hence, the
petitioner's contention that R.A. No.7716 expressly (F) Services by agricultural contract growers and milling
amended PAGCOR's franchise has no leg to stand on (CIR for others of palay into rice, corn into grits and sugar
v. Secretary of Justice, G.R. No. 177387, November 9, 2016, cane into raw sugar;
J. Bersamin).
(G) Medical, dental, hospital and veterinary services
VAT-exempt Transactions except those rendered by professionals;
The following transactions shall be exempt from the (H) Educational services rendered by private
value-added tax. educational institutions, duly accredited by the
Department of Education (DepED), the Commission on
(A) Sale or importation of agricultural and marine food Higher Education (CHED), the Technical Education and
products in their original state, livestock and poultry of Skills Development Authority (TESDA) and those
or king generally used as, or yielding or producing foods rendered by government educational institutions;
for human consumption; and breeding stock and genetic
materials therefor. (I) Services rendered by individuals pursuant to an
employer-employee relationship;
Products classified under this paragraph shall be
considered in their original state even if they have (J) Services rendered by regional or area headquarters
undergone the simple processes of preparation or established in the Philippines by multinational
preservation for the market, such as freezing, drying, corporations which act as supervisory, communications
salting, broiling, roasting, smoking or stripping. Polished and coordinating centers for their affiliates, subsidiaries
and/or husked rice, corn grits, raw cane sugar and or branches in the Asia-Pacific Region and do not earn or
molasses, ordinary salt and copra shall be considered in derive income from the Philippines;
their original state;
(K) Transactions which are exempt under international
(B) Sale or importation of fertilizers; seeds, seedlings agreements to which the Philippines is a signatory or
and fingerlings; fish, prawn, livestock and poultry feeds, under special laws, except those under Presidential
including ingredients, whether locally produced or Decree No. 529;
imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks, (L) Sales by agricultural cooperatives duly registered
aquarium fish, zoo animals and other animals generally with the Cooperative Development Authority to their
considered as pets); members as well as sale of their produce, whether in its
original state or processed form, to non-members; their
(C) Importation of personal and household effects importation of direct farm inputs, machineries and
belonging to the residents of the Philippines returning equipment, including spare parts thereof, to be used
from abroad and non-resident citizens coming to directly and exclusively in the production and/or
resettle in the Philippines: Provided, That such goods processing of their produce;
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TAXATION LAW
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TAXATION LAW
for services that are performed in the Philippines, “paid the issue of actual cost of construction has not been
for in acceptable foreign currency and accounted for in resolved to the mutual satisfaction of the parties.
accordance with the rules and regulations of the BSP.”
St. Francis contends that, among others, Input VAT
Thus, for the supply of service to be zero-rated as an should not be treated as part of construction cost. It
exception, the law merely requires that first, the service claims that even from an accounting standpoint,
be performed in the Philippines; second, the service fall input tax is not entered into the books as part of
under any of the categories in Section 102(b) of the Tax cost; input VAT is treated as account in a different
Code; and, third, it be paid in acceptable foreign account, either under “Other assets” or “Input Tax”,
currency accounted for in accordance with BSP rules which is an asset account. Besides, the input VAT is
and regulations (CIR vs. American Express International, offset or credited against output VAT to determine
Inc. (Philippine Branch), G.R. No. 152609. June 29, 2005). the net VAT due or payable to the government.
NOTE: In Accenture Inc. v. CIR, G.R. No. 190102, July 11, St. Francis finally notes that since input VAT had
2012, the Court ruled that to come within the purview of already been claimed by Malayan, and its audited
Section 108 (B)(2), it is not enough that the recipient of financial statements show the offsetting of input
the service be proven to be a foreign corporation; rather, VAT against output VAT, then justice and equity
it must be specifically proven to be doing business dictate that it should not be allowed to claim it as
outside the Philippines. The fact that the clients are part of the ARCC.
foreign does not automatically mean that these clients
were doing business outside the Philippines. Rule on the above contention of St. Francis.
Pursuant to Sec. 11 of the "Host Agreement" The contention of St. Francis is without merit. Input VAT
between the United Nations and the Philippine should be allowed as part of the construction cost. In
government, it was provided that the World Health determining whether input VAT should be included as
Organization (WHO), "its assets, income and other part of the construction cost, the issue is not the
properties shall be: a) exempt from all direct and technical classification of taxes under accounting rules,
indirect taxes." Precision Construction Corporation but whether such tax was incurred and paid as part of
(PCC) was hired to construct the WHO Medical the construction cost. Given that input VAT is, strictly
Center in Manila. Upon completion of the building, speaking, a financial cost and not a direct construction
the BIR assessed a 12% VAT on the gross receipts of cost, it cannot be denied that Malayan had to pay input
PCC derived from the construction of the WHO VAT as part of the contract price of goods and properties
building. The BIR contends that the 12% VAT is not a purchased, and services procured in order to complete
direct nor an indirect tax on the WHO but a tax that the project.
is primarily due from the contractor and is therefore
not covered by the Host Agreement. The WHO Anent the claim that it would be unjust and inequitable
argues that the VAT is deemed an indirect tax as PCC if Malayan would be allowed to include its input VAT in
can shift the tax burden to it. Is the BIR correct? the construction cost, as well as to offset such tax against
Explain. (2016 BAR) its output tax, the Court held that such coincidence does
not result in unjust enrichment at the expense of St.
NO. Since World Health Organization (WHO), the Francis. Unjust enrichment claims do not lie simply
contractee, is exempt from direct and indirect taxes because one party benefits from the efforts or
pursuant to an international agreement where the obligations of others, but instead it must be shown that a
Philippines is a signatory, the exemption from indirect party was unjustly enriched in the sense that the term
taxes should mean that the entity or person exempt is unjustly could mean illegally or unlawfully. In offsetting
the contactor itself because the manifest intention of the its input VAT against output VAT, Malayan is merely
agreement is to exempt the contractor so that no tax availing of the benefits of the tax credit provisions of the
may be shifted to the contractee(CIR v. John Gotameo & law, and it cannot be said to have benefitted at the
Sons, Inc., 148 SCRA 36 [1987]).The immunity of WHO expense or to the damage of St. Francis. After all,
from indirect taxes extends to the contractor by treating Malayan is justified in including in the construction cost
the sale of service as effectively zero-rated when the law the input VAT it had paid as part of the contract price of
provided that – “services rendered to persons or entities the goods, properties and services it had procured to
whose exemption under special laws or international complete the project(Malayan Insurance, Inc. vs. St.
agreements to which the Philippines is a signatory Francis Realty Square Realty Corporation, G.R. Nos.
effectively subjects the supply of such service to zero 198916-17, January 11, 2016, J. Peralta).
percent (0%) rate” [Section 108(B)3, NIRC]. Accordingly,
the BIR is wrong in assessing the 12% VAT from the NOTE: In Malayan Insurance, Inc. vs. St. Francis Realty
contractor, Precision Construction Corporation. Square Realty Corporation, the Court further held that St.
Francis would also be entitled to avail of the same tax
OUTPUT AND INPUT VAT credit provisions upon the eventual sale of its
proportionate share of the reserved units allocated and
Malayan Insurance, as Owner, and St. Francis Square transferred to it by Malayan. The allocation of and
Realty Corp, as Developer, executed a Joint Project transfer of such units to St. Francis is subject to output
Development Agreement for the construction and VAT which Malayan could offset against its input VAT. In
development of a condominium Project. St. Francis turn, St. Francis would incur input VAT which it may
was not able to complete the Project. The parties later offset against its output VAT upon the sale of the
entered to an agreement where Malayan undertook said units. This is in accordance with the tax credit
to complete the Project. The basis for the method of computing the VAT of a taxpayer whereby
distribution and disposition of the condominium the input tax shifted by the seller to the buyer is
units is the parties’ respective capital investments in
the Project. Despite the completion of the Project,
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credited against the buyer’s output taxes when it in (Luzon Hydro Corporation v. CIR, G.R. No. 188260,
turn sells the taxable goods, properties or services. November 13, 2013, J. Bersamin).
Who may claim for refund/apply for issuance of tax An administrative claim must be filed with the CIR
credit certificate? within two years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales
The following can avail of refund or tax credit: were made.
The CIR has 120 days from the date of submission of
1. Zero-rated and effectively zero-rated sales - Any complete documents in support of the administrative
VAT-registered person, whose sales are zero-rated or claim within which to decide whether to grant a
effectively zero-rated (Sec. 112 [A]); and refund or issue a tax credit certificate. The 120-day
2. Cessation of business or VAT status - A person period may extend beyond the two-year period from
whose registration has been cancelled due to the filing of the administrative claim if the claim is
retirement from or cessation of business, or due to filed in the later part of the two-year period. If the
changes in or cessation of status under Section 120-day period expires without any decision from
106(C) of NIRC (Sec. 112[B]). the CIR, then the administrative claim may be
considered to be denied by inaction.
What is the period to file claim for refund/apply A judicial claim must be filed with the CTA within 30
issuance of tax credit certificate? days from the receipt of the CIR's decision denying
the administrative claim or from the expiration of the
The claim, which must be in writing for both cases, must 120-day period without any action from the CIR.
be filed within two years from the close of the taxable All taxpayers, however, can rely on BIR Ruling No.
quarter when the sales were made by any VAT- DA-489-03 from the time of its issuance on 10
registered person whose sales are zero-rated or December 2003 up to its reversal by this Court in
effectively zero-rated [Sec. 112(A), NIRC].The two-year Aichi on 6 October 2010, as an exception to the
period should be reckoned from the close of the taxable mandatory and jurisdictional 120+ 30-day periods
quarter when the relevant sales were made pertaining (Takenaka Corporation – Philippine Branch vs. CIR,
to the input VAT regardless of whether said tax was paid G.R. No. 193321, October 19, 2016, J. Bersamin, citing
or not (CIR vs. Mirant Pagbilao Corporation, GR 172129, Mindanao II Geothermal Partnership vs. CIR).
September 12, 2008).
Under the law, the CIR has 120 days from the date of
Meanwhile, any person whose registration has been submission of complete documents to decide a claim
cancelled due to retirement from or cessation of for tax credit or refund of creditable input taxes.
business, or due to changes in or cessation of status may, When should the submission of documents be
within two years from the date of cancellation, apply deemed “completed” for purposes of determining
for the issuance of a tax credit certificate for any unused the running of the 120-day period?
input tax which may be used in payment of his other
internal revenue taxes. RMC 54-201411 dated June 11, 2014 requires that the
application for VAT refund/tax credit must be
What are the requirements in claim for refund or tax accompanied by complete supporting documents. Thus,
credit for unutilized input VAT? the taxpayer, at the time he files his claim, must
complete his supporting documents and attest that he
A claim for refund or tax credit for unutilized input VAT will no longer submit any other document to prove his
may be allowed only if the following requisites concur, claim. Further, the taxpayer is barred from submitting
namely: additional documents after he has filed his
administrative claim(Pilipinas Total Gas, Inc. vs. CIR, G.R.
1. The taxpayer is VAT-registered; No. 207112, December 8, 2015, J. Mendoza).
2. The taxpayer is engaged in zero-rated or effectively
zero-rated sales; NOTE: The above rule cannot be applied retroactively.
3. The input taxes are due or paid; Thus, prior to June 11, 2014, the rule is that from the
4. The input taxes are not transitional input taxes as it date an administrative claim for excess unutilized VAT is
cannot be claimed as a refund or credit; filed, a taxpayer has thirty (30) days within which to
5. The input taxes have not been applied against submit the documentary requirements sufficient to
output taxes during and in the succeeding quarters; support his claim, unless given further extension by the
6. The input taxes claimed are attributable to zero- CIR. Should the taxpayer, on the date of his filing,
rated or effectively zero-rated sales; manifest that he no longer wishes to submit any other
7. For zero-rated sales under Section 106(A)(2)(1) and additional documents to complete his administrative
(2); 106(B); and 108(B)(1) and (2), the acceptable claim, the 120-day period allowed to the CIR begins to
foreign currency exchange proceeds have been duly run from the date of filing.
accounted for in accordance with the rules and
regulations of the BSP;
8. Where there are both zero-rated or effectively zero-
rated sales and taxable or exempt sales, and the 11 The application for VAT refund/tax credit must be accompanied
input taxes cannot be directly and entirely by complete supporting documents as enumerated in Annex “A”
attributable to any of these sales, the input taxes hereof. In addition, the taxpayer shall attach a statement under oath
attesting to the completeness of the submitted documents. xxx
shall be proportionately allocated on the basis of
sales volume; and Upon submission of the administrative claim and its supporting
9. The claim is filed within two years after the close of documents, the claim shall be processed and no other documents shall
the taxable quarter when such sales were made be accepted/required from the taxpayer in the course of its evaluation.
(emphasis supplied)
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TAXATION LAW
For calendar year 2011, FFF, Inc., a VAT-registered also that he satisfied all the documentary and
corporation, reported unutilized excess input VAT in evidentiary requirements for an administrative claim. It
the amount of P1,000,000.00 attributable to its zero- is, thus, crucial for a taxpayer in a judicial claim for
rated sales. Hoping to impress his boss, Mr. G, the refund or tax credit to show that its administrative claim
accountant of FFF, Inc., filed with the BIR on January should have been granted in the first place.
31, 2013 a claim for tax refund/credit. Not having Consequently, a taxpayer cannot cure its failure to
received any communication from the BIR, Mr. G submit a document requested by the BIR at the
filed a Petition for Review with the CTA on March 15, administrative level by filing the said document before
2013, praying for the tax refund/credit of the the CTA.
P1,000,000.00 unutilized excess input VAT of FFF,
Inc. for 2011. On the other hand, a judicial claim due tithe inaction of
the BIR, and thus the administrative claim was never
a. Did the CTA acquire jurisdiction over the acted upon, there was no decision for the CTA to review
Petition of FFF, Inc.? on appeal per se. Consequently, the CTA may give
b. Discuss the proper procedure and applicable credence to all evidence presented by a taxpayer,
time periods for administrative and judicial including those that may not have been submitted to the
claims for refund/credit of unutilized excess CIR as the case is being essentially decided in the first
input VAT. (2015 BAR) instance. The Total Gas must prove every minute aspect
of its case by presenting and formally offering its
a. NO. The CTA has not acquired jurisdiction over the evidence to the CTA, which must necessarily include
Petition of FFF, Inc. because the juridical claim has whatever is required for the successful prosecution of an
been prematurely filed on March 15, 2013. The administrative claim (Pilipinas Total Gas, Inc. vs. CIR, G.R.
Supreme Court ruled that the 30-day period after No. 207112, December 8, 2015, J. Mendoza).
the expiration of the 120-day period fixed by law for
the CIR to act on the claim for refund is Pursuant to their agreement, the electricity
jurisdictional and failure to comply would bar the produced by the Luzon Hydro was to be sold
appeal and deprive the CTA of its jurisdiction to exclusively to NPC. Relative to its sale to NPC, Luzon
entertain the appeal. was granted by the BIR a certificate for Zero Rate for
VAT purposes. On November 26, 2001, Luzon filed a
In this case, Mr. G filed the administrative claim on claim for refund or tax credit relative to its
January 31, 2013. The petition for review should unutilized input VAT alleging that it had incurred
have been filed on June 30, 2013. Filing the judicial input VAT on its domestic purchases of goods and
claim on March 15, 2013 is premature, thus the CTA services used in its generation and sales of
did not acquire jurisdiction. electricity to NPC in the four quarters of 2001.
b. The administrative claim must be filed with the The CIR denied the claim contending that Luzon
Commissioner of Internal Revenue (CIR) within 2 Hydro failed to demonstrate that the taxes sought to
years from the close of the taxable quarter when the be refunded were erroneously or illegally collected.
zero-rated sales were made. The CIR has 120 days In its VAT returns for the four quarters of 2001, no
from the date of submission of complete documents amount of zero-rated sales was declared. Likewise,
in support of the claim to decide. If the CIR decides it did not submit any VAT official receipt of
within the 120-day period or the 120-day period payments for services rendered to NPC. The only
expires without the CIR rendering a decision, the proof submitted by petitioner is a letter from
taxpayer has 30 days to file a petition for review Regional Director of Revenue Region No. 1, stating
with the CTA reckoned from the receipt of adverse that the financial statements and annual income tax
decision or form the lapse of the 120-day period. return constitute sufficient secondary proof of
effectively zero-rated sales.
As a general rule, the 30-day period to appeal is
both mandatory and jurisdictional. As an exception Luzon Hydro argued that its sale of electricity to NPC
to the general rule, premature filing is allowed only was automatically zero-rated pursuant to RA No.
if filed between December 10, 2003 and October 5, 9136 (EPIRA Law); hence, it need not prove that it
2010, when BIR Ruling No. DA-489-03 was still in had zero-rated sales in the period from January 1,
force prior to the reversal of the aforesaid ruling by 2001 to December 31, 2001 by the presentation of
the CTA in the Aichi case on October 6, 2010 (CIR v. VAT official receipts that would contain all the
Mindanao II Geothermal Partnership, 713 SCRA 645 necessary information required under the Tax Code.
[2014]). Evidence of sale of electricity to NPC other than
official receipts could prove zero-rated sales.
Distinguish between administrative cases appealed
(1) appealed due to dismissal at the administrative Is the contention of Luzon Hydro tenable?
level because of failure to submit supporting
documents by the taxpayer, and those (2) appealed NO. Luzon Hydro did not produce evidence showing that
due to inaction. it had zero-rated sales for taxable year 2001. The
claimant did not reflect any zero-rated sales from its
If an administrative claim was dismissed by the CIR due power generation in its VAT returns, which indicated
to the taxpayer’s failure to submit complete documents that it had not made any sale of electricity. Had there
despite notice/request, then the judicial claim before the been zero-rated sales, it would have reported them in
CTA would be dismissible, not for lack of jurisdiction, the returns. Indeed, it carried the burden not only that it
but for the taxpayer’s failure to substantiate the claim at was entitled under the substantive law to the allowance
the administrative level. It is imperative for the taxpayer of its claim for refund or tax credit but also that it met all
to show the CTA that not only is he entitled under
substantive law to his claim for refund or tax credit, but
28
UST LAW PRE-WEEK NOTES 2017
the requirements for evidentiary substantiation of its attributable to its effectively zero-rated sales in
claim. 2012? (2015 BAR)
Although the claimant has correctly contended that the a. The appeal of MMM, Inc. must be denied. MMM,
sale of electricity by a power generation company like it Inc.’s position that the requirements under RR No.
should be subject to zero-rated VAT under Republic Act 7-95 should not prevail over a taxpayer’s
(RA) No. 9136, its assertion that it need not prove its substantive right to claim tax refund is
having actually made zero-rated sales of electricity by unmeritorious. The Secretary of Finance has the
presenting the VAT official receipts and VAT returns authority to promulgate the necessary rules and
cannot be upheld. It could not be permitted to substitute regulations for the effective enforcement of the
such vital and material documents with secondary provisions of the NIRC. Such rules and regulations
evidence like financial statements. are given weight and respect by the courts in view
of the rule-making authority given to those who
Thus, Luzon Hydro did not competently establish its formulate them and their specific expertise in their
claim for refund or tax credit (Luzon Hydro Corporation respective fields.
v. CIR, G.R. No. 188260, November 13, 2013, J. Bersamin).
An applicant for a claim for tax refund or tax credit
Is failure to print the word “zero-rated” on the must not only prove entitlement to the claim, but
invoices or receipts fatal to a claim for refund or also comply with all the documentary and
credit of input VAT on zero-rated sales? evidentiary requirements. Consequently, the CTA
and the CTA en banc correctly ruled that the failure
YES. Failure to print the word “zero-rated” on the to indicate the words “zero-rated” on the invoices
invoices or receipts is fatal to a claim for refund or credit and receipts issued by a taxpayer would result in
of input VAT on zero-rated sales. the denial of the claim for refund or tax
credit.(Eastern Telecommunications Philippines, Inc.
Well-settled is the fact that actions for tax refund are in v. CIR, 2015)
the nature of a claim for exemption and the law is
construed in strictissimi juris against the taxpayer. The b. NO, my answer will not be different if the claim for
pieces of evidence presented entitling a taxpayer to an refund is for effectively zero-rated sales in 2012.
exemption are also strictissimi scrutinized and must be The requirement to print the word “zero-rated” is
duly proven. The invoicing requirement is reasonable no longer by mere regulations but is now clearly
and must be strictly complied with, as it is the only way provided by law as follows – “If the sale is subject to
to determine the veracity of its claim (KEPCO Philippines zero percent (0%) value-added tax, the term “zero-
Corporation vs. CIR, G.R. No. 179961, January 31, 2011, J. rated sale” shall be written or printed prominently
Mendoza). on the invoice receipt. Failure to comply with this
invoicing requirement is fatal to a claim for refund
MMM, Inc., a domestic telecommunications of input taxes attributable to the zero-rated sale
company, handles incoming telecommunications (Sec. 113(B)(2)(c), NIRC).
services for non-resident foreign companies by
relaying international calls within the Philippines. Takenaka entered into an On-Shore Construction
To broaden the coverage of its telecommunications Contract with Philippine Air Terminal Co., Inc.
services throughout the country, MMM, Inc. entered (PIATCO), a PEZA-registered entity, for the
into various interconnection agreements with local construction of the Ninoy Aquino Terminal III.
carriers. The non-resident foreign corporations pay
MMM, Inc. in US dollars inwardly remitted through Takenaka filed its quarterly VAT returns for the
Philippine banks, in accordance with the rules and taxable year 2002. The BIR, on the other hand,
regulations of the Bangko Sentral ng Pilipinas. issued VAT Ruling No. 011-03 which states that the
sales of goods and services rendered by Takenaka to
MMM, Inc. filed its Quarterly VAT Returns for 2000. PIATCO are subject to zero-percent (0%). This
Subsequently, MMM, Inc. timely filed with the BIR an prompted Takenaka on April 11, 2003 to file its
administrative claim for the refund of the amount of claim for VAT refund covering the taxable year 2002
P6,321,486.50, representing excess input VAT on the basis of its sales invoice.
attributable to its effectively zero-rated sales in
2000. The BIR ruled to deny the claim for refund of For failure of the BIR to act on its claim, Takenaka
MMM, Inc. because the VAT official receipts filed a Petition for Review with CTA on March 10,
submitted by MMM, Inc. did not bear the words 2004. Did the CTA properly acquire jurisdiction
"zero-rated" as required under Sec. 4.108-1 of over the case?
Revenue Regulations (RR) No. 7-95. On appeal, the
CTA division and the CTA en banc affirmed the BIR NO. The CTA should deny petitioner's claim for tax
ruling. refund or credit for lack of jurisdiction.
MMM, Inc. appealed to the Supreme Court arguing Takenaka timely filed its administrative claim on April
that the NIRC itself did not provide for such a 11, 2003, within the two-year prescriptive period after
requirement. RR No. 7-95 should not prevail over a the close of the taxable quarter when the zero-rated
taxpayer's substantive right to claim tax refund or sales were made. The BIR had 120 days, or until August
credit. 9, 2003, to decide the claim. Considering that the BIR
did not act on the petitioner's claim on or before August
a. Rule on the appeal of MMM, Inc. 9, 2003, the latter had until September 8, 2003, the last
b. Will your answer in (a) be any different if MMM, day of the 30-day period, within which to file its judicial
Inc. was claiming refund of excess input VAT claim. However, it brought its petition for review in the
29
TAXATION LAW
CTA only on March 10, 2004, or 184 days after the last made apparent by the fact that Taganito's claim for
day for the filing. refund is for the full amount of the input VAT on the
importation, rather than for an amortized amount, and
Clearly, the petitioner belatedly brought its judicial by its failure to present its subsidiary ledger (Taganito
claim for refund, and the CTA did not acquire Mining Corporation vs. CIR, G.R. No. 201195, November
jurisdiction over the claim for tax refund. 26, 2014, J. Mendoza).
NOTE: Although Takenaka's judicial claim was brought Under Section 229 of the Tax Code, no such suit or
well within the two-year prescriptive period, the two- proceeding shall be filed for the recovery of tax
year prescriptive period refers to the period within erroneously or illegally collected after the
which the taxpayer can file an administrative claim, not expiration of two (2) years from the date of payment
the judicial claim with the CTA. of the tax or penalty. Is this applicable to claims for a
refund or tax credit for unutilized creditable input
In the preceding problem, are sales invoices VAT?
sufficient as evidence to prove zero-rated sale of
services by Takenaka to PIATCO thereby entitling NO. The two-year period under Section 229 does not
him to claim the refund of its excess input VAT? apply to claims for a refund or tax credit for unutilized
creditable input VAT because it is not considered
NO. The claim for refund must be denied on the ground "excessively" collected. Instead, it is settled that Section
that the taxpayer had not established its zero-rated sales 112 applies to claims for a refund or tax credit for
of services through the presentation of official receipts. unutilized creditable input VAT, thereby making the
120+ 30-day period prescribed therein mandatory and
As evidence of an administrative claim for tax refund or jurisdictional in nature (Taganito Mining Corporation vs.
tax credit, there is a certain distinction between a CIR, G.R. No. 198076, November 19, 2014, J. Mendoza).
receipt and an invoice.
Is a taxpayer, located within an ECOZONE, entitled to
Section 113 of the Tax Code of 1997 provides that a VAT the refund of its unutilized input taxes incurred
invoice is necessary for every sale, barter or exchange of before it became a PEZA-registered entity?
goods or properties, while a VAT official receipt
properly pertains to every lease of goods or properties, NO. The purchases of goods and services by the taxpayer
as well as to every sale, barter or exchange of services. that were destined for consumption within the
ECOZONE should be free of VAT; hence, no input VAT
The taxpayer submitted sales invoices, not official should then be paid on such purchases, rendering the
receipts, to support its claim for refund. In light of the taxpayer not entitled to claim a tax refund or credit.
distinction between a receipt and an invoice, the
submissions were inadequate to comply with the Verily, if the taxpayer had paid the input VAT, the proper
substantiation requirements for administrative claims recourse is not against the Government but against the
for tax refund or tax credit (Takenaka Corporation – seller who had shifted to it the output VAT (Coral Bay
Philippine Branch vs. CIR, G.R. No. 193321, October 19, Nickel Corp. vs. CIR, G.R. No. 190506, June 13, 2016, J.
2016, J. Bersamin). Bersamin).
The CTA denied the claim for refund by Taganito on Distinguish Sec. 112 on refund for VAT from Sec. 229
its input VAT on importation of capital goods for on refund of other taxes.
failure of the latter to substantiate its claim.
However, Taganito insists that the official receipts SEC. 112 (VAT) SEC. 229 (OTHER
issued by the bank authorized to collect import TAXES)
duties and taxes are the best evidence to prove its
payment of the input tax being claimed. It also
points to the report of the independent CPA which
allegedly reviewed the IEIRDs and subsidiary ledger months and the claim for input tax credit will commence in the
containing the description of the dump trucks. Is calendar month when the capital good is acquired. The total input
Taganito’s claim tenable? taxes on purchases or importations of this type of capital goods shall
be divided by 60 and the quotient will be the amount to be claimed
monthly.
NO. IEIRD is required to properly substantiate the (b) If the estimated useful life of a capital good is less than five (5)
payment of the duties and taxes on imported goods. years – The input tax shall be spread evenly on a monthly basis by
dividing the input tax by the actual number of months comprising the
estimated useful life of a capital good. The claim for input tax credit
Moreover, even assuming that the importations were shall commence in the month that the capital goods were acquired.
duly substantiated, Taganito's claim still would not
prosper because it failed to present evidence to show Where the aggregate acquisition cost (exclusive of VAT) of the existing
that it properly amortized the related input VAT over or finished depreciable capital goods purchased or imported during
any calendar month does not exceed one million pesos (P-
the estimated useful life of the capital goods in its 1,000,000.00), the total input taxes will be allowable as credit against
subsidiary ledger, as required by RR 16-0512. This is output tax in the month of acquisition.
30
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Period is 2 years after the Period is 2 years from consumption or for any other disposition and to (2)
close of the taxable the date of payment of things imported(Sec. 129, Tax Code).
quarter when the sales the tax
were made Excise taxes are considered as a kind of indirect tax, the
The 30-day period of Period to file an liability for the payment of which may fall on a person
appeal to the CTA need not administrative claim other than whoever actually bears the burden of the tax.
necessarily fall within the before the CIR AND Simply put, the statutory taxpayer may shift the
two-year prescriptive judicial claim with the economic burden of the excise tax payment to another –
period, as long as the CTA must fall within the usually the buyer (Chevron Philippines, Inc. vs. CIR, G.R.
administrative claim 2-year prescriptive No. 210836, September 1, 2015, J. Bersamin).
before the CIR is filed period
within the two-year NOTE: The excise tax imposed shall be in addition to the
prescriptive period. This value-added tax imposed under Title IV of the Tax Code.
is because Sec. 112 (D) of
the 1997 NIRC mandates What are the types of excise tax?
that a taxpayer can file the
judicial claim: (1) only Excise taxes as used in our Tax Code fall under two
within thirty days after the types:
Commissioner partially or
fully denies the (1) specific tax which is based on weight or volume
claim within the 120-day capacity and other physical unit of measurement;
period, or (2) only within and
thirty days from the (2) ad valorem tax which is based on selling price or
expiration of the 120-day other specified value of the goods (Sec. 129, NIRC;
period if the Commissioner CIR v. Pilipinas Shell Petroleum Corp., G.R. No.
does not act within the 120- 188497, February 19, 2014, J. Villarama, Jr.).
day period (CIR v. San
Roque Power Corporation, When does the liability for excise tax accrue?
G.R. Nos. 187485, 196113,
197156, February 12, 2013) The accrual and payment of the excise tax under Title VI
of the NIRC materially rest on the fact of actual
production, manufacture or importation of the taxable
OTHER PERCENTAGE TAX (OPT) goods (i.e., alcohol products, tobacco products,
petroleum products, automobiles and nonessential
What is the nature of OPT? goods, mineral products) in the Philippines and on their
presumed or intended domestic sale, consumption or
As a rule, VAT is imposed on every sale, barter, or disposition (Separate opinion of J. Bersamin in CIR v.
exchange of goods or services and on importations. Pilipinas Shell Petroleum Corp., G.R. No. 188497, 2014).
However, there are instances where the same does not Who is directly liable to pay to the excise tax?
apply because the transaction is subject to OPT as
required by the NIRC. For the first type of goods, namely, goods manufactured
or produced in the Philippines for domestic sales or
Percentage tax is a tax imposed on sale, barter, exchange consumption or for any other disposition, Section 130 of
or importation of goods, or sale of services based upon the Tax Code states that, unless otherwise specifically
gross sales, value in money of receipts derived by the allowed, the taxpayer obligated to file the return and pay
manufacturer, producer, importer or seller measured by the excise taxes due thereon is the
certain percentage of the gross selling price or receipts. manufacturer/producer. On the other hand, with
If the transaction is subject to OPT, it is no longer subject respect to the second kind of goods, which are things
to VAT. Nonetheless, OPT as well as VAT may be imported, Section131 of the Tax Code states that the
imposed together with excise taxes (Tabag, 2015). taxpayer obligated to file the return and pay the excise
taxes due thereon is the owner or importer, unless the
What is the basis of “gross receipts” for purposes of imported articles are exempt from excise taxes and the
computing the 3% Percentage Tax on International person found to be in possession of the same is other
Carrier under Section 118(A)13 of the Tax Code? than those legally entitled to such tax
exemption(Philippine Airlines, Inc. vs. CIR, G.R. No.
Gross revenues shall be based on the actual amount 198759, July 1, 2013, J. Perlas-Bernabe).
received by the airline company as reflected on the
plane ticket. When is excise tax on taxable goods due for
payment?
EXCISE TAX
The liability for the payment of the excise tax arises
Define excise tax? before the removal of the goods from the place of their
production, and in case of imported things, before the
The term "excise tax" under Title VI of the Tax Code of release of articles from the customshouse.
1997 relates to taxes applied to (1) goods manufactured
or produced in the Philippines for domestic sale or Is payment of excise tax on taxable goods prior to
their removal from the place of production or
customshouse absolute?
13 Sec. 118. Percentage Tax on International Carriers. ― (A)
International air carriers doing business in the Philippines shall pay a YES. The subsequent sale, consumption or other
tax of three percent (3%) of their quarterly gross receipts. disposition of the goods becomes relevant only to
31
TAXATION LAW
determine whether any exemption or tax relief may be the Tax Code that explicitly exempted Chevron as
granted thereafter. the seller of the imported petroleum products from
the payment of the excise taxes; and holding that
Verily, it is the actual sale, consumption or disposition of because it did not fall under any of the categories
the taxable goods that confirms the proper tax exempted from paying excise tax, Chevron is not
treatment of goods previously subjected to the excise entitled to the tax refund or tax credit. Is CTA
tax. If any of the goods enumerated under Title VI of the correct?
NIRC are manufactured or produced in the Philippines
and eventually sold, consumed, or disposed of in any NO. Pursuant to Section 135(c) petroleum products sold
other manner domestically, therefore, there can be no to entities that are by law exempt from direct and
claim for any tax relief inasmuch as the excise tax was indirect taxes are exempt from excise tax. The phrase
properly levied and collected from the manufacturer- which are by law exempt from direct and indirect taxes
seller (Separate opinion of J. Bersamin in CIR v. Pilipinas describes the entities to whom the petroleum products
Shell Petroleum Corp., G.R. No. 188497, 2014). must be sold in order to render the exemption operative.
Section 135(c) should thus be construed as an
Are local manufacturers entitled to tax refund on exemption in favor of the petroleum products on
paid excise taxes on its petroleum products sold to which the excise tax was levied in the first place.
international carriers?
Inasmuch as its liability for the payment of the excise
YES. Under Section 135(a)14of the Tax Code, the shifting taxes accrued immediately upon importation and prior
of the burden of the excise tax to the international to the removal of the petroleum products from the
carriers who buy petroleum products from the local customshouse, Chevron was bound to pay, and actually
manufacturers is prohibited. Said international carriers paid such taxes. But the status of the petroleum
are thus allowed to purchase the petroleum products products as exempt from the excise taxes would be
without the excise tax component which otherwise confirmed only upon their sale to CDC, which is an entity
would have been added to the cost or price fixed by the exempt from direct and indirect taxes. Before then,
local manufacturers or distributors/sellers. Chevron did not have any legal basis to claim the tax
refund or the tax credit as to the petroleum products.
Thus, local manufacturers or distributors/sellers, as the Consequently, the payment of the excise taxes by
statutory taxpayers who is directly liable to pay the Chevron upon its importation of petroleum products
excise tax on its petroleum products upon their removal was deemed illegal and erroneous upon the sale of the
from the place of production, is entitled to a refund or petroleum products to CDC.
credit of the excise taxes it paid for petroleum products
sold to international carriers(CIR v. Pilipinas Shell Section 20415 of the Tax Code allows Chevron as the
Petroleum Corp., G.R. No. 188497, February 19, 2014, J. statutory taxpayer to claim the refund or the credit of
Villarama, Jr.). the excise taxes thereby paid (Chevron Phil. Inc. v. CIR,
G.R. No. 210836, September 01, 2015, J. Bersamin).
NOTE: Excise tax on petroleum products is essentially a
tax on property, the direct liability for which pertains to In cases involving excise tax exemptions on
the statutory taxpayer (i.e., manufacturer, producer or petroleum products under Section 135 of the Tax
importer). Any excise tax paid by the statutory taxpayer Code, who is the proper party to claim for tax
on petroleum products sold to any of the entities or refund?
agencies named in Section135 of the Tax Code exempt
from excise tax is deemed illegal or erroneous, and Section 204(c) of the NIRC states that it is the statutory
should be credited or refunded to the payor(Chevron taxpayer which has the legal personality to file a claim
Philippines, Inc. vs. CIR, G.R. No. 210836, September 1, for refund. Accordingly, in cases involving excise tax
2015, J. Bersamin). exemptions on petroleum products under Section 135 of
the NIRC, the Court has consistently held that it is the
Chevron filed a claim for refund or tax credit for the statutory taxpayer who is entitled to claim a tax refund
excise taxes paid on its importation of petroleum based thereon and not the party who merely bears its
products that it had sold to the Clark Development economic burden.
Corporation (CDC), an entity exempt from direct and
indirect taxes. The CTA denied Chevron’s claim Is the above rule absolute?
stating that there was nothing in Section 135(c) of
NO. The above rule should not apply to instances where
the law clearly grants the party to which the economic
14SECTION 135. Petroleum Products Sold to International Carriers and
Exempt Entities or Agencies. — Petroleum products sold to the
following are exempt from excise tax:
a. International carriers of Philippine or foreign registry on their 15SEC 204. Authority of the Commissioner to Compromise, Abate and
use or consumption outside the Philippines: Provided, that the Refund or Credit Taxes. – The Commissioner may – x xxx
petroleum products sold to these international carriers shall (C) Credit or refund taxes erroneously or illegally received or penalties
be stored in a bonded storage tank and may be disposed of imposed without authority, refund the value of internal revenue
only in accordance with the rules and regulations to be stamps when they are returned in good condition by the purchaser,
prescribed by the Secretary of Finance, upon recommendation and, in his discretion, redeem or change unused stamps that have been
of the Commissioner; rendered unfit for use and refund their value upon proof of
b. Exempt entities or agencies covered by tax treaties, destruction. No credit or refund of taxes or penalties shall be
conventions and other international agreements for their use allowed unless the taxpayer files in writing with the
or consumption: Provided, however, that the country of said Commissioner a claim for credit or refund within two (2) years
foreign international carrier or exempt entities or agencies after payment of the tax or penalty: Provided, however, that a
exempts from similar taxes petroleum products sold to return filed showing an overpayment shall be considered as a written
Philippine carriers, entities or agencies; and claim for credit or refund. (Emphasis and underscoring supplied)
c. Entities which are by law exempt from direct and indirect
taxes.
32
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What is the nature of DST? NOTE: Section 180 provides that DST of Php0.30 on
each Php200.00, or fractional part thereof, shall only be
A DST is a tax on documents, instruments, loan imposed on the face value of:
agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or 1. loan agreements;
property incident thereto. The DST is actually an excise 2. bills of exchange;
tax, because it is imposed on the transaction rather than 3. drafts;
on the document (Philippine Bank of Communications vs. 4. instruments and securities issued by the
CIR, G.R. No. 194065, June 20, 2016, C.J. Sereno). Government or any of its instrumentalities;
5. certificates of deposits drawing interest;
According to Section 200 (D) of the Tax Code, the 6. orders for the payment of any sum of money
DST may be paid by imprinting the stamps through a otherwise than at sight or on demand; and
documentary stamp metering machine, on the 7. promissory notes, whether negotiable or non-
taxable document. What is DS metering machine? negotiable, except bank notes issued for circulation,
and on each renewal of any such note.
The DS metering machine was developed and used for
businesses with material DST transactions like banks Interbank call loans, although not considered as deposit
and insurance companies for their regular transactions. substitutes for taxation purposes, are not expressly
These businesses authorized by the BIR may load included among the taxable instruments listed in Section
documentary stamps on their DS metering machine in 180; hence, they may not be held as taxable. (CIR vs.
accordance with the rules and regulations. In other PNB, G.R. No. 195147, July 11, 2016, J. Bersamin).
words, this system allows advanced payment of the
DST for future applications (Philippine Bank of Who is liable to pay DST?
Communications vs. CIR, G.R. No. 194065, June 20, 2016,
C.J. Sereno). DST on documents, loan agreements, and papers shall be
levied, collected and paid for by the person making,
Should the date of purchase of documentary stamps signing, issuing, accepting, or transferring the same.
for loading and reloading on the DS metering The Tax Code provides that whenever one party tithe
machine be deemed as payment of the DST for the document enjoys exemption from DST, the other party
purpose of counting the two-year prescriptive not exempt from DST shall be directly liable for the tax.
period for filing a claim for a refund or tax credit? Thus, it is clear that DST shall be payable by any party
to the document, such that the payment and compliance
NO. Under Section 229 of the Tax Code, the claim for a by one shall mean the full settlement of the DST due on
refund of erroneously paid DST must be within two the document (CIR vs. De La Salle University, G.R. No.
years from the date of payment of the DST. 196596, November 9, 2016, J. Brion).
The liability for the payment of the DST falls due only Remedies before payment
upon the occurrence of a taxable transaction. Therefore, 1. Administrative remedies
the date of imprinting the documentary stamp on the a. Protest of assessment;
taxable document must be considered as the date of i. Reconsideration, or
payment contemplated under Section 229 of the NIRC ii. Reinvestigation
(Philippine Bank of Communications vs. CIR, G.R. No. b. Compromise; and
194065, June 20, 2016, C.J. Sereno). c. Abatement
33
TAXATION LAW
A LOA is the authority given to the appropriate revenue NO. A taxpayer should be informed in writing of the law
officer assigned to perform assessment functions. It and the facts on which the assessment is made,
empowers or enables said revenue officer to examine otherwise, the assessment is void. An assessment, in
the books of account and other accounting records of a order to stand judicial scrutiny, must be based on facts.
taxpayer for the purpose of collecting the correct The presumption of the correctness of an assessment,
amount of tax. A LOA is premised on the fact that the being a mere presumption, cannot be made to rest on
examination of a taxpayer who has already filed his tax another presumption (Spouses Pacquiao vs. CTA, G.R. No.
returns is a power that statutorily belongs only to the 213394, April 6, 2016, J. Mendoza).
CIR himself or his duly authorized representatives
pursuant to Section616 of the Tax Code. Hence, unless If assessment is made within the prescriptive
undertaken by the CIR himself or his duly authorized period, is it necessary that the receipt of such
representatives, other tax agents may not validly assessment by the taxpayer be within the
conduct any of these kinds of examinations without prescriptive period also?
prior authority (Medicard Philippines, Inc. vs. CIR, G.R. No.
222743, April 5, 2017, J. Reyes). NO. When an assessment is made within the
prescriptive period, receipt by the taxpayer may or
Is Letter Notice (LN) sufficient for purposes of may not be within said period.
compliance with the requirement of LOA?
However, the rule does not dispense with the
NO.LN is entirely different and serves a different requirement that the taxpayer should actually receive
purpose than a LOA. the assessment notice, even beyond the prescriptive
period (CIR vs. GJM Philippines Manufacturing, Inc., G.R.
First, a LOA addressed to a revenue officer is specifically No. 202695, February 29, 2016, J. Peralta).
required under the NIRC before an examination of a
taxpayer may be had while an LN is not found in the Who has the burden of proof to establish receipt of
NIRC and is only for the purpose of notifying the assessment by the taxpayer?
taxpayer that a discrepancy is found based on the BIR's
RELIEF System. Second, a LOA is valid only for 30 days It has been settled that while a mailed letter is deemed
from date of issue while an LN has no such limitation. received by the addressee in the course of mail, this is
Third, a LOA gives the revenue officer only a period of merely a disputable presumption subject to
120days from receipt of LOA to conduct his examination controversion, the direct denial of which shifts the
of the taxpayer whereas an LN does not contain such a burden to the sender to prove that the mailed letter was,
limitation. in fact, received by the addressee.
What is the effect of absence of LOA? If the taxpayer denies having received an assessment
from the BIR, it then becomes incumbent upon the latter
to prove by competent evidence that such notice was
indeed received by the addressee. Here, the onus
16SEC. 6. Power of the Commissioner to Make Assessments and Prescribe
Additional Requirements for Tax Administration and Enforcement. –
probandi has shifted to the BIR to show by contrary
(A) Examination of Return and Determination of Tax Due. - After a evidence that taxpayer indeed received the assessment
return has been filed as required under the provisions of this Code, the in the due course of mail.
Commissioner or his duly authorized representative may
authorize the examination of any taxpayer and the assessment of
the correct amount of tax: Provided, however, that failure to file a
To prove the fact of mailing, it is essential to present the
return shall not prevent the Commissioner from authorizing the registry receipt issued by the Bureau of Posts or the
examination of any taxpayer. (emphasis supplied)
34
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Registry return card which would have been signed by the process of assessment and required that both the
the taxpayer or its authorized representative. And if said FAN/FLD and the FDDA state the law and facts on which
documents could not be located, the CIR should, at the it is based.
very least, submit a certification issued by the Bureau of
Posts and any other pertinent document executed with The Court raises the possibility that the amounts
its intervention (CIR vs. GJM Philippines Manufacturing, reflected in the FDDA were arbitrarily made if the
Inc., G.R. No. 202695, February 29, 2016, J. Peralta). factual and legal bases thereof are not shown. Thus, the
rule is inobservance of due process—to afford the
A perusal of the FAN against a taxpayer will show taxpayer adequate opportunity to file a protest on the
that other than a tabulation of the alleged deficiency assessment and thereafter file an appeal in case of an
taxes due, no further detail regarding the adverse decision (CIR vs. Liquigaz Philippines
assessment was provided by the BIR. Only the Corporation, G.R. No. 215534, April 18, 2016, J. Mendoza).
resulting interest, surcharge and penalty were
anchored with legal basis. The BIR argues that a What is the effect of void FDDA?
scrutiny of the BIR records of respondent would
show that the details of the factual finding of EWT A void FDDA does not ipso facto render the assessment
were itemized from the PAN issued by petitioner. Is void. A “decision” differs from an “assessment.”
the assessment valid?
The difference is apparent in Section 7 of R.A. 1125, as
NO. Section 228 of the Tax Code provides that the amended, where the CTA is conferred with appellate
taxpayer shall be informed in writing of the law and the jurisdiction over the decision of the CIR in cases
facts on which the assessment is made. Otherwise, the involving disputed assessments, as well as inaction of
assessment is void. the CIR in disputed assessments. From the foregoing, it
is clear that what is appealable to the CTA is the
The law requires that the legal and factual bases of the “decision” of the CIR on disputed assessment and not the
assessment be stated in the formal letter of demand and assessment itself.
assessment notice. Thus, such cannot be presumed.
There was no going around the mandate of the law that After the protest to the assessment by the taxpayer, the
the legal and factual bases of the assessment be stated in CIR either issues a decision on the disputed assessment
writing in the formal letter of demand accompanying the or fails to act on it and is, therefore, considered denied.
assessment notice. The taxpayer may then appeal the decision on the
disputed assessment or the inaction of the CIR. As such,
In this case, BIR should have at least attached detailed the FDDA is not the only means that the final tax liability
notice of discrepancy or stated an explanation why the of a taxpayer is fixed, which may then be appealed by
amount of deficiency tax is collectible against taxpayer the taxpayer. Under the law, inaction on the part of the
and how the same was arrived at. Any short-cuts to the CIR may likewise result in the finality of a taxpayer’s tax
prescribed content of the assessment or the process liability as it is deemed a denial of the protest filed by
thereof should not be countenanced (CIR vs. United the latter, which may also be appealed before the CTA.
Salvage and Towage (Phils.) Inc, G.R. No. 197515, July 2,
2014, J. Peralta). An FDDA that does not inform the taxpayer in writing of
the facts and law on which it is based renders the
When does an assessment become a disputed decision void. Therefore, it is as if there was no decision
assessment? rendered by the CIR. It is tantamount to a denial by
inaction by the CIR, which may still be appealed before
Where a taxpayer questions an assessment and asks the the CTA and the assessment evaluated on the basis of
CIR to reconsider or cancel the same because he (the the available evidence and documents (CIR vs. Liquigaz
taxpayer) believes he is not liable therefor, the Philippines Corporation, G.R. No. 215534, April 18, 2016, J.
assessment becomes a "disputed assessment" that the Mendoza).
CIR must decide. Thus, an assessment becomes a
disputed assessment after a taxpayer has filed its protest Is substantial compliance of the notice requirement
to the assessment in the administrative level (CIR vs. under Section 228 of the NIRC allowed?
Liquigaz Philippines Corporation, G.R. No. 215534, April
18, 2016, J. Mendoza). YES. The notice requirement under Section 228 of the
NIRC is substantially complied with whenever the
Section 228 of the NIRC declares that an assessment taxpayer had been fully informed in writing of the
is void if the taxpayer is not notified in writing of the factual and legal bases of the deficiency taxes
facts and law on which it is made. Is this assessment, which enabled the latter to file an effective
requirement applicable to both Formal Letter of protest.
Demand / Formal Assessment Notice (FLD/FAN) and
Final Decision on Disputed Assessment (FDDA)? NOTE: In one case, the Supreme Court held that
considering the exchange of correspondence and
YES. The requirement of providing the taxpayer with documents between the BIR and taxpayer in which the
written notice of the factual and legal bases applies both former explained at length the factual and legal bases of
to the FLD/FAN and the FDDA. the deficiency tax assessments, the requirement of
Section 228 was substantially complied with. Taxpayer’s
Although Section 228 is silent with regards to a decision right to due process was thus not violated (Samar I
on a disputed assessment by the CIR which fails to state Electric Cooperative v. CIR, G.R. No. 193100, December 10,
the law and facts on which it is based, it should not be 2014).
read restrictively as to limit the written notice only to
the assessment itself. Moreover, RR No. 12-99 detailed
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TAXATION LAW
Taxpayer duly protested a PAN it received from the pay deficiency taxes. As such, Misajon was cited for
BIR. Subsequently, the BIR issued a FAN to the contempt by the court. Misajon argued that (a) they
taxpayer. The demand letter states: “This is our final only performed such acts to toll the prescriptive
decision based on investigation. If you disagree, you period for the collection of deficiency taxes; and (b)
may appeal the final decision within 30 days from to cite them in indirect contempt would unduly
receipt hereof, otherwise said deficiency tax interfere with their function of collecting taxes due
assessment shall become final, executory and to the government. Is Misajon correct?
demandable.” Instead of filing a protest on the
assessment, the taxpayer filed a petition for review NO. It was improper for Misajon to collect, or even
with the CTA. The BIR filed a motion to dismiss on attempt to collect, deficiency taxes from LCI outside of
the ground that the taxpayer failed to exhaust the rehabilitation proceedings, and in the process,
administrative remedies by filing a protest on the wilfully disregard the Order lawfully issued by the
assessment. Should the motion be granted? Rehabilitation Court.
NO. This case is an exception to the rule on exhaustion The act of sending FAN and FLD is part of assessment
of administrative remedies, i.e., estoppel on the part of and collection of deficiency taxes, an action or
BIR. The taxpayer cannot be blamed for not filing a proceeding for the enforcement of a claim which should
protest against the FAN since the language used and the have been suspended pursuant to the Order. Misajon
tenor of the demand letter indicate that it is the final could have easily tolled the running of such prescriptive
decision of the CIR on the matter. The CIR must indicate, period, and at the same time, perform their functions as
in a clear and unequivocal language, whether its action officers of the BIR, without defying the Order by simply
on a disputed assessment constitutes its final ventilating their claim before the Rehabilitation Court
determination thereon in order for the taxpayer (BIR vs. Lepanto Ceramics, Inc., G.R. No. 224764, April 24,
concerned to determine when his or her right to appeal 2017, J. Perlas-Bernabe).
to the tax court accrues. Thus, the CIR is now estopped
from claiming that it did not intend the FAN to be a final Statute of Limitations
decision (Allied Banking Corp. v. CIR, G.R. No. 175097,
February 5, 2010).
FALSE, FRAUDULENT, OR
Soaring Eagle paid its excise tax liabilities with Tax REGULAR RETURN WAS
FAILURE TO FILE A
Credit Certificates (TCCs) which it purchased MADE
through the One Stop Shop Inter-Agency Tax Credit RETURN
Center (Center) of the Department of Finance. The
Center is a composite body of the DOF, BIR, BOC and Collection with prior assessment
the BOI. The TCCs were accepted by the BIR as
payments. A year after, the BIR demanded the
payment of alleged deficiency excise taxes on the Collection should be made
ground that Soaring Eagle is not a qualified within 3 years from the
transferee of the TCCs it purchased from other BOI- date of assessment, either
registered companies. The BIR argued that the TCCs by:
are subject to post-audit as a suspensive condition. Same
On the other hand, Soaring Eagle countered that it is 1. Summary
a buyer in good faith and for value who merely proceedings; or
relied on the Center's representation of the 2. Judicial proceedings
genuineness and validity of the TCCs. If it is ordered (Sec.222 [c], NIRC)
to pay the deficiency, Soaring Eagle claims the same
is confiscatory and a violation of due process. Is the Collection without prior assessment
assessment against Soaring Eagle valid? Explain.
(2016 BAR)
Collection is within 10
NO. The assessment is invalid because the TCCs used by years from discovery, of
Soaring Eagle are valid and effective. A TCC is an the falsity, fraud or
undertaking by the government through the BIR or DOF, omission to file a return.
acknowledging that a taxpayer is entitled to a certain
amount of tax credit from either an overpayment of Limited to purely judicial
income taxes, a direct benefit granted by law or other remedies (Section 222[A]).
sources and instances granted by law such as on specific
unused input taxes and excise taxes on certain goods. As
such, tax credit is transferable in accordance with
pertinent laws, rules, and regulations (Pilipinas Shell What is the purpose of statute of limitations on the
Petroleum Corp. v. CIR, 541 SCRA 316 [2007]). assessment and collection of taxes?
A Rehabilitation Court declared LCI to be under Prescription in the assessment and in the collection of
corporate rehabilitation and issued an Order taxes is provided by the Legislature for the benefit of
providing, among others, the suspension of all both the Government and the taxpayer; for the
actions or proceedings, in court or otherwise, for the Government for the purpose of expediting the collection
enforcement of claims against LCI. The BIR was of taxes, so that the agency charged with the assessment
notified of the rehabilitation proceedings involving and collection may not tarry too long or indefinitely to
LCI. Despite the foregoing, the BIR, through Misajon, the prejudice of the interests of the Government, which
still opted to assess and sent FAN requiring LCI to needs taxes to run it; and for the taxpayer so that within
a reasonable time after filing his return, he may know
36
UST LAW PRE-WEEK NOTES 2017
the amount of the assessment he is required to pay, payments made to NORD/LB are exempt from the
whether or not such assessment is well founded and ten percent (10%) final withholding tax, since it is a
reasonable so that he may either pay the amount of the financing institution owned and controlled by the
assessment or contest its validity in court. (CIR vs. Basf foreign government of Germany.
Coating + Inks Phils., Inc, G.R. No. 198677, November 26,
2014, J. Peralta). Consequently, on July 13, 2004, relying on the
aforesaid BIR Ruling, MERALCO filed with the BIR a
On January 9, 1996, BIR issued assessment notice claim for tax refund or issuance of tax credit
against a taxpayer for taxable year 1992. The certificate for the erroneously paid or overpaid final
taxpayer protested arguing that the assessment is withholding tax. Said claim was denied by the BIR
void because the right of the government to assess on the basis that the same had already prescribed
and collect deficiency taxes from it has prescribed. under Tax Code.
BIR, on the other hand, argued that its right to
collect the deficiency tax has not yet prescribed On its Petition for Review, MERALCO argued that
because while the final assessment notice and exemption was provided and ascertained only
demand letter were issued on January 9, 1996, the through BIR Ruling No. DA-342-2003 and that the
five (5)-year prescriptive period to collect was prescriptive period for initiating an action on the
interrupted when respondent filed its request for ground of quasi contract or solution indebiti under
reinvestigation on March 14, 1997 which was Article 1145 of the New Civil Code is six (6) years. Is
granted by the BIR on January 22, 2001. Thus, the MERALCO correct?
period for tax collection should have begun to run
from the date of the reconsidered or modified NO. Section 22917 of the Tax Code provides
assessment. Is BIR correct? taxpayer/claimant a period of two (2) years from the
date of payment of tax to file a claim for refund before
NO. The statute of limitations on assessment and the BIR. The prescriptive period provided is mandatory
collection of national internal revenue taxes was regardless of any supervening cause that may arise after
shortened from five (5) years to three (3) years by payment. It should be pointed out further that while the
virtue of Batas Pambansa Blg. 700. Thus, BIR has three prescriptive period of two (2) years commences to run
(3) years from the date of actual filing of the tax return from the time that the refund is ascertained, the
to assess a national internal revenue tax or to commence propriety thereof is determined by law (in this case,
court proceedings for the collection thereof without an from the date of payment of tax), and not upon the
assessment. However, when it validly issues an discovery by the taxpayer of the erroneous or excessive
assessment within the three (3)-year period, it has payment of taxes. The issuance by the BIR of the Ruling
another three (3) years within which to collect the tax declaring the tax-exempt status of NORD/LB, if at all, is
due by distraint, levy, or court proceeding. The merely confirmatory in nature. There is no basis that the
assessment of the tax is deemed made and the three (3)- subject exemption was provided and ascertained only
year period for collection of the assessed tax begins to through BIR Ruling No. DA-342-2003, since said ruling is
run on the date the assessment notice had been not the operative act from which an entitlement of
released, mailed or sent to the taxpayer. refund is determined. In other words, the BIR is tasked
only to confirm what is provided under the Tax Code on
The Collection Letter for deficiency taxes for taxable the matter of tax exemptions as well as the period
year 1992 was only issued on February 21, 2002, within which to file a claim for refund.
despite the fact that the FANs for the deficiency taxes for
taxable year 1992 was issued as early as January 9, Moreover, MERALCO is misguided when it relied upon
1996. Clearly, five (5) long years had already lapsed, the six (6)-year prescriptive period for initiating an
beyond the three (3)-year prescriptive period, before action on the ground of quasi contract or solution
collection was pursued by the BIR. indebiti under Article 1145 of the New Civil Code. There
is solution indebiti where: (1) payment is made when
Further, while the request for reinvestigation was made there exists no binding relation between the payor, who
on March 14, 1997, the same was only acted upon by has no duty to pay, and the person who received the
petitioner on January 22, 2001, also beyond the three payment; and (2) the payment is made through mistake,
(3) year statute of limitations reckoned from January 9, and not through liberality or some other cause. Here,
1996, notwithstanding the lack of impediment to rule there is a binding relation between BIR as the taxing
upon such issue. Moreover, the request for authority in this jurisdiction and MERALCO which is
reinvestigation should be granted or at least acted upon bound under the law to act as a withholding agent of
in due course before the suspension of the statute of NORD/LB Singapore Branch, the taxpayer. Hence, the
limitations may set in (CIR vs. United Salvage and first element of solution indebiti is lacking. Moreover,
Towage (Phils.) Inc, G.R. No. 197515, July 2, 2014, J. such legal precept is inapplicable to the present case
Peralta). since the Tax Code, a special law, explicitly provides
for a mandatory period for claiming a refund for
MERALCO obtained a loan from Norddeutsche taxes erroneously paid (CIR vs. Manila Electric
Landesbank Girozentrale (NORD/LB). Pursuant Company, G.R. No. 181459, June 9, 2014, J. Peralta).
thereto, MERALCO remitted to the BIR the
withholding tax on its interest payments to
NORD/LB. Sometime in 2001, MERALCO discovered
that NORD/LB is a foreign government-owned
financing institution of Germany and requested for a 17Section 229. Recovery of Tax Erroneously or Illegally Collected. – xxx
BIR Ruling with regard to the tax-exempt status of In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or
NORD/LB. On October 7, 2003, the BIR issued Ruling penalty regardless of any supervening cause that may arise after
No. DA-342-2003declaring that the interest payment xxx. (emphasis supplied)
37
TAXATION LAW
Under Section 22318of the Tax Code, the running of the 1. The waiver may be, but not necessarily, in the form
Statute of Limitations shall be suspended when the prescribed by RMO No. 20-90 or RDAO No. 05-01.
taxpayer cannot be located in the address given by him The taxpayer's failure to follow the aforesaid forms
in the return filed upon which a tax is being assessed or does not invalidate the executed waiver, for as long
collected. as the following are complied with:
However, the above rule on the suspension of the three- a) The Waiver of the Statute of Limitations under
year period to assess apply only if the BIR Commissioner Section 222(b) and (d) shall be executed before
is not aware of the whereabouts of the taxpayer. In case the expiration of the period to assess or to collect
the BIR, by all indications, is well aware that taxpayer taxes. The date of execution shall be specifically
had moved to its new address, as shown by the indicated in the waiver.
documents which form part of its records with the BIR, b) The waiver shall be signed by the both parties: the
the running of the three-year period to assess taxpayer himself or his duly authorized
respondent is not suspended.(CIR vs. Basf Coating + Inks representative, and CIR and his duly authorized
Phils., Inc, G.R. No. 198677, November 26, 2014, J. Peralta). representative. In the case of a corporation, the
waiver must be signed by any of its responsible
What are the requisites in order that request for officials;
reinvestigation will suspend the statute of c) The expiry date of the period agreed upon to
limitations? assess/collect the tax after the regular three-year
period of prescription should be indicated;
Two things must concur: there must be a request for
reinvestigation and the CIR must have granted it. Thus, 2. Except for waiver of collection of taxes which shall
request for reinvestigation alone will not suspend the indicate the particular taxes assessed, the waiver
statute of limitations (China Banking Corporation vs. CIR, need not specify the particular taxes to be assessed
GR. No. 172509, February 4, 2015, C.J. Sereno). nor the amount thereof, and it may simply state "all
internal revenue taxes" considering that during the
What is the nature of waiver of statute of assessment stage, the CIR or her duly authorized
limitations? representative is still in the process of examining and
determining the tax liability of the taxpayer.
Waiver of the statute of limitations is not a waiver of the 3. Since the taxpayer is the applicant and the executor
right to invoke the defense of prescription but rather an of the extension of the period of limitation for its
agreement between the taxpayer and the BIR that the benefit in order to submit the required documents
period to issue an assessment and collect the taxes due and accounting records, the taxpayer is charged with
is extended to a date certain. It is not a unilateral act by the burden of ensuring that the waivers of statute of
the taxpayer or the BIR but is a bilateral agreement limitation are validly executed by its authorized
between two parties. representative. The authority of the taxpayer's
representative who participated in the conduct of
Since a waiver of the statute of limitations is a audit or investigation shall not be thereafter
derogation of the taxpayer’s right to security against contested to invalidate the waiver.
prolonged and unscrupulous investigations, waivers of 4. The waiver may be notarized. However, it is
this kind must be carefully and strictly construed sufficient that the waiver is in writing as specifically
(Philippine Journalists, Inc. v. CIR, G.R. No. 162852, provided by the NIRC, as amended.
December 16, 2004). 5. Considering that the waiver is a voluntary act of the
taxpayer, the waiver shall take legal effect and be
What is the effect of a defect in a waiver of statute of binding on the taxpayer upon its execution thereof.
limitations? 6. It shall be the duty of the taxpayer to submit its duly
executed waiver to the CIR or officials previously
A defect in the waiver results to the non-extension of the designated in existing issuances or the concerned
period to assess or collect taxes, and makes the revenue district officer or group supervisor as
assessment issued by the BIR beyond the three-year designated in the Letter of Authority/Memorandum
prescriptive period void (CIR vs. Philippine Daily of Assignment who shall then indicate acceptance by
Inquirer, G.R. No. 213943, March 22, 2017, J. Carpio). signing the same. Such waiver shall be executed and
duly accepted prior to the expiration of the period to
18Sec. 223. Suspension of Running of Statute of Limitations. – The assess or to collect. The taxpayer shall have the duty
running of the Statute of Limitations provided in Sections 203 and 222 to retain a copy of the accepted waiver.
on the making of assessment and the beginning of distraint or levy a 7. Note that there shall only be two (2) material dates
proceeding in court for collection, in respect of any deficiency, shall be that need to be present on the waiver:
suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for sixty (60) days thereafter; when the a. The date of execution of the waiver by the
taxpayer requests for a reinvestigation which is granted by the taxpayer or its authorized representative; and
Commissioner; when the taxpayer cannot be located in the address b. The expiry date of the period the taxpayer waives
given by him in the return filed upon which a tax is being assessed
or collected: Provided, that, if the taxpayer informs the the statute of limitations.
Commissioner of any change in address, the running of the Statute
of Limitations will not be suspended; when the warrant of distraint 8. Before the expiration of the period set on the
or levy is duly served upon the taxpayer, his authorized previously executed waiver, the period earlier set
representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is may be extended by subsequent written waiver (RMO
out of the Philippines. (emphasis supplied) 14-2016).
38
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Estoppel is clearly applicable in this case. RCBC, through Is the assailed ordinance valid?
its partial payment of the revised assessments issued
within the extended period as provided for in the YES. The assailed ordinance does not violate the
questioned waivers, impliedly admitted the validity of limitation imposed by Section 191 of the LGC on the
those waivers. Had petitioner truly believed that the adjustment of tax rate.
waivers were invalid and that the assessments were
issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised 19SECTION 5. Each local government unit shall have the power to
assessment. Thus, RCBC is estopped from questioning create its own sources of revenues and to levy taxes, fees, and charges
the validity of the waivers (Rizal Commercial Banking subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes,
Corporation vs. CIR, G.R. No. 170257, September 7, 2011, J. fees, and charges shall accrue exclusively to the local governments.
Mendoza).
20Section 191. Authority of Local Government Units to Adjust Rates of
Tax Ordinances. - Local government units shall have the authority to
PART III: LOCAL TAXATION adjust the tax rates as prescribed herein not oftener than once every
five (5) years, but in no case shall such adjustment exceed ten percent
(10%) of the rates fixed under this Code.
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TAXATION LAW
40
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a. YES, on the ground that the ordinance is ultra vires. shall claim exemption from payment of real property
The taxing powers of local government units, such taxes imposed against said property, shall file with the
as M City, cannot extend to the levy of taxes, fees provincial, city or municipal assessor sufficient
and charges already imposed by the national documentary evidence in support of such claim. The
government, and this includes, among others, the burden of proving exemption from local taxation is upon
levy of customs duties under the Tariff and Customs whom the subject real property is declared. Real
Code [Sec. 133(e), LGC]. property not declared and proved as tax-exempt shall be
b. Any question on the constitutionality or legality of included in the assessment roll and the local assessor
tax ordinance may be raised on appeal within 30 has the authority to assess the property for realty taxes,
days from effectivity to the Secretary of Justice. The and any subsequent claim for exemption shall be
Secretary of Justice shall render a decision within 60 allowed only when sufficient proof has been adduced
days from the date of receipt of the appeal. supporting the claim. Thus, if the property being taxed
Thereafter, within 30 days after receipt of the has not been dropped from the assessment roll, taxes
decision or the lapse of the 60-day period without must be paid under protest if the exemption from
the Secretary of Justice acting upon the appeal, the taxation is insisted upon (National Power Corporation vs.
aggrieved party may file the appropriate The Provincial Treasurer of Benguet, G.R. No. 209303,
proceedings with the Regional Trial Court (Sec. 187, November 14, 2016, J. Peralta).
LGC).
What constitute a valid protest? Is there any formal
Are submarine or undersea communications cables requirement prescribed by law?
subject to real property tax?
The law does not prescribe any formal requirement to
YES. Submarine or undersea communications cables are constitute a valid protest. To constitute a valid protest, it
akin to electric transmission lines which as declared in is sufficient if what has been filed contains the
Manila Electric Company v. City Assessor and City spontaneous declaration made to acquire or keep some
Treasurer of Lucena City are "no longer exempted from right or to prevent an impending damage. Accordingly, a
real property tax" and may qualify as "machinery" protest is valid so long as it states the taxpayer’s
subject to real property tax under the LGC(Capitol objection to the assessment and the reasons therefor.
Wireless Inc. vs. The Provincial Treasurer of Batangas, Thus, a letter to the Treasurer questioning the
G.R. No. 180110, May 30, 2016, J. Peralta). imposition of business tax while paying the assessed
amount is a valid protest(China Banking Corporation vs.
Is payment under protest necessary when the City Treasurer of Manila, GR. No. 204117, July 1, 2015, J.
reasonableness of the amount of real property tax Mendoza).
assessed is being questioned?
The Provincial Assessor of Batangas had determined
YES. Settled is the rule that should the taxpayer/real that the submarine cable systems of Capwire are
property owner question the excessiveness or taxable real property. Consequently, Capwire
reasonableness of the assessment, Section 252 of the received a Warrant of Levy from the Provincial
LGC of 1991 directs that the taxpayer should first pay Treasurer. Thereafter, Capwire filed a Petition for
the tax due before his protest can be entertain. There Prohibition and Declaration of Nullity of Warrant of
shall be annotated on the tax receipts the words "paid Levy with the RTC which dismissed said petition
under protest." It is only after the taxpayer has paid the because of the latter's failure to comply with the
tax due that he may file a protest in writing within 30 requirements set in Sections 226 and 229 of the LGC,
days from payment of the tax to the Provincial, City or that is, by not availing of remedies before
Municipal Treasurer, who shall decide the protest within administrative bodies like the LBAA and the CBAA
sixty days from receipt. In no case is the local treasurer and for failure to pay the tax assessed against it
obliged to entertain the protest unless the tax due has under protest pursuant to Section 252.
been paid.
Capwire asserts that recourse to the LBAA, or
A taxpayer alleges that payment under protest payment of the tax under protest, is inapplicable to
under Section 252 of the LGC is only required when the case since there is no question of fact involved. It
the reasonableness of the amount assessed is being contends that there is only a pure question of law
questioned. However, in challenging the very since the issue is whether its submarine cable
authority and power of the assessor to impose the system is taxable. Capwire holds the position that
assessment and of the treasurer to collect the tax, the cable system is not subject to tax because cable
such payment is not a condition sine qua non for the system lies outside of Philippine territory, i.e., on
LBAA to entertain the challenge on the validity of the international waters. Is Capwire correct?
tax imposed on its tax-exempt properties. Is the
taxpayer correct? NO. In disputes involving real property taxation, the
general rule is torequire the taxpayer to first avail of
NO. As settled in jurisprudence, a claim for exemption administrative remedies and pay the tax under protest
from the payment of real property taxes does not before allowing any resort to a judicial action, except
actually question the assessor's authority to assess and when theassessment itself is alleged to be illegal or is
collect such taxes, but pertains to the reasonableness or made without legal authority. Stated differently, the
correctness of the assessment by the local assessor, a general rule of a prerequisite recourse to administrative
question of fact which should be resolved, at the very remedies applies when questions of fact are raised, but
first instance, by the LBAA. the exception of direct court action is allowed when
purely questions of law are involved.
Section 206 of the LGC categorically provides that every
person by or for whom real property is declared, who
41
TAXATION LAW
Can a tax declaration be validly considered as a NO. While it is evident in jurisprudence that the filing of
notice of assessment for purposes of real property motion for reconsideration before the LBAA is allowed,
taxation? it is also settled that the “fresh period rule" in the case of
Neypes, et al. v. Court of Appeals applies only to judicial
NO. Tax declarations cannot be validly considered as a appeals and not to administrative appeals.
notice of assessment. A notice of assessment fixes and
determines the tax liability of a taxpayer and is a notice An appeal from a decision of the LBAA to the CBAA, is
to the effect that the amount stated therein is due as tax not judicial but administrative in nature. Thus, the "fresh
and a demand to pay thereof. Such notice should period rule" in Neypes does not apply (National Power
effectively inform the taxpayer of the value of a specific Corporation vs. The Provincial Treasurer of Benguet, G.R.
property, or proportion thereof subject to tax, including No. 209303, November 14, 2016, J. Peralta).
the discovery, listing, classification, and appraisal of
properties. Discuss the rules for a valid tax delinquency sale.
Tax declarations cannot be considered as notices of Under Section 254 of the LGC, it is required that the
assessment. First, a tax declaration is issued pursuant to notice of delinquency must be posted at the main hall
Section 22 of P.D. No. 46422 which mandates "that upon and in a publicly accessible and conspicuous place in
discovery of real property, the provincial, city or each barangay of the local government unit concerned. It
municipal assessor shall make an appraisal and shall also be published once a week for two (2)
assessment of such real property in accordance with consecutive weeks, in a newspaper of general circulation
Section 5 of the law, irrespective of any previous in the province, city, or municipality.
assessment on taxpayer’s valuation thereon," while a
notice of assessment is issued pursuant to Section 27 of Section 258 of the LGC further requires that should the
the law which mandates the "assessor xxx to give treasurer issue a warrant of levy, the same shall be
written notice within thirty days of such assessment, to mailed to or served upon the delinquent owner of the
the person in whose name the property is declared." real property or person having legal interest therein, or
in case he is out of the country or cannot be located, the
Second, a tax declaration is to be issued "upon administrator or occupant of the property. At the same
discovery" by the assessor of the "real property" to be time, the written notice of the levy with the attached
appraised and assessed, while a "written notice of warrant shall be mailed to or served upon the assessor
assessment" has to be issued by the assessor “within and the Registrar of Deeds of the province, city or
thirty days" from "such assessment." municipality within the Metropolitan Manila Area where
the property is located, who shall annotate the levy on
Third, no tax accrues as a result of the assessor's the tax declaration and certificate of title of the property,
issuance of a tax declaration, for at that time, the respectively.
assessor is merely tasked "to determine the assessed
value of the property, meaning, the value placed on Section 260 of the LGC also mandates that within thirty
taxable property for ad valorem tax purposes." On the (30) days after service of the warrant of levy, the local
other hand, the written notice of assessment is what treasurer shall proceed to publicly advertise for sale or
ripens into a demandable tax (Romeo Pucyutan vs. auction the property or a usable portion thereof as may
Manila Electric Company, Inc., GR No. 197136, April 18, be necessary to satisfy the tax delinquency and expenses
2016, J. Peralta). of sale. Such advertisement shall be effected by posting a
notice at the main entrance of the provincial, city or
Is the issuance of the writ of execution necessary for municipal building, and in a publicly accessible and
purposes of local tax refund or credit? conspicuous place in the barangay where the real
property is located, and by publication once a week for
NO. Section 252(c) of the LGC of the Philippines is very two (2) weeks in a newspaper of general circulation in
clear that “[i]n the event that the protest is finally the province, city or municipality where the property is
decided in favor of the taxpayer, the amount or portion located.
of the tax protested shall be refunded to the taxpayer, or
applied as tax credit against his existing or future tax Requirements for a tax delinquency sale under the LGC
liability.” It is not necessary for the issuance of the writ are mandatory. Strict adherence to the statutes
of execution because the remedy has already been governing tax sales is imperative not only for the
provided by law. protection of the taxpayers, but also to allay any possible
suspicion of collusion between the buyer and the public
22P.D. No. 464. (The Real Property Tax Code) was superseded by officials called upon to enforce the laws (Corporate
Republic Act No. 7160, otherwise known as the Local Government
Code of 1991.
42
UST LAW PRE-WEEK NOTES 2017
Strategies Development Corp. vs. Agojo, G.R. No. 208740, Differentiate outright smuggling from technical
November 19, 2014, J. Mendoza). smuggling.
Who has the burden to prove compliance with the In outright smuggling, or the unlawful importation
validity of the proceedings leading up to the tax under Section 3601 of the TCCP, goods and articles of
delinquency sale under the LGC? commerce are brought into the country without the
required importation documents, or are disposed of in
The burden to prove compliance with the validity of the the local market without having been cleared by the BOC
proceedings leading up to the tax delinquency sale is or other authorized government agencies, to evade the
incumbent upon the buyer or the winning bidder. This is payment of correct taxes, duties and other charges. Such
premised on the rule that a sale of land for tax goods and articles do not undergo the processing and
delinquency is in derogation of property and due clearing procedures at the BOC, and are not declared
process rights of the registered owner. In order to be through submission of import documents, such as the
valid, the steps required by law must be strictly import entry and internal revenue declaration.
followed. The burden to show that such steps were
taken lies on the person claiming its validity, for the On the other hand, in technical smuggling, or the various
Court cannot allow mere presumption of regularity to fraudulent practices against customs revenue under
take precedence over the right of a property owner to Section 3602, the goods and articles are brought into the
due process accorded no less than by the Constitution. country through fraudulent, falsified or erroneous
declarations, to substantially reduce, if not totally avoid,
It is well settled that there could be no presumption of the payment of correct taxes, duties and other charges.
the regularity of any administrative action which Such goods and articles pass through the BOC, but the
resulted in depriving a taxpayer of his property through processing and clearing procedures are attended by
a tax sale. This is an exception to the rule that fraudulent acts in order to evade the payment of correct
administrative proceedings are presumed to be taxes, duties, and other charges. Often committed by
regular(Corporate Strategies Development Corp. vs. means of misclassification of the nature, quality or value
Agojo, G.R. No. 208740, November 19, 2014, J. Mendoza). of goods and articles, undervaluation in terms of their
price, quality or weight, and misdeclaration of their kind,
PART IV: TARIFF AND CUSTOMS such form of smuggling is made possible through the
involvement of the importers, the brokers and even
some customs officials and personnel.
Under the Tariff and Customs Code, as amended:
The crime of unlawful importation under Section 3601
a. When does importation begin and when is it of the TCCP is complete, in the absence of a bona fide
deemed terminated? intent to make entry and pay duties, when the
b. In what cases is the decision of the Collector prohibited article enters Philippine territory.
automatically reviewed by the Commissioner of Importation, which consists of bringing an article into
Customs? In what instance/s is the decision of the country from the outside, is complete when the
the Commissioner automatically appealed to the taxable, dutiable commodity is brought within the limits
Secretary of Finance? (1995, 2015 BAR) of the port of entry. Entry through a customs house is
not the essence of the act. On the other hand, as regards
a. Importation begins when the carrying vessel or Section 3602 of the TCCP which particularly deals with
aircraft enters the jurisdiction of the Philippines the making or attempting to make a fraudulent entry of
with the intention to unlade therein. Importation is imported or exported articles, the term “entry” in
deemed terminated upon payment of the duties, customs law has a triple meaning, namely: (1) the
taxes, and other charges due upon the articles, or documents filed at the customs house; (2) the
secured to be paid, at a port of entry and the legal submission and acceptance of the documents; and (3)
permit for withdrawal shall have been granted, or in the procedure of passing goods through the customs
case said articles are free of duties, taxes and other house. In view thereof, it is only for charges for unlawful
charges, until they have legally left the jurisdiction importation under Section 3601 that the BOC must first
of Customs (Sec. 1202 of the Tariff and Customs prove that the subject articles were imported. For
Code). violation of Section 3602, in contrast, what must be
proved is the act of making or attempting to make such
Importation begins from the time the carrying entry of articles (Bureau of Customs vs. Devanadera, G.R.
vessel or aircraft enters Philippine territorial No. 193253, September 8, 2015, J. Peralta)
jurisdiction with the intention to unload therein and
ends at the time the goods are released or How is outright smuggling committed under Sec
withdrawn from the customhouse upon payment of 3601?
the customs duties or with legal permit to withdraw
(Viduya vs. Berdiago, 73 SCRA 553). Smuggling is committed by any person who:
b. Whenever the decision of the Collector of Customs a. fraudulently imports or brings into the Philippines
in any seizure proceedings is adverse to the any article contrary to law;
government, the said decision is automatically b. assists in so doing any article contrary to law; or
elevated to the Commissioner of Customs for c. receives, conceals, buys, sells or in any manner
review, and if such decision is affirmed by the facilitate the transportation, concealment or sale of
Commissioner of Customs, the same shall be such goods after importation, knowing the same to
elevated to and finally reviewed by the Secretary of have been imported contrary to law.
Finance (Sec. 2315 of the Tariff and Customs Code).
43
TAXATION LAW
NOTE: The phrase contrary to law qualifies the phrases laboratory analyses of the rice samples on February
imports or brings into the Philippines and assists in so 4, 1999 and February 5, 1999, respectively. Was
doing, not the word article. there probable cause in effecting the said forfeiture?
How is technical smuggling committed under Sec NO. To warrant the forfeiture of the 6,500 sacks of rice
3602? and the carrying vessel, there must be a prior showing
of probable cause that the rice cargo was smuggled.
The following acts or omissions constitute crime/s: Thus, the BOC should establish probable cause prior to
forfeiture by proving:
a. making or attempting to make any entry of imported
or exported article: a. that the importation or exportation of the 6,500
i. by means of any false or fraudulent invoice, sacks of rice was effected or attempted contrary to
declaration, affidavit, letter, paper or by any law, or that the shipment of the 6,500 sacks of rice
means of any false statement, written or verbal; constituted prohibited importation or exportation;
or and
ii. by any means of any false or fraudulent practice b. that the vessel was used unlawfully in the
whatsoever; or importation or exportation of the rice, or in
b. knowingly effecting any entry of goods, wares or conveying or transporting the rice, if considered as
merchandise, at less than the true weight or contraband or smuggled articles in commercial
measures thereof or upon a false classification as to quantities, into or from any Philippine port or place.
quality or value, or by the payment of less than the
amount legally due; or The evidence (results of the laboratory analyses of the
c. knowingly and wilfully filing any false or fraudulent rice samples) offered by BOC to establish that the 6,500
entry or claim for the payment of drawback or sacks of rice were smuggled or were the subject of illegal
refund of duties upon the exportation of importation, was obtained only after the forfeiture of
merchandise; or the6,500 sacks of rice had been effected on January 26,
d. making or filing any affidavit, abstract, record, 1999.
certificate or other document, with a view to
securing the payment to himself or others of any Moreover, the proof of the rice being smuggled was
drawback, allowance or refund of duties on the patently insufficient. In contrast, the records showed
exportation of merchandise, greater than that legally that the 6,500 sacks of rice were of local origin, having
due thereon. been purchased from Sablayan, Occidental Mindoro
from a licensed grains dealer. The local origin was
What is the rule on undervaluation, misclassification
substantiated by the official receipts, business license
and misdeclaration in the import entry?
and certificate of registration issued by the NFA in favor
of the source in Sablayan, Occidental Mindoro, Mintu
Under Sec. 2503 of R.A. No. 765123, when the
Rice Mill, and its proprietor.
undervaluation, misclassification or misdeclaration in
the import entry is intentional, the importer shall be
Still, the BOC insisted that the 6,500 sacks of rice were
subject to the penal provision under Sec. 3602.
unlawfully imported because the shipment was not
accompanied by the necessary import documents. Such
Enumerate the elements under the first form of
insistence was based on the premise that the rice
fraudulent practice, which is the act of making an
shipment was imported. The premise was plainly
entry by means of false and fraudulent invoice and
erroneous. Since it was established that the 6,500 sacks
declaration punished under Section 3602 of the
of rice were of local origin, the shipment need not be
TCCP.
accompanied by import documents (M/V Don Martin
Voy 047 and its Cargoes vs. Secretary of Finance, G.R. No.
The elements to be established are:
160206, July 15, 2015, J. Bersamin).
a. there must be an entry of imported or exported
articles; Does the Bureau of Customs have jurisdiction over
b. the entry was made by means of any false or seizure cases within the Subic Freeport Zone?
fraudulent invoice, declaration, affidavit, letter, or
paper; and YES. The Bureau of Customs have exclusive jurisdiction
c. there must be intent to avoid payment of taxes over seizure cases within the Subic Freeport Zone.
(Mercado vs. People of the Philippines, G.R. No.
The authority of the Bureau of Customs to seize and
167510, July 8, 2015, J. Bersamin).
forfeit goods and articles entering the Subic Bay
The M/V Don Martin and its cargo of rice were Freeport does not contravene the nature of the Subic
seized and forfeited on January 26, 1999 because it Bay Freeport as a separate customs authority. Indeed,
was alleged that the subject 6,500 bags of rice are of the investors can generally and freely engage in any kind
imported variety which are not covered by proper of business as well as import into and export out goods
import documents, hence, in violation of Section with minimum interference from the Government.
2530 (a), (f), (k) and (l), paragraph (1), of the TCCP.
To prove that the rice shipment was imported, rice Yet, the treatment of the Subic Bay Freeport as a
samples were submitted to and examined by the separate customs territory cannot completely divest the
PRRI and NFA which rendered the results of the Government of its right to intervene in the operations
and management of the Subic Bay Freeport, especially
when patent violations of the customs and tax laws are
23 An Act to Revitalize and Strengthen the Bureau of Customs,
Amending for the Purpose Certain Sections of the Tariff and Customs
discovered. After all, Section 602 of the Tariff and
Code of the Philippines Customs Code vests exclusive original jurisdiction in the
44
UST LAW PRE-WEEK NOTES 2017
Bureau of Customs over seizure and forfeiture cases in the protest of Oilink. Clearly, the filing of the petition on
the enforcement of the tariff and customs laws (Agriex July 30, 1999 by Oilink was well within its reglementary
Co., Ltd. v. Villanueva, G.R. No. 158150, September 10, period to appeal. The insistence by the Commissioner on
2014, J. Bersamin). reckoning the reglementary period to appeal from
November 25, 1998, the date when URC received the
What is the proper remedy to assail the order of the final demand letter, is unwarranted. The November 25,
Commissioner of Customs? 1998 final demand letter of the BoC was addressed to
URC, not to Oilink. As such, the final demand sent to URC
The proper recourse of a taxpayer is an appeal in due did not bind Oilink unless the separate identities of the
course to the CTA, in accordance with Section 7(4) of RA corporations were disregarded in order to consider
No. 1125, as amended24, in relation to Section 2402 of them as one (Commissioner of Customs v. Oilink
the Tariff and Customs Code25, within 30 days after the International Corp., G.R. No. 161759, July 2, 2014, J.
receipt of the order26(Agriex Co., Ltd. v. Villanueva, G.R. Bersamin).
No. 158150, September 10, 2014, J. Bersamin).
In the course of its business undertakings in the NOTE: In this case, the Court held that the doctrine of
period from 1991 to 1994, URC imported oil piercing the corporate veil has no application here
products into the country. On January 11, 1996, because the Commissioner of Customs did not establish
Oilink was incorporated. URC and Oilink had that Oilink had been set up to avoid the payment of taxes
interlocking directors when Oilink started its or duties, or for purposes that would defeat public
business. convenience, justify wrong, protect fraud, defend crime,
confuse legitimate legal or judicial issues, perpetrate
On March 4, 1998, the District Collector of the Port deception or otherwise circumvent the law. It is also
of Manila, formally demanded that URC pay the taxes noteworthy that from the outset the Commissioner of
and duties on its oil imports that had arrived Customs sought to collect the deficiency taxes and duties
between January 6, 1991 and November 7, 1995.Said from URC, and that it was only on July 2, 1999 when the
demand was challenged by URC. However, on Commissioner of Customs sent the demand letter to
November 25, 1998, the Customs Commissioner both URC and Oilink. That was revealing, because the
formally directed that URC pay the assessed failure of the Commissioner of Customs to pursue the
deficiency taxes. On July 2, 1999, the Commissioner remedies against Oilink from the outset manifested that
made a final demand upon URC and Oilink. its belated pursuit of Oilink was only an afterthought.
On July 8, 1999, Oilink protested the assessment Based on the preceding problem, the Commissioner
alleging that it was not the party liable for the of Customs posits that the final demand letter dated
assessed deficiency taxes. The same was denied on July 2, 1999 from which Oilink appealed was not the
July 12, 1999 and the Commissioner stressed that it final “action” or “ruling” from which an appeal could
would not issue any clearance to Oilink unless that be taken as contemplated by Section 2402 of the
liability be paid first. Thus, on July 30, 1999, Oilink Tariff and Customs Code; that what Section 7 of RA
appealed to the CTA. The Commissioner contends No. 1125 referred to as a decision that was
that the CTA should not take cognizance of the case appealable to the CTA was a judgment or order of
because of the lapse of the 30-day period within the Commissioner of Customs that was final in
which to appeal, arguing that on November 25, 1998 nature, not merely an interlocutory one; that Oilink
URC had already received the BoC’s final assessment did not exhaust its administrative remedies under
demanding payment of the amount due within 10 Section 2308 of the Tariff and Customs Code. Rule
days, but filed the petition only on July 30, 1999. Is on the Commissioner’s contention.
the Commissioner’s contention tenable?
The position of the Commissioner of Customs lacks
NO. The reckoning date for Oilink’s appeal was July 12, merit.
1999 which is the date when the Commissioner denied
The principle of non-exhaustion of administrative
remedies is not an iron-clad rule because there were
24Section 7. Jurisdiction. - The CTA shall exercise: a. Exclusive instances in which the immediate resort to judicial
appellate jurisdiction to review by appeal, as herein provided: xxx 4. action was proper. This was one such exceptional
Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges, seizure, detention or instance when the principle did not apply. The
release of property affected, fines, forfeitures or other penalties in Commissioner of Customs already decided to deny the
relation thereto, or other matters arising under the Customs Law or protest by Oilink on July 12, 1999, and stressed then that
other laws administered by the Bureau of Customs. the demand to pay was final. In that instance, the
25 Section 2402. Review by Court of Tax Appeals. - The party aggrieved
exhaustion of administrative remedies would have been
by the ruling of the Commissioner in any matter brought before him an exercise in futility because it was already the
upon protest or by his action or ruling in any case of seizure may Commissioner of Customs demanding the payment of
appeal to the Court of Tax Appeals, in the manner and within the the deficiency taxes and duties.
period prescribed by law and regulations.
Unless an appeal is made to the Court of Tax Appeals in the
manner and within the period prescribe by laws and regulations, the
action or ruling of the Commissioner shall be final and conclusive. PART V: JUDICIAL REMEDIES
26Section 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any
party adversely affected by a decision, ruling or inaction of the What is the jurisdiction of CTA? (2016 BAR)
Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the
Pursuant to Section 7 of RA No. 1125, as amended, the
Secretary of Agriculture or the Central Board of Assessment Appeals or
the Regional Trial Courts may file an appeal with the CTA within thirty CTA shall exercise:
(30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section
7(a)(2) herein. x xx
45
TAXATION LAW
a. Exclusive appellate jurisdiction to review by appeal, PNB appealed to the Department of Justice (DOJ) the
as herein provided: BIR assessment against it for deficiency withholding
tax. PNB alleged that its appeal to the DOJ was
1. Decisions of the Commissioner of Internal sanctioned under P.D. No. 24227, which provided for
Revenue in cases involving disputed the administrative settlement of disputes between
assessments, refunds of internal revenue taxes, government offices, agencies, and instrumentalities,
fees or other charges, penalties in relation including government-owned and controlled
thereto, or other matters arising under the corporations. It argued that P.D. No. 242, the more
National Internal Revenue Code or other laws recent law, repealed Section 7 of R.A. No. 1125. Is
administered by the Bureau of Internal PNB’s contention tenable?
Revenue;
2. Inaction by the Commissioner of Internal NO. P.D. No. 242 is a general law that deals with
Revenue in cases involving disputed administrative settlement or adjudication of disputes,
assessments, refunds of internal revenue taxes, claims and controversies between or among
fees or other charges, penalties in relation government offices, agencies and instrumentalities,
thereto, or other matters arising under the including government-owned or controlled
National Internal Revenue Code or other laws corporations. Its coverage is broad and sweeping,
administered by the Bureau of Internal encompassing all disputes, claims and controversies. On
Revenue, where the National Internal Revenue the other hand, R.A. No. 1125 is a special law dealing
Code provides a specific period of action, in with a specific subject matter, the creation of the CTA,
which case the inaction shall be deemed a which shall exercise exclusive appellate jurisdiction over
denial; the tax disputes and controversies enumerated therein.
3. Decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided Following the rule on statutory construction that
or resolved by them in the exercise of their between a general law and a special law, the special law
original or appellate jurisdiction; prevails, then P.D. No. 242 should not affect R.A. No.
4. Decisions of the Commissioner of Customs in 1125. R.A. No. 1125, specifically Section 728 thereof on
cases involving liability for customs duties, fees the jurisdiction of the CTA, constitutes an exception to
or other money charges, seizure, detention or P.D. No. 242. Disputes, claims and controversies, falling
release of property affected, fines, forfeitures or under Section 7 of Rep. Act No. 1125, even though solely
other penalties in relation thereto, or other among government offices, agencies, and
matters arising under the Customs Law or other instrumentalities, including government-owned and
laws administered by the Bureau of Customs; controlled corporations, remain in the exclusive
5. Decisions of the Central Board of Assessment appellate jurisdiction of the CTA (Philippine National Oil
Appeals in the exercise of its appellate Company vs. Philippine National Bank, G.R. No. 109976,
jurisdiction over cases involving the assessment April 26, 2005).
and taxation of real property originally decided
by the provincial or city board of assessment Which court has jurisdiction over a special civil
appeals; action for certiorari questioning an interlocutory
6. Decisions of the Secretary of Finance on order of the RTC in a tax case?
customs cases elevated to him automatically for
review from decisions of the Commissioner of The CTA has appellate jurisdiction over a special civil
Customs which are adverse to the Government action for certiorari assailing an interlocutory order
under Section 2315 of the Tariff and Customs issued by the RTC in a local tax case, despite the fact that
Code; and there is no categorical statement to that effect under R.A.
7. Decisions of the Secretary of Trade and No. 1125, as well as the amendatory R.A. No. 9282.
Industry, in the case of non-agricultural
product, commodity or article, and the The court ruled that CTA has jurisdiction over a special
Secretary of Agriculture in the case of civil action for certiorari via express constitutional
agricultural product, commodity or article, mandate and for being inherent in the exercise of its
involving dumping and countervailing duties appellate jurisdiction (City of Manila v. Hon. Grecia-
under Section 301 and 302, respectively, of the Cuerdo, G.R. No. 175723, February 4, 2014, J. Peralta)
Tariff and Customs Code, and safeguard
measures under Republic Act No. 8800, where Does the CTA have original jurisdiction over a
either party may appeal the decision to impose petition for certiorari?
or not to impose said duties.
YES. Concededly, there is no clear statement under R.A.
b. Exclusive appellate jurisdiction in criminal offenses: No. 1125, the amendatory R.A. No. 9282, let alone in the
1. Over appeals from the judgments, resolutions or
orders of the Regional Trial Courts in tax cases
27Prescribing the Procedure for Administrative Settlement or
originally decided by them, in their respective Adjudication of Disputes, Claims and Controversies Between or Among
territorial jurisdiction. Government Agencies and Instrumentalities, Including Government-
2. Over petitions for review of the judgments, Owned or Controlled Corporations, and for Other Purposes
resolutions or orders of the Regional Trial
28SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise
Courts in the exercise of their appellate exclusive appellate jurisdiction to review by appeal, as herein
jurisdiction over tax cases originally decided by provided -
the Metropolitan Trial Courts, Municipal Trial (1) Decisions of the Collector of Internal Revenue in cases involving
Courts and Municipal Circuit Trial Courts in disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising
their respective jurisdiction. under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue; xxx
46
UST LAW PRE-WEEK NOTES 2017
Constitution, that the CTA has original jurisdiction over the implementation of the provisions of internal revenue
a petition for certiorari. By virtue of Section 1,Article laws. Tax rulings, on the other hand, are official
VIII of the 1987 Constitution, vesting judicial power in positions of the Bureau on inquiries of taxpayers who
the Supreme Court and such lower courts as may be request clarification on certain provisions of the Tax
established by law, to determine whether or not there Code, other tax laws, or their implementing regulations.
has been a grave abuse of discretion on the part of any Hence, the determination of the validity of these
branch or instrumentality of the Government, in relation issuances clearly falls within the exclusive appellate
to Section 5(5),Article VIII thereof, vesting upon it the jurisdiction of the CTA under Section 7(1) of RA No.
power to promulgate rules concerning practice and 1125, as amended, subject to prior review by the
procedure in all courts, the Court declared that the CA's Secretary of Finance, as required under RA No. 8424
original jurisdiction over a petition for certiorari (Banco De Oro vs. Republic of the Philippines, G.R. No.
assailing the DOJ resolution in a preliminary 198756 (Resolution), August 16, 2016, J. Leonen).
investigation involving tax and tariff offenses was
necessarily transferred to the CTA pursuant to Section 7 Does the CTA En Banc have jurisdiction to take
of R.A. No. 9282 and that such petition shall be governed cognizance of the petition for annulment of final
by Rule 65 of the Rules of Court, as amended. judgment rendered by one of its Divisions?
Accordingly, it is the CTA, not the CA, which has NO. The Revised Rules of the CTA and even the Rules of
jurisdiction over the petition for certiorari assailing the Court which apply suppletorily thereto provide for no
DOJ resolution of dismissal of the BOC's complaint- instance in which the en banc may reverse, annul or void
affidavit against a taxpayer for violation of the TCCP a final decision of a division. Verily, the Revised Rules of
(Bureau of Customs vs. Devanadera, G.R. No. 193253, the CTA provide for no instance of an annulment of
September 8, 2015, J. Peralta). judgment at all.
Does the CTA have exclusive jurisdiction to The divisions in collegial courts are not considered
determine the constitutionality or validity of tax separate and distinct courts but are divisions of one and
laws, rules and regulations, and other the same court. There is no hierarchy of courts within
administrative issuances of the CIR? the collegial court. For instance, the Supreme Court
sitting en banc is not an appellate court vis-a-vis its
YES. The CTA has jurisdiction to pass upon the divisions, and it exercises no appellate jurisdiction over
constitutionality or validity of a tax law or regulation the latter.
when raised by the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund. It is only Thus, it appears contrary to these features that a
in the lawful exercise of its power to pass upon all collegial court, sitting en banc, may be called upon to
matters brought before it, as sanctioned by Section 7 of annul decision of one of its divisions which had become
RA No. 1125, as amended. final and executory, for it is tantamount to allowing a
court to annul its own judgment and acknowledging that
The Supreme Court also declared that the CTA may a hierarchy exists within such court. In the process, it
likewise take cognizance of cases directly challenging also betrays the principle that judgments must, at some
the constitutionality or validity of a tax law or regulation point, attain finality. A court that can revisit its own final
or administrative issuance (revenue orders, revenue judgments leaves the door open to possible endless
memorandum circulars, rulings). reversals or modifications which is anathema to a stable
legal system (CIR vs. KepcoIlijan Corporation, G.R. No.
Section 7 of RA No. 1125, as amended, is explicit that, 199422, June 21, 2016, J. Peralta).
except for local taxes, appeals from the decisions of
quasi-judicial agencies (Commissioner of Internal GGG, Inc. offered to sell through competitive bidding
Revenue, Commissioner of Customs, Secretary of its shares in HHH Corp., equivalent to 40% of the
Finance, Central Board of Assessment Appeals, Secretary total outstanding capital stock of the latter. JJJ, Inc.
of Trade and Industry) on tax-related problems must be acquired the said shares in HHH Corp. as the highest
brought exclusively to the Court of Tax Appeals (CTA). bidder. Before it could secure a certificate
authorizing registration/tax clearance for the
In other words, within the judicial system, the law transfer of the shares of stock to JJJ, Inc., GGG, Inc.
intends the CTA to have exclusive jurisdiction to resolve had
all tax problems. Petitions for writs of certiorari against to request a ruling from the BIR confirming that its
the acts and omissions of the said quasi-judicial agencies sale of the said shares was at fair market value and
should, thus, be filed before the CTA. was thus not subject to donor's tax. In BIR Ruling No.
012-14, the CIR held that the selling price for the
RA No. 9282, a special and later law than Batas shares of stock of HHH Corp. was lower than their
Pambansa Blg. 129, provides an exception to the original book value, so the difference between the selling
jurisdiction of the Regional Trial Courts over actions price and the book value of said shares was a taxable
questioning the constitutionality or validity of tax laws donation. GGG, Inc. requested the Secretary of
or regulations. Except for local tax cases, actions directly Finance to review BIR Ruling No. 012-14, but the
challenging the constitutionality or validity of a tax law Secretary affirmed said ruling. GGG, Inc. filed with
or regulation or administrative issuance may be filed the Court of Appeals a Petition for Review under
directly before the CTA. Rule 43 of the Revised Rules of Court. The Court of
Appeals, however, dismissed the Petition for lack of
Furthermore, with respect to administrative issuances jurisdiction declaring that it is the CTA which has
(revenue orders, revenue memorandum circulars, or jurisdiction over the issues raised. Before which
rulings), these are issued by the Commissioner under its Court should GGG, Inc. seek recourse from the
power to make rulings or opinions in connection with
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adverse ruling of the Secretary of Finance in the Thus, the 30-day period for filing the appeal in the CTA
exercise of the latter's power of review? (2015 BAR) commenced to run for the petitioners only after June 1,
1999, which was the date when they unquestionably
GGG, Inc. should seek recourse with the CTA which has acquired notice of the adverse decision. Accordingly,
jurisdiction. they had until July 1, 1999 within which to appeal. With
their petition for review being filed on June 21, 1999,
There is no provision in law that expressly provides which was well within the 30-day period, their appeal
where exactly the adverse ruling of the Secretary of was timely filed(M/V Don Martin Voy 047 and its Cargoes
Finance under Sec. 4 of the NIRC is appealable. However, vs. Secretary of Finance, G.R. No. 160206, July 15, 2015, J.
RA 1125, as amended, addresses the seeming gap in the Bersamin).
law as it vests upon the CTA, albeit impliedly, with
jurisdiction over the case as “other matters” arising In a case before the CTA, the BIR failed to formally
under the NIRC or other laws administered by the BIR. offer the PANs of EWTs for taxable years 1994 and
Furthermore, the Supreme Court held that the 1998. On appeal, it avers that their existence and
jurisdiction to review the rulings of the Secretary of due execution were duly tackled during the
Finance on the issues raised against a ruling of the CIR presentation of witnesses. It also claims that
pertains to the CTA in the exercise of its appellate although the PANs were not marked as exhibits,
jurisdiction (Philamlife v. The Sec. of Finance and CIR, GR their existence and value were properly established,
No. 210987, November 24, 2014). since their records for taxable years 1994 and 1998
were forwarded to the CTA and made part of the CTA
On May 15, 2013, CCC, Inc. received the Final records.
Decision on Disputed Assessment issued by the CIR
dismissing the protest of CCC, Inc. and affirming the Moreover, it contends that technical rules of
assessment against said corporation. On June 10, evidence should not be strictly applied in the
2013, CCC, Inc. filed a Petition for Review with the interest of substantial justice, considering that the
CTA in division. On July 31, 2015, CCC, Inc. received a mandate of the CTA explicitly provides that its
copy of the Decision dated July 22, 2015 of the CTA proceedings shall not be governed by the technical
division dismissing its Petition. CCC, Inc. rules of evidence. Rule on BIR’s contention.
immediately filed a Petition for Review with the CTA
en banc on August 6, 2015. Is the immediate appeal The contention of the BIR is without merit.
by CCC, Inc. to the CTA en banc of the adverse
Decision of the CTA division the proper remedy? Under Section 830 of R.A. No. 1125, the CTA is
(2015 BAR) categorically described as a court of record. Moreover,
as cases filed before it are litigated de novo, party
NO, CCC, Inc. should first file a motion for litigants shall prove every minute aspect of their cases.
reconsideration with the CTA Division. Petition for Thus, no evidentiary value can be given the pieces of
review of a decision or resolution of the Court in evidence submitted by the BIR, as the rules on
Division must be preceded by the filing of a timely documentary evidence require that these documents
motion for reconsideration or new trial with the must be formally offered before the CTA.31
Division. Before the CTA En Banc could take cognizance
of the petition for review concerning a case falling under As an exception to the above rule, the evidence may be
its exclusive appellate jurisdiction, the litigant must admitted provided the following requirements are
sufficiently show that it sought prior reconsideration or present: (1) the same must have been duly identified by
moved for a new trial with the concerned CTA division. testimony duly recorded; and (2) the same must have
been incorporated in the records of the case.
BOC Deputy Commissioner rendered decision on
April 19, 1999upholding the forfeiture of the 6,500 In this case, BIR admitted that it failed to formally offer
sacks of rice of Palacio Shipping, Inc. Consequently, the PANs as evidence. Worse, it advanced no justifiable
on June 21, 1999, Palacio brought a petition for reason for such fatal omission. Instead, it merely alleged
review in the CTA to seek the nullification of the that the existence and due execution of the PANs were
decision and to obtain the release of the rice duly tackled by its witnesses. Thus, this is not sufficient
shipment. to seek exception from the general rule requiring a
formal offer of evidence, since no evidence of positive
On the other hand, the BOC argued that the April 19, identification of such PANs by witnesses was presented.
1999 decision by BOC Deputy Commissioner had
already attained finality. Palacio insisted that they While CTA is not governed strictly by technical rules of
were not furnished a copy of the decision and that evidence, as rules of procedure are not ends in
they only learned of the decision on June 1, 1999.
Has the BOC decision attained finality? the Court of Tax Appeals within thirty days after the receipt of such
decision or ruling. x xx
NO. The April 19, 1999 decision of BOC would become 30Section 8. Court of record; seal; proceedings. - The Court of Tax
final and immutable if Palacio did not appeal it in the Appeals shall be a court of record and shall have a seal which shall be
CTA within 30 days from receipt thereof. Such period of judicially noticed. It shall prescribe the form of its writs and other
processes. It shall have the power to promulgate rules and regulations
appeal was expressly set in Section 1129of R.A. No. 1125. for the conduct of the business of the Court, and as may be needful for
the uniformity of decisions within its jurisdiction as conferred by law,
but such proceedings shall not be governed strictly by technical rules
of evidence.
29 Section 11. Who may appeal; effect of appeal. — Any person,
association or corporation adversely affected by a decision or ruling of 31SEC. 34. Offer of evidence. – The court shall consider no evidence
the Collector of Internal Revenue, the Collector of Customs or any which has not been formally offered. The purpose for which the
provincial or city Board of Assessment Appeals may file an appeal in evidence is offered must be specified. (Rule 132)
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themselves but are primarily intended as tools in the assessment that was beyond the petitioner's net
administration of justice, the presentation of PANs as worth. Decide.
evidence of the taxpayer’s liability is not a mere
procedural technicality. It is a means by which a The surety bond amounting to P4.4B imposed by the
taxpayer is informed of his liability for deficiency taxes. CTA was within the parameters delineated in Section 11
It serves as basis for the taxpayer to answer the notices, of R.A. 1125, as amended. The CTA, however, gravely
present his case and adduce supporting evidence. More abused its discretion under Section 11 because it fixed
so, the same is the only means by which the CTA may the amount of the bond at nearly five times the net
ascertain and verify the truth of respondent's claims worth of the petitioner without conducting a
(CIR vs. United Salvage and Towage (Phils.) Inc, G.R. No. preliminary hearing to ascertain whether there were
197515, July 2, 2014, J. Peralta). grounds to suspend the collection of the deficiency
assessment on the ground that such collection would
Does an appeal to the CTA from the decision of the jeopardize the interests of the taxpayer.
CIR suspend the collection of tax?
Although the amount of P4.4B was itself the amount of
As a rule, an appeal to the CTA from the decision of the the assessment, it behooved the CTA to consider other
CIR will not suspend the payment, levy, distraint, and/or factors recognized by the law itself towards suspending
sale of any property of the taxpayer for the satisfaction the collection of the assessment, like whether or not the
of his tax liability as provided by existing law (Sec. 11 of assessment would jeopardize the interest of the
R.A. No. 1125, as amended by RA No. 9282). taxpayer, or whether the means adopted by the CIR in
determining the liability of the taxpayer was legal and
In what instance may the CTA suspend the collection valid. Simply prescribing such high amount of the bond
of taxes? equal to the deficiency assessment would practically
deny to the petitioner the meaningful opportunity to
The CTA may order the suspension of the collection of contest the validity of the assessments, and would likely
taxes when in the opinion of the Court the collection by even impoverish it as to force it out of business
the BIR or BOC may jeopardize the interest of the (Tridharma Marketing Corporation v. CTA, G.R. No.
Government and/or the taxpayer, provided that the 215950, June 20, 2016, J. Bersamin).
taxpayer either: (1) deposits the amount claimed; or (2)
files a surety bond for not more than double the amount Alcantara directly brought an action in the RTC
(Sec. 11 of R.A. No. 1125, as amended by RA No. 9282). ostensibly to demand reconveyance of property sold
upon forfeiture for non-payment of a tax
May the bond requirement be dispensed with by the assessment. The case was dismissed on the ground
CTA? that the RTC had no jurisdiction over the complaint
because he was thereby seeking to challenge the
YES. CTA has ample authority to issue injunctive writs to validity of the assessment made by the BIR.
restrain the collection of tax and to even dispense with
the deposit of the amount claimed or the filing of the On appeal to CA, Alcantara insisted on the
required bond, whenever the method employed by the competence of the RTC to take cognizance of his
CIR in the collection of tax jeopardizes the interests of a complaint. He contended that his complaint is one
taxpayer for being patently in violation of the law. Thus, for the declaration of the nullity of TCT No. T-
whenever it is determined by the courts that the method 195677 and TCT No. T-244532 and for the
employed by the Collector of Internal Revenue in the reconveyance of property that fell within the
collection of tax is not sanctioned by law, the bond exclusive and original jurisdiction of the RTC due to
requirement under Section 11 of R.A. No. 1125 should such causes of action being incapable of pecuniary
be dispensed with. estimation and involving title to, or possession of,
real property, or any interest therein. Is Alcantara’s
The purpose of the rule is not only to prevent contention tenable?
jeopardizing the interest of the taxpayer, but more
importantly, to prevent the absurd situation wherein the NO. Despite assailing the supposedly illegal confiscation
court would declare “that the collection by the summary of his property in order to satisfy his tax liabilities,
methods of distraint and levy was violative of law, and Alcantara was really challenging the assessment and
then, in the same breath require the petitioner to collection of taxes made against him for being in
deposit or file a bond as a prerequisite for the issuance violation of his right to due process. As such, the
of a writ of injunction”(Spouses Pacquiao vs. CTA, G.R. No. complaint concerned the validity of the assessment and
213394, April 6, 2016, J. Mendoza). eventual collection of the taxes by the BIR. The
declaration of nullity of the sale and reconveyance was
BIR assessed Tridharma with deficiency IT and VAT founded on the validity of the assessment and eventual
totalling P4.4 billion. Tridharma filed a Motion to collection by the BIR.
Suspend Collection of Tax. Tridharma's Financial
Statements indicate that its net worth was at around Accordingly, the RTC had no jurisdiction to resolve the
P900 million only. The CTA granted Tridharma's issues raised in Alcantara's complaint. The remedies
Motion for Suspension of Collection of Tax, provided, available to a taxpayer under the law provides that prior
however, that Tridharma deposits with the CTA a resort to the administrative remedies was necessary;
surety bond equivalent to P4.4 billion. otherwise, the assessment would attain finality. Yet,
Alcantara immediately invoked the authority of the
Tridharma commenced special civil action for courts to protect his rights instead of first going to the
certiorari alleging that CTA committed grave abuse CIR for redress of his concerns about the assessment
of discretion in requiring Tridharma to file a surety and collection of taxes. His judicial recourse thus
bond despite the supposedly patent illegality of the
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50
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51
Tax Return is filed by the TP
REQUEST FOR
FORMAL LETTER OF DEMAND/FINAL RECONSIDERATION TP is given 60 days to submit all relevant
ASSESSMENT NOTICE (FLD/FAN) is supporting documents, otherwise the
issued REQUEST FOR assessment shall attain FINALITY
TP files a PROTEST (with the CIR) of the REINVESTIGATION
Assessment within 30 days from receipt
of FAN Assessment shall attain FINALITY
NO PROTEST FILED