1. Jurisdiction of the CTA
The remedy is to appeal the decision of
V. Judicial Remedies (R.A. No. 1125, as amended, and the Revised Rules of
the Court of Tax Appeals)
A. Jurisdiction of the Court of Tax Appeals 1. Exclusive appellate
jurisdiction over civil tax cases
Mr. Abraham Eugenio, a pawnshop operator, after having been
required by the Revenue District Officer to pay value-added tax
pursuant to a Revenue Memorandum Order (RMO) of the
Commissioner of Internal Revenue, filed with the Regional Trial Court
an action questioning the validity of the RMO. If you were the judge,
will you dismiss the case? 5%
SUGGESTED ANSWER: Yes. A RMO is in reality a ruling or an opinion
issued by the Commissioner in implementing the provisions of the Tax
Code dealing with the taxability of pawnshops. Page 429 of 450 Law on
Taxation The power to review rulings issued by the Commissioner is lodged
with the Court of Tax Appeals (CTA) and not with the Regional Trial Court.
A ruling falls within the purview of “other matters arising under the Tax
Code, ’’ appealable only to the CTA (CIR v. Leal, 392 SCRA 9 [2002]).
(BAR 2006)
In the investigation of the withholding tax returns of AZ Medina
Security Agency (AZ Medina) for the taxable years 1997 and 1998, a
discrepancy between the taxes withheld from its employees and the
amounts actually remitted to the government was found. Accordingly,
before the period of prescription commenced to run, the BIR issued an
assessment and a demand letter calling for the immediate payment of
the deficiency withholding taxes in the total amount of P250,000.00.
Counsel for AZ Medina protested the assessment for being null and
void on the ground that no pre-assessment notice had been issued.
However, the protest was denied. Counsel then filed a petition for
prohibition with the Court of Tax Appeals to restrain the collection of
the tax. Will the special civil action for prohibition brought before the
CTA under Sec. 11 of RA No. 1125 prosper? Discuss your answer. (3%)
SUGGESTED ANSWER: The special civil action for prohibition will not
prosper, because the CTA has no jurisdiction to entertain the same. The
power to issue writ of injunction provided for under Section 11 of RA 1125
is only ancillary to its appellate jurisdiction. The CTA is not vested with
original jurisdiction to issue writs of prohibition or injunction independently
Page 1 of 57
of and apart from an appealed case.
the BIR. (Collector v. Yuseco, 3 SCRA 313 [1981]). (BAR 2002)
Does the Court of Appeals have the power to review compromise
agreements forged by the Commissioner of Internal Revenue and a
taxpayer? Explain. (5%)
SUGGESTED ANSWER: No, for either of two reasons (1) In instances in
which the Commissioner of Internal Revenue is vested with authority to
compromise, such authority should be exercised in accordance with the
Commissioner's discretion, and courts have no power, as a general rule, to
compel him to exercise such discretion one way or another. (Koppel Phils.,
Inc. v. CIR, 87 Phil. 351 [1950ft, (2) If the Commissioner abuses his
discretion by not following the parameters set by law, the CTA, not the
Court of Appeals, may correct such abuse if the matter is appealed to it. In
case of arbitrary or capricious exercise by the Commissioner of the power to
compromise, the compromise can be attacked and reversed though the
judicial process. It must be noted however, that a compromise is considered
as other matters arising under the NIRC which vests the CTA with
jurisdiction, and since the decision of the CTA is appealable to the Supreme
Court, the Court of Appeals is devoid of any power of review a compromise
settlement forged by the Commissioner (PNOCv. Savellano, G.R. No.
109976, April 26, 2005; RA No. 9282 on jurisdiction of the CTA).
The Collector of Customs of the Port of Cebu issued warrants of seizure
and detention against the importation of machineries and equipment by
LLD Import and Export Co. (LLD) for alleged nonpayment of tax and
customs duties in violation of customs laws. LLD was notified of the
seizure, but, before it could be heard, the Collector of Customs issued a
notice of sale of the articles. In order to restrain the Collector from
carrying out the order to sell, LLD filed with the Court of Tax Appeals
a petition for review with application for the issuance of a writ of
prohibition. It also filed with the CTA an appeal for refund of overpaid
taxes on its other importations of raw materials which has been
pending with the Collector of Customs. The Bureau of Customs moved
to dismiss the case for lack of jurisdiction of the Court of Tax Appeals.
Does the Court of Tax Appeals have jurisdiction over the petition for
review and writ of prohibition? Explain (3%) Will an appeal to the
CTA for tax refund be possible? Explain (2%)
SUGGESTED ANSWER: No, because there is no decision as yet by the
Commissioner of Customs which can be appealed to the CTA. Neither the
remedy of prohibition would lie because the CTA has not acquired any
appellate jurisdiction over the seizure case. The writ of prohibition being
merely ancillary to the appellate jurisdiction, the CTA has no jurisdiction
over it until it has acquired jurisdiction on the petition for review. Since
there is no appealable decision, the CTA has no jurisdiction over the
petition for review and writ of prohibition. (Commissioner of Customs v.
Alikpala, 36 SCRA 208 [1970]).
No, because the Commissioner of Customs has not yet rendered a decision
on the claim for refund. The jurisdiction of the Commissioner and the CTA
are not concurrent in so far as claims for refund are concerned. The only
exception is when the Collector has not acted on the protested payment for a
long time, the continued inaction of the Collector or Commissioner should
not be allowed to prejudice the taxpayer. (Nestle Phils., Inc. v. Court of
Appeals, GR No. 134114, July 6, 2001). (BAR 2002)
On June 16, 1997, the Bureau of Internal Revenue (BIR) issued against
the Estate of Jose de la Cruz a notice of deficiency estate tax
assessment, inclusive of surcharge, interest and compromise penalty.
The Executor of the Estate of Jose de la Cruz (Executor) filed a timely
protest against the assessment and requested for waiver of the
surcharge, interest and penalty. The protest was denied by the
Commissioner of Internal Revenue (Commissioner) with finality on
September 13, 1997. Consequently, the Executor was made to pay the
deficiency assessment on October 10, 1997. The following day, the
Executor filed a Petition with the Court of Tax Appeals (CTA) praying
for the refund of the surcharge, interest and compromise penalty. The
CTA took cognizance of the case and ordered the Commissioner to
make a refund. The Commissioner filed a Petition for Review Page 431
of 450 Law on Taxation with the Court of Appeals assailing the
jurisdiction of the CTA and the Order to make refund to the Estate on
the ground that no claim for refund was filed with the BIR. Is the stand
of the Commissioner correct? Reason. (2%)
SUGGESTED ANSWER: Yes. There was no claim for refund or credit that
has been duly filed with the Commissioner of Internal Revenue which is
required before a suit or proceeding can be filed in any court (Sec. 229,
NIRC of 1997). The denial of the claim by the Commissioner is the one
which will vest the Court of Tax Appeals jurisdiction over the refund case
should the taxpayer decide to appeal on time. (BAR 2000)
Page 2 of 57
On the basis of a warrant of seizure and detention issued by the
Collector of Customs for the purpose of enforcing the Tariff and
Customs Laws, assorted brands of cigarettes said to have been illegally
imported into the Philippines were seized from a store where they were
openly offered for sale. Dissatisfied with the decision rendered after
hearing by the Collector of Customs on the confiscation of the articles,
the importer filed a petition for review with the Court of Tax Appeals.
The Collector moved to dismiss the petition for lack of jurisdiction.
Rule on the motion. (2%)
SUGGESTED ANSWER: Motion granted. The Court of Tax Appeals has
Jurisdiction only over decisions of the Commissioner of Customs in cases
involving seizures, detention or release of property affected. (Sec. 7, RA.
No. 1125). There is no decision yet of the Commissioner which is subject to
review by the Court of Tax Appeals. (BAR 2000)
ALTERNATIVE ANSWER: Motion granted. The Court of Tax Appeals
has no jurisdiction because there is no decision rendered by the
Commissioner of Customs on the seizure and forfeiture case. The taxpayer
should have appealed the decision rendered by the Collector within fifteen
(15) days from receipt of the decision to the Commissioner of Customs. The
Commissioner is adverse decision would then be the subject of an appeal to
the Court of Tax Appeals. Under the same facts, could the importer file an
action in the Regional Trial Court for replevin on the ground that the articles
are being wrongfully detained by the Collector of Customs since the
importation was not illegal and therefore exempt from seizure? Explain.
(3%)
SUGGESTED ANSWER: No. The legislators intended to divest the
Regional Trial Courts of the jurisdiction to replevin a property which is a
subject of seizure and forfeiture proceedings for violation of the Tariff and
Customs Code otherwise, actions for forfeiture of property for violation of
the Customs laws could easily be undermined by the simple device of
replevin. (De Ia Fuente v. De Veyra, et aL, 120 SCRA 455) There should be
no unnecessary hindrance on the government’s drive to prevent smuggling
and other frauds upon the Customs. Furthermore, the Regional Trial Court
do not have jurisdiction in order to render effective and efficient the
collection of import and export duties due the State, which enables the
government to carry out the functions it has been instituted to perform.
(Jiao, et aL, Court of Appeals, et aL, and companion case, 249 SCRA 35,
43) (BAR 2000)
 A Co., a Philippine corporation, received an income tax deficiency
assessment from the BIR on May 5, 1995. On May 31, 1995, A Co. filed
its protest with the BIR. On July 30, 1995. A Co. submitted to the BIR
all relevant supporting documents. The CIR did not formally rule on
the protest but on January 25. 1996, A Co. was served a summons and a
copy of the complaint for collection of the tax deficiency filed by the
BIR with the Regional Trial Court (RTC). On February 20. 1996, A Co.
brought a Petition for Review before the CTA. The BIR contended that
the Petition is premature since there was no formal denial of the protest
of A Co. and should therefore be dismissed. Has the CTA jurisdiction
over the case?
SUGGESTED ANSWER: Yes, the CTA has jurisdiction over the case
because this qualifies as an appeal from the Commissioner's decision on
disputed assessment. When the Commissioner decided to collect the tax
assessed without first deciding on the taxpayer's protest, the effect of the
Commissioner is action of filing a judicial action for collection is a decision
of denial of the protest, in which event the taxpayer may file an appeal with
the CTA. (Republic v. Lim Tian Teng &. Sons, Inc., 16 SCRA 584; Dayrit
v. Cruz, L-39910, Sept. 26, 1988) (BAR 1999)
A Co., a Philippine corporation, received an income tax deficiency
assessment from the BIR on November 25, 1996. On December 10,
1996, A Co. filed its protest with the BIR On May 20. 1997, the BIR
issued a warrant of distraint to enforce the assessment. ‘This warrant
was served on A Co. on May 25,1997. In a letter dated June 4,1997 and
received by A Co. 5 days later, the CIR formally denied A Co.’s protest
stating that it constitutes his final decision on the matter. On July 6,
1997, A Co. filed a Petition for Review with the CTA The BIR moved to
dismiss the Petition on the ground that the CTA has no jurisdiction
over the case. Decide. (10%)
SUGGESTED ANSWER: The CTA has jurisdiction over the case. The
appealable decision is the one which categorically stated that the
Commissioner's action on the disputed assessment is final and, therefore, the
reckoning of the 30-day period to appeal was on June 9, 1999. The filing of
the petition for review with the CTA was timely made. The Supreme Court
has ruled that the CIR must categorically state that his action on a disputed
assessment is final; otherwise, the period to appeal will not commence to
run. That final action cannot be implied from the mere issuance of a warrant
of distraint and levy. (CIR v. Union Shipping Corporation, 185 SCRA 547).
(BAR 1999)
Page 3 of 57
A taxpayer received, on 15 January 1996, an assessment for an internal
revenue tax deficiency. On 10 February 1996, the taxpayer forthwith
filed a petition for review with the Court of Tax Appeals. Could the Tax
Court entertain the petition? Under the above factual setting, the
taxpayer, instead of questioning the assessment he received n 15
January 1996 paid, on 01 March 1996 the "deficiency tax" assessed.
The taxpayer requested a refund from the Commissioner by submitting
a written claim on 01 March 1997. It was denied. The taxpayer, on 15
March 1997, filed a petition for review with the Court of Appeals.
Could the petition still be entertained?
ANSWER: No. Before taxpayer can avail of judicial remedy he must first
exhaust administrative remedies by filing a protest within 30 days from
receipt of the assessment. It is the Commissioner's decision on the protest
that give the Tax Court jurisdiction over the case provided that the appeal is
filed within 30 days from receipt of the Commissioner’s decision. An
assessment by the BIR is not the Commissioner's decision from which a
petition for review may be filed with the Court of Tax Appeals. Rather, it is
the action taken by the Commissioner in response to the taxpayer's protest
on the assessment that would constitute the appeallable decision (Section 7,
RA 1125).
No, the petition for review cannot be entertained by the Court of Appeals,
since decisions of the Commissioner on cases involving claim for tax
refunds are within the exclusive and primary jurisdiction of the Court of Tax
Appeals (Section 7, RA 1125). (BAR 1997)
Under Section 2523 of the Tariff and Customs Code, the duty of verifying
the correct weight of a cargo shipment is imposed upon the vessel’s master,
owner or employee. If a discrepancy between the actual gross weight and
declared gross weight of manifested cargo exceeds 20% and “the Collector
shall be of the opinion that such discrepancy was due to the carelessness or
incompetency of the master or pilot in command, owner or employee of the
vessel, a fine of not Page 434 of 450 Law on Taxation more than 15% of the
value of the article may be imposed upon the importing vessel.” ABC
Corporation’s vessel was found, after appropriate administrative
proceedings, to have violated the said provision far exceeding the 20%
statutory limitation. The Collector of Customs imposed a dine of
P22.600.00 (representing 15% of the value of the discrepancy) which was
affirmed by the Commissioner of Customs. On appeal by ABC Corporation,
the Court of Tax Appeals found the fine of P22.600.00 harsh and
unreasonable for a first offense and reduced the same to P5.000.00. The
Commissioner of Customs questions the scope of authority of the Court of
Tax Appeals in the determination of the fine imposable under Section 2523
of the Tariff and Customs Code. Whose judgment should prevail under the
circumstances of the case? Explain fully. ANSWER: The judgment of the
Court of Tax Appeals should prevail. The CTA has exclusive appellate
jurisdiction over decisions of the Commissioner of Customs in cases
involving the imposition of fines, forfeitures or other penalties. (BAR 1992)
The City of Liwliwa assessed local business taxes against Talin
Company. Claiming that there is double taxation, Talin Company filed
a Complaint for Refund or Recovery of Illegally and/or Erroneously-
collected Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of Preliminary Injunction with
the Regional Trial Court (RTC). The RTC denied the application for a
Writ of Preliminary Injunction. Since its motion for reconsideration
was denied, Talin Company filed a special civil action for certiorari
with the Court of Appeals (CA). The government lawyer representing
the City of Liwliwa prayed for the dismissal of the petition on the
ground that the same should have been filed with the Court of Tax
Appeals (CTA). Talin Company, through its lawyer, Atty. Frank,
countered that the CTA cannot entertain a petition for certiorari since
it is not one of its powers and authorities under existing laws and rules.
Decide. (2014 Bar Question)
SUGGESTED ANSWER : The petition for certiorari before the CA must be
dismissed, since such petition should have been filed with the CTA. As
stated in City of Manila v. Caridad H. Grecia-Cuerdo (G.R. No. 175723,
February 2, 2014, 715 SCRA 182), the CTA has the power to determine
whether or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in issuing interlocutory orders
in cases falling within the CTA’s exclusive appellate jurisdiction. The CTA
therefore has jurisdiction to issue writs of certiorari in such cases.
Furthermore, its authority to entertain petitions for certiorari questioning
interlocutory orders issued by the RTC is included in the powers granted by
the Constitution and inherent in the exercise of its appellate jurisdiction.
GGG, Inc. offered to sell through competitive bidding its shares in
HHH Corp., equivalent to 40% of the total outstanding capital stock of
the latter. JJJ, Inc. acquired the said shares in HHH Corp. as the
highest bidder. Before it could secure a certificate authorizing
registration/tax clearance for the transfer of the shares of stock to JJJ,
Page 4 of 57
Inc., GGG, Inc. had to request a ruling from the BIR confirming that
its sale of the said shares was at fair market value and was thus not
subject to donor's tax. In BIR Ruling No. 012-14, the CIR held that the
selling price for the shares of stock of HHH Corp. was lower than their
book value, so the difference between the selling price and the book
value of said shares was a taxable donation. GGG, Inc. requested the
Secretary of Finance to review BIR Ruling No. 012-14, but the
Secretary affirmed said ruling. GGG, Inc. filed with the Court of
Appeals a Petition for Review under Rule 43 of the Revised Rules of
Court. The Court of Appeals, however, dismissed the Petition for lack
of jurisdiction declaring that it is the CTA which has jurisdiction over
the issues raised. Before which Court should GGG, Inc. seek recourse
from the adverse ruling of the Secretary of Finance in the exercise of
the latter's power of review? (2015 Bar Question)
SUGGESTED ANSWER: GGG should file its petition with the Court of
Tax Appeals. The Supreme Court held that the jurisdiction to review the
rulings of the Commissioner of Internal Revenue pertains to the CTA which
has the authority to issue, among others, a writ of certiorari in the exercise
of its appellate jurisdiction.
a. Exclusive original jurisdiction In criminal cases where the Court of Tax
Appeals (CTA) has exclusive original jurisdiction, the right to file a separate
civil action for the recovery of taxes may be reserved. (1%)
SUGGESTED ANSWER: FALSE. [Sec. 11, Rule 9, 2005 Rules of the Tax
Appeals, as amended.]
The proceeding before the CTA in the exercise of its exclusive original
jurisdiction are in the nature of trial de novo. (1%)
SUGGESTED ANSWER: TRUE. [CIR v.Manila Mining Corp. GR
No.153204, Aug 31, 2005]
Judgments, resolutions or orders of the Regional Trial Court in the
Exercise of its original jurisdiction involving criminal offenses arising
from violations of the NIRC are appealable to the CTA, which shall
hear the cases en banc. (1%)
SUGGESTED ANSWER: FALSE. [Sec. 3(b)(2), Rule 4, 2005 Revised
Rules of the Court of Tax Appeals.]
Which court acts on: tax collection cases filed by the BIR?
ANSWER: Tax collection cases are filed by the BIR with regular courts.
(BAR 1992)
On March 15, 2000, the BIR issued a deficiency income tax assessment
for the taxable year 1997 against the Valera Group of Companies
(Valera) in the amount of P10 million. Counsel for Valera protested the
assessment and requested a reinvestigation of the case. During the
investigation, it was shown that Valera had been transferring its
properties to other persons. As no additional evidence to dispute the
assessment had been presented, the BIR issued on June 16, 2000
warrants of distraint and levy on the properties and ordered the filing
of an action in the Regional Trial Court for the collection of the tax.
Counsel for Valera filed an injunctive suit in the Regional Trial Court
to compel the BIR to hold the collection of the tax in abeyance until the
decision on the protest was rendered. Can the BIR file the civil action
for collection, pending decision on the administrative protest? Explain.
(3%)
SUGGESTED ANSWER: Yes, because there is no prohibition for this
procedure considering that the filing of a civil action for collection during
the pendency of an administrative protest constitutes the final decision of
the Commissioner on the protest (CIR v. Union Shipping Corp., 85 SCRA
548 [1990]).
As counsel for Valera, what action would you take in order to protect
the interest of your client? Explain your answer. (2%)
SUGGESTED ANSWER: I will wait for the filing of the civil action for
collection and consider the same as an appealable decision. I will not file an
injunctive suit because it is not an available remedy. I would then appeal the
case to the Court of Tax Appeals and move for the dismissal of the
collection case with the RTC. Once the appeal to the CTA Is filed on time,
the CTA has exclusive jurisdiction over the case. Hence, the collection case
in the RTC should be dismissed (Yabes v. Flojo, 115 SCRA 278 [1982]).
(BAR 2002)
Describe separately the procedures on the legal remedies under the Tax
Code available to an aggrieved taxpayer both at the administrative and
judicial levels.
Page 5 of 57
(5%) SUGGESTED ANSWER: The legal remedies of an aggrieved
taxpayer under the Tax Code, both at the administrative and judicial levels,
may be classified into those for assessment, collection and refund. The
procedures for the administrative remedies for assessment are as follows:
a) After receipt of the Pre-Assessment Notice, he must within fifteen (15)
days from receipt explain why no additional taxes should be assessed
against him. b) If the Commissioner of Internal Revenue Issues an
assessment notice, the taxpayer must administratively protest or dispute the
assessment by filing a motion for reconsideration or reinvestigation within
thirty (30) days from receipt of the notice of assessment. (4th par., Sec. 228,
NIRC of 1997) Within sixty (60) days from filing of the protest, the
taxpayer shall submit all relevant supporting documents. The judicial
remedies of an aggrieved taxpayer relative to an assessment notice are as
follows: a) Where the Commissioner of Internal Revenue has not acted on
the taxpayer’s protest within a period of one hundred eighty (180) days from
submission of all relevant documents, then the taxpayer has a period of
thirty (30) days from the lapse of said 180 days within which to interpose a
petition for review with the Court of Tax Appeals.
b) Should the Commissioner deny the taxpayer's protest, then he has a
period of thirty (30) days from receipt of said denial within which to
interpose a petition for review with the Court of Tax Appeals. In both cases
the taxpayer must apply with the Court of Tax Appeals for the issuance of
an injunctive writ to enjoin the Bureau of Internal Revenue from collecting
the disputed tax during the pendency of the proceedings. The adverse
decision of the Court of Tax Appeals is appealable to the Court of Appeals
by means of a petition for certiorari within a period of fifteen (15) days from
receipt of the adverse decision, extendible for another period of fifteen (15)
days for compelling reasons, but the extension is not to exceed a total of
thirty (30) days in all. The adverse decision of the Court of Appeals is
appealable to the Supreme Court by means of a petition for review on
certiorari within a period of fifteen (15) days from receipt of the adverse
decision of the Court of Appeals. The employment by the Bureau of Internal
Revenue of any of the administrative remedies for the collection of the tax
like distraint, levy, etc. may be administratively appealed by the taxpayer to
the Commissioner whose decision is appealable to the Court of Tax Appeals
under other matter arising under the provisions of the National Internal
Revenue Code. The judicial appeal starts with the Court of Tax Appeals,
and continues in the same manner as shown above. Should the Bureau of
Internal Revenue decide to utilize Its judicial tax remedies for collecting the
taxes by means of an ordinary suit filed with the regular courts for the
collection of a sum of money, the taxpayer could oppose the same going up
the ladder of judicial processes from the Municipal Trial Court (as the case
may be) to the Regional Trial Court, to the Court of Appeals, thence to the
Supreme Court. The remedies of an aggrieved taxpayer on a claim for
refund is to appeal the adverse decision of the Commissioner to the CTA in
the same manner outlined above. (BAR 2000)
Compare the taxpayer’s remedies under the National Internal Revenue
Code and the Tariff and Customs Code.
ANSWER: The taxpayer's remedies under the National Internal Revenue
Code may be categorized into remedies before payment and remedies after
payment. The remedy before payment consists of administrative remedy
which is the filing of protest within 30 days from receipt of assessment, and
judicial remedy which is the appeal of the adverse decision of the
Commissioner on the protest with the Court of Tax Appeals, thereafter to
the Court of Appeals and finally with the Supreme Court. The remedy after
payment is availed of by paying the assessed tax within 30 days from
receipt of assessment and the filing of a claim for refund or tax credit of
these taxes on grounds that they are erroneously paid within two years from
date of payment. If there is a denial of the claim, appeal to the CTA shall be
made within thirty days from denial but within two years from date of
payment. If the Commissioner fails to act on the claim for refund or tax
credit and the two- year period is about to expire, the taxpayer should
consider the continuous inaction of the Commissioner as a denial and
elevate the case to the CTA before the expiration of the two- year period.
Under the Tariff and Customs Code, taxpayer’s remedies arise only after
payment of duties. The administrative remedies consist of filing a claim for
refund which may take the form of abatement or drawback. The taxpayer
can also file a protest within 15 days from payment if he disagrees with the
ruling or decision of the Collector of Customs regarding the legality or
correctness of the assessment of customs duties. If the decision of the
Collector is adverse to the taxpayer, he can notify the Collector within 15
days from receipt of said decision of his desire to have his case reviewed by
the Commissioner. The decision of the Collector on the taxpayer’s protest,
if adverse to the Government, is automatically elevated to the
Commissioner for review; and if such decision is affirmed by the
Commissioner, the same shall be automatically elevated to and finally
reviewed by the Secretary of Finance. Resort to judicial relief can be had by
the taxpayer by appealing the decision of the Commissioner or of the
Secretary of Finance (for cases subject to automatic review) within 30 days
from the promulgation of the adverse decision to the CTA. (BAR 1996)
Page 6 of 57
2. Real Property Taxation
p. 207
State at least three (3) basic principles that should be followed in the
appraisal and assessment of real properties for taxation purpose.
SUGGESTED ANSWER:
a. The appraisal must be at the current and fair market value.
b. Classification for assessment must be on the basis of actual use,
c. Assessment must be on the basis of uniform classification.
p. 208
Give at least two (2) fundamental principles governing real property
taxation, which are limitations on the taxing power of local
governments insofar as the levying of the realty tax is concerned.
SUGGESTED ANSWER:
a. Appraisal, assessment, levy and collection shall not be let to private
persons.
b. Appraisal and assessment must be equitable.
p. 208
The appraisal, assessment, levy and collection of real property tax shall
be guided by the following principles. Which statement does NOT
belong here?
a. Real property shall be appraised at its current and fair market value.
b. Real property shall be classified for assessment purposes on the basis
of its actual use.
c. Real property shall be assessed on the basis of a uniform
classification within each local political subdivision.
d. The appraisal and assessment of real property shall be based on
audited financial statements of the owner.
SUGGESTED ANSWER: d
p. 210
Aside from the basic real estate tax, give three (3) other taxes which
may be imposed by provincial and city governments as well as by
municipalities in the Metro Manila area.
SUGGESTED ANSWER: The three (3) other taxes are the special
education fund, the ad valorem tax on idle lands, and the special levy.
p. 214
Ilocos Bus Co., a transportation company with a garage for its buses,
maintains in said garage built on a land owned by it, a repair shop, a
blacksmith and a carpentry shop and machineries and equipment
sitting on cement or wooden platforms, which can be moved around
and about in the repair shop. Are the machineries and equipment
assessable for real property tax purposes? Why?
SUGGESTED ANSWER: Yes. The repair shop, blacksmith and carpentry
shop, machineries and equipment are considered as real property for tax
purposes because they have been placed there by Ilocos Bus Co, (the owner
of the land) for the transportation business it is conducting and which tends
directly to meet the needs of the transportation business.
p. 222
“C,” a gasoline company, installed gasoline stations located at leased
land. The stations consisted of machines and equipment, attached or
affixed to said station.Under the lease contracts, the lessors of the land
do not become the owners of machines and equipment. The City
Assessor of Pasay City considered the equipment and machines taxable
realty and imposes realty taxes on the assessed value thereof. Is the City
Assessor correct in declaring the machines and equipment taxable
realty? Reasons.
SUGGESTED ANSWER: Yes, the machines and equipment are taxable
realty. They are essential and principal elements to the conduct of the
business of a gasoline station.
p. 223
Mekaniko Corporation operates a car repair shop in the City of
Manila, The repair shop is located on a piece of leased land. The assets
owned by Mekaniko Corporation are:
a. Tow truck
b. Leasehold improvements consisting of a firewall, a repair shed, and
an administrative office
c. Office furniture and equipment
d. Car hoists
e. Water tank and tower located above ground. The tower is bolted to
the ground but it can be removed
Page 7 of 57
f. Heavy duty rubber hose which can be connected to the water tank for
cleaning cars and trucks
g. Gasoline storage tank located underground
h. Various repair tools such as pliers, wrenches, screw drivers, and the
like
i. Welding machine and paint spray compressor which are on rollers
j. Metal stamping/cutting equipment bolted to a concrete base which is
in turn attached to the land.
It is the position of the Manila City Assessor that since all of the above
properties are actually, directly and essentially being used by the
taxpayer to meet the needs of its business, then they are all subject to
the real property tax. Examine the above assets one by one and state
when the City Assessor is correct and when he is wrong giving reasons.
SUGGESTED ANSWER:
The Manila City Assessor is correct with respect to the leasehold
improvements, car hoists, various repair tools, welding machine, paint spray
compressor and metal stamping/cutting equipment. This is so, because the
items are essential and principal elements of a repair shop without which it
could not operate.
On the other hand, the tow truck, water tank, tower heavy duty rubber hose,
and gasoline storage tanks are merely incidental to the conduct of the
business of a repair shop. They are acquired and used only for expediency to
facilitate or improve services.
p. 224
Under Article 415 of the Civil Code, in order for machinery and
equipment to be considered real property, they must be placed by the
owner of the land and, in addition, must tend to directly meet the needs
of the industry or works carried on by the owner.
Oil companies, such as Caltex and Shell, install underground tanks in
the gasoline stations located on land leased by the oil companies from
others. Are those underground tanks which were not placed there by
the owner of the land but which were instead placed there by the lessee
of the land, considered real property for purposes of real property
taxation under the Local Government Code? Explain your answer.
SUGGESTED ANSWER:
Yes. Personal property under the civil law may be considered as real
property for purposes of taxes where the property is an essential and
principal element to the conduct of the business.
Underground tanks are essential to the conduct of the business of a gasoline
station without which it would not be operational.
p. 225
May local governments impose an annual realty tax in addition to the
basic real property tax on idle or vacant lots located in a residential
subdivision within their respective territorial jurisdictions?
SUGGESTED ANSWER:
Yes, provided that they are provinces, cities or municipalities within the
Metropolitan Manila Area.
p. 228
One of the local government units below does NOT have the power to
impose real property tax:
a.) Bacoor, Cavite
b.) Davao City
c.) Tarlac Province
d.) Malabon, Metro Manila
SUGGESTED ANSWER: a
p. 229
An ordinance was passed by the Provincial Board of a Province in the
North, increasing the rate of basic real property tax from 0.0006% to
1% of the assessed value of the real property effective January 1, 2016.
Residents of the municipalities of the said province protested the
Ordinance on the ground that no public hearing was conducted and,
therefore, any increase in the rate of real property tax is void. Is there
merit in the protest? Explain.
SUGGESTED ANSWER:
No, the protest is without merit. No public hearing shall be required before
the enactment of a local tax ordinance levying the basic real property tax.
ALTERNATIVE ANSWER:
Yes. Public hearings are required to be conducted prior to the enactment of
an ordinance imposing real property taxes.
Page 8 of 57
p. 232
Discuss the validity of the imposition of additional realty tax on idle
lands.
SUGGESTED ANSWER:
The imposition is valid because it is for public purpose. It is imposed in
order to penalize property owners who do not use their property
productively and to encourage utilization of land resources in order to
contribute to national development.
p. 235
A city outside of Metro Manila plans to enact an ordinance that will
impose a special levy on idle lands located in residential subdivisions
within its territorial jurisdiction in addition to the basic real property
tax. If the lot owners of a subdivision located in the said city seek your
legal advice on the matter, what would your advice be?
SUGGESTED ANSWER:
I would advice them that the city has the authority to impose a special levy
on idle residential lots in subdivisions regardless of area. I would further
advise them either to pay the tax, sell their lots or to construct or place
improvements on their idle residential lots so as not to be subject to the tax.
p. 236
After the province has constructed a barangay road, the Sangguniang
Panglalawigan may impose a special levy upon the lands specifically
benefitted by the road up to an amount not to exceed
a. 60% of the actual cost of the road without giving any portion to the
barangay.
b. 100% of the actual project cost without giving any portion to the
barangay.
c. 100% of the actual project cost, keeping 60% for the province and
giving 40% to the barangay.
d. 60% of the actual cost dividing the same between the province and
the barangay.
SUGGESTED ANSWER: a
p. 239
The City Government of Manila may NOT impose:
a. Basic real property tax at 2% of the assessed value of real property;
b. Additional levy on real property for the special education fund at 1%
of the assessed value of real property;
c. Additional ad valorem tax on idle lands at a rate not exceeding 5% of
the assessed value;
d. Special levy on lands within its territory specially benefited by public
works projects or improvements funded by it at 80% of the actual cost
of the projects or improvements.
SUGGESTED ANSWER: d
p. 240
Is proof of actual use necessary for tax exemption purposes under the
Constitution?
SUGGESTED ANSWER:
Yes. The basis for exemption is actual, direct and exclusive use for
religious, charitable or educational purposes. It follows therefore that there
must be proof of actual use to be entitled to the constitutional tax
exemption.
Page 243
OBJECTIVE: Enumerate the properties exempt from taxation under
the Constitution. (1971)
SUGGESTED ANSWER:
Property exempt under the Constitution from the payment of real property
taxes:
Charitable institutions,
Churches, parsonages, convents appurtenant thereto, mosques,
Non-profit cemeteries,
All lands, building and improvements actually, directly and exclusively
used for religious, charitable or educational purposes.
Page 245
OBJECTIVE: Article VI, Section 23 (8) of the 1987 PH Constitution
provided that charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit cemeteries and all
lands, building and improvements actually, directly, and exclusively
used for religious, charitable or educational purpose shall be exempt
from taxation. To what kind of tax does this exemption apply?
SUGGESTED ANSWER:
Page 9 of 57
The constitutional tax exemption applies only to real property taxes. This is
so, because of the referral to “lands, buildings and improvements.”
Page 245
OBJECTIVE: The Constitution provides “charitable institutions,
churches, parsonages or convents appurtenant thereto, mosques, non-
profit cemeteries and all lands, building and improvements actually,
directly, and exclusively used for religious, charitable or educational
purpose shall be exempt from taxation.” This provision exempts
charitable and religious institutions from what kind of taxes? Choose
the best answer. Explain. (2006)
a. From all kinds of taxes, i.e. income, VAT, Customs duties, local taxes
and real property tax.
b. From income tax only
c. From value-added tax only
d. From real property tax only
e. From capital gains tax only
SUGGESTED ANSWER:
d) From real property tax only. This is so, because of the referral to “lands,
buildings and improvements.”
Page 246
FACT BASED PROBLEM: The Constitution exempts from taxation
charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries and all lands, building and
improvements actually, directly, and exclusively used for religious,
charitable or educational purposes. Mercy Hospital is 100 bed hospital
organized for charity patients. Can said hospital claim exemption from
taxation under the above-quoted constitutional provision? Explain.
(1996)
SUGGESTED ANSWER:
Yes. Mercy Hospital can claim exemption from real property taxes under
the constitution if it could present proof that the 100-bed hospital is actually,
directly and exclusively used for charitable purposes.
Page 251
FACT BASED PROBLEM: The Philippine-British Association, Inc.
(Association) is a nonstock, non-profit organization which owns the St.
Michael‟s Hospital (Hospital). Sec. 216 in relation to Sec. 215 of the
LGC classifies all lands, building and other improvements thereon
actually, directly, and exclusively used for hospitals as “special”. A
special classification prescribes a lower assessment than a commercial
classification.
Within the premises of the Hospital, the Association constructed the St.
Michael‟s Medical Arts Center (Center) which will house medical
practitioners who will lease the spaces therein for their clinics at
prescribed rental rates. The doctors who treat the patients confined in
the Hospital are accredited by the Association.
The City Assessor classified the Center as “commercial” instead of
“special” on the ground that the Hospital owner gets income from the
lease of its spaces to doctors who also entertain out-patients. Is the City
Assessor correct in classifying the Center as “commercial”. Explain.
(2016)
SUGGESTED ANSWER:
No. The Medical Arts Center is an integral part of the Hospital and should
be classified for assessment purposes as “special”. The fact alone that the
doctors holding clinics in the Center are those duly accredited by the
Association who owns the Hospital, and these doctors are the ones who can
treat the Hospital’s patients confined in it, takes away the said Medical Arts
Center from being categorized as “commercial” since a tertiary hospital is
required by law to have a pool of physicians who compromise the required
medical departments in various medical fields.
Page 251
FACT BASED PROBLEM: The Roman Catholic Church is the owner
and possessor of a parcel of land the eastern side of which is occupied
by the Church itself, the priest‟s house, and a vegetable garden on the
western side, a dormitory building used by visitors of the parish priest
and people who participate in religious activities during fiestas. Is the
entire land subject to real property tax? Why? (1975)
SUGGESTED ANSWER:
No. The eastern side of which is occupied by the Church itself, and the
priest’s house are not subject to real property tax. They are actually, directly
and exclusively used for religious purposes.
The portions on the western side on which a vegetable garden is situated,
and that where dormitory is located are subject to real property tax because
they are not actually, directly and exclusively used for religious purposes.
Page 10 of 57
There is no showing in the problem how the portion of land, where the
vegetable garden was located, is being actually, directly and exclusively
used for religious purposes. That portion should therefore be subject to real
property tax. There is indirect use for religious purposes for that portion of
the land where the dormitory building is located, hence it is not tax exempt.
This is so because it is for the personal use of the parish priest for
entertaining his visitors.
ALTERNATIVE ANSWER:
No. The eastern side of which is occupied by the Church itself, the priest’s
house, and the dormitory building used by visitors of the parish priest and
people who participate in the religious activities during fiestas are not
subject to real property tax. They are actually, directly and exclusively used
for religious purposes.
The portion on the western side on which a vegetable garden is situated is
subject to real property tax because it is not actually, directly and
exclusively used for religious purposes. There is no showing in the problem
how the portion of land, where the vegetable garden was located, is being
actually, directly and exclusively used for religious purposes. That portion
should therefore be subject to real property tax.
Page 254
FACT BASED PROBLEM: A is the owner of a 2-hectaee lot on España
St., Sampaloc, Manila. He leased the property for P 2,000,000.00 a year
to a religious congregation for a period of 15 years (2003-2017). The
religious congregation built on one hectare a seminary and a chapel for
its exclusive use. On the remaining one hectare, it constructed a
building which it rented out to a big import-export corporation, the
proceeds of which go to the support of the seminaries. Is the 2-hectare
lot exempt from property tax? (1978)
SUGGESTED ANSWER:
No. Only that one hectare portion on which a seminary and a chapel were
built is exempt because it is actually, directly and exclusively used for
religious purposes.
The remaining one hectare lot which was leased out, or which is income
generating, is considered being used for general purposes, hence, subject to
property tax. The use of the proceeds does not matter, it is the use for which
the land is devoted which determines is tax exempt character.
Page 255
FACT BASED PROBLEM: The Municipality of Calasiao, Pangasinan
enacted an ordinance levying a special assessment for paving Domagas
Street fronting all the lots along it. Among these lots is one on which the
Roman Catholic Church and the Shrine of Senor Tesoro, an object of
religious adoration and worship are located.
a) The priest and parish legal counsel seek your advice on whether or
not the ordinance violated the constitutional exemption from taxation
of all churches or convents appurtenant thereto. Discuss.
SUGGESTED ANSWER:
There is no violation of the constitutional exemption because the imposition
is not tax but a levy for the purpose of recovering the public works
expenditure of the local government unit concerned. However, the levy of
the special assessment violated the Local Government Code, because lands
that are exempt from the basic real property tax, such as the land where the
church and the Shrine are located are also exempt from the special
assessment.
b) Suppose that instead of special assessment, the Municipal ordinance
fixed the rate of real property tax under its power to do so granted by
the Local Government Code. Will your advice be the same? Explain.
SUGGESTED ANSWER:
No. There would be a violation of the provisions of both the Constitution
and the Local Government Code on exemptions from real property taxation
of properties that are actually, directly and exclusively used for religious
purposes. The lot on which the church and the Shrine are located is actually,
directly and exclusively used for religious purposes.
Page 256
FACT BASED PROBLEM: PBS, a non-stock, non-profit, and
ecumenical religious organization whose primary purpose is to
encourage a wider circulation of the Holy Bible, received a notice of
assessment from the City Assessors of Manila. The notice alleged that it
is not exempt from realty tax because certain portions of the building it
is occupying such as the bodega and the store where the bibles are
stored and sold are not used for religious purposes. If you were the
lawyer of PBS, how would you argue the case? (1988)
SUGGESTED ANSWER:
Page 11 of 57
I would argue that the storage and ultimate sale of the bibles promote the
religious purposes of PBS, hence the bodega and the store are actually,
directly, and exclusively used for religious purposes.
Page 256
FACT BASED PROBLEM: The Roman Catholic Church owns a 2-
hectare lot, in a town in Tarlac province. The southern side and the
middle part are occupied by the Church and a convent, the eastern side
by a school run by the church itself, the southern side by some
commercial establishments, while the rest of the property, in particular
the northwestern side, is idle or unoccupied.
May the church claims tac exemption on the entire land? Decide with
reasons. (2005)
SUGGESTED ANSWER:
No. The church cannot claim tax exemption on the entire land.
The southern side and middle part occupied by the Church and a convent
are exempt from the real property tax because there is actual, direct and
exclusive use for religious purposes. So also the eastern side which is
occupied by a school because it is actually, directly and exclusively used for
educational purposes.
The church may not claim tax exemption on the southeastern side used by
some commercial establishments because it is not actually, directly and
exclusively used for charitable, religious or educational purposes.
“Exclusively” means “solely”, hence it is not exempted but subject to tax,
the commercial establishments being liable for the same. Real property
taxation is based on use and not ownership.
The northwestern side being idle or unoccupied is not exempt from tax
because it is apparent that there is not actual, direct and exclusive use for
charitable, religious or educational purposes.
Page 257
FACT BASED PROBLEM: A inherited a two-storey building in
Makati from his father, a real estate broker in the 60s. A group of
Tibetan monks approached A and offered to lease the building in order
to use it as venue for their Buddhist rituals and ceremonies.
A accepted the rental of 1 million for the whole year. The following
year, the City Assessor issued an assessment against A for non-payment
of real property taxes.
Is the assessor justified in assessing A deficiency real property taxes?
Explain. (2010)
SUGGESTED ANSWER:
No. The basis for real property taxation is use and not ownership. The use to
which the property is devoted is actually, directly, and exclusively for
religious purposes.
While this may be so, the Assessor may be considered correct because the
problem does not show that A In fact has shown proof of actual, direct and
exclusive use for religious purposes by the Tibetan Monk.
Page 258
FACT BASED PROBLEM: “X & Company” a non-stock corporation
which owns and operates a memorial park, contest the real assessment
made by Municipality “Y”. Sued by the Municipality, “X & Company”
contends that burial grounds are exempt from the real estate tax. It
appears that two years before the assessment issued by Municipality
“Y”, “X” & Company, had declared dividends to its stockholders. Is the
“X & Company” justified in disputing the assessment? (1981)
SUGGESTED ANSWER:
No. The requirement for exemption is that the cemetery must be non-profit.
When XYZ declared dividends, it was a showing that it was a profit
cemetery which is not entitled to the exemption.
Page 259
FACT BASED PROBLEM: X, a private individual leased his piece of
land to a school, which is being operated for profit. A building was
caused to be constructed by the school on the leased property to be used
as its library. Is the school subjected to the real property tax? State
your reasons. (1969)
SUGGESTED ANSWER:
No. The school is not subject to a real property because the land is actually,
directly and exclusively used for educational purposes. This is so because
the construction on the leased land is a building to be used as the school
library.
Page 12 of 57
The basis for real property taxation is use not ownership.
Page 259
OBJECTIVE: Under the New Constitution, may the government tax
xxx real estate property of non-profit educational institution operated
by religious orders? What policy considerations are to be taken into
account? (1974)
SUGGESTED ANSWER:
No. The real property of non-stock, non-profit educational institutions
which is actually, directly and exclusively used for educational purposes,
irrespective of whether or not they are operated by religious orders under
the 1987 Constitution are exempt from taxation.
The policy Consideration is to encourage the establishment of educational
institutions which are not profit motivated. In this manner, the State need
not devote large sums of money for education. The tax exemption would
translate to lower tuition fees providing education for all.
Page 259
FACT BASED PROBLEM: A is the owner of a 2-hectare lot on Espana
Street, Sampaloc, Metro Manila. He leased the property for P 1,200,000
a year to a religious congregation for a period of fifteen year (2000-
2015). The religious congregation built on one hectare a seminary and a
chapel for its exclusive use. On the remaining one hectare, it
constructed a building which it rented out to a big import-export
corporation, the proceeds of which go to the support of the seminaries.
Is the 2-hectare lot exempt from property tax?
SUGGESTED ANSWER:
No. Only the one hectare on which a seminary and a chapel was built is
exempt. Such portion is actually, directly, and exclusively used for religious
purposes. The other portion used for the building that is rented out, is used
for business purposes.
Page 259
FACT BASED PROBLEM: San Antonio Colleges Foundation, Inc.
(SACFI) is a non-stock, non-profit educational institution. SACFI owns
a 5-hectare lot, one half of which is used as SACFI‟s school campus
while the other one is vacant. To cope with the increasing operating
costs to upgrade its facilities, SACFI plans to, effective 1 January 2016,
rent out to Supermarkets, Inc. the vacant portion of the lot for P 1
million a year. Is SACFI subject to real estate tax on its 5-hectare lot
for calendar years 2015 and 2016? Explain. (1990)
SUGGESTED ANSWER:
SACFI is subject to real estate tax for the calendar year 2015 only on the
one-half portion which is vacant because the same is not actually, directly
and exclusively used for educational purposes.
It is not also subject to real estate tax on the vacant lot, for the calendar year
2016, which was subsequently rented out to Supermarkets Inc. The reason
being that the basis for real property taxation is use. It is Supermarkets, Inc.
who should pay.
It is not subject to real estate tax on the one-half portion that is used for the
school campus, both for calendar years 2015 and 2016, because the same is
actually, directly and exclusively used for educational purposes.
Page 261
OBJECTIVE: Under the Local Government Code, what properties are
exempt from real property taxes? (2002)
SUGGESTED ANSWER:
The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, nonprofit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or -controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection. Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all persons,
whether natural or juridical, including all government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code.
Page 13 of 57
Page 264
OBJECTIVE: What properties are exempt from the real property tax?
(2006)
SUGGESTED ANSWER:
The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, nonprofit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or -controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for
under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection. Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all persons,
whether natural or juridical, including all government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code.
(f) Real property exempt from real property tax under the provisons of
special laws, such as those exempted by virtue of the provisions of Section 9
of RA 9511 which provided for NGCP tax liabilities and exemption.
(g)Real property in the Philippines owned by other sovereign nation exempt
by virtue of the principle of comity in international law.
(h)Local tax exemption ordinances.
Listing of Idle Lands by the Assessor. - The provincial, city or municipal
assessor shall make and keep an updated record of all idle lands located
within his area of jurisdiction. For purposes of collection, the provincial,
city or municipal assessor shall furnish a copy thereof to the provincial or
city treasurer who shall notify, on the basis of such record, the owner of the
property or person having legal interest therein of the imposition of the
additional tax. (Section 239, LGC)
Page 266
FACT BASED PROBLEM: The government, through the Civil
Aeronautics Administration, expropriated a parcel of land needed for
the airport, assessment of real property taxes dues on the said parcel of
land with improvements was issued by the local assessor who insisted in
collecting from the CAA the real property taxes due thereon. CAA
refused to pay. Decide the case with reasons. (1972)
SUGGESTED ANSWER:
I would decide in favor of the CAA. A local government unit may not
impose taxes, including real property taxes, on property owned by the
Republic of the Philippines.
The CAA being an unincorporated agency of the Republic of the
Philippines, its properties are considered properties of the Republic which
may not be subject to taxation by any local government unit.
Page 270
FACT BASED PROBLEM: The Manila International Airport
Authority (MIAA) is exempt from RPT. Which statement is not
correct?
a) MIAA is not a government-owned or controlled corporation because it is
not organized as a stock or nonstock corporation.
b) MIAA is a government instrumentality vested with corporate powers and
performing essential public services.
c) MIAA is not taxable entity because the real property is owned by the
Republic of the Philippines and the beneficial use of such property has not
been granted to a private entity.
d) MIAA is a government-owned or controlled corporation because it is
required to meet the test economic viability.
Page 271
FACT BASED PROBLEM: LLL is a government instrumentality
created by Executive Order to be primarily responsible for integrating
and directing all reclamation projects for the National Government. It
was not organized as a stock corporation, nor was it intended to operate
commercially and compete in the private market.
By virtue of its mandate, LLL in 2011 reclaimed several portions of the
foreshore and offshore areas of the Manila Bay, some of which were
within the territorial jurisdiction of Q City. Certificates of titles to the
reclaimed properties in Q city were issued in the name of LL in 2011. In
2017, Q city were issued warrants of Levy on said reclaimed properties
Page 14 of 57
of LLL based on the assessment for delinquent property taxes for the
years 2013 to 2016.
(A) Are the reclaimed properties registered in the name f LLL subject
to real property tax?
SUGGESTED ANSWER:
No. The reclaimed properties are not subject to real property tax because
LLL is a government instrumentality.
Local government units like Q City are prohibited from imposing any tax
upon instrumentalities of the government. When the title of the real property
is transferred to LLL, a government instrumentality, the Republic remains
the owner of the real property. Thus, such arrangement does not result in the
loss of exemption.
(B) Will your answer be the same in (A) if from 2013 to the present
time, LLL is leasing portions of the reclaimed properties for the
establishment and use of popular fastfood restaurants J Burgers, G
Pizza and K Chicken? (2015)
SUGGESTED ANSWER:
No. Government-owned exempt real property loses their exemption when
its beneficial use has been granted, for consideration or otherwise, to a
taxable person.
When LLL leased out portions of the reclaimed properties to taxable
popular fast food restaurants J Burgers, G Pizza and K Chicken, the
reclaimed properties are subject to real property tax.
Page 272
FACT BASED PROBLEM: Philippine National Railways (PNR)
operates the rail transport of passengers and goods by providing train
stations and freight customer facilities from Tutuban, Manila to Bicol
Province. As the operator of the railroad transit, PNR administers the
land, improvements and equipment within its main station in Tutuban,
Manila.
Invoking Section 193 of the LGC expressly withdrawing the tax
exemption privileges of government-owned and controlled corporations
upon the effectivity of the Code in 1992, the City Government of Manila
issued Final notices of Real Estate Tax Deficiency in the amount of
P624,000,000.00 for the taxable years 2006 to 2010. On the other hand,
PNR, seeking refuge under the principle that the government cannot
tax itself, insist that the PNR lands and buildings are owned by the
Republic. Is the PNR exempt from real property tax? Explain your
answer.
SUGGESTED ANSWER:
Yes. PNR was created as a corporation to serve as an instrumentality of the
Government of the Philippines upon which the local governments are not
allowed to levy taxes, fees, or other charges including real property taxes.
PNR is not a GOCC but an instrumentality of the government, hence it is
not included in the withdrawal of exemptions. Finally, under the common
limitations on the local government units’ power of taxation, shall not
extend the levy of “taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local government
units.”
The railroads tracks, train stations, freight customer facilities, land
improvement and equipment within ist main station in Tutuban, Manila are
properties of public dominion intended for public use, and as such are
exempt from real property tax under Section 234 (a) of the local government
code.
P 275
Are lands leased by the Government to private parties exempt from
realty tax? Explain your answer. (1968)
SUGGESTED ANSWER: No. Where the beneficial use of real property
owned by the government has been granted to a taxable person, then real
property taxes are to be paid by the private taxable person. (LGC, Sec. 234)
P279
Real property owned by the Republic of the Philippines is being leased
to a private person for a consideration. Is such property exempted from
real property tax? Reason. (1982)
SUGGESTED ANSWER: No. The beneficial use of the property is
extended to a private person, hence subject to tax.
Page 280
Real property owned by the national government is exempt from real
property taxation unless the national government:
a. transfers it for the use of a local government
Page 15 of 57
b. leases the real property to a business establishment.
c. gratuitously allows its use for educational purposes by a school
established for profit.
d. sells the property to a government-owned non-profit corporation. (2011)
SUGGESTED ANSWER: b
Page 280
S Mining Co. constructed a road which traversed public lands leased to
it by the government. The Provincial Assessor assessed the road for real
property tax. The company appealed to the Local Board of Assessment
Appeals which affirmed the validity of the assessment which decision
was likewise affirmed by the Central Board of Assessment Appeals. The
same was elevated to the Court of Tax Appeals. Is S Mining Co., subject
to the realty tax on the assessed value of the road as an improvement?
Why ? (1971, adapted and reworded)
SUGGESTED ANSWER: No. The ownership of the road that was
constructed by S Mining Co. belongs to the government by right of
accession not only because it is inherently incorporated or attached to the
public land leased to S Mining but also because upon the expiration of the
concession, said road would ultimately pass to the national government.
There is no question that the road constructed by Mining Co. on the public
lands leased to it by the government is an improvement. The improvement
is exempt from taxation because it is an integral part of the public land on
which it is constructed and the improvement is the property of the
government by right of accession.
ALTERNATIVE ANSWER: Yes. The basis for real property taxation is use
and not ownership. The beneficial use of the public land on which the road
was constructed was extended to S Mining, hence subject to tax even if the
property is owned by the government.
Page 281
The provincial assessor of X province assessed a mining company for
real property tax on mineral lands within the province which are leased
from the government. The mining company assails the assessment on
the ground that it is not the owner either of the mineral lands or the
mining rights thereon. Is the position of the mining company correct?
Explain. (1984)
SUGGESTED ANSWER: No. The beneficial use of the property is
extended to the mining company, hence subject to tax.
NOTE NOT PART OF THE ANSWER: The reader should note the
difference between this 1984 question and the previous 1971 question. Here
the subject is taxation of the use of the mineral lands and not taxation on the
improvements as in the 1971 Bar problem.
Page 281
In 2016, United Mining Corporation (UMC) leased from the
government 280 hectares of placer mining claims located in Surigao
with the right to explore, extract, and dispose of mineral products. The
lease contract stipulates that the lessee shall pay real estate tax on all
buildings and other improvements made on the leased premises. In
2016, the Provincial Assessor of Surigao declared the leased property in
the name of UMC and thereafter assessed said corporation for real
property tax. Despite receipt of said assessment, UMC refused to pay
contending that it was merely a lessee of the land in question.
May an action to compel payment of real property tax be successfully
prosecuted against UMC? Reasons. (1985, dates supplied)
SUGGESTED ANSWER: Yes. UMC's agreement to pay the real estate tax
on all buildings and other improvements made on the leased premises binds
it to pay such real property taxes on such properties.
UMC is also subject to payment of the real property taxes on government
owned leased lands because it enjoys the beneficial use of the same and
there is no showing in the problem that it enjoys exemption from such taxes.
It should be subject to the tax because the basis of real property taxation is
use and not ownership.
Page 282
The NPC, a government-owned corporation is, under its Charter
exempt from all taxes, national and local. Seeing no immediate need for
its vacant land with an area of about 30 hectares, it leased the same to
the Aqua-Culture, Inc., an enterprise engaged in extensive prawn
culture for export.
The Assessor declared the property for real estate tax purpose, to which
NPC objected because of its exemption.
a. How will you decide the matter? Explain.
Page 16 of 57
b. What will your answer be under the same facts, except that the lessee
is the Boys' Town, Inc., a registered and government recognized
charitable organization? Said lessee will use the lands in its prawn
culture and export business (1) to provide useful compensated
employment for the inmates as part of their character building and
rehabilitation, and (2) to raise revenue for the exclusive use of Boys'
Town, Inc. (1987)
SUGGESTED ANSWERS: In both instances, the property shall be subject
to tax.
In a) the user Aqua-Culture, Inc., is subject to tax because the basis of real
property taxation is use and not ownership.
In b) the property is not actually directly and exclusively used for charitable
purposes and the land is used for commercial purposes, and the benefit to
the inmates is merely incidental in character.
Page 282
The Government Service Insurance System (GSIS), a government
agency, owns a 25 hectare lot in San Pedro, Laguna which GSIS
subdivided into small lots for sale to government employees. MS, a
school teacher, purchased a 150 sq. meter lot from the GSIS under a
Contract to Sell with the following terms (1) MS shall pay the purchase
price in 25 years in 50 semi annual equal installments, with interest at
12% per annum on the outstanding balance; (2) title of the lot shall be
transferred to MS only upon full payment of the purchase price; (3) MS
may take immediate possession of the lot andconstruct thereon his
house. After the signing of the Contract to Sell, MS built a house on the
lot.
xxx xxx xxx xxx xxx
b. Is the GSIS subject to real estate tax on the 150-square meter lot
after the signing of the said Contract to Sell with MS? Explain. (1990,
paraphrasing supplied)
SUGGESTED ANSWER: GSIS is not subject to real estate tax because the
beneficial use has shifted to the buyer, MS, as he has already built a house
on the lot. The basis for real property taxation is use, not ownership, hence
MS must pay.
Page 283
Mr. Amado leased a piece of land owned by the Municipality of
Pinagsabitan and built a warehouse on the property for his business
operations. The Municipal Assessor assessed Mr. Amado for real
property taxes on the land and the warehouse. Mr. Amado objected to
the assessment contending that he should not be asked to pay realty
taxes on the land since it is municipal property. Was the assessment
proper? (2013)
SUGGESTED ANSWER: Yes, the assessment is proper.
As a general rule, land owned by the Philippine government or any of its
political subdivisions is exempt from real property taxes. However, there is
no exemption if the beneficial use is given to a taxable person because the
basis of real property taxation is use and not ownership. [LGC, Sec 234(a)]
In the problem, the beneficial use of the property owned by the Municipality
of Pinagsabitan was given to Mr, Amado, hence he must pay the tax.
Page 285
Republic Power Corporation (RPC) is a government-owned and
controlled corporation engaged in the supply, generation and
transmission of electric power. In 2014, in order to provide electricity to
Southern Tagalog provinces, RPC entered into an agreement with
Jethro Energy Corporation (JEC), for the lease of JEC's power barges
which shall be berthed at the port of Batangas City. The contract
provides that JEC shall own the power barges and the fixtures, fittings,
machinery, and equipment therein, all of the which JEC shall supply at
its own cost, and that JEC shall operate, manage and maintain the
power barges for the purpose of converting the fuel of RPC into
electricity.
The contract also stipulates that the real estate taxes and assessments,
rates and other charges, in respect of the power barges, shall be for the
account of RPC.
In 2016, JEC received an assessment of real property taxes in the power
barges from the Assessor of Batangas City. JEC sought reconsideration
of the assessment on the ground that the power barges are exempt from
real estate taxes under Section 234 (c) of R.A. 7160 as they are actually,
directly and exclusively used by RPC, a government owned and
controlled corporation. Furthermore, even assuming that the power
barges are subject to real property tax, RPC should be held liable
Page 17 of 57
therefor, in accordance with the terms of the lease agreement. Is the
contention of JEC correct? Explain your answer. (2009 dates supplied)
SUGGESTED ANSWER: No. Real property taxes are to be paid by the user
of the property, which in this case is JEC and not RPC. In using the power
barges to convert the fuel to electricity, it is evident that the one using the
power barges is JEC. Furthermore, it is clear from the problem that RPC
does not enjoy an exemption because it is not an instrumentality of the
Philippine Government. Government owned and controlled corporations are
not exempt from the payment of real property taxes.
The contract between RPC and JEC does not bind the local government of
Batangas City not being a party to the contract. Finally, who should pay
taxes is determined by law and not the contractual relation between parties.
Page 285
Republic Power Corporation (RPC) is a government-owned and
controlled corporation engaged in the supply, generation and
transmission of electric power. In 2014, in order to provide electricity to
Southern Tagalog provinces, RPC entered into an agreement with
Jethro Energy Corporation (JEC), for the lease of JEC‟s power barges
which shall be berthed at the port of Batangas City. The contract
provides that JEC shall own the power barges and the fixtures, fittings,
machinery, and equipment therein, all of the which JEC shall supply at
its own cost, and the JEC shall operate, manage and maintain the
power barges for the purpose of converting the fuel of RPC into
electricity. The contract also stipulates that the real estate taxes and
assessments, rates and other charges, in respect of the power barges,
shall be for the account of RPC.
In 2016, JEC received an assessment of real property taxes in the power
barges from the Assessor of Batangas City. JEC sought reconsideration
of the assessment on the ground that the power barges are exempt from
real estate taxes under Section 234 (c) of R.A. 7160 as they are actually,
directly and exclusively used by RPC, a government-owned and
controlled corporation. Furthermore, even assuming that the power
barges are subject to real property tax, RPC should be held liable
therefor, in accordance with the terms of the lease agreement. Is the
contention of JEC correct? Explain. (2009 dates supplied)
Suggested Answer:
No. Real property taxes are to be paid by the user of the property, which in
this case is JEC and not RPC. In using the power barges to convert the fuel
to electricity, it is evident that the one using the power barges is JEC.
Furthermore, it is clear from the problem that RPC does not enjoy an
exemption because it is not an instrumentality of the Philippine
Government.
Government owned and controlled corporations are not exempt from
payment of real property taxes. The contract between RPC and JEC does
not bind the local government of Batangas City not being a party to the
contract. Finally, who should pay the taxes is determined by law and not the
contractual relation between the parties. [FELS Energy, Inc. v. The Province
of Batangas, 516 SCRA 186 (2007)]
Page 290
The Government Service Insurance System (GSIS), government
agency, owns a 25 hectare lot in San Pedro, Laguna which GSIS
subdivided into small lots for sale to government employees. MS, a
school teacher, purchased a 150 sq. meter lot from the GSIS under a
Contract to Sell with the following terms (1) MS shall pay the purchase
price in 25 years in 50 semi-annual equal instalments, with interest at
12% per annum on the outstanding balance; (2) title of the lot shall be
transferred to MS only upon full payment of the purchase price; (3) MS
may take immediate possession of the lot and construct thereon his
house. After signing the Contract to Sell, MS built a house on the lot.
a. Is the GSIS subject to real estate tax in the150-square meter lot prior
to the signing of the said Contract to Sell with MS? Explain. (1990,
paraphrasing supplied)
Suggested Answer:
GSIS is not subject to real estate taxes. The exemption of GSIS was
removed from the Local Government Code but restored by the Government
Insurance System Act of 1997 which provides in its Sec. 39, that “xxx
notwithstanding any laws to the contrary, the GSIS, its assets, revenues
including accruals thereto, and benefits paid, shall be exempt from all
taxes.” (City of Davao, et al. v. Regional Trial Court, Branch XII, Davao
City, et al., G.R. No. 127383, August 18, 2005)
Page 300
Distinguish “fair market value” from “assessed value” for purposes of
realty tax. (1977)
Page 18 of 57
Suggested Answer:
The distinctions between “fair market value” and “assessed value” are the
following:
1. Determination. Fair market value is declared by the owner subject to final
determination by the assessor while assessed value is determined by the
application of the assessment level to the fair market value.
2. Basis. Fair market value is supposed to be the actual value of the real
property in the open market while assessed value is merely a percentage of
the fair market value depending on the assessment level of the property in
question.
Page 305
On December 29, 2006, the City of Manila sold to the Army and Navy
Club a certain portion of the reclaimed land now known as New Luneta
at P400.00 per square meter under the condition that the property shall
be exempt from taxation for a period of ten years from the date of the
certificate of the City Engineer that place is ready for building
purposes, and that after 50 years, the City may repurchase the premises
for a public purpose at the same price for which it was sold. In 2016,
after the expiration of the period of exemption, the city assessor
assessed the property at P55,000.00 per square meter and collected the
taxes which the Army and Navy Club paid under protest. Action was
instituted to recover the amount paid under protest, claiming that the
property should be assessed only at the amount for which the property
should be resold to the City. Is the contention meritorious? Why?
(1975, dates supplied and reworded)
Suggested Answer:
No. The basis for the real property taxation is the fair market value or “cash
value” which is the amount of money a purchaser willing but not obliged to
buy the property would pay to an owner willing but not obliged to sell it,
taking into consideration all uses to which the property is adopted and might
in reason be applied. (Army and Navy Club, etc. v. Trinidad, etc., No. L-
1927, January 26, 1923)
Page 305
A lot in Caloocan is leased to a “Hospicio” to be used exclusively for
purely charitable purposes and is so used. The owner, an individual, did
not declare the lot for real property tax purposes on the belief that it is
exempt, being exclusively devoted to purely charitable purposes. The
assessor believed otherwise and issued a tax declaration and assessment
notice on the individual owner on the theory that the owner is not
himself exempt for he is not a charitable institution. How would you
decide the matter? (1979)
Suggested Answer: I would decide in favour of the assessor with respect to
the issuance of a tax declaration.
It is required that all property, taxable or exempt, should be covered by a tax
declaration (LGC, Sec. 202), and in case of failure or refusal by the person
required to make the declaration, the assessor is duty bound to make such
declaration. (Ibid., Sec. 204)
Page 313
The real property of Mr. and Mrs. Angeles, situated in a commercial
area in front of the public market, was declared in their Tax
Declaration as residential because it had been used by them as their
family residence from the time of its construction in 2003.
However, in January 2013, when the spouses left for the United States
to stay there permanently with their children, the property has been
rented to single proprietor engaged in the sale of appliances and agri-
products. The Provincial Assessor reclassified the property as
commercial for tax purposes starting January 2016. Mr. and Mrs.
Angeles appealed to the Local Board of Assessment Appeals,
contending that the Tax Declaration previously classifying their
property as residential is binding. How should the appeal be decided?
(2002, dates supplied)
Suggested Answer:
The appeal should be decided in favour of the Provincial Assessor.
The purpose of a tax declaration is to determine the assessment levels and
does not bind the assessor. A tax declaration only enables the assessor to
identify the property for purposes of determining the assessment levels. It
does not bind the assessor when he makes his assessment because, “Real
property shall be classified, valued and assessed on the basis of its actual
use regardless of where located, whoever owns it, and whoever uses it.”
(LGC, Sec. 271) Furthermore, “Real property shall be classified for
assessment purposes on the basis of its actual use.” [Ibid., Sec. 198(b)]
Page 318
Page 19 of 57
The Philippine-British Association, Inc. (Association) is a non-stock,
non-profit organization which owns the St. Michael‟s Hospital
(Hospital). Sec. 216 in relation to Sec. 215 of the LGC classifies all
lands, buildings and other improvements thereon actually, directly, and
exclusively used for hospitals as “special.” A special classification
prescribes a lower assessment than a commercial classification.
Within the premises of the Hospital, the Association constructed the St.
Michael‟s Medical Arts Center (Center) which will house medical
practitioners who will lease the spaces therein for their clinics at
prescribed rental rates. The doctors who treat the patients confined in
the Hospital are accredited by the Association.
The City Assessor classified the Center as “commercial” instead of
“special” on the ground that the Hospital owner gets income from the
lease of its spaces to doctors who also entertain out-patients. Is the City
Assessor correct in classifying the Center as “commercial”? Explain.
(2016)
Suggested Answer:
No. The City Assessor is not correct in classifying the Center as
“commercial.”
The fact alone that the separate St. Michael’s Medical Arts Center will
house medical practitioners who shall treat the patients confined in the
Hospital and are accredited by the Association takes away the said Medical
Arts Center from being categorized as “commercial” since a tertiary hospital
is required by law to have a pool of physicians who comprise the required
medical departments in various medical fields. [City Assessor of Cebu City
v Association of Benevola de Cebu, Inc., 524 SCRA 128 (2007)]
Page 322
1. In connection with the real property tax on a house and lot, who in
brief and general terms, determines:
xxx xxx xxx
b. The assessment level, xxx xxx.” (1985, paraphrasing supplied)
Suggested Answer:
The assessment level is fixed by ordinances of the appropriate
Sangguniangs. (LGC, Sec.218)
c. The tax rate? (1985, paraphrasing supplied)
Suggested Answer: The tax rate is also fixed by ordinances of the
appropriate Sangguniangs. (LGC, Sec. 232)
Page 325
2. For purposes of real property taxes, the tax rates are applied on:
a. Zonal values
b. Fair market value
c. Assessed values
d. Reproduction values (2012)
Suggested Answer: c
Page 330
Mr. Jose Castillo is a resident Filipino citizen. He purchased a parcel of
land in Makati City in 1975 at a consideration of P1 Million. In 2016,
the land which remained undeveloped and idle had a fair market value
of P20 Million. Mr. Ayala, another Filipino citizen, is very much
interested in the property and he offered to buy the same for P20
Million. The Assessor of Makati City reassessed in 2016 the property at
P10 Million. When is Mr. Castillo liable for real property tax on the
land; beginning 2016 or beginning 2017?
SUGGESTED ANSWER: Mr. Castillo should be liable for the real
property tax on the land beginning January 1, 2017.
This is so because, “All assessments or reassessments made after the 1st day
of January of any year, shall take effect on the 1st day of January of the
succeeding year (LGC Sec. 221)
Since the reassessment was made in 2016 after the 1st day of January, then
it shall take effect on the 1st day of January of the succeeding year, which is
2017.
Page 337
Ka Tato owns a parcel of land in San Jose, Batangas declared for real
property taxation as agricultural. In 1996, he used the land for poultry
feed processing plant but continued to declare the property as
agricultural. In March 2017, the local tax assessor discovered Ka
Tato‟s change of the use of his land and informed the local treasurer
Page 20 of 57
who demanded payment of the deficiency real property taxes from 1996
to 2017. Has the action prescribed?
a. No, the deficiency taxes may be collected within 10 years from when
they fell due.
b. No, the deficiency taxes for the period 1996 up to 2017 may still be
collected within 10 years from March 2017.
c. Yes. More than 10 years had lapsed for the period 1996 up to 2016.
Hence, the right to collect the deficiency taxes has prescribed.
d. Yes. More than 5 years had lapsed for the collection of the deficiency
taxes for the period 1996 up to 2011.
Page 344:
Ms. Edna Dinoso is a registered owner of a residential lot with a two-
storey house situated in Naga City. The lot with an area of 328 sq.
meters is described and covered by TCT# 4739 of the Registry of Deeds
of Naga City. On September 12, 2006, a 115 sq. meter portion of
Edna‟s property was expropriated by the Republic of the Philippines
for the sum of P6,700.00 representing the assessed value of the
aforesaid portion.This amount was deposited by the Government in
Edna‟s account.
For almost ten (10) years, Edna failed to pay her real estate taxes on the
same property. Thus on November 5, 2015, her property was sold at
public auction by the City Treasurer of Naga City to satisfy her real
estate tax delinquencies amounting to P5,800.00. The highest bidder for
the property was Angel Chua. Edna was not present at the public
auction although she later admitted having received the notice of
hearing for the petition for entry of a new certificate of title by Angel
Chua. (Both the auction sale and final bill of sale were annotated at the
back of TCT# 4739 by the Register of Deeds.)
On March 15, 2016, Edna filed a complaint to annul the auction sale
which was denied by the RTC Judge of Naga City. In fact, the RTC
Judge ordered that TCT# 4739 of Edna be cancelled and that a new
title be issued to Angel Chua.
On appeal, the Court of Appeals affirmed the RTC decision in toto.
Edna then elevated the case to the Supreme Court citing several grave
errors of law, among which are:
xxx xxx xxx
c. That the public auction made on her property is void. Discuss the
merits of the appeal. (1992)
SUGGESTED ANSWER: The appeal would prosper because the action is
void. There is no showing in the problem that Edna was furnished a copy of
the warrant of levy. The LGC mandates the registered owner should be
furnished a copy of the notice of delinquency and the warrant of levy.
Page 353:
Quezon City published on January 30, 2008 a list of delinquent real
property owners in 2 newspaper of general circulation and posted this
in the main lobby of the City Hall. The notice requires all owners of
real properties in the list to pay the real property tax due within 30
days from the date of publication, otherwise the properties listed shall
be sold at public auction.
Joachin is one of those named in the list. He purchased a real property
in 1998 but failed to register the document of sale with the Register of
Deeds and secure a new real property tax declaration in his name. He
alleged that the auction sale of his property is void for lack of due
process considering that the City Treasurer did not send him personal
notice. For his part, the City Treasurer maintains that publication and
posting of notice are sufficient compliance with the requirement of the
law.
a. If you were the judge, how will you resolve this issue? (2006)
SUGGESTED ANSWER: I would resolve the issue in the Treasurer’s
favor. This is so because Joachin is not entitled to notice as he was not the
registered owner.
b. Assuming Joachin is a registered owner, will your answer be the
same? (2006)
SUGGESTED ANSWER: No. there was failure by the Treasurer to
comply with Sec. 258 of the LGC of 1991 which provides that, “the warrant
shall be mailed to or served upon the delinquent owner of the property or
person having legal interest therein, or in case he is out of the country or
cannot be located, to the administrator or occupant of the property.”
Page 21 of 57
Joachin was deprived of due process because the proceedings for the taking
of his real property being in personam requires that he be personally
informed of such taking through a warrant of levy.
Page 358
Ms Edna Dinoso is a registered owner of a residential lot with a two-
storey house situated in Naga City. The lot with an area of 328 sq.
meters is described and covered by TCT# 4739 of the Registry of Deeds
of Naga City. On September 12, 2006, a 115 sq. meter portion of
Edna‟s property was expropriated by the Republic of the Philippines
for the sum of P6,700.00 representing the assessed value of the
aforesaid portion. This amount was deposited by the Government in
Edna‟s account.
For almost 10 years, Edna failed to pay her real estate taxes on the
same property. Thus, on November 5, 2015 her property was sold at
public auction by the City Treasurer of Naga City to satisfy her real
estate tax delinquencies amounting to P5,800.00. The highest bidder for
the property was Angel Chua. Edna was not present at the public
auction although she later admitted having received the notice of
hearing for the petition for entry of a new certificate of title by Angel
Chua. (Both the auction sale and final bill of sale were annotated at the
back of TCT# 4739 by the Register of Deeds).
On March 15, 2016, Edna filed a complaint to annul the auction sale
which was denied by the RTC Judge of Naga City. In fact, the RTC
Judge ordered that TCT# 4739 of Edna be cancelled and that a new
title be issued to Angel Chua. On appeal, the Court of Appeal affirmed
the RTC decision in toto. Edna then elevated the case to the Supreme
Court citing several grave errors of law, among which are:
a. That her tax delinquencies (involving P5,800.00) for non-payment of
real estate taxes were offset by the sum of P6,700.00 which the
Government of the Philippines owed her. She claims that her tax
delinquencies have been extinguished by legal compensation.
b. That the price of P8,500.00 paid by Angel Chua was grossly
inadequate and that because of its inadequacy, the same is tantamount
to deprivation of property without due process of law. (1992)
SUGGESTED ANSWER:
a. There is no legal compensation because there is no mutuality of debtor
creditor relationship. In one instance, Edna is the creditor and the debtor is
the national government. In the second instance, Edna is the debtor but the
creditor is not the national government, but a local government unit.
b. Gross inadequacy of the sale does not amount to deprivation of property
without due process in the instance where there is redemption because it
would be easier to redeem the property. In this case, Edna could easily
redeem the property because of the low price.
Page 363
After causing the publication of a notice of delinquency for real
property taxes covering a period of 5 years on Mr. Jose Santos‟ house
in Lagro, Novaliches, QC, the City Treasurer of QC checked with the
LTO and found that a 2002 Mercedez Benz Model 600 was registered in
the name of Mr. Santos. The City Treasurer immediately issued a duly
authenticated certificate showing the fact of delinquency and the
amount of tax and penalty due and forthwith seized and placed under
distraint Mr. Santos‟ Mercedez Benz and advertised the same for sale
at public auction. Mr. Santos charged the City Treasurer with grave
abuse of discretion, claiming that the real property tax was a lien on the
property subject to tax and enforceable against the said property,
whether in the possession of the delinquent taxpayer or any subsequent
owner or possessor thereof.
Such being the case, Mr. Santos argued that the City Treasurer should
have proceeded against the real property itself. He also contended that
he was denied fie process because no formal demand had been made on
him for the payment of the realty tax and the penalty due. How valid is
the position of Mr. Santos. Explain. (1983)
SUGGESTED ANSWER:
The position of Mr. Santos is not valid.
The remedy of distraint of personal properties belonging to the taxpayer is
one of the remedies for the enforcement of collection of real property taxes.
There is no need for a formal demand for the payment of the realty tax
because the requirement is posting of the notice when the tax may be paid
without interest at a conspicuous and publicly accessible place at the city or
municipal hall. Said notice shall likewise be published in a newspaper of
general circulation in the locality once a week for 2 consecutive weeks.
Author‟s view:
Page 22 of 57
The reader should note that the answer would be different if the
property involved is real property. This is so, because there is a need to
furnish a copy to the delinquent taxpayer of the notice of sale of real
property, otherwise, the sale is invalid.
Page 364
XYZ owns a 986 square meter lot bordering the sea. He has not paid
the real property taxes due thereon for 3 years before the said parcel
was entirely eaten by the sea. Discuss his liability for the unpaid
delinquency taxes. (1985)
SUGGESTED ANSWER:
XYZ is liable for the unpaid delinquency taxes which could be collected
from him by the government through distraint of personal property or
through judicial action. The loss extinguished the tax lien but not the
liability.
Page 369
In view of the street widening and cementing of roads and the
improvement of drainage and sewers in the district of Ermita, the City
Council of the City of Manila passed an ordinance imposing and
collecting a special levy on lands in the district. Jose Reyes, a landowner
and resident of Ermita, submitted a protest against the special levy 15
days after the last publication of the ordinance alleging that the
maximum rate of 60% of actual cost of the project allowed under Sec.
240 of the Local Government Code was exceeded. Assuming that Jose
Reyes is able to prove that the rate of special levy is more than the
aforesaid percentage limitation, will his protest prosper? (1991)
SUGGESTED ANSWER:
No. The protest will not prosper. Jose Reyes’ basis for the protest was
unreasonably excessive payment. Payment under protest is thus an
administrative precondition for the suit. He did not comply with this
requirement hence, the protest will not prosper.
Page 374
Madam X owns real property in Caloocan City. On July 1, 2016, she
received a notice of assessment from the City Assessor, informing her of
a deficiency tax on her property. She wants to contest the assessment.
May Madam X refuse to pay the deficiency tax assessment during the
pendency of her appeal? (2014)
SUGGESTED ANSWER:
No. The payment of the deficiency tax is a condition before Madam X’s
protest may be given due course by a court if there is an administrative
denial of her disputing the imposition of the deficiency tax.
Payment of the real property tax assessed under protest is a condition sine
qua non before a trial court could assume jurisdiction over a petition for
prohibition relative to the collection of said taxes. If there is a failure to do
so, the RTC has no jurisdiction to entertain it.
The restriction is consistent with the doctrine that the taxes are the lifeblood
of the nation, and as such, their collection cannot be curtailed by injunction
or any like action; otherwise, the state or, in this case, the local government
unit, shall be crippled in dispensing the needed services to the people, and
its machinery gravely disabled.
Thus, a trial court has no jurisdiction to entertain a petition for prohibition
absent payment under protest of the tax assessed.
Page 375
As as result of an erroneous or illegal assessment by the provincial or
city assessor. What should be done in such instance to avoid an
injustice?
a. Question the legality of the no-refund rule before the Supreme Court.
b. Enact a new ordinance amending the erroneous or illegal assessment
to correct the error.
c. Subsequent adjustment in tax computation and the application of the
excess payment to future real property tax liabilities.
d. Pass a new ordinance providing for the refund of real property taxes
that have been erroneously or illegally collected.
Page 378
A taxpayer who overpaid a real property taxes to the City of Manila
sought by legal action the recovery of the excess payment on the theory
that the payment and receipt of money under a mutual mistake of fact
gave use to an obligation to return the mistaken payment under the
doctrine of quasi-contracts. Is such an argument sound and
sustainable? Why? (1975)
SUGGESTED ANSWER:
Yes. The argument is sound and sustainable because the government should
not unjustly enrich itself at the expense of the taxpayer.
Page 23 of 57
Page 380
During the first 5 years of its operation, or up to 2015, a domestic
manufacturing corporation paid voluntary real estate taxes on its plant
machinery and equipment.
Realizing later that it did not have to do so since machineries are
exempt from realty taxes, it being registered under the Board of
Investments, the company filed a claim for refund in 2016. The claim
was denied by the Provincial Treasurer on the ground that payment of
the real taxes was made voluntarily without protest.
a. Under the facts, is protest a condition precedent for the company to
file a claim for refund?
b. Under what principle of law may taxes paid through error be
recovered? (1980)
SUGGESTED ANSWER:
a. No, since the payment was made through mistake under solution indebiti.
b. Through the principle of solution indebiti, that no one should unjustly
enrich himself at the expense of another.
Page 380
AB, by mistake, overpaid the real estate taxes he has to pay Baguio
City. He would now like to recover the excess payment and receipt of
the excess tax due to the mutual mistake giving rise to an obligation to
return under the doctrine of quasi-contract.
Conferring with the city authorities of Baguio, he was assured that no
opposition would be filed to his suit to recover. On the basis of the
foregoing facts, will AB‟s recovery suit prosper? Discuss. (1985)
SUGGESTED ANSWER:
No. He has failed to exhaust his administrative remedies by applying for a
refund or credit with the Local Treasurer.
Page 381
Explain briefly but comprehensively the recourse of real property
owner who I not satisfied with the action of the Provincial assessor in
the assessment of the property.What action or procedure may be
taken?
SUGGESTED ANSWER:
The procedure for appealing or contesting an assessment of real property
a. Within 30 days from revision assessment, the assessor furnishes the
declarant of a copy of the new assessment.
b. Within 60 days from receipt of the new assessment, the dissatisfied owner
appeals to the LBAA, (1) under oath (2) with copies of tax declaration and
evidence.
c. Within 30 days from receipt of the LBAA’s adverse decision, the
dissatisfied owner of the property appeals o the CBAA, whose decision is
final and executory.
d. Within 30 days from receipt of CBAA’s adverse decision, the dissatisfied
owner may appeal to CTA en Banc by filing a verified Petition for Review
within 15 days from the receipt of judgment. If the MR is filed with CTA en
banc
e. An adverse decision of the CTA en banc may be the subject of MR within
15 days from the receipt of the judgment. If the MR filed with CT en banc is
unavailing, the denial is appealed to SC by way of Petition for Review on
Certiorari raising only pure questions of law. The SC may fro justifiable
reasons grant extension of 30 days only to file the Petition.
Page 391
Razon failed to file sworn statement declaring the true value of his
property as required under Sec. 202 RA 7160 GC of 1991. The
Provincial Assessor of Rizal, made the declaration by authority of Sec
204 of LGC and assessed the property for taxation and asked him to
pay the corresponding real estate tax. Upon receipt of the assessment,
Razon appealed to the Board of Assessment Appeals. The Provincial
Assessor argued that Razon is barred from contesting the real estate
assessment because he failed to file sworn statement as required under
the LGC. Decide.
A: The case should be decided in favor of Razon because the Provincial
Assessor‟s contention is without merit. Since Razon is dissatisfied with
the assessment made by the Provincial Assessor, within 60 days from the
receipt thereof, he may appeal the same to the LBAA under oath and with
the copies of the tax declaration and his evidence.
The LGC authorizes which authorizes the appeal does not distinguish
whether the declaration was made by the taxpayer or the assessor.
Where the real property tax assessment is ERRONEOUS, the remedy
of the real property owner is
Page 24 of 57
a. To file a claim for the refund in the CTA if he has paid the tax, within 30
days from the date of payment
b. To file an appeal with the Provincial Board of Assessment Appeals
within 30 days from the receipt of the assessment
c. To file an appeal with the Provincial Board of Assessment Appeals within
60 days from the receipt of the assessment.
d. To file an appeal with the Provincial Board of Assessment Appeals
within 60 days from the receipt of the assessment and paying the assessed
tax under protest.
Page 391
A made a sworn declaration of his real property to have a value of P100
per sq. m. The City assessed the same property at P50 per sq. m. What
is the remedy of A if he would like to maintain his declared value?
(page 391)
SUGGESTED ANSWER:
a. Within 30 days from revision assessment, the assessor furnishes the
declarant of a copy of the new assessment.
b. Within 60 days from receipt of the new assessment, the dissatisfied owner
appeals to the LBAA, (1) under oath (2) with copies of tax declaration and
evidence.
c. Within 30 days from receipt of the LBAA’s adverse decision, the
dissatisfied owner of the property appeals o the CBAA, whose decision is
final and executory.
d. Within 30 days from receipt of CBAA’s adverse decision, the dissatisfied
owner may appeal to CTA en Banc by filing a verified Petition for Review
within 15 days from the receipt of judgment. If the MR is filed with CTA en
banc
e. An adverse decision of the CTA en banc may be the subject of MR within
15 days from the receipt of the judgment. If the MR filed with CT en banc is
unavailing, the denial is appealed to SC by way of Petition for Review on
Certiorari raising only pure questions of law.
On motion duly filed and served, and the full payment of the docket
and other lawful fees before the reglementary period, the SC may for
justifiable reasons grant extension of 30 days only to file the Petition.
The PHILCORP, as part of its expansion, erected 2 office buildings, 2
factories, and 3 warehouses, all located in Paranaque, which were all
finished and fully occupied on January 3, 2016. On July 31, 2016,
PHILCORP received a notice dated January 20, 2016 demanding
payment of the 2016 real property tax on the mentioned structures,
according to the revised tax declaration prepared by the Office of the
Municipal Assessor. As counsel of PHILCORP, advise you client.
Explain.
SUGGESTED ANSWER: I would advise PHILCORP to file a case before
the RTC of Paranaque questioning the validity of the assessment on a pure
question of law to determine when the real property tax is due. There is no
factual issue involved; hence the LBAA has no jurisdiction.
Page 393
February 13, 1998, X obtained a loan of 800K from GSIS secured with
REM of land with improvements. X failed to pay the loan. The lot was
foreclosed and sold at public auction to the GSIS as the highest bidder.
X failed to redeem and consolidated the title in 2014. In 2016, however,
GSIS allowed X t repurchase the lot. After assessment by the City
Assessor, City Treasurer required X to pay the real estate taxes for
2014 to 2015. On September 5, 2016, X sent a demand letter to the City
Treasurer for refund, but was refused. X filed with RTC a complaint
against the City Treasurer for the recovery of the real estate taxes paid
under protest. The City Treasurer question the jurisdiction of the
court. Decide.
SUGGESTED ANSWER: The City is correct. RTC has no jurisdiction
because the failure of X to exhaust is administrative remedies.
Since the issue is the validity of the assessment, X must file first an appeal
with LBAA, then to the CBAA. After which, he should appeal the decision
of CBAA to CTA en banc, then to SC.
X owns real property in Caloocan. On July 1, 2016, she received a
notice of assessment from the City Assessor, informing her of a
deficiency tax on her property. She wants to contest the assessment.
What are the administrative remedies? (page 394)
SUGGESTED ANSWER:
a. She should pay the deficiency tax.
b. She should protest the payment by having annotated on the tax receipts
“paid under protest”. I X did not make a protest upon payment, she must
protest in writing which must be filed, within 30 days from payment of the
tax to the Caloocan City Treasurer who shall decide within 60 days from
receipt.
Page 25 of 57
c. If the protest is denied or upon the lapse of 60 days without any decision
from the Treasurer, X may appeal by filing a petition under oath to the City
Board of Assessment Appeals which has 120 days to decide.
d. Within 30 days from the receipt of adverse decision of City Board of
Assessment Appeals, X may appeal to CBAA, whose decision is final and
executory.
e. Within 30 days from receipt of CBAA’s adverse decision, X may appeal
to CTA en Banc by filing a verified Petition for Review within 15 days from
the receipt of judgment. If the MR is filed with CTA en banc, adverse
decision may be the subject of MR within 15 days from the receipt of the
judgment.
f. If the MR filed with CT en banc is unavailing, the denial is appealed to
SC by way of Petition for Review on Certiorari raising only pure questions
of law.
On motion duly filed and served, and the full payment of the docket and
other lawful fees before the reglementary period, the SC may fro justifiable
reasons grant extension of 30 days only to file the Petition.
Page 397
The LGC does not provide for the review by the SC of the decision of
the CBAA. What then is the remedy available to the taxpayer adversely
affected by the decision of the said board? (page 397)
SUGGESTED ANSWER: Appeal to the CTA en banc within 30 days from
receipt of the adverse decision of the CBAA.
Page 399
A Co., a Philippine corporation, is the owner of the machinery,
equipment and fixtures located at its plant in Muntinlupa City. The
City Assessor characterized all these properties as real properties
subject to real property tax. A Co. appealed the matter to the Board of
Assessment Appeals. The Board ruled in favor of the City in
accordance with RA 1125 (An Act creating CTA). A Co brought the
petition for review before the CTA to appeal the decision of the City
Board of Assessment Appeals. Is the Petition proper?
SUGGESTED ANSWER: No. It is the CBAA that has jurisdiction to
review the cases originally decided by the City Board of Assessment
Appeals.
CTA has exclusive appellate jurisdiction to review by appeal the decisions
of the CBAA.
3. Waiver of Statute of Limitations
Waiver of the Statute of Limitations
Section 222 (b) of the NIRC, as amended, provides that the CIR or her duly
authorized representative and the taxpayer or its authorized representative
may agree in writing as to a specific future date within which to assess the
taxpayer for internal revenue taxes for a given taxable period, before the
expiration of the period to assess taxes.
The waiver of the Statute of Limitations should not be construed as a waiver
of the right to invoke the defense of prescription but rather an agreement
between the taxpayer and the BIR to extend the period to a date certain,
within which the latter could still assess or collect taxes due. The waiver
does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally (BPI v. CIR, GR No. 139736, October 17, 2005).
A waiver of the statute of limitation under the NIRC, to a certain extent, is a
derogation of the taxpayer’s right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed (Phil. Journalists, Inc. v. CIR, G.R. No. 162852, December 16,
2004).
The CIR cannot validly agree to reduce the prescriptive period to less than
that granted by law because it would result to the detriment of the State.
Such reduction diminishes the Government’s opportunity to collect taxes
(Republic v. Lopez, G.R. L-18007, March 30, 1967).
The taxpayer’s waiver of statute of limitation does not cover taxes already
prescribed (Republic v. Lim De Yu, G.R. No. L-17438, April 30, 1964).
Extended assessement
Page 26 of 57
An assessment issued as a result of the waiver of the prescriptive period is
known as an “extended assessment”, which has a prescriptive period for
collection of five (5) years from the time of issuance of the assessment.
Guidlelines on proper execution of waivers
1. The waiver may be, but not necessarily, in the form prescribed by RMO
No. 20-90 or RDAO No. 05-01. The taxpayer's failure to follow the aforesaid
forms does not invalidate the executed waiver, for as long as the following
are complied with:
a) The Waiver of the Statute of Limitations under Section 222 (b) and (d)
shall be executed before the expiration of the period to assess or to collect
taxes. The date of execution shall be specifically indicated in the waiver.
b) The waiver shall be signed by the taxpayer himself or his duly authorized
representative. ln the case of a corporation, the waiver must be signed by
any of its responsible officials;
c) The expiry date of the period agreed upon to assess/collect the tax after
the regular three-year period of prescription should be indicated;
2. Except for waiver of collection of taxes which shall indicate the
particular taxes assessed, the waiver need not specify the particular
taxes to be assessed nor the amount thereof, and it may simply
state "all internal revenue taxes" considering that during the
assessment stage, the Commissioner of lnternal Revenue or her
duly authorized representative is still in the process of examining
and determining the tax liability of the taxpayer. 

3. Since the taxpayer is the applicant and the executor of the
extension of the period of limitation for its benefit in order to
submit the required documents and accounting records, the
taxpayer is charged with the burden of ensuring that the waivers of
statute of limitation are validly executed by its authorized
representative. The authority of the taxpayer's representative who
participated in the conduct of audit or investigation shall not be
 thereafter contested to invalidate the waiver. 
 objection against their validity until he was assessed, said taxpayer is
4. The waiver may be notarized. However, it is sufficient that the estopped from questioning the validity of its waivers. The application of
waiver is in writing as specifically provided by the NIRC, as estoppel is necessary to prevent the undue injury that the government
amended. 
 would suffer because of the cancellation of assessment of taxpayer’s tax
5. Considering that the waiver is a voluntary act of the taxpayer, the waiver liabilities (CIR v. Next Mobile Inc., G.R. No. 212825, December 07, 2015).
shall take legal effect and be binding on the taxpayer upon its
execution thereof. 
 Taxpayer is also estopped from questioning the waiver if it had impliedly
admitted the validity of the said waivers. Had it believed that the waiver
6. lt shall be the duty of the taxpayer to submit its duly executed waiver to was invalid and that the period to assess had effective prescribed, the
the CIR or officialis previously designated in existing issuances or the taxpayer could have refused to make any payment based on any
concerned revenue district officer or group supervisor as designated assessment against it (RCBC v. CIR, G.R. 170257, September 7, 2011).
in the Letter Of Authority/Memorandum of Assignment who shall
then indicate acceptance by signing the same. Such waiver shall be NOTE: The period to assess can likewise be suspended under Section 223 of
executed and duly accepted prior to the expiration of the period to the NIRC. Refer to “Suspension of prescriptive periods” for complete

assess or to collect. The taxpayer shall have the duty to retain a discussion.
copy of the accepted waiver.

---
Q: In 1993, the BIR issued against respondent assessment notice for
7. Note that there shall only be two (2) material dates that need to be deficiency income tax for 1989. A waiver of the defense of prescription was
present on the waiver:
a. The date of execution of the waiver by executed but it was not signed by the Commissioner or any of his authorized
the taxpayer or its authorized representative; and
b. The expiry representatives and did not state the date of acceptance. Has the right to
date of the period the taxpayer waives the statute of limitations
 collect of the

8. Before the expiration of the period set on the previously executed
waiver, the period earlier set may be extended by subsequent
written waiver (RMO 14-2016).
Effect of failure to conform to the requirements of waiver of the statute of
limitations
It is invalid and ineffective to extend the prescriptive period to assess taxes
(CIR v. Next Mobile Inc., G.R. No. 212825, December 07, 2015).
Taxpayer estopped from questioning validity of waivers
Commissioner prescribed? A: YES. The Court held that the Commissioner’s
right to collect has prescribed. The period to assess and collect deficiency
taxes may be extended only upon a written agreement between the
Commissioner and the taxpayer prior to the expiration of the three-year
prescribed period. The BIR cannot claim the benefits of extending the period
when it was the BIR’s inaction which is the proximate cause of the defects of
the waiver (CIR v. The Stanley Works Sales (Phils.), Incorporated, G.R. No.
187589).
Q: What is the effect of the execution by a taxpayer of a "waiver of the
statute of limitations" on his defense of prescription? (2010 Bar)

In case a taxpayer executed five waivers and delivered them to CIR, one A: The waiver of the statute of limitation executed by a taxpayer is not a
after the other and allowed the latter to rely on them and did not raise any waiver of the right to invoke the defense of prescription. The waiver of the

Page 27 of 57
statute of limitation is merely an agreement in writing between the
taxpayer and the BIR that the period to assess and collect taxes due is
extended to a date certain. If prescription has already set in at the time of
the execution of the waiver is invalid, the taxpayer can still raise
prescription as a defense (Phil. Journalists Inc., v. CIR, GR No. 162852, Dec.
16, 2004).
Q: What is the effect of the execution by a taxpayer of a "waiver of the
statute of limitations" on his defense of prescription? (2010 Bar)
A: The waiver of the statute of limitation executed by a taxpayer is not a
waiver of the right to invoke the defense of prescription. The waiver of the
statute of limitation is merely an agreement in writing between the
taxpayer and the BIR that the period to assess and collect taxes due is
extended to a date certain. If prescription has already set in at the time of
the execution of the waiver is invalid, the taxpayer can still raise
prescription as a defense (Phil. Journalists Inc., v. CIR, GR No. 162852, Dec.
16, 2004).
4.Taxation of Educational Institutions
5. Lancaster Case
COMMISSIONER OF INTERNAL REVENUE vs. LANCASTER
PHILIPPINES, INC., G.R. No. 183408, July 12, 2017, MARTIRES, J.
A valid LOA does not necessarily clothe validity to an assessment
issued on it, as when the revenue officers designated in the LOA act in
excess or outside of the authority granted them under said LOA.
FACTS:
In 1999, the Bureau of Internal Revenue (BIR) issued Letter of
Authority (LOA) No. 00012289 authorizing its revenue officers to examine
Lancaster's books of accounts and other accounting records for all internal
revenue taxes due from taxable year 1998 to an unspecified date. After the
conduct of an examination pursuant to the LOA, the BIR issued a
Preliminary Assessment Notice (PAN).The BIR disallowed the purchases of
Page 28 of 57
tobacco from farmers covered by Purchase Invoice Vouchers (PIVs) for the
months of February and March 1998 as deductions against income for the
fiscal year April 1998 to March 1999. The computation of Lancaster's tax
deficiency, with the details of discrepancies.
Lancaster replied to the PAN contending, among other things, that
for the past decades, it has used an entire 'tobacco-cropping season' to
determine its total purchases covering a one-year period from 1 October up
to 30 September of the followingyear (as against its fiscal year which is
from 1 April up to 31 March of the followingyear);that it has been adopting
the 6~month timing difference to conform to the matching concept (of cost
and revenue); and that this has long been installed as part of the company's
system and consistently applied in its accounting books. Lancaster argued
that the February and March 1998 purchases should not have been
disallowed. It maintained that the situation of farmers engaged in producing
tobacco, like Lancaster, is unique in that the costs, i.e., purchases, are taken
as of a different period and posted in the year in which the gross income
from the crop is realized. Lancaster concluded that it correctly posted the
subject purchases in the fiscal year ending March 1999 as it was only in this
year that the gross income from the crop was realized.
Subsequently on 6 November 2002, Lancaster received from the
BIR a final assessment notice (FAN), which assessed Lancaster's deficiency
income tax amounting to Pl l,496,770.18, as a consequence of the
disallowance of purchases claimed for the taxable year ending199931.
March 1999.
SHORTENED FACTS: LOA No. 00012289 authorized the BIR officers to
examine the books of account of Lancaster for the taxable year 1998 only
or, since Lancaster adopted a fiscal year (FY), for the period 1April1997 to
31March1998. However, the deficiency income tax assessment which the
BIR eventually issued against Lancaster was based on the disallowance of
expenses reported in FY 1999, or for the period 1 April 1998 to
31March1999.
ISSUES:
Is the question on the authority of revenue officers to examine the
books and records of any person cognizable by the CTA?
RULING: YES. The issue on whether the revenue officers who had
conducted the examination on Lancaster exceeded their authority pursuant
to LOA No. 00012289 may be considered as covered by the terms "other
matters" under Section 7 of R.A. No. 1125 or its amendment, R.A. No.
9282. The authority to make an examination or assessment, being a matter
provided for by the NIRC, is well within the exclusive and appellate
jurisdiction of the CTA.
The law vesting unto the CTA its jurisdiction is Section 7 of Republic Act
No. 1125 (R.A. No. 1125), which in part provides:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal, as herein provided: (1) Decisions
of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue; x x x. (emphasis supplied)
Can the CTA resolve an issue which was not raised by the parties?
RULING: YES. Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or
the Revised Rules of the Court of Tax Appeals, the CTA is not bound by the
issues specifically raised by the parties but may also rule upon related issues
necessary to achieve an orderly disposition of the case. The text of the
provision reads:
SECTION 1. Rendition of judgment. - x xx In deciding the case, the Court
may not limit itself to the issues stipulated by the parties but may also rule
upon related issues necessary to achieve an orderly disposition of the case.
The above section is clearly worded. On the basis thereof, the CTA
Division was, therefore, well within its authority to consider in its decision
the question on the scope of authority of the revenue officers who were
named in the LOA even though the parties had not raised the same in their
pleadings or memoranda. The CTA En Banc was likewise correct in
sustaining the CTA Division's view concerning such matter.
Did the revenue officers exceeded their authority to investigate the
period not covered by their letter of authority?
RULING: YES. The audit process normally commences with the issuance
by the CIR of a Letter of Authority. The LOA gives notice to the taxpayer
that it is under investigation for possible deficiency tax assessment; at the
same time it authorizes or empowers a designated revenue officer to
Page 29 of 57
examine, verify, and scrutinize a taxpayer's books and records, in relation to
internal revenue tax liabilities for a particular period.
A valid LOA does not necessarily clothe validity to an assessment
issued on it, as when the revenue officers designated in the LOA act in
excess or outside of the authority granted them under said LOA. In this
case, LOA No. 00012289 authorized the BIR officers to examine the books
of account of Lancaster for the taxable year 1998 only or, since Lancaster
adopted a fiscal year (FY), for the period 1April1997 to 31March1998.
However, the deficiency income tax assessment which the BIR eventually
issued against Lancaster was based on the disallowance of expenses
reported in FY 1999, or for the period 1 April 1998 to 31March1999.
When is the proper timing when Lancaster should recognize its
purchases in computing its taxable income?
The crop method recognizes that the harvesting and selling of crops
do not fall within the same year that they are planted or grown. This method
is especially relevant to farmers, or those engaged in the business of
producing crops who, pursuant to RAM No. 2- 95, would then be able to
compute their taxable income on the basis of their crop year. On when to
recognize expenses as deductions against income, the governing rule is
found in the second sentence of Subsection F cited above. The rule enjoins
the recognition of the expense (or the deduction of the cost) of crop
production in the year that the crops are sold (when income is realized).
In the present case, we find it wholly justifiable for Lancaster, as a
business engaged in the production and marketing of tobacco, to adopt the
crop method of accounting. A taxpayer is authorized to employ what it finds
suitable for its purpose so long as it consistently does so, and in this case,
Lancaster does appear to have utilized the method regularly for many
decades already. Considering that the crop year of Lancaster starts from
October up to September of the following year, it follows that all of its
expenses in the crop production made within the crop year starting from
October 1997 to September 1998, including the February and March 1998
purchases covered by purchase invoice vouchers, are rightfully deductible
for income tax purposes in the year when the gross income from the crops
are realized.
The matching principle
 The matching concept, which is one of the generally accepted accounting In the ensuing settlement of accounts, Baguio allegedly recognized its indebtedness to
principles, directs that the expenses are to be reported in the same period Philex. After an initial agreement, an Amended Compromise with Dation in
that related revenues are earned. It attempts to match revenue with expenses payment was officially executed between Baguio and Philex. Thus, some of the
that helped earn it. advances were not paid.

ISSUE: Were there debts in the form of the unpaid advances that could be deducted by
A reading of RAM No. 2-95, however, clearly evinces that it conforms with Philex as bad debts
the concept that the expenses paid or incurred be deducted in the year in
which gross income from the sale of the crops is realized. Put in another HELD: No, the advances were the result of a partnership agreement rather than a contract
way, the expenses are matched with the related incomes which are between Philex and Baguio. (Philex Mining Corporation v. Commissioner of
eventually earned. Nothing from the provision is it strictly required that for Internal Revenue, G.R. No. 148187, April 16, 2008)
the expense to be deductible, the income to which such expense is related to
be realized in the same year that it is paid or incurred. As noted by the Page 138
CTA,54 the crop method is an unusual method of accounting, unlike other
recognized accounting methods that, by mandate of Sec. 45 of the NIRC, ILLUSTRATIONS of indication that a debt is worthless and uncollectible.
Considering the small amounts involved unsuccessful efforts at collection suffice to
strictly require expenses be taken in the same taxable year when the income
warrant write-off. (Collector v. Goodrich International Rubber Co. 21 SCRA 1336,
is 'paid or incurred, ' or 'paid or accrued, ' depending upon the method of arrangement and numbering supplied).
accounting employed by the taxpayer. The debtor is in strained financial condition with no attachable or leviable
properties. (Ibid)
6. Bad debts Page 139
1. PQR Corp claimed as a deduction in its tax returns the amount of
OBJECTIVE QUESTION: Explain if the following item is deductible from
P1,000,000 as bad debts. The corporation was assessed by the Commissioner of
gross income tax purposes. Disregard who is the person claiming the
Internal Revenue for deficiency taxes on the ground that the debts cannot be
deduction. Reserves for bad debts. (1999, adapted and reworded)
considered as “worthless,” hence they do not qualify as bad debts. The
company asks for your advice on what factors will hold in determining
SUGGESTED ANSWER: No. the reserves are mere provisions for bad debts. The bad debts
whether or not the debts are bad debts? Answer and explain briefly. (2004)
are not yet actually determined to be worthless or uncollectible.
SUGGESTED ANDWER: the following are the factors that will hold in
Page 135
determining whether the debts are bad debts:
a. There must be an existing indebtedness due to the taxpayer which must be
ILLUSTRATION. Philex agreed to undertake the management of the Sto. Nino mine from
valid and legally demandable.
Baguio Gold, pursuant to a document denominated as “Power of Attorney.” The
b. The same must be connected with the taxpayer’s trade, business or practice
agency encompassed the doing of all things necessary and proper to bring about the
of profession.
successful management of said money and the maintenance of the same as a
c. The same must not be sustained in a transaction entered into between related
commercially profitable venture. Philex was given the authority to make advances
parties.
or to transfer its own funds or property for the operation of the mine and has in fact
d. The same must be actually charged off the books of accounts of the taxpayer
made substantial advances and transferred its own funds and property to the mine.
as of the end of the taxable year.
e. The debt must be actually ascertained to be worthless and uncollectible
Among the conditions are that the advances shall not accrue interest, that there shall be
during the taxable year.
compensation of 50% of the net profit, etc.
f. The debts are uncollectible despite diligent effort exerted by the taxpayer.
[NIRC of 1997, Sec. 34 (E) (1), arrangement and numbering supplied; Rev.
The mine suffered continuing losses in its operations which resulted in Baguio’s being
Regs. No. 5-99, Sec. 3, reiterated in Rev. Regs. No. 25-2002; Philippine
declared in technical default and Philex withdrew as manager of the mine.
Refining Corporation v. Court of appeals, et al, 246 SCRA 667]

Page 30 of 57
 g. Must have been reported as receivables in the income tax return of the
current or prior years. (Rev. Regs. No. 2, Sec. 103)
Page 140
2. Rakham operates the lending company that made a loan to Alfonso in the
amount of P120,000.00 subject of a promissory note which is due within one
year from the note’s issuance. Three years after the loan became due and upon
information that Alfonso is nowhere to be found, Rakham asks you for advice
on how to treat the obligation as “bad debts.” (2016)
SUGGESTED ANSWER: the requisites for the deductibility of a bad debts are:
a. There must be an existing indebtedness due to the taxpayer which must be
valid and legally demandable.
b. The same must be connected with the taxpayer’s trade, business or practice
of profession.
c. The same must not be sustained in a transaction entered into between related
parties.
d. The same must be actually charged off the books of accounts of the taxpayer
as of the end of the taxable year.
e. The debt must be actually ascertained to be worthless and uncollectible
during the taxable year.
f. The debts are uncollectible despite diligent effort exerted by the taxpayer.
[NIRC of 1997, Sec. 34 (E) (1), arrangement and numbering supplied; Rev.
Regs. No. 5-99, Sec. 3, reiterated in Rev. Regs. No. 25-2002; Philippine
Refining Corporation v. Court of appeals, et al, 246 SCRA 667]
g. Must have been reported as receivables in the income tax return of the
current or prior years. (Rev. Regs. No. 2, Sec. 103)
Page 141
1. What is meant by the “tax benefit rule”? (2003)
SUGGESTED ANSWER: The “tax benefit rule” or “the equitable tax benefit rule”
posits that the recovery of the bad debts previously allowed as deduction in the
preceding year or years shall be included as part of the taxpayer’s gross income in
the year of such recovery to the extent of the income tax benefit of said deduction.
[NIRC of 1997, Sec. 34 (E) (1); Rev. Regs. 5-99, Sec. 4, 1st sentence]
It also applies to taxes previously deducted from gross income but which were
subsequently refunded or credited. The taxpayer is also required to report as taxable
income the subsequent tax refund or tax credit granted to the extent of the tax
benefit the taxpayer enjoyed when such taxes were previously claimed as deduction
from income.
2. Give an illustration of the application of the tax benefit rule. (2003)
Page 31 of 57
SUGGESTED ANSWER: “If in the year the taxpayer claimed deduction of bad
debts written-off, he realized the reduction of the income tax due from him on
account of the said deduction, his subsequent recovery thereof from his debtor shall
be treated as a receipt of realized taxable income. Conversely, if the said taxpayer
did not benefit from said deduction of the said bad debt when written-off because it
did not result to any reduction of his income tax in the year in which such deduction
(i.e. where the result of his business operation was a net loss even without
deduction of the bad debts written-off), then his subsequent recovery thereof shall
be treated as a mere recovery or a return of capital, hence, not treated as receipt of
realized taxable income.” (Rev. Regs. 5-99, Sec. 4)
The same concept applies where a tax was previously deducted from gross income
but subsequently refunded or credited.
7. Transactions (VAT, VAT-exempt, Zero-rated)
As an indirect tax on services, its main object is the transaction itself or,
more concretely, the performance of all kinds of services conducted in the
course of trade or business in the Philippines. These services must be
regularly conducted in this country, undertaken in “pursuit of a commercial
or an economic activity,” for a valuable consideration, and not exempt
under the Tax Code, other special laws, or any international agreement.
(CIR v. American Express International, Inc. (Philippine Branch) GR
no.152609, June 29, 2005)
Indirect tax, definition: An indirect tax “is imposed upon goods [before]
reaching the consumer who ultimately pays for it, not as a tax, but as a part
of the purchase price.” (CIR v. American Express International, Inc.
(Philippine Branch))
Nature or characteristic of VAT as indirect tax
The VAT is an indirect tax and can be passed on to the buyer. (Quezon City
et al v. ABS-CBN Broadcasting Corporation, GR no. 166408, October 6,
2008)
The VAT being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer, with the seller
acting merely as a tax collector. The burden of VAT is intended to fall on
the immediate buyers and ultimately, the end-consumers. (Abakada Guro
Party List (etc.) v. Ermita, etc., et al., G.R. no 168056, September 1, 2005
and companion cases, 469 SCRA 1)
VAT is an indirect tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. As such, it should
be understood not in the context of the person or entity that is primarily,
directly liable for its payment, but in terms of its nature as a tax on
consumption. [CIR v. Seagate Technology (Philippines)]
Page 770
As an indirect tax on services, its main object is the transaction itself or,
more concretely, the performance of all kinds of services conducted in the
course of trade or business in the Philippines. These services must be
regularly conducted in this country, undertaken in ‘pursuit of a commercial
or an economic activity,’ for a valuable consideration, and not exempt under
the Tax Code, other special laws, or any international agreement. (CIR v.
American Express International, Inc., June 29, 2005).
A seller who is directly and legally liable for payment of an indirect tax,
such as the VAT on goods or services is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or the
consumer of such goods or services who although not directly and legally
liable for the payment thereof, ultimately bears the burden of the tax.
(Contex v. CIR, 433 SCRA 376).
Effect on exemptions of VAT being on indirect tax
If a special law merely exempts a party as a seller from its direct liability for
payment of the VAT but does not relieve the same party as a purchaser from
its indirect burden of the VAT shifted to it by its VAT-registered suppliers,
the purchase transaction is not exempt.
REASON: The VAT is a tax on consumption, the amount of which may be
shifted or passed on by the seller to the purchaser of the goods, properties or
services. (CIR v. Seagate Technology, February 11, 2005).
Illustration: A VAT exempt seller sells to a non-VAT exempt purchaser.
The purchaser is subject to VAT because the VAT is merely added as part
of the purchases price and not as a tax because the burden is merely shifted.
The seller is still exempt because it could pass on the burden of paying the
tax to the purchaser.
SMZ, Inc., is a VAT-registered enterprise engaged in the general
construction business. HP International contracts the services of SMZ,
Inc. to construct HP International’s factory building located in the
Laguna Techno Park, a special economic zone. HP International is
registered with the Philippine Economic Zone Authority (PEZA) as an
Page 32 of 57
ecozone export enterprise, and, as such, enjoys income tax holiday
pursuant to the Special Economic Zone Act of 1995. SMZ, Inc., files an
application with the Bureau of Internal Revenue (BIR) for the VAT
zero-rating of its sale of services to HP International. However, the BIR
denies SMZ, Inc.’s application on the ground that HP International
already enjoys income tax holiday. Is the BIR correct in denying SMZ,
Inc.’s application? Explain your answer. (6%)
SUGGESTED ANSWER: No. All sales of goods, properties, and services
made by a VATregistered supplier from the Customs Territory to an
ecozone enterprise shall be subject to VAT, at zero percent (0%) rate,
regardless of the latter’s type or class of PEZA registration. (Coral Bay
Nickel Corporation v. CIR, G.R. No. 190506, June 13, 2016, citing
Commissioner of Internal Revenue v. Toshiba 1 Information Equipment
(Phils.), Inc., G.R. No. 350154, August 9, 2005, 466 SCRA 221) Moreover,
under Section 108 (B)(3), of the 1997 NIRC as amended, services rendered
to persons or entities whose exemption under special laws effectively
subjects the supply of such services to zero percent (0%) rate are considered
zero-rated. Considering the law does not provide for any additional
qualification or disqualification, the BIR cannot deny the application on the
ground that HP International already enjoys income tax holiday. An
administrative agency may not enlarge, alter or restrict a provision of law. It
cannot add to the requirements provided by law. To do so constitutes
lawmaking, which is generally reserved for Congress. (Soriano v. Secretary
of Finance, et al., G.R. No. 184450, 184508, 184538, 185234, January 24,
2017)
Page 773
What is tax pyramiding? What is its basis in law? (2006)
SUGGESTED ANSWER:
Tax pyramiding is the practices of imposing a tax upon another tax. It is a
situation where some or all of the stages of distribution of goods or services
are taxed, with the accumulation borne by the final consumer. There is a tax
pyramiding when sales taxes are applied to both inputs and outputs, thus
shifting the tax burden to the ultimate consumer. [R.G. Holcombe, Taxing
Services, 30 Fla. St. U.L. Review Rev. 467. (1996)]
It has no basis in law because it has been rejected, since 1992 by the
Supreme Court, the legislature and our tax authorities. It is prohibited as a
taxpayer cannot be compelled to pay a tax on the tax itself. (People v.
Sandiganbayan, August 16, 2005 citing CIR v. American Rubber, 1483).
Thus, it violates the principle of uniformity and neutrality in taxation.
Page 774
Under the VAT system, there is no cascading because the tax itself is
not again being taxed. However, in determining the tax base on scale of
taxable goods under the VAT system:
a. The professional tax paid by the professional is included in gross
receipts;
b. The other percentage tax (e.g., gross receipts tax) paid by the
taxpayer is included in gross selling price;
c. The excise tax paid by the taxpayer before withdrawal of the goods
from the place of production or from customs custody is included
in the gross selling price;
d. The documentary stamp tax paid by the taxpayer is included in the
gross selling price or gross receipts (2012)
SUGGESTED ANSWER: C
Page 776
Illustration of concept that zero-rating is not for the benefit of the
person legally liable for the tax but for the benefit of the person to
whom the indirect tax is to be passed on.
The Supreme Court emphasized that effective zero-rating is not intended as
a benefit to the person legally liable to pay the tax, such as San Roque
Power Corporation, but to relieve certain exempt entities, such as the NPC,
from the burden of indirect tax so as to encourage the development of
particular industries. Before, as well as after, the adoption of the VAT,
certain special laws were enacted for the benefit of various entities and
international agreements were entered into by the Philippines with foreign
governments and institutions exempting sale of goods or supply of services
from indirect taxes at the level of their suppliers.
Effective zero-rating was intended to relieve the exempt entity from being
burdened with the indirect tax which is or which will be shifted to it had
there been no exemption. In this case, San Roque Power Corporation is
being exempted from paying VAT on its purchases to relieve NPC of the
burden of additional costs that petitioner may shift to NPC by adding to the
cost of the electricity sold to the latter. (San Roque Power Corporation v.
CIR, November 25, 2009).
Page 778
Page 33 of 57
Destination principle under the VAT system of taxation
Goods and services are taxed only in the country where they are consumed.
Thus, exports are zero-rated, while imports are taxed.
According to the Destination Principle, goods and services are taxed only in
the country where these are consumed, and in connection with the said
principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption
outside the territorial order of the taxing authority. Sales to enterprises
operating with the export processing zones are export sales subject to 0%
VAT. (Atlas Consolidated Mining and Development Corporation v. CIR,
524 SCRA 73).
The Philippine VAT system adheres to the Cross Border Doctrine,
according to which, no VAT shall be imposed to form part of the cost of
goods destines for consumption outside of the territorial border of the taxing
authority. (CIR v. Toshiba Information Equipment, 2005).
Author’s observation: Please refer to CIR v. Placer Dome Technical
Services, 524 SCRA 27 which stated that consumption abroad is not a
pertinent factor to imbue zero-rating on services performed in the
Philippines by VAT registered persons.
Exception to the destination principle
The law clearly provides for an exception to the destination principle
(exports are zero-rated whereas imports are taxed), an exception to this rule
is the zero-rated sales or services by VAT-registered persons. (CIR v.
Burmeister and Wain Scandinavian Contractor Mindanao, 512 SCRA 124,
2007).
Page 779
The BIR issues Revenue Memorandum Circular No. 65-2012 imposing
VAT on association dues and membership fees collected by
condominium corporations from its member condominium-unit
owners. The RMC’s validity is challenged before the SC by the
condominium corporations. The Solicitor General, counsel for BIR,
claims that association dues, membership fees and other
assessment/charges collected by a condominium corporation are subject
to VAT since they constitute income payments or compensation for the
beneficial services it provides to its members and tenants.
On the other hand, the lawyer of the condominium corporation argues
that such dies and fees are merely held in trust by the condomin ium
corporations exclusively for their members and used solely for
administrative expenses in implementing the condominium
corporation’s purposes. Accordingly, the condominium corporations do
not actually render services for a fee subject to VAT.
Whose argument is correct? Decide. (2014)
SUGGESTED ANSWER: The argument of the lawyer of the condominium
corporation is correct.
The provisions of the NIRC are clear in describing the characteristics of a
person who is subject to VAT, as any person who, in the course of his trade
or business, renders services.
To be ‘in the course of trade or business’ means ‘trade or commercial
activity regularly engaged in as a means of livelihood or with a view to
profit.’ By its very nature, a condominium corporation is not engaged in
business, and any profit that it derives is merely incidental. (Yamane, etc. v.
BA Lepardo Condominium Corporation, October 25, 2005).
Page 783
Fact Based Problem: Sale of tractors and other agricultural implements
by Bungkal Incorporated to local farmers. (1998, VAT rate supplied)
Suggested Answer:
Subject to VAT at 12%
Page 789
Fact Based Problem: Masarap Kumain, Inc. (MKI) is a Value-Added
Tax (VAT)-registered company which has been engaged in the catering
business for the past 10 years. It has invested a substantial portion of its
capital on flat wares, table linens, plates, chairs, catering equipment,
and delivery vans. MKI sold its first delivery van, already 10 years old
and idle, to Magpapala Gravel and Sand Corp. (MGSC), a corporation
engaged in the business of buying and selling gravel and sand. The
selling price of the delivery van was way below its acquisition cost. Is
the sale of the delivery van by MKI to MGSC subject to VAT? (2014)
Page 34 of 57
Suggested Answer: Yes. The sale of the delivery van by MKI to MGSC is
subject to VAT.
MKI is a VAT-registered company engaged in “in the course of trade or
business” catering which means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental
thereto which are subject to VAT.
The delivery van being used in MKI’s trade or business of catering is part of
its assets. The sale of a fully depreciated asset (the delivery van) that has
been used in business is subject to VAT as an incidental transaction,
although such sale may be considered isolated.
Page 793
Fact Based Problem: XYZ Law Offices, a law partnership in the
Philippines and a VAT-registered taxpayer, received a query by e-mail
from Gainsburg Corporation, a corporation organized under the laws
of Delaware, but the e-mail came from California where Gainsburg has
an office. Gainsburg has no office in the Philippines and does no
business in the Philippines.
XYZ Law Offices rendered its opinion on the query and billed
Gainsburg US$1,000 for the opinion. Gainsburg remitted its payment
through Citibank which converted the remitted US$1,000 to pesos and
deposited the converted amount in the XYZ Law Offices account. What
are the tax implications of the payment to XYZ Law Offices in terms of
VAT? (2013)
Suggested Answer: The payment to XYZ Law Offices by Gainsburg
Corporation is subject to VAT in the Philippines.
For VAT purposes, the transaction is a zero-rated sale of services where the
output tax is zero percent and XYZ is entitled to claim as refund or tax
credit certificate the input taxes attributable to the zero-rated sale.
The services were rendered to a non-resident person, engaged in the
business outside the Philippines, which services are paid for in foreign
currency inwardly remitted through the banking system, thereby making the
sale of services subject to tax at zero-rate.
Page 796

Fact Based Problem: In June 2016, DDD Corp., a domestic corporation
engaged in the business of leasing real properties in the Philippines,
entered into a lease agreement of a residential house and lot with EEE,
Inc., a non-resident foreign corporation. The residential house and lot
will be used by officials of EEE, Inc. during their visit to the
Philippines. The lease agreement was signed by representatives from
DDD Corp. and EEE, Inc. in Singapore. DDD Corp. did not subject the
said lease to VAT believing that it was not a domestic service contract.
Was DDD Corp. correct? Explain. (2015)
Suggested Answer: No. DDD Corp. is not correct.
The lease of the properties shall be subject to VAT irrespective of the place
where the contract of lease was executed if the property is leased or used in
the Philippines.
Since, the leased residential house and lot is located and used in the
Philippines, it is subject to VAT despite the fact that the lease agreement
was signed in Singapore.
Page 802
Fact Based Problem: Services rendered by Jake's Construction
Company, a contractor to the World Health Organization in the
renovation of its offices In Manila. (1998)
Suggested Answer:
Subject to VAT at 0%.
Page 818
FACT BASED PROBLEMS:
State whether the following transactions are a) VAT exempt, b) subject
to VAT at 12%; or c) subject to VAT at 0%:
a) Sale of fresh vegetables by Aling Ining at Pamilihang Bayan ng
Trece Martirez. (1998, VAT rates supplied)
SUGGESTED ANSWER: A
Page 35 of 57
Page 821
Are the following transactions subject to VAT? If yes, what is the
applicable rate for each transaction? State the relevant authority/ies for
your answer.
C. Sale of orchids by a flower shop which raises its flowers in
Tagaytay. (2010, paraphrasing supplied)
SUGGESTED ANSWER: Yes. It is subject to the 12% VAT because it is a non-
food agricultural item. Only agricultural food items are exempted from
VAT. [NIRC of 1997, Sec. 109 (1) (A) as amended by Rep. Act No. 9337]
Page 827
Your client, United Market Cooperative, is requesting the
Commissioner of Internal Revenue to exempt it from the payment of
VAT on its purchase of prime commodities from food
suppliers/manufacturers on the ground it is exempt from all taxes,
including VAT, under R.A. No. 6938, the Cooperative Code of the
Philippines.
Do you think your client can obtain the necessary exemption from the
BIR? If your answer is in the affirmative, explain the basis for the
grant. If in the negative, state the basis for the rejection of the request.
(1992)
SUGGESTED ANSWER: No. The exemption will not be granted because the
VAT is imposed upon sales and not upon purchases.
OBJECTIVE QUESTION: Give at least three (3) real estate transactions
which are not subject to the Value-added Tax. (1996)
SUGGESTED ANSWER: The following sales of real properties are exempt
from VAT, namely:
1. Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business.
2. Sale of real property utilized for low-cost and socialized housing as
defined by Republic Act No. 7279, otherwise known as Urban
Development and Housing Act of 1992, and other related laws, such
as R.A. No. 7835 and R.A. No. 8763, residential lot valued at
1,500,000 pesos and below, house and lot.
 3. Sale of real properties utilized for socialized housing as defined under
R.A. No. 7279, and other related laws, such as R.A. No. 7835 and
R.A. No. 8763, wherein the price ceiling per unit is 225,000 pesos or
as may from time to time be determined by the HUDCC and the
NEDA and other related laws. [Rev. Regs. No. 16-2005, Section 4.
109-1 (p). (3)]
Page 833
FACT BASED PROBLEMS: Melissa inherited from her father at 300-
square meter lot. At the time of her father’s death on March 14, 2015,
the property was valued at 720,000 pesos. On February 28, 2016, to
defray the cost of the medical expenses of her sick son, she sold the lot
for 600,000 pesos on cash basis. The prevailing market value of the
property at the time of the sale was 3000 pesos per square meter. Is
Melissa subject to pay Value-added Tax on the sale of the property? If
so, how much and why? If not, why not? (2009, dates supplied)
SUGGESTED ANSWER: No. VAT is not imposed on the sale of real properties
that are not primarily held for sale to customers or held for lease in the
ordinary course of trade or business. Melissa does not hold the property
primarily for sale, nor is it for lease in the ordinary course of trade or
business.
Sale of residential house and lot by an official of a domestic corporation
to another official in the same corporation for a consideration of two
million five hundred thousand pesos in 2016 is:
a) Exempt from VAT because the gross sales do not exceed 2.5
million;
b) Exempt from VAT because the property sold is a capital asset,
regardless of the gross selling price;
c) Exempt from VAT because the seller is not the person engaged in
real estate business;
d) Taxable at 12% VAT output tax on the gross selling price of 2.5
million pesos.
Which statement above is incorrect? (2012, dates supplied)
SUGGESTED ANSWER: b
Page 844
Page 36 of 57
FACT BASED PROBLEMS: Fees for lodging paid by students to
Bahay-Bahayan Dormitory, a private entity operating a student
dormitory (monthly fee P 1, 500).
SUGGESTED ANSWER: VAT Exempt.
NOTES AND COMMENTS: Lease of residential unit that is exempt from
VAT. Lease of a residential units with a monthly rental not exceeding P 12,
800.00 regardless of the amount of aggregate rentals received by the lessor
during the year.
Page 845
Greenhills Condominium Corporation incorporated on 2014 is a non-
stock, non-profit association of unit owners in Greenhills Tower, San
Juan City. To be able to reduce the association die being collected from
the unit owners, the Board of Directors of the corporation decided to
lease part of the ground floor of the condominium building to DEF
Savings Bank for P 120,000 a month or P1.44 million for the year,
starting January 2015.
a. Is the non-stock, non-profit association liable for value-added tax in
2015? If your answer is in the negative, is it liable for another kind if
business tax? (2008, dates supplied)
SUGGESTED ANSWER: No, because its rentals did not exceed P1, 919,
500.00 annually. It shall be subject to the 3% percentage tax.
b. Will the association be liable for value-added tax in 2017 if it
increases the rental to P200,000 a month beginning January 2017?
Explain.
SUGGESTED ANSWER: Yes, because its gross sales would then exceed P
1919, 500.00 annually
Page 846
Emiliano Paupahan is engaged in the business of leasing out several
residential apartment units he owns. The monthly rental for each unit
ranges from P 10, 000.00 to P 12, 000, 00 His gross rental income for
one year is P 1, 800 000.00. He consults you on whether it is necessary
for him to register as a VAT taxpayer. What legal advice will you give
him and why?
SUGGESTED ANSWER: He is not required to register as a VAT taxpayer.
His transactions of leasing residential units for an amount not exceeding P
12, 800.00 per unit per month is exempt from the VAT.
A lessor of real property is exempt from value added tax in one of the
transactions below. Which one is it?
a. Lessor leases commercial stalls located in the Greenhills Commercial
Center to VAT-registered sellers of cell phones; lessor’s gross rental
during the year amounted to P 12 Million;
b. Lessor leases residential apartment units to individual tenants for P
10, 000.00 per month per unit; his gross rental income during the year
amounted to P 2 Million;
c. Lessor leases commercial stalls at P 10 000.00 per stall per month and
residential units at P 15, 000.00 per unit per month; his gross rental
income during the year amounted to P 3 Million;
d. Lessor leases two (2) residential houses and lots at P 50, 000.00 per
month per unit, but he registered as a VAT person.
SUGGESTED ANSWER: b
Page 847
A pawnshop shall now be treated, for business tax purposes:
a. As a lending investor liable to the 12% VAT on its gross receipts
from interest income and from gross selling price from sale of
unclaimed properties;
b. Not as a lending investor, but liable to the 5% gross receipts tax
imposed on a non-bank financial intermediary under Title VI (Other
Percentage Taxes);
c. As exempt from 12% VAT and 5% gross receipts tax;
d. As liable to the 12% VAT and 5% gross receipts tax (2012)
SUGGESTED ANSWER: B
Page 848
FACT BASED PROBLEM: Sale of RTW by Cely’s Boutique, a
Filipino dress designer, in her dress shop and other outlets.
Page 37 of 57
SUGGESTED ANSWER: Subject to VAT if the gross sales exceeded P
1919 500.00 annually.
In case of full or partial denial of the written claim for refund or excess
input tax directly attributable to zero-rated sales, or the failure on the
part of the Commissioner to act on the application within 120 days
from the date of submission of complete documents, an appeal must be
filed with the CTA:
a. Within thirty (30) days after filing the administrative claim with the
BIR.
b. Within sixty (60) days after filing the administrative claim with the
BIR.
c. Within one hundred twenty (120) days after filing the
administrative claim with the BIR.
d. Within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the 120-day period.
Answer: D (p.885; 2012)
Illustration of period within which to appeal to the Court of Tax
Appeals.
Section 112(D) of the NIRC clearly provides that the CIR has "120 days,
from the date of the submission of the complete documents in support of the
application [for tax refund/credit]," within which to grant or deny the claim.
In case of full or partial denial by the CIR, the taxpayer’s recourse is to file
an appeal before the CTA within 30 days from receipt of the decision of the
CIR. However, if after the 120-day period the CIR fails to act on the
application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days. In this case, the administrative
and the judicial claims were simultaneously filed on September 30, 2004.
Obviously, respondent did not wait for the decision of the CIR or the lapse
of the 120-day period. For this reason, we find the filing of the judicial
claim with the CTA premature (CIR v. Aichi Forging Company of Asia,
Inc.)
“In line, the premature filing of the respondent’s claim for refund/credit of
input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction
was acquired by the CTA”. (Duetsche Knowledge Services Pte, Ltd. v CIR)

Purpose of the 30 day period.
Additionally, the 30-day appeal period to the CTA "was adopted precisely
to do away with the old rule,33so that under the VAT System the taxpayer
will always have 30 days to file the judicial claim even if the CIR acts only
on the 120th day, or does not act at all during the 120-day period." In effect,
the taxpayer should wait for the 120th day before the 30-day prescriptive
period to appeal can be availed of. Hence, the non-observance of the 120-
day period is fatal to the filing of a judicial claim to the CTA, the non-
observance of which will result in the dismissal of the same due to
prematurity. (Harte-Hanks PH Inc. v. CIR)
30-day to appeal to the CTA need not be within the two (2) year
prescriptive period.
In claiming a tax refund or tax credit over an excess input VAT, the 30-day
period to appeal to the CTA need not necessarily fall within the 2-year
prescriptive period as long as the administrative claim before the CIR if
filed within the 2-year prescriptive period. This is because Sec. 112 (D) of
the 1987 Tax Code Mandates that a taxpayer can file the judicial claim (1)
only within 30 days after Commissioner partially or fully denies the claim
within the 120-day period, or (2) only within 30 days from the expiration of
the 120-day period if the Commissioner does not act within the 120-day
period. (CIR v. San Roque Power Corporation)
Where the taxpayer did not wait for the decision of the CIR or the lapse of
the 120-day period, it having simultaneously filed the administrative and
judicial claim with the CTA is premature. (San Roque Power Corp. v CIR)
The 2nd paragraph of Sec. 112 (D) of the NIRC envisions two scenarios: (1)
when a decision is issued by the CIR before the lapse of 120-day period;
and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the
CTA. As we see it then, the 120-day period is crucial in filing an appeal
with the CTA. (Deutsche Knowledge Services Pte Ltd. v CIR)
Extended discussion and reasons for prematurity if CTA case filed
before the expiration of the 120-day period for BIR to decide.
Moreover, a taxpayer's failure to comply with the prescribed 120-day
waiting period would render the petition premature and is violative of the
Page 38 of 57
principle on exhaustion of administrative remedies. Accordingly, the CTA
does not acquire jurisdiction over the same. This being so, "[w]hen a
taxpayer prematurely files a judicial claim for tax refund or credit with the
CTA without waiting for the decision of the [CIR], there is no 'decision' of
the [CIR] to review and thus the CTA as a court of special jurisdiction has
no jurisdiction over the appeal."
The CTA, being a court of special jurisdiction, has the judicial power to
review the decisions of the CIR. Concomitantly, the CTA also has the
power to decide an appeal because the CIR's inaction30 within the 120-day
waiting period shall be deemed a denial of the taxpayer's application for
refund or tax credit. (Harte-Hanks PH Inc. v. CIR)
P. 896
OBJECTIVE QUESTIONS:
1. Discuss the proper procedure and applicable time periods for
administrative and judicial claims for fund/credit of unutilized
excess input VAT? (2016)
2. Explain the procedure for claiming refunds or tax credits of input
VAT for zero-rated or effectively zero-rates sales under Sec. 112
of the NIRC from filing of an application with the CIR up to the
CTA. (2015)
SUGGESTED ANSWER:
1. An administrative claim for refund of or issuance of tax credit for
unutilized excess input VAT must be filed with the BIR
Commissioner within 2 years counted from the last day of the quarter
when the relevant zero-rated sale was made pertaining to the input
VAT regardless of whether said tax was paid or not. (CIR v. Mirant
Pagbilao Corporation)
2. The claim for refund must be accompanied with a statement under
oath that all documents to support the claim has been submitted at the
time of the filing of the claim for refund.
3. The BIR Commissioner shall within 120 days from the date of
submission of complete documents to support the application filed
VAT-registered person on his zero-rated or effectively zero-rated sale
to decide the matter.
4. In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the
application with the period prescribed above, the taxpayer affected
may, with 30 days from the receipt of the decision denying the claim
or after the expiration of 120 day period, appeal the decision or the
unacted claim with the CTA.
 5. The adverse decision of the CTA division may be subject to motion
for reconsideration or new trial within 15 days from receipt of the
adverse decision, filed with the same division that rendered the
decision.
6. The adverse decision of the CTA division on the motion for
reconsideration or new trial shall be the subject of a petition for
review filed within 15 days from receipt of the decision filed with the
CTA en banc.
7. The adverse decsion of the CTA en banc shall, within 15 days from
receipt be subject of a petition for review on certiorari filed with SC.
The period may be extended to 30 days.
P. 899
FACT BASED PROBLEMS:
In case of full or partial denial of the written claim for refund or excess
input tax directly attributable to zero-rated sales, or the failure in the
part of the Commissioner to act on the application within 120 days
from the date of submission of complete documents, an appeal must be
filed with the CTA:
a) Within 30 days after filing the administrative claim with the BIR;
b) Within 60 days after the filing of the administrative claim with
the BIR;
c) Within 120 days after filing the administrative claim with the
BIR;
d) Within 30 days from the receipt of the decision denying the claim
or after the expiration of the 120-day period. (2012)
SUGGESTED ANSWER: D
P. 899
Gangwam Corporation (GC) filed its quarterly tax return for the
calendar year 2014 as follows:
First quarter – April 25, 2015
Second quarter – July 23, 2014
Third quarter – October 25, 2014
Fourth quarter – January 27, 2015
On December 22, 2015, GC filed with BIR an administrative claim for
refund of its unutilized input VAT for the calendar year of 2014. After
several months of inaction by the BIR on its claim for refund, GC
Page 39 of 57
decided to elevate its claim directly to the CTA on April 22, 2016. In
due time, the CTA denied the tax refund relative to the input VAT or
GC for the first quarter of 2014, reasoning that the claim was filed
beyond the 2-year period prescribed under Sec. 112 (A) of the NIRC.
Is the CTA correct? (2014)
SUGGESTED ANSWER: The phrase “within 2 years xxx apply for the
issuance of the tax credit or refund” in Sec. 112 (A) of the NIRC of the
1997 refers to the applications for administrative fund/credit filed with CIR
and not to appeals made to the CTA.
Applying the 2-year period to the judicial claimes would render nugatory
Sec. 112 (D) of the NIRC of 1997, which already provides for a specific
period within which a tax payer should appeal the decision or inaction of the
CIR. (San Roque Power Corp. v. CIR)
When GC decided to elevate its claim to the CTA on April 22, 2016, it was
after the lapse of 120 days from the filing of the claim for refund with the
BIR on December 22, 2015, hence, the appeal is seasonably filed. The
BIR’s inaction after 120 days is a deemed adverse decision on the claim,
appealable to the CTA within 30 days from the lapse of the 120-day period.
(CIR v. Aichi Forging Company of Asia Inc.
Assuming that GC filed its claimed before the CTA on February 22,
2016, would your answer be the same? (2014)
SUGGESTED ANSWER: No. This time the CTA is correct in denying the
claim for refund.
The claim made before the CTA on February 22, 2016 is premature. There
is a yet no decision subject to appeal because the 120-day period for the
Commissioner to act on the claim for refund has not yet lapsed. (CIR v.
Aichi Forging Company of Asia Inc.
P. 901
For calendar year 2014, FFF, Inc, a VAT-registered corporation,
reported unutilized excess input VAT in the amount of 1 Million
attributable to its zero-rates sales. Hoping to impress his boss, Mr. G,
the accountant of FFF, filed with the BIR on January 31, 2014, a claim
for tax refund/credit of the 1M unutilized excess input Vat of the FFF
Inc, for 2014. Not having received any communication from the BIR,
Mr. G filed a petition for review with the CTA on March 15, 2016
praying for the tax refund/credit of the 1M unutilized excess input VAT
of FFF Inc. for 2001.
Did the CTA acquire jurisdiction over the Petition of FFF, Inc.?
SUGGESTED ANSWER: No. the CTA did not acquire jurisdiction over the
petition of FFF, Inc. because the judicial claim has been prematurely filed
on Marc 15, 2016.
The tax payer who is affected by an adverse BIR decision on the application
for tax refund/credit may, within 30 days from receipt of the adverse
descion, or upon BIR inaction after the expiration of the 120 day period
from filling application for refund, appeal the decision or the unacted claim
with the CTA.
The 30day period after the expiration of the 120-day period fixed by law for
the BIR Commissioner to act on the claim for refund is both mandatory and
jurisdictional. Failure to comply would bar the appeal and deprived the CTA
and to entertain the appeal.
The claim made before the CTA on March 15, 201 is premature. There is as
yet no decision subject to appeal because the 20-day period for the
Commissioner to act on the claim for refund has not lapse.
P. 903
Amor Powers, Inc. (API) is a domestic corporation registered with the
BIR as a value-added taxpayer. API incurred excess input VAT in the
amount of P500,000,000.00 on August 3, 2008. Hence, it filed with the
BIR an administrative claim for the refund or credit of these input
taxes on August 15, 2010. Without waiting for the CIR to act on its
claim, API filed a Petition for Review with the CTA on September 15,
2010 before the lapse of two years after the close of taxable quarter
concerned.
In its Comment on the Petition, the CIR argues that API’s Petition
should be dismissed as it was filed before the lapse of 120-day period
given to the CIR by Sec. 112 (D) of the NIRC, which became effective
on January 1, 1998. For the CIR, the 120-day period is mandatory and
Page 40 of 57
jurisdictional so that any suit filed before its expiration is premature
and, therefore, dismissible.
API, on the other hand, invokes BIR ruling No. DA-489-03 issued by
CIR on December 0, 2003 in answer to a query posed by Department of
Finance regarding the propriety of the actions taken by Lazi Bay
Resources Development Inc. which filed an administrative claim for
refund with the CIR and, before the lapse of the 120-day period from
its filing, filed a judicial claim with the CTA. BIR Ruling No. DA-489-
03 states that the taxpayer-claimant need not wait for the lapse of the
120-day period before it could seek judicial relief with the CTA.
Will API’s Petition for Review Prosper? Decide with reasons. (2016)
SUGGESTED ANSWER: Yes. API’s Petition for Review will prosper.
As a general rule, a Petition for review should be filed within 30 days from
receipt of the BIR’s denial or within 30 days from the expiration of the 120-
day period within which to appeal to the CTA.
However, there is an exception, that is: the case may be filed even before
the expiration of the 120-day period only if filed between December 10,
2003 and October 5, 2010, when BIR Ruling No. DA-489-03 was still in
force prior to the reversal of the aforesaid ruling by the CTA in the Aichi
case on October 6, 2010.
API’s September 15, 2010 Petition for Review was filed with the period
December 10, 2003 and October 5, 2010 when the BIR Ruling No. DA-489-
03 was still in force. It thus falls within the exception.
P. 909
FACT BASED PROBLEM: MMM, Inc., domestic telecommunications
company, handles incoming telecommunications services for non-
resident foreign companies by relaying international calls within the
Philippines. To broaden the coverage of its telecommunications services
throughout the country MMM Inc. entered into various
interconnection agreements with local carriers. The non-resident
foreign corporations pay MMM, Inc in US dollars inwardly remitted
through Philippine banks, in accordance with the rules and regulations
of the Bangko Central ng Pilipinas.
MMM, Inc. filed its quarterly VAT Returns for 2000. Subsequently,
MMM, Inc. timely filed with the BIR an administratively claim for the
refund of the amount of P6,321,486.50, representing excess input VAT
attributable to its effectively zero-rated sales in 2000. The BIR ruled to
deny the claim for refund of MMM because the VAT official receipts
submitted to substantiate said claim did not bear the words “zero-
rated” as required under Section 4,108.1 of the Revenue Regulations
(RR) No. 7-95. On appeal, the CTA division and the CTA en banc
affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing that the NIRC
itself did not provide for such a requirement. RR No. 7-95 should not
prevail over a taxpayer’s substantive right to claim tax refund or credit.
A. Rule on the appeal of MMM. Inc. (2015, dates supplied)
SUGGESTED ANSWER: MMM Inc.’s appeal to the Supreme Court should
be granted.
As of 2000, the NIRC of 1997, and RR No. 7-95 do not contain any
provision requiring the imprinting of the words “zero-rated” on receipts
such that issued by MMM, Inc.
Actually, it is R.A. No. 9337, the amendment to the NIRC of 1997, that in
2003 required the printing of the words “zero-rated” on receipts. The
application in this case covers receipts over services made from 2000. What
applies is the old provision which requires the printing of the words “zero-
rated” only on invoices not on official receipts.
B. Will your answer in A be any different if MMM, Inc. was
claiming refund of excess input VAT attributable to its effectively
zero-rated sales in 2016? (2015, dates supplied)
SUGGESTED ANSWER: Yes. My answer would be now different.
Starting 2003, if the sale is subject to zero percent (0%) VAT, the term
“zero-rated sale” shall be written or printed prominently on the invoice or
receipt.
MMM, Inc’s failure to comply with the above mandatory requirement is
fatal to its claim for refund.
Page 41 of 57
Page 918
In “Operation Kandado,” the BIR temporarily closed business
establishments, including New Dynasty Corporation that failed to
comply with VAT regulations. New Dynasty contends that it should not
be temporarily closed since it has a valid and existing VAT registration,
it faithfully issued VAT receipts, and filed the proper VAT returns. The
contention may be rejected if the BIR investigation reveals that: (2011)
A. The taxpayer has not been regularly filing its income tax returns
for the past 4 years.
B. The taxpayer deliberately filed false and fraudulent return with
deliberate intention to evade taxes.
C. The taxpayer used falsified documents to support its application
for refund of taxes.
D. There was an understatement of taxable sales receipts by 30% or
more for the taxable quarter.
SUGGESTED ANSWER: D.
Page 920
Ka Pedring Matibag, a sole proprietor, buys and sells “kumot at
kulambo” both of which are subject to value-added tax. Since he is
using calendar year as his taxable year, his taxable quarters end on the
last day of March, June, September, and December. When should Ka
Pedring file the VAT quarterly return for his gross sales or receipts for
the period of June 1 to September 30? (2011)
A. Within 25 days from September 30
B. Within 45 days from September 30
C. Within 15 days from September 30
D. Within 30 days from September 30
SUGGESTED ANSWER: A
Page 921
Example: Suppose the accounting period adopted by the taxpayer is fiscal
year ending October 2013, the taxpayer has to file monthly VAT
declarations for the months of November 2012, December 2012, and for the
months February, March, May, June, August, and September for Year 2013,
on or before the 20th day of the month following the close of the taxable
month. His quarterly VAT returns corresponding to the quarters ending
January, April, July and October 2013 shall, on the other hand, be filed and
taxes due thereon be paid, after crediting payments reflected in the Monthly
VAT declarations, on or before February 25, May 25, August 25, and
November 25, 2013, respectively.
Page 938
What is the effect of failure to affix a documentary stamp on a
document requiring such stamp? (1964)
SUGGESTED ANSWER: “An instrument, document, or paper which is
required to be stamped and which has been signed, issued, accepted, or
transferred without being duly stamped, shall not be recorded, nor shall it or
any copy thereof or any record of transfer of the same be admitted or used
in evidence in any court until the requisite stamp or stamps shall have been
affixed thereto and cancelled.
No notary public or other officer authorized to administer oaths shall add his
jurat or acknowledgement to any document subject to documentary stamp
tax unless the proper documentary stamps shall have been affixed thereto or
cancelled.” (NIRC of 1997, Sec. 201)
Page 943
In 2016, a Regional Trial Court dismissed a petition for the probate of a
notarial will on the ground that it did not bear a documentary stamp.
The Court relied on Sec. 201 of the NIRC of 1997 providing that a
document required by law to be stamped and which has been signed
without being duly stamped shall not be recorded nor shall it be
admitted or used in evidence in any Court until the requisite stamp or
stamps shall have been affixed thereto and cancelled.
The Court refused to consider the dismissal inspite of the executor’s
manifestation that he had attached the documentary stamp to the
original Will, the Court being of the opinion that the stamp should have
been attached at the time of the execution of the will.
Was the dismissal of the petition by the trial court proper? Explain.
(1981, paraphrasing, rewording and date supplied)
Page 42 of 57
SUGGESTED ANSWER: No. The dismissal was not proper. Affixing the
documentary stamp at a later date than the will’s execution cures the
infirmity that it is inadmissible. This is so because the purpose of affixing a
documentary stamp is merely to raise revenues and not to invalidate a
document. (Azarraga v. Rodriguez, 9 Phil. 637; Gabucan v. Manta, L-
51546, January 28, 1980)
Page 943-944
In a civil case for Annulment of Contract of Sale, plaintiff Ma. Reklamo
presented in evidence the Contract of Sale which she sought to be
annulled. No documentary stamp tax on the Contract of Sale was paid
because according to Ma. Reklamo, there was no need to pay the same
since the sale was not registered with the Register of Deeds. Plaintiff
Ma. Reklamo is now offering the Contract of Sale as her evidence. Is
the Contract of Sale admissible? (2014)
SUGGESTED ANSWER: No. The Contract of Sale is inadmissible in
evidence.
An instrument, document, or paper which is required to be stamped and
which has been signed, issued, accepted, or transferred without being duly
stamped, shall not be recorded, nor shall it or any copy thereof or any record
of transfer of the same be admitted or used in evidence in any court until the
requisite stamp or stamps shall have been affixed thereto and cancelled.
(NIRC of 1997, Sec. 201)
A Contract of Sale, similar to the one that Ma. Reklamo seeks to annul
requires the affixture of documentary stamps. (ibid, Sec. 196) Consequently,
since there was no documentary stamp attached to it, it shall not be used as
evidence until the requisite stamps shall have been affixed thereto and
cancelled. (ibid, Sec. 201)
Q: petitioners impugn the validity of the establishment of tax and duty
free shops within the subic special economic zone and the removal of
consumer goods and items from the zones without Payment of
corresponding and taxes for the reason that this constitute executive
legislation in violation of the separation of powers, The only raw
material, capital and equipment should be allowed the privilege. Rule
on the objections.
The objections should not be giving credence. It is legal to set up duly
authorized duty free shops in the SSEZ The sell tax and duty free
consumer items in the secured area. This is in line with the policy in
enunciated in the law that the subic special economic zone shall be
developed into a self-sustaining industrial commercial financial and
investment center to generate employment opportunities in and around the
zone and attract and promote productive foreign investment.
While it is true that section 12 B of rep. Act. No. 7227 mentions only raw
Materials capital and equipment, this does not necessarily mean that the tax
and duty free buying privilege is limited to these type of articles to the
exclusion of consumer goods.
It must be remembered that in construing statutes, The proper course is the
start out and follow the true intent of the legislature in the sense which
harmonizes best with the context and promotes to the fullest manner the
policy and objects of the legislature.
The concept of inclusio unius est exclusion alterius does not find application
because the phrase "tax and Duty gree importations of raw materials, capital
and equipment" what's merely cited as an example of incentives that the
SSEZ Is the legislative intent is that consumer goods entering the SSEZ rich
satisfy the needs of the zone and are consumed there are not subject to taxes
and duties in accordance with Philippine law.
The ruling would not be the same if the presidential proclamation allowed
for the limited withdrawal from the Clark is special economic zone or the
John hay economic zone of consumer goods tax and in duty free.
This time the presidential proclamation would be invalid as the statutory tax
exempt privilege was granted only the subic special economic zone and not
to John hay or Clark.
Furthermore the law is very clear that the exportation or removal of goods
from the territory of the subic special economic zones to other parts of the
Philippine territory shall be subject to customs duties and taxes under the
customs and tariff code and other relevant tax laws of the Philippines.
X is a resident of Metro Manila, filed an action for the refund of
amounts paid representing energy tax collected from him on his electric
power consumption under Batas Pambansa blg. 36, which imposes a tax
on the domestic electric consumption of all Metro Manila residents,
Page 43 of 57
depending on the amount of consumption in accordance with the
schedule provides for in the batas. The Batas s assailed in Court on the
ground that it is violative of 1) equal protection clause and 2) the rule
on uniformity and equity of taxation. Will the action prosper?
No. The action will not prosper
a. There is a valid classification since the tax depends upon the amount of
consumption. There is thus substantial distinction between those who
consume more and those who consume less
b. There is no violation of uniformity and equity of taxation because the tax
applied with the same force and effect upon members of the same class
An Exexutive Order was issued pursuant to law granting tax and duty
incentives only as to businesses and residents within the "secured area"
of the Subic Economic Special Zone, and denying said incentives to
those who live within the zone but outside such secured area. Is the
constitutional right to equal protection of the law violated?
No. Because there is a substantial difference between big investors being
enticed to the secured area and the business operators outside that are in
accord with the equal protection clause.
8. Customs Seizure and Forfeiture
FACT-BASED: Imported goods were seized by law enforcement
officers because the importer could not present a the NAIA by customs
authorities as she was about to board a plane bound for Taipei, and
charged with illegal importation for having brought into this country 20
pieces of gold bars concealed within her person, without declaring them
before customs authorities. Her defense was that she had just arrived in
Manila the day before but that since she could not get a connecting
flight to Taipei that same day, she stayed overnight at a local hotel. She
had, however, a confirmed booking from Manila to Taipei, and a
scheduled departure the day following her arrival, as shown by her
ticket. The customs authorities refused to heed her and the
corresponding release certificate or license required by Bangko Sentral
ng Pilipinas circulars. Are such goods subject to forfeiture under our
customs laws? Explain. (1972) SUGGESTED ANSWER: Yes. Circulars
issued by the BSP relative to importation are part of the tariff and
customs laws. Violation subjects the goods to seizure and forfeiture for
violation of tariff and customs laws. Page 406 FACT BASED: A lady
tourist was arrested at criminal case was filed. Is the tourist guilty of
illegal importation under our laws? Explain. (1981)
SUGGESTED ANSWER: Yes. While it may be alleged that the tourist did
not have an intention to discharge the gold bars or to actually bring them
within the Philippines, the SC has held that there is intention to unload if
there are violations of the tariff and customs laws which include all laws
being enforced by the Bureau of Customs. BSP regulations which require a
declaration to be made, or if no declaration was made, to deposit the gold
bars in bond with the customs authorities, are part of the tariff and customs
laws.
FACT BASED: Mr. CC, an outgoing passenger bound for Hong Kong,
upon being searched by the customs agent was found to possess US
dollar bills. These were seized and forfeiture proceedings was held. The
decision of the Collector subjecting the US dollar bills to forfeiture was
affirmed by the Commissioner of Customs. Mr. CC appealed to the
CTA, contending that the Customs Modernization and Tariff Act
prohibited only the importation of articles and the US dollar bills were
not “goods”. The applicable provisions enumerating certain prohibited
importation and exportation, reads: “Goods, the importation or
exportation of which are effected or attempted contrary to law, or any
goods of prohibited importation or exportation, and all other goods
which, in the opinion of the District Collector, have been used, are or
were entered to be used as instruments in the importation or the
exportation of the former.” Being implemented by the Collector were
the BangkoSentral Law and regulations prohibiting the export or
import of US dollar bills and Philippine pesos. Decide the case. Explain.
(1987)
SUGGESTED ANSWER: The decision of the Commissioner of Customs
should be sustained. US dollar bills being legal tender in the Philippines, are
considered as merchandise within the ambit of Sec. 1363 (f) of the Tariff
and Customs Code (now CMTA). Such was the holding in Bastida v.
Commissioner of Customs.
FACT BASED: A car found laded with smuggled goods was taken by
the customs agents who discovered it in the Bureau of Customs
Compound. Before any formal seizure proceeding could be started, a
court sheriff arrived to serve a writ of replevin issued by the Regional
Trial Court of the National Capital Judicial Region, Manila. The officer
Page 44 of 57
in charge of the car refused to surrender it to the sheriff claiming that
said jurisdiction belongs exclusively to the Court of Tax Appeals. Is the
contention correct? Reasons. (1969, adapted)
SUGGESTED ANSWER: Yes. The contention of the officer in charge is
correct. The Court of Tax Appeals is vested with the exclusive appellate
jurisdiction over matters involving seizure and forfeiture of conveyances
used in smuggling. The car is such a conveyance.
FACT BASED: The vessel of “X” was seized by the Collector of
Customs after it was found loaded with untaxed cigarettes. “X” sought
to redeem the vessel after the Collector has declared the vessel forfeited
in the seizure proceedings. The request for redemption was denied. So,
“X” filed a petition for mandamus with the Regional Trial Court of the
Ninth Judicial Region, Zamboanga to compel the Collector of Customs
to allow him to redeem the vessel. Will the action prosper? Reason.
(1976, adapted)
SUGGESTED ANSWER: No, the customs authorities have exclusive
jurisdiction over forfeiture proceedings to the exclusion of the regular
courts. This is so in order to have an unhampered action in suppressing
smuggling and not to unduly interfere with tax collection.
FACT BASED: The Collector of Customs filed against “A” a letter of
complaint with the Regional Trial Court, claiming that “A”, “with
malicious intention to defraud the government criminally, wilfully and
feloniously brought into the country untaxed dutiable items, and
Philippine money amounting to P50,000.00 without the necessary
permit from the proper authorities.” The judge assumed jurisdiction
and after conducting the preliminary investigation dismissed the case
with prejudice and ordered the Collector of Customs to return to A the
items mentioned in the complaint. The Collector refused to obey the
order, claiming that there is a prior institution of seizure proceedings
thereon and filed a petition for certiorari with preliminary injunction
seeking to annul and set aside the disputed order. He contends, among
others, that respondent judge is without authority to order the return of
the articles subject to seizure proceedings before the customs
authorities. Is the position of the Collector tenable? Explain your
answer. (1978, reworded)
SUGGESTED ANSWER: Yes, the Bureau of Customs has exclusive
authority over seizure and forfeiture cases involving imported articles.
FACT BASED: Roberto Morales imported a Cadillac car from the U.S.
through the Port of Manila. Through connivance between Morales and
some customs officials, Morales was able to secure the release to him of
said motor vehicle upon the payment of only 50% of the customs duties
and taxes. After the discovery of the discrepancy, the Collector of
Customs of the Port of Manila instituted seizure proceedings and issued
a warrant of seizure and detention. On the strength of the warrant,
elements of Eastern Police District who were duly deputized to enforce
the warrant proceeded to the Morales‟ residence situated in Pasig and
seized said car which was then found in his garage. The garage is not
part of the dwelling of Roberto Morales. Subsequently, Morales filed
with the Regional Trial Court of the National Capital Judicial Region,
Pasig a petition for certiorari and prohibition to annul the seizure of the
Cadillac car. The Collector impugned the jurisdiction of the Regional
Trial Court of the National Capital Judicial Region, Pasig to try and
decide the case. Decide the case. (1979, reworded)
SUGGESTED ANSWER: The petition filed by Morales should be
dismissed because of the following: 1. The seizure is valid because it was
not made in a dwelling place. 2. Lack of jurisdiction. Customs has exclusive
jurisdiction for the following reasons: a. There should be no unnecessary
hindrance on the government‟s drive to prevent smuggling and other frauds
upon the Customs. b. To render effective and efficient the collection of
import and export duties due the State, which enables the government to
carry out the functions it has been instituted to perform. c. The doctrine of
primary jurisdiction.
FACT BASED: The goods imported by his client having been seized by
the Customs authorities for being allegedly items of prohibited
importation, a lawyer filed an action in the Regional Trial Court of the
National Capital Judicial Region, Manila branch for replevin. In his
action, the lawyer contended that the imported articles were being
wrongfully detained by the Collector of Customs as said items had not
been seized under a tax assessment, and that, in any case, the
importation was not illegal and, therefore, exempt from seizure. Was
the action proper? Explain. (1984)
SUGGESTED ANSWER: The action was not proper because it is the
Commissioner of Customs that has appellate jurisdiction over decisions of
Collector of Customs to the exclusion of regular courts, such as the
Regional Trial Court.
Page 45 of 57
FACT BASED: Pursuant to a warrant of seizure issued by the
Commissioner of Customs, the 2015 Porsche sports car of Fred
Salaveria was seized and impounded by the customs agents for failure
to pay the correct and exact amount of customs duties due thereon. As
aleverage, Salaveria later charged the Commissioner of Customs before
the City Prosecutor‟s Office with “usurpation of judicial function” for
issuing said warrant, he not being a judicial officer. As the Public
Prosecutor conducting the preliminary investigation of the case, how
will you dispose said charge? Reasons. (1985, date supplied and
reworded)
SUGGESTED ANSWER: I would dismiss the charges because the
Commissioner is authorized to issue customs warrants for the search and
seizure of imported items.
FACT BASED: Sometime in September, 2016, a shipment of 150
packages of imported goods and personal effects arrived and was
unloaded at the Port of Manila. After the amount of P15,887.00 was
paid by the consignee as customs duties, internal revenue taxes, fees
and other charges, the packages were released from the Manila
Customs House. As the packages were being transported from the
Customs area to their destination, the truck carrying them were
intercepted at T.M.Kalaw St., Ermita, Manila by WPD-PNP personnel.
In a formal communication, the WPD-PNP informed the Collector of
Customs that the packages were released from the customs zone
without proper appraisal to the damage of the Government and
requested for the issuance of the necessary warrant of seizure and
detention. During the progress of the search and seizure, and while the
goods were being removed by the customs agents from the bodega
where they were installed, the consignee filed a petition (Civil Case No.
234) with the Regional Trial Court of Manila asking that the Collector
of Customs and all his agents be restrained from enforcing the warrant
aforesaid and from proceeding with th4e trial of S.I. No. 796, and the
said warrant be declared null and void since the Collector no longer
had jurisdiction to issue the same considering that the customs duties
and the taxes had already been paid and the goods had left the control
and jurisdiction of the Bureau of Customs. A. Did the Collector of
Customs have jurisdiction to issue warrant of seizure and detention?
(1991, dates supplied, reworded and renumbered)
SUGGESTED ANSWER: Yes, because importation has not yet ended. This
is so because importation ends upon the issuance of a valid permit
withdrawal. The fact that the goods were not properly appraised negates the
issuance of a proper permit for withdrawal.
B. Did the payment of customs duties, taxes, etc., render illegal and
improper the issuance of said warrant?
SUGGESTED ANSWER: No. Until the correct duties and taxes are paid
and the proper permits are issued, then the customs authorities have the
authority to issue warrants of seizure and detention.
C. Does the Regional Trial Court have jurisdiction to hear and decide
Civil Case No. 234?
SUGGESTED ANSWER: No. The Regional Trial Court has no jurisdiction
to hear and decide Civil Case No. 234 because the Bureau of Customs has
exclusive jurisdiction over tariff and customs matters to the exclusion of the
regular court due to the following reasons: 1) There should be no
unnecessary hindrance on the government’s drive to prevent smuggling and
other frauds upon Customs. 2) To render effective and efficient the
collection of import and export duties due the State which enables the
government to carry out the functions it has been instituted to perform. 3)
The doctrine of primary jurisdiction. The courts defer to the exercise of the
Bureau of Customs over tariff and customs matters.
FACT BASED: MV Florida, a vessel of Philippine registry, was hired
to transport beans from Singapore to India. The vessel was allegedly
hijacked at sea and found its way to Bataan. It is also alleged that said
beans are now with the List Co. and fake documents were used to show
that the beans were imported from Japan. The Collector of Customs
seized the M/V Florida and its cargo. The owner of M/V Florida filed a
complaint in the RTC to obtain possession of the vessel and the beans.
Does the RTC have jurisdiction over the case? (1993)
SUGGESTED ANSWER: No. The RTC has no jurisdiction to hear and
decide the complaint filed to obtain possession of the vessel and the beans
because the Bureau of Customs has exclusive jurisdiction over tariff and
customs matters to the exclusion of the regular court due to the following
reason: 1) There should be no unnecessary hindrance on the government’s
drive to prevent smuggling and other frauds upon Customs. 2) To render
effective and efficient the collection of import and export duties due the
Page 46 of 57
State which enables the government to carry out the functions it has been
instituted to perform. 3) The doctrine of primary jurisdiction. The courts
defer to the exercise of the Bureau of Customs over tariff and customs
matters.
FACT BASED: On January 1, 2017, armed with warrants of seizure
and detention issued by Bureau of Customs, members of the customs
enforcement and security services coordinat4ed with the Quezon City
police to search the premises owned by a certain Mr.Ho along Kalayaan
Avenue, Quezon City which allegedly contained untaxed vehicle parts.
While inside, security services noted articles which were not included in
the list contained in the warrant. Hence, on January 15, 2017, an
amended warrant and seizure was issued. On January 25, 2017, the
customs personnel started hauling the articles pursuant to the amended
warrant. This prompted Mr.Ho to file a case for injunction and
damages with a prayer for a restraining order before the Regional Trial
Court of Quezon City against the Bureau of Customs on January 27,
2017. On the same date, the trial court issued a temporary restraining
order. A motion to dismiss was filed by the Bureau of Customs on the
ground that the Regional Trial Court has no jurisdiction over the
subject matter of the complaint claiming that it was the Bureau of
Customs that has exclusive jurisdiction over it. Decide. (1996, dates
supplied)
SUGGESTED ANSWER: The Regional Trial Court should grant the
motion to dismiss the case because it has no jurisdiction. The case involves
customs and seizure. Thus, Bureau of Customs has exclusive jurisdiction
over tariff and customs matters to the exclusion of the regular court due to
the following reasons: 1) There should be no unnecessary hindrance on the
government’s drive to prevent smuggling and other frauds upon Customs. 2)
To render effective and efficient the collection of import and export duties
due the State which enables the government to carry out the functions it has
been instituted to perform. 3) The doctrine of primary jurisdiction. The
courts defer to the exercise of the Bureau of Customs over tariff and
customs matters.
FACT BASED: On the basis of a warrant of seizure and distraint
issued by the Collector of Customs for the purpose of enforcing the
Tariff and Customs Laws, assorted brands of cigarettes said to have
been illegally imported into the Philippines were seized from a store
where they were openly offered for sale. xxxxxx Could the importer file
an action in the Regional Trial Court for replevin on the ground that
the articles are being wrongfully detained by the Collector of Customs
since the importation was not illegal and therefore exempt from
seizure? Explain. (2000 paraphrasing supplied)
SUGGESTED ANSWER: No. The importer could not file an action in the
Regional Trial Court for replevin because the court has no jurisdiction. The
subject of the action involves customs search and seizure hence the Bureau
of Customs has exclusive jurisdiction to the exclusion of the regular court
due to the following reasons: 1) There should be no unnecessary hindrance
on the government’s drive to prevent smuggling and other frauds upon
Customs. 2) To render effective and efficient the collection of import and
export duties due the State which enables the government to carry out the
functions it has been instituted to perform. 3) The doctrine of primary
jurisdiction. The courts defer to the exercise of the Bureau of Customs over
tariff and customs matters.
ALTERNATIVE ANSWER: The importer could file an action in the
Regional Trial Court for replevin BUT it will not prosper because the court
has no jurisdiction. The subject of the action involves customs search and
seizure hence the Bureau of Customs has exclusive jurisdiction to the
exclusion of the regular court due to the following reasons: 1) There should
be no unnecessary hindrance on the government’s drive to prevent
smuggling and other frauds upon Customs. 2) To render effective and
efficient the collection of import and export duties due the State which
enables the government to carry out the functions it has been instituted to
perform. 3) The doctrine of primary jurisdiction. The courts defer to the
exercise of the Bureau of Customs over tariff and customs matters.
FACT BASED: The Collector of Customs ordered the seizure and
forfeiture of new electronic appliances shipped by TON Corp., from
Hong Kong for violation of customs laws because they were falsely
declared as used office equipment and then undervalued for purpose of
customs duties. TON filed a complaint before the MM Regional Trial
Court for replevin, alleging that the Customs officials erred in the
classification and valuation of its shipment, as well as in the issuance of
the warrant of seizure. The Collector moved to dismiss the suit for lack
of jurisdiction on the part of the trial court. Should the Collector‟s
motion be granted or denied? Reason briefly. (2004, Mercantile Law)
SUGGESTED ANSWER: The Collector’s motion should be granted. The
Bureau of Customs has exclusive jurisdiction over tariff and customs
matters to the exclusion of the regular court due to the following reasons: 1)
Page 47 of 57
There should be no unnecessary hindrance on the government’s drive to
prevent smuggling and other frauds upon Customs. 2) To render effective
and efficient the collection of import and export duties due the State which
enables the government to carry out the functions it has been instituted to
perform. 3) The doctrine of primary jurisdiction. The courts defer to the
exercise of the Bureau of Customs over tariff and customs matters.
MR owns an electronics shop at the Mile Long Shopping Center in
Makati. The shop sells various imported items such as cameras,
television sets, video cassette recorders and similar items. On February
10, 2017 agents of the Commissioner of Customs visited the shop and
asked that they be shown the official Bureau of Customs receipt
evidencing payment of the duties and taxes on all imported items
displayed in the shop. Since MR could not show any receipt, the agents
seized all the imported items displayed in the shop. Upon a tip by a
disgruntled employee of MR, the customs agent proceeded to the house
of MR at San Lorenzo Village in Makati. More untaxed imported
electronic items were found there. The customs agents also seized the
same. Discuss the legality of the seizures made of imported items
displayed in the shop. Discuss the legality of the seizures made by the
customs agents. (1990)
SUGGESTED ANSWER: The seizure conducted at MR’s shop is valid
because it is not a dwelling place. Customs has the jurisdiction to effect the
seizure because importation has not yet ended, there being no showing that
there was full payment of customs duties. The seizure made at his house is
invalid because there was no warrant from a regular court.
A disgruntled employee of Apache Corporation reported to the
Commissioner of Customs that the company is illegally importing
electronic equipment by way of unlawful “shipside” activities thereby
evading payment of customs duties and taxes of the goods. Accordingly,
the Commission of Customs, upon request of the WPD-PNP issued
warrants of seizure and detention and directed WPD-PNP to seize the
goods listed in the warrants. After the seizure of the goods and
considering the magnitude of the value of the goods, counsel for Apache
Corporation filed a petition with the Supreme Court for certiorari,
prohibition and mandamus to enjoin the Commissioner of Customs and
his agents from continuing further with the forfeiture proceedings and
praying that the Commissioner return the confiscated articles on the
ground that the warrant were in violation of the Rules of Court and the
Bill of Rights. 1. If you are a newly-appointed Solicitor in the OSG
representing the Commissioner of Customs, how would you defend the
latter? Give specific defenses. 2. Assuming that the enforcement of the
warrant had been extended to the residence of the President of Apache
Corporation, is such enforcement valid? Explain. 3. Do you think the
petition for certiorari, prohibition and mandamus filed by Apache
Corporation will prosper in the Supreme Court? Discuss. (1992)
SUGGESTED ANSWER: 1. I would defend the Commissioner of Customs
by invoking the doctrine of primary jurisdiction and that the Commissioner
should not be unduly limited in his exercise of the power of collecting taxes.
2. The enforcement of the customs warrant to a residence is invalid because
a regular warrant issued by a regular court is needed in the search of
dwelling places. 3. No, because the search and seizure were validly
conducted.
Acting upon a report of its intelligence force that falsified documents
were used by AB in effecting the release of the latter‟s 450 SL
Mercedes Benz Model 96, thus, enabling him to pay less than 10% of
the correct customs duties due thereon, customs agents seized the said
car while parked near the Cuneta Astrodome where AB was then
witnessing the PBA game. Thereafter, an assessment in the amount of
P1M by way of customs duties were slapped on AB. AB went to court
questioning the seizure since no warrant appeared to have been issued
for the said purpose. He also asserts that the said car may no longer be
considered as an imported commodity, he having purchased the same
some 6 years ago from XY as evidenced by a deed of sale executed in his
favor. Besides, he argues further that the right to collect said customs
duties has already prescribed. Rule on the validity of the seizure and
the correctness of AB‟s submission. (1985)
SUGGESTED ANSWER: The seizure is valid. The car is still within the
jurisdiction of the Bureau of Customs because importation has not ended
and the Customs Modernization and Tariff Act is violated as a result of non-
payment of the correct taxed. AB’s submission that the right of customs
authorities to collect the customs duties has prescribed is not correct
because importation has not ended. For articles subject to customs duties,
importation ends when the regular permit for withdrawal shall have been
issued. In this case, falsified documents were used, hence importation has
not yet ended and the prescription period is not tolled. Furthermore, there
practically is no prescription for the collection of customs duties so long as
the imported articles exist. This is so because the customs duties constitutes
a lien that follows the article no matter in whose possession it is found.
Page 48 of 57
On the basis of a warrant of seizure and detention issued by the
Collector of Customs for the purpose of enforcing the Tariff and
Customs Laws, assorted brands of cigarettes said to have been illegally
imported into the Philippines were seized from a store where they were
openly offered for sale. Dissatisfied with the decision rendered after
hearing by the Collector of Customs on the confiscation of the articles,
the importer filed a petition for review with the Court of Tax Appeals.
The Collector moved to dismiss the petition for lack of jurisdiction.
Rule on the motion.
SUGGESTED ANSWER: Granted. The CTA has appellate jurisdiction only
over decisions of the Customs Commissioner in seizure and forfeiture cases.
Such court likewise have jurisdiction over decisions of the Secretary of
Finance involving seizure proceedings in case of automatic review. In is
therefore evident that the CTA does not have jurisdiction to review
decisions of the Collector of Customs in seizure and forfeiture cases.
9. Criminal Tax Cases
Criminal cases
Institution and prosecution of criminal actions
All criminal actions before the Court in Division in the exercise of its
original jurisdiction shall be instituted by the filing of an information in
the name of the People of the Philippines.
In criminal actions involving violations of the National Internal Revenue
Code (NIRC) and other laws enforced by the Bureau of Internal Revenue,
the Commissioner of Internal Revenue must approve their filing.
In criminal actions involving violations of the Tariff and Customs Code
(TCC) and other laws enforced by the Bureau of Customs, the
Commissioner of Customs must approve their filing (RRCTA, Rule 9,
Sec. 2).
All criminal actions will be under the direction and control of the public
prosecutor.
NOTE: The institution of the criminal action shall interrupt the running
of the period of prescription (Ibid).
Rule on the Institution of Civil action with Criminal action (2010 Bar)
The criminal action and the corresponding civil action for the recovery
of civil liability for taxes and penalties shall be deemed jointly instituted
in the same proceeding. The filing of the criminal action shall necessarily
carry with it the filing of the civil action. No right to reserve the filing of
such civil action separately from the criminal action shall be allowed or
recognized (RRCTA, Rule 9, Sec. 11).
---
Q: How are criminal actions prosecuted?
A: In criminal actions involving violation of the National Internal
Revenue Code or other laws enforced by the Bureau of Internal Revenue,
and violations of the Tariff and Customs Code or other laws enforced by
the Bureau of Customs, the prosecution may be conducted by their
respective duly deputized legal officers (RRCTA, Rule 9, Sec. 3).
---
---
Q: After filing an Information for violation of Section 254 of the
National Internal Revenue Code (Attempt to Evade or Defeat Tax) with the
CTA, the Public Prosecutor manifested that the People is reserving the right
to file the corresponding civil action for the recovery of the civil liability for
taxes. As counsel for the accused, comment on the People's manifestation.
(2015 Bar)
A: I will move for the denial of the manifestation. Any provision of law or
the Rules of Court to the contrary notwithstanding, the criminal action
and the corresponding civil action for the recovery of civil liability for
taxes and penalties shall at all times be simultaneously instituted with,
and jointly determined in the same proceeding by the CTA, the filing of
the criminal action being deemed to necessarily carry with it the filing of
Page 49 of 57
the civil action, and no right to reserve the filing of such civil action
separately from the criminal action shall be recognized.
--- Appeal and Period to appeal
An appeal to the Court in criminal cases decided by a Regional Trial Court
in the exercise of its original jurisdiction shall be taken by filing a notice of
appeal pursuant to Sections 3(a) and 6, Rule 122 of the Rules of Court
within fifteen (15) days from receipt of a copy of the decision or final
order with the court which rendered the final judgment or order
appealed from and by serving a copy upon the adverse party. The Court
in Division shall act on the appeal. 

An appeal to the CTA en banc in criminal cases decided by the Court in
Division or the Regional Trial Courts in the exercise of their appellate
jurisdiction shall be taken by filing a petition for review as provided in
Rule 43 of the Rules of Court within fifteen (15) days from receipt of a
copy of the decision or resolution appealed from (RRCTA, Rile 9, Sec. 9).
Q: Who shall act as a representative of the People and the Government in the
criminal action?
A: The Solicitor General shall represent the People of the Philippines and
government officials sued in their official capacity in all cases brought to
the CTA in the exercise of its appellate jurisdiction. He may deputize the
legal officers of the Bureau of Internal Revenue in cases brought under
the NIRC or other laws enforced by the BIR, or the legal officers of the
BOC in cases brought under the TCC or other laws enforced by the BOC,
to appear in behalf of the officials of said agencies sued in their official
capacity: Provided, however, such duly deputized legal officers shall
remain at all times under the direct control and supervision of the
Solicitor General (RRCTA, Rule 9, Sec. 10).
---
Petition for Review on Certiorari to the Supreme Court
A party adversely affected by a decision or ruling of the Court en banc
may appeal therefrom by filing with the Supreme Court a verified petition
for review on certiorari within 15 days from receipt of a copy of the
decision or resolution, as provided in Rule 45 of the Rules of Court. If
such party has filed a motion for reconsideration or for new trial, the
period herein fixed shall run from the party’s receipt of a copy of the
resolution denying the motion for reconsideration or for new trial
(RRCTA, Rule 16, Sec. 1).
Effect of the appeal
The motion for reconsideration or for new trial filed before the Court
shall be deemed abandoned if, during its pendency, the movant shall
appeal to the Supreme Court (RRCTA, Rule 16, Sec. 1).
Q: What constitutes prima facie evidence of a false or fraudulent return to
justify the imposition of a 50% surcharge on the deficiency tax due from a
taxpayer?
Explain. (2002 Bar)
A: There is a prima facie evidence of false or fraudulent return when the
taxpayer substantially underdeclared his taxable sales, receipts or
income, or substantially overstated his deductions. The taxpayer’s
failure to report sales, receipts or income in an amount exceeding 30%
of that declared per return, and a claim of deduction in an amount
exceeding 30% of actual deduction shall render the taxpayer liable for
substantial underdeclaration and overdeclaration, respectively, and will
justify the imposition of the 50% surcharge on the deficiency tax due
from the taxpayer (Sec. 248, NIRC).
Importance of distinguishing between a “false return” and a “fraudulent
return”
The two returns are different but have the same prescriptive periods to
be assessed, which is 10-years. The importance in distinguishing the two
lies in the application of the penalty surcharge.
Actual fraud, not constructive fraud, is subject to 50% penalty surcharge.
Page 50 of 57
For the surcharge to apply, it must be intentional fraud.
Negligence, whether slight or grossj8, is not equivalent to fraud with
intent to evade the tax contemplated by law (Ingles, 2015).
Just because the 10-year period applies, it doesn’t nescessarily mean
that the taxpayer will be penalized with the 50% surcharge. When a
taxpayer files a false return and not a fraudulent one, the 10-year period
applies but the 50% surcharge will not (Aznar v. CTA, G.R. No. L-20569,
August 23, 1974).
---
Q: Danilo, who is engaged in the trading business, entrusted to his
accountant the preparation of his income tax return and the payment of the
tax due. The accountant filed a falsified tax return by underdeclaring the
sales and overstating the expense deductions by Danilo. Is Danilo liable for
the deficiency tax and the penalties thereon? What is the liability, if any, of
the accountant? Discuss. (2005 Bar)
A: Danilo is liable for the deficiency tax as well as for the deficiency
interest. He should not be held liable for the fraud penalty because the
accountant acted beyond the limits of his authority. There is no showing
in the problem that Danilo signed the falsified return or that it was
prepared under his direction. On the other hand the accountant may be
held criminally liable for violation of the NIRC when he falsified the tax
return by under declaring the sale and overstating the expense
deductions. If Danny's accountant is a Certified Public Accountant, his
certificate as a CPA shall automatically be revoked or cancelled upon
conviction.
Suspension of running of Statute of Limitations
Grounds for suspension of the prescriptive period for both the power to
assess and and the power to collect [LOW-PARA]
1. When taxpayer cannot be Located in the address given by him in the
return, unless he informs the CIR of any change in his address
thru a written notice to the BIR; 

2. When the taxpayer is Out of the Philippines 
 ---
Q. Do the provisions of the Civil Code on suspension of the prescriptive
period by extrajudicial demand suspend the running period of prescription of
3. When the Warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative or a member of his actions in tax collection cases?
household with 
sufficient discretion and no property is located;

Only period to collect is suspended. 
 A. NO. The provisions of the NIRC being a special law take precedence
over the provisions of the Civil Code, a general law. Furthermore, the
4. Where the CIR is prohibited from making the assessment or beginning provisions of the NIRC were crafted to ensure expeditious collection of
distraint or levy or a proceeding in court for 60 days thereafter, tax money to ensure the continuous delivery of government services.
such as where there is a Pending petition for review in the CTA
from the decision on the protested assessment (Republic v. Ker &
Co., GR L-21609; September 29, 1966); 
 10. Pilipinas Petroleum Cases
Silkair (Singapore) PTE, Ltd., an international carrier, purchased
5. Where CIR and the taxpayer Agreed in writing for the extension of the aviation gas from Petron Corporation, which it uses for its operations.
It now claims for refund or tax credit for the excise taxes it paid
assessment, the tax may be assessed within the period so agreed
claiming that it is exempt from the payment of excise taxes under the
upon 
 provisions of Sec. 135 of the NIRC of 1997 which provides that
petroleum products are exempt from excise taxes when sold to exempt
6. When the taxpayer Requests for reinvestigation which is granted by the entities or agencies covered by tax treaties, conventions, and other
Commissioner; 
Only the period to collect is suspended international agreements for their use and consumption.
because assessment has been done at this point (Ingles, 2015).

The request must be granted by the CIR. A request for Silkair further anchors its claim on Article 4(2) of the Air Transport
Agreement between the Government of the Republic of the Philippines
reconsideration alone does not suspend the period to collect. 

and the Government of the Republic of Singapore (Air Transport
Agreement between RP and Singapore) which exempts fuel, lubricants,
7. When there is an Answer filed by the BIR to the petition for review in spare parts, regular equipment and aircraft of the contracting parties
the CTA (Hermanos v. CIR, GR. No. L-24972. September 30, 1969) from the customs duties, inspection fees and other duties or taxes.
where the court justified this by saying that in the answer filed
by the BIR, it prayed for the collection of taxes. 
 Silkair likewise argues that it is exempt from indirect taxes because the
Air Transport Agreement between RP and Singapore grants exemption
When Commissioner is prohibited from making the assessment or collection from the same customs duties,inspection fees and other duties or taxes
of taxes in a proceeding in court imposed in the territory of the first Contracting Party. It invokes
Maceda v Macaraig which upheld the claim for tax credit or refund by
the National Power Corporation (NPC) on the ground that the NPC is
When in the opinion of the CTA, the collection by the BIR
exempt even from payment of indirect taxes.
may jeopardize the interest of the Government and/or the taxpayer, the Court Is Silkair entitled to the tax refund or credit it seeks? Reason out your
in any stage of the proceeding may suspend the said collection and answer.
require the taxpayer either to deposit the amount claimed or to file a
surety bond for not more than double the amount with the Court (Sec. Silkair is not entitled to tax refund or credit for the following reasons:
11, R.A. No. 1125).

Page 51 of 57
a. The excise tax on aviation fuel is an indirect tax. The proper party to
question, or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if
he shifts the burden thereof to another.
The NIRC provides that the excise tax should be paid by the manufacturer
or producer before removal of domestic products from place of production.
Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is
entitled to claim a refund based on Section 135 of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the
price which Silkair had to pay as a purchaser.
b. Silkair could not seek refuge under Maceda v. Macaraig Jr GR No.
88291, May 31, 1991, 197 SCRA 771, which upheld the claim for tax credit
or refund by the National Power Corporation on the ground that the NPC is
exempt even from payment of indirect taxes.
In Commissioner of Internal Revenue v Philippine Long Distance
Telephone Company, GR No, 140230, the Supreme Court clarified the
ruling in Maceda vs Macaraig. It may be so that in Maceda v Macaraig the
Court held that an exemption from “all taxes” granted to the National Power
Corporation under its charter includes both direct and indirect taxes.
An exemption from all taxes excludes indirect taxes, unless the exempting
statute, like NPCs charter, is so couched as to include indirect tax from the
exemption. Wrote the Court. The amendment under Republic Act No. 6395
enumerated the details covered by the exemption. Subsequently, P.D. 380,
made even more specific the details of the exemption of NPC to cover,
among others, both direct and indirect taxes on all petroleum products used
in its operation. Presidential Decree No. 938 [NPCs amended charter]
amended the tax exemption by simplifying the same law in general terms. It
succinctly exempts NPC from all forms of taxes, duties[,] fees. The use of
the phrase all forms of taxes demonstrates the intention of the law to give
NPC all the tax exemptions it has been enjoying before
The exemption granted under Section 135 (b) of the NIRC of 1997 and
Article 4(2) of the Air Transport Agreement between RP and Singapore
cannot, without a clear showing of legislative intent, be construed as
including indirect taxes. Statutes granting tax exemptions must be construed
Page 52 of 57
in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority, and if an exemption is found to exist, it must not be enlarged by
construction. (Silkair Singapore v CIR,GR No. 173594)
a. HOWEVER look at the Ruling in CIR vs Pilipinas Shell Corp GR No.
188497 but which ruling was meanwhile reversed upon reconsideration by
the First Division through its resolution in GR No. 188497 which ruling on
the reconsideration was reiterated in Chevron Philippines vs CIR GR No.
210836
1. Illustrative case of refund to the statutory taxpayer.
Chevron sold and delivered petroleum products to Clark Development
Corporation (CDC), an entity exempt from both direct and indirect taxes in
the period from August 2007 to December 2007. Chevron did not pass on to
CDC the excise taxes paid on the importation of the petreoleum products
sold to CDC in taxable year 2007; hence on June 26,2009, it filed an
administrative claim for tax refund or issuance of tax credit certificate in the
amount of P6,542,400.00.
Considering that respondent Commissioner of Internal Revenue (CIR) did
not act on the administrative claim for tax refund or tax credit, Chevron
elevated its claim to the CTA by petition for review on June 29,2009. The
CTA First Division denied Chevron's judicial claim for tax refund or tax
credit through its decision dated July 31,2012, and later on also denied
Chevron's Motion for Reconsideration on November 20, 2012.
Chevron appealed to the CTA En Banc (CTA EB No. 964), which in the
decision dated September 30, 2013, affirmed the ruling of the CTA First
Division. Chevron sought reconsideration, but the CTA En Banc denied its
motion for that purpose in the resolution dated January 7, 2014.
Chevron appealed to the Supreme Court, but the Court (Second Division)
denied the petition for review on certiorari through the resolution
promulgated on March 19,2014 for failure to show any reversible error on
the part of the CTA En Banc.
Hence, Chevron filed the Motion for Reconsideration, submitting that it was
entitled to the tax refund or tax credit because ruling promulgated on April
25, 2012 in Pilipinas Shell, on which the CTA En Banc had based its denial
of the claim of Chevron,was meanwhile reconsidered by the Court's First
Division on February 19,2014.
Is Chevron entitled to the tax refund or tax credit for the excise taxes
paid on the importation of petroleum products that it had sold to CDC
in 2007?
Yes. Chevron as the statutory taxpayer is entitled to the refund.
Excise tax on petroleum products is essentially a tax on property, the direct
liability for which pertains to the statutory taxpayer (i.e., manufacturer,
producer or importer). Any excise tax paid by the statutory taxpayer on
petroleum products sold to any of the entities or agencies named in Section
135 of the National Internal Revenue Code (NIRC) exempt from excise tax
is deemed illegal or erroneous, and should be credited or refunded to the
ayor pursuant to Section 204 of the NIRC. This is because the exemption
granted under Section 135 of the NIRC must be construed in favor of the
property itself, that is, the petroleum products.
Accordingly, the excise taxes that Chevron paid on its importation of
petroleum products subsequently sold to CDC were illegal and erroneous,
and should be credited or refunded to Chevron in accordance with Section
204 of the NIRC.
Petroleum products sold to entities such as CDC, that are by law exempt
from direct and indirect taxes are exempt from excise tax. The phrase which
are by law exempt from direct and indirect taxes describes the entities to
whom the petroleum products must be sold in order to render the exemption
operative. Section 135(c) should thus be construed as an exemption in favor
of the petroleum products on which the excise tax was levied in the first
place.
The exemption cannot be granted to the buyers – that is, the entities that are
by law exempt from direct and indirect taxes – because they are not under
any legal duty to pay the excise tax. But the status of the petroleum products
as exempt from the excise taxes would be confirmed only upon their sale to
CDC in 2007 (or, for that matter, to any of the other entities or agencies
listed in Section 135 of the NIRC).
Before then, Chevron did not have any legal basis to claim the tax refund or
the tax credit as to the petroleum products. Consequently, the payment of
the excise taxes by Chevron upon its importation of petroleum products was
Page 53 of 57
deemed illegal and erroneous upon the sale of the petroleum products to
CDC. Section 204 of the NIRC explicitly allowed Chevron as the statutory
taxpayer to claim the refund or the credit of the excise taxes thereby paid.
It is noteworthy that excise taxes are considered as a kind of indirect tax, the
liability for the payment of which may fall on a person other than whoever
actually bears the burden of the tax.
Simply put, the statutory taxpayer may shift the economic burden of the
excise tax payment to another – usually the buyer. In cases involving excise
tax exemptions on petroleum products under Section 135 of the NIRC, the
Court has consistently held that it is the statutory taxpayer, not the party
who only bears the economic burden, who is entitled to claim the tax refund
or tax credit.
The Supreme Court has also made clear that this rule does not apply where
the law grants the party to whom the economic burden of the tax is shifted
by virtue of an exemption from both direct and indirect taxes. In which case,
such party must be allowed to claim the tax refund or tax credit even if it is
not considered as the statutory taxpayer under the law. (Chevron Philippines
vs CIR GR No. 210836)
The general rule applies here because Chevron did not pass on to CDC, an
entity exempt from direct and indirect taxes. The excise taxes paid on the
importation of the petroleum products.
b. Query: May Petron in the case of Silkair now ask for a refund in the
light of the ruling in CIR vs Shell that was reversed upon
reconsideration by the First Division which ruling on the
reconsideration was reiterated in Chevron v CIR?
No. Petron could not ask for the refund of the taxes it passed on Silkair.
There is nothing to be refunded to Petron because it already recovered the
excise tax it paid when it passed on the same to Silkair.
What about Silkair may it recover the excise taxes passed on to it by
Petron?
No. Silkair could not recover despite the new doctrine because of the
following reasons:
1. Its right is barred by prescription as it is now more than 2 years
 from the time the excise tax was paid.
2. The operative fact doctrine finds application and the new ruling
does not have retroactive effect. While this may be so, future
Petrons sales of aviation gas to Silkair should not subject to excise
taxes.
11. Tax Evasion
Does resort to tax-saving devices constitute fraud under our tax law?
Explain your answer. (1966)
Suggested answer: No. There is fraud when there is a deliberate intention,
employing means outside the law, to deprive the government of its right to
collect taxes.
Resort to tax-saving devices does not constitute fraud so long as legally
permissible means and the method used by the taxpayer is in good faith and
at arms length. (Commissioner of Internal Revenue v. The Estate of Benigno
P. Toda, Jr., etc., G.R. No. 147188, September 14, 2004)
This is because the taxpayer has the legal right by means permitted by law
to:
1. Decrease the amount of what could be his taxes, or
2. Altogether avoid them. (Delpher Trades Corp., et al., v. Intermediate
Appellate Court, et al., 157 SCRA 349, arrangement and numbering
supplied)
A, after studying his tax problems, decided to withdraw his bank
deposits and to buy non-taxable or tax-exempt securities. Does “A’s”
acts constitute tax evasion which is penalized? Explain. (1972, adapted)
Suggested answer: No. Tax evasion is the deliberate intention, using illegal
means, to deprive the government of its right to collect taxes.
There is no law that prohibits the withdrawal of bank deposits to use the
proceeds to buy non-taxable or tax-exempt securities. What was resorted to
by “A” is tax avoidance.
Page 253
Choose the correct answer: Tax avoidance –
(A) is a scheme used outside of those lawful means and, when availed
of, it usually subjects the taxpayer to further additional civil or
criminal liabilities.
(B) is a tax saving device within the means sanctioned by law.
Page 54 of 57
(C) is employed by a corporation, the organization of which is
prompted more on the mitigation of tax liabilities than for
legitimate business purpose.
(D) is any form of tax deduction scheme, regardless if the same is legal
or not. (2014)
Suggested Answer: (B)
Mr. Pascual’s income from leasing his property reaches the maximum
rate of tax under the law. He donated one-half of his said property to a
non-stock, non-profit educational institution whose income and assets
are actually, directly and exclusively used for educational purposes and
therefore qualified for tax exemption under Article XIV, Section 4(3) of
the Constitution and Section 30(h) of the Tax Code. Having thus
transferred a portion of his said asset, Mr. Pascual succeeded in paying
a lesser tax on the rental income derived from his property. Is there tax
avoidance or tax evasion? Explain. (2000)
There is tax avoidance because it is legally permissible for Mr. Pascual to
make the donation.
Henry, a U.S. naturalized citizen, went home to the Philippines to
reacquire Philippine citizenship under R.A. 9225. His mother left him a
lot and building in Makati City and he wants to make use of it in his
trading business. Considering that he needs money for the business, he
wants to sell his lot and building and make use of the consideration.
However, the lot has sentimental value and he wants to reacquire it in
the future. A friend of Henry told him of the “sale-leaseback
transaction” commonly used in the U.S. which is also used for tax
reduction. Under said transaction, the lot owner sells his property to a
buyer on the condition that he leases it back from the buyer. At the
same time, the property owner is granted an option to repurchase the
lot on or before an agreed date. Henry approaches you as a tax lawyer
for advice.
Explain what tax benefits, if any, can be claimed by Henry and the
buyer from the sale-leaseback transaction? (2016)
Henry’s lease payments may be considered as rental expense that may be
deducted as ordinary and necessary expenses from the operation of his
trading business. On the other hand, the buyer when he leases back the
property to Henry is using it in his trade and business of renting out
properties. Thus, he could deduct as ordinary and necessary expenses,
depreciation, repairs and maintenance, real property and other taxes, and
other expenses incidental to renting out the property to Henry.
Weak Alternative Answer: There are no tax benefits that could be availed of
by both Henry and the buyer. This is so because the BIR would consider the
sale-lease back transaction as a devise to deprive the government of its right
to collect taxes. The sale-leaseback is merely simulated transaction, there
being no effective transfer of ownership because of the option to purchase.
Henry would surely repurchase the property because of its sentimental
value.
Henry could not deduct his lease payments as rental because he is taking
title to the property in the future. [NIRC of 1997, Sec. 34 (A) (1) (a) (2)] On
the other hand, the rental proceeds earned by the buyer would be considered
as income from whatever source taxable at gross without any deduction.
Page 255
What is meant by tax evasion? xxx xxx (1989, paraphrasing
supplied)
Suggested Answer: A scheme used outside of lawful means and when
availed of, usually subjects the taxpayer to further or additional civil or
criminal liabilities. [Commissioner of Internal Revenue v. The Estate of
Benigno P. Toda, Jr., etc., G.R. No. 147188, September 14, 2004 citing Jose
Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence 44 (2nd ed.,
2000)]
A term that connotes fraud through the use of pretenses and forbidden
devices to lessen or defeat taxes. (Yutivo Sons Hardware Company v. Court
of Tax Appeals, 1 SCRA 160)
Page 256
“B” who wishes to avoid the payment of taxes assessable on the
transaction was advised by his tax consultant to make it appear on the
deed of sale that the selling price was only P200,000 although it was
actually P300,000. Is this tax avoidance or tax evasion? Explain. (1972)
Suggested Answer: This is tax evasion because it is illegal to misdeclare the
true selling price.
Josel agreed to sell his condominium unit to Jess for P2.5 Million. At
the time of the sale, the property had a zonal value of P2.0 Million.
Page 55 of 57
Upon the advice of a tax consultant, the parties agreed to execute two
deeds of sale, one indicating the zonal value of P2.0 Million as the
selling price and the other showing the true selling price of P2.5 Million.
The tax consultant filed the capital gains tax return using the deed of
sale showing the zonal value of P2.0 Million as the selling price.
Discuss the tax implications and consequences of the action taken by
the parties. (2005)
Suggested Answer: There is tax evasion because there was a deliberate
intention to deprive the government of its right to collect taxes. The basis
for the capital gains taxes as well as the documentary stamp tax should have
been the true gross selling price. This is so, because the basis for the
presumed capital gains tax is whichever is the higher between the zonal
valuation and the gross selling price.
A deficiency tax is thus due for both the capital gains tax and the
documentary stamp tax which should be paid plus a fraud surcharge of 50%
of the deficiency for filing a fraudulent return.
Furthermore, the buyer and the seller together with the tax consultant may
be the subject of criminal prosecution for tax evasion.
Maria Suerte, a Filipino citizen, purchased a lot in Makati City in 1989
at a price of P1 million. Said property has been leased to MAS
Corporation, a domestic corporation engaged in manufacturing paper
products, owned 99% by Maria Suerte. In October 2016, EIP
Corporation, a real estate developer, expressed its desire to buy the
Makati property at its fair market value at P300 million, payable as
follows: (a) P60 million downpayment; and (b) balance, payable equally
in twenty four (24) monthly consecutive instalments. Upon advice of a
tax lawyer, Maria Suerte exchanged her Makati property for shares of
stock of MAS Corporation. A BIR Ruling, confirming the tax-free
exchange of property for shares of stock, was secured from the BIR
National Office and a Certificate Authorizing Registration was issued
by the Revenue District Officer (RDO) where the property was located.
Subsequently, she sold her entire stockholdings in MAS Corporation to
EIP Corporation for P300 million. In view of the tax advice, Maria
Suerte paid only the capital gains tax of P29,895,000 (P100,000 x 5%
plus P298,900 x 10%) instead of the corporate income tax of
P89,700,000 (30% on P299 million gain from sale of real property).
After evaluating the capital gains tax payment, the RDO wrote a letter
to Maria Suerte stating that she committed tax evasion.

Is the contention of the RDO tenable? Or was it tax avoidance that
Maria Suerte had resorted to? Explain. (2008 dates, rate and amounts
supplied)
Suggested answer: The contention of the RDO is tenable because Maria
Suerte committed tax evasion.
The above scheme employed by Marua Suerte is not a legitimate tax
planning one tainted with fraud. It is obvious that the exchange of the lot
with the shares of MAS was to deuce the amount of tax to be paid specially
that the disposition of the MAS shares would then subject the capital gains
to the 5% tax on the first P100,000 and 10% on the amounts exceeding
P100,000 and not the 30% corporate income tax. The exchange of the lot
with MAS shares was merely a tax ploy, a sham, and without business
purpose and economic substance. This is so because Maria Suerte already
had control of MAS up to the extent of 99%. The fact that Maria Suerte
through her counsel asked the opinion of the BIR on the tax consequence of
the two sale transactions does not erase the taint of fraud.
The intermediary transaction, i.e., the exchange of the shares of stock,
which was prompted more on the mitigation of tax liabilities than for
legitimate business purpose constitutes one of tax evasion. (Commissioner
of Internal Revenue v. The Estate of Benigno P. Toda, Jr., etc., G.R. No.
147188, September 14, 2004, 438 SCRA 29)
Page 258
Prior to the VAT law, sales of cars were subject to a sales tax but the
tax applied only to the original or the first sale; the second and
subsequent sales were not subject to tax.
Deltoid Motors, Inc. (Deltoid) hit on the idea of setting up a wholly-
owned subsidiary, Gonmad Motors, Inc. (Gonmad), and of selling its
assembled cars to Gonmad at a low price so it would pay a lower tax on
the first sale. Gonmad would then sell the cars to the public at a higher
price without paying any sales tax on the subsequent sale.
Characterize the arrangement.
(A) The plan is a legitimate exercise of tax planning and merely takes
advantage of a loophole in the law.
(B) The plan is legal because the government collect taxes anyway.
(C) The plan is improper; the veil of corporate fiction can be pierced so
that the second sale will be considered the taxable sale.
Page 56 of 57
(D) The government must respect Gonmad’s separate judicial
personality and Deltoid’s taxable sale to it. (2013)
Suggested Answer: (C)
On August 31, 2016, Haelton Corporation (HC), thru its authorized
representative Ms. Pares, sold a 16-storey commercial building known
as Haelton Building to Mr. Belly for P100 million. Mr. Belly, in turn,
sold the same property on the same day to Bell Gates, Inc. (BGI) for
P200 million. These two (2) transactions were evidenced by two (2)
separate Deeds of Absolute Sale notarized on the same day by the same
notary public.
Investigations by the Bureau of Internal Revenue (BIR) showed that:
(1) the Deed of Absolute Sale between Mr. Belly and BGI was notarized
ahead of the sale between HC and Mr. Belly; (2) as early as May 17,
2016, HC received P40 million from BGI, and not from Mr. Belly; (3)
the said payment of P40 million was recorded by BGI in its books as of
June 30, 2016 as investment in Haelton Building, and (4) the substantial
portion of P40 million was withdrawn by Ms. Pares through
declaration of cash dividends to all its stockholders.
Based on the foregoing, the BIR sent Haelton Corporation a Notice of
Assessment for deficiency income tax arising from an alleged simulated
sale of the aforesaid commercial building to escape the higher corporate
income tax rate of thirty percent (30%). What is the liability of Haelton
Corporation, if any? (2014, dates supplied)
Suggested Answer: Haelton Corporation (HC), being a juridical person is
only civilly liable for the deficiency income tax plus fraud surcharge of 50%
of the deficiency for entering into a fraudulent transaction resulting into tax
evasion.
There was fraud because there was deliberate intention to deprive the
government of its right to collect the higher corporate income tax through
the simulated sale to Mr. Belly at a lower price instead of the higher sale to
BGI. This is evident from the fact that Mr. Belly already sold the property to
BGI prior to the sale to him by HC of the property. Furthermore, the
downpayment to HC did not come from Mr. Belly but from BGI.
The intermediary transaction (the simulated sale to Mr. Belly), was
prompted more on the mitigation of tax liabilities than for legitimate
business purpose constitutes one of tax evasion. (CIR v. Benigno Toda, Jr.,
G.R. No. 147188, September 14, 2004, 438 SCRA 290)
Page 259
Lucky V Corporation (Lucky) owns a 10-storey building on a 2,000
square meter lot in the City of Makati. It sold the lot and building to
Rainier for P80 million. One month after, Rainier sold the lot and
building to Healthy Smoke Company (HSC) for P200 million. Lucky
filed its annual return and declared its gain from the sale of the lot and
building in the amount of P750,000.00
An investigation conducted by the BIR revealed that two months prior
to the sale of the properties to Rainier, Lucky received P40 million from
HSC and not from Rainier. Said amount of P40 million was debited by
HSC and reflected in its trial balance as “other inv. – Lucky Bldg.” The
BIR concluded that there is a tax evasion since the real buyer of the
properties of Lucky is HSC and not Rainier. It issued an assessment for
deficiency income tax in the amount of P79 million against Lucy. Lucky
argues that it resorted to tax avoidance or a tax saving device, which is
allowed by the NIRC and BIR rules since it paid the correct taxes based
on the sale to Rainier. On the other hand, Rainier and HSC also paid
the prescribed taxes arising from the sale by Rainier to HSC. Is the BIR
correct in assessing taxes on Lucky? Explain. (2016)
3. As forms of escape from taxation, we hear of “tax evasion” and “tax
avoidance.” Differentiate between them and give an instance of each.
(1980)
4. xxx xxx tax evasion? How is it distinguished from tax
avoidance? (1989, paraphrasing supplied)
5. Distinguish tax evasion from tax avoidance. (1996)
The following are the distinctions between tax avoidance and tax evasion:
a. Legality. Tax avoidance is legal WHILE tax evasion is illegal.
b. Validity. Tax avoidance is valid WHILE tax evasion is invalid.
c. Effect. Tax avoidance is minimization of taxes WHILE tax evasion
almost always results in absence of tax payments.
d. Penalties. Tax avoidance does not result to any penalties WHILE tax
evasion warrants the imposition of civil, administrative and criminal
penalties.
Warning: Do not capitalize WHILE when answering Bar examination
questions.

Suggested Answer: Yes. The BIR is correct in assessing the taxes on Lucky.
There was no tax avoidance, instead there was tax evasion on the part of
Lucky because of the simulated sale to Rainier which had its apparent
purpose to reduce the income tax to be paid by Lucky on the sale to HSC.
The sale to Rainier was simulated as evidenced by the fact that two months
prior to the sale of the properties to Rainier, Lucky received P40 million
from HSC and not from Rainier.

The intermediary transaction (the simulated sale to Rainier), was prompted

more on the mitigation of tax liabilities than for legitimate business purpose
constitutes one of tax evasion. (Commissioner of Internal Revenue v. The
Estate of Benigno P. Toda, Jr., etc., G.R. No. 147188, September 14, 2004,
438 SCRA 290)

Page 260
1. Differentiate “tax avoidance” from “tax evasion.” (1966)
2. Is tax evasion the same as tax avoidance? Explain fully your answer.
(1976)

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