04b TOM Taxation Law Bar Reviewer - Pages PDF

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TOM Bar Reviewer on Taxation Law II

COVERAGE
Module 9. Transfer Taxes I: Estate Tax 2
Module 10. Transfer Taxes II: Donor’s Tax 51
Module 11. LGC I: Local Government Taxation 73
Module 12. LGC II: Real Property Taxation 139
Module 13. Customs Modernization and Tariff Act 179
Module 14. Tax Remedies under the NIRC 246
Module 15. Judicial Remedies 362
Module 16. Organization and Function of the SOF & BIR 379
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*The key bar items are marked with 5 asterisks (*****)
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Module 9. Transfer Taxes I: Estate Tax
ON TRANSFER TAXES 4
INCOME TAX (IT) vs. VAT vs. ET vs. DT***** 9
FOUR KINDS OF ESTATES & DONORS 10
KINDS OF PROPERTIES FOR TRANSFER TAXATION 10
WHERE TAX RETURN IS FILED 12
MORE ON ESTATE TAXATION 12
GROSS ESTATE (GE) 12
ESTATE TAX NUANCES 13
NATURE & CHARACTERISTICS OF ESTATE TAX 13
REQUISITES for the imposition of Estate Tax (DANd): 15
TIME & TRANSFER OF PROPERTIES 15
Estate Tax vs. Inheritance tax 15
THEORIES FOR THE IMPOSITION OF ESTATE TAX 16
THEORIES vs. PURPOSES FOR IMPOSING ESTATE TAX 16
ESTATE PLANNING 17
ESTATE TAX RATES 17
A. Some considerations under Sec 84 NIRC: 17
B. Valuation of the Gross Estate 18
C. Payment of Tax [SEC. 91] 21
D. Summary of Effects of non-payment of ET 26
Determination of the Gross Estate 27
A. Types of Estate Taxpayers; Classification of Decedent 27
B. How are their Gross Estate (GE) and Net Estate (NE) determined? 27
***ON SURVIVORSHIP AGREEMENTS 31
ITEMS OF INCLUSIONS IN THE GROSS ESTATE 31
A. Decedent's interest (DI) 32
B. Transfer in contemplation of death (TCD) 34
G. Transfers of insufficient consideration (TIC) 38
C. Revocable transfer (RT) 38
D. Property passing under general power of appointment (GPA); 39
E. Proceeds of life insurance****** 39
F. Prior interests; 39
H. Capital of the Surviving Spouse (misplaced provision) 40
ALLOWABLE DEDUCTIONS FROM THE GE 40
(A) Deductions Allowed to the Estate of Citizen or a Resident. 42
(1) Expenses, losses, indebtedness, and taxes: 42
1a. Funeral Expense (FE) 42

1b. Judicial Expenses (JE) 43
1c. Claims against the estate (CAE) 
1d. Claims against insolvent persons (CAIP) 43
CLAIMS AGAINST THE ESTATE 44
1e. Unpaid Mortgage (UM) 46
1f. Unpaid Taxes (UT) 47
(2) Property Previously Taxed (PPT) 47
(3) Transfers for Public Use (TPU) 48
(4) Family Home (FH) 49
(5) Standard Deduction (SD) 49
(6) Medical Expenses (ME) 49
(7) Amount Received by Heirs under RA 4917 (Death Benefits) 49
(B) Deductions Allowed to Nonresident Estates 49
(C) Conjugal Share of the Surviving Spouse 49
EXEMPTIONS 50
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SUMMARY OF TAX CONSEQUENCES IN ESTATE TAX

LOCATION INCL DEDUCTIONS [Sec. 86]
IN OUT DT2 FE JE CAE CAIP UM CL VD TPU FH SD ME RB CSSS
RP3
RC Y Y Y Y Y Y Y Y Y Y Y 1M 1M 1M 1M Y
NRC Y Y Y Y Y Y Y Y Y Y Y 1M 1M 1M 1M Y
RA Y Y Y Y Y Y Y Y Y Y Y 1M 1M 1M 1M Y
NRA Y N Y iP iP iP iP iP iP Y Y N N N N Y
SUMMARY OF TAX CONSEQUENCES IN DONOR’S TAX

K of D LOCATION DEDUCTIONS
WITHIN WITHOUT DOWRIES TPU NSNP-RCE
RC Y Y 10K Y Y
NRC Y Y 10K Y Y
RA Y Y 10K Y Y
NRA Y N N Y Y
*NRA is the only one liable for ET/DT for properties solely located in the
Philippines.1
ON TRANSFER TAXES
1. Estate and Donor’s taxes are both transfer taxes. They are only paid once.
a. Estate Tax (ET): paid upon death. No death, no ET. It is a tax on the
transfer of property taking effect upon death.
b. Donor’s Tax (DT): paid for every gift given.
*****Transfer Tax: imposed upon the PRIVILEGE of disposing
GRATUITOUSLY private properties. These are levied on the transmission of
properties [Two kinds of transfer taxes]
a. from a decedent to his heirs or [ESTATE TAX; donations mortis causa]2
1 Miguel, a citizen and resident of Mexico, donated US$1,000.00 worth of stocks in Barack Motors
Corporation, a Mexican company, to his legitimate son, Miguelito, who is residing in the
Philippines and about to be married to a Filipino girlfriend. Mexico does not impose any transfer
tax of whatever nature on all gratuitous transfers of property. Is Miguel entitled to the rule of
reciprocity in order to be exempt from the Philippine donor’s tax? Why or why not? (3%)
SUGGESTED ANSWER: No. *****The donation is not subject to the Philippine donor's tax
because the donor is a non-resident alien and the property donated is a property not situated in
the Philippines. The rule of reciprocity applies only if the property transferred by a non-resident
alien is an intangible personal property situated in the Philippines. This is designed to reciprocate
the exemption from donor's tax granted by a foreign country to Filipinos who are not residing
thereat. (Section 104, NIRC). (BAR 2009)
[] Is Miguel entitled to claim a dowry exclusion? Why or why not? (3%) SUGGESTED
ANSWER: Miguel, a non-resident alien, is not allowed any dowry exclusion. *****The dowry applies
only to a donor who is either a citizen or resident of the Philippines (Section 101(AX1), NIRC).
(BAR 2009)
2 DISTINGUISHING CHARACTERISTICS OF A D-MORTIS CAUSA 
(1) the transfer conveys no title or ownership to the transferee before the death of the tansferor, or the
transferor (meaning testator) retains the ownership, full or naked (domino absoluto or nuda proprietas) (Vidal
vs. Posadas, 58 Phil. 108; De Guzman vs. Ibea, 67 Phil. 633;
(2) the transfer is revocable before the transferor's death and revocability may be provided for indirectly
by means of a reserved power in the donor to dispose of the properties conveyed (Bautista vs.
Sabiniano, 92 Phil. 244), and
(3) the transfer would be void if the transferor survived the transferee.
*In other words, in a donation mortis causa it is the donor's death that determines that acquisition
of, or the right to, the property donated, and the donation is revocable at the donor's will.
*Where the donation took effect immediately upon the donee's acceptance thereof and it was subject
to the resolutory condition that the donation would be revoked if the donee did not give the donor a
certain quantity of rice or a sum of money, the donation is inter vivos (Zapanta vs. Posadas, Jr., 52 Phil.
557).
b. from a donor to a donee. [DONOR’S TAX; donations inter vivos]3
3 ***NUANCES OF DONATION INTER VIVOS

1. A clear instance where the donor made an inter vivos donation is found in De Guzman vs. Ibea 67
Phil. 633. In that case, it was provided in the deed that the donor donated to the donee certain
properties so that the donee "may hold the same as her own and always" and that the donee
would administer the lands donated and deliver the fruits thereof to the donor, as long as the donor
was alive, but upon the donor's death the said fruits would belong to the donee. It was held that
the naked ownership was conveyed to the donee upon the execution of the deed of donation and,
therefore, the donation became effective during the donor's lifetime.
2. In Sambaan vs. Villanueva, 71 Phil. 303, the deed of donation contained conflicting provision. It
was provided in the deed that the donation was made "en consideracion al afecto y carino" of the
donor for the donee but that the donation "surtira efectos despues de ocurrida mi muerte (donor's
death). That donation was held to be inter vivos because death was not the consideration for the
donation but rather the donor's love and affection for the donee. The stipulation that the properties
would be delivered only after the donor's death was regarded as a mere MODALITY of the
contract which did not change its inter vivos character. The donor had stated in the deed that he was
donating, ceding and transferring the donated properties to the donee. (See Joya vs. Tiongco, 71
Phil. 379).
3. In Laureta vs. Mata and Magno, 44 Phil. 668 the deed of donation provided that the donor was
donating mortis causa certain properties as a reward for the donee's services to the donor and as a
token of the donor's affection for him. The donation was made under the condition that "the
donee cannot take possession of the properties donated before the death of the donor"; that the
'donee should cause to be held annually masses for the repose of the donor's soul, and that he
should defray the expenses for the donor's funeral. It was held that the said donation was inter vivos
despite the statement in the deed that it was mortis causa . The donation was construed as a
conveyance in praesenti ("a present grant of a future interest") because it conveyed to the donee the
title to the properties donated "subject ONLY to the life estate of the donor" and because the
conveyance took effect upon the making and delivery of the deed. The acceptance of the
donation was a circumstance which was taken into account in characterizing the donation as inter vivos.
4. In Balacui vs. Dongso, supra, the deed of donation involved was more confusing than that found in the
Laureta case. In the Balaqui case, it was provided in the deed that the donation was made in
consideration of the services rendered to the donor by the donee; that "title" to the donated
properties would not pass to the donee during the donor's lifetime, and that it would be only
upon the donor's death that the donee would become the "true owner" of the donated properties.
However, there was the stipulation that the donor bound herself to answer to the donee for the
property donated and that she warranted that nobody would disturb or question the donee's right.
Notwithstanding the provision in the deed that it was only after the donor's death when the 'title' to the
donated properties would pass to the donee and when the donee would become the owner thereof, it
was held in the Balaqui case that the donation was inter vivos. It was noted in that case that the donor,
in making a warranty, implied that the title had already been conveyed to the donee upon the
execution of the deed and that the donor merely reserved to herself the "possesion and usufruct"
of the donated properties.
5. In Concepcion vs. Concepcion, 91 Phil. 823, it was provided in the deed of donation, which was also
styled as mortis causa , that the donation was made in consideration of the services rendered by the
donee to the donor and of the donor's affection for the donee; that the donor had reserved what was
necessary for his maintenance, and that the donation "ha de producir efectos solamente por muerte de
la donante”. It was ruled that the donation was inter vivos because the stipulation that the donation
would take effect only after the donor's death "simply meant that the possession and
enjoyment, of the fruits of the properties donated' should take effect only after the donor's
death and not before".
DONATION INTER VIVOS DONATION MORTIS CAUSA

An utter vivos donation of real property must be embodied in a last will and testament (Art. 728).
evidenced by a public document and should be It should not be called donation mortis causa . It is
accepted by the donee in the same deed of in reality a legacy (Manresa). If not embodied in a
donation or in a separate instrument. In the latter valid will, the donation is void.
case, the donor should be notified of the
acceptance in an authentic form and that step
should be noted in both instruments. (Art. 749,
Civil Code. As to inter vivos donation of personal
property, see art. 748).
express waiver of the right of free disposition retain the right to control and dispose at will of
would place the inter vivos character of the the property before their death, without the
donation beyond dispute consent or intervention of the beneficiary, since
the reservation of such right would be a
conclusive indication that the transfer' would be
effective only at the donor's death, and, therefore,
the formalities of testaments should be observed
the effectivity is determined by the time when the full or naked ownership (dominum plenum or
dominium directum) of the donated properties is transmitted to the donees. The execution of a public
instrument is a mode of delivery or tradition
if the donation takes effect during the donor's made in contemplation of the donor's death,
lifetime or independently of the donor's death, meaning that the full or naked ownership of the
meaning that the full or naked ownership (nuda donated properties will pass to the donee only
proprietas) ) of the donated properties passes to because of the donor's death, then it is at that
the donee during the donor's lifetime, not by time that the donation takes effec
reason of his death but because of the deed of
donation,
*****Are donations inter vivos and donations mortis causa subject to estate taxes?
(1994): Only DMC are subject to ET. DIV are subject to DT. However, DIV
whose effective control remains with the donor, like in transfers in contemplation
of death or revocable transfers, may be taxed for estate tax purposes, since the
transferor’s control thereon extends up to the time of his death. In effect, they are
DIV in form but they are DMC in substance.
2. Both are transactional because these are really based on transactions.
a. ESTATE TAX: Tax on donations mortis causa;4
4 *Determinative test of a donation mortis causa (DMC): its EFFECTIVITY, which is from the
moment of death of the decedent. *****Two characteristics to determine if it’s a DMC:
1. It’s effective upon death;
2. It is Revocable.
- Is acceptance required in DMC? No.
- Is delivery of the property required in DMC? No.
- Is there a particular form prescribed under NCC for it to be considered a valid donation? Yes,
if it is by testamentary succession—one has to follow the prescribed form; No, if it is by intestate
succession.
- What if the DMC is invalid? There is no more estate tax; but income tax, yes
(Remember: income is the flow of wealth other than a mere return of capital). If the DMC is valid,
there is NO INCOME TAX because it is an EXCLUSION from the gross income (i.e., gifts,
bequests & devices are excluded).
i. tax on the right of the deceased person to TRANSMIT his estate

to his lawful heirs and beneficiaries
ii. AT THE TIME OF DEATH,
iii. and on CERTAIN TRANSFERS made by law as EQUIVALENT
to TESTAMENTARY DISPOSITION.
b. DONOR’s TAX: Tax on donations inter vivos, except when then they
are transfers in contemplation of death or revocable transfers; why? the
transferor’s CONTROL in these cases extends up to the time of his death.
c. Bar 1994: Are donations inter vivos and donations mortis causa subject to estate
taxes? A: Donations inter vivos are subject to donor's gift tax [Sec. 91 (a) Tax Code)]
while donations mortis causa are subject to estate tax (Sec. 77, Tax Code).
******However, donations inter vivos, actually constituting taxable lifetime
like transfers in contemplation of death or revocable transfers (Sec. 78 [b] and
[c], Tax Code) may be taxed for estate tax purposes, the theory being that the
transferor's CONTROL thereon EXTENDS up to the time of his death.
3. Summary of differences between ET & DT:*******
ESTATE TAX DONOR’S TAX
NATURE OF After death of decedent; transfer takes During the lifetime of the donor; may take
TRANSFER place only between natural persons place between natural and juridical persons
Mode of transfer Mortis causa Inter vivos
Basis death Whether transaction is Gratuitous (without
consideration)
AMOUNT P200K P100K
EXEMPT
TAX RATE 5-20% of net estate 2-15% of net gift; 30% for strangers
GRANT OF Yes. Sec. 87, NIRC Yes. Sec. 101, NIRC
EXEMPTION
Value FMV at the time of death regardless FMV at the time the gift was given.
considered of whether or not the estate is properly
settled according to wills and succession.
GRANT OF Yes. Sec 86, NIRC GR: None. NB: However, encumbrance on
DEDUCTION the property donated, if assumed by the
donee and amount specifically provided by
the donor as a diminution of the property
donated may be claimed as deduction

NOTICE Notice of death required in the GR: Notice of donation is not required
REQUIREME following cases: XPNs: 1. Donations to NGO worth at least
NT 1. Transaction subject to estate P50,000. Provided, not more than 30% of
tax;  which will be used for administration
2. Transaction exempt from estate purposes.
tax but exceeds P20,000. 2. Donation to any candidate, political
party, or coalition of parties
*NB: Notice is required in the given
exceptions in order for the donation to be
exempt from donor’s tax and to claim full
deduction of the donation given to qualified
donee.
NOTICE, Within 2 months after the GR: not required
WHEN FILED decedent’s death or after qualifying as XPN (see above): within 30 days after receipt
executor or administrator (1) of the duly-issued CERTIFICATE of
Donation
FILING OF 1. A transfer subject to estate tax; A transfer subject to donor’s tax.
RETURN 2. Exempt from tax but the gross
estate exceeds P200,000; 3.
Estate consists of registered or
registrable property, regardless of
value of gross estate
CONTENTS 1. Value of the gross estate; 2. 1. Each gift made during the calendar year
OF RETURN Deductions under Sec. 86, NIRC; which is to be included in computing net gifts;
3. Other pertinent information; 4. 2. The deductions claimed and allowable; 3.
If gross estate exceeds P2M, Any previous net gifts made during the same
certified by a CPA as to assets, calendar year; 4. The name of the donee; 5.
deductions, tax due, whether paid or not Such further information as may be required
by rules and regulations made pursuant to
law
TIME OF Within 6 months from death of Within 30 days after donation was made
FILING OF decedent
RETURN
EXTENSION 30 days in meritorious cases None
FOR FILING
PAYMENT OF Pay as you file Pay as you file
TAX DUE

EXTENSION GR: Extension of payment is not None
OF PAYMENT allowed [] NB—This is on ET, not DT: [] Does the
XPN: When it would impose CIR have the power to extend the payment
undue hardship upon the estate of estate tax? Yes. *****The Commissioner
or any of the heirs, extension may may allow an extension of time to pay the
be allowed but not to exceed 5 estate tax if the payment on the due date
years in case of judicial settlement would impose undue hardship upon the
or 2 years in case of extrajudicial estate or any of the heirs. The extension, in
settlement. any case, will not exceed two years if the
XPN to XPN: When taxpayer is estate is not under judicial settlement or five
guilty of: 1. Negligence  years if it is under judicial settlement. The
2. Intentional disregard of rules Commissioner may also require the posting
and regulations of a bond to secure the payment of the tax.
3. Fraud (Section 91(B), NIRC).
REQUIREME Bond not exceeding double the N/A
NT TO amount of the tax and with such
GRANT sureties as the commissioner
EXTENSION deems necessary
*****As to FMV in ET: Even if the estate is settled, say, 50 years after death,
the value of the GE is still the value of the estate 50 years ago, that is, at the time
of death. But if you do not pay ET six months after death, there is 25%
surcharge plus 20% interest per annum computed daily. Usually, on the 5th
year, it is already double the amount.
*More on notice of death5 and the E/A.6
INCOME TAX (IT) vs. VAT vs. ET vs. DT*****

1. IT: Taxability is dependent on the source of the income.
2. VAT: it depends on three major areas:
5 Notice of Death to be Filed [SEC. 89] - In all cases of transfers subject to tax, or where, though
exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor,
administrator or any of the legal heirs, as the case may be, within two (2) months after the
decedent's death, or within a like period after qualifying as such executor or administrator, shall
give a written notice thereof to the Commissioner.
6 The Executor or Administrator (E/A) in Estate Tax
1. For the purpose of this Chapter, the term 'executor' or 'administrator' means the: a)
executor or administrator of the decedent, or b) if there is no executor or administrator appointed, qualified,
and acting within the Philippines, then any person in actual or constructive POSSESSION of any
property of the decedent [Sec 91, last par]
2. Discharge of Executor or Administrator from Personal Liability [SEC. 92] - If the
executor or administrator makes a written application to the Commissioner for determination of the
amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon
as possible, and in any event within one (1) year after the making of such application, or if the application is
made before the return is filed, then within one (1) year after the return is filed, but not after the expiration
of the period prescribed for the assessment of the tax in Section 203 shall not (?) notify the executor or
administrator of the amount of the tax. The executor or administrator, upon payment of the amount
of which he is notified, shall be discharged from personal liability for any deficiency in the tax
thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.
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a. sale of goods 
b. sale of service 
c. importation of goods
3. Transfer Taxes: Taxability is dependent on the location of the property.
a. ET: based on the value of properties of the decedent upon death; Mortis
causa
b. DT: based on the value of the gift at the moment of donation; Inter
vivos
[] Taxability of a gift is same with estate tax.
i. Dependent on the location of the property: within or outside of
the Philippines.
ii. In the case of a non-resident alien donor/decedent, only the
properties located in the Philippines shall be subject to DT & NT.
TRANFER TAX INCOME TAX

IMPOSED ON tax on transfer of property tax on income
APPLICABLE RATES Rates are lower:  Rates are higher: 
Estate tax - 5-20% Individual income - 5% to 32%
Donor’s Tax - 2-15%; 30%
EXEMPTIONS lesser exemptions more exemptions
FOUR KINDS OF ESTATES & DONORS

*Similar for both ET & DT. NIRC actually speaks of only two kinds but when
you look closely, you can break them up into four:
1. Resident citizens
2. Non-resident citizens
3. Resident aliens 
4. Nonresident aliens
KINDS OF PROPERTIES FOR TRANSFER TAXATION

******Since taxability is dependent upon the location of the property, what are
these properties?
1. Real Property: if within the PH map;
2. Tangible Personal Property: if within the PH map;
3. Intangible Personal Property 
a. GR: Mobilia sequuntur personam: they follow the domicile of the owner.
b. XPNs:
i. When the shares of stocks have acquired a different situs by
reason of the benefit and protection they are given by another taxing
jurisdiction; and  
ii. When the law itself provides a different situs; EG: [] Under Sec.
104, for the computation of the gross estate or the gross donation/gift of the
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non-resident alien decedent or donor, the following intangible personal properties

shall be considered as from within: ******[Fran-Sha4 (Organized-85-Foreign
Situs-Established)]
a) Franchise which must be exercised in the Philippines;  
b) Shares, obligations or bonds issued by any corporation (or
sociedad anonima) organized or constituted in the Philippines in accordance
with its laws;  
c) Shares, obligations or bonds by any foreign corporation
85% of its business is located in the Philippines;
[] Compare this with Sec. 42 (Dividends issued by a
foreign corporation), which is for purposes of income tax:
- GR: everything is within [Sec 42(A)(2)]
- XPN: if three (3) years prior to the declaration of
dividends, less than 50% of its entire income is derived from PH sources, then
only a portion (proportionate distribution) shall be considered income
within, the rest is without (say 40 within; 60 without).
- cf. Module 1 for a detailed explanation.
[] But for purposes of ET & DT, what is important is
that 85% of the business of the foreign corporation is located in the Philippines.  
d) Shares, obligations or bonds issued by any Foreign
corporation if such shares, obligations or bonds have acquired a business Situs
in the Philippines;
[] This one does not speak of the 85% rule.7 Regardless
of the percentage of business located in PH, if the shares, obligations and bonds
issued by a foreign corporation have acquired a Philippine situs, i.e., they have
acquired the benefits and protection of the Philippine laws, then everything will
be subject to ET or DT because they are considered as from within the Philippines.
[] The law does not make any distinction between a
resident or non-resident foreign corporation.
e) Shares or rights in any partnership, business or industry
Established in the Philippines [Sec. 104, NIRC]
c. XPN to XPN: Reciprocity Rule [Sec. 104 NIRC]; no tax shall be
collected under this Title (estate & donor’s tax) in respect of intangible personal
property: (iow, inclusion to the gross estate is subject to the rule of
reciprocity.)
7X, a multinational corporation doing business in the Philippines donated 100 shares of stock of
said corporation to Mr. Y, its resident manager in the Philippines. What is the tax liability, if any, of
X corporation? ANSWER: Foreign corporations effecting a donation is subject to donor’s tax only if
the property donated is located in the Philippines. Accordingly, donation of a foreign corporation
of its own shares of stocks in favor of resident employees, is not subject to donor’s tax (BIR
Ruling No. 018-87, January 26, 1987). ******However, if 85% of the business of the foreign
corporation is located in the Philippines or the shares donated have acquired business situs in the
Philippines, the donation may be taxed in the Philippines subject to the rule of reciprocity.
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i. TOTAL EXEMPTION: if the foreign country of the non-

resident alien does not impose a transfer tax of any character on the IPP of
Filipinos who are not residents of that foreign country. [Codal: if the decedent
at the time of his death or the donor at the time of the donation was a citizen and
resident of a foreign country which at the time of his death or donation did not
impose a transfer tax of any character, in respect of intangible personal property of
citizens of the Philippines not residing in that foreign country;
ii. PARTIAL EXEMPTION: if the foreign country of the non-
resident alien allows a similar exemption from transfer tax with respect to IPP
owned by Filipinos who are not residents of that foreign country [Code: if the
laws of the foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or
death taxes of every character or description in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign country] EG: if the US
imposes 3%, we will also impose 3%.
[] Effect if the answer to (i) and (ii) is affirmative: then IPPs of the
non-resident alien here are exempt (partial/full) from ET.
[] Nuances of the reciprocity rule based on jurisprudence:
i. Reciprocity must be total. If any of the two states or countries
collects or imposes and does NOT exempt any transfer, death, legacy, or succession
tax of any character, reciprocity does not apply. [CIR v Fisher]
ii. Reciprocity in exemption does not require the “foreign country”
to possess international personality. [CIR v Campos Rueda]
WHERE TAX RETURN IS FILED

1. CGT vs. DT
CAPITAL GAINS TAX ESTATE/DONOR’s TAX
file it in the place paid by donor; paid at place of residence of donor (not based on location of
where the property is property). In the case of NRA decedent/donor pay at the Office of the
located. Commissioner, since they do not live here.
2. NB: In SpecPro, for judicial settlement of estate of non-resident aliens, you can
file the petition anywhere, in any court which has jurisdiction over any of the
properties of the deceased. We don’t follow that in estate tax or donor’s tax. We
file the return and pay the tax due before the Office of the Commissioner.
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MORE ON ESTATE TAXATION
GROSS ESTATE (GE)

1. GE: All properties of the decedent at the time of death. It refers to the value
of all the properties wherever situated within and outside the Philippines provided
that in case of a non-resident alien decedent only those properties located within
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shall be subject to tax.

[] as compared to income tax: what is taxable is income derived during the
12-month period.
2. Codal: [] SEC. 85. Gross Estate. - the value of the gross estate of the decedent
shall be determined by including the value at the time of his death of all
property, real or personal, tangible or intangible, wherever situated:
Provided, however, that in the case of a nonresident decedent who at the time
of his death was not a citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall be included in his
taxable estate.
3. Who is liable for the estate tax?
ESTATE TAX NUANCES

1. Tax on donations mortis causa;
2. It accrues upon the death of the decedent; the ACCRUAL of the tax is
DISTINCT from the OBLIGATION TO PAY the tax
*[Lorenzo v Posadas]: A transmission by inheritance is taxable at the time
of the predecessor’s death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary.
*The tax is measured by the VALUE of the property transmitted at the
time of death, regardless of its appreciation or depreciation.
3. Tax on the RIGHT of the deceased person
a. to TRANSMIT his estate to his lawful heirs and beneficiaries AT THE
TIME OF DEATH,
b. and on CERTAIN TRANSFERS made by law as EQUIVALENT to
TESTAMENTARY DISPOSITION.
4. An EXCISE tax imposed upon the PRIVILEGE
a. OF TRANSMITTING property at the time of death and
b. on the privilege that a person is given in CONTROLLING to a
certain extent the DISPOSITION of his property to take effect upon death.
NATURE & CHARACTERISTICS OF ESTATE TAX

1. Nature of Estate Tax: an EXCISE tax, not a property tax; a tax imposed upon
the privilege of transferring property or shifting of economic benefits and
enjoyment of the property from the dead to the living (donation mortis causa).
*they are not property taxes because their imposition does not rest upon
general ownership but rather they are privilege tax since they are imposed on the
act (or privilege) of passing ownership of property.
2. Characteristics of Estate Tax:
a. EXCISE tax: see notes in number 1, supra
14
b. AD VALOREM tax: it is based on the fair market value as of the time of

death. However, the appraised value of REAL property as of the time of death
shall be used, whichever is higher of the fair market value
i. As determined by the Commissioner (zonal value), or 
ii. As shown in the schedule of values fixed by the Provincial and City
Assessors. (Sec. 88, NIRC)
*in short, the tax rate is based on the VALUE of the property (vs.
specific: based on the physical unit of measurement such as volume, weight,
capacity)
c. DIRECT tax: the amount will be paid by the PERSON LIABLE to
pay and CANNOT BE SHIFTED. NB: ******In case of failure to pay the
estate tax by the executor or administrator (E/A), the HEIRS ARE SUBSIDIARY8
LIABLE to the EXTENT of the SHARES RECEIVED by them (therefore, there
is also JOINT LIABILITY9). The tax burden is therefore not shifted to them in case
of failure to pay by the E/A because in the first instance, they are already jointly liable
with the executor or administrator to the extent of their shares but their liability
arises ONLY upon FAILURE of the E/A to pay the estate tax.
d. NATIONAL: imposed by the National government. It cannot be
imposed by LGUs pursuant to Sec. 133 of the Local Government Code. It is
found in the NIRC.
[] LGC, Sec 133(c) on the limitation of the power to levy of the LGC:
Taxes on estates, inheritance, gifts, legacies and other ACQUISITIONS
MORTIS CAUSA except as otherwise provided herein.
8 A died, survived by his wife and three children. The estate tax was properly paid and the estate
settled and divided and distributed among the four heirs. Later, the BIR found out that the estate
failed to report the income received by the estate during administration. The BIR issued a
deficiency income tax assessment plus interest, surcharges and penalties. Since the 3 children
are residing abroad, the BIR sought to collect the full tax deficiency only against the widow. Is
the BIR correct? (10%) SUGGESTED ANSWER: Yes, the BIR is correct. *****In a case where the
estate has been distributed to the heirs, the collection remedies available to the BIR in collecting tax
liabilities of an estate may either (1) sue all the heirs and collect from each of them the amount of tax
proportionate to the inheritance received or (2) by virtue of the lien created under Section 219, sue only one
heir and subject the property he received from the estate to the payment of the estate tax. The
BIR, therefore, is correct in pursuing the second remedy although this will give rise to the right of
the heir who pays to seek reimbursement from the other heirs. (CIR v. Pineda, 21 SCRA 105).
*****In no case, however, can the BIR enforce the tax liability in excess of the share of the widow
in the inheritance. (BAR 1999)
9 Don Fortunato, a widower, died in May, 2011. In his will, he left his estate of P100 million to his four
children. He named his compadre, Don Epitacio, to be the administrator of the estate. When the BIR
sent a demand letter to Don Epitacio for the payment of the estate tax, he refused to pay claiming that
he did not benefit from the estate, he not being an heir. Forthwith, he resigned as administrator. As a
result of the resignation, who may be held liable for the payment of the estate tax? (2011 Bar Question)
(A) Don Epitacio since the tax became due prior to his resignation. (B) The eldest child who would be
reimbursed by the others. 
(C) All the four children, the tax to be divided equally among them.
(D) The person designated by the will as the one liable.
15
e. GENERAL: PURPOSE is to RAISE REVENUE for the government

to be used for general purpose.
f. PROGRESSIVE: the RATE increases as the TAX BASE increases.
(Sec. 84, NIRC)
*May Congress change this into a regressive tax?
- Yes. The Constitutional mandate under Art VI, Sec 28 par 1 is that
Congress shall “evolve” a progressive system of taxation; such is mere
DIRECTIVE (hence, not legally enforceable) in nature—the mandate is not to
prescribe but to evolve a progressive tax system [Tolentino vs. SOF]. It simply
means that DIRECT taxes are to be PREFERRED and as much as possible,
INDIRECT taxes are to be MINIMIZED.
*NB: we cannot avoid the imposition of regressive taxes like
VAT: we can only minimize the effect.
*Reduction of Social Inequality: Our present tax system has adopted
the progressive system of taxation, i.e., the tax rate increases as the tax base
increases. This system aims at reducing the inequality in the distribution of
wealth by preventing its undue concentration in the hands of a few
individuals.
- To illustrate: An estate tax is imposed upon the property left by the
decedent. The proceeds of that tax will be used to finance the projects of the
government such as building low-cost houses for the less privileged.
REQUISITES for the imposition of Estate Tax (DANd):

1. Death of decedent; 
2. Successor is Alive at the time of decedent’s death; and
3. Successor is Not Disqualified to inherit.
TIME & TRANSFER OF PROPERTIES

1.The properties and rights are transferred to the successors at the time of death.
(Art. 777, Civil Code)
2. The statute in force at the time of death of the decedent governs the
imposition of the estate tax.
*NB: The estate tax accrues as of the death of the decedent. The accrual
of the tax is distinct from the obligation to pay the same, which is 6 months after the
death of the decedent.
Estate Tax vs. Inheritance tax

1. Estate Tax: an excise tax imposed upon the PRIVILEGE OF
TRANSMITTING property at the time of death and on the privilege that a
person is given in controlling to a certain extent the disposition of his
property to take effect upon death.
16
*NB: The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary (RR 2-2003, Sec 3.).
2. Inheritance tax: tax on the PRIVILEGE TO RECEIVE property from a
deceased person. This has been abolished by P.D. 69 passed on November 24,
1972, effective January 1, 1973 due to administrative difficulty in its collection (Bar
1969).
*NB: Presently, there is no inheritance tax imposed by law. Only estate
taxes are imposed.
*rationale for the abolition of inheritance tax: it is not administratively
feasible (NB: 3 fundamental principles of a sound tax system under General
Principles: FAT: Fiscal adequacy, Administrative feasibility/convenience,
Theoretical justice); BIR had difficulty collecting, hence it is NOT SOUND.
*Bar: A law was passed by Congress abolishing estate tax. Is the law valid?
- A: Yes, it is in the nature of a tax exemption. Settled is the rule that the
power to tax includes the power to grant an exemption.
*Can Congress pass a law reviving inheritance tax?
- A: Yes. Justification: consistent with the principle of Fiscal adequacy.
THEORIES FOR THE IMPOSITION OF ESTATE TAX

1. Benefits-protection theory: based on the power of the State to demand and
receive taxes on the reciprocal duties of support and protection. (i.e., distribution
of the estate of the decedent).
2. Privilege theory/State-partnership theory: the State, as a passive and silent
partner in the privilege of accumulating property, has the right to collect the
share which is properly due it.
3. Ability to pay: the receipt of inheritance is in the nature of unearned wealth
which creates the ability to pay the tax.
4. Redistribution of wealth: receipt of inheritance contributes to the widening
inequalities in wealth; by imposing estate tax, the value received by the successor is
thereby reduced and brings said value into the coffers of the government.
*explain this theory irt the NON-REVENUE PURPOSE of taxation, i.e.,
to REDUCE SOCIAL INEQUALITY; the government will have money to
construct houses for the poor; hence, eventually, it reduces inequality; it promotes
SOCIAL JUSTICE.
THEORIES vs. PURPOSES FOR IMPOSING ESTATE TAX

(Compare these theories with the Purposes in imposing the estate tax
1. To Generate additional revenue for the government 
2. To Reduce the concentration of wealth 
3. To Provide for an equal distribution of wealth 
17
4. To Compensate the government for the protection given to the decedent

that enabled him to prosper and accumulate wealth
*NB: Generally, the purpose of the estate tax is to TAX THE SHIFTING
of economic benefits and enjoyment of property from the dead to the living.
ESTATE PLANNING
1. the manner by which a person takes steps
2. to conserve the property to be transmitted to his heirs
3. by decreasing the amount of estate taxes to be paid upon his death.
*It is considered as LAWFUL because, “the legal right of a taxpayer to
decrease the amount of what otherwise would be his taxes or altogether avoid them by
MEANS which the LAW PERMITS, cannot be doubted.”(Delpher Trades
Corporation v. IAC, et al. G.R. No. 73584, Jan. 28, 1988)
—————————————————
ESTATE TAX RATES

[] SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected
and paid upon the transfer of the net estate as determined in accordance with
Sections 85 and 86 of every decedent, whether resident or nonresident of the
Philippines, a tax based on the value of such net estate, as computed in
accordance with the following schedule…10
Over But not over The tax shall be Plus Of the Excess Over
P200k Exempt
P200k P500k 0 5% P200k
P500k P2m P15k 8% P500k
P2m P5m P135k 11% P2m
P5m P10m P465k 15% P5m
P10m P1.215m 20% P10m
A. Some considerations under Sec 84 NIRC:

1. Basis of estate tax rate: NET ESTATE.
2. Aspects of taxation under Sec 84:
a. Levy: enactment of a tax law; refers to the IMPACT OF TAXATION;
legislative in character: it cannot be imposed by an LGU as prohibited under Sec
133, LGC & Art X, Sec 5 Consti; neither by the President since it is not one of
the delegated powers given to him under Art VI, Sec 28 par 2.
10The estate comprised of properties of only PI.2 million is not liable to any estate tax. *****The
estate is entitled to a standard deduction of PI million deductible from the gross estate without the
benefit of substantiation, thereby placing the net estate at only P200,000. Under the graduated tax
rates of the estate tax, a net estate of P200,000 is exempt. (Section 86(A)(5) and Section 84, NIRC).
18
b. Assessment/collection: administrative in character; implementation/

enforcement of tax laws
i. Assessment: a NOTICE on the tax due to a taxpayer and/or
demand payment thereof.
ii. Collection:
*Assessment vs. Collection: They differ in the process: there is a 5-
year period of prescription for assessment of deficiency tax, and a 5-year period for
the collection of the same. Collection may be effected within 5 years after the
assessment, or within the period of collection agreed upon IN WRITING by the CIR
and the taxpayer before the expiration of such 5-year period.
*may private organizations collect? yes, like authorised agent banks:
collection may be delegated because it is merely administrative in character.
c. Payment: compliance; refers to the INCIDENCE OF TAXATION.
———————————————————————————————
B. Valuation of the Gross Estate

[] SEC. 88. Determination of the Value of the Estate. -
(A) Usufruct. - To determine the value of the right of usufruct, use or habitation,
as well as that of annuity, there shall be taken into account the probable life of
the beneficiary in accordance with the latest Basic Standard Mortality Table, to
be approved by the Secretary of Finance, upon recommendation of the Insurance
Commissioner.
(B) Properties. - The estate shall be appraised at its fair market value as of the time
of death. However, the appraised value of real property as of the time of death
shall be, whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the
Provincial and City Assessors.
[] Summary and Explanation of codal provisions:
1. The properties comprising the gross estate shall be valued based on the FMV
as of the time of death.
*What’s the purpose/importance/materiality of the valuation of property?
To MITIGATE the resulting hardship in the case of subsequent decline in the
value of estates, and thus prevent the danger of their complete confiscation.
NB: the tax rate is based on the value of the estate at the time of the decedent’s
death.
*Bases for the valuation of the gross estate: the properties comprising the
gross estate shall be valued based on their fair market value (FMV) as of the
time of death. [RR 2-2003, Sec 5]
*FMV: the price at which any seller will sell and any buyer will buy both
willingly without any force or intimidation.
2. In case of real property, the fair market value shall be:
19
a. The FMV as determined by the Commissioner; or

b. The FMV as shown in the schedule of values fixed by the Provincial and
City Assessor.
*Whichever is HIGHER
3. In case of personal property
a. recently acquired by the decedent, the purchase price may indicate the
FMV.
b. In case of personal property not recently acquired, there should be
some evidence of the FMV.
4. For shares of stock, the FMV shall depend on whether the shares are listed or
unlisted in the stock exchange.
a. If unlisted
i. Common shares – based on their book value
ii. Preferred shares – based on their par value
b. If listed: the mean between the highest and lowest quotation on the
date of death; if none, then the date nearest the death.
5. For use of usufruct, there be taken into account the probable life of the
beneficiary in accordance with the latest basic standard mortality table, to be
approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.
6. Importance of distinguishing Personal from Real Property
a. Rules of Valuation under Sec. 88 are different for personal and real
properties.
20
b. Real Property: Art 415 NCC11

c. Personal Property: Art 416-417 NCC12
7. SUMMARY of RULES on VALUATION******
PROPERTY FMV
REAL PROPERTY Whichever is higher between the FMV: 
1.As determined by the Commissioner (zonal value) or 
2.As shown in the schedule of values fixed by the provincial and city assessors
*if there is no zonal value, use the FMV in the latest tax declaration.
PERSONAL Whether tangible or intangible, appraised at FMV. “Sentimental value” is
PROPERTY practically disregarded.
SHARES OF 1. Unlisted: (a) Unlisted common: book value; (b) Unlisted preferred: par value
STOCK (SOS) 2. Listed: arithmetic mean between the highest and lowest quotation at a date
nearest the date of death, if none is available on the date of death itself.
11 [] Art. 415. The following are immovable property: 

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of
an immovable;
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands
by the owner of the immovable in such a manner that it reveals the intention to attach them
permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works;
*Two indispensable characteristics under (5):
i. carried on in a building or on a piece of land
ii. tend directly to meet the needs of the industry/works.
(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case
their owner has placed them or preserves them with the intention to have them permanently
attached to the land, and forming a permanent part of it; the animals in these places are
included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters
either running or stagnant;
(9) Docks and structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and other real rights over immovable property.
12 [] Art. 416. The following things are deemed to be personal property:
(1) Those movables susceptible of appropriation which are not included in the preceding article;
(2) Real property which by any special provision of law is considered as personal property;
(3) Forces of nature which are brought under control by science; and
(4) In general, all things which can be transported from place to place without impairment of the
real property to which they are fixed.
[] Art. 417. The following are also considered as personal property:
(1) Obligations and actions which have for their object movables or demandable sums; and
(2) Shares of stock of agricultural, commercial and industrial entities, although they may have real estate.
[] Art. 418. Movable property is either consumable or nonconsumable. To the first class
belong those movables which cannot be used in a manner appropriate to their nature without their being consumed;
to the second class belong all the others.
21
PROPERTY FMV
RIGHT TO Take into account the probable life of the beneficiary in accordance with the
USUFRUCT, USE, latest basic standard mortality table, to be approved by the Secretary of
HABITATION, Finance, upon recommendation of the Insurance Commissioner.
ANNUITY
*In determining the book value of common shares, the following shall
not be considered: 1. Appraisal surplus; 2. The value assigned to preferred shares,
if there are any.
*If there is an improvement, the value of improvement is the construction
cost per building permit or the fair market value per latest tax declaration.
8. Compare with Valuation for Donor’s Taxation: VALUATION OF THE GIFT
[] SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in
property, the fair market value thereof at the time of the gift shall be
considered the amount of the gift. In case of real property, the provisions of
Section 88(B) shall apply to the valuation thereof.
*****The fair market value of the property donated/given at the time of
the donation shall be the value of the gross gifts. NB: same as valuation in estate
taxation.13
C. Payment of Tax [SEC. 91]

1. Summary of notes on payment of tax
a. Estate tax shall be paid at the time the return is filed. The Commissioner
may extend the payment of such tax.
i. It should not exceed 5 years in case of judicial settlement, and 2
years if extrajudicial settlement;
ii. The running of the period of limitation for assessment shall be
suspended for the period of such extension.
b. The estate tax shall be paid by the executor or administrator before
delivery to any beneficiary of his distributive share of the estate.
i. Where there are two or more executors, all of them are severally liable
for the payment of the estate tax. [CIR v Gonzales];
ii. The inheritance tax, although charged against the account of each
beneficiary, should be paid by the executor or administrator;
13 Mr. L owned several parcels of land and he donated a parcel each to his two children. Mr. L acquired
both parcels of land in 1975 for 200,000.00. At the time of donation, the fair market value of the two
parcels of land, as determined by the CIR, was 2,300,000.00; while the fair market value of the same
properties as shown in the schedule of values prepared by the City Assessors was 2,500,000.00. What
is the proper valuation of Mr. L's gifts to his children for purposes of computing donor's tax? (2015
Bar Question): The valuation of Mr. L’s gift to his children is the fair market value (FMV) of the
property at the time of donation. *****It is the higher of the FMV as determined by the Commissioner or
the FMV as shown in the schedule of values fixed by the provincial or city assessors. In this case, for the purpose
of computing donor’s tax, the proper valuation is the value prepared by the City Assessors amounting
to P2,500,00.00 because it is higher than the FMV determined by the CIR.
22
iii. Such beneficiary shall be subsidiarily liable for the payment of

such tax to the extent of his share
*In the case of notices of levy issued to satisfy the delinquent
estate tax, the delinquent taxpayer is the Estate of the decedent, and not
necessarily, and exclusively, the heir of the decedent. Thus, it follows that the
services of the notices of levy in satisfaction of the tax delinquencies upon the
heir is not required by law. (Marcos II v. Court of Appeals, G.R. No. 120880, June 5,
1997)
c. Claims for income tax need not be filed with the committee on claims and
appraisals in the course of testate proceedings, and the amount thereof may be
collected after the distribution of the decedent’s estate among his heirs, who
shall be liable in proportion to their share in the inheritance. [Government vs.
Pamintuan]
d. The government, in collecting unpaid taxes accruing before the death of
the decedent, has two ways of collecting the said taxes. [CIR v Pineda]
i. By going after all the heirs and collecting from each one of
them the amount of the tax proportionate to the inheritance received;14
ii. By subjecting said property of the estate which is in the hands of
an heir or transferee to the payment of the tax due the estate. (or, go against
one heir for the entire tax, subject to the heirs right of contribution from his co-
heirs.)
14*More on CIR vs. Pineda: the Government resorted to the administrative remedy of enforcement
of tax lien in trying to collect deficiency income tax of the estate of Atanasio Pineda. Manuel B.
Pineda, the eldest son of the deceased, who was made to pay the full amount of the taxes
assessed questioned the assessment on the ground that as an heir he is liable for unpaid income tax due the estate only
up to the extent of and in proportion to any share he received. HELD: The Government can require Manuel
B. Pineda to pay the full amount of the taxes assessed. Pineda is liable for the assessment as an heir
and as a holder-transferee of property belonging to the estate/taxpayer. As an heir, he is
individually answerable for the part of the tax proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the amount of his share. As a holder of
property belonging to the estate, Pineda is liable for the tax up to the amount of the property in his
possession. The reason is that the Government has a lien on the P2,500 received by him from the estate
as his share in the inheritance for unpaid taxes for which the estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code (now Section 219, NIRC). By virtue of such lien, the
Government has the right to subject the property in Pineda's possession, i.e., the P2,500 to
satisfy the income tax assessment in the amount of P760.28. XXX The second remedy (tax lien) is
the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue
should be given, in instances like the case at bar, the necessary discretion to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax
Code above-quoted, because TAXES ARE THE LIFEBLOOD OF THE GOVERNMENT AND
THEIR PROMPT AND CERTAIN AVAILABILITY IS AN IMPERIOUS NEED.
23
e. *****The approval of the court, sitting in probate or as a settlement tribunal

over the deceased's estate, is not a mandatory requirement in the collection of
estate taxes.15
2. Codal 
(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at
the time the return is filed by the executor, administrator or the heirs.
1. Extension of Time [Sec 91(B)]. - When the Commissioner finds that
the payment on the due date of the estate tax or of any part thereof would
impose undue hardship upon the estate or any of the heirs, he may extend the
time for payment of such tax or any part thereof not to exceed five (5) years, in
case the estate is settled through the courts, or two (2) years in case the estate is settled
extrajudicially. In such case, the amount in respect of which the extension is
granted shall be paid on or before the date of the expiration of the period of
the extension, and the running of the Statute of Limitations for assessment
as provided in Section 203 of this Code shall be suspended for the period of any such
extension.
2. When no extension is allowed: where the taxes are assessed by reason of
negligence, intentional disregard of rules and regulations, or fraud on the
part of the taxpayer, no extension will be granted by the Commissioner [Sec
91(B)].
3. Bond may be required for extension: If an extension is granted, the
Commissioner may require the executor, or administrator, or beneficiary, as the
case may be, to furnish a bond in such amount, not exceeding double the amount of
the tax and with such sureties as the Commissioner deems necessary, conditioned upon
the payment of the said tax in accordance with the terms of the extension.
3. Liability for Payment [Sec 91(C)]
a. Executor or Administrator:16 The estate tax imposed by Section 84 shall
be paid by the executor or administrator before delivery to any beneficiary of his
distributive share of the estate. NB: Payment Before Delivery by Executor or
15*FERDINAND R. MARCOS II v. CA, et al 273 SCRA 47: Ferdinand R. Marcos II assailed the
decision of the Court of Appeals declaring the deficiency income tax assessments and estate tax assessments
upon the estate and properties of his late father final despite the pendency of the probate
proceedings of the will of the late President. On the other hand, the BIR argued that the State's
authority to collect internal revenue taxes is paramount. HELD: The approval of the court, sitting in
probate or as a settlement tribunal over the deceased's estate, is not a mandatory requirement in the
collection of estate taxes. The enforcement of tax laws and the collection of taxes are of paramount
importance for the sustenance of government. Taxes are the lifeblood of the government and should
be collected without unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for government itself. It is, therefore, necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of common good, may be achieved.
16*For the purpose of this Chapter, the term "executor" or "administrator" means the executor or
administrator of the decedent, or if there is no executor or administrator appointed, qualified, and
acting within the Philippines, then any person in actual or constructive possession of any property of
the decedent.
24
Administrator [SEC. 94] - ******No judge shall authorize the executor or

judicial administrator to deliver a distributive share to any party interested in the
estate unless a certification from the Commissioner that the estate tax has been paid is
shown. A bank may even withhold the money in the bank of the decedent absent
such certification from the CIR.17
b. Subsidiary Liability of Beneficiaries: Such beneficiary shall to the extent
of his distributive share of the estate, be subsidiarily liable for the payment of
such portion of the estate tax as his distributive share bears to the value of the total
net estate.
17 On September 10, 1991, a Bank Manager of People’s Bank, Inc. (PBI), upon reading an obituary
announcing the death of Mr. Roberto Diaz refused to allow one of his heirs to withdraw Mr. Diaz’
deposit amounting to P2 Million. A week later, immediately following said denial, the administrator of
the estate sued the Bank/Bank Manager to compel them to release the money since such act was
arbitrary and constituted a denial of property/constitutional rights. If you are retained as counsel by
the Bank/Bank Manager to defend their stand in refusing to release the P2 Million to the heirs, what
would you raise as a legal defense? Discuss. ANSWER: I would raise the defense that under Sec. 90 of
the NIRC *****a bank with knowledge of the death of a person who maintains a deposit account
with such bank shall allow withdrawals therefrom only if the mandatory requirement of a
certification from the Commissioner that the taxes due thereon have been paid could be presented by
an heir. Absent such certification, a bank is authorized to withhold the release of deposits of a
decedent.
[] Under the same set of facts, would you, as administrator of the estate, rather file an
administrative appeal with the Commissioner of Internal Revenue or a petition for review with the
Court of Tax Appeals? Explain. ANSWER: *****An administrative appeal to the Commissioner of
Internal Revenue would not be a proper remedy without an original proceeding having first been
filed with the BIR. A petition for review with the Court of Tax Appeals, on the other hand, requires
a final decision of the Commissioner, the CTA being a court of exclusive appellate jurisdiction. As
administrator, I would cause the payment of the proper taxes on the deposits and thereafter, secure
the required certification from the Commissioner. (BAR 1992)
[] If the Commissioner of Internal Revenue allows the administrator of the estate or the heirs
of the decedent to withdraw from the deposit account, what are the conditions under the Tax Code
which have to be met first? ANSWER: Before withdrawals on deposits of a decedent could be
permitted, the proper taxes should first be paid and a certification of such payment secured from
the Commissioner. *****However, the Commissioner may authorize the withdrawal without a
certification provided the amount to be withdrawn shall not exceed P 10,000.00. ALTERNATIVE
ANSWER: Payment of the tax or the filing of a bond would, in substance, be enough for the
Commissioner to allow the withdrawal. (BAR 1992)
25
c. Deficiency.18
d. New obligations after payment of Estate tax: SEC. 96. Restitution of
Tax Upon Satisfaction of Outstanding Obligations. - If after the payment
of the estate tax, new obligations of the decedent shall appear, and the persons
interested shall have satisfied them by order of the court, they shall have a right to the
restitution of the proportional part of the tax paid.
C. Duties of certain officers: SEC. 95. Duties of Certain Officers and

Debtors.
1. Registers of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or any chattel mortgage,
by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a
certification from the Commissioner that the tax fixed in this Title and actually
due thereon had been paid is shown, and they shall immediately notify the
Commissioner, Regional Director, Revenue District Officer, or Revenue
Collection Officer or Treasurer of the city or municipality where their offices are
located, of the non payment of the tax discovered by them.
2. Any lawyer, notary public, or any government officer who, by reason of
his official duties, intervenes in the preparation or acknowledgment of documents regarding
partition or disposal of donation intervivos or mortis causa, legacy or
inheritance, shall have the duty of furnishing the Commissioner, Regional
Director, Revenue District Officer or Revenue Collection Officer of the place
where he may have his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection of the aforementioned tax.
3. Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor
or administrator of his creditor, unless the certification of the Commissioner that the tax
fixed in this Chapter had been paid is shown; but he may pay the executor or judicial
18SEC. 93. Definition of Deficiency. - As used in this Chapter, the term "deficiency" means:
(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax
by the executor, administrator or any of the heirs upon his return; but the amounts so shown on the
return shall first be increased by the amounts previously assessed (or collected without assessment) as a
deficiency and decreased by the amount previously abated, refunded or otherwise repaid in respect of
such tax; or
(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his
return, or if no return is made by the executor, administrator, or any heir, then the amount by which
the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but
such amounts previously assessed or collected without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise repaid in respect of such tax.
*Sec 104: The term "deficiency" means: (a) the amount by which tax imposed by this Chapter
exceeds the amount shown as the tax by the donor upon his return; but the amount so shown on the
return shall first be increased by the amount previously assessed (or collected without assessment) as a
deficiency, and decreased by the amounts previously abated, refunded or otherwise repaid in respect of
such tax, or (b) if no amount is shown as the tax by the donor, then the amount by which the tax
exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of such tax.
26
administrator without said certification if the credit is included in the inventory of the
estate of the deceased.
D. Other Prohibitions
1. No Transfer of Shares, Bonds or Rights prior to payment of tax: SEC.
97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights.
- There shall not be transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or industry organized or
established in the Philippines any share, obligation, bond or right by way of gift
inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is
shown.
2. No withdrawal of bank deposits: If a bank has knowledge of the death
of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless
the Commissioner has certified that the taxes imposed thereon by this Title
have been paid: Provided, however, That the administrator of the estate or any
one (1) of the heirs of the decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors.
———————————————————————————————
—
D. Summary of Effects of non-payment of ET
1. As the name “transfer tax” implies, there can be NO transfer of properties

without Certification (ESTATE TAX CLEARANCE) of payment by CIR:
a. no judge shall order delivery of share of inheritance
b. secretary of corp will not register shares of stocks in the heir’s name
c. bank will not (either the account is for the decedent alone or with
another) allow withdrawal; certification should be shown to bank manager to be
allowed to withdraw, except for an amount not exceeding Php20K (just sufficient
to augment funeral expanses), which only needs a written permission from CIR.
d. debtor will not be compelled to pay debt to estate; although it can be
compelled if it can be shown that the amount of obligation owing to the debtor
has been included to be part of the GE, i.e., the receivable is made part of the
GE.
27
2. RDO will issue certification to this effect: that the estate of AA has paid, and
therefore, this office interposes no objection on the transfer of the following
properties:
a. Personal: include specs for example preferred shares
b. Real: include TCT #, etc
*those not included in the list will be FROZEN.
—————————————————
Determination of the Gross Estate
A. Types of Estate Taxpayers; Classification of Decedent

*****NB: Only individuals are liable to pay; Domestic and foreign corporations are
subject only to donor’s tax and not to estate tax because they are not capable of
death but may enter into a contract of donation.
1. Resident decedent
a. Resident citizen
b. Resident alien
c. Non-resident citizen (yes, they are considered “resident” decedents for
the purpose of estate tax); NB: For estate tax purposes, residence refers to the
domicile of the person.
2. Non-resident decedent
a. Non-resident alien
B. How are their Gross Estate (GE) and Net Estate (NE) determined?
1. Summary: Gross estate tax is arrived at after adding all those included and deducting
the exclusions while net estate is arrived at after subtracting the allowable deductions from
the gross estate.
[] SEC. 85. Gross Estate. - the value of the gross estate of the decedent
shall be determined by including the value at the time of his death of all property,
real or personal, tangible or intangible, wherever situated: Provided, however, that
in the case of a nonresident decedent who at the time of his death was not a
citizen of the Philippines, only that part of the entire gross estate which is situated
in the Philippines shall be included in his taxable estate.
28
2. Composition of the gross estate: ******the value at the time19 of death20 of

the following [Sec 85, NIRC]; NB: the property must be existing at the time of
death, hence, money acquired through post-mortem settlement is not included.21
19 Remedios, a resident citizen, died on November 10, 2006. She died leaving three condominium units
in Quezon City valued at P5 Million each. Rodolfo was her only heir. He reported her death on
December 5, 2006 and filed the estate tax return on March 30,2007. Because he needed to sell one unit
of the condominium to pay for the estate tax, he asked the Commissioner of Internal Revenue to give
him one year to pay the estate tax due. The Commissioner approved the request for extension of time
provided that the estate tax be computed on the basis of the value of the property at the time of
payment of the tax. Does the condition that the basis of the estate tax will be the value at the time of
the payment have legal basis? Reason briefly. SUGGESTED ANSWER: No. *****The valuation of
properties comprising the estate of a decedent is the fair market as of the time of death. No other
valuation date is allowed by law. (Section 88, NIRC). (BAR 2007)
20Jose Ceman, Filipino citizen, married to Maria Ceman, died in a vehicular accident in NLEX on July
10, 2007. The spouses owned, among others, a 100-hectare agricultural land in Sta. Rosa, Laguna with
current fair market value of P20 million, which was the subject matter of a Joint Venture
Agreement about to be implemented with Star Land Corporation (SLC), a well-known real estate
development company. He bought the said real property for P2 million fifty years ago. On January 5,
2008, the administrator of the estate and SLC jointly announced their big plans to start conversion and
development of the agricultural lands in Sta. Rosa, Laguna, into first-class residential and commercial
centers. As a result, the prices of real properties in the locality have doubled. The Administrator of the
Estate of Jose Ceman filed the estate tax return on January 9,2008, by including in the gross estate the
real property at P2 million. After 9 months, the BIR issued deficiency estate tax assessment, by
valuing the real property at P40 million. Is the BIR correct in valuing the real property at P40
million? Explain. (3%) SUGGESTED ANSWER: No. The value of the property for estate tax
purposes shall be the fair market value thereof at the time of death. (Section 88(B), NIRC).
b) If you disagree, what is the correct value to use for estate tax purposes? Explain. (3%)
SUGGESTED ANSWER: The correct value to use for estate tax purposes is P20 million which is
the current fair market value of the property at the time of the decedent's death. (Section 88(B),
NIRC). (BAR 2008)
21 Antonia Santos, 30 years old, gainfully employed, is the sister of Eduardo Santos. She died in an
airplane crash. Edgardo is a lawyer and he negotiated with the Airline Company and insurance
company and they were able to agree to a total settlement of P10 Million. This is what Antonia
would have earned as somebody who was gainfully employed. Edgardo was her only heir.
Is the P10 Million subject to estate tax? Reason briefly. SUGGESTED ANSWER: No. *****The
estate tax is a tax on the privilege enjoyed by an individual in controlling the disposition of her
properties to take effect upon her death. The P10M is not a property existing as of the time of
decedent’s death; hence, it cannot be said that she exercised control over its disposition. Since the
privilege to transmit the property is not exercised by the decedent, the estate tax cannot be imposed
thereon. (Definition of Estate Tax p. 184, Vitug, Compendium of Tax Law and Jurisprudence, Third
Revised Edition). (BAR 2007)
29
a. RESIDENT DECEDENT: If the decedent is a resident22 or non-
22 Don Sebastian, single but head of the family, Filipino, and resident of Pasig City, died intestate on
November 15, 2009. He left the following properties and interests: House and lot (family home) in
Pasig Vacation house and lot in Florida, USA; Agricultural land in Naic, Cavite which he inherited from
his father; Car which is being used by his brother in Cavite; Proceeds of life insurance where he named
his estate as irrevocable beneficiary; Household furnitures and appliances; Claims against a cousin who
has assets of P10,000 and liabilities of P100,000;Shares of stock in ABC Corp, a domestic enterprise
*The expenses and charges on the estate are as follows: Funeral Expenses; Legal fees for the
settlement of the estate; Medical expenses of last illness; Claims against the estate.
*The compulsory heirs of Don Sebastian approach you and seek your assistance in the
settlement of his estate for which they have agreed to the above-stated professional fees. Specifically,
they request you to explain and discuss with them the following questions. You oblige:
a. What are the properties and interests that should be included in the computation of the gross
estate of the decedent? Explain. (2.5%): All the properties and interest enumerated in the problem
should be included in the gross estate of the decedent. The decedent is a citizen of the Philippines and
the law requires that the composition in the gross estate of the decedent shall include *****all kinds
of properties wherever situated and to the extent of the interest that he has thereon at the time
of his death.  
b. What is the net taxable estate of the decedent? Explain. (2.5%): The net taxable estate of the
decedent is Php 3.7M. From the gross estate of Php 7.0M, ******the following deductions are
allowed: (1) Funeral expenses of Php 200K which is the maximum allowed by law, (2) legal fees amounting
to Php 500K; (3) medical expenses not to exceed Php 500K incurred one year prior to death and
substantiated with receipts; (4) claims against the estate of Php 300K; (5) family home equivalent to its FMV
(not to exceed Php 1.0M) of Php 800K and (6) standard deduction of Php 1.0M or a total allowable
deduction of Php 3.3M. The claim against the cousin amounting to Php 100K although
includible in the gross estate cannot be claimed as a deduction because the debtor is not yet declared
insolvent. Likewise, the inherited property cannot give rise to a vanishing deduction for want of
sufficient factual basis.  
c. When is the due date for filing and payment of the applicable tax return and tax? Are these
dates extendible? If so, under what conditions or requirements? (2.5%): ******The tax return and the
payment of the estate tax are both due within six (6) months from death. The filing of the return is
extendible for a maximum period of 30 days under meritorious cases as maybe determined by the
CIR. Whereas, the payment of the estate tax may also be extended when the CIR finds that the
payment thereof would impose undue hardship upon the estate or any of the heirs. The period of
extension to pay shall not exceed 5 years from death if the estate is settled through the courts or shall not
exceed 2 years from death if settled extra-judicially. The CIR may require the executor or
administrator or the beneficiary to furnish a bond in an amount not more than double the amount of
the estate tax due.
d. If X, one of the compulsory heirs, renounces his share in the inheritance in favor of the
other co-heirs, is there any tax implication of X’s renunciation? What about the other coheirs? (2.5%)
(2010 Bar Question): *****If the renunciation is a general renunciation (in favor of co-heirs in
accordance with their respective interest in the inheritance), the law on accretion applies and the
property waived is considered to pass through the other co-heirs by inheritance; hence, it has no tax
implication. There is no donation of property because the property had never become the property of the
donor. Such being the case, the renunciation is not subject to donor’s tax. If it is not a general
renunciation in favor of the other co-heirs, the heir renouncing his right is considered to have
made a donation and the renunciation is subject to donor’s tax. In both cases, however, the
renunciation has no tax implication to the other co-heirs.
30
resident citizen, or a resident23 alien24: all properties, real or personal, tangible

or intangible, wherever situated.
b. NON-RESIDENT DECEDENT:25 If the decedent is a non-resident
alien: only properties situated in the Philippines, provided that, intangible
personal property is subject to the rule of reciprocity provided for under Section 104 of
the NIRC. (Section 85, NIRC)
3. *******Summary of what is included in the gross estate as per Sec 85 NIRC:
23Cliff Robertson, an American citizen, was a permanent resident of the Philippines. He died in
Miami, Florida. He left 10,000 shares of Meralco, a condominium unit at the Twin Towers Building at
Pasig, Metro Manila and a houseand lot in Los Angeles, California.What assets shall be included in the
Estate Tax Return to be filed with the BIR? (1994) A: Being a resident alien, all the properties of Cliff
Robinson, wherever situated, will be included in the Estate Tax Return.
24 Bar 2005: Ralph Donald, an American citizen, was a top executive of a U.S company in the
Philippines until he retired in 1999. He came to like the Philippines so much that following his
retirement, he decided to spend the rest of his life in the country. He applied for and was granted
permanent resident status the following year. In the spring of 2004, while vacationing in Orlando
Florida USA, he suffered a heart attack and died. At the time of his death he left the following
properties:
a. Bank deposits with Citibank Makati and Citibank Orlando Florida;
b. Rest house in Orlando, Florida;
c. A condominium unit in Makati;
d. Shares of stock in the Phil subsidiary of the U.S company where he worked;
e. Shares of stock in San Miguel Corporation and PLDT;
f. Shares of stock in Disney World in Florida;
g. U.S treasury bonds;
h. Proceeds from a life insurance policy issued by a US corporation.  
Which of the foregoing assets shall be included in the taxable gross estate in the
Philippines? Explain. A: ******All of the properties enumerated except (h: proceeds from life
insurance). He is considered a resident alien for tax purposes since he is an American citizen and was a
permanent resident of the Philippines at the time of his death. The value of the gross estate of a resident
alien decedent shall be determined by including the value at the time of his death of all property, real
or personal, tangible or intangible, wherever situated. (Sec. 85, NIRC) The other item, (h) proceeds
from a life insurance policy, may be included in his gross estate only when
i. it was Ralph Donald who took out the insurance upon his own life,
ii. payable upon his death to his estate,
iii. or when the beneficiary is a third person other than his estate who is not designated as an
irrevocable beneficiary (Sec. 85[E], NIRC).
25Bar 2011: Tong Siok, a Chinese billionaire and a Canadian resident, died and left assets in China
valued at P80 billion and in the Philippines assets valued at P20 billion. For Philippine estate tax
purposes the allowable deductions for expenses, losses, indebtedness, and taxes, property previously
taxed, transfers for public use, and the share of his surviving spouse in their conjugal partnership
amounted to P15 billion. Tong's gross estate for Philippine estate tax purposes is? A: P20 billion. Being
a non-resident alien, the estate tax to be paid will be based on his properties situated in the Philippines. The
deductions are not included since the question pertains to gross estate, not the net estate.
31
RESIDENT DECEDENT NON-RESIDENT DECEDENT

a. Real property wherever situated, to the extent of a. Real Property situated in the Philippines 
the interest therein of the decedent at the time of b. Tangible personal property situated in the
his death.   Philippines 
b. Personal property, tangible or intangible, wherever c. Intangible personal property with situs in the
situated to the extent of the interest therein of the Philippines unless exempted on the basis of
decedent at the time of his death. reciprocity
[] Bar: Is there a need to disclose properties outside the Philippines? A: Yes,
whether resident or non-resident. A resident decedent is taxed on properties
within or without. ******On the other hand, a non-resident decedent is required to
disclose the value of his gross estate outside the Philippines in order to avail of the
allowable deductions (Sec. 86 (D), NIRC).
***ON SURVIVORSHIP AGREEMENTS

1. Do funds deposited in a joint saving current account subject of survivorship
agreement form part of the gross estate of the decedent (husband)? NO. The
funds are considered the EXCLUSIVE property of the surviving spouse.
The survivorship agreement not having executed for unlawful purpose, its
"winner-take-all" feature is permitted by the Civil Code which considers the
same as a mere OBLIGATION WITH A TERM. Being the SEPARATE
property of the wife, they form no part of estate of the deceased husband.
2. But note that a survivorship clause in a donation is different. This one is in the
nature of a donation mortis causa. EG: “in the event that the donor dies before
the donor…” Hence, the donor maintains control over the property, making it
revocable. Hence, it is more of a mortis causa donation.
—————————————————
ITEMS OF INCLUSIONS26 IN THE GROSS ESTATE

[] Sec. 85 NIRC:
A. Decedent's interest;
B. Transfer in contemplation of death;
C. Revocable transfer;
D. Property passing under general power of appointment;
E. Proceeds of life insurance;
F. Prior interests;
G. Transfers of insufficient consideration
H. Capital of the Surviving Spouse (misplaced provision)
[] *Now, we have to re-arrange these inclusions for a better grasp of the entire
thing:
A. Properties in the estate
26*****Rule of thumb in Estate Tax: If the decedent had control/interest on the property at the time
of his death, it would form part of his GE.
32
1. Decedent’s Interest
B. Properties not in the estate27
1. Transfers in contemplation of death;
2. Revocable transfers;
3. Properties passing under a general power of appointment, and;
4. Transfers for an insufficient consideration.
*The 4 transfers enumerated above have the following commonalities:
1. They are ostensible transfers, usually with the purpose to evade the estate
tax; 2. They are extension of interests; 3. If the transfers are in fact for a
bona fide consideration, then they will not form part of the gross estate (this proviso is
present in all the provisions regarding these transfers)
C. Proceeds of life insurance;
D. Prior interests;
————————————————
A. Decedent's interest (DI)

1. How much is your interest or ownership over a property at the time of your
death. It varies. This includes (The coverage is very wide):
a. any interest
b. having value or capable of being valued,
b. transferred by the decedent at his death;
*****if something is awarded after death, it does not form part of the
decedent’s interest.
2. Examples:
a. You own a piece of land and you have a usufructuary over it.
i. At the time of your death (owner), your DI is the value of your
ownership less the usufruct.
ii. At the time of the death of the usufructuary, the usufruct is
extinguished and the same is merged to the owner of the naked title. There is no
ET on the usufructuary because the usufruct has been extinguished. This is an
exemption under Sec. 87: Merger of the usufruct to the owner of the naked
title.
b. LAND & BUILDING: Includes not only the fair market value (FMV) of
the property but also the decedent’s interest therein. EG: decedent left a land &
building: include in the GE the FMV of the land & building, plus his interests like
27 *these are properties not physically in the estate (because they have already been transferred during
the lifetime of the decedent; but they are still subject to payment of estate tax). They are transfers
inter-vivos which are considered part of gross estate. Why are they considered in the enumeration?
Because they are transfers INTER VIVOS IN FORM but MORTIS CAUSA IN SUBSTANCE.
In effect, they are SUBSTITUTES for testamentary dispositions. Hence, as such, the gross estate,
for purposes of the estate tax, may exceed the actual value of his assets at the time of his death as
it includes the value of transfers of property made by him during his lifetime that partake of the nature of
testamentary dispositions.
33
rent income from the lease of the building or fruits of the land.28
c. Contract of lease (LEASE: when decedent is the lessor). Lessor
requires 1-year payment of rental and the lessee paid accordingly.
i. If the lessor died, the value of the property (house & lot) leased is
his DI.
ii. If it’s the lessee who died, say in May (the lease being from January
to December), his DI is the eight months rental from May to December.
d. PARTNERSHIP: include his interests as a partner, which consists of
profits & surplus shares [Art 1812 NCC]29
e. CORPORATION’s DIVIDENDS: when decedent was a shareholder
entitled to a dividend; to determine which is part of his GE, check the stock &
transfer book; if it was declared before his death and about to be distributed
but he died, YES, it is part of his GE. Determining factor: time of
declaration of the dividend. Hence, the CONSTRUCTIVE RECEIPT (the
date he acquired VESTED RIGHT over the income) of income applies. NB:
investments are part of the GE
f. MORTGAGE: when decedent is the mortgagor
g. FORECLOSED PROPERTY: sold in public auction: yes, it is included
in the GE because of his RIGHT OF REDEMPTION. NB: Inheritance
includes RIGHTS & properties.
h. SALE: include contracts to sell (CTS); when he acquires ownership
after delivery, when he becomes the owner (the latter refers to Contract of Sale,
but the professor mentioned CTS too.)
i. BONDS: the value of bonds constitutes decedent’s interest and should be
included in the gross estate, since it is capable of pecuniary estimation and it was
acquired before the decedent’s death.
28 *Bar 1994: Jose Ortiz owns 100 hectares of agricultural land planted with coconut trees. He died on
May 30, 1994. Prior to his death, the government, by operation of law, acquired under the
Comprehensive Agrarian Reform Law all his agricultural lands except five (5) hectares. Upon the
death of Ortiz, his widow asked you how she will consider the 100 hectares of agricultural land in the
preparation of the estate tax return. What advice will you give her? A: The 100 hectares of land that
Jose Ortiz owned but which prior to his death on May 30, 1994 were acquired by the government
under CARP are no longer part of his taxable gross estate, with the exception of the remaining five (5)
hectares which under Sec. 78{a) of the Tax Code still forms part of "decedent's interest”.
29[] Art. 1812. A partner's interest in the partnership is his share of the profits and surplus.
***NB: only profits and capital that accrued before his death are part of his gross estate and
therefore taxable. They are part of the decedent’s interest because he acquired them before his death.
His share in the partnership includes those surplus profits and capital. He still has control over them
before his death, hence, they are part of his gross estate.
34
B. Transfer in contemplation of death (TCD)

[] Sec 85 (B) Transfer in Contemplation of Death.30 - To the extent of any
interest therein of which the
a. decedent has at any time made a transfer, by trust or otherwise,31 in
contemplation of or intended to TAKE EFFECT in possession or enjoyment
AT OR AFTER death, or
b. of which he has at any time made a transfer, by trust or otherwise,
under which he has RETAINED for his life or for any period which does NOT in
fact END BEFORE his death
(1) the POSSESSION or ENJOYMENT of, or the right to the
income from the property,32 or
(2) the RIGHT, either alone or in conjunction with any person, to
DESIGNATE the person who shall possess or enjoy the property or the
income therefrom; except in case of a bonafide sale for an adequate and full
consideration in money or money's worth.
1. Concept of TCD: the decedent, when still alive, transferred the property (two
factors)
a. with the thought of his impending death as the cause of transfer
b. and the purpose is to evade payment of estate tax.
[] What: a transfer motivated by the thought of impending death
although death may not be imminent. NB: The concept of transfer in contemplation of
death has a technical meaning. This does not constitute any transfers made by a dying
person. ******It is not the mere transfer that constitutes a transfer in
contemplation of death but the RETENTION of some type of CONTROL over
the property transferred. In effect, there is NO FULL TRANSFER of all interests
in the property inter vivos. *****But in the case of a bona fide sale for an adequate
and full consideration in money or money’s worth, the value of the property
30 Other descriptions for transfer in contemplation of death:

(a) Transfer EQUIVALENT to testamentary disposition;
(b) Inter vivos in FORM, Mortis Causa in SUBSTANCE;
Coverage of “by trust or otherwise”: *****inter vivos in form but mortis causa in substance.
31
TRUST is covered because there is NO TRANSFER OF OWNERSHIP in such arrangement.

32*****Decedent is NAKED OWNER of property, i.e., enjoyment of property is given to another
(usufructuary): the property is INCLUDED in the GE. Mr. Mayuga donated his residential house and
lot to his son and duly paid the donor's tax. In the Deed of Donation, Mr. Mayuga expressly reserved
for himself the usufruct over the property for as long as he lived. Decide: The property will form
part of Mr. Mayuga's gross estate when he dies. Applying Section 85 (B) of the NIRC, the donated
property will still form part of the gross estate of the decedent when in the deed of donation, the
donor “has retained for his life or for any period which does not in fact end before his death the
possession or enjoyment of, or the right to the income from the property.” Therefore, the property
will form part of Mr. Mayuga’s gross estate when he dies because he donated the property in
contemplation of death.
35
transferred will not be considered in determining the gross estate.33 What if the price/
consideration is grossly inadequate? [] Art 1470 NCC: GROSS INADEQUACY of a
price does NOT affect a contract of sale, except as it MAY indicate a defect in
the consent, or that the parties really intended a donation or some other act of
contract.
2. Circumstances (FACTORS)34 to be taken into account in determining
whether the transfer is one in contemplation of death:
(a) Age of the decedent at the time the transfers were made;
(b) Decedent’s health, as he knew it at or before the time of the transfers;
*is he terminally ill?
(c) The interval between the transfers and the decedent’s death;
(d) The amount of property transferred in proportion to the amount of
property retained;
(e) The nature and disposition of the decedent;
(f) The existence of a general testamentary scheme of which the transfers
were a part;
(g) The relationship of the donee(s) to the decedent;35
(h) The existence of a desire on the part of the decedent to escape the
burden of managing property by transferring the property to others;
(i) The existence of a long established gift-making policy on the part of
the decedent;
(j) The existence of a desire on the part of the decedent to vicariously
enjoy the enjoyment of the donees for the property transferred;
(k) The existence of the desire by the decedent of avoiding estate taxes
by means of making inter vivos transfers of property. (Estate of Oliver Johnson v.
Commissioner, 10 T.C. 680);
33***Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for valuable
and sufficient consideration a house and lot to his son. He died one year later. In the settlement of
Mr. Agustin's estate, the BIR argued that the house and lot were transferred in contemplation of death
and should therefore form part of the gross estate for estate tax purposes. Is the BIR correct? (2013
Bar Question): The BIR is not correct. Pursuant to Section 85(B) of the NIRC, properties that are
transferred in contemplation of death form part of the gross estate of the decedent. ****An
exception to this is a bona fide sale for an adequate and full consideration in money. Therefore,
the house and lot which Mr. Agustin sold to his son for a valuable and sufficient consideration should
not be considered as forming part of Mr. Agustin’s gross estate.
34The common ones are: a. Age; b. Medical condition of seller at the time of sale; c. Period of
time between transfer and time of death; d. Relationship between the seller and the buyer;
35 *****Dizon vs. Posadas: the Court considered two factors: (i) the interval between the transfer and
the decedent’s death (only 12 days elapsed); and (ii) the relationship of the donee to the decedent (son-
father). FACTS: A deed of gift covering 22 tracts of land was executed by Felix Dizon in favor of his
son Luis on 9 Apr 1928, reserving the usufruct to the donor; formal acceptance in writing was acknowledged
before the notary public on April 20. Felix died the next day, April 21. The transfer was INTER
VIVOS but for the purpose of taxation, it was a TRANSFER IN CONTEMPLATION OF
DEATH.
36
(l) Concurrent making of will or making a will within a short time after
the transfer (De Roces v. Posadas, 58 Phil. 108). FACTS: Esperanza Tuazon
donated certain parcels of land to the plaintiffs on March 10 & 12, 1925; she died
on January 5, 1926 with a will where she bequeathed to the same donees
legacies of P5K each. HELD: When the donor makes a will within a short
period of time or simultaneously with the making of gifts, the said gifts are
considered to have been made in CONTEMPLATION of death. The
intention of the donor is obviously the avoidance of the imposition of estate tax, and
since the donees are likewise FORCED HEIRS who are called upon to
inherit, it will create a PRESUMPTION JURIS TANTUM36 that said
donations were made mortis causa, hence, the said properties must be
36 *Bar 2001: AA, aged 90 years and suffering from incurable cancer, on August 1, 2001 wrote a will
and, on the same day, made several inter-vivos gifts to his children. Ten days later, he died. In your
opinion, are the inter-vivos gifts considered transfers in contemplation of death for purposes of
determining properties to be included in his gross estate? A: Yes. *****When the donor makes his will
within a short time of, or simultaneously with, the making of gifts, the gifts are considered as having been
made in contemplation of death. (Roces v. Posadas, 58 Phil. 108). Obviously, the intention of the
donor in making the inter-vivos gifts is to avoid the imposition of the estate tax and since the donees
are likewise his forced heirs who are called upon to inherit, it will ******create a presumption juris
tantum that said donations were made mortis causa, hence, the properties donated shall be included as part
of A's gross estate.
37
included in the decedent’s GE.  

3. Motives37 which negate transfer in contemplation of death:
(a) To relieve the donor from the burden of management;
(b) To save income taxes or property taxes;
(c) To settle family litigated and unlitigated disputes;
(d) To provide independent income for dependents ;
(e) To see the children enjoy the property while the donor is alive;
(f) To protect family from hazards of business operations;
(g) To reward services rendered.
*NB: the three-year presumption rule in PD 1705 is no longer applicable (in
case of bona fide sale?).
[] NB: This is not automatic, but it gives us a glimpse of whether or not the
transfer was meant to evade taxes.
4. Examples:
a. X bought house & lot for 1M. The current FMV is 3M. He was
diagnosed with cancer and was given three months to live. Before of the thought
of his impending death, he transferred his property to Y, so he could evade the
payment of estate tax. Effect: include the FMV of the property at the time of
X’s death in the GE. NB: This has nothing to do with collation. Even if the title
has been transferred to Y, or even to 9 other persons afterwards, it does not
37Five instances which constitutes transfer in contemplation of death according to Prof. Thomas
Matic:
a. Secondary Life Estate – Retention by the grantor for life of the right to enjoy the income or
the fruits of the property transferred in trust constitute what is called reservation of a primary life
estate. There is no question in this case that the property would be included in the gross estate of the
grantor upon his death. EG: AA creates a trust to pay the income to himself for life, remainder to BB
or his estate. Since enjoyment of the property remains in AA, the transferor, throughout his lifetime,
the value of the entire property is included in A’s estate at death.
b. Interests Analogous to Life Estates – where the decedent had transferred certain shares of
stock to his daughter “subject to your giving me the first dividends on these P15,000,” and part of the
P15,000 was still unpaid when the decedent died, it was held that the entire value of the securities
was properly included in the decedent’s gross estate since he had retained the income for a period
which did not in fact end before his death.
c. Discharging Legal obligation to transferor – a transfer with the right retained to have the
income used to discharge a legal obligation of the transferor or otherwise for his pecuniary benefit is
equivalent to a reservation of the right to the income. EG: where a man created a trust with the
provision that the income should be paid to his wife for her “support and maintenance”, remainder to
their children, it was held that the property was includible in his gross estate. But there is no inclusion
required if the grantor’s dependent is free to use the income for any purpose without restriction, the reason
being that inclusion is required only where the transfer relieves the grantor of his duty to support.
d. Right Retained Alone or with another to designate who shall enjoy property or income therefrom –
The situation contemplated here usually occurs when the settlor or grantor designates himself as
trustee or co-trustee with another.
e. Retention of Power to distribute or accumulate trust income – where the grantor, either
alone as trustee or as co-trustee with others, reserved the power to accumulate or distribute income
and exercised such power by accumulating and adding income to principal and this power he held until
the moment of his death with respect to both the original principal as well as the accumulated
income, this requires the inclusion in the decedent settlor’s gross estate.
38
matter. It is the thought of his impending death that made him transfer the
property, hence, it should be included in the gross estate.  
b. What if X did not die of cancer but of a car accident? That will NOT
change the character of the property as one transferred in contemplation of
death. What’s important is that at the time of transfer, the two factors are present.
*proceed to transfers for insufficient consideration for the next item.
G. Transfers of insufficient consideration (TIC)

1. Concept [studied in correlation with Sec. 24 (C) and (D), Sec. 100 & Sec. 85
(G)]. This means that the transfer is
a. not in accordance with the actual money’s worth and
b. at the same time
i. in contemplation of death,
ii. in the nature of revocable transfer or
iii. property passing through a general power of appointment
*then we impose estate tax.
2. Summary. It is a TIC, if at the same time it is:
a. in contemplation of death;  
b. in the nature of a revocable transfer; or  
c. property passing under general power of appointment.  
[] ****If a to c are present, impose estate tax; If a to c are absent, impose
donor’s tax. Note that ET & DT are imposed only on losses from transactions
involving properties covered by ET & DT. 
3. Examples of SOS [C]: see discussion in Module 1. 
4. Examples on CGT [D]: see discussion in Module 1.
[] Summary of 3 & 4******
A: SOS not traded B: SOS traded C: RP, capital D: Other than A to C
asset in PH
INCOME/ CGT (5/10%) Sec. 127 (1/2 of 1%) CGT (6%) NIT
GAIN
LOSS DT/ET Sec. 127, DT, ET CGT (6%) DT/ET
C. Revocable transfer (RT)

1. Property is transferred during lifetime but at the time of transfer, the seller
retained for himself certain rights, which may or may not be exercised, but
available on the part of the seller at the time of death. When he died, the
right is existing, that is, he could have exercised the right although he did not. As
long as the right is available at the point of death, then we call it a revocable
transfer.
2. What are the possible rights retained by the seller?
a. Right to revoke the sale
[] if he revokes the sale, it becomes his Decedent’s interest, because
39
full ownership is now vested in him. 

b. Right of possession  
c. Right to enjoyment of fruits for a certain period of time  
3. The property will then be included in the gross estate, the value of which is
not the value at the time of transfer or at the time of sale, but the value at
the time of death.
*****What if there is a consideration? Then value will be FMV, at the time
of death, less the consideration.
D. Property passing under general power of appointment (GPA);

1. GPA: X asked Y to receive his property, with the condition that upon the death
of Y, the latter chooses whoever will be the successor to the property he now has
control of. In this case, the property will be included in the GE of Y (current
FMV at Y’s death).
a. If the transfer from Y to subsequent transferees (as dictated by Y) is for
insufficient consideration, then it is included in the GE under Sec. 85 (G);
b. If there is no consideration, it is considered as a simple revocable
transfer.
2. Special Power of Appointment (SPA): X asked Y to receive his property, with
the condition that upon the death of Y, the latter shall give it to B (as chosen by
X). Hence, upon Y’s death, the property is not part of the GE of Y. Why? The
one in control is X. It is part of the GE of X (FMV at the time of X’s death).
E. Proceeds of life insurance******

*cf. Exclusions, supra, Sec. 85(E) is studied irt Sec. 32(B)(1) and Sec. 36 (A)(4)
F. Prior interests;
1. [] Sec 85 (F) Prior Interests. - Except as otherwise specifically provided
therein, Subsections (B), (C) and (E) of this Section shall apply to the transfers,
trusts, estates, interests, rights, powers and relinquishment of powers, as
severally enumerated and described therein, whether made, created, arising,
existing, exercised or relinquished before or after the effectivity of this Code.
2. What: all transfers, trusts, estates, interests, rights, powers and relinquishment of powers
made, created, arising, existing, exercised or relinquished before or after the
effectivity of the Tax Code. (Sec. 85, NIRC).
3. Coverage of prior interest:
a. Transfers in contemplation of death;
b. Revocable transfers;
c. Life insurance proceeds to the extent of the amount receivable by the
estate of the deceased, executor or administrator under policies taken out by the
decedent upon his own life or to the extent of the amount receivable by any
beneficiary not expressly designated as irrevocable
40
H. Capital of the Surviving Spouse (misplaced provision)

1. It shall not be deemed a part of his or her gross estate.
—————————————————
TAXABLE NET ESTATE (TNE)

*Formula: GE — AD = TNE x rate (5-20%) = Tax Due, less Tax Credit, if any
*Tax Credit happens when there is ET paid in other jurisdictions.
ALLOWABLE DEDUCTIONS FROM THE GE

1. Ordinary deductions
a. ELIT: Expenses, losses, indebtedness, taxes, etc:
i. E: Funeral expenses;
ii. E: Judicial expenses of testamentary or intestate proceedings;
iii. L: Losses;
iv. I: Claims against the estate;
v. I: Claims against the insolvent persons;
vi. I: Unpaid mortgage or indebtedness on property;
viI. T: Taxes paid;
b. Transfer for public use;
c. Vanishing deductions.
2. Special deductions
a. Family home;
b. Standard deduction of P1,000,000;
c. Medical expenses (not more than 500K; incurred within the year prior to
death)
d. Amounts received by heirs under RA 4917.
3. NB: These deductions are allowed for a citizen or resident of the Philippines;
Non-resident aliens are not entitled to special deductions.
4. Deductions from GE with ceilings
Funeral expenses: actual funeral expenses, or 5% of the gross Whichever is the LOWEST
estate; or P200k
Medical expenses: actual medical expenses, or P500k Whichever is LOWER
Family home: FMV, or P1M Whichever is LOWER
******Jose Ramos, single, died of a heart attack on October 10, 2011, leaving a
residential house and lot with a market value of P1.8 Million and cash of
P100,000.00. Funeral expenses paid amounted to P250,000.00. (2012 Bar
Question): His estate will be exempt from estate tax because the net estate is zero.
TOM: 1.8 M house and lot + 100K cash = 1.9M less 200K funeral expense
(maximum allowable) = 1.7M less family home at 1M max = 0.7M less standard
deduction of 1M = negative value! ;)
41
4. SUMMARY OF ALLOWABLE DEDUCTIONS38
38 [] Bar 2000: Mr. Felix de la Cruz, a bachelor resident citizen, suffered from a heart attack while on
a business trip to the USA. He died intestate on June 15, 2000 in New York City, leaving behind real
properties situated in New York; his family home in Valle Verde, Pasig City; an office condominium in
Makati City; shares of stocks in San Miguel Corporation; cash in bank; and personal belongings. The
decedent is heavily insured with Insular Life. He had no known debts at the time of his death. As the
sole heir and appointed Administrator, how would you determine the gross estate of the decedent?
What deductions may be claimed by the estate and when and where shall the return be filed and estate
tax paid? A: The gross estate of the decedent will include the value at the time of his death of all the
properties mentioned because he is a Filipino citizen.
a. *****With respect to the life insurance proceeds, the amount includible in the gross estate
for Philippine tax purposes would be to the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, under policies taken out by decedent upon his own life,
irrespective of whether or not the insured retained the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in the policy of insurance, except when it is
expressly stipulated that the designation of the beneficiary is irrevocable. [Sec. 85 (E) NIRC of
1997]
b. The *****DEDUCTIONS that may be claimed by the estate are:
i. The actual funeral expenses or in an amount equal to five percent (5%) of the gross
estate, whichever is lower, but in no case to exceed two hundred thousand pesos (P200.000.00). [Sec. 86
(A) (1) (a). NIRC of 1997];
ii. The judicial expenses in the testate or intestate proceedings. (Sec. 86(A)(1))
iii. The value of the decedent's family home located in Valle Verde, Pasig City in an
amount not exceeding one million pesos (P1,000,000.00), and upon presentation of a certification
of the barangay captain of the locality that the same have been the decedent's family home. [Sec. 86 (A)
(4), Ibid]
iv. The standard deduction of P1,000,000. (Sec. 86(A)(5))
v. Medical expenses incurred within one year from death in an amount not exceeding
P500,000 (Sec. 86(A)(6))
b. The ESTATE TAX RETURN shall be filed within six (6) months from the decedent's
death (Sec. 90 (B), NIRC of 1997], provided that the Commissioner of Internal Revenue shall have
authority to grant in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing
the return (Sec. 90 (c), Ibid]
c. Except in cases where the Commissioner of Internal Revenue otherwise permits, the estate
tax return shall be filed with an authorized agent bank, or Revenue District Officer, Collection
Officer, or duly authorized Treasurer of Pasig City, the City in which the decedent Mr. de la Cruz
was domiciled at the time of his death. [Sec. 90 (D). NIRC of 1997]
42
RESIDENT DECEDENTS NON-RESIDENT DECEDENTS

1. Expenses, losses, indebtedness, and taxes 1. Expenses, losses, indebtedness, and taxes
(ELIT): a. Funeral expenses; b. Judicial expenses (ELIT): a.Funeral expenses; b. Judicial expenses
for testamentary or intestate proceedings; c. for testamentary or intestate proceeding; c.Claims
Claims against the estate;  against the estate; 
d. Claims against insolvent persons included in d.Claims insolvent persons included in the  
the gross estate; e.Unpaid mortgages or gross estate; e.Unpaid mortgages or indebtedness
indebtedness upon the property; f.Unpaid taxes; upon the property; f.Unpaid taxes; g.Losses
g.Losses incurred during the settlement of the incurred during the settlement of the estate
estate. 2. Property Previously Taxed
2. Property previously taxed 3. Transfers for Public Use
3. Transfers for public use 4. Net share of the surviving spouse in the
4. The Family home  conjugal or community property
5. Standard deduction  *The following are not allowable deductions:
6. Medical expenses 1. Family home
7. Amount received by heirs under R.A. No. 2. Standard deduction
4917 (Retirement Benefits of Employees of 3. Hospitalization expenses
Private Firms) 4. Retirement pay
8. Net share of the surviving spouse in the
conjugal or community property.
[] The numbering below follows Sec. 86(A)

(A) Deductions Allowed to the Estate of Citizen or a Resident.
(1) Expenses, losses, indebtedness, and taxes:
1a. Funeral Expense (FE)

1. *****Actual expense or an amount equal to 5% of the gross estate,
WHICHEVER IS LOWER, but not exceeding Php 200,000. [Sec. 86 (B)(1)]39 
2. EG of FEs: death notices, telephone costs, telegrams, communication expenses,
coffin, burial clothes of the death and the bereaved relatives; food; Mass expense;
39Mr. X, a Filipino residing in Alabama, U.S.A., died on January 2, 2013 after undergoing a major heart
surgery. He left behind to his wife and two (2) kids several properties, to wit: (4%) (1) Family home in
Makati City; (2) Condominium unit in Las Piñas City; (3) Proceeds of health insurance from Take
Care, a health maintenance organization in the Philippines; and (4) Land in Alabama, U.S.A.
The following expenses were paid: (1) Funeral expenses; (2) Medical expenses; and (3) Judicial
expenses in the testate proceedings.
(A) What are the items that must be considered as part of the gross estate income of Mr. X?
SUGGESTED ANSWER: All the items of properties enumerated in the problem shall form part of
the gross estate of Mr. X. The composition of the gross estate of a decedent who is a Filipino citizen
shall include all of his properties, real or personal, tangible or intangible, wherever situated (Section 85,
NIRC).  
(B) What are the items that may be considered as deductions from the gross estate? (2014 Bar
Question) All the items of expenses are deductible from his gross estate. *****However, the allowable
amount of funeral expenses shall be 5% of the gross estate or actual , whichever is lower, but in
no case shall the amount deductible go beyond Php 200,000.00. Likewise, the deductible medical
expenses must be limited to those incurred within one year prior to his death but not to exceed
Php 500,000.00 (Section 86, NIRC).
43
cemetery expenses; tombstone, etc. (anything prior40 to burial);

4. EG: GE is 5M in PH and 3M in the US (total world estate is 8M). Actual
funeral expense = 300K; 5% of 8M is 400K. But the law provides that it should
not exceed 200K. Hence, deduct only 200K.
a. RC, NRC, RA = entitled to deduction
b. *****NRA = entitled to deduction in proportion (iP) to his estate in
PH. Hence, 5M/8M x 200K = 125K
1b. Judicial Expenses (JE)

1. Expenses for the settlement of the estate. NO LIMIT  
*****But if incurred in order to assert his right as an heir: NOT
INCLUDED.  
2. EG of JEs: surveyor’s fees, appraiser’s fees, accountant’s fees, legal fees, etc.
3. Who are entitled?
a. RC, NRC, RA = entitled to deduction 
b. NRA = entitled to deduction but (iP) 
1c. Claims against the estate (CAE) 

1d. Claims against insolvent persons (CAIP)
*EG for both CAE & CAIP: X (Debtor); Y (Creditor). Credit = 100K; Interest =
10%; Total = 110,000
40On the first anniversary of the death of Y, his heirs hosted a sumptuous dinner for his doctors,
nurses, and others who attended to Y during his last illness. The cost of the dinner amounted to Php
50,000.00. Compared to his gross estate, the Php 50.000.00 did not exceed five percent of the estate. Is
the said cost of the dinner to commemorate his one year death anniversary deductible from his gross
estate? Explain your answer. (5%) SUGGESTED ANSWER: No. This expense will not fall under any
of the allowable deductions from gross estate. Whether viewed in the context of either funeral
expenses or medical expenses, the same will not qualify as a deduction. Funeral expenses may include
medical expenses of the last illness but not expenses incurred after burial nor expenses incurred
to commemorate the death anniversary. (De Guzman V. De Guzman, 83 SCRA 256). Medical
expenses, on the other hand, are allowed only if incurred by the decedent within one year prior to
his death. (Section 86(A)(6), NIRC). (BAR 2001)
44
INCOME TAX ESTATE TAX
CAE CAIP
Both X & Y are alive X (debtor) is dead Y (creditor) is dead

1. X paid 110K to Y: a) 10K income of Y subject to X did not pay. On X did not pay. On the
NIT; b) X can claim 10K interest expense, provided he the Estate of X, Estate of Y, deduct the
incurred it in connection with his T/B, subject to Tax claim the entire entire 110K as CAIP,
Arbitrage [Sec. 34], i.e., interest expense will be further 110K as CAE provided that the 110K
reduced by up to 33% of any interest income from the (Special should first be added
bank. Proceeding on the to the GE before
2. X did not pay: a) no income on Y. Tax consequence: estate: cannot be deducting the same as
BAD DEBT claim as a deduction for the entire 100K; settled CAIP (Dagdag-bawas).
b) For X, there is zero consequence extrajudicially Why? IPP (as credit) is
3. X did not pay and the same was deducted as a bad because there is owned by Y as should
debt on the part of X, but after two years, X paid an indebtedness.) be part of the GE.
110K. TAX BENEFIT RULE applies.
CLAIMS AGAINST THE ESTATE

1. [] For claims against the estate: Provided, That at the time the indebtedness was
incurred the debt instrument was duly notarized and, if the loan was contracted
within three (3) years before the death of the decedent, the administrator or executor
shall submit a statement showing the disposition of the proceeds of the loan;
*Claims are debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime and could have been reduced to
simple money judgments.
2. In other words, if enforceable against him when he was alive, the
obligations will be claims against his estate when he shall be dead. So, an obligation that
has prescribed during his lifetime, or that was unenforceable against him, will
not be a claim against his estate when he shall be dead. Hence, the claim must be existing
and has not been condoned.41
3. Sources of claims (CTO):
a. Contract
41 *Q: During the proceeding for the probate of Jose Fernandez’s estate, Dizon, the administrator,
requested the probate court's authority to sell several properties forming part of the estate, for the
purpose of paying its creditors. However, the BIR issued an Estate Tax Assessment Notice
demanding payment of the deficiency estate tax. Dizon claims that in as much as the valid claims of
creditors against the estate are in excess of the gross estate, no estate tax was due. CTA ordered that
the estate should pay the estate tax liability with interest. May the actual claims of the creditors be
fully allowed as deductions from the gross estate of Jose despite the fact that the claims were
reduced or condoned through compromise agreements entered into by the Estate with its
creditors? A: No. The claims against the estate which the law allows as deduction from the gross estate
are existing claims against the estate. An indebtedness that has been condoned is in legal effect no
indebtedness at all. If there is no more indebtedness by reason of the condonation, there is no more claim against
the estate which may be allowed as a deduction. (Dizon, et. al v. CA, G.R. No. 140944, Apr. 30, 2008)
*NB for (c) & (e): The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that
they were contracted bona fide and for an adequate and full consideration in money or money's worth.
45
b. Tort
ic. by Operation of Law
4. Claims against the estate may be claimed as a deduction by a Filipino citizen,
whether resident or not, or of a resident alien decedent provided that:42
a. At the time the indebtedness was incurred the debt instrument was
duly notarized; and [iow, if the claim arose out of a debt instrument, the debt
instrument must be notarized; ******EXCEPT for loans granted by financial
institutions where notarization is not part of the business practice or policy
of the institution. If a monetary claim against the decedent did not arise out of a
debt instrument, the requirement of a notarized debt instrument does not apply.] 
ii. If the loan was contracted within three (3) years before the death of
the decedent, the administrator or executor shall submit a statement showing
the disposition of the proceeds of the loan. (Sec 86[A][1][c], NIRC)
5. *****There is no requirement to add the amount to the gross estate (as compared to claims
against insolvent persons/mortgage). This is a DIRECT DEDUCTION (unless the loan
has not been disposed of)
CLAIMS AGAINST INSOLVENT PERSONS

1. [] For claims of the deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the gross estate; and
*Claims against insolvent persons are deductions from the gross estate,
SUBJECT to the condition that the full amounts of the receivables are first
included in the gross estate—the deduction from the gross estate will be the
uncollectible portion.
2. Requisites for deductibility:*****
a. The full amount of the receivables be included first in the gross estate;
and  
b. The incapacity of the debtors to pay their obligation is proven not
merely alleged.
42 *****Bar 2015: Requisites for its deductibility: TiG-VeCS

i. The liability represents a personal obligation of the deceased existing at the Time of his death
except unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid
medical expenses;  
ii. The liability was contracted in Good faith and for adequate and full consideration in money or
money’s worth;  
iii. Must be a debt or claim must be Valid and enforceable in court;
iv. Indebtedness must not have been Condoned by the creditor or the action to collect from the
decedent must not have prescribed (RR 2-2003); and
*NB: if the debts were condoned AFTER the decedent’s death, the debts are
deductible, following the date-of-death valuation rule. (Dizon v CTA)
v. It must be duly Substantiated.
NB: At the time the indebtedness was incurred, the debt instrument was duly notarized and
if the loan was contracted within three (3) years before the death of the decedent, the administrator or executor
shall submit a statement showing the disposition* of the proceeds of the loan.
46
******Note: Judicial declaration of insolvency is not necessary. It is

enough that the debtor’s liabilities exceeded his assets.
 
1e. Unpaid Mortgage (UM)
1. Same rule as to “dagdag-bawas”. Add the UM and deduct it as well. These are
called zero-sum computations. They don’t really benefit the heirs because
these transactions weren’t supposed to be part of the gross estate anyway. *****Requisites
for its deductibility:
a. The value of the property to the extent of the decedent’s interest
therein, undiminished43 by such mortgage or indebtedness is included in the gross
estate; and  
b. The mortgage indebtedness was contracted in good faith and for an
adequate and full consideration in money or money’s worth;
*NB for (c: claims against the estate) & (e: unpaid mortgage): The
deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be
limited to the extent that they were contracted bona fide and for an adequate and full
consideration in money or money's worth. In case unpaid mortgage payable is
being claimed by the estate, and the loan is found to be merely an
accommodation loan where the loan proceeds went to another person, the value of the
unpaid loan, to the extent of the decedent’s interest therein must be included as a
receivable of the estate. If there is a legal impediment to recognize the same as
receivable of the estate, said unpaid obligation/ mortgage payable shall not be
allowed as a deduction from the gross estate. (Section 86(A)(1))(e), NIRC)
2. EG:44 X (Debtor) is dead; Credit = 100,000; Interest = 10% (10,000); Total =

110,000; House = 500,000 (Mortgaged) 
43During his lifetime, Mr. Sakitin obtained a loan amounting to P10 million from Bangko Uno for
the purchase of a parcel of land located in Makati City, using such property as collateral for the loan.
The loan was evidenced by a duly notarized promissory note. Subsequently, Mr. Sakitin died. At the
time of his death, the unpaid balance of the loan amounted to P2 million. The heirs of Mr.
Sakitin deducted the amount of P2 million from the gross estate, as part of the "Claims against the Estate."
Such deduction was disallowed by the Bureau of Internal Revenue (BIR) Examiner, claiming that the
mortgaged property was not included in the computation of the gross estate. Do you agree with the
BIR? Explain. (2014 Bar Question): Yes. ******Unpaid mortgages upon, or any indebtedness with
respect to property are deductible from the gross estate only if the value of the decedent’s
interest in said property, undiminished by such mortgage or indebtedness, is included in the
gross estate (Section 86(A)(1)(e)). In the instant case, the interest of the decedent in the property
purchased from the loan where the said property was used as the collateral, was not included in the
gross estate. Accordingly, the unpaid balance of the loan at the time of Mr. Sakitin’s death is not
deductible as “Claims against the Estate.”
44*****The mortgage or indebtedness will be claimed as a deduction from the gross estate. EG:
PP died leaving real property with a FMV of P1M, subject to a mortgage in the amount of P600k.
Before he can deduct the P600k, he has to include the total FMV of his property to the gross
income.
47
a. On the Estate of X = claim UM (110,000)

b. How? Add the value of the security at the time of death (say, 2M),
This is Decedent’s Interest since X is the owner. Then, deduct unpaid
mortgage loan.
3. [] Unpaid mortgage or indebtedness on property. ****For unpaid mortgages upon, or
any indebtedness in respect to, property where the value of decedent's interest
therein, undiminished by such mortgage or indebtedness, is included in the value of the
gross estate, but not including any income tax upon income received after the death
of the decedent, or property taxes not accrued before his death, or any estate tax.  
1f. Unpaid Taxes (UT)

1. Income Tax: taxes paid related to trade or business.  
2. Estate Tax: unpaid taxes whether or not related to trade or business. Becomes
the liability of the estate.
(2) Property Previously Taxed (PPT)

1. Two aspects:
a. Property inherited (mortis causa); or  
b. Property received as a gift (inter vivos)
2. EG: X (dad) has a child (Y). If X dies, the property goes to Y.
a. X is called the prior decedent;
b. Y is called the present decedent (when he dies and his estate is in
question).
3. Vanishing Tax45 (Vanishing Deduction or VD46) is used to compute the estate
tax due to the present decedent. This can be used as a remedy to reduce estate
tax due. Vanishing Deduction is the deduction allowed from the gross estate of
citizens, resident aliens and non-resident estates for properties which were
previously subject to donors or estate taxes. Property may change hands within a
very short period of time by reason of the early death of the owner who received it
by inheritance or by donation (gift); To provide relief to the burdened taxpayer,
vanishing deductions are allowed to reduce the gross estate.
45 Vanishing deduction is availed of by taxpayers to: a. correct his accounting records to reflect the
actual deductions made b. reduce his gross income; c. reduce his output value-added tax liability 
d. reduce his gross estate. Choose the correct answer. Explain. 5% SUGGESTED ANSWER: I choose
(d), reduce his gross estate. Vanishing deduction or property previously taxed is one of the items of
deduction allowed in computing the net estate of a decedent [Section 86(AX2) and 86(3X2), NIRC]).
(BAR 2006)
46 *****Explain the concept of vanishing deductions in estate-taxation? (1994) A: Vanishing deductions
or property previously taxed in estate taxation refers to the diminishing deducibility/exemption, at
the rate of 100% - 20% over a period of five (5) years until it is lost after the fifth year, of any property
situated in the Philippines forming part of the gross estate, acquired by the decedent from a prior
decedent through gift, bequest, devise, inheritance or exchange, the donor’s or estate tax having
been paid by the donor or the prior decedent or on his behalf, and the prior decedent having
been dead, or the property transferred within a period of five (5) years from the decedent's death.
48
*****PURPOSE: The purpose of vanishing deduction is to lessen the

harsh effects of double taxation. The rate of deduction depends on the period
from the date of transfer to the death of the decedent, as follows:47
TIME FRAME TAX DUE
0-1 year; Within one year or less 100%

1-2 years; More than 1 year but not more than 2 years 80%
2-3 years; More than 2 years but not more than 3 years 60%
5 years or more 0
4. Applicable to a non-resident alien, provided that the property is in the
Philippines  
(3) Transfers for Public Use (TPU)

1. Requisites:
a. Transfers in favor of the government  
b. Only when there is a last will and testament  
2. Example: X gave his house and lot worth 45M to DSWD.
a. Income on the part of DSWD? Yes. 
b. Within or without? Within. 
c. Subject to Income tax? NO. It is an item of exclusion (gifts, bequests &
devices) under Section 32 (B)(3).
d. Assuming that X gave the same property to DSWD inter vivos? Can X
claim it as deduction on his income? It depends.
47 In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00. The fair market value
(FMV) of the painting at the time of the purchase was PI-million. Yuri paid all the corresponding taxes
on the transaction. In 2001, Xavier died. In his last will and testament, Xavier bequeathed the
painting, already worth PI.5- million, to his only son, Zandro. The will also granted Zandro the
power to appoint his wife, Wilma, as successor to the painting in the event of Zandro’s death.
Zandro died in 2007, and Wilma succeeded to the property. May a vanishing deduction be allowed in
either or both of the estates? Explain. (3%) SUGGESTED ANSWER: Vanishing deduction shall be
allowed to the estate of Xavier but only to the extent of Ya (sic) of the property which is the portion
acquired by gift (Section 100, NIRC), The donation took place within 5 years (1999 to 2001) from the
death of Xavier; hence, there is a vanishing deduction. *****However, Zandro’s estate will not be
entitled to claim vanishing deduction because, first and foremost, the property previously taxed is
not includable in his gross estate and second, even if it is includable, the present decedent died
more than 5 years from the death of the previous decedent, and that a vanishing deduction is
already claimed by the previous estate involving the same property. (BAR 2009)
[] [b] Should the painting be included in the gross estate of Zandro in 2007 and thus, be
subject to estate tax? Explain. (3%) SUGGESTED ANSWER: No. *****The transmission from the
first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the
predecessor is an exempt transfer (Section 87, NIRC), Zandro has no control over the disposition
of the property at the time of his death; hence, the estate tax which imposed the privilege of
transmitting properties upon his death will not apply.
49
i. If X were a purely compensation income earner: NO.

ii. If X were a business income earner: YES.
e. Can the estate of X claim the donation as a TPU? YES. In full? YES.
f. If X is a non-resident alien, is it required that the property be located in
the Philippines? NO. Can X claim it as a deduction? YES, in full.
(4) Family Home (FH)

1. The limit is P1,000,000.00  
a. When the current fair market value exceeds P1,000,000.00, the excess
shall be subject to estate tax. 
b. If it’s less than 1M, use the actual value of the property.
2. Not applicable to non-resident alien  
3. The family home is directly chargeable to the value of the estate.  
(5) Standard Deduction (SD)

1. An amount equivalent to One million pesos (P1,000,000).
2. It is directly chargeable to the gross estate.
 
(6) Medical Expenses (ME)
1. Actual medical expenses incurred within 1 year prior to his decedent’s death
but not to exceed P500,000.00
2. Should there be a relationship between the expense and the cause death? NO.
The law does not say so. All medical expenses as long as incurred within 1
year prior to his decedent’s death.
3. Not applicable to non-resident alien
(7) Amount Received by Heirs under RA 4917 (Death Benefits)

1. Amount received by heirs from the decedent’s employer as a consequence of
the death of the decedent-employee.
2. Include first in the gross estate of the decedent.
3. Not applicable to non-resident alien
(B) Deductions Allowed to Nonresident Estates

*These are incorporated in (A)(1), supra.
(C) Conjugal Share of the Surviving Spouse48

1. Out of the conjugal properties of the spouses, deduct first the 9 prior
deductions before you divide it by two; the result will be the conjugal share of
the surviving spouse.
48Which among the following reduces the gross estate (not the net estate) of a citizen of the
Philippines for purposes of estate taxation? (2011 Bar Question): (A) Transfers for public use (B)
Property previously taxed (C) Standard deduction of P1 million (D) Capital of the surviving spouse
50
2. Example: P10,000,000 (conjugal properties) – P3,000,000.00 (9 prior

deductions) = P7,000,000.00, divided by 2 = P3,500,000.00 is the conjugal share
of the surviving spouse.
3. Why deduct first the 9? It’s a perfect example of “claims against the estate”.
When a spouse owes a debt, it is presumed by the NCC that the family benefited
from the debt. Also, the expenses of the family are presumed to have been taken
first from the conjugal properties.
—————————————————
EXEMPTIONS
1. Sources of Exemptions:
a. Income Tax: Sec. 32 (B)
b. Estate Tax: Sec. 87
2. Exemptions under [] SEC. 87 Exemption of Certain Acquisitions and
Transmissions. - The following shall not be taxed:******
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of which inures
to the benefit of any individual: Provided, however, That not more than thirty
percent (30%) of the said bequests, devises, legacies or transfers shall be used by
such institutions for administration purposes.
*****This applies to non-stock, non-profit organizations. If it is a
transfer for public use, apply Sec. 87
51
Module 10. Transfer Taxes II: Donor’s Tax
MORE ON DONOR’S TAX 51

DEFINITION OF DONOR’S TAX 52
RATES FOR DONOR’S TAX 53
ELEMENTS OF A TAXABLE GIFT 56
ESSENTIAL ELEMENTS OF A DONATION 56
DONATIVE INTENT 58
Effect of condonation/remission of debt 59
FORMALITIES REQUIRED IN DONATIONS 60
DONATIONS TO POLITICAL PARTIES/CANDIDATES 60
COMPARISON OF FORMULAS: IT, ET & DT****** 63
ALLOWABLE DEDUCTIONS IN DT 64
D1. Dowries or gifts made on account of marriage 65
D2. Gifts to the national government, its agencies or political subdivisions 66
D3. Gifts to accredited RCEs & NGOs 67
COMPUTING FOR THE DT 67
INSTANCES OF DOUBLE TAXATION IN THE BROAD SENSE****** 69
Matters related to condonation of a debt****** 70
———————————————————————————————
MORE ON DONOR’S TAX

1. DT is the simplest type of tax. Why? In IT & ET, there are many items of
inclusions in the GI & GE. In DT, there is none, as long as you gave the gift
under the following requisites, it will be subject to DT:
a. Transferred during lifetime  
b. Transfer is Gratuitous (without consideration)  
2. Does it have to be called a donation? No. It may be:
a. Condonation of indebtedness (cf. matters on debt condonation, infra) 
b. Waiver of indebtedness;  
c. Waiver of inheritance.  
[] As long as you waive your right or you transfer your property without
any consideration during your lifetime, that is, gratuitously, then it will be subject
to donor’s tax.  
3. In case of waiver of inheritance, if the:  
a. Waiver is generic: no donor’s tax;  
b. Waiver is specific: subject to DT; either
i. as to an heir or
ii. as to share/s
[] EG: You are 4 siblings and you all inherited a property from your parents.
a. If one waives his inheritance in favor of his co-heirs, i.e., each of the
52
other three get equal shares, that’s generic.

b. If the one who waives his inheritance specifically provides that he waives
1/2 of his share to Sibling2, 1/4 to Sibling3, etc., those are subject to DT. 
[] See detailed explanation, supra, under Transfers for Insufficient
Consideration.
DEFINITION OF DONOR’S TAX

1. DT is a tax imposed on the TRANSFER of property by way of gift inter
vivos; it is NOT a property tax (Lladoc v CIR, 14 SCRA 292);
2. Under Section 98 on Imposition of DT: Gifts and donor’s tax will be levied,
assessed, collected and paid upon the transfer by any person, resident or
nonresident, of property by gift:
a. The property can be real or personal, tangible or intangible;
b. The transfer can be in trust or otherwise;
c. The gift can be direct or indirect
3. It shall not apply unless and until there is a COMPLETE gift. The transfer of
property by gift
a. is perfected from the moment the donor knows of the acceptance by the
donee;
b. it is COMPLETED by the delivery, either actually or constructively, of the
donated property to the donee.
*Thus, the LAW in force at the TIME of the perfection/completion of
the donation shall govern the imposition of the donor’s tax. (RR 02-03)
4. When gift becomes complete: an incomplete gift (because of reserved powers
by donor) becomes complete when either –
a. The donor renounces the power; or
b. This right to exercise the reserved power ceases because of the happening of
some event or contingency or the fulfillment of some condition, other than
because of the donor’s death.
5. Effects of renunciation:******
a. Those subject to DT:
53
i. Renunciation by surviving spouse of his/her share in the CPG/

ACP (conjugal partnership of gains/absolute community of property) after
dissolution in favor of the heirs.49
ii. Renunciation by an heir, including the surviving spouse, of his/
her share in the hereditary estate to a SPECIFIC and IDENTIFIED heir to the
exclusion or disadvantage of the other co-heirs.
b. Those NOT subject to donor’s tax; A GENERAL renunciation by an
heir, including the surviving spouse, of share in the hereditary estate left by the
decedent.
RATES FOR DONOR’S TAX

1. Two applicable rates (gifts are computed cumulatively within the same calendar
49In the settlement of the estate of Mr. Barbera who died intestate, his wife renounced her
inheritance and her share of the conjugal property in favor of their children. The BIR determined
that there was a taxable gift and thus assessed Mrs. Barbera as a donor. Was the BIR correct? (2013 Bar
Question) SUGGESTED ANSWER: The BIR is not correct in imposing donor’s tax on the renounced
inheritance of Mrs. Barbera from Mr. Barbera. According to Section 11 of the RR No. 2-2003:
“General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary
estate left by the decedent is not subject to donor’s tax, unless specifically and categorically done in
favor of identified heir/s to the exclusion or disadvantage of other co-heirs in the hereditary
estate.” *****On the other hand, the BIR is correct in imposing donor’s tax on the renounced
conjugal share of Mrs. Barbera. This is because Section 11 of RR No. 2-2003 provides that
“renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any
other person/s is subject to donor’s tax.” This proceeds from the rule that the share of the
conjugal property is the share of the surviving spouse. Thus, the surviving spouse is effectively
donating property when he or she makes a renunciation.
54
year only50):
a. For non-strangers: 2-15%;
b. For strangers: 30%
[] SEC. 99. Rates of Tax Payable by Donor. - (A) In General. - The tax
for each calendar year shall be computed on the basis of the total net gifts made
during the calendar year in accordance with the following schedule:
50 Kenneth Yusoph owns a commercial lot which he bought many years ago for PI Million. It is
now worth P20 Million although the zonal value is only P15 Million. He donates one-half pro-
indiviso interest in the land to his son Dino on 31 December 1994, and the other one-half pro-
indiviso interest to the same son on 2 January 1995.
[] How much is the value of the gifts in 1994 and 1995 for purposes of computing the gift tax?
Explain. ANSWER: The value of the gifts for purposes of computing the gift tax shall be P 7.5
million in 1994 and P7.5millionin 1995. In valuing a real property for gift tax purposes the property
should be appraised at the higher of two values as of the time of donation which are (a) the fair
market value as determined by the Commissioner {which is the zonal value fixed pursuant to Section
16(e) of the Tax Code), or (b) the fair market value as shown in the schedule of values fixed by the
Provincial and City Assessors. *****The fact that the property is worth P20 million as of the time
of donation is immaterial unless it can be shown that this value is one of the two values
mentioned as provided under Section 81 of the Tax Code.
[] The Revenue District Officer questions the splitting of the donations into 1994 and 1995.
He says that since there were only two (2) days separating the two donations they should be treated as
one. having been made within one year. Is he correct? Explain: The Revenue District Officer is not
correct because the computation of the gift tax is cumulative but only insofar as gifts made
within the same calendar year. Therefore, there is no legal justification for treating two gifts effected
in two separate calendar years as one gift.
[] Dino subsequently sold the land to a buyer for P 20 Million. How much did Dino gain
on the sale? Explain. Dino gained an income of 19 million from the sale. *****Dino acquires a carry-
over basis which is the basis of the property in the hands of the donor or PI million. The gain
from the sale or other disposition of property shall be the excess of the amount realized therefrom
over the basis or adjusted basis for determining gain (Sec. 34(a), NIRC). Since the property was
acquired by gift, the basis for determining gain shall be the same as if it would be in the hands of the
donor or the last preceding owner by whom the property was not acquired by gift. Hence, the gain is
computed by deducting the basis of PI million from the amount realized which is P20 million.
[] Suppose, instead of receiving the lot by way of donation, Dino received it by inheritance.
What would be his gain on the sale of the lot for P20 Million? Explain. *****If the commercial lot was
received by inheritance the gain from the sale for P20 million is P5 million because the basis is the
fair market value as of the date of acquisition. The stepped-up basis of P15 million which is the
value for estate tax purposes is the basis for determining the gain (Sec. 34(b)(2), NIRC).
ALTERNATIVE ANSWER: If Dino held on to the property as a capital asset in that it is neither for
sale in the ordinary course of business nor used in Dino’s business, then upon sale thereof there is
presumed to be realized an income of P20 million which is the gross selling price of the property. (Sec.
21(e), NIRC). The same would be subject to the 5% [now 6%] capital gains tax. (BAR 1995)
55
If the net gift is:51

Over But not over The tax shall be Plus Of Excess over
P100k Exempt
P100k 200k 0 2% P100k
200k 500k 2k 4% 200k
500k 1m 14k 6% 500k
1m 3m 44k 8% 1m
3m 5m 204k 10% 3m
5m 10m 404k 12% 5m
10m 1.004m 15% 10m
(B) Rate for donors who are strangers: 30%
2. Who are strangers? [] Sec 99. (B) Tax Payable by Donor if Donee is a
Stranger… For the purpose of this tax, a 'stranger,' is a person who is not a:52
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and
lineal descendant; or ****NB: donation to a spouse is prohibited under NCC except
for moderate gifts.
(2) Relative by CONSANGUINITY in the collateral line within the
fourth degree of relationship. *****Hence, if the in-laws donate to each other,
they are considered strangers.
51 Your bachelor client, a Filipino residing in Quezon City, wants to give his sister a gift of Php
200,000.00. He seeks your advice, for purposes of reducing if not eliminating the donor’s tax on
the gift, on whether it is better for him to give all of the Php 200,000.00 on Christmas 2001 or to give
Php 100,000.00 on Christmas 2001 and the other Php 100,000.00 on January 1, 2002. Please explain
your advice. (5%) SUGGESTED ANSWER: I would advise him to split the donation. Giving the
Php200,000 as a one-time donation would mean that it will be subject to a higher tax bracket under the
graduated tax structure thereby necessitating the payment of donor's tax. *****On the other hand,
splitting the donation into two equal amounts of Php100,000 given on two different years will totally
relieve the donor form (sic) the donor is tax because the first Php l00, 000 donation in the graduated
brackets is exempt. (Section 99, NIRC). While the donor is tax is computed on the cumulative
donations, the aggregation of all donations made by a donor is allowed only over one calendar
year. (BAR 2001)
52 When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the net
gifts. For purposes of this tax, who is a stranger? (2%) SUGGESTED ANSWER: *****A stranger is a
person who is not a: Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or Relative by consanguinity in the collateral line within the fourth degree of
relationship." [Sec. 98 (B), NIRC of 1997] (BAR 2000)
56
3. If the net gift does not exceed P100,000.0053 the same shall be exempt. This is
not equivalent to an exemption of 100K.
ELEMENTS OF A TAXABLE GIFT

1. Capacity of donor to donate;
2. Donative intent;
*XPN: if the donation is indirect (see infra)
3. Acceptance by donee;
4. Actual or Constructive delivery of the gift;
*donation inter vivos (DIV) occurs upon delivery, not perfection.
*If there is a condition attached to the donation or a prohibitory clause, it
does not change the nature of the donation—it merely makes it conditional.
ESSENTIAL ELEMENTS OF A DONATION

1. There are three (3) essential elements of a donation [Republic v. De Guzman 18
Feb 2000]:******
(a) the reduction of the patrimony of the donor;
(b) the increase in the patrimony of the donee; and,
(c) the intent to do an act of liberality or animus donandi.
d. When applied to a donation of an immovable property, the law further
requires that the donation be made in a public document and that there should
be an acceptance thereof made in the same deed of donation or in a separate
public document. In cases where the acceptance is made in a separate
instrument, it is mandated that the donor should be notified thereof in an
authentic form, to be noted in both instruments.
2. Sample problem: is a QUITCLAIM on an immovable subject to a donor’s tax
[Republic v. De Guzman 18 Feb 2000]? In the latter case, the first two elements
were present but the third was not sufficiently established.
a. If the language of the deed of quitclaim merely contemplated a waiver of
rights, title and interest over the lands in favor of (the supposed donee), it is not a
donation. The element of animus donandi is missing.
b. Likewise, the two (2) deeds of quitclaim executed by (by the supposed
donor) may have been in the nature of a public document but they lack the
essential element of acceptance in the proper form required by law to make
the donation valid. NB: SPA executed by supposed donee in favor of his lawyer
53The spouses Helena and Federico wanted to donate a parcel of land to their son Dondon who is
getting married in December, 2011. The parcel of land has a zonal valuation of P420,000.00. What is
the most efficient mode of donating the property? (2011 Bar Question) (A) The spouses should first
donate in 2011 a portion of the property valued at P20,000.00 then spread the P400,000.00 equally for
2012, 2013, 2014 and 2015. (B) Spread the donation over a period of 5 years by the spouses donating
P100,000.00 each year from 2011 to 2015. (C) The spouses should each donate a P110,000.00
portion of the value of the property in 2011 then each should donate P100,000.00 in 2012. (D)
The spouses should each donate a P100,000.00 portion of the value of the property in 2011, and
another P100,000.00 each in 2012. Then, in 2013, Helena should donate the remaining P20,000.00.
57
cannot be deemed an implied acceptance, especially if the SPA merely

acknowledges that he owns the property referred to and that he authorizes his
lawyer to sell the same in his name. Moreover, it is mandated that if an
acceptance is made in a separate public writing the notice of the acceptance
must be noted not only in the document containing the acceptance but also in
the deed of donation [Art 749 NCC]. Solemn words are not necessary; it is
sufficient if it shows the intention to accept . . . . it is necessary that formal notice
thereof be given to the donor, and the fact that due notice has been given must be
noted in both instruments. Then and only then is the donation perfected.
Where the deed of donation fails to show the acceptance, or where the formal notice of the
acceptance made in a separate instrument is either not given to the donor or else noted in the
deed of donation, and in the separate acceptance, the donation is null and void.
c. Further, the records reveal no other instrument that evidences such
acceptance and notice thereof to the donor in an authentic manner. It is well-
settled that if the notification and notation are not complied with, the donation
is void. Therefore, the provisions of the law not having been complied with, there
was no effective conveyance of the parcels of land by way of donation inter vivos.
d. In the instant case, the supposed donor became an American citizen, and
she claimed to have repudiated her inheritance (from her dad) in favor of the
supposed donee (her son). However, there was no valid repudiation because she
had already accepted her share of the inheritance when she executed a Deed of
Extrajudicial Settlement of the Estate of her dad 11 years earlier. By virtue of
such extrajudicial settlement the parcels of land were registered in her and her
son's name in undivided equal share and for eleven (11) years they possessed the
lands in the concept of owner. Article 1056 of the Civil Code provides —The
acceptance or repudiation of an inheritance, once made is irrevocable and
cannot be impugned, except when it was made through any of the causes that vitiate
consent or when an unknown will appears. Nothing on record shows that Helen's
acceptance of her inheritance was made through any of the causes which vitiated
her consent nor is there any proof of the existence of an unknown will executed
by her father. Thus, she cannot belatedly execute an instrument which has the
effect of revoking or impugning her previous acceptance of her one-half (1/2)
share of the subject property. Hence, the two (2) quitclaim deeds which she
executed eleven (11) years after she had accepted the inheritance have no legal
force and effect. Nevertheless, the nullity of the repudiation does not ipso
facto operate to convert the parcels of land into res nullius to be escheated in
favor of the Government. The repudiation being of no effect whatsoever the
parcels of land should revert to their private owner, who, although being an
American citizen, is qualified by hereditary succession to own the property
subject of the litigation.
58
DONATIVE INTENT
1. Basic rule in donation: Donor’s tax is a tax imposed on transfer of property
gratuitously made with donative intent. That’s a basic rule on NCC’s law on
donations. Hence, if you do not have donative intent, there is no donor’s tax to be
imposed.  
2. ON THE ANIMUS DONANDI:54 CTA Case Sps. Hordon H. Evono and
Maribel C. Evono v. CIR, et al., [CTA EB No. 705, (CTA Case No. 7573),June 4,
2012]: the inclusion of the minor children’s names in the transfer of the titles/
properties shall be deemed a donation or gift from their parents. This is so
because the minor children, at an early age, have no source of income. There is a
clear animus donandi. Therefore, the imposition of donor’s tax is in accordance
with Section 98 of the NIRC.
[] EG: Your marriage is annulled. Presumptive legitimes are distributed to
children. There is no donative intent, but the law provides that you should
distribute them. Hence, if BIR requires you to make a Deed of Donation, you
can argue that you do not have donative intent—you are required by law to
distribute their presumptive legitimes, hence, you should not be asked to pay DT.
54 The spouses Jun and Elvira Sandoval purchased a piece of land for P5,000,000 and included their
two (2) minor children as co-purchasers in the Deed of Absolute Sale. The Commissioner of
Internal Revenue (CIR) ruled that there was an implied donation and assessed donors' taxes against
the spouses. Rule on the CIR's action. (1%)(2013 Bar Question) (A) The CIR is wrong; a donation must
be express. (B) The CIR is wrong; financial capacity is not a requirement for a valid sale. (C) The CIR is
correct; the amount involved is huge and ultimately ends up with
the children. (D) The CIR is correct; there was animus donandi since the children had no
financial capacity to be co-purchasers. The present case is similar to the case of Sps. Hordon H.
Evono and Maribel C. Evono v. CIR, et al., [CTA EB No. 705, (CTA Case No. 7573),June 4, 2012]. The
CTA held that the inclusion of the minor children’s names in the transfer of the titles/properties shall
be deemed a donation or gift from their parents. This is so because the minor children, at an early age,
have no source of income. There is a clear animus donandi. Therefore, the imposition of donor’s tax is
in accordance with Section 98 of the NIRC.
59
3. ON INDIRECT DONATION (DEEMED GIFT): This is an exception to

the element of DONATIVE intent.EG: You sold a 1M painting for 500K. The
500K balance is considered as an indirect donation, hence, taxable.55
Effect of condonation/remission of debt

1. It has the the effect of a donation made on the part of the creditor.56
2. Hence, the gift is excluded from the gross income of the debtor.57
55 A, an individual, sold to B, his brother-in-law, his lot with a market value of P1,000,000 for
P600.000. A's cost in the lot is P100.000. B is financially capable of buying the lot. A also owns X
Co., which has a fast growing business. A sold some of his shares of stock in X Co. to his key
executives in X Co. These executives are not related to A. The selling price is P3,000,000, which is
the book value of the shares sold but with a market value of P5,000,000. A's cost in the shares sold
is P1,000,000. The purpose of A in selling the shares is to enable his key executives to acquire a
propriety interest in the business and have a personal stake in its business. Explain if the above
transactions are subject to donor's tax. (1999) A: ******The lot sold to B for an amount below the
market value shall not be subject to donor’s tax if the land is considered as a capital asset. The
transfer for less than adequate and full consideration, which give rise to a deemed gift transaction,
shall not be applicable to a sale of property subject to capital gains tax. (Sec 100, NIRC). If the
lot sold to B is an ordinary asset, such transfer shall be subject to donor’s tax. The amount by
which the fair market value of the property exceeded the value of the consideration shall be deemed
a gift, and shall be included in computing the amount of gifts made during the calendar year. (Sec
100, NIRC). *****The sale of shares of stock below the fair market value thereof is subject to the
donor's tax pursuant to the provisions of Section 100 of the Tax Code. The excess of the fair
market value over the selling price is a deemed gift (TOM: the difference between the fair market
value and the selling price, after deducting A’s cost in the shares sold, shall be deemed gift subject to
donor’s tax of 30%, as they are strangers).
56An insolvent company had an outstanding obligation of P100.000.00 from a creditor. Since it could
not pay the debt, the creditor agreed to accept payment through dacion enpago a property which
had a market value of P30,000.00. In the dacion en pago document, the balance of the debt was
condoned. What is the tax effect on the discharge of the unpaid balance of the obligation on the
debtor corporation? Insofar as the creditor is concerned, how is he effected taxwise as a consequence
of the transaction? ANSWER: *****The condonation of the unpaid balance of the obligation has the
effect of a donation made on the part of the creditor. It is obvious that the creditor merely desires
to benefit the debtor and without any consideration therefore cancels the debt, the amount of
the debt cancelled is a gift from the creditor to the debtor and need not be included in the latter's
gross income (Sec.50, RR No. 2). For the difference of P70.000, the creditor shall be subject to
donor’s tax at the applicable rates provided for under the National Internal Revenue Code.
ALTERNATIVE ANSWER: *****If the discharge was prompted by the insolvency of the debtor
company, then it is a clear case of a write-off of a bad debt which has no tax consequence to the
debtor. The write-off of the bad debt will entitle the creditor to claim the same as a deduction
from its gross income. (BAR 1997)
57 Mr. Francisco borrowed P10,000.00 from his friend Mr. Gutierrez payable in one year without
interest. When the loan became due Mr. Francisco told Mr. Gutierrez that he (Mr. Francisco) was
unable to pay because of business reverses. Mr. Gutierrez took pity on Mr. Francisco and
condoned the loan. Mr. Francisco was solvent at the time he borrowed the P 10,000.00 and at the time
the loan was condoned. Did Mr. Francisco derive any income from the cancellation or condonation of
his indebtedness? Explain. ANSWER: No, *****Mr. Francisco (debtor) did not derive any income
from the cancellation or condonation of his indebtedness. Since it is obvious that the creditor merely
desired to benefit the debtor in view of the absence of consideration for the cancellation, the
amount of the debt is considered as a gift from the creditor to the debtor and need not be included
in the latter’s gross income. (BAR 1995)
60
FORMALITIES REQUIRED IN DONATIONS

*If your gift is:  
1. P5,000 and below: no document needed; your only proof is the acceptance;
2. More than 5K: notarized document needed for the donation, plus the
acceptance either in the same or separate document;  
3. Real Property: notarization required.  
[] Lumbera: If these are not followed, there is no donation. Hence, do not
impose a tax on me…
DONATIONS TO POLITICAL PARTIES/CANDIDATES

1. [] Sec. 99 (C) Any contribution in cash or in kind to any candidate, political
party or coalition of parties for campaign purposes shall be governed by the
Election Code, as amended.
2. Reminders for 09 May 2016 Elections [RMC 30-2016]
a. General reminders:
i. Candidates/political parties including party list groups: required to
register with BIR, issue OR‘s and withhold taxes;  
ii. POLITICAL PARTY: Register with RDO having jurisdiction
over head office or principal office;  
iii. INDIVIDUAL CANDIDATES: Register/update registration with
RDO where principal residence is located;  
iv. Registration of individual candidates automatically ends 30 days
after election; Political parties subsists (sic);
v. Register Books of Accounts with RDO;  
vi. All parties/Candidates are required to issue OR‘s in duplicate for
every contribution received (cash/in kind);  
vii. Contributions in kind are valued at their cash equivalent or
FMV;  
viii. All candidates (parties/individuals) required to preserve
records of contributions/expenditures for at least 5 yrs after election for
production to BIR inspection;  
b. INCOME TAX (IT) TREATMENT OF CAMPAIGN
CONTRIBUTIONS:******  
i. Not part of GI;  
ii. NOT SUBJECT TO IT ( these are not given for personal
expenditure/enrichment but for utilization in campaigns);  
iii. FULLY UTILIZED: NOT INCOME; NOT SUBJECT TO IT;  
iv. NOT FULLY UTILIZED: Excess is subject to IT and
included in the ITR for 2016;  
v. Failure to file Statement of Expenditures with COMELEC:
candidate not allowed to claim as expenses from campaign contributions and
61
entire amount subject to IT;  

c. Deductibility and DONOR’S TAX (DT)58 TREATMENT:******  
i. Fully utilized campaign contributions during the campaign
period only: EXEMPT from DT59 and fully deductible60 as political
contributions on the part of donor;  
ii. Donations utilized before/after campaign period: subject to DT,
not deductible as political contributions on the part of donor;  
iii. Donations made by CORP in violation of Sec 39 of Corp Code
(no corporation, domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan political activity):
58 Mr. De Sarapen is a candidate in the upcoming Senatorial elections. Mr. De Almacen, believing in the
sincerity and ability of Mr. De Sarapen to introduce much needed reforms in the country, contributed
P500,000.00 in cash to the campaign chest of Mr. De Sarapen. In addition, Mr. De Almacen
purchased tarpaulins, t-shirts, umbrellas, caps and other campaign materials that he also
donated to Mr. De Sarapen for use in his campaign. Is the contribution of cash and campaign materials
subject to donor’s tax? (2014 Bar Question) SUGGESTED ANSWER : The answer must be qualified.
Section 99(C) of the NIRC explicitly provides that any contribution in cash or in kind to any
candidate, political party or coalition of parties for campaign purposes shall be governed by
the Election Code, as amended. *****On the other hand, Section 13 of the Republic Act No. 7166
specifically states that any provision of law to the contrary notwithstanding, any contribution in cash
or kind to any candidate or political party or coalition of parties for campaign purposes, duly
reports to the Commission on Elections (COMELEC) shall not be subject to the payment of
any gift tax. Thus, if Mr. De Almacen reported his campaign contributions of Php 500,000.00 in
cash, tarpaulins, t-shirts, umbrellas, caps, and other campaign materials to the COMELEC, then the
BIR cannot impose donor’s tax on such contributions. Conversely, if Mr. De Almacen failed to report
these campaign contributions to the COMELEC, such contributions would be subject to donor’s tax.
59 X is a friend of Y, the chairman of Political Party Z, who wants to run for President in the 2004
elections. Knowing that Y needs funds for posters and streamers, X is thinking of donating to Y
P150,000.00 for his campaign. He asks you whether his intended donation to Y will be subject to the
donor’s tax. What would your answer be? Will your answer be the same if he were to donate to Political
Party Z instead of to Y directly? SUGGESTED ANSWER: The donation to Y, once he becomes a
candidate for an elective post, is not subject to donor's tax provided that he complies with the
requirement of filing returns of contributions with the Commission on Elections as required under the
Omnibus Election Code. *****The answer would be the same if X had donated the amount to
Political Party Z instead of to Y directly because the law places in equal footing any contribution
to any candidate, political party or coalition of parties for campaign purposes. (Section 99(C) of
the 1997 Tax Code). (BAR 2003) [TOM: ask him to give the donation during the campaign period so
that it would be exempt from donor’s tax].
60 See this old bar exam for comparison: Are contributions to a candidate in an election subject to
donor's tax? On the part of the contributor, is it allowable as a deduction from gross income? [5%]
SUGGESTED ANSWER: No. provided the recipient candidate had complied with the requirement for
filing of returns of contributions with the Commission on Elections as required under the Omnibus
Election Code. The contributor is not allowed to deduct the contributions because the said expense is
not directly attributable to, the development, management, operation and/or conduct of a trade,
business or profession (Sec. 34[Al(l)(a), NIRC). Furthermore, if the candidate is an incumbent
government official or employee, it may even be considered as a bribe or a kickback (Sec. 34[A](I)(c),
NIRC). Comment: It is suggested that full credit should be given for any answer to the first question
because the answer requires an interpretation of the Election Code. Pursuant to the provisions of
Section 99(C) of the NIRC, the taxability of this type of contributions/donations is governed by the
Election Code. (BAR 1998)
62
SUBJECT TO DT AND NOT DEDUCTIBLE61 AS POLITICAL

CAMPAIGN CONTRIBUTIONS ON THE PART OF DONOR CORP;  
d. ITR Requirements for Candidates:
i. If self-employed: declare unutilized/excess/unreported funds in
the Q of June 2016 and not later than 15 Aug 2016 using 1701Q;  
ii. If purely compensation income: declare in 1700 for 2016 not
later than 15 Apr 2017;  
iii. If candidate is neither self-employed nor compensation earner:
file short period return for the period Jan 2016 to 09 May 2016 using 1700 form
and not later than 15 Aug 2016;  
iv. Political Parties: declare as ordinary DC for the 2Q not later than
29 Aug 2016;
3. Scenarios:
a. X donated P500,000.00 in favor of a candidate or political party.
i. Income? Yes.
ii. Within or without? Within.
iii. Subject to income tax? No. Gifts, bequests and devises are items
of exclusion [Sec. 32(B)(3)]. Likewise, the same is provided in the Election Code.  
b. On the part of the politician or political party, since it is not taxable
income, is everything exempted from IT? BIR Regulations require that for the
donation to be exempt on the part of the political party or candidate, it must be
FULLY UTILIZED for campaign purposes. How do we know if the
donation of P500,000.00 is fully utilized by the political party or the candidate?
Check the Statement of Contributions and Expenditures (SOCE) submitted
before the COMELEC, whether the candidate is winning or losing. What is not
fully utilized (say, out of the 500K, only 320K was full utilized; them 80K is
taxable income). *****If the contribution is not fully utilized as declared based on
the SOCE, that portion which is not fully utilized shall be subject to income tax
and donor’s tax as well. Conversely, it is not subject to income tax and donor’s
tax provided that the campaign contributions are fully utilized for campaign
purposes.
4. If the candidate does not file a SOCE officially to the COMELEC, all  
campaign contributions are deemed not to have been fully utilized.
Therefore, all shall subject to income and donor’s tax.  
5. As far as all the legitimate authorized expenses for election campaign purposes
as provided in the Election Code are concerned, *****the most important
requirement on the tax side is for all of these expenditures, as provided in the
Election Code, the corresponding creditable withholding tax of 5% should
61This bar question applies only to Corporations: Political campaign contributions are NOT
deductible from gross income: (2011 Bar Question) (A) if they are not reported to the Commission
on Elections. (B) if the candidate supported wins the election because of possible corruption. (C)
since they do not help earn the income from which they are to be deducted. (D) since such
amounts are not considered as income of the candidate to whom given.
63
have been withheld and remitted to BIR.

a. EG: The 500K donated is used in the campaign, as what?
Posters. A bought P500 worth of posters from B. Who earned income? B. So,
who should withhold 5%? A, the payor of the income. *****If you failed to
withhold and remit to BIR the corresponding 5% even if it is clearly utilized
for campaign purposes, then it will not be considered as utilized donation,
hence, the excess will increase, therefore subject to donor’s and income tax
yan.
b. What if what you gave is in kind? You asked B to make 500K worth of
posters. Then you gave the posters to a political candidate.
i. Is that income on your end? Yes.
ii. Is that taxable income? NO, neither IT or DT: a) Posters were fully
distributed; and b) You have proof that the posters are distributed.  
c. Requirement from Comelec on posters, TV ads, etc: “Paid for by friend
of Mr. Politician, telephone number.”; “These are sponsored by Mr. A, cellphone
number ____”; Why? 
i. Because posters are subject to 5% withholding tax.
ii. Who is the withholding agent? The one who had the posters
made—he paid for them; But what was given was posters (it says: paid for by so-
and-so), not 500K cash.
iii. BIR will run after whom? The person whose name is written in the
posters/TV ads.
d. Another way to cross-match the date by BIR and COMELEC: All ad
agencies, TV stations, newspapers, media who accept campaign ads must submit
an INDEPENDENT REPORT. What independent report? These will be
cross-matched to the SOCE of the candidate.
5. Campaign contributions received prior to official campaign period or after
the official campaign period? 
a. *****Everything before and after: subject to income tax, subject to
donor’s tax, like unutilized and excess contributions. 
b. There is no escaping BIR because it does cross-matching.
6. Before returning the excess contribution to the donors, they should be
subjected to tax.
COMPARISON OF FORMULAS: IT, ET & DT******

1. Net income tax formula: 
Net Income – Allowable Deductions = Taxable Net Income x Rate, then
Tax credit, if any.
2. Estate tax formula: 
Gross Estate – Allowable Deductions = Taxable net Estate x Rate, then Tax
credit, if any.
3. Donor’s Tax formula:
64
Gross Gifts/Gross Donations – Allowable Deductions = Taxable Net Gift

x Rate (depending if stranger or not a stranger)
——————————————————
ALLOWABLE DEDUCTIONS IN DT62

1. Dowries or gifts made on account of marriage;
2. Gifts to the national government, its agencies or political subdivisions;
3. Gifts to accredited RCEs & NGOs
[] Another classification: Deductions from Gross Gifts/Exemptions* of Certain
Gifts [Sec 101]
62 CODAL PROVISION ON EXEMPTED GIFTS (hence, DEDUCTION)

[] SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from
the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident. -
(1) Dowries or gifts made on account of marriage and before its celebration or within
one year thereafter by PARENTS to each of their legitimate, recognized natural, or adopted children
to the extent of the first Ten thousand pesos (P10,000):
(2) Gifts made to or for the use of the National Government or any entity created by any
of its agencies which is not conducted for profit, or to any political subdivision of the said
Government; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or philanthrophic
organization or research institution or organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for administration purposes. For the
purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution,
accredited nongovernment organization, trust or philanthrophic organization and/or research
institution or organization' is a school, college or university and/or charitable corporation, accredited
nongovernment organization, trust or philanthrophic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income, whether students' fees or gifts, donation,
subsidies or other forms of philanthrophy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. -
(1) Gifts made to or for the use of the National Government or any entity created by any of
its agencies which is not conducted for profit, or to any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthrophic organization or research institution or
organization: Provided, however, That not more than thirty percent (30% of said gifts shall be used by
such donee for administration purposes.
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. - 
(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at
the time of donation shall be credited with the amount of any donor's tax of any character and
description imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject
to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which the net gifts
situated within such country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax
against which such credit is taken, which the donor's net gifts situated outside the Philippines
taxable under this title bears to his entire net gifts.
65
A. Gifts made by a Resident;

B. Gifts made by Husband & Wife
C. Gifts made by a Non-Resident, not a Citizen of PH;
D. Other Deductions
E. Exemptions under Special Laws
F. Comparison between deductions and exemptions on donor’s tax and
estate tax
*These “exemptions of certain gifts” should be taken to mean the
deductions allowed by law to arrive at the taxable net gifts.
D1. Dowries or gifts made on account of marriage

1. Dowries or gifts made (Donations propter nuptias63 );64 Requisites:
a. (made) on account of marriage
b. and before its celebration, or within one year thereafter,
63 In May 2010, Mr. And Mrs. Melencio Antonio donated a house and lot with a fair market value
of P10 Million to their son, Roberto, who is to be married during the same year to Josefina
Angeles. Which statement below is INCORRECT? (2012 BAR)
a) There are four (4) donations made – two (2) donations are made by Mr. Melencio Antonio to
Roberto and Josefina, and two (2) donations are made by Mrs. Antonio;
b) The four (4) donations are made by the Spouses Antonio to members of the family, hence, subject
to the graduated donor’s tax rates (2%-15%);
c) Two (2) donations are made by the spouses to members of the family, while two (2) other donations
are made to strangers;
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the gross gift as
donation proper nuptias.
SUGGESTED ANSWER:
d) Two (2) donations made by the spouses to Roberto are entitled to deduction from the gross
gift as donation proper nuptias. Section 101, NIRC; Tang Ho v. Court of Appeals.
[] Spouses Jose San Pedro and Clara San Pedro, both Filipino citizens, are the owners of a
residential house and lot in Quezon City. After the recent wedding of their son, Mario, to Maria, the
spouses donated said real property to them. At the time of donation, the real property has a fair
market value of P2 million. Are Jose and Clara subject to donor’s tax? If so, how much is the taxable
gift of each spouse and what rate shall be applied to the gift? Explain. (4%) SUGGESTED
ANSWERS: Yes. Jose and Clara are subject to donor’s tax. *****Since the real property is either
conjugal or absolute community property, each spouse is deemed to have made separate
donation of one-half of the value of the property [Tang Ho v. Board of Tax appeals, 97 Phil. 899
[1955]). For Jose, he is considered to have made two donations: one, is in favor of his son who is a
relative, and two, in favor of his son’s wife who is a stranger. The taxable gift to the son is
P490,000 computed by deducting from the gross gift the dowry exclusion of P10,000. The net
gift is subject to the graduated tax rates of 2% to 15%. The taxable gift to his son’s wife is
P500,000 subject to the 30% flat rate on donation to strangers. (Sections 99 and 101, NIRC). Clara is
subject to the donor’s tax in exactly the same manner as Jose, being considered to have effected
likewise two donations. (BAR 2008)
64Dowries or gifts made on account of marriage and before its celebration or within one year
thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent
of the first P10,000.00.
66
c. by parents65 [******only covers gifts of a parent to his/her child, not a

parent to his future son-in-law/daughter-in-law.66 If the gift is given to a
future son-in-law/daughter-in-law, no deductions will be allowed because the latter
are considered strangers.]
d. to each of their legitimate, recognized natural or adopted children;
e. (Limitation) Only to the extent of P10,000.
2. Key words: On account of the celebration of the marriage. What if your
fiancee left you, hence, the marriage did not push through? No worries. The same
was still given on account of marriage.
3. Why does it not apply to NRA? They do not really mind their children getting
married, unlike here where parents provide almost everything, including the house
for the new couple.
D2. Gifts to the national government, its agencies or political subdivisions

1. Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to any
political subdivision67 of the said Government.
2. Compare to ET & IT:
a. In Estate Tax: Transfers for Public Use or Counterpart
b. In Income Tax: Sec. 34 (H)
c. In DT, why does not law not specify that the donation must be exclusively
for public purpose under Sec. 101 for it to be exempted? Well, the assumption is
that all gifts made to the national government is for a public purpose. Since the
donation is inter vivos, that is, the donor is still alive, he could easily withdraw the
donation if the government did not use it for public purpose, say, it built a Jollibee
store on the land he donated. But for ET, it has to be specified because the one
donating is already dead. His heir would have a basis to demand that it be used
65Celia donated P110,000.00 to her friend Victoria who was getting married. Celia gave no other gift
during the calendar year. What is the donor's tax implication on Celia’s donation? (2011 Bar Question):
*****Celia shall pay a 30% donor's tax on the P110,000.00 donation. She is considered a stranger. It’s
not a dowry as the elements are not present.
66Mr. Bill Morgan, a Canadian citizen and a resident of Scarborough, Ontario, sends a gift check of
$20,000.00 to his future Filipino daughter-in-law who is to be married to his only son in the
Philippines. Is the donation by Mr. Morgan subject to tax? Explain. ANSWER: Yes. *****While the gift
has been made on account of marriage, to qualify for exemption to the extent of the first P10, 000
(now P50.000.00) [sic] of the value thereof, such gift should have been given to a legitimate,
recognized natural or adopted child of the donor. ALTERNATIVE ANSWER: It is not subject to
tax because the gift was made outside the Philippines.
[] What is the tax consequences, if any, to the donee (Filipino daughter-in-law of Mr. Morgan)?
ANSWER: The gift, with respect to the donee, is excluded from gross income and is exempt from
Income taxation. There is no donee’s gift tax. (BAR 1992)
67Exempted from donor’s taxation are gifts made: (2011 Bar Question) (A) for the use of the
barangay.(B) in consideration of marriage.(C) to a school which is a stock corporation. (D) to a for-
profit government corporation.
67
for public purpose.

3. Here, NRA can deduct the full amount.68
D3. Gifts to accredited RCEs & NGOs

1. Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited nongovernment organization, trust or
philanthropic organization or research institution or organization: Provided,
however, that not more than 30% of said gifts shall be used by such done for
administration purposes.
2. Same as previous discussions on RCEs and NGOs.
COMPUTING FOR THE DT

1. Same as ET & IT but with one difference. Sec. 99 provides that it will be
based on “gifts made during the calendar year”, i.e., from January to December.
2. [] SEC. 99. Rates of Tax Payable by Donor. -
(A) In General. - The tax for each calendar year shall be computed on the
basis of the total net gifts made during the calendar year in accordance with the
following schedule:
If the net gift is:69
Over But not over The tax shall be Plus Of excess over
P100K Exempt
P100K 200K 0 2% P100K
200K 500K 2K 4% 200K
500k 1M 14K 6% 500K
1M 3M 44K 8% 1M
3M 5M 204K 10% 3M
5M 10M 404K 12% 5M
10M 1.004M 15% 10M
3. EG: You are 4 siblings (A to D) and your dad gave you 600K each for different
68Can you name one kind of gift that is exempt from donor’s tax which is extendible to both
residents and nonresidents or non-citizens of the Philippines? Include qualifications, If any.
ANSWER: *****Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit, or to any political subdivision of the said
Government are exempt from gift tax with respect to both residents and non-residents. (BAR 1992)
69 On January 10, 2011, Maria Reyes, single-mother, donated cash in the amount of P50,000.00 to her
daughter Cristina, and on December 20, 2011, she donated another P50,000.00 to Cristina. Which
statement is correct? (2012 BAR) a) Maria Reyes is subject to donor’s tax in 2011 because gross gift is
P100,000.00; b) Maria Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00;c)
Maria Reyes is exempt from donor’s tax in 2011 only to the extent of P50,000.00; d) Maria Reyes is
exempt from donor’s tax in 2011 because the donee is minor. SUGGESTED ANSWER: b) Maria
Reyes is exempt from donor’s tax in 2011 because gross gift is P100,000.00 Section 99(A), NIRC.
68
reasons during the calendar year: A in January, B in February, C in June and D in

November. *****
a. Who pays the DT? Your dad would have to pay the tax due per gift;
b. When? 30 days after each gift.
c. Where? Your dad’s place of residence.
3. Compute for the January gift of 600K to A.
a. Is there a deduction? None. Note than 100K is not a deduction. It means
there is no tax for donations 100K and below. Just follow the table of tax rates.
b. Check the gift range (500K to 1M row) = 14K, plus 6% of the excess of
500K. Hence, 100K x .06 = 6K. Add 14K + 6K = 20K tax due.
4. Compute for the February gift of 600K to B.
a. Add all previous donations: 600K + 600K = 1.2M.
b. No deduction also.
c. Check table for tax due: 44K, plus 8% of the excess of 1M, hence, 200K
x .08 = 16K. Add 44K + 16 K = 60K.
d. Deduct previous tax paid. Hence, 60K - 20K = 40K tax due.
5. Compute for June gift of 600K to C on account of her marriage
a. Add previous donations from January: 600K + 600K + 600K = 1.8M
b. Deductions? Yes. 10K. Hence, 1.8M - 10K = 1.79M
c. Check table for tax due: 44K, plus 8% of the excess of 1M, hence, 790K
x .08 = 63.2K. Add 44K + 63.2K = 107.2K
d. Deduct previous taxes paid (20K in January + 40K in February = 60K).
Hence, 107.2K - 60K = 47.2K tax due.
6. Compute the last donation in the same manner.
7. How to avoid paying DT: don’t donate everything in one year. Half it. Say,
200K gift. Gift the first 100K in December, and the next 100K in January. You
won’t pay DT. However, if you donate real property, you pay Documentary Stamp
Tax (DST) every time you donate/execute a document, i.e., on top of the DT, you
pay 1.5% DST. Hence, if you plan to donate 1M and to avoid paying DT, you
give it in 10 tranches, you will have to pay 10 DSTs in 10 years (one per year). If
you donate 1M once, you pay the DST once. Which is more economical?
8. [] Bar: X and Y gave A and B P200,000: subject to donor’s tax?
a. How many gifts? 4. X + Y → A +B
i. X → A (P50,000.00);
ii. X → B (P50,000.00);
iii. Y → A (P50,000.00);
iv. Y → B (P50,000.00)
b. Subject to donor’s tax?******
i. If they are strangers, all of them are subject to DT at the rate of 30%;
ii. If non-strangers, all of them are exempt.
—————————————————
69
INSTANCES OF DOUBLE TAXATION IN THE BROAD SENSE******

1. This is a.ka. INDIRECT DUPLICATE TAXATION: This is allowed if the
taxes are of different nature or character, imposed by different taxing
authorities; not prohibited; not unconstitutional but as much as possible, it is
discouraged because it creates more impact on the taxpayer.
2. Atty. Lumbera’s examples:
a. The income derived by a resident citizen (RC) from without is also subject
to tax from the country it was derived from. In the same way, the income of aliens
derived from the Philippines is also subjected to income tax in the country where
they are residents or citizens of.  
b. For corporate taxpayers, the income of domestic corporations (DC)
outside the Philippines will definitely be subject to tax in the country where it is
derived from.  
c. In the case of foreign corporations, the income from the Philippines
which are subject to tax here, is also subject to tax in the country where they are
residents of, that is, the country where the corporation is incorporated.
d. For DT & ET, double taxation is clear for NRCs. For RCs, all the
properties located outside may also be subjected to donor’s tax in the country
where they are located. Also for RAs, their properties located in the Philippines
and outside the Philippines may also be subjected to DT in the country of their
citizenship.
3. Other examples:
a. Prizes and winnings won abroad, which may be taxed abroad, and also
here in PH for RC & RC, if they are not among the tax exempt ones;
b. Royalties earned abroad may be taxed there, but are also taxed here for
RC & DC.
c. Branch Profit Remittance Tax (BPRT) of a branch of a RFC on top
of its usual NIT, infra.
d. Income Taxation as to income of a resident citizen from sources
outside PH which are taxed here, and it is highly probable that they are also taxed
by the taxing authorities abroad where they were derived. In the same way, the
income we tax here from NRAs may be taxed by the countries of their
domicile.
e. Value Added Tax – you pay additional 12% tax for whatever you
consume from a store or a restaurant
f. Inheritance Tax – the subject matter here is different (EG: Inheritance
from mother; inheritance from daughter, if the daughter died; NB—in PH we do
not have inheritance tax, only estate tax).
[] In these cases, there are separate transactions, but the law recognizes that
they have impact on consumers. But for trade or business, there is a remedy
provided for by law allowing crediting of the taxes paid.
70
*EG: It has been held that a real estate tax and the tenement tax imposed
by local ordinance although imposed by the same taxing authority are not of the same kind
or character. (Villanueva vs. Iloilo City 26 SCRA 578)
[] *****To lessen the impact of double taxation, the following are
implemented: a. tax credit; b. tax sparing rule; c. other exemptions in tax
treaties.
4. *****In order to reduce the impact of double taxation in the broad sense,
the law provides for the following remedies:
a. Tax Credit  
b. Reciprocity Rule under Sec. 104 of the Tax Code  
c. In addition, for ET, Property Previously Taxed is an additional remedy. 
*Summary of remedies:
INCOME TAX ESTATE TAX
Tax credit Tax credit, Reciprocity rule, Vanishing Deduction/PPT

5. Another “remedy” is the tax sparing rule for Branch Profits Remittance Tax
(BPRT): applicable only to a RFC. Discussions in detail under Module 1.
a. The income derived from the Philippines by a RFC shall be subjected to
tax from the moment it received the income here (NIT). In addition to that,
when the branch remits its income to the US, the act of remittance is again
subjected to tax (that’s double taxation in the broad sense) at the rate of 15%
BPRT, subject to the tax sparing rule (TSR).
b. TSR: we will collect BPRT of 15% only, instead of 30%, provided that in
the country where it is remitted, the same income shall be taxed in the minimum
of 15%, to cover the entire 30% (30-15 = 15). What is taxed are the:
i. Right to receive income;
ii. right to remit.
*Hence, a BPRT of 15% is paid on top of the income tax, provided
that under the TSR, the same income remitted shall be taxed in the minimum
of 15% outside of the Philippines. If the rate of income tax abroad is less more
than 15% (say 25% or 40%), the BPRT is still at 15%. If it is lower than 15% (say,
2%), ours will be 30%.
—————————————————
Matters related to condonation of a debt******

1. Condonation of indebtedness for a consideration:70 ****Rationale: This is
because when a creditor cancels a debt as part of a business transaction, the
DEBTOR IS ENRICHED or receives financial advantages thereby increasing its
net assets, and thus realizes taxable income. NB: If the debtor does not derive any
70C is a creditor of D. The debt is condoned by C. What is the tax implication of the condonation
of debt? a. For D, that amount is a Remuneratory Donation and subject to income tax. It is not a
gift BECAUSE it started from an obligation and not from pure liberality of the donor. b. C
should pay donor’s tax if the amount condoned is more than PHP 100,000.00.
71
income from the cancellation or condonation of his indebtedness, there is no

income to tax.71
[] General rule on taxation of debts: ****Borrowed money is not part of
taxable income because it has to be repaid by the debtor. On the other hand, the
creditor does not receive any income upon payment because it is MERELY
A RETURN OF THE INVESTMENT.
2. Suppose the creditor is a corporation and the debtor is its stockholder, what
is the tax implication in case the debt is condoned by the corporation? ****This
may take the form of INDIRECT DISTRIBUTION OF DIVIDENDS by a
corporation. On the part of the stockholder whose indebtedness has been condoned
he is subject to 10% final tax, on the masked dividend payment. On the part of
the corporation, said amount cannot be claimed as deduction. ****When the
corporation declares dividends, it can be considered as interest on capital therefore
not deductible.
3. C lends D PHP 150,000.00 but D failed to pay the debt. C told D that D
should work in C’s Restaurant and part of D’s salary will be applied to the
obligation. What is the tax implication there?
a. For D, it is fruit of labor and it is subject to income tax.72
b. For C, since he pays the salary of D, it is not subject to tax; it is a
deductible item. It is a business expense and therefore it is an allowable
deduction.
4. C lends D P250,000.00 but D failed to pay the debt. D is a government
employee. C told D that D’s wife and daughter should work in C’s
Restaurant and part of their salary will be applied to the obligation. What is
71[] Bar 1995: Mr. X borrowed P10,000 from his friend Mr. Y payable in one year without interest.
When the loan became due, Mr. X told Mr. Y that he (Mr.X) was unable to pay because of business
reverses. Mr. Y took pity on Mr. X and CONDONED the loan. Mr. X was solvent at the time he
borrowed the P10,000 and at the time the loan was condoned. Did Mr. X derive any income from the
cancellation or condonation of his indebtedness? NO. A: No, ****Mr. X did not derive any income from
the cancellation or condonation of his indebtedness. Since it is obvious that the creditor merely
desired to benefit the debtor. In view of the absence of consideration for the cancellation, the
amount of the debt is considered as a GIFT from the creditor to the debtor and need not be
included in the latter’s gross income.
72Mr. Gipit borrowed from Mr. Maunawain P100,000.00, payable in five (5) equal monthly installments.
Before the first installment became due, Mr. Gipit rendered general cleaning services in the entire
office building of Mr. Maunawain, and as compensation therefor, Mr. Maunawain cancelled the
indebtedness of Mr. Gipit up to the amount of P75,000.00. Mr. Gipit claims that the cancellation of
his indebtedness cannot be considered as gain on his part which must be subject to income tax, because
according to him, he did not actually receive payment from Mr. Maunawain for the general cleaning
services. Is Mr. Gipit correct? Explain. (2014 Bar Question) SUGGESTED ANSWER: No. Section 50
of Rev. Regs. No. 2, otherwise known as Income Tax Regulations, provides that *****if a debtor
performs services for a creditor who cancels the debt in consideration for such services, the
debtor realizes income to that amount as compensation for his services. In the given problem,
the cancellation of Mr. Gipit’s indebtedness up to the amount of Php 75,000.00 gave rise to
compensation income subject to income tax, since Mr. Maunawain condoned such amount as
consideration for the general cleaning services rendered by Mr. Gipit.
72
the tax implication?

a. The wife and daughter should pay income tax because it is fruit of
labor. They should also pay donor’s tax because they gave D P250,000.00.
b. For C, since he pays the salary of D, it is not subject to tax; it is a
deductible item. It is a business expense and therefore it is an allowable
deduction. For D, there is no tax because payment of obligation is not
taxable.
73
Module 11. LGC I: Local Government Taxation
1. Fundamental Principles 74
Legislative power of LGUs [taken from Poli Notes] 74
Requisites for valid ordinance 76
ORDINANCE vs. RESOLUTION 80
2. Nature and Source of Taxing Power 83
a. Grant of Local Taxing Power under the Local Government Code 83
b. Authority to Prescribe Penalties for Tax Violations 85
c. Authority to Grant Local Tax Exemption 86
d. Withdrawal of Exemptions 88
e. Authority to Adjust Local Tax Rates 89
f. Residual Taxing Power of Local Governments 89
g. Authority to Issue Local Tax Ordinances 90
3. Local Taxing Authority 90
a. Power to Create Revenues Exercised through Local Government Units 90
b. Procedure for Approval and Effectivity of Tax Ordinances 91
4. Scope of Taxing Power 91
5. Specific Taxing Power of Local Government Units 92
a. Taxing Powers of Provinces 92
b. Taxing Power of Cities 100
c. Taxing Powers of Municipalities 102
Rules on Payment of Business Tax 109
Fees and Charges for Regulation & Licensing 110
6. Common Limitations on the Taxing Powers of LGUs 116
7. Collection of Business Tax 120
a. Tax Period and Manner of Payment 121
b. Accrual of Tax 121
c. Time of Payment 121
d. Penalties on Undpaid Taxes, Fees or Charges 121
e. Authority of Treasurer in Collection and Inspection of Books 122
8. Taxpayer’s Remedies 122
a. Periods of Assessment of Local Taxes, Fees or Charges 126
b. Protest of Assessment 126
c. Claim for Refund of Erroneuosly or Illegally Collected Tax, Fee or Charge 128
9. Civil Remedies by the LGU for Collection of Revenues 130
a. Local Government's Lien for Delinquent Taxes, Fees or Charges 131
b. Civil Remedies, in General 131
74
———————————————————————————————
1. Fundamental Principles
1. Local Taxes are taxes that are imposed and collected by the local
government units in order to raise revenues to enable them to perform the
functions for which they have been organized.
2. Fundamental principles of local taxation governing the exercise of the taxing
and other revenue-raising powers of local government units
a. Taxation shall be uniform in each local government unit;
b. Taxes, fees, charges and other impositions shall: i) be equitable and based
as much as possible on the taxpayer's ability to pay; ii) be levied and collected only
for public purposes; iii) shall not be unjust, excessive, oppressive, or confiscatory;
c. The collection of local taxes, fees, charges and other impositions shall in
no case be let to any private person;
d. The revenues collected pursuant to the provisions of the LGC shall inure
solely to the benefit of, and be subject to the disposition by, the local government
unit levying the tax, fee, charge or other imposition unless otherwise specifically
provided herein; and
e. Each local government unit shall, as far as practicable, evolve a
Progressive system of taxation. (Sec. 130, LGC) NB: The fundamental principles
of taxation are also known as the requisites of municipal taxation.
Legislative73 power of LGUs [taken from Poli Notes]

1. 1. How does the local legislative assembly override the veto by the local chief
executive of an ordinance? (1996 Bar Question): 2/3 vote of all its members.74
2. On what grounds can a local chief executive veto an ordinance? (1996 Bar
Question)—when it is:75
a. ultra vires;
b. prejudicial to public welfare.
3. How can an ordinance vetoed by a local chief executive become a law without
73Which statement is correct? (2012 BAR) a) Legislative acts passed by the municipal council in the
exercise of its lawmaking authority are denominated as resolutions and ordinances; b) Legislative acts
passed by the municipal council in the exercise of its lawmaking authority are denominated as
resolutions; c) Legislative acts passed by the municipal council in the exercise of its lawmaking authority
are denominated as ordinances; d) Both ordinances and resolutions are solemn and formal acts.
SUGGESTED ANSWER: c) Legislative acts passed by the municipal council in the exercise of its
lawmaking authority are denominated as ordinances. Section 2227, Revised Administrative Code of 1917.
74Under Sections 54 (a) and 55 (c) of the Local Government Code, the local legislative assembly can
override the veto of the local chief executive by two-thirds vote of all its members.
75Under Section 55(a) of the Local Government Code, the local chief executive may veto an ordinance
on the ground that It is ultra vires or prejudicial to the public welfare.
75
it being overridden by the local legislative assembly?76 (1996 Bar Question)

a. it shall be deemed approved if he does not communicate his veto to the
local legislative assembly within
i. 15 days in the case of a province and
ii. 10 days in the case of a city or a municipality.
b. when the veto has been overridden by the local legislative assembly, a
second veto will be void.
4. NB: When the Vice Governor (or Vice Mayor) takes over the position of the
Governor (or Mayor), he cannot head the Sanggunian as a legislative body. So who
shall preside in the meantime? Not the highest ranking SP member. The
members present and constituting a quorum shall elect from among
themselves a temporary presiding officer. He shall certify within ten (10) days
from the passage of ordinances enacted and resolutions adopted by the
Sanggunian in the session over which he temporarily presided. Hence, one cannot
apply the rule on permanent vacancy because there is a specific provision
of law for this purpose.77
5. The power to issue subpoena rests on the mayor. It cannot be delegated.78
76Pursuant to Section 54(b) of the Local Government Code, an ordinance vetoed by the local chief
executive shall be deemed approved if he does not communicate his veto to the local legislative
assembly within fifteen days in the case of a province and ten days in the case of a city or a
municipality. Likewise, if the veto by the local executive has been overridden by the local legislative
assembly, a second veto will be void. Under Section 55(c) of the Local Government Code, the local
chief executive may veto an ordinance only once.
77Gamboa Jr v. Aguirre Jr 1999: when the VG takes over the position of Governor, even just in a
temporary capacity, he cannot head the Sanggunian as a legislative body. Because by the nature of
his duty as Governor requires full attention; the creation of a temporary vacancy in the office of
Gov creates a corresponding temporary vacancy in the position of VG; hence his role as
presiding office of SP is suspended in the meantime. So who shall preside in the meantime? Not the
highest ranking SP member. Apply Sec 49-b LGC: (b) In the event of the inability of the regular
Presiding officer to preside at a Sanggunian session, the members present and constituting a
quorum shall elect from among themselves a temporary presiding officer. He shall certify within
ten (10) days from the passage of ordinances enacted and resolutions adopted by the Sanggunian in
the session over which he temporarily presided. Hence, one cannot apply the rule on permanent vacancy
because there is a specific provision of law for this purpose.
78 Assume that under the charter of the City of Manila, the City Mayor has the power to investigate
city officials and employees appointed by him and in connection therewith, administer oath, take
testimony and issue subpoenas. The mayor issued an executive order creating a committee,
chaired by “X”, to investigate anomalies involving licensed inspectors of the License Inspection
Division of the Office of the City Treasurer. In the course of its investigation, “X” subpoenaed “Y”, a
private citizen working as bookkeeper of Asia Hardware. “Y” refused to appear contending that the
Committee of “X” has no power to issue subpoenas. Decide. (1989 Bar Question). SUGGESTED
ANSWER: Yes, the committee has no power to issue subpoenas according to Carmelo vs. Ramos, 6
SCRA 836. In creating the committee, the mayor did not grant it the power to issue subpoenas.
Besides, the mayor cannot delegate his power to issue subpoenas.
76
REQUISITES79 FOR VALID80 ORDINANCE81

[] The tests of a valid ordinance are well established—To be valid, an ordinance
79 (Magtajas v. Pryce Properties Corporation, Inc., G.R. No. 111097, July 20, 1994).
80 Validity of a Tax Ordinance
1. As to the VALIDITY of a tax ordinance; it is valid if it does NOT violate:
a. PUBLIC PURPOSE;
b. Observe DUE PROCESS, EQUAL PROTECTION clause;
c. PROGRESSIVE SYSTEM of taxation.
2. *****“NO LET” PRINCIPLE
a. a rule common to both LGT and RPT;
b. it means that a collection of local and real property tax shall NOT be DELEGATED to a
private person.
3. Common LIMITATIONS:*****
a. LGU may NOT impose excise tax on petroleum products (Sec 133h);
b. 70%-30% sales allocation irrespective of place of sale; meaning:
i. 70% of local tax goes to LGU where the factory/plantation is located;
ii. 30% of the local tax goes to LGU where principal office is located.
5. RESIDUAL POWERS of LGU; requirements under Sec 186:
a. as long as it does NOT violate inherent constitutional limitations; and
b. the common limitations under Sec 133 LGC;
c. there is PUBLIC HEARING for such tax ordinance.
6. PROFESSIONAL FEE: one payment will suffice [Sec 139]; you can practice legal profession
ANYWHERE in PH.
7. *****Meaning of IN LIEU OF OTHER TAXES: SC said it is AMBIGUOUS; SC said that those
who invoke it (NPC, ABSCBN, Meralco, PLDT) must show that the law clearly and unequivocally
exempts them from payment of OTHER TAXES; The "in lieu of all taxes" clause is strictly
limited to the kind of taxes, taxing authority, and object of taxes specified in the law; Any doubt
as to whether a tax exemption exists is resolved against the taxpayer.
81Since there are many footnotes, here’s the summary:
1) It must not contravene the constitution or any statute.
2) It must not be unfair or oppressive.
3) It must not be partial or discriminatory.
4) It must not prohibit but may regulate trade.
5) It must be general in application and consistent with public policy.
6) It must not be unreasonable.
77
must conform to the following substantive82 requirements:83

1) It must not contravene the constitution84 or any statute.85
*NB: a municipal ordinance cannot amend a national law in the guise of
82 Johnny was employed as a driver by the Municipality of Calumpit, Bulacan. While driving
recklessly a municipal dump truck with its load of sand for the repair of municipal streets, Johnny hit
a jeepney. Two passengers of the jeepney were killed. The Sangguniang Bayan passed an ordinance
appropriating P300.000.00 as compensation for the heirs of the victims. Is the municipal ordinance
valid? (1994 Bar Question). SUGGESTED ANSWER: The ordinance appropriating P300.000.00 for
the heirs of the victims of Johnny is void. This amounts to appropriating public funds for a
private purpose. Under Section 335 of the Local Government Code, no public money shall be
appropriated for private purposes. SUGGESTED ANSWER 2: Upon the foregoing considerations, the
municipal ordinance is null and void for being ultra vires. The municipality not being liable to pay
compensation to the heirs of the victims, the ordinance is utterly devoid of legal basis. It would in fact
constitute an illegal use or expenditure of public funds which is a criminal offense. What is more,
the ordinance does not meet one of the requisites for validity of municipal ordinances, i.e., that it must
be in consonance with certain well-established and basic principles of a substantive nature, to
wit: It does not contravene the Constitution or the law, it is not unfair or oppressive, it is not partial or
discriminatory, it is consistent with public policy, and it is not unreasonable.
83Tatel v. Municipality of Virac, as cited in MAYOR MAGTAJAS vs. PRYCE PROPERTIES, INC. &
PACGOR, G.R. No. 111097, July 20, 1994, CRUZ, J.
84State whether or not the following city ordinances are valid and give reasons in support of your
answers: (1987 Bar Question). A. An ordinance prescribing the use of the local dialect as medium of
instruction in the primary grades. SUGGESTED ANSWER: The ordinance, which prescribes the use
of the local dialect as medium of instruction in the primary grades, is invalid. The Constitution
provides in Art. XIV, Sec. 7 for the use of regional dialect as AUXILIARY medium of
instruction. If the ordinance prescribes the use of local dialect not as auxiliary, but as EXCLUSIVE
language of instruction, then it is yiolative of the Constitution for this additional reason. The
ordinance would thus allow more dialects to be used than it is desirable and make the quest for national
unity more difficult.
85***The mere fact that there is already a general statute covering an act or omission is insufficient
to negate the legislative intent to empower the municipality to enact ordinances with reference
to the same act or omission under the ‘general welfare clause’ of the Municipal Charter (United
States v. Pascual Pacis, G.R. No. 10363, September 29, 1915).
78
implementing it.86 It cannot also supplant a statute.87

2) It must not be unfair or oppressive.88
86Jose Y. Sabater is a real estate developer. He acquires raw lands and converts them into
subdivisions. After acquiring a lot of around 15 hectares in Cabanatuan City, he caused the
preparation of a subdivision plan for the property. Before he was able to submit the subdivision
plan to the Bureau of Lands and/or Land Registration Commission for verification and/or approval,
he was informed that he must first present the plan to the City Engineer who would determine
whether the zoning ordinance of the Cabanatuan City had been observed. He was surprised when he
was asked to pay the city government a service fee of P0.30 per square meter of land, covered by
his subdivision plan. He was even more surprised when informed that a fine of P200.00 and/or
imprisonment for not exceeding six months or both, have been fixed in the ordinance as penalty
for violation thereof. Believing that the city ordinance is illegal, he filed suit to nullify the same.
Decide the case with reasons. (1988 Bar Question). SUGGESTED ANSWER: The ordinance is null
and void. In Villacorta v. Bernardo, 143 SCRA 480 (1986) the Supreme Court held that a municipal
ordinance cannot amend a national law in the guise of implementing it. In this case, the
requirement actually conflicts with sec. 44 of Act No. 496 because the latter does not require
subdivision plans to be submitted to the City Engineer before they can be submitted for approval to,
and verification by, the Land Registration Commission and/or the Bureau of Lands.
87 PAGCOR decided to operate a casino in Tacloban City under authority of P.D. No. 1869. It leased a
portion of a building belonging to Ellen McGuire and renovated and equipped it in preparation for its
inauguration. The Sangguniang Panlungsod of Tacloban City enacted an ordinance prohibiting
the operation of casinos in the City and providing penalty for its violation. Ellen McGuire and
PAGCOR assailed the validity of the ordinance in court. How would you resolve the issue? Discuss
fully. (1995 Bar Question). SUGGESTED ANSWER: The ordinance should be declared invalid. As
held in Magtajas vs. Pryce Properties Corporation, Inc., 234 SCRA255, such an ordinance
contravenes Presidential Decree No. 1869, which authorizes the Philippine Amusement and
Gaming Corporation to operate casinos within the territorial jurisdiction of the Philippines, because
it prevents the said corporation from exercising the power conferred on it to operate a casino in
Tacloban City. The power of Tacloban City to suppress gambling and prohibited games of
chance excludes of chance permitted by law. Implied repeals are not favored. [Basco v.
PAGCOR).
88The City of Makati, in order to solve the traffic problem in its business districts, decided to impose a
tax, to be paid by the driver, on all private cars entering the city during peak hours from 8:00
a.m. to 9:00 a.m. from Mondays to Fridays, but exempts those cars carrying more than two
occupants, excluding the driver. Is the ordinance valid? Explain. SUGGESTED ANSWER: *****The
ordinance is in violation of the Rule of Uniformity and Equality, which requires that all subjects or
objects of taxation, similarly situated must be treated alike in equal footing and must not classify
the subjects in an arbitrary manner. In the case at bar, the ordinance exempts cars carrying more
than two occupants from coverage of the said ordinance. Furthermore, the ordinance only imposes
the tax on private cars and exempts public vehicles from the imposition of the tax, although both
contribute to the traffic problem. There exists no substantial standard used in the classification by
the City of Makati. Another issue is the fact that the tax is imposed on the driver of the vehicle
and not on the registered owner of the same. The tax does not only violate the requirement of
uniformity, but the same is also unjust because it places the burden on someone who has no
control over the route of the vehicle. The ordinance is, therefore, invalid for violating the rule of
uniformity and equality as well as for being unjust. (BAR 2003)
79
3) It must not be partial or discriminatory.89

4) It must not90 prohibit but may regulate trade.91
5) It must be general in application and consistent with public policy.92
answers(1987 Bar Question): C. An ordinance prohibiting barbershop operators from rendering
massage service to their customers in a separate room. SUGGESTED ANSWER: C. The ordinance is
valid, in Velasco v. Villegas, 120 SCRA 658 (1983) such ordinance was upheld on the ground that it is a
means of enabling the City of Manila to collect a fee for operating massage clinics and of
preventing immorality which might be committed by allowing the construction of separate
rooms in barbershops.
90 Q: Which of the following statements is NOT a test of a valid ordinance? a. It must not contravene
the Constitution or any statute; b. It must not be unfair or oppressive; c. It must not be partial or
discriminatory; d. It may prohibit or regulate trade. (2012 Bar) Answer: d. It may prohibit or regulate
trade. To be valid, an ordinance must not prohibit but may regulate trade. (Magtajas v. Pryce
Properties Corporation, Inc., G.R. No. 111097, July 20, 1994). NB: A city can validly tax the sales to
customers outside the city as long as the orders were booked and paid for in the company’s branch
office in the city. A different interpretation would defeat the tax ordinance in question or encourage tax
evasion by simply arranging for the delivery at the outskirts of the city (Philippine Match Company v.
City of Cebu, G.R. No. L-30745, January 18, 1978).
answers: (1987 Bar Question): B. An ordinance on business establishments to raise funds for the
construction and maintenance of roads in private subdivisions, which roads are open for use by
segments of the public who may have business inside the subdivision. SUGGESTED ANSWER:
B. The ordinance is valid. The charge on the business establishments is not a tax but a special
assessment. Hence, the holding in Pascual v. Secretary of Public Works, 110 Phil. 331 (1960), that
public funds cannot be appropriated for the construction of roads in a private subdivision, does
not apply. As held in Apostolic Prefect v. City Treasurer of Baguio, 71 Phil. 547 (1941), special
assessments may be charged to property owners benefited by public works, because the
essential difference between a tax and such assessment is precisely that the latter is based wholly on
benefits received. However, if the ordinance levies a tax on all business establishments located
outside the private subdivision, then it is objectionable on the ground that it appropriates private
funds for a public purpose. (Pascual v. Secretary of Public Works, supra)
92 The Sangguniang Panlungsod of Pasay City passed an ordinance requiring all disco pub owners
to have all their hospitality girls tested for the AIDS virus. Both disco pub owners and the hospitality
girls assailed the validity of the ordinance for being violative of their constitutional rights to privacy
and to freely choose a calling or business. Is the ordinance valid? Explain. (5%) (2010 Bar Question)
SUGGESTED ANSWER: The ordinance is a valid exercise of police power. The right to privacy yields
to certain paramount rights of the public and defers to the exercise of police power. The ordinance is
not prohibiting the disco pub owners and the hospitality girls from pursuing their calling or business
but is merely regulating it. (Social Justice Society v. Dangerous Drugs Board, 570 SCRA 410 [2008].)
The ordinance is a valid exercise of police power, because its purpose is to safeguard public health .
(Beltran vs. Secretary of Health, 476 SCRA 168 [2005].)
80
6) It must not be unreasonable.93
ORDINANCE vs. RESOLUTION

1. Ordinance: As a municipal statute, it is a rule of conduct or of action, laid
down by the municipal authorities that must be obeyed by the citizens.94
2. Ordinance v. Resolution
ORDINANCE RESOLUTION
Law Merely a declaration of the sentiment or opinion of a lawmaking

body on a specific matter
General and permanent character Temporary in nature
Third reading is necessary GR: Third reading is not necessary in resolution. XPN: Unless
for an ordinance decided otherwise by a majority of all the Sanggunian members
(Roble Arrastre, Inc. v. Villaflor, G.R. No. 128509, August 22, 2006).
*NB: If a resolution is passed like an ordinance, its binding effect will be
that of an ordinance, even if it is called a resolution.95
*Three readings allowed to be held in just one day.96
3. Veto of the Local Chief Executive: he may veto the ordinance only once on
93The municipal council of the municipality of Guagua, Pampanga, passed an ordinance penalizing
any person or entity engaged in the business of selling tickets to movies or other public
exhibitions, games or performances which would charge children between 7 and 12 years of age
the full price of admission tickets instead of only one-half of the amount thereof. Would you hold
the ordinance a valid exercise of legislative power by the municipality? Why? (2003 Bar Question).
SUGGESTED ANSWER: The ordinance is void. As held in Balacuit v. Court of First Instance of
Aqusan del Norte. 163 SCRA 182 [1988], the ordinance is unreasonable. It deprives the sellers of
the tickets of their property without due process. A ticket is a property right and may be sold for
such price as the owner of it can obtain. There is nothing pernicious in charging children the same
price as adults.
94It is drafted, prepared, promulgated by such authorities for the information of all concerned, under
and by virtue of powers conferred upon them by law (United States v. Pablo Trinidad, G.R. No.
L-3023, January 16, 1907).
95It has been held that even where the statute or municipal charter requires the municipality to act by
an ordinance, if a resolution is passed in the manner and with the statutory formality required in the
enactment of an ordinance, it will be binding and effective as an ordinance. Such resolution may
operate regardless of the name by which it is called (Favis v. City of Baguio, G.R. No. L-29910, April
25, 1969).
96There is nothing in the LGC which prohibits the three readings of a proposed ordinance
from being held in just one session day. It is not the function of the courts to speculate that the
councilors were not given ample time for reflection and circumspection before the passage of the
proposed ordinance by conducting three readings in just one day (Malonzo v. Zamora, G.R. No.
137718, July 27, 1999).
81
the ground97 that the ordinance is ultra vires and prejudicial to public
welfare. The veto must be communicated to the sanggunian within:
a. 15 days for a province
b. 10 days for a city or municipality (Secs. 54 and 55, LGC)
***NB: the Punong Barangay has no veto power.98
6. Items that the local chief executive can veto
a. Item/s of an appropriation ordinance.
b. Ordinance/resolution adopting local development plan and public
investment program
c. Ordinance directing the payment of money or creating liability (Sec. 55,
LGC)
7. Approval of ordinances
a. By affixing the signature of the local chief executive on each and every
page thereof if he approves the same
b. By overriding the veto of the local chief executive by 2/3 vote of
all members of the sanggunian if the local chief executive vetoed the same
(Sec. 54, LGC).
**NB: A sanggunian may provide for a vote requirement different (not
majority vote) from that prescribed in the LGC for certain (but not all) ordinances
as in amending a zoning ordinance (Casino v. Court of Appeals, G.R. No. 91192,
December 2, 1991).
8. Effectivity of ordinance or resolution
a. GR: After 10 days from the date a copy is posted in a bulletin board at
the entrance of the capitol or city, municipal or barangay hall and in at least 2
conspicuous spaces (Sec. 59 (a) LGC).
b. XPN: Unless otherwise stated in the ordinance or resolution (Sec. 59
(a), LGC).
9. Ordinances requiring publication for its effectivity
a. Ordinances that carry with them penal sanctions (Sec. 59(c) LGC).
***NB: for violations of barangay ordinances, a fine not exceeding
Php1,000.00 only is allowed under Sec. 391(a)(14) LGC. For municipal ordinances,
the Sangguniang Bayan can approve ordinances imposing a fine not exceeding
Php2,500, or an imprisonment for a period not exceeding six (6) months, or both,
in the discretion of the court, for the violation of municipal ordinance [Sec. 447(a)
97While “to veto or not to veto involves the exercise of discretion,” a mayor exceeded his/her
authority in an arbitrary manner when he/she vetoes a resolution where there exists sufficient
municipal funds from which the salary of the officer could be paid. The Mayor’s refusal in complying
with the directive of the Director of the Bureau of Local Government that the salary could be
provided for is oppressive (Pilar v. Sangguniang Bayan of Dasol, Pangasinan, G.R. No. L-63216, March
12, 1984).
Ordinances enacted by the sangguniang barangay shall, upon approval by a majority of all its
98
members be signed by the punong barangay. The latter has no veto power.
82
(1)(iii).99
b. Ordinances and resolutions passed by highly urbanized and
independent component cities (Sec. 59(d), LGC).
10. Effect of the enforcement of a disapproved ordinance or resolution: It shall
be a sufficient ground for the suspension or dismissal of the official or
employee (Sec. 58, LGC).
11. Review of ordinances or resolutions
COMPONENY CITIES AND MUNICIPAL
ORDINANCES OR RESOLUTIONS BARANGAY ORDINANCES
Who reviews
Sanggunang Panlalawigan Sangguniang Panglungsod or Sangguniang Bayan

When copies of ordinance or resolutions be forwarded
Within 3 days after approval Within 10 days after its enactment

Period to examine
Within 30 days after the receipt; 1. Examine, Within 30 days after the receipt.
or 2. Transmit to the provincial attorney or
provincial prosecutor. If it is transmitted, the
provincial attorney or prosecutor must
submit his comments or recommendations
within 10 days from receipt of the document.
When declared valid
If no action has been taken within 30 days If no action has been taken within 30 days after
after submission. submission.
When invalid (grounds)
If it is beyond the power conferred on the If inconsistent with the law or city or municipal
sangguniang panlungsod or sangguniang ordinance. Effect: Barangay ordinance is suspended until
pangbayan (Sec. 56, LGC). such time as the revision called is effected (Sec. 57, LGC).
99The municipality of Alcoy, Cebu, passed Ordinance No. 10, series of 1991, requiring owners,
administrators, or tenants of buildings and premises to keep and maintain them in sanitary condition,
and should they fail to do so, cause them to be cleared and kept in sanitary condition and the cost
thereof to be assessed against the owner, administrator or tenant, as the case maybe, which cost shall
constitute a lien against the property. It further penalizes violation thereof with a fine not
exceeding One Thousand Pesos (P1.000.00) or imprisonment for one (1) year at the discretion
of the court. Is the ordinance valid? (1991 Bar Question). SUGGESTED ANSWER: The ordinance is
valid insofar as it requires owners, administrators, or tenants of buildings and premises to
keep and maintain them in sanitary condition and provides that should they fail to do so, the
municipality shall cause them to be cleaned and the cost shall be assessed against the owner,
administrator, or tenant and shall be a lien against the property. This is expressly authorized by Sec.
149(kk) of the Local Government Code. However, the penalty for the violation of the ordinance is
invalid, because it is excessive. The penalty in this case is a fine not exceeding P1,000.00 or
imprisonment for one year, in the discretion of the court. Under Sec. 149 (c) of the Local Government
Code, however, the penalty for the violation of a municipal ordinance cannot exceed a fine of PI,
000.00 or imprisonment for six months, or both at the discretion of the court. TOM advises you to
look at the provision cited, supra. The provision cited by the Suggested Answer is not correct.
83
*The Sangguniang Panlalawigan can only declare an ordinance invalid if it is

beyond the power conferred upon the S.Panlungsod or S.Pangbayan.100
————————————————
2. Nature and Source of Taxing Power
a. Grant of Local Taxing Power under the Local Government Code

1. Legal foundations of local government unit’s powers
a. Art. X, Sec 5 of the 1987 Constitution - “Each local government unit
shall have the power to create their own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the local governments.”
b. Sec. 129 of the Local Government Code (LGC) - “Each local
government unit shall exercise its power to create its own sources of revenue and
to levy taxes, fees, and charges subject to the provisions herein, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.”
2. Limitations upon Congress when it provides guidelines and limitations on the
LGUs power of taxation; The Congress shall ensure that:
a. The taxpayers will not be overburdened or saddled with multiple and
unreasonable impositions;
b. Each local government unit will have its fair share of available resources;
c. The resources of national government will not be unduly disturbed; and
d. Local taxation will be fair, uniform and just.
3. Paradigm shift in local government taxation means the power to tax is no longer
vested exclusively on Congress. Local legislative bodies are now given direct
authority to levy taxes, fees and other charges pursuant to Art. X, Sec. 5 of the
Constitution. (NAPOCOR v. City of Cabanatuan, G.R. No. 149110, April 9, 2003)
100 The Municipality of Bulalakaw, Leyte, passed Ordinance No. 1234, authorizing the expropriation of
two parcels of land situated in the poblacion as the site of a freedom park, and appropriating the funds
needed therefor. Upon review, the Sangguniang Panlalawigan of Leyte disapproved the
ordinance because the municipality has an existing freedom park which, though smaller in size, is
still suitable for the purpose, and to pursue expropriation would be needless expenditure of the
people’s money. Is the disapproval of the ordinance correct? Explain your answer. (2%) (2009 Bar
Question). SUGGESTED ANSWER: The disapproval of the ordinance is not correct. Under Section
56(c) (Local Government Code), the Sangguniang Panlalawigan of Leyte can declare the ordinance
invalid only if it is beyond the power of the Sangguniang Bayan of Bulalakaw. In the instant case,
the ordinance is well within the power of the Sangguniang Bayan. The disapproval of the ordinance by
the Sangguniang Panlalawigan of Leyte was outside its authority having been done on a matter
pertaining to the wisdom of the ordinance which pertains to the Sangguniang Bayan [Moday v.
Court of Appeals, 268 SCRA 586 [1997]).
84
a. The reason of the shift results from the realization that genuine
development can be achieved only by strengthening local autonomy and
promoting decentralization of governance (Ibid.).
4. *****The nature of the taxing power of the provinces, municipalities and cities
is directly conferred101 by the Constitution by giving them the authority to
create their own sources of revenue. The local government units do not
exercise the power to tax as an inherent power or by a valid delegation of the power
by Congress, but pursuant to a direct authority conferred by the Constitution.
(2007 Bar). Hence, the Congress, under the 1987 Constitution, cannot abolish
the power to tax of local governments; it is expressly granted by the fundamental
law. The only authority conferred to Congress is to provide the guidelines
and limitations on the local government's exercise of the power to tax (Sec. 5,102
Art. X, 1987 Constitution).103 (2003 Bar) NB: The authority to tax of LGUs
within the Autonomous Regions (Muslim Mindanao and the Cordilleras) is not
delegated by the Constitution, but by the Organic Act creating them.
101 Which of the following propositions may now be untenable: 1. The court should construe a law
granting tax exemption strictly against the taxpayer. 2. The court should construe a law granting a
municipal corporation the power to tax most strictly. 3. The Court of Tax Appeals has jurisdiction over
decisions of the Customs Commissioner in cases involving liability for customs duties. 4. The Court of
Appeals has jurisdiction to review decisions of the Court of Tax Appeals. 5. The Supreme Court has
jurisdiction to review decisions of the Court of Appeals. Justify your answer or choice briefly. (5%)
SUGGESTED ANSWER: 2. The court should construe a law granting a municipal corporation
the power to tax most strictly. This proposition is now untenable. The basic rationale for the grant of
tax power to local government units is to safeguard their viability and self-sufficiency by directly
granting them general and broad tax powers (Manila Electric Company). Province of Laguna et. al 306
SCRA 750 [1999). Considering that inasmuch as the power to tax may be exercised by local legislative
bodies, no longer by valid congressional delegation but by direct authority conferred by the
Constitution, in interpreting statutory provisions on municipal fiscal powers, doubts will, therefore,
have to be resolved in favor of municipal corporations (City Government of San Pablo, Laguna v.
Reyes, 305 SCRA 353 (1999]). This means that the court must adopt a liberal construction of a law
granting a municipal corporation the power to tax.
102Section 5. *****Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
103 Congress, after much public hearing and consultations with various sectors of society, came to the
conclusion that it will be good for the country to have only one system of taxation by centralizing the
imposition and collection of all taxes in the national government. Accordingly, it is thinking of passing
a law that would abolish the taxing power of all local government units. In your opinion, would such a
law be valid under the present Constitution? Explain your answer. (5%)
SUGGESTED ANSWER:
No. The law centralizing the imposition and collection of all taxes in the national government would
contravene the Constitution which mandates that : . . . "Each local government unit shall have the
power to create their own sources of revenue and to levy taxes, fees, and charges subject to such
guidelines and limitations as Congress may provide consistent with the basic policy of local autonomy."
It is clear that Congress can only give the guidelines and limitations on the exercise by the local
governments of the power to tax but what was granted by the fundamental law cannot be withdrawn
by Congress. (BAR 2001)
85
[] The same does not apply to autonomous regions whose power to tax is
derived or emanates from the Organic Act creating them [Sec. 20104, Art. X].105
5. Characteristics of the taxing power of LGUs [DON2G]
a. Not inherent –May only be exercised if delegated to them by national
legislature or conferred by the Constitution itself.
b. Direct grant from the Constitution – While a direct grant, the same is
subject to limitations as may be set by Congress.
c. Not absolute –Subject to limitations and guidelines as may be provided by
law such as progressivity etc.
d. Exercised by the sanggunian of the LGU concerned through an
appropriate Ordinance.
e. Its application is bounded by the Geographical limits of the LGU that
imposes the tax.
6. Aspects of local taxation:
a. Local Government Taxation (Sections 128-196, LGC)
b. Real Property Taxation (Sections 197-283, LGC)
Local Government Taxation Real Property Taxation
Imposition of license, taxes, fees System of levy on real property imposed on a country-wide
and other impositions, including basis but authorizing, to a limited extent and within certain
community tax. parameters, local governments to vary the rates of taxation.
b. Authority to Prescribe Penalties for Tax Violations

1. Powers to prescribe penalties for tax violations of the LGU
104 Section 20. Within its territorial jurisdiction and subject to the provisions of this Constitution and
national laws, the organic act of autonomous regions shall provide for legislative powers over:
1. Administrative organization; 
2. Creation of sources of revenues; 
3. Ancestral domain and natural resources; 
4. Personal, family, and property relations; 
5. Regional urban and rural planning development; 
6. Economic, social, and tourism development; 
7. Educational policies; 
8. Preservation and development of the cultural heritage; and
9. Such other matters as may be authorized by law for the promotion of the general welfare of the
people of the region.
105Q: Does the ARMM have the same source of power as the LGUs? A: NO. The LGUs derive
their power to tax from Sec. 5, Article X of the 1987 Constitution. The constitutional provision is
self-executing. This is applicable only to LGUs outside the Autonomous Region namely the
Muslim Mindanao and the Cordilleras since the authority to tax the LGUs within their region is
delegated by the Organic Act creating them. Sec. 20, Article X of the 1987 Constitution authorizes
the Congress to pass the Organic Act which shall provide for legislative powers over creation of
sources of revenues. *****This provision is not self-executing unlike Sec. 5, Article X of the
Constitution. NB: The LGU’s power to tax is subject to such guidelines and limitations as Congress
may provide while the Autonomous Region’s power to tax is based on the Organic Act which the
Constitution authorizes Congress to pass.
86
a. Limited as to the amount of imposable fine as well as the length or period

of imprisonment;
b. The Sanggunian is authorized to prescribe fines or other penalties for
violations of tax ordinances
ii. in no case shall fines be less than P1,000 nor more than P5,000
ii. nor shall the imprisonment be less than one (1) month nor more
than six (6) months;
c. Such fine or other penalty shall be imposed at the discretion of the court;
d. The Sangguniang Barangay may prescribe a fine of not less than P100
nor more than P1,000. (Sec. 516, LGC)
c. Authority to Grant Local Tax Exemption

[] Local government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they may
deem necessary (Sec. 192, LGC). *****The power to grant tax exemptions, tax
incentives and tax reliefs shall not apply to regulatory fees which are levied
under the police power of the LGU. The guidelines for granting tax exemptions,
incentives and reliefs: (Rules and Regulations Implementing the LGC, Sec. 282[b])
1. Tax Exemptions and Reliefs
a. May be granted in cases of natural calamities, civil disturbance, general
failure of crops or adverse economic conditions such as substantial decrease in
prices of agricultural or agri-based products;
b. The grant shall be through an ordinance;
c. Any exemption or relief granted to a type or kind of business shall apply
to all businesses similarly situated;
d. The same may take effect only during the calendar year not exceeding 12
months as may be provided in the ordinance; and
e. In case of shared revenues, the relief or exemption shall only extend to
the LGU granting such.
87
[] NB: a later statute exempting an entity from franchise tax is deemed to

amend the earlier statute, even the LGC.106
2. Tax incentives:
a. Shall be granted only to new investments in the locality and the ordinance
shall prescribe the terms and conditions therefore;
b. The grant shall be for a definite period not exceeding 1 calendar year;
c. The grant shall be through an ordinance passed prior to the 1st day of
January of any year; and
d. Tax incentive granted to a type or kind of business shall apply to all
businesses similarly situated.
106 Q: The Local Government Code took effect on January 1, 1992. PLDT’s legislative franchise
was granted sometime before 1992. Its franchise provides that PLDT will pay only 3% franchise
tax in lieu of all taxes. The legislative franchise of Smart and Globe Telecoms were granted in 1998.
Their legislative franchises state that they will pay only 5% franchise tax in lieu of all taxes.
The Province of Zamboanga del Norte passed an ordinance in 1997 that imposes a local franchise tax
on all telecommunications companies operating within the province. The tax is 50% of 1% of the
gross annual receipts of the preceding calendar year based on the incoming receipts, or
receipts realized, within its territorial jurisdiction. Is the ordinance valid? Are PLDT, Smart and
Globe liable to pay franchise taxes? Reason briefly (2007 Bar). A: The ordinance is valid. The Local
Government Code explicitly authorizes provincial governments, notwithstanding any law or
other special law, to impose a tax on business enjoying a franchise at the rate of 50% of 1%
based on the gross annual receipts during the preceding year within the province (Sect. 137,
LGC). PLDT is liable to the franchise tax levied by the province of Zamboanga del Norte. The tax
exemption privileges on franchises granted before the passage of the Local Government Code
are effectively repealed by the latter law. Congress, in approving Section 23 of R.A. No. 7925 (Public
Telecommunications Act), did not intend it to operate as a blanket exemption to all
telecommunications entities. The said provision thus cannot be considered as having amended
petitioner’s franchise so as to entitle it to exemption from the imposition of local franchise taxes
(PLDT v. City of Davao, G.R. No. 143867, August 22, 2002). *****Smart and Globe, however, are not
liable to the franchise tax imposed on the provincial ordinance. The legislative franchises of Smart
and Globe were granted in 1998, long after the Local Government Code took effect. Congress is
deemed to have been aware of the provisions of the earlier law when it granted the exemption.
Accordingly, the latest will of the legislature to grant tax exemption must be respected.
[] Q: Is Smart Communications, Inc. (SMART) exempt from local taxation? A: Under its
franchise, SMART is not exempt from local business and franchise taxes. Moreover, Section 23 of
the Public Telecommunications Act does not provide legal basis for Smart’s exemption from local
business and franchises taxes. The term “exemption” in Section 23 of the Public Telecommunications
Act does not mean tax exemption; rather, it refers to exemption from certain regulatory or reporting
requirements imposed by government agencies such as the National Telecommunications Commission.
The thrust of the Public Telecommunications Act is to promote the gradual deregulation of
entry, pricing, and operations of all public telecommunications entities, and thus to level the playing
field in the telecommunications industry. The language of Section 23 and the proceedings of both
Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities. Intent to grant tax exemption cannot therefore be discerned from the law;
the term “exemption” is too general to include tax exemption and runs counter to the requirement that
the grant of tax exemption should be stated in clear and unequivocal language too plain to be beyond
doubt or mistake (The City of Iloilo v. Smart Communications Inc., G.R. No. 167260, February 27,
2009). The “in lieu of all taxes” clause in a legislative franchise should categorically state that the
exemption applies to both local and national taxes; otherwise, the exemption claimed should be strictly
construed against the taxpayer and liberally in favor of the taxing authority (Smart Communications,
Inc., v. The City of Davao, G.R. No. 155491, July 21, 2009).
88
3. When tax exemption is conferred - Tax exemption shall be conferred through

the issuance of a non-transferable tax exemption certificate. (Art. 283, IRR
of LGC)
d. Withdrawal of Exemptions
1. Privileges withdrawn upon the effectivity of the LGC:
a. GR: Tax exemptions or incentives granted to or enjoyed by all
persons, whether natural or juridical, including government-owned or
controlled corporations are hereby withdrawn upon the effectivity of the
Local Government Code (Sec. 193, LGC).
b. XPNs: ******Those exemptions or incentives conferred to:
i. Local water districts
ii. Cooperatives107 duly registered under R.A. 6938
iii. Non-stock and non-profit hospitals
iv. Educational institutions.
c. NB: However, withdrawal of tax exemption is not to be construed as
prohibiting future grants of tax exemptions. The grant of taxing powers to
LGU’s under the LGC does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared national policy.
2. Necessity of Reenactment - The person claiming the exemption has the burden
of proving its claim by clear grant of exemption after the enactment of the LGC
(NAPOCOR v. City of Cabanatuan, G.R. No. 149110, April 9, 2003).
a. The rule that special law must prevail over the provisions of a later
general law does not apply as the legislative purpose to withdraw tax privileges
enjoyed under existing laws or charters is apparent from the express provisions of
the LGC (City of San Pablo, Laguna v. Reyes, G.R. No. 127780, March 25, 1999).
3. Rationale for the withdrawal of tax exemptions - The intention of the law in
withdrawing the tax exemptions is to broaden the tax base of local government
units to assure them of substantial sources of revenue (Philippine Rural Electric
Cooperatives Association v. The Secretary of DILG, G.R. No. 143076. June 10,
2003).
Q: Prior to the enactment of the Local Government Code, consumer's
cooperatives registered under the Cooperative Development Act enjoyed
exemption from all taxes imposed by a local government. With the Local
Government Code’s withdrawal of exemptions, could these cooperatives continue
107Prior to the enactment of the Local Government Code, consumer's cooperatives registered under
the Cooperative Development Act enjoyed exemption from all taxes imposed by a local government.
With the Local Government Code’s withdrawal of exemptions, could these cooperatives continue to
enjoy such exemption? (2011 Bar Question) (A) Yes, because the Local Government Code, a general
law, could not amend a special law such as the Cooperative Development Act. (B) No, Congress has
not by the majority vote of all its members granted exemption to consumers' cooperatives. (C) No, the
exemption has been withdrawn to level the playing field for all taxpayers and preserve the LGUs'
financial position. (D) Yes, their exemption is specifically mentioned among those not
withdrawn by the Local Government Code.
89
to enjoy such exemption? (2011 Bar) A: YES. Their exemption is specifically

mentioned among those not withdrawn by the Local Government Code.
e. Authority to Adjust Local Tax Rates

LGUs have the power to adjust local tax rates provided that the adjustment of the
tax rates as prescribed herein should not be oftener than once every five (5) years,
and in no case shall such adjustment exceed ten percent (10%) of the rates fixed
under the LGC (Sec. 191, LGC).
f. Residual Taxing Power of Local Governments

[] “Residual Taxing Power of the LGU” means LGUs may exercise the power to
levy taxes, fees or charges on any base or subject NOT otherwise specifically
enumerated herein or taxed under the:
a. Local Government Code;
b. National Internal Revenue Code; or
c. Other applicable laws (Sec. 186, LGC).
1. Conditions in the exercise of the residual power of taxation:
a. That the taxes, fees, or charges shall not be unjust, excessive,
oppressive, confiscatory or contrary to declared national policy; and
b. That the ordinance levying such taxes, fees or charges shall not be
enacted without any prior hearing conducted for the purpose (Ibid.).
2. Limitations of the residual power
a. Constitutional limitations on the taxing power
b. Common limitations on the taxing power of local government units as
prescribed in Section 133 of the Local Government Code.
c. Fundamental principles governing the exercise of the taxing power by
local governments as prescribed under Section 130 of the LGC, particularly the
requirement that they must not be “unjust, excessive, oppressive, confiscatory, or
contrary to declared national policy” (Sec. 186, LGC).
d. The requirement prescribed in Section 186 of the LGC, which directs
that the ordinance levying such residual taxes shall not be enacted without any
prior public hearing conducted for the purpose.
e. Principle of Pre-emption
3. The following are the powers of taxation of the local government units
a. Common Revenue-Raising Powers of LGUs;
b. Specific Powers of LGU to Impose Taxes;
c. Power to Levy Community Tax; and
d. Powers under Miscellaneous Provisions.
4. LGUs cannot tax the National Government:
GR: LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities.
90
XPN: When specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities (City Government of San
Pablo, Laguna v. Reyes, G.R. No. 127708, March 25, 1999).
g. Authority to Issue Local Tax Ordinances

1. Kinds of Local Tax Ordinances
a. Those imposing a fee or tax specifically authorized by the Local
Government Code for the local government units to impose.
b. Those imposing a fee or tax not specifically enumerated under the LGC
or taxed under the provisions of the NIRC or other applicable laws (Sec. 186,
LGC).
2. Sanggunian levy of local taxes - It shall be exercised through an appropriate
ordinance. However, the local chief executive (except the punongbarangay)
possesses veto powers as laid down in Sec. 55 of LGC.
3. Local Taxing Authority
a. Power to Create Revenues Exercised through Local Government Units

1. LGU’s taxing power: Each local government unit has the power to: (Sec. 129,
LGC) 1. Create its own sources of revenue; and 2. Levy taxes, fees, and charges
subject to the provisions herein, consistent with the basic policy of local
autonomy. NB: Such taxes, fees, and charges shall accrue exclusively to the local
government units (Ibid.). *****The power to impose a tax, fee, or charge or to
generate revenue under the LGC shall be exercised by the sanggunian of the
local government unit concerned through an appropriate ordinance (Sec. 132108,
LCG).109
2. Incidental Powers of local taxation:
a. Power to prescribe penalties for tax violations and limitations thereon.
b. Power to adjust local tax rate– LGUs are authorized to adjust the tax rates
as prescribed under the LGC not oftener than once every 5 years, and in no case
108SECTION 132. Local Taxing Authority - The power to impose a tax, fee, or charge or to generate
revenue under this Code shall be exercised by the Sanggunian of the local government unit concerned
through an appropriate ordinance.
109Q: In order to raise revenue for the repair and maintenance of the newly constructed City Hall, the
City Mayor ordered the collection of P1.00 called “elevator tax”, every time a person rides any of the
high-tech elevators in the city hall during the hours of 8:00am to 10:00am and 4:00pm to 6:00pm. Is
the elevator tax a valid imposition? A: NO. The Mayor does not have the power to impose taxes,
the same being lodged solely with the local sanggunian. ALTERNATIVE: The imposition of a
tax, fee or charge or the generation of revenue under the Local Government Code shall be exercised by
the Sanggunian of the local government unit concerned through an appropriate ordinance (Section 132
of the Local Government Code). The city mayor alone could not order the collection of the tax; as
such, the “elevator tax” is an invalid imposition. (BAR 2003)
91
shall such adjustment exceed 10% of the rates fixed under the LGC (Sec. 191,
LGC).
c. Power to grant local exemptions– LGUs may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary (Sec. 192, LGC).
b. Procedure for Approval and Effectivity of Tax Ordinances

1. *****Procedural Requisites of a valid tax ordinance
a. The procedure applicable to local government ordinances in general
should be observed (Sec. 187, LGC). The following procedural details must be
complied with:
i. Necessity of a quorum
ii. Submission for approval by the local chief executive
iii. The matter of veto and overriding the same
iv. Publication and effectivity (Secs. 54, 55, and 59, LGC).
b. Public hearings are required before any local tax ordinance is enacted
(Sec. 187, LGC). NB: the public hearing requirement may not be required for
RPT.110
c. Within 10 days after their approval, publication in full for 3
consecutive days in a newspaper of general circulation. In the absence of
such newspaper in the province, city or municipality, then the ordinance may be
posted in at least two conspicuous and publicly accessible places (Sec. 188 &
189, LGC). NB: The requirement of publication in full for 3 consecutive days is
mandatory for a tax ordinance to be valid. The tax ordinance will be null and void
if it fails to comply with such publication requirement (Coca-Cola v. City of
Manila, G.R. No. 161893, June 27, 2006).
4. Scope of Taxing Power

1. Scope of the taxing power of LGUs:
110An Ordinance was passed by the Provincial Board of a Province in the North, increasing the rate
of basic real property tax from 0.006% to 1% of the assessed value of the real property effective
January 1, 2000. 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 your answer. (2%) SUGGESTED
ANSWER: The protest is devoid of merit. *****No public hearing is required before the
enactment of a local tax ordinance levying the basic real property tax (Art. 324, LGC
Regulations). ALTERNATIVE ANSWER: Yes, there is merit in the protest provided that sufficient
proof could be introduced for the non-observance of public hearing. By implication, the Supreme
Court recognized that public hearings are required to be conducted prior to the enactment of an
ordinance imposing real property taxes. Although it was concluded by the highest tribunal that
presumption of validity of a tax ordinance can not be overcome by bare assertions of
procedural defects on its enactment, it would seem that if the taxpayer had presented evidence to
support the allegation that no public hearing was conducted, the Court should have ruled that the tax
ordinance is invalid. (Belen Figuerres v. Court of Appeals, GRNo. 119172, March 25,1999). (BAR 2002)
92
a. Each local government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall exclusively accrue to
it. (Sec. 129, LGC)
b. All local government units are granted general powers to levy taxes, fees
or charges on any base or subject not otherwise specifically enumerated herein or
taxed under the provisions of the NIRC, as amended, or other applicable laws.
The levy must not be unjust, excessive, oppressive, confiscatory or contrary to a
declared national economic policy (Sec. 186, LGC).
c. No such taxes, fees or charges shall be imposed without a public hearing
having been held prior to the enactment of the ordinance (Sec. 187, LGC).
d. Copies of the provincial, city, and municipal tax ordinances or revenue
measures shall be published in full for three consecutive days in a newspaper of
local circulation or posted in at least two conspicuous and publicly accessible
places (Sec. 188, LGC).
----------------------------------------------
5. Specific Taxing Power of Local Government Units
a. Taxing Powers of Provinces

1. Taxes, fees and charges which a province or a city may levy*****
a. Tax on transfer of real property ownership (Sec. 135, LGC)111
b. Tax on business of printing and publication (Sec. 136, LGC)
c. Franchise Tax (Sec. 137, LGC)
d. Tax on sand, gravel and other quarry resources(Sec. 138, LGC)
111The Municipality of Malolos passed an ordinance imposing a tax on any sale or transfer of real
property located within the municipality at a rate of one-fourth (1/4) of one percentum (1%) of
the total consideration of such transaction. X sold a parcel of land in Malolos which he inherited
from his deceased parents and refused to pay the aforesaid tax. He instead filed appropriate case
asking that the ordinance be declared null and void since such a tax can only be collected by the
national government, as in fact he has paid BIR the required capital gains tax. The Municipality
countered that under the Constitution, each local government is vested with the power to create its own
sources of revenue and to levy taxes, and it imposed the subject tax in the exercise of said
constitutional authority. Resolve the controversy. ANSWER: The ordinance passed by the Municipality
of Malolos imposing a tax on the sale or transfer of real property is void. *****The Local Tax Code
only allows provinces and cities to impose a tax on the transfer of ownership of real property
(Sec. 7 and Sec. 23, Local Tax Code). Municipalities are prohibited from imposing said tax that
provinces are specifically authorized to levy. (Sec. 22, Local Tax Code) While it is true that the
Constitution has given broad powers of taxation to local government units, this delegation, however, is
subject to such limitations as may be provided by law (Sec. 5, Art X, 1987 Constitution). (BAR 1991)
93
e. Professional tax (Sec. 139, LGC)112 ,113 ,
112What is the tax base for the imposition by the province of professional taxes? (2011 Bar Question)
(A) That which Congress determined. (B) The pertinent provision of the local Government Code. (C)
The reasonable classification made by the provincial sanggunian. (D) That which the Dept. of
Interior and Local Government determined.
113The City of Manila enacted Ordinance No. 55-66 which imposes a municipal occupation tax
on persons practicing various professions in the city. Among those subjected to the occupation tax
were lawyers. Atty. Mariano Batas, who has a law office in Manila, pays the ordinance-imposed
occupation tax under protest. He goes to court to assail the validity of the ordinance for being
discriminatory. Decide with reasons. (3%) SUGGESTED ANSWER: The ordinance is valid. The tax
imposed by the ordinance is in the nature of a professional tax which is authorized by law to be
imposed by cities (Section 151 in relation to Section 139, LGC). The ordinance is not discriminatory
because the City Council has the power to select the subjects of taxation and impose the same tax
on those belonging to the same class. The authority given by law to cities is to impose a professional tax
only on persons engaged in the practice of their profession requiring government examination
and lawyers are included within that class of professionals. (BAR 2009)
94
114
f. Amusement tax (Sec. 140, LGC)

g. Annual fixed tax for every delivery truck or van of manufacturers or
producers, wholesalers of, dealers, or retailer in certain products. (Sec. 141, LGC)
2. ******Summary Rules on the Taxing Power of a Province
Transaction Subject to Tax Tax Rate Tax Base Exception
Tax on Transfer of Real Property Ownership
114 The Municipality of Argao, Province of Cebu passed a tax ordinance requiring all professionals
practicing in the municipality to pay a tax equivalent to two (2%) percent of their gross income. A
certified true copy of the ordinance was sent to the Secretary of Finance for review on 1 March 1989
and was received by him on the same day. On 15 August 1989, even as the tax ordinance remained
unacted upon by the Secretary of Finance, the municipality started collecting the tax in question. The
members of the Philippine Bar in the municipality questioned the legality of the ordinance and sought
the suspension of the collection of the tax but the municipality argued that since the Secretary has not
taken any action on the ordinance for more than one hundred twenty days after his receipt thereof, the
legality of the ordinance can no longer be questioned and insisted on the collection of the tax.
Is the tax ordinance in question legal? ANSWER: No. *****The tax ordinance is not legal as the Local
Tax Code allows provinces and cities, to the exclusion of municipalities, to impose an annual
occupation tax on all persons engaged in the exercise or practice of their profession or calling in
specified amounts which in the case of lawyers is P75.00 per annum (Secs. 11 and 12 in relation to Sec.
23, Local Tax Code). A person authorized to practice his profession or calling shall pay the tax to the
province where he practices his profession or calling or maintains his office. No local government unit
can impose a tax on income (Sec. 5, Local Tax Code).
[] Is the Municipality correct in insisting on collecting the tax? No, the Municipality was
incorrect in insisting on the collection of the tax. *****Once the tax on occupation is paid as stated
in paragraph (a), above, the lawyer is entitled to practice his profession or calling in all parts of
the Philippines without being subject to any other national or local tax, license or fee for the practice of such
profession or calling.
[] Will the inaction of the Secretary of Finance bar the professionals in the Municipality from
questioning the legality of that ordinance? ANSWER: *****The inaction of the Secretary of Finance
does not bar the professionals in the Municipality from questioning the legality of the ordinance.
While it is true that the Secretary of Finance may himself suspend the tax ordinance within a
120-day period from receipt thereof, his failure to do so, however, has no preclusive effect on
taxpayers who may be adversely affected by the ordinance. (BAR 1991)
[] What remedies are available to the taxpayer to enable him to question the legality of that
ordinance? ANSWER: ******The taxpayer may pursue his remedies either administratively or
judicially. He may, as the case warrants, file a formal protest with the Secretary of Finance or
query with the Provincial Fiscal whose opinion is appealable to the Secretary of Justice whose
decision may be contested in the proper court. The other remedy would be to file a special civil
action for declaratory relief (if circumstances still warrant) or to pay the tax and thereafter to file
an action for refund within six (6) years after such payment. ALTERNATIVE ANSWER: On the
basis of the facts of the problem. It would appear that the administrative remedy is no longer available
since there is already an attempt to enforce collection. The only remedy of the taxpayer is to pay the
tax and sue for its recovery in the ordinary court. (BAR 1991)
95
Sale , donation, barter, or Whichever is higher between: Not more than Transfer under the
on any other mode of 1. Total consideration fifty percent Comprehensive
transferring ownership or involved in the acquisition of (50%) of the one Agrarian Reform
title of real property the property; or 2. The fair percent (1%) Program
market value in case the
monetary consideration
involved in the transfer is not
substantial.
Person Liable to Pay: Seller, donor, transferor, executor, or administrator. Time of Payment:
within 60 days from the date of the execution of the deed or from the date of the decedent’s death
Tax on the Business of Printing and Publication
Business of printing and Gross annual receipts for the Not exceeding School texts or
publication of books, preceding calendar year. 50% of 1% references,
cards, poster, leaflets, prescribed by the
Capital Investment In the case of a newly
handbills, certificates, started business, the DepEd shall be
receipts, pamphlets, and tax shall not exceed exempt from tax.
others of similar nature one-twentieth (1/20)
of one percent (1%)
Franchise Tax
Businesses enjoying a Gross annual receipts for Not exceeding fifty
franchise the preceding calendar year percent (50%) of
based on the incoming one percent (1%)
receipt, or realized, within its
territorial jurisdiction.
Capital Investment In the case of a newly
started business, the
tax shall not exceed
(1/20) of 1%
Tax on Sand, Gravel and Other Quarry Resources

Sand, gravel and other Fair market value in the Not more than
resources extracted from locality per cubic meter of ten percent (10%)
public lands or from the ordinary stones, sand, gravel,
beds of seas, lakes, rivers, earth, and other quarry
streams, creeks, and other resources.
public waters within its
territorial jurisdiction
96
Who issues permit: issued exclusively by the provincial governor pursuant to the ordinance of
the Sangguniang Panlalawigan. *****Distribution of Tax Proceeds: a. Province – 30%; b.
Component city or municipality – 30%; c. Barangay where resources were extracted 40%. NB:
the authority to impose taxes and fees for extraction of sand and gravel belongs to the province,
and not to the municipality where they are found (Municipality of San Fernando La Union vs. Sta.
Romana, G.R. No. L-30159, March 31, 1998). *****Regalian Doctrine is not applicable. Province
may not invoke the doctrine to extend the coverage of its ordinance to quarry resources extracted
from private lands. Rationale: Tax statutes are construed strictissimi juris against the
government. (Province of Bulacan v. CA, G.R. No. 126232)
Professional Tax
Exercise or practice of *****At such amount and Not to exceed Professionals
profession requiring reasonable classification as P300 exclusively
government licensure the sanggunian panlalawigan employed in the
examination may impose government shall be
exempt from the
payment of this tax.
Date of Payment: Payable annually on or before January 31 or before beginning the practice
of the profession. Place of Payment: Province where he practices his profession or where the
principal office is located. NB: *****TAX TO BE PAID ONLY ONCE. Person who has paid
the corresponding professional tax shall be entitled to practice his profession in any part of the
Philippines without being subjected to any other national or local tax, license, or fee for the
practice of such profession
Amusement Tax
Ownership, lease or Gross receipts from Not more than GR: The holding of
operation of theaters, admission fees. In case of 10% of gross operas, concerts,
cinemas, concert halls, theaters or cinemas, the tax shall receipts from dramas, recitals,
circuses, boxing stadia and first be deducted and admission fees (as painting and art
exhibitions, flower
other places of withheld by their amended by R.A.
shows, musical
amusement proprietors, lessees, or No. 9640, May 21,
programs, literary
operators and paid to the 2009) and oratorical
provincial treasurer before presentation shall be
the gross receipts are exempt from the
divided between said payment of
proprietors, lessees, or amusement tax.
operators and the distributors XPN: Holding of
of the cinematographic films. pop, rock, or similar
concerts shall be subject
to amusement tax.
97
NB: Amendments to the VAT law have been consistent in exempting persons subject to
amusement tax under the NIRC from the coverage of VAT. Only lessor or distributors of
cinematographic films are included in the coverage of VAT. This reveals the legislative intent
not to impose VAT on persons already covered by the amusement tax. This holds true even in the
case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended
to replace the percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. etc., G.R. No. 183505,
February 26, 2010)
Distribution of Proceeds: Tax shall be shared equally by the province and municipality where
such amusement places are located. NB: *****Resorts, swimming pools, bath houses, hot springs,
and tourist spots do not belong to the same category or class as theaters, cinemas, concert halls,
and boxing stadia. Why? They are not primarily used to stage spectacles or hold public shows,
exhibitions, performances and other events meant to be viewed by an AUDIENCE. Hence, they
cannot be considered as among the OTHER PLACES OF AMUSEMENT under Sec 140
LGC (which are subject to amusement taxes)[Pelizloy Realty Corporation v. Province of Benguet,
G.R. No. 183137, April 10, 2013]. TOM
Tax on Delivery Truck/Van
Use by manufacturers, Every truck, van or vehicle Not exceeding Exempt from tax
producers, wholesalers, P500 on peddlers
dealers or retailers of imposed by
truck, van or any vehicle municipalities
in the delivery or
distribution of distilled
spirits, fermented
liquors, soft drinks,
cigars and cigarettes,
and other products as may
be determined by the
Sangguniang Panlalawigan,
to sales outlets or
consumers, whether
directly or indirectly.
3. Tax on transfer of real property ownership is due from: It is due from the seller
of the property. However, if the buyer is a foreign government, no such tax is
due.
4. The word “franchise” in the phrase “tax on business enjoying a franchise under
Sec. 137 of the Local Government Code: The Congress defined it in the sense of
a secondary or special franchise. It is not levied on the corporation simply for
existing as a corporation, upon its property or income, but on its exercise of the
rights or privileges granted to it by the government.
5. Scenarios:
a. Q: Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its
principal office in Cubao, Quezon City. It has branches/sales offices in Cebu
and Davao. Its factory is located in Marikina City where most of its workers
live. Its principal office in Quezon City is also a sales office. Sales of finished
98
products for calendar year 2009 in the amount of P10 million were made at the
following locations:
Cebu branch 25%
Davao branch 15%
Quezon City branch 60%
TOTAL 100%
Where should the applicable local taxes on the shoes be paid? Explain. (2010
Bar) A: Under the LGC, the manufacturers maintaining a branch or sales outlet
shall record the sale in the branch or sales outlet making the sale and pay the
tax in the city or municipality where the branch or sales outlet is located.
Since Ferremaro, Inc., maintains one factory, the sales recorded in the principal
office shall be allocated and 30% of said sales are taxable in the place where
the principal office is located while the 70% is taxable in the place where the
factory is located. Hence, 25% of total sales or Php 2.5M shall be taxed in Cebu
and 15% of total sales or Php 1.5M shall be taxed in Davao. For the remaining
60% sales amounting to Php 6.0M which is recorded in the principal office, 30%
thereof or Php 1.8M is taxable in Quezon City where the principal office is
located and 70% or Php 4.2M is taxable in Marikina City where the factory
is located. [******IOW, TOM explains: 1. Tax first the branches outside the
principal office, hence Cebu at 25% and Davao at 15%; 2. Then, divide the tax of
the sales generated in the principal office (QC) into: 30-70, i.e., 30% is taxable in
QC (principal office), whereas 70% in Marikina (factory).
b. Franchise tax is in the nature of an excise tax and so it is taxed on the
place where the privilege of exercising such right is made.115
115 Q: CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential
Decree (PD) 269, as amended, and registered with the National Electrification Administration (NEA).
It is engaged in the business of electric power distribution to various end-users and consumers
within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the
Province of Camarines Sur, otherwise known as the "Rinconada area."
Sometime in 2003, Petitioner City of Iriga required CASURECO III to submit a report of its
gross receipts for the period 1997-2002 to serve as the basis for the computation of franchise
taxes, fees and other charges. The latter complied and was subsequently assessed taxes.
*****CASURECO III refused to pay for the assessed taxes, asserting that the computation of the
petitioner was erroneous because it included gross receipts from service areas beyond the
latter’s territorial jurisdiction. Is Casureco liable for the payment of the franchise tax on the
Rinconada area? A: YES. CASURECO III is liable for franchise tax on gross receipts within
Iriga City and Rinconada area. It should be stressed that *****what the petitioner seeks to collect
from CASURECO III is a franchise tax, which as defined, is a tax on the exercise of a privilege.
As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely because
it is a tax on business, rather than on persons or property. *****Since it partakes of the nature of
an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in the
City of Iriga, where CASURECO III has its principal office and from where it operates, regardless of
the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from
Iriga City and the Rinconada area.
99
c. *****To be liable for local franchise tax, the following requisites should
concur: 1. That one has a "franchise" in the sense of a secondary or special
franchise; and 2. That it is exercising its rights or privileges under this
franchise within the territory of the pertinent local government unit.116
d. Professionals who are subject to professional tax: They are those who
have passed the bar examinations, or any board or examinations conducted by the
Professional Regulation Commission (PRC). E.g. ******A lawyer who is also a
Certified Public Accountant (CPA) must pay for professional tax imposed
on lawyer and that fixed for CPAs, if he is to practice both professions. NB:
*****Municipalities cannot impose professional tax since such power is reserved
only to provinces and cities.117
116Q: CASURECO III maintains that it is exempt from payment of franchise tax because of its nature
as a non-profit cooperative, as contemplated in PD 269, and insists that only entities engaged in
business, and not non-profit entities like itself, are subject to the said franchise tax. Is this correct? A:
NO. In National Power Corporation v. City of Cabanatuan, the Court declared that *****”a franchise
tax is a tax on the privilege of transacting business in the state and exercising corporate
franchises granted by the State." It is not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its exercise of the rights or privileges granted
to it by the government." It is within this context that the phrase “tax on businesses enjoying a
franchise‟ in Section 137 of the LGC should be interpreted and understood."
*****To be liable for local franchise tax, the following requisites should concur:
1. That one has a "franchise" in the sense of a secondary or special franchise; and
2. That it is exercising its rights or privileges under this franchise within the territory of the
pertinent local government unit.
There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA
granted CASURECO III a franchise to operate an electric light and power service for a period
of fifty (50) years from June 6, 1979, and it is undisputed that CASURECO III operates within
Iriga City and the Rinconada area. *****It is, therefore, liable to pay franchise tax
notwithstanding its non-profit nature.(City of Iriga v. Camarines Sur III Electric Cooperative Inc.
G.R. No. 192945, September 5, 2012).
117Q: Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in the
practice of his two professions. He has his main office in Makati City and maintains a branch office in
Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his professional tax
as a lawyer in Pasig City. (2005 Bar)
a. May Makati City, where he has his main office, require him to pay his professional tax as a
lawyer? Explain. A: NO. *****Makati City where Mr. Fermin has his main office may not require him
to pay his professional tax as a lawyer. Mr. Fermin has the option of paying his professional tax as a
lawyer in Pasig City where he practices law or in Makati City where he maintains his principal
office (Sec. 139[b], LGC).
b. May Quezon City, where he has his residence and where he also practices his two
professions, go after him for the payment of his professional tax as a CPA and a lawyer? Explain. A:
NO, the situs of the professional tax is the city where the professional practices his profession or
where he maintains his principal office in case he practices his profession in several places. The
local government of Quezon City has no right to collect the professional tax from Mr. Fermin as
the place of residence of the taxpayer is not the proper situs in the collection of the professional tax.
Sancte Mattheus, ora pro nobis! ! 100 of !395
e. The province does not have authority to impose taxes on sand, gravel and
other quarry resources extracted on private lands.118
f. Amusement and amusement places as defined under the LGC.119 The
following are the amusement places upon which provinces or cities cannot
impose amusement taxes: i. Cockpits; ii. Cabarets; iii. Night or day clubs; iv.
Boxing exhibitions; v. Professional basketball games120; vi. Jai-Alai; viii. Racetracks.
NB: ******There can be no imposition of amusement taxes on the above
amusement places since the NIRC already imposes amusement taxes on
them under Section 125 thereof. NB: golf courses are not included.121
b. Taxing Power of Cities

1. Scope of the taxing power of a city: The city, may levy the taxes, fees, and
charges which the province or municipality may impose, except as otherwise
provided in the LGC. Those levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance
with the provisions of LGC (Sec. 151, LGC).
118A province is not expressly authorized to do so. Such tax is a tax upon the performance, carrying on,
or exercises of an activity, hence an excise tax upon an activity already being taxed under the NIRC
(Province of Bulacan, et. al., v. CA, G.R.No. 126232, November 27, 1998).
119a. Amusement is a pleasurable diversion and entertainment. It is synonymous to relaxation,
avocation, pastime, or fun;
b. Amusement places include theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances (Sec. 131[b] and [c], LGC).
120 LGUs cannot collect amusement taxes on admission tickets to the Philippine Basketball Association
(PBA) games - Professional basketball games are within the ambit of national taxation as it is
presently being taxed under the provisions of the NIRC. Furthermore, the income from cession
of streamers and advertising spaces is subject to amusement taxes under the NIRC because the
definition under the Tax Code is broad enough to include the cession of streamers and
advertising spaces as the same includes all the receipts of the proprietor, lessee or operator of
the amusement place (Philippine Basketball Association v. CA, G.R. No. 119122, Aug. 8, 2000).
121. A golf course cannot be considered a place of amusement therefore beyond the power of LGU
to impose amusement tax
a. Section 42 of the Revised Omnibus Tax Ordinance, as amended, imposing amusement tax
on golf courses is null and void as it is beyond the authority of respondent Cebu City to enact under
the Local Government Code. A golf course cannot be considered a place of amusement. People do
not enter a golf course to see or view a show or performance. Proprietor or operators of the golf
course, do not actively display, stage, or present a show or performance. People go to a golf course to
engage themselves in a physical sport activity.
b. A local government unit may exercise its residual power to tax when there is neither a grant
nor a prohibition by statute; or when such taxes, fees, or charges are not otherwise specifically
enumerated in the Local Government Code, NIRC, as amended, or other applicable laws. In the
present case, Section 140, in relation to Section 131(c), of the LGC already explicitly and clearly cover
amusement tax and respondent Cebu City must exercise its authority to impose amusement tax within
the limitations and guidelines as set forth in said statutory provisions. (Alta Vista Golf and Country
Club v. The City of Cebu, G.R. No. 180235, January 20, 2016)
NB: The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes (Ibid.).
Cities have the broadest taxing powers, embracing both specific and general
powers as provinces and municipalities may impose.
Under the LGC, there are three types of cities, Component Cities,
Independent Component Cities and Highly Urbanized Cities. ICCs and HUCs are
independent of the province (Sec. 451-452, LGC). This means that taxes, fees and
charges levied and collected by ICCs and HUCs accrue solely to them (Sec. 151,
LGC).
Q: Cagayan Electric Power and Light Company, Inc. (CEPALCO), who is leasing
for a consideration the use of its posts, poles or towers to other pole users, assails
the validity of Ordinance No. 9503-2005 passed by the Sangguniang Panlungsod
of Cagayan de Oro (City Council), which imposed a tax on the lease or rental of
electric and/or telecommunication posts, poles or towers by pole owners to other
pole users at the rate of ten (10) percent of the annual rental income derived
therefrom. CEPALCO contends that if it is a city which imposes it, and as a city, it
can only impose up to one-half of what the province or municipality may impose
and since under Section 137, a province may impose 50% of 1% or 0.005, a city
may therefore only impose 0.0025. Is this correct? A: NO. CEPALCO is mistaken
when it states that a city can impose a tax up to only one-half of what the
province or city may impose. A more circumspect reading of the Local
Government Code could have prevented this error. Section 151 of the Local
Government Code states that, subject to certain exceptions, a city may exceed by
"not more than 50%" the tax rates allowed to provinces and municipalities.
Following Section 151, a city may impose a franchise tax of up to 0.75% of a
business’ gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.
In the same manner, since a municipality may impose a business tax at a rate not
exceeding "two percent of gross sales or receipts" under section 143, a city may
impose a business tax of up to 0.03 (or 3%) of a business’ gross sales or receipts
of the preceding calendar year (May exceed by not more than 50% means it may
impose up to 50% more than what a province or municipality could impose).
CEPALCO also erred when it equates Section 137’s "gross annual receipts" with
Ordinance No. 9503-2005’s "annual rental income." Section 2 of Ordinance No.
9503-2005 imposes "a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at
the rate of ten percent (10 %) of the annual rental income derived therefrom,"
and not on CEPALCO’s gross annual receipts. Thus, although the tax rate of 10%
is definitely higher than that imposable by cities as franchise or business tax, the
tax base of annual rental income of "electric and/or telecommunication posts,
poles or towers by pole owners to other pole users" is definitely smaller than that
used by cities in the computation of franchise or business tax. In effect,
Ordinance No. 9503-2005 wants a slice of a smaller pie.
Q: It is City of Cagayan de Oro’s humble opinion that the allowable rate of

increase provided under Section 151 of the LGC applies only to those businesses
identified and enumerated under Section 143 thereof. Thus, it is respectfully
submitted by City of Cagayan de Oro that the 2% limitation prescribed under
Section 143(h) applies only to the tax rates on the businesses identified thereunder
and does not apply to those that may thereafter be deemed taxable under Section
186 of the LGC, such as the herein assailed Ordinance No. 9503-2005. On the
same vein, it is the respectful submission of City of Cagayan de Oro that the
limitation under Section 151 of the LGC likewise does not apply in our particular
instance; otherwise it will run counter to the intent and purpose of Section 186 of
the LGC. Is the City of Cagayan correct? A: NO. The City of Cagayan de Oro’s
imposition of a tax on the lease of poles falls under Section 143(h) which speaks
of any business, not otherwise specified in the preceding paragraphs, which the
sanggunian concerned may deem proper to tax. The treatment of the lease of
poles as a separate line of business is evident in Section 4(a) of the ordinance
requiring CEPALCO to apply for a separate business permit. And since "any
person, who in the course of trade or business x x x leases goods or properties x x
x shall be subject to the value-added tax," the imposable tax rate should not
exceed two percent of gross receipts of the lease of poles of the preceding
calendar year.
Section 143(h) states that "on any business subject to x x x value-added x x x tax
under the National Internal Revenue Code, as amended, the rate of tax shall not
exceed two percent (2%) of gross sales or receipts of the preceding calendar year"
from the lease of goods or properties. Hence, the 10% tax rate imposed by
Ordinance No. 9503-2005 clearly violates Section 143(h) of the Local
Government Code (Cagayan Electric Power and Light Co., Inc. v. City of Cagayan
de Oro, G.R. No. 191761, November 14, 2012).
c. Taxing Powers of Municipalities

1. Scope of the taxing power of a municipality:
Municipalities may levy taxes, fees, and charges not otherwise levied by provinces,
except as otherwise provided in the LGC (Sec. 142, LGC).
2. Under the LGC,*****Municipality may impose the following taxes:
a. Tax on business (Sec. 143, LGC)
b. Fees and charges on business and occupation (Sec. 147, LGC)
c. Fees for sealing and licensing of weights and measures (Sec. 148, LGC)
d. Fishery rentals, fees and charges (Sec. 149, LGC).
3. Under Section 143 of the Local Government Code, the businesses upon which
municipalities may impose business taxes are: [ManWhoRE-COP-B]
a. On Manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerce of whatever kind or nature
b. On Wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature
c. On exporters, and on manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities such as:
i. Rice and corn
ii. Wheat or cassava flour, meat, dairy products, locally manufactured,
processed or preserved food, sugar, salt and other agricultural, marine and fresh
water products, whether in their original state or not122
iii. Cooking oil and cooking gas
iv. Laundry soap, detergents, and medicine
v. Agricultural implements, equipment and postharvest facilities,
fertilizers, pesticides, insecticides, herbicides, and other farm inputs
vi. Poultry feeds and other animal feeds
vii. School supplies
viiii. Cement
d. On Retailers;
e. On Contractors;
f. Banks and other financial institutions;
g. Peddlers;
h. Other business not specified which the sanggunian concerned my deem
proper to tax.
4. Definition of terms:
122The Sangguniang Bayan of the Municipality of Sampaloc, Quezon, passed an ordinance imposing
a storage fee of ten centavos (P0.10) for every 100 kilos of copra deposited in any bodega within
the Municipality’s jurisdiction. The Metropolitan Manufacturing Corporation (MMC), with principal
office in Makati, is engaged in the manufacture of soap, edible oil, margarine, and other
coconut oil- based products. It has a warehouse in Sampaloc, Quezon, used as storage space for the
copra purchased in Sampaloc and nearby towns before the same is shipped to Makati. MMC goes to
court to challenge the validity of the ordinance, demanding the refund of the storage fees it paid under
protest. Is the ordinance valid? Explain your answer. (4%) SUGGESTED ANSWER: Yes. *****The
municipality is authorized to impose reasonable fees and charges as a regulatory measure in an
amount commensurate with the cost of regulation, inspection and licensing (Section 147, LGC).
In the case at bar, the storage of copra in any warehouse within the municipality can be the proper
subject of regulation pursuant to the police power granted to municipalities under the Revised
Administrative Code or the “general welfare clause”. A warehouse used for keeping or storing copra is
an establishment likely to endanger the public safety or likely to give rise to conflagration
because the oil content of the copra, when ignited, is difficult to put under control by water and
the use of chemicals is necessary to put out the fire. It is, thus, reasonable that the Municipality
impose storage fees for its own surveillance and lookout (Procter & Gamble Philippine Manufacturing
Corporation v. Municipality of Jagna, Province of Bohol, 94 SCRA 894 [1979]). (BAR 2009)
a. Wholesale - A sale where the purchaser buys or imports the commodities

for resale to persons other than the end user regardless of the quantity of the
transaction.
b. Dealers - One whose business is to buy and sell merchandise, goods, and
chattels as a merchant. He stands immediately between the producer or
manufacturer and the consumer and depends for his profit not upon the labor he
bestows upon his commodities but upon the skill and foresight with.
c. Retail - A sale where the purchaser buys the commodity for his own
consumption, irrespective of the quantity of the commodity sold.
d. Contractor - Includes persons, natural or juridical, not subject to
professional tax under Section 139 of the Code, whose activity consists essentially
of the sale of all kinds of services for a fee, regardless of whether or not the
performance of the service calls for the exercise of the use of the physical or
mental faculties of such contractor or his employees.123
e. Peddler - Any person who, either for himself or on commission, travels
from place to place and sells his goods or offers to sell and deliver the same (Sec.
131[t], LGC).
5. Conditions to which other businesses not specified may the sanggunian
concerned deem proper to tax under Sec. 143 (h)
a. Business not subject to Vat or percentage tax under the NIRC; and
b. Tax rate not to exceed 2% of the gross sales/receipts of the preceding
calendar year. NB: “When a municipality or city has already imposed a business
tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article
of commerce pursuant to Section 143(a) of the LGC, said municipality or city
may no longer subject the same manufacturers, etc. to a business tax under section
143(h) of the same Code. Section 143(h) may be imposed only on businesses that
are subject to excise tax, VAT, or percentage tax under the NIRC, and that are not
123ABC Corp. is registered as a holding company and has an office in the City of Makati. It has no
actual business operations. It invested in another company and its earnings are limited to
dividends from this investment, interests on its bank deposits, and foreign exchange gains from its
foreign currency account. The City of Makati assessed ABC Corp. as a contractor or one that sells
services for a fee. Is the City of Makati correct? (2013 Bar) A: The City of Makati is wrong in
assessing ABC Corp. as a contractor. First, ABC Corp. is not a contractor as defined in Section 131(h)
of Republic Act No. 7160 or the Local Government Code (LGC). *****This provision defines a
contractor as a person, natural or juridical, not subject to professional tax under the LGC, but
whose activity consists essentially of the sale of all kinds of services for a fee, regardless of
whether or not the performance of the service calls for the exercise or use of the physical or mental
faculties of such contractor or his employees. In the given problem, ABC Corp. is merely a holding
company whose earnings are limited to dividends, interests on bank deposits and foreign
exchange gains from foreign currency account. Evidently, ABC Corp. is not engaged in the sale of
services for a fee. Second, ******Section 186 of LGC provides that local government units cannot
levy taxes, fees or charges on any base or subject tax under the provisions of the NIRC. In the
given problem, ABC Corp.’s dividends, interest income and foreign exchange gains from foreign
currency account are already subject to final income tax under the NIRC, specifically, Sections
27(D)(4), 27(D)(1), 32(A), respectively. Consequently, the City of Makati cannot levy from ABC
Corp. taxes on these incomes.
otherwise specified in preceding paragraphs” (City of Manila v. Coca-Cola

Bottlers Phils. Inc., G.R. No. 181845, August 4, 2009).
Tax on Various Types of Businesses

Person/Entities Tax Base Tax Rate Exception
Subject to Tax
Tax on Business
Manufacturers, Based on the Graduated Annual
assemblers, taxpayer’s gross Fixed Tax
repackers, sales or receipts
processors, for the preceding
brewers, distillers, calendar year.
rectifiers, and Gross sales or Ceases to be a
compounders of receipts amount to fixed tax, instead a
liquors, distilled P6,500,000 or PERCENTAGE
spirits and wines more for the TAX of 37.5% of
or manufacturers preceding calendar 1% is imposed.
of any article of year
commerce of
whatever kind or
nature (Sec.
143[a]).
Wholesalers, Based on the gross Graduated Annual
distributors or sales or receipts Fixed Tax
dealers in any for the preceding
article of calendar year
commerce of Gross sales or Tax becomes a
whatever kind or receipts amounting PERCENTAGE
nature (Sec. to P2,000,000 or TAX at the rate of
143[b], LGC). more 50% of 1%
Exporters and Gross Sales or Not exceeding

manufacturers, Receipts one-half (1/2) of
millers, producers the rates
wholesalers, prescribed
distributors, under
dealers or retailers subsections (a), (b)
of the following and (d) of this
essential Section
commodities (Sec.
143[c], LGC).
Retailers (Sec. Gross sales or Annual Percentage a. Gross sales or
143[d], LGC) receipts for the Tax of 2% receipts in cities
preceding calendar P50,000 or less
year P400,000 or b. Gross sales or
less receipts in
Sales or receipts Annual Percentage municipalities
exceeding Tax of 1% P30,000 or less
P400,000 NB: taxed by
barangays
Contractors and Gross receipts for Annual Graduated
other independent the preceding Fixed Tax
contractors (Sec. calendar year
143[e], LGC) Gross receipts Percentage Tax of
amounting to 50% of 1%
P2,000,000 or
more
Banks and other Gross receipts of

financial the preceding
institutions (Sec. calendar year
143[f], LGC) derived from
interests,
commission and
discounts from
lending activities,
income from
financial leasing,
dividends, rentals
on property and
profit from
exchange or sale
of property
insurance
premium
Peddlers engaged Per Peddler Not exceeding P50
in the sale of any
merchandise or
article of
commerce (Sec.
143[g], LGC)
On any business, Gross Sales or Graduated

not otherwise Receipts schedule imposed
specified above by the Sanggunian
which the concerned, but in
sanggunian no case to exceed
concerned may the rates
deem proper to prescribed in Sec.
tax: Provided, 143, LGC.
That on any
business subject to
the excise,
valueadded or
percentage tax
under the National
Internal Revenue
Code, as amended,
the rate of tax
shall not exceed
2% of gross sales
or receipts of the
preceding calendar
year. (Sec. 143[h],
LGC)
Municipal Non-Revenue Fees & Charges
Municipalities may impose & collect reasonable fees & charges on business &
occupation and, except in case of professional tax, (w/c only provinces & cities
may levy) on the practice of any profession or calling commensurate w/ the cost
of regulation, inspection & licensing before any person may engage in such
business/occupation/practice of such profession or calling. (Sec. 147, LGC)
Tax on Retirement on Business

[] Tax treatment of retirement on business:
1. A business subject to tax shall, upon termination thereof, submit a sworn
statement of its gross sales or receipts for the current year.
2. *****If the tax paid during the year be less than the tax due on said gross
sales of receipts of the current year, the difference shall be paid before the
business is considered officially retired (Sec. 145, LGC).124
Rules on Payment of Business Tax

[] Payment of Business Taxes, when made:
1. Taxes shall be payable for every separate or distinct establishment or place
where business subject to the tax is conducted and one line of business does not
become exempt by being conducted with some other business for which such tax
has been paid.
2. The tax on a business must be paid by the person conducting the same.
3. In cases where a person conducts or operates
4. 2 or more of the businesses mentioned in Section 143 of LGC which are
subject to:
a. Same rate of tax – the tax shall be computed on the combined total
gross sales or receipts of the said 2 or more related business.
b. Different rates of tax – the gross sales or receipts of each business shall
be separately reported for the purpose of computing the tax due from each
business.125
Ceiling on Business Tax Imposable on Municipalities within Metro Manila

1. *****Rates of business within the Metropolitan Manila Area: The municipalities
in Metro Manila may levy taxes at rates which shall not exceed by 50% the
maximum rates prescribed in Section 143, LGC (Sec. 144, LGC).
2. The rates for other LGUs are found under Sec. 143, which says at the end: The
Sanggunian concerned may prescribe a schedule of graduated tax rates but in
no case to exceed the rates prescribed herein.
3. The LGUs have the power to legislate providing that the deficiency business tax
be paid in installments without surcharge and interest. *****The LGU may,
through ordinances duly approved, grant reliefs to taxpayers under such terms
and conditions as they may deem necessary. Such reliefs may take the form of
124How are retiring businesses taxed under the Local Government Code? (2%) SUGGESTED
ANSWER: Retiring business under the LGC are taxed on their gross sales or gross receipts in the
current year and not on the preceding year. If the tax paid in the current year is less than the tax
due on gross sales or receipts of the current year, the difference shall be paid before the business is
considered officially retired (Sec. 145, LGC).
125What is the basis for the computation of business tax on contractors under the local government
code? (2%) SUGGESTED ANSWER: The business tax on contractors is a graduated annual fixed
tax based on the gross receipts for the preceding calendar year. *****However, when the gross
receipts amount to P2 million or more, the business tax on contractors is imposed as a
percentage tax at the rate of 50% of 1% (Sec. 143(e), LGC). ALTERNATIVE: If the gross receipts
amount to more than Php 2.0 Million the business is subject to a percentage tax at the rate of 50%
of 1%.
condonation or extension of time for payment or non-imposition of

surcharge or interest. (Section 192,126 LGC). (BAR 2008)
Fees and Charges for Regulation & Licensing

1. Fees and charges that a municipality may impose: *****The municipality may
impose and collect such reasonable fees and charges on business and
occupation except professional taxes reserved for provinces (Sec. 147, LGC).
a. Fees for Sealing and Licensing of Weights and Measures (Sec. 148, LGC)
b. Fishery Rentals, Fees and Charges, including the authority to grant fishery
privileges within municipal waters, as well as issue licenses for the operation of
fishing vessels of three tons or less.
c. The sanggunian may penalize the use of explosives, noxious or poisonous
substances, electricity, muro–ami, and other deleterious methods of fishing and
prescribe a criminal penalty therefore (Sec. 149, LGC). NB: Principal is the head
or main office of the business appearing in the pertinent documents submitted
to the SEC, or DTI, or other appropriate agencies, as the case may be.
2. FEE vs. CHARGE*****
a. Fee: a charged FIXED by LAW or ordinance for the REGULATION
or inspection of business or activity;
b. Charge: a pecuniary LIABILITY such as rents or fees against
persons or property.
Situs of Tax Collected

Situation Recognition of Sale Payment of Tax
With branch or sales All sales made in the The tax shall be payable
office or warehouse locality where the branch to the city or municipality
or office or warehouse is where the same is
located located.
Where there is no branch The municipality where The tax shall accrue to
or sales office or the sale or transaction is the city or municipality
warehouse made. The sale shall be where said principal
recorded in the principal office is located.
office along with the sales
made by said principal
office
126SECTION 192. Authority to Grant Tax Exemption Privileges. - Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary.
Branch office – A fixed place in a locality which conducts operations of the

business as an extension of the principal office. Principal office – Head or main
office of the business appearing in pertinent documents submitted to the SEC
and specifically mentioned in the Articles of Incorporation.
Where there is a factory, All sales shall be recorded Of all sales recorded in
project office, plant or in the principal office. the principal office:
plantation in pursuit of 1. 30% taxable to the city
business or municipality where the
If plantation is at a place All sales shall be recorded principal office is located.
other than where the in the principal office. 2. 70% taxable to the city
factory is located or municipality where the
factory, plant, etc. is
If manufacturer, All sales shall be recorded
located.
contractor, etc. has two in the principal office. The 70% (above) shall be
or more factories, project
divided as follows:
offices, plants or
1. 60% to the city or
plantations located in
municipality where the
different localities.
factory is.
2. 40% to the city or
municipality where the
plantation is located.
The 70% shall be
prorated among the
localities where such
factories, project offices,
plants and plantations are
located based on their
respective volumes of
production.
NB: in case of manufacturers or producers which engage the services of an
independent contractor to produce or manufacture some of their products, these
rules shall apply except that the factory or plant and warehouse of the contractor
utilized for the production and storage of the manufacturers’ products shall be
considered as the factory or plant and warehouse of the manufacturer.
The city or municipality where the port of loading is located shall not levy and
collect reasonable fees unless the exporter maintains in said city or municipality its
principal office, a branch, sales office, or warehouse, factory, plant or plantation in

which case, the rule on the matter shall apply accordingly.
Situs according to Jurisprudence:

1. Excise tax – Tax is imposed on the performance of an act or occupation,
enjoyment of a privilege. The power to levy such tax depends on the place in
which the act is performed or the occupation is engaged in; not upon the location
of the office. (Allied Thread Co., Inc. v. City Mayor of Manila, L-40296,
November 21, 1984).
2. Sales Tax – With respect to sale, it is the place of the consummation of the sale,
associated with the delivery of the things which are the subject matter of the
contract that determines the situs of the contract for purposes of taxation, and
not merely the place of the perfection of the contract (Shell Co., Inc. v.
Municipality of Sipocot, Camarines Sur, 105 Phil 1263).
Tax on Delivery Truck/Van

------------------------------------------------
d. Taxing Powers of Barangays (Exclude: Rates)
e. Common Revenue Raising Powers
e1. Service Fees and Charges
e2. Public Utility Charges
e3. Toll Fees or Charges
f. Community Tax
-------------------------------------------------
Taxing Powers of Barangays
1. Scope of Taxing Power
Sources of Tax Base Tax Rate Fees and Charges
Revenue
Barangay Taxes – Gross sales Not exceeding 1%
On stores or receipts for of such gross sales
retailers with fixed preceding calendar or receipts.
business year of P50,000 or
establishments less (for barangay
in the cities); and
P30,000 or less
(for barangay and
municipalities
Service Fees or Services rendered Reasonable Fees

Charges in connection with or charges
the regulation or
the use of
barangay-owned
properties; or
Service facilities
such as palay,
copra, or tobacco
dryers
Barangay Reasonable fee as
Clearance the Sanggunian
Barangay may
impose
Other Fees and Reasonable fee as
Charges a. the Sanggunian
Commercial Barangay may
breeding of impose
fighting cocks,
cockfights and
cockpits
b. Places of
recreation which
charge admission
fees
c. Billboards,
signboards, neon
signs and outdoor
advertisements
NB: The enumeration shall accrue EXCLUSIVELY to them.
Q: A sari-sari store initially paid the barangay treasurer of Barangay T the amount
of P120.00 representing 1% of the gross sales of P12,000.00 CY 1994 in
accordance with the barangay tax code. Subsequently, the same store also filed
application for business license with the Municipality of T for which a municipal
business tax and other regulatory fees was assessed for the same store based on its
capital investment of P12,000.00. Are the tax assessments by the barangay and the
municipality correct? A: The tax assessment by the barangay of 1% on the gross

sales of P12, 000.00 is obviously in accordance with Sec. 152 (a) of the LGC. The
assessment of the municipality of an additional business tax, however, is
erroneous since pursuant to Sec. 143(d) of the LGC the barangays “shall have
exclusive power to levy taxes as provided under Sec. 152” of the same Code. The
municipality, nevertheless, may have to issue the corresponding business permit/
license in accordance with Sec. 152(c) of the LGC, and may impose as well
reasonable regulatory fees on the sari-sari store.
Common Revenue Raising Powers

1. Service Fees and Charges – LGUs may impose and collect such reasonable
fees and charges for services rendered (Sec. 153, LGC).
2. Public utility charges – LGUs may fix the rates for the operation of public
utilities owned, operated and maintained by them within their jurisdiction (Sec.
154, LGC).
3. Toll fees or charges – The sanggunian concerned may prescribe the terms and
conditions and fix the rates for the imposition of toll fees or charges for the use
of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication
system funded and constructed by the local government unit concerned (Sec. 155,
LGC).
4. Persons exempted from payment of tolls, fees or other charges [HOP]
a. Officers and enlisted men of the Armed Forces of the Philippines and
members of PNP on mission
b. Post office personnel delivering mail
c. Physically Handicapped and disabled citizens who are 65 years or older
(Ibid.).
5. LGUs may discontinue the collection of tolls: The sanggunian concerned may
discontinue the collection of the tolls when public safety and welfare so requires.
Thereafter, the said facility shall be free and open for public use (Sec. 155, LGC).
Community Tax
1. Nature of community tax: The community is a poll or capitation tax imposed
upon residents of a city or municipality. It replaced the former residence tax.
2. Who may levy? A Community tax may be levied by a city or municipality but
not a province.
3. Persons liable to pay community tax:
a. Individuals –Every inhabitant of the Philippines eighteen (18) years of
age or over:
i. who has been regularly employed on a wage or salary basis for at
least thirty (30) consecutive working days during any calendar year; or
ii. who is engaged in business or occupation;
iii. or who owns real property with an aggregate assessed value of

P1,000.00 or more; or
iv. who is required by law to file an income tax return (Sec. 157,
LGC).
b. Juridical Persons –Every corporation no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the
Philippines (Sec. 158, LGC).
4. How much they are liable to pay:
a. Individuals –
i. Basic: Five pesos (P5.00)
ii. Additional: Additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of whether from business,
exercise of profession or from property which in no case shall exceed Five
thousand pesos (P5,000.00). NB: In case of husband and wife, the additional tax
shall be based on the total property, gross receipts or earnings owned or derived
by them.
b. Juridical persons – additional tax, which, in no case, shall exceed Ten
thousand pesos (P10,000.00) in accordance with the following schedule:
i. For every Five thousand pesos (P5,000.00) worth of real property in
the Philippines owned by it during the preceding year based on the valuation used
for the payment of real property tax under existing laws, found in the assessment
rolls of the city or municipality where the real property is situated - Two pesos
(P2.00); and
ii. For every Five thousand pesos (P5,000.00) of gross receipts or
earnings derived by it from its business in the Philippines during the preceding
year - Two pesos (P2.00) (Sec. 157 & 158, LGC).
5. Community tax, where paid: Residence of the individual, or in the place where
the principal office of the juridical entity is located (Sec. 160, LGC).
6. Payment of community tax, when required: Accrues on the 1st day of January
of each year which shall be paid not later than the last day of February of each
year (Sec. 161, LGC).
7. Penalty for Delinquency: An interest of 24% per annum from the due date until
it is paid shall be added to the amount due (Sec. 161, LGC)
8. Persons exempted from paying community tax:
a. Diplomatic and consular representatives
b. Transient visitors when their stay in the Philippines does not exceed three
(3) months (Sec. 159, LGC)
9. Definition of Community Tax Certificate: It is issued to every person or
corporation upon payment of the community tax. It may also be issued to any
person or corporation NOT subject to the community tax upon payment of
P1.00 (Sec. 162, LGC) The city or municipal treasurer deputizes the barangay
treasurer to collect the community tax in their respective jurisdictions and shall
accrue entirely to the general fund of the city or municipality concerned.
a. Conditions: bonded in accordance with law (Sec. 164, LGC) Proceeds of
the community tax collected through the barangay treasurers shall be apportioned
as follows:
i. 50% accrues to the general fund of the city or municipality
concerned; and
ii. 50% accrues to the barangay where the tax is collected
b. Presentation of community tax certificate, when required:
i. Acknowledgment of any document before a notary public;
ii. Taking an oath of office upon election or appointment to any
position in the government service;
iii. Receiving any license, certificate or permit from any public
authority;
iv. Paying any tax or fee;
v. Receiving any money from any public fund;
vi. Transacting other official business; or
vii. Receiving any salary or wage from any person or corporation (Sec.
163, LGC)
6. Common Limitations127 on the Taxing Powers of LGUs

1. The exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following: [IDE-C3AP3-MENT]
1274. Classification of common limitations / excluded impositions

a. Taxes which are levied under the NIRC unless otherwise provided by the LGC - Items
1,2,3,8,9 & 10.
b. Taxes, fees, and charges which are imposed under the Tariffs and Customs Code - Item 4
c. Taxes, fees and charges where the imposition of which contravenes existing governmental
policies or which are violative of the fundamental principles of taxation - Items 5, 6, 7, 11, 13, 14 & 15
d. Taxes, fees and charges imposed under special laws Item 12
a. ******Income128 tax,129 except130 when levied on banks and131 other

financial institutions;132
b. Documentary stamp tax;
128The City of Manila enacted an ordinance, imposing a 5% tax on gross receipts on rentals of
space in privately-owned public markets. BAT Corporation questioned the validity of the
ordinance, stating that the tax is an income tax, which cannot be imposed by the city government.
Do you agree with the position of BAT Corporation? Explain. (5%) SUGGESTED ANSWER: No.
*****The tax imposed is not an income tax but a license tax or fee for the regulation of the
business in which the taxpayers are engaged, that is the leasing of spaces in privately-owned public
markets. (Progressive Development Corporation v. Quezon City, 172 SCRA 629 [1989]). The income
tax imposed under the National Internal Revenue Code which preempts the imposition by the
City is one which is imposed on the privilege enjoyed by a taxpayer in earning income and not
a tax on business. (BAR 2008)
LGUs levy income taxes:
129
GR: The exercise of the taxing authority of LGUs shall not extend to the levy of income tax.
XPN: However, income tax may be levied on banks and other financial institutions (Sec. 133 (a),
LGC).
130 Q: Pheleco is a power generation and distribution company operating mainly from the City of
Taguig. It owns electric poles which it also rents out to other companies that use poles such as
telephone and cable companies. Taguig passed an ordinance imposing a fee equivalent to 1% of
the annual rental for these poles. Pheleco questioned 'the legality of the ordinance on the
ground that it imposes an income tax which local government units (LGUs) are prohibited
from imposing. Rule on the validity of the ordinance. (2013 Bar) A: The ordinance is void. The fee is
based on rental income and is therefore a tax on income. *****The Sec. 32(A)(5) of the NIRC
includes “rents” in the enumeration of taxable income. Under Section 1331 of the LGC, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of income tax except when levied on banks and other financial institutions.
131Q: The Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No.
9503-2005 imposing a tax on the lease or rental of electric and/or telecommunication posts, poles or
towers by pole owners to other pole users 10% of the annual rental income derived from such lease or
rental. Cagayan Electric Power and Light Company, Inc. (CEPALCO), who is leasing for a
consideration the use of its posts, poles or towers to other pole users, assails its validity on the
ground that the tax imposed by the disputed ordinance is in reality a tax on income which the
City of Cagayan de Oro may not impose, the same being expressly prohibited by Section 133(a) of
Republic Act No. 7160 (R.A. 7160) otherwise known as the Local Government Code of 1991. Is the
ordinance valid? A: YES. *****Ordinance No. 9503-2005 is a tax on business not a tax on income.
Business being defined by Sec. 131(d) of the LGC as “trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit.” CEPALCO’s act of leasing for a
consideration the use of its posts, poles or towers to other pole users falls under the Local Government
Code’s definition of business. In relation thereto, Section 131(d), Section 143(h) of the Local
Government Code provides that the city may impose taxes, fees, and charges on any business which is
not specified in Section 143(a) to (g) and which the Sanggunian concerned may deem proper to tax.
(Cagayan Electric Power and Light Co., Inc. v. City of Cagayan de Oro, G.R. No. 191761, November
14, 2012)
132 [] *****Taxing power of local government units shall NOT extend to the following taxes, except
one: (2012 BAR) a) Income tax on banks and other financial institutions; b) Taxes of any kind on
the national government, its agencies and instrumentalities, and local government units; c) Taxes on
agricultural and aquatic products when sold by the marginal farmers or fishermen; d) Excise taxes on
articles enumerated under the National Internal Revenue Code. Section 186, RA 7160
c. GR: Taxes on estates, inheritance, gifts, legacies and other acquisitions

mortis causa, except as otherwise provided under the LGC;
XPN: tax on transfer of real property (Sec. 135, LGC)
d. Customs duties, registration fees of vessel and wharfage on wharves,
tonnage dues, and all other kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by the local government unit
concerned;
e. Taxes, fees, and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government units in
the guise of charges for wharfage133 , tolls for bridges or otherwise, or other taxes,
fees, or charges in any form whatsoever upon such goods or merchandise;
f. Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
g. Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from
the date of registration;134
h. Excise taxes on articles enumerated under the NIRC, as amended, and
taxes, fees or charges on petroleum products; NB: *****LGUs may impose tax
on a petroleum business. A tax on business is distinct from a tax on the article
itself (Phil. Petroleum Corporation vs Municipality of Pililia Rizal, G.R. No.
90776, June 3, 1991).135
i. Percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided herein;
133Wharfage: It is a fee assessed against the cargo of a vessel engaged in foreign or domestic trade
based on quantity, weight, or measure received and/or discharged by the vessel.
134 NB: However, the grant of the Income Tax Holiday for registered enterprises under EO 226 is
subject to the following rules:
i. For six (6) years from COMMERCIAL OPERATION for pioneer firms and for four (4) years
for non-pioneer firms – fully exempt; and
ii. For a period of three (3) years from COMMERCIAL OPERATION, registered expanding
firms shall be entitled to exemption from income tax levied by the National Government
proportionate to their expansion under such terms and conditions as the Board may determine (EO
226, Title III, Article 39).
135 Q: May LGUs impose taxes on petroleum products? A: NO. The power of LGUs to impose
business taxes derives from Section 143 of the LGC. However, the same is subject to the explicit
statutory impediment provided for under Section 133(h) of the same Code which prohibits LGUs
from imposing "taxes, fees or charges on petroleum products." It can, therefore, be deduced that
although petroleum products are subject to excise tax, the same is specifically excluded from the broad
power granted to LGUs under Section 143(h) of the LGC to impose business taxes. As long as the
subject matter of the taxing powers of the LGUs is the petroleum products per se or even the
activity or privilege related to the petroleum products, such as manufacturing and distribution of
said products, it is covered by the said limitation and thus, no levy can be imposed. Article 232(h) of
the Implementing Rules and Regulations (IRR) of the LGC of 1991 states that the Municipality may
impose taxes on businesses except any business engaged in the production, manufacture,
refining, distribution or sale of oil, gasoline, and other petroleum products. (Batangas City v.
Pilipinas Shell Petroleum, G.R. No. 187631, July 08, 2015)
j. Taxes on the gross receipts of transportation contractors and persons

engaged in the transportation of passengers or freight by hire and common
carriers136 by air, land or water,137 except as provided in this Code;
k. Taxes on premiums paid by way or reinsurance or retrocession;
l. Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except tricycles;
m. Taxes, fees, or other charges on Philippine products actually exported,
except as otherwise provided in the LGC (i.e. Sec. 143(c), LGC- municipalities
may impose taxes on exporters);
n. Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic
Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known
as the "Cooperative Code of the Philippines" respectively;
o. Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units (Sec. 133, LGC).
2. Principle of Pre-emption or Exclusionary Doctrine:138 Where the National
Government elects to tax a particular area, it impliedly withholds form the local
government the delegated power to tax the same field. This doctrine principally
rests on the intention of the Congress. Conversely, should the Congress allow
municipal corporations to cover fields of taxation it already occupies then the
136Can LGUs validly impose business tax on the gross receipts of transportation contractors? A:
NO. It is already well-settled that although the power to tax is inherent in the State, the same is not true
for the LGUs to whom the power must be delegated by Congress and must be exercised within the
guidelines and limitations that Congress may provide. In the case at bar, the sanggunian of the
municipality or city cannot enact an ordinance imposing business tax on the gross receipts of
transportation contractors, persons engaged in the transportation of passengers or freight by hire,
and common carriers by air, land, or water, when said sanggunian was already specifically prohibited
from doing so. Any exception to the express prohibition under Section 133(j) of the LGC should be
just as specific and unambiguous. Section 21(B) of the Manila Revenue Code, as amended, is null and
void for being beyond the power of the City of Manila and its public officials to enact,
approve, and implement under the LGC. (City of Manila vs. Colet, et al., G.R. No. 120051,
December 10, 2014)
137XYZ Shipping Corporation is a branch of an international shipping line with voyages between
Manila and the West Coast of the U.S. The company’s vessels load and unload cargoes at the Port of
Manila, albeit it does not have a branch or sales office in Manila. All the bills of lading and invoices
are issued by the branch office in Makati which is also the company’s principal office. The City
of Manila enacted an ordinance levying a 2% tax on gross receipts of shipping lines using the
Port of Manila. Can the City Government of Manila legally impose said levy on the corporation?
Explain. (2010 Bar Question) SUGGESTED ANSWER: No, *****Manila cannot legally levy the 2%
Gross Receipts Tax on the shipping line because taxes on the gross receipts of transportation
contractors and persons engaged in the transportation of passengers or freight by hire and
common carriers by air, and or water is beyond the taxing powers of the local government units.
138NB: An examination of the above enumeration reveals that those taxes, charges and fees already
imposed and collected by the National Government such as income taxes, estate taxes, donor’s taxes,
documentary stamps taxes [are not included]. Simply stated, the *****LGUs cannot exercise taxing
powers reserved to the National Government. Thus, it is also called the “reservation rule” or the
“exclusionary rule”.
doctrine of pre-emption will NOT apply (Victorias Milling Co., Inc. v.

Municipality of Victorias Negros Occidental, G.R. No. L-21183, September 27,
1968). Principle of Pre-emption or Exclusionary Doctrine, when applicable
a. Taxes levied under the NIRC
b. Taxes imposed under the Tariff and Customs Code
c. Taxes under special laws.
3. Authorization Limitation: With the exception of cities, each local government
unit could not exercise the taxing powers granted to others. Hence, a
province could not exercise the powers granted to municipality and vice-
versa. *****However, a city could exercise the taxing powers of both a
province and a municipality.
7. Collection of Business Tax

1. Business Tax vs. Income Tax:
Business Tax Income Tax
As to nature Imposed in the exercise A tax on all yearly profits
of police power for arising from property,
regulatory purposes and professions, trades or
paid for the privilege of offices, or as a tax on a
carrying on a business in person’s income,
the year the tax was paid. emoluments, profits and
the like.
As to date of payment Paid at the beginning of Due on or before the
the year as a fee to allow 15th day of the 4th
the business to operate month following the
for the rest of the year. close of the taxpayer’s
taxable year.
As a prerequisite to the It is a prerequisite to the Not a pre-requisite
conduct of business conduct of business
2. Basis of business tax - gross receipts or gross revenue: It must be based on
gross receipts as the law is clear. Gross receipts include money or its equivalent
actually or constructively received in consideration of services rendered or articles,
sold, exchanged or leased, whether actual or constructive. To tax on gross revenue
rather than gross receipts will amount to double taxation inasmuch as the revenue
or income for a taxable year includes gross receipts already reported during the
previous year for which local business taxes had already been paid (Ericsson
Telecommunications, Inc. v. City of Pasig, etc., et. al., G.R. No. 176667, November
22, 2007).
3. Condominium corporations’ liability to pay business taxes under the Local

Government Code: As a rule, a city or municipality is authorized to impose a tax
on business, which is defined under the LGC as “trade or commercial activity
regularly engaged as a means of livelihood or with view of profit.” By its very
nature, a condominium corporation is not engaged in business, and any profit it
derives is merely incidental, hence it may not be the subject of business taxes
(Yamane, etc. v. BA Lepanto Condominium Corporation, G.R. No.154993,
October 25, 2005).
a. Tax Period and Manner of Payment

1. Tax period for the collection of taxes: *****It is based on calendar year,139
unless otherwise provided (Sec. 165 LGC)
2. Manner of payment of the taxes: It may be paid in quarterly installments (Sec.
165, LGC).
b. Accrual of Tax
GR: Business Tax Accrues on the 1st day of January each year
XPN: New taxes, fees or charges, or changes in the rates thereof which shall
accrue on the 1st day of the quarter next following the effectivity of the
ordinance imposing such new levies or rates (Sec. 166, LGC).
c. Time of Payment
Within 20 days of January or of each subsequent quarter (i.e. Jan. 20, April 20,
July 20, and Oct. 20). It may be extended by the sanggunian for justifiable reasons,
without surcharges or penalties. Extension cannot exceed 6 months. (Sec. 167,
LGC)
d. Penalties on Undpaid Taxes, Fees or Charges

1. Surcharge of 25% on taxes, fees or charges not paid on time
2. Interest not exceeding 2% per month of the unpaid taxes, fees or charges
including surcharges, until the amount is fully paid. In no case shall the total
interest exceed 36 months (Sec. 168, LGC).
139MNO Corporation was organized on July 1, 2006, to engage in trading of school supplies, with
principal place of business in Cubao, Quezon City. Its books of accounts and income statement
showing gross sales as follows: July 1, 2006 to December 31,2006 P 5,000,000 January 1, 2007 to June
30, 2007 P10,000,000 JULY 1, 2007 TO DECEMBER 31,2007 PI 5,000,000. Since MNO Corporation
adopted fiscal year ending June 30 as its taxable year for income tax purposes, it paid its 2%
business tax for fiscal year ending June 30, City Treasurer assessed the corporation for
deficiency business tax for 2007 based on gross sales of P25 million alleging that local business
taxes shall be computed based on calendar year. Is the position of the city treasurer tenable?
Explain. (3%) SUGGESTED ANSWER: Yes. The tax period for local taxes is generally the calendar
year. (Section 165, LGC). (BAR 2008)
e. Authority of Treasurer in Collection and Inspection of Books

1. Persons authorized to collect such taxes, fees and charges: Provincial, city,
municipal, or barangay treasurer, or their duly authorized deputies (Sec. 170,
LGC).
2. Persons authorized to inspect the books of persons or association - The local
treasurer or his deputy duly authorized in writing, may examine the books,
accounts and other pertinent records of any person, or association to ascertain
and collect the correct amount of tax. Examination shall be made during the
regular business hours, only once for every tax period, and shall be certified to by
the examining official (Sec. 171, LGC).
TAX REMEDIES on LGT [Cagayan de Oro Light Power vs CDO City; Sec
187]
*three periods to be observed:
1. 30DAY: constitutionality, validity of local tax ordinance before the DOJ
Secretary; counted from the EFFECTIVITY of such tax ordinance.
2. 60DAY: period to be observed within such decision may be rendered (que?)
3. 30DAY: period to APPEAL to court of competent jurisdiction or RTC; within
30D from receipt of such decision or 30D from the lapse of the 60D period, such
decision of the DOJ secretary may be appealed to the RTC.
8. Taxpayer’s Remedies
1. Under the Local Government Code, the Taxpayer’s remedies are:
a. Protest assessment
b. Claim for refund or tax credit
c. Judicial action
2. Prior to assessment
a. Administrative appeal to the Secretary of Justice
i. Administrative appeal to the Secretary of Justice questioning the
constitutionality or legality within 30 days from the effectivity of the tax
ordinance or revenue measure;
ii. Secretary of Justice shall render a decision within 60 days from
date of receipt of the appeal
iii. Within 30 days after receipt of the decision or the lapse of 60
day period without action from the Secretary of Justice, aggrieved party
may file appropriate proceedings with a court of competent jurisdiction.
NB: such appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual of the payment of the tax, fee, or charge levied
therein (Sec. 187, LGC).140
b. Action for declaratory relief
3. After an assessment141
a. Protest of the assessment
i. When the correct tax, fee or charge is not paid, the Local
Treasurer shall issue a notice of assessment within the applicable prescriptive
period, (Sec. 195, LGC) stating the nature of the levy, the amount of deficiency,
the surcharges, interests and penalties.
ii. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest142 of the assessment with the
local treasurer contesting the assessment; otherwise the assessment shall become
final and executory
140X, a taxpayer who believes that an ordinance passed by the City Council of Pasay is unconstitutional
for being discriminatory against him, want to know from you, his tax lawyer, whether or not he can file
an appeal. In the affirmative, he asks you where such appeal should be made: the Secretary of
Finance, or the Secretary of Justice, or the Court of Tax Appeals, or the regular courts. What
would your advice be to your client, X? SUGGESTED ANSWER: *****The appeal should be made
with the Secretary of Justice. ******Any question on the constitutionality or legality of a tax
ordinance may be raised on appeal with the Secretary of Justice within 30 days from the effectivity
thereof. (Sec. 187, LGC; Hagonoy Market Vendor Association v. Municipality of Hagonoy, 376 SCRA
376 [ 2002]). (BAR 2003)
141On October 10, 2009, the corporation received a collection letter from the City Treasurer,
drawing it to file on October 25, 2009 an appeal against the assessment before the Pasay Regional
Trial Court (RTC). A. Was the protest of the corporation filed on time? Explain. (3%) SUGGESTED
ANSWER: The protest was filed on time. *****The taxpayer has the right to protest an assessment
within 60 days from receipt thereof (Sec. 195, LGC).
B. Was the appeal with the Pasay RTC filed on time? Explain. (3%) SUGGESTED ANSWER:
The appeal was not filed on time. When an assessment is protested, the treasurer has 60 days
within which to [decide]. The taxpayer has 30 days from receipt of the denial of the protest or from
the lapse of the 60-day period decide, whichever comes first, otherwise the assessment becomes
conclusive and unappeallable. *****Since no decision on the protest was made, the taxpayer
should have appealed to the RTC within 30 days from the lapse of the period to decide the
protest (Sec. 195, LGC). [TOM: Where did get he all those facts? Not in the problem].
142SECTION 195. Protest of Assessment. - When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee or charge, the amount of deficiency, the
surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest with the local treasurer contesting the
assessment; otherwise, the assessment shall become final and executory. The local treasurer shall
decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the
protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially the
assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he
shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty
(30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day
period prescribed herein within which to appeal with the court of competent jurisdiction otherwise
the assessment becomes conclusive and unappealable.
iii. The local treasurer shall decide the protest within sixty (60)
days from the time of its filing. If the local treasurer finds the assessment to be
wholly or partly correct, he shall deny the protest wholly or partly with notice to
the taxpayer.
iv. The taxpayer shall have thirty (30) days from the receipt of
the denial of the protest or from the lapse of the sixty (60) day period
prescribed herein within which to appeal with the court of competent
jurisdiction otherwise the assessment becomes conclusive and unappealable (Sec.
195, LGC).
v. The competent court referred to is the RTC/MTC/MeTC/
MCTC which acts in the exercise of its original jurisdiction, depending on the
amount. Local tax cases originally decided by the MTC/MetC/MCTC may
be appealed to RTC.
b. Action for refund
i. A written claim for refund or credit is filed with the local treasurer.
ii. A claim or proceeding is then filed with the court of competent
jurisdiction (depending upon the jurisdictional amount) within two (2)
years from the date of the payment of such tax, fee, or charge, or from the date
the taxpayer is entitled to a refund or credit. (Sec. 196, LGC). *****NB: The filing
of a written claim for refund with the local treasurer is a condition
precedent for maintaining a court action.
c. Right of redemption – one (1) year from the date of the sale or from
the date of forfeiture (Sec. 179, LGC). NB: The owner shall not be deprived of
possession and to rentals/income thereof until the expiration of the time allowed
for its redemption.
4. Judicial Remedies
a. Court Action
i. Within 30 days after receipt of decision or lapse of 60 days in case
of Secretary of Justice’s inaction (Sec. 187, LGC)143
143 Q: In 2014, M City approved an ordinance levying customs duties and fees on goods coming
into the territorial jurisdiction of the city. Said city ordinance was duly published on February 15,
2014 with effectivity date on March 1, 2014.
a. Is there a ground for opposing said ordinance? A: YES, the ground that the ordinance is
ultra-vires. *****The taxing powers of local government units, such as M City, cannot extend to
the levy of taxes, fees and charges already imposed by the national government, and this include,
among others, the levy of customs duties under the Tariff and Customs Code.
b. What is the proper procedural remedy and applicable time periods for challenging the
ordinance? (2015 Bar) A: Any question on the constitutionality or legality of tax ordinances may be
raised on appeal within 30 days from the effectivity to the Secretary of Justice. The Secretary of
Justice shall render a decision within 60 days from the date of receipt of the appeal. Thereafter,
within 30 days after receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may file the appropriate
proceedings with the Regional Trial Court.
ii. Within 300 days from receipt when protest of assessment is

denied or lapse of 60 days in case of local treasurer’s inaction (Sec. 195,
LGC)
iii. If no action is taken by the treasurer in refund cases and the two
year period is about to lapse (Sec. 195, LGC).
iv. If remedies available does not provide plain, speedy and
adequate remedy.
b. Action for declaratory relief
c. Injunction144 – if remedies available does not provide plain, speedy and
adequate remedy is available.
Q: The Sangguniang Panlungsod of Cagayan de Oro approved Ordinance No.

9503-2005 on 10 January 2005. Section 5 of said ordinance provided that the
"Ordinance shall take effect after 15 days following its publication in a local
newspaper of general circulation for at least three (3) consecutive issues." Gold
Star Daily published Ordinance No. 9503-2005 on 1 to 3 February 2005.
Ordinance No. 9503-2005 thus took effect on 19 February 2005.
CEPALCO filed its petition for declaratory relief before the Regional Trial Court
on 30 September 2005, clearly beyond the 30-day period provided in Section 187.
CEPALCO did not file anything before the Secretary of Justice. Did Cepalco fail
to exhaust administrative remedies by immediately filing with the RTC? A: YES.
Ordinance No. 9503-2005 is a local revenue measure. As such, Sections 187 and
188 of the Local Government Code applies. Clearly, the law requires that the
dissatisfied taxpayer who questions the validity or legality of a tax ordinance must
file his appeal to the Secretary of Justice, within 30 days from effectivity thereof.
In case the Secretary decides the appeal, a period also of 30 days is allowed for an
aggrieved party to go to court. But if the Secretary does not act thereon, after the
144Q: In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod (SP) of
Baguio City enacted Tax Ordinance No. 19, Series of 2014, imposing a P50.00 tax on all the tourists
and travellers going to Baguio City. In imposing the local tax, the SP reasoned that the tax
collected will be used to maintain the cleanliness of Baguio City and for the beautification of its
tourist attractions. Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association
of travel agencies in Baguio City, filed a petition for declaratory relief before the RTC because BTA
was apprehensive that tourists might cancel their bookings with BTA’s member agencies. BTA also
prayed for the issuance of a TRO to enjoin Baguio City from enforcing the local tax on their
customers and on all tourists going to Baguio City. The RTC issued a TRO enjoining Baguio City from
imposing the local tax. Aggrieved, Baguio City filed a petition for certiorari before the Supreme Court
seeking to set aside the TRO issued by the RTC on the ground that collection of taxes cannot be
enjoined. Will the petition prosper? (2014 Bar) A: NO. The petition for certiorari filed by Baguio City
will not prosper. As stated in Valley Trading Co., Inc. v. CFI of Isabela (G.R. No. L-49529, March 31,
1989) and Angeles City v. Angeles City Electric Corporation (G.R. No. 166134, June 29, 2010),
******the prohibition on the issuance of an order or writ enjoining the collection of taxes
applies only to national internal revenue taxes, and not to local taxes. Unlike the NIRC, there is
no express provision in the Local Government Code which prohibits courts from enjoining the
collection of such taxes. Therefore, the RTC was properly vested with authority to issue the
assailed TRO enjoining Baguio City from imposing the local tax.
lapse of 60 days, a party could already proceed to seek relief in court. These three
separate periods are clearly given for compliance as a prerequisite before seeking
redress in a competent court. Such statutory periods are set to prevent delays as
well as enhance the orderly and speedy discharge of judicial functions. For this
reason the courts construe these provisions of statutes as mandatory (Cagayan
Electric Power and Light Co., Inc. v. City of Cagayan de Oro, G.R. No. 191761,
November 14, 2012).
a. Periods of Assessment of Local Taxes, Fees or Charges

1. GR: Local taxes, fees, or charges shall be assessed within 5 years from the
date they became due145. No action for the collection of such taxes, fees, or
charges, whether administrative or judicial, shall be instituted after the expiration
of such period.
XPN: In case of fraud or intent to evade the payment of taxes, fees, or
charges, the same may be assessed within ten (10) years from discovery of the
fraud or intent to evade payment (Sec. 184 [a] and [b], LGC).
2. Period of collection of local taxes: Local taxes, fees, or charges may be
collected within 5 years from the date of assessment by administrative or
judicial action (Sec. 194 (c), LGC)
3. The running of prescriptive period, when suspended: The running of the
periods of prescription provided in the preceding paragraphs shall be suspended
for the time during which: [TRO]
a. The treasurer is legally prevented from making the assessment of
collection;
b. The taxpayer requests for a reinvestigation and executes a waiver in
writing before expiration of the period within which to assess or collect; and
c. The taxpayer is out of the country or otherwise cannot be located
(Sec. 195[d], LGC).
b. Protest of Assessment
Q: Discuss the procedure for the protest of assessment
145Which statement on prescriptive periods is true? (2012 BAR)

a) The prescriptive periods to assess taxes in the National Internal Revenue Code and the Local
Government Code are the same;
b) Local taxes shall be assessed within five (5) years from the date they became due;
c) Action for the collection of local taxes may be instituted after the expiration of the period to assess
and to collect the tax;
d) Local taxes may be assessed within ten (10) years from discovery of the underpayment of tax which
does not constitute fraud.
SUGGESTED ANSWER: b) Local taxes shall be assessed within five (5) years from the date
they became due; Section 194, RA 7160.
Assessment is
made by local
treasurer
↓
Taxpayer has
Assessment is Receipt by the 60 days to file
final ← → a written
Taxpayer
and executory protest with
treasurer
↓
The Local
Local Treasurer shall
Treasurer decide the
finds protest protest within
←
wholly or 60 days from
partly the time of its
meritorious
filing
↓ ↓
Local
Local
Treasurer
Treasurer
issues a notice
finds the
cancelling
assessment
wholly or
wholly or
partially the
partly correct
assessment
↓
Local
Treasurer
Taxpayer does denies the
← protest wholly
not appeal or partly with
notice to the
taxpayer
↓ ↓
Taxpayer has
30 days from
receipt of the
denial of the
Assessment protest or
becomes from lapse of
conclusive and the 60
unappealable day period
(Sec. 195) prescribed to
appeal with a
court of
competent
jurisdiction
NB: The competent court referred to is the RTC/MTC/MetC/MCTC which acts

in the exercise of its original jurisdiction, depending on the amount. Local tax
cases originally decided by the MTC/MetC/MCTC may be appealed to RTC.
c. Claim for Refund of Erroneuosly or Illegally Collected Tax, Fee or

Charge
1. Grounds for the refund of local government taxes, fees or charges: (Sec. 196,
LGC.)
a. Erroneously collected
b. Illegally collected
2. Procedure for the refund of local government taxes, fees or charges?
a. A written claim for refund or credit is filed with the local treasurer.
b. A claim or proceeding is then filed with the court of competent
jurisdiction (depending upon the jurisdictional amount) within two (2) years from
the date of the payment of such tax, fee, or charge, or from the date the taxpayer
is entitled to a refund or credit. (Ibid.)
3. Table for taxpayer’s remedies from assessment of local taxes other than real
property taxes (local government code)
L o c a l
Treasurer
( L T )
assesses
l o c a l
t a x e s
within 5 LT issues
y e a r s
START → → notice of
from date
t h e y assessment
become
due or 10
y e a r s
f r o m
discovery
of fraud
↓
Taxpayer files written
protest within 60 days
from receipt of notice
of assessment (Sec.
195, LGC)
↓
Is protest
m a d e Assessment
LT decides on protest within 60 within pres- becomes
days from filing of protest (Sec. c r i b e d final
Yes No
195, LGC) Taxpayer has 60 days period? (Sec. Receipt by
← → the
to file a written protest with 195,LGC)
treasurer Assessment Taxpayer
is final and
execu-tory
Yes No
↓ ↓
Appeal to CTA
Taxpayer appeals to
division but if the
court of competent
decision is from an
jurisdiction (regular
No RTC exercising
LT grants courts) within 30
→ appellate jurisdiction,
protest? → days from receipt of
appeal should be
notice or from lapse
made directly not to
of 60 days (Sec. 195,
CTA en banc under
LGC)
Rule 43 of ROC.
Yes
↓
↓
LT issues notice
cancelling
partially/wholly the If Division decides
assessment against taxpayer, file
(Sec. 195, LGC) MR within 15 days
Local Treasurer with the same
finds the assessment division.
wholly or
partly correct
↓ ↓
MR is denied, file
END ← Appeal to SC ← petition for review
with CTA en banc
——————————————————————
9. Civil Remedies by the LGU for Collection of Revenues

[] Available remedies to the local government units in collecting revenues:146
a. Local government lien
b. Civil remedies (Secs. 173 & 174, LGC)
i. Distraint of personal property
ii. Levy of real property
iii. Judicial action
146*****Give the remedies available to local government units to enforce the collection of taxes,
fees, and charges? ANSWER: The remedies available to the local government units to enforce
collection of taxes, fees, and charges are:
A. Administrative remedies of distraint of personal property of whatever kind whether tangible or
intangible, and levy of real property and interest therein; and
B. Judicial remedy by institution of an ordinary civil action for collection with the regular courts
of proper jurisdiction. (BAR 1997)
a. Local Government's Lien for Delinquent Taxes, Fees or Charges

1. Nature of the local government’s lien: Local taxes, fees, charges and other
revenues constitute a lien, superior to all liens, charges or encumbrances in favor
of any person, enforceable by appropriate administrative or judicial action, not
only upon any property or rights therein which may be subject to the lien but also
upon property used in business, occupation, practice of profession or calling, or
exercise of privilege with respect to which the lien is imposed. (Sec. 173, LGC)
The lien may only be extinguished upon full payment of the delinquent local taxes
fees and charges including related surcharges and interest.
b. Civil Remedies, in General

b1. Administrative Action
1. Summary for procedure for distraint
Local treasurer or his deputy issues written notice to

Fa i l u r e o f t h e
person owing any the taxpayer concerned informing to seize or
local tax, fee, or confiscate any personal property belonging to that
charge to pay the → person or any personal property subject to the lien in
same at the time sufficient quantity to satisfy the tax, fee, or charge in
required (Sec. question, together with any increment thereto incident
175[a], LGC). to delinquency and the expenses of seizure.
↓
The officer executing

the distraint shall make
or cause to be made an
account of the goods,
chattels or effects
distrained, a copy of
which signed by himself
The local treasurer or his deputy shall issue a duly
shall be left either with
authenticated certificate based upon the records
the owner or person
of his office showing the fact of delinquency and
from whose possession
the amounts of the tax, fee, or charge and penalty
the goods, chattels
← due. Such certificate shall serve as sufficient
or effects are taken, or at
warrant for the distraint of personal property
the dwelling or place of
aforementioned, subject to the taxpayer’s right to
business of that person
claim exemption under the provisions of existing
and with someone of
laws (Sec. 175[a], LGC).
suitable age and
discretion, to which list
shall be added a
statement of the sum
demanded and a note of
the time and place of
sale (Sec. 175[b], LGC).
↓
The officer shall forthwith cause a

notification to be exhibited in not
less than three (3) public and
conspicuous places in the territory
of the local government unit
where the distraint is made,
Should the property distrained be not
specifying the time and place of
disposed of within one hundred and
sale, and the articles distrained
twenty (120) days from the date of
(Sec. 175[c], LGC.)
distraint, the same shall be considered
as sold to the local government unit
NB: The time of sale shall not be
→ concerned for the amount of the
less than twenty (20) days after the
assessment made thereon by the
notice to the owner or possessor
Committee on Appraisal and to the
of the property as above specified
extent of the same amount, the tax
and
delinquencies shall be cancelled (Sec.
the publication or posting of the
175 [e], LGC).
notice. One place for the posting
of the notice shall be at the office
of the chief executive of the local
government unit in which the
property is distrained. (Sec. 175[c],
LGC)
↓
At the time and place

fixed in the notice, the
officer conducting the
sale shall sell the goods
or effects so distrained
at a public auction to the
highest bidder for cash
The proceeds of the sale shall be applied to
NB: Within five (5) days
satisfy the tax, including the surcharges, interest,
after the sale, the local
and other penalties incident to delinquency, and
treasurer shall make a
the expenses of the distraint and sale.
report of the
proceedings in writing
→ NB: The expenses chargeable upon the seizure
to the local chief
and sale shall embrace only the actual expenses of
executive concerned
the seizure and preservation of the property
(Sec. 175 [e], LGC)
pending the sale, and no charge shall be imposed
for the services of the local officer
NB: If at any time prior
or his deputy. (Sec. 175[f], LGC)
to the consummation of
the sale, all the proper
charges are paid to the
officer conducting the
sale, the goods or effects
distrained shall be
restored to the owner
(Sec. 175[d], LGC)
↓
Where the proceeds of the sale are insufficient to
satisfy the claim, other property may, in like
manner, be distrained until the full amount due,
including all expenses, is collected (Sec. 175 [f],
LGC)
NB: The balance over and above what is required

to pay the entire claim shall be returned to the
owner of the property sold. (Sec. 175 [f], LGC)
2. Summary for procedure for levy

Failure of the person

owing any local tax, fee, L e v y o f p e r s o n a l p r o p e r t y b e f o r e,
or charge to pay the same → simultaneously or after distraint of personal
at the time required. (Sec. property belonging to the delinquent taxpayer.
176, LGC)
↓
Written notice of the levy The provincial, city or municipal treasurer
shall be mailed to or shall:
served upon the: a. prepare a duly authenticated certificate
a. assessor and ←
b. showing the name of the taxpayer and the
b. Register of Deeds of
the province or city amount of the tax, fee or charge and penalty
where the property is due from him. (Sec. 176, LGC)
located who shall
annotate the levy on the
tax declaration and Report on levy within ten (10) days from levy
→
certificate of title of the by the levying officer. (Sec. 176, LGC)
property, respectively, and
c. delinquent taxpayer or,
d. if he be absent from
the Philippines, to his
agent or the manager of
the business in respect to
which the liability arose, ↓
or
e. if there be none, to the
occupant of the property
in question. (Sec. 176,
LGC)
Advertisement of the sale of the property
through sale or auction within 30 days after
levy. The advertisement shall be effected by:
a. Posting notice in the main entrance of the
municipal building or city hall and
Sale of levied property conspicuous place in the barangay where the
← real property is located; b. Publication once a
(Sec. 178, LGC)
week for 3 consecutive weeks in a newspaper
of general circulation in the province, city or
municipality where the property is located.
(Sec. 178, LGC)
↓
Within thirty (30) days
after the sale, the local
treasurer or his deputy Tax is a lien superior to all liens and may only
shall make a report of the be extinguished upon payment of the tax and
sale to the sanggunian →
charges (Sec. 257) Issuance of the certificate
concerned, and which of sale to the purchaser (Sec. 178)
shall form part of his
records. (Sec. 178, LGC)
↓ ↓ ↓
Warrant of Levy
Time for payment or
issued by LT, as a
RPT expires (Sec. 258,
Local Treasurer shall legal execution in
LGC). The delinquent
purchase the property on the LGU
taxpayer has one (1)
behalf of the LGU if: concerned, (Sec.
year from the date of
a. There is no bidder 258, LGC). If
→ sale to redeem the
b. The highest bid is property is not
p r o p e r t y. I f t h e
insufficient to pay the redeemed, a final
property is redeemed,
deficiency tax (Sec. 128, deed of sale shall
a certificate of
LGC) be issued to the
redemption will be
purchaser. (Sec.
issued (Sec. 179, LGC)
180, LGC)
↓
If not redeemed,
ownership shall be fully
vested on the LGU
concer ned. (Sec 181,
LGC)
3. Levy of real property may be simultaneously issued with the warrant of

distraint - The levy of a real property may be made before or simultaneous with
distraint. In case the levy on real property is not issued before or simultaneously
with the warrant of distraint on personal property, and the personal property of
the taxpayer is not sufficient to satisfy his delinquency, the provincial, city or
municipal treasurer, as the case may be, shall within thirty (30) days after execution
of the distraint, proceed with the levy on taxpayer’s real property. (Sec. 176, LGC)
4. LGU has right to purchase real property advertised for sale, when:
a. No bidder for the real property
b. If the highest bid is for an amount insufficient to pay the taxes, fees, or
charges, related surcharges, interests, penalties and costs
5. Local government may repeat the remedies of distraint and levy - The remedies
by distraint and levy may be repeated if necessary until the full amount due,
including all expenses, is collected. (Sec. 184, LGC)
6. Penalty of the local treasurer for failure to issue and execute the warrant:
Automatically dismissed from service after notice and hearing, if found guilty of
abusing the exercise thereof by competent authority, without prejudice to criminal
prosecution under the RPC and other applicable laws. (Sec. 177, LGC)
7. Exempt properties from distraint or levy - The following property shall be
exempt from distraint and the levy, attachment or execution thereof for
delinquency in the payment of any local tax, fee or charge, including the related
surcharge and interest: [ToBe-ChoP-LBM]
a. Tools and implements necessarily used by the delinquent taxpayer in his
trade or employment;
b. One horse, cow, carabao, or other Beast of burden, such as the
delinquent taxpayer may select, and necessarily used by him in his ordinary
occupation;
c. His necessary Clothing, and that of all his family;
d. Household furniture and utensils necessary for housekeeping and used
for that purpose by the delinquent taxpayer, such as he may select, of a value not
exceeding P10,000.00;
e. Provisions, including crops, actually provided for individual or family use
sufficient for 4 months;
f. The professional Libraries of doctors, engineers, lawyers and judges;
g. One fishing Boat and net, not exceeding the total value of P10,000.00, by
the lawful use of which a fisherman earns his livelihood; and
h. Any Material or article forming part of a house or improvement of any
real property. (Sec. 185, LGC)
b2. Judicial Action

[] Go to the “Judicial Remedies” module for a summary of jurisdictions of the
different courts
1. LGU’s enforcement of the judicial remedy in collection of taxes: The LGU
concerned may enforce the collection of delinquent taxes, fees, charges and other
revenues by civil action in any court of competent jurisdiction. The civil action
shall be filed by the local treasurer within 5 years from delinquent taxes, fees or
charges become due.
2. Mode of appeal from the decision of the Regional Trial Court involving local
taxes: RA 9282, which took effect on April 23, 2004, expanded the jurisdiction of
the CTA to include, among others, the power to review by appeal decisions, orders
or resolutions of the RTC in local tax cases originally decided or resolved by them
in the exercise of their original or appellate jurisdiction. (City of Iriga vs

Camarines Sur Electric Cooperative, Inc., G.R. No. 192945, September 5, 2012)
a. The authority to exercise either original or appellate jurisdiction over local
tax cases depended on the amount of the claim. Indeed, in cases where the
amount sought to be refunded is below the jurisdictional amount of the RTC, the
MetC, MTC, MCTC are clothed with ample authority to rule on such claims.
b. In cases where the RTC exercises appellate jurisdiction, it necessarily
follows that there must be a court capable of exercising original jurisdiction –
otherwise there would be no appeal over which the RTC would exercise appellate
jurisdiction. The Court cannot consider the City Treasurer as the entity that
exercises original jurisdiction not only because it is not a “court” within the
context of B.P. Blg. 129, but also because B.P. 129 expressly delineates the
appellate jurisdiction of the Regional Trial Courts, confining as it does said
appellate jurisdiction to cases decided by MeTC, MTC, and MCTC. Verily, unlike
in the case of the CA, B.P. 129 does not confer appellate jurisdiction on the RTC
over rulings made by non-judicial entities. The RTC exercises appellate jurisdiction
only from cases decided by the MeTC, MTC and MCTC in the proper cases. The
nature of the jurisdiction exercised by these courts is original, considering it will
be the first time that a court will take judicial cognizance of a case instituted for
judicial action. (China Banking Corp. v. City Treasurer of Manila, G.R. No.
204117, July 01, 2015)
Module 12. LGC II: Real Property Taxation
Real Property Taxation 139

A. Fundamental Principles 143
B. Nature of Real Property Tax 143
C. Imposition of Real Property Tax 143
C1. Power to Levy Real Property Tax 144
C2. Exemption from Real Property Tax 148
D1. Rule on Appraisal of Real Property Tax at Fair Market Value 152
D2. Declaration of Real Property 154
D3. Listing of Real Property in Assessment Rolls 155
D4. Preparation of Schedules of Fair Market Value 155
D5. Classes of Real Property 156
D6. Actual Use of Property as Basis of Assessment 157
D7. Assessment of Property 157
E. Collection of Real Property Tax 160
E1. Date of Accrual of Real Property Tax and Special Levies 160
E2. Collection of Tax 160
E3. Periods within which to Collect Real Property Tax 161
E4. Special Rules on Payment 162
E5. Remedies of LGUs for Collection of Real Property Tax 164
F. Refund or Credit of real Property Tax 169
F1. Payment Under Protest 171
F2. Repayment of Excessive Collections 172
ASSESSMENT vs. APPRAISAL 173
G. Taxpayer’s Remedies 173
G1. Contesting an Assessment of Value of Real Property 174
G2. Payment of Real Property Tax under Protest 176
———————————————————————————————
Real Property Taxation

1. Real Property Tax (RPT) - Real property tax is a direct tax on ownership of
lands and buildings or other improvements thereon not specially exempted, and
is payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor. NB: Real property tax is a fixed
proportion of the assessed value of the property being taxed and requires,
therefore, the intervention of assessors.
a. P.D. No. 464, the Real Property Tax Code, changed the basis of real
property taxation adopting the ******policy of taxing real property on the basis
of actual use, even if the user is not the owner.(Province of Nueva Ecija v.
Imperial Mining Co., Inc. G.R. No. 59463, November 19, 1982)
b. The present law on real property taxation (R.A. 7160, Local Government
Code) adopts actual use of real property as basis of assessment. (Sec. 199[b],
LGC)
2. Local government units responsible for the administration of real property tax
a. Provinces
b. Cities
c. Municipalities in Metro Manila Area147
3. Definition of Real Property; Article 415 of New Civil Code. The Following are
Immovable Property:
a. Land, buildings, roads and constructions of all kinds adhered to the soil;
b. Trees, plants, and growing fruits, while they are attached to the land or
form an integral part of an immovable;
c. Everything attached to an immovable in a fixed manner, in such a way
that it cannot be separated therefrom without breaking the material or
deterioration of the object;
d. Statues, reliefs, paintings or other objects for use or ornamentation,
placed in buildings or on lands by the owner of the immovable in such a manner
that it reveals the intention to attach them permanently to the tenements;
e. Machinery, receptacles, instruments or implements intended by the
owner of the tenement for an industry or works which may be carried on in a
building or on a piece of land, and which tend directly to meet the needs of the
said industry or works;148
147May local governments impose an annual realty tax in addition to the basic real property tax on
idle or vacant lots located in residential subdivisions within their respective territorial jurisdictions?
(3%) SUGGESTED ANSWER: Not all local government units may do so. *****Only provinces,
cities, and municipalities within the Metro Manila area (Sec. 232, Local Government Code), may
impose an ad valorem tax not exceeding five percent (5%) of the assessed value (Sec.236, Ibid.)
of idle or vacant residential lots in a subdivision, duly approved by proper authorities regardless of
area. (Sec. 237, Ibid.) (BAR 2000)
148Under Article 415 of the Civil Code, in order for machinery and equipment to be considered
real property, the pieces 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 install
underground tanks in the gasoline stations located on land leased by the oil companies from the
owners of the land where the gasoline stations [are] located. *****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. SUGGESTED ANSWER: Yes. *****The properties are considered as
necessary fixtures of the gasoline station, without which the gasoline station would be useless.
*****Machinery and equipment installed by the lessee of leased land is not real property for
purposes of execution of a final judgment only. They are considered as real property for real
property tax purposes as “other improvements to affixed or attached real property under the
Assessment Law and the Real Property Tax Code. (Cattex v. Central Board of Assessment
Appeals, 114 SCRA 296 [1982]). (BAR 2003)
f. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of

similar nature, in case their owner has placed them or preserves them with the
intention to have them permanently attached to the land, and forming a
permanent part of it; the animals in these places are included;
g. Fertilizer actually used on a piece of land;
h. Mines, quarries, and slag dumps, while the matter thereof forms part of
the bed, and waters either running or stagnant;
i. Docks and structures which, though floating, are intended by their nature
and object to remain at a fixed place on a river, lake, or coast;
j. Contracts for public works, and servitudes and other real rights over
immovable property. NB: An object used indirectly for the general purpose of the
business shall not be treated as real property.
4. NB: the NIRC and the LGC prevail in classifying property for tax
purposes.149
5. Requisites for taxability of an improvement [ESI]
a. Must Enhance the value of the property
b. Must be Separately assessable
c. Can be treated Independently from the main property
NB: Whenever real property has been divided into condominium, each
condominium owned shall be separately assessed, for purposes of real property
taxation and other tax purposes to the owner thereof and tax on each such
condominium shall constitute a lien solely thereof (Sec. 25, R.A. No. 776,
Condominium Act).
5. Doctrine of Essentiality - Properties considered as personal under the Civil
Code may nonetheless be considered as real property for tax purposes where said
property is essential to the conduct of business. The property to be considered as
immobilized for RPT must be “essential and a principal element” of an industry
without which such industry would be unable to carry on the principal industrial
purpose for which it was established. Examples:
a. Gasoline station equipment and machineries like above ground and
underground tanks, elevated water tanks, water tanks, gasoline pumps, computing
pumps water pumps, car washers, car lifts, air compressors, tire inflators and the
like attached to the pavement and to the shed (Caltex Phils. v. CBAA, GR No.
50466, May 31, 1982).
149The SC has generally held in these cases that Art 415 of the Civil Code provides an exclusive
enumeration of what constitutes real property, for tax purposes, however, it is common for
otherwise personal properties under the Civil Code to be classified as real property (Mindanao
Bus Co. v. City Assessor, G.R. No. L-17870, September 29, 1962).
NB: the NIRC and the LGC prevail in classifying property for tax purposes.
Improvement is a valuable addition made to a property or an amelioration in its condition,
amounting to more than a mere repair or replacement of parts involving capital expenditures
and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further
purposes (Sec. 199 [m], LGC).
b. A mining Company’s siltation dam and decant system are not machineries
but improvements subject to real property tax. (The Provincial Assessor of
Marinduque v. CA, G.R. No. 170532, April 30, 2009)
6. Kinds of real property tax and special levies [REIS]150
a. Basic real property tax
b. Additional levy on real property for the Special Education Fund (Sec.
235, LGC;
c. Additional ad valorem tax on idle lands (Sec 236, LGC)
d. Special levy by local government units (Sec 240, LGC)
Imposed by other laws:
i. Socialized Housing Tax (RA 7279, March 24, 1992)
ii. LGUs are authorized to impose an additional one-half percent
(0.5%) on the assessed value of all lands in urban areas in excess of Fifty
Thousand Pesos, except those from lands which are exempted from the coverage of RA
7279 [Urban Development and Housing Act of 1992].
7. FORMULA FOR RPT: RPT = RPT Rate x Assessed Value
a. Maximum (basic) RPT rates:*****
i. 1%: provinces;
ii. 2%: Cities and Municipalities within Metro Manila
b. Special Education Fund (SEF) – 1%; In addition to the basic RPT, the
LGU’s may levy and collect an annual tax of one percent (1%) which shall
accrued exclusively to the Special Education Fund (SEF).
c. Ad Valorem Tax on Idle Lands – 5%; In addition to the basic RPT, the
LGU’s may collect a maximum idle land tax is 5% assessed value of the property.
d. How do you compute the Assessed Value? Assessed Value = Fair
Market Value x Assessment Level
e. Reasonable according to UST notes: payable within 5-10 years.
150Aside 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. (3%)
SUGGESTED ANSWER: The following real property taxes aside from the basic real property tax
may be imposed by provincial and city governments as well as by municipalities in the Metro
Manila area: Additional levy on real property for the Special Education Fund (Sec. 235, LGC);
Additional Ad-valorem tax on Idle lands (Sec. 236, LGC); and Special levy (Sec, 240), Note: The
question is susceptible to dual interpretation because it is asking for three other taxes and not three
other real property taxes. Accordingly, an alternative answer should be considered and given full
credit. ALTERNATIVE ANSWER: The following taxes, aside from basic real estate tax, may be
imposed by Provincial Government: Printer’s or publisher’s tax; Franchise Tax; Professional tax. City
Government - may levy taxes which the province or municipality are authorized to levy (Sec. 151,
LGC): Printer’s or publisher’s tax; Franchise tax; Professional tax Municipalities in the Metro Manila
Area - may levy taxes at rates which shall not exceed by 50% the maximum rates prescribed in the
Local Government Code: Annual fixed tax on manufacturers, assemblers, repackers, processors,
brewers, distillers, rectifiers and compounders of liquors, distilled spirits, and wines or manufacture of
any article of commerce of whatever kind or nature; Annual fixed tax on wholesalers, distributors, or
dealers in any article of commerce of whatever kind or nature; Percentage tax on retailers Note: Other
taxes may comprise the enumeration because many other taxes are authorized to be imposed by LGUs.
(BAR 2002)
A. Fundamental Principles
[] Fundamental principles governing real property taxation [Bar 1997]
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.151
c. Real property shall be assessed on the basis of a uniform classification
within each local government unit.
d. The appraisal, assessment, levy and collection of real property tax
shall not be let152 to any private person.
e. The appraisal and assessment of real property shall be equitable. (Sec.
197, LGC)153
B. Nature of Real Property Tax

1. RPT is:
a. Direct tax whose burden could not be shifted by the one who pays to
other persons
b. Ad valorem tax based on the assessed value of the property
c. Local tax
d. Imposed on use and not ownership
e. Progressive in character pending to a certain extent on the use and value
of the property
f. Indivisible single obligation
2. Nature and scope of power to impose realty tax - The taxing power of local
governments in real property taxation is a delegated power (Sec. 232, LGC)
C. Imposition of Real Property Tax
151NB: 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. (Sec. 217, LGC)
152 . *****“NO LET” PRINCIPLE
a. a rule common to both LGT and RPT;
b. it means that a collection of local and real property tax shall NOT be DELEGATED to a private person.
153 The appraisal, assessment, levy and collection of real property tax shall be guided by the following
principles. Which statement does NOT belong here? (2012 BAR): 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) The appraisal and
assessment of real property shall be based on audited financial statements of the owner.
Section 198, RA 7160.
C1. Power to Levy Real Property Tax

1. Extent of the local taxing power in real property taxation - *****Provinces,
cities154 and municipalities (in Metro Manila) do not only have the power to
levy real estate taxes, but they may also fix real estate tax rates. Sec. 233 of the
LGC provides that they shall fix a uniform rate of basic real property tax
applicable to their respective localities.
NB: No public hearing shall be required before the enactment of a
local tax ordinance levying the basic real property tax. Local government
units may refrain from imposing the real property tax.155
2. Real properties subject to tax
a. For Basic Real Property Tax and Special Levy on Education Fund:
i. Land
ii. Building
iii. Machinery
iv. Other improvements (Sec. 232, GC)
154A 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 seeks your legal advice on
the matter, what would your advice be? Discuss. (2005 Bar) A: I would advise the lot owners that a city,
even if it is outside Metro Manila, may levy an annual tax on idle lands at the rate not
exceeding five percent (5%) of the assessed value of the property which shall be in addition to
the basic real property tax. (Sec. 236, LGC) I would likewise advise them that the levy may apply to
residential lots, regardless of land area, in subdivisions duly approved by proper authorities, the
ownership of which has been transferred to individual owners who shall be liable for the additional tax.
(Last par., Sec. 237, LGC) Finally, I would advise them to construct or place improvements on
their idle lands by making valuable additions to the property or ameliorations in the land's
conditions so the lands would not be considered as idle. (Sec. 199[m], LGC) In this manner their
properties would not be subject to the ad valorem tax on idle lands.
ALTERNATIVE: My advice would be that the city's plan to enact an ordinance that will
impose such special levy on idle lands is not legally allowed, unless these lands are specially
benefited by a public works projects or improvements funded by the city government. (Sec. 240,
Local Government Code). I will likewise advise them that before the city council could enact an
ordinance imposing a special levy, it shall conduct a public hearing thereon; notify in writing the
owners of the real property to be affected or the persons having legal interest therein as to the date and
place thereof and afford the latter the opportunity to express their positions or objections relative
to the proposed ordinance. (Sec. 242, Local Government Code).
155The use of the words “may levy and collect” gives the impression that a province, city or
municipality within Metropolitan Manila Area, may or may not, at its discretion impose real property
tax. The word “may” in the law generally interpreted as only permissive or discretionary and operates
to confer discretion, in contrast to the word “shall” which is imperative and operates to impose a duty
which may be enforced. This is also being consistent as well with local autonomy which is the hallmark
of the LGC itself.
NB: Recourse may be taken to Sec. 5 of the Code itself which provides for the rules of its
interpretation, and in part read as follows: “Any provision on a power of a local government unit shall
be liberally construed in its favor, and in case of doubt, any question thereon shall be resolved in
favor of devolution of powers and of the local government unit. Any fair and reasonable doubt as to
the existence of the power shall be interpreted in favor of the local government unit concerned.”
b. For Special Levy on Idle Lands and Special Levy on Public Works
(Special Assessments): Land Only
3. Rates of levy******
a. In a Province - at the rate not exceeding 1% of the assessed value of
real property; and
b. In a City or Municipality within156 the Metro Manila157 area - at the
rate not exceeding 2% of the assessed value158 of real property. (Sec. 233,
LGC)
4. Ordinance imposing special levy for public works must contain the following:
a. The ordinance shall
i. Describe the nature, extent, and location of the project;
ii. State estimated cost;
iii. Specify metes and bounds by monuments and lines
b. It must state the number of annual installments, not less than 5 years
nor more than 10 years. NB: In the apportionment of special levy, Sanggunian
may fix different rates depending whether such land is more or less benefited by
the proposed work
c. Notice to the owners and public hearing (Sec. 242, LGC)
d. Owner can appeal to the LBAA and CBAA
5. *****Special levy or special assessment by LGUs159 - A province, city or
municipality may impose a special levy on the lands within its territorial
156One of the local government units below does NOT have the power to impose real property tax:
(2012 BAR) a) Bacoor, Cavite; b) Davao City; c) Tarlac Province; d) Malabon, Metro Manila.
SUGGESTED ANSWER: a) Bacoor, Cavite. Section 200, RA 7160.[Note: The answer above is
premised on the belief that Bacoor is a municipality and ******the LGC does not vest
municipalities with the power to impose real property taxes, except for municipalities within
the Metropolitan Manila area. However, Bacoor is already a city hence, can no longer be a correct
choice. Since the question did not provide for the CORRECT answer, it should be treated as a bonus.]
157A municipality may levy an annual ad valorem tax on real property such as land, building, machinery,
and other improvement only if: (2011 Bar Question) 
(A) the real property is within the Metropolitan Manila Area. 
(B) the real property is located in the municipality.
(C) the DILG authorizes it to do so. 
(D) the power is delegated to it by the province.
158For purposes of real property taxes, the tax rates are applied on: (2012 BAR) a) Zonal values; b) Fair
market value; c) Assessed values; d) Reproduction values. SUGGESTED ANSWER: c) Assessed
values Section 233, RA 7160.
159SECTION 240. Special Levy by Local Government Units. - A province, city or municipality may a
special levy on the lands comprised within its territorial jurisdiction specially benefited by public works
projects or improvements funded by the local government unit concerned: Provided, however, That the
special levy shall not exceed sixty percent (60%) of the actual cost of such projects and
improvements, including the costs of acquiring land and such other real property in connection
therewith: Provided, further, That the special levy shall not apply to lands exempt from basic real
property tax and the remainder of the land portions of which have been donated to the local
government unit concerned for the construction of such projects or improvements.
jurisdiction specially benefited by public works projects or improvements by

the LGU concerned.
XPN: It shall not apply to lands exempt from basic real property tax
and the remainder of the land, portions of which have been donated to the
LGU concerned for the construction of such projects or improvements. (Sec. 240,
LGC) NB: The special levy shall not exceed 60%160 of the actual cost of such
projects and improvements, including the costs of acquiring land and such
other real property in connection therewith.161
6. Additional levy on real property for the Special Education Fund - A province,
city or a municipality within the Metro Manila area may levy and collect an annual
tax of 1% on the assessed value of real property which shall be in addition
to the basic real property tax. The proceeds thereof shall exclusively accrue to the
Special Education Fund created under RA 5447. (Sec. 235, LGC)
7. Additional ad valorem tax on idle lands - A province or city or a municipality
within the Metro Manila area may levy an annual tax on idle lands at the rate not
160 *****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: (2011 Bar Question) (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.
[] Q: In view of the street widening and cementing of roads and 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 filed a protest against the special levy
fifteen (15) days after the last publication of the ordinance alleging that the maximum rate of
sixty percent (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 Bar) A: No.
******His basis for the protest was the unreasonably excessive payment. Payment under protest
is thus an administrative precondition for the suit. ALTERNATIVE: The special levy under the Real
Property Tax Code on lands, specially benefited by the proposed infrastructure, may not exceed sixty
per cent (60%) of the cost of said improvement. All lands comprised within the district benefited
are subject to the special levy except lands exempt from the real property tax (Sec. 47. RPT). The
protest shall be filed not later than 30 days after the publication of the ordinance and may be
submitted to the City Sanggunian signed by a majority of the landowners affected by the proposed
work. If no such protest is filed in the manner above specified, the city ordinance shall become final
and effective. The levy imposed under the ordinance should be within the limit of sixty percent
(60%) of the total cost of the proposed improvement. The rate of two percent (2%) of the
assessed value under Sec. 39 of P.D. 464 refers to the real property tax and not to special levies.
(BAR 1991)
161The 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) 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 Section 240, RA 7160. [TOM: it says 60%]
exceeding 5% of the assessed value of the property which shall be in addition to

the basic real property tax (Sec. 236, LGC)
a. WHAT ARE IDLE LANDS? The following are considered “idle lands”
i. Agricultural lands:
(a) More than one (1) hectare in area
(b) Suitable for cultivation, dairying, inland fishery, and other
agricultural uses
(c) One-half (1/2) of which remain uncultivated or
unimproved by the owner or person having legal interest. NB: Agricultural
lands planted to permanent or perennial crops with at least fifty (50) trees to a
hectare shall not be considered idle lands. Lands actually used for grazing
purposes shall likewise not be considered idle lands.
ii. Lands other than agricultural:
(a) Located in a city or municipality
(b) More than one thousand square meters (1,000 m2) in
area
(c) One-half (1/2) of which remain unutilized or
unimproved by the owner or person having legal interest. Regardless of land
area, this Section shall apply to residential lots in subdivisions duly approved by
proper authorities, the ownership of which has been transferred to individual
owners, who shall be liable for the additional tax: Provided, however, that
individual lots of such subdivisions, ownership of which has not been transferred
to the buyer shall be considered as part of the subdivision, and shall be subject to
the additional tax payable by subdivision owner or operator. (Sec. 237, LGC)
b. Causes for Exemption from idle lands tax
i. Force majeure
ii. Civil disturbance
iii. Natural calamity
iv. Any cause or circumstance which physically or legally prevents the
owner or person having legal interest from improving, utilizing or cultivating the
same. (Ibid.)
c. Purpose of imposing ad valorem taxes on idle land - To penalize
property owners who do not use their property productively. It is also
designed to encourage utilization of land resources in order to contribute to
national development.
Q: May local governments impose an annual realty tax in addition to the basic real
property tax on idle or vacant lots located in residential subdivisions within their
respective territorial jurisdictions? (2000 Bar) A: Not all local government units
may do so. Only provinces, cities, and municipalities within the Metro Manila area
(Sec. 232, LGC) may impose an ad valorem tax not exceeding five percent (5%) of
the assessed value (Sec. 236, Ibid.) of idle or vacant residential lots in a
subdivision, duly approved by proper authorities regardless of area. (Sec. 237,

Ibid.)
C2. Exemption from Real Property Tax

Q: Under the Local Government Code, what properties are exempt from real
property taxes? (2002 Bar) A: [RC-WCP]
1. Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use162 thereof has been
granted for consideration or otherwise to a taxable person. NB: Government
instrumentalities163 are exempt, but not necessarily GOCCs.164
162A inherited a two-storey building in Makati from his father, a real estate broker in the ‘Os (sic). A
group of Tibetan monks approached A and offered to lease the building in order to use it as a
venue for their Buddhist rituals and ceremonies. A accepted the rental of PI 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’s deficiency real property taxes? Explain.
(3%) SUGGESTED ANSWER: No. *****The property is exempt from real property tax by virtue of
the beneficial use thereof by the Tibetan monks for their religious rituals and ceremonies. A
property that is actually, directly and exclusively used for religious purposes is exempt from the real
property tax (Sec. 234, LGC; Sec. 28(3), Article IV, Phil. Constitution). ******The test of exemption
from the tax is not ownership but the beneficial use of the property (City of Baguio v. Busuego,
L-29772, Sept. 18, 1980).
163 The Manila International Airport Authority (MIAA) is exempt from real property tax. Which
statement below is NOT correct? (2012 BAR)a) MIAA is not a government-owned or controlled
corporation because it is not organized as a stock or non-stock corporation; b) MIAA is a government
instrumentality vested with corporate powers and performing essential public services; c) MIAA is not
a 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 of economic viability. SUGGESTED
ANSWER: d) MIAA is a government-owned or controlled corporation because it is required to
meet the test of economic viability. MIAA v. City of Pasay. G.R. No. 163072, April 2, 2009.
164 Q: Are the airport lands and buildings of Manila International Airport Authority (MIAA) exempt
from real estate tax under existing laws? A: YES. First, *****MIAA is not a GOCC but an
instrumentality of the National Government and thus exempt from local taxation. MIAA is a
government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality; the only difference is that MIAA
is vested with corporate powers. Second, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax. Airport lands and buildings are outside
the commerce of man. The airport lands and buildings of MIAA are devoted to public use and thus
are properties of public dominion. (MIAA v. CA, City of Paranaque, et al., G.R. No. 155650, July 20,
2006)
vs. MCIAA: Since the last paragraph of Section 234 unequivocally withdrew upon the
effectivity of the LGC, exemption from payment of real property tax granted to natural or juridical
persons including government-owned or controlled corporations, except as provided in the said
section, and the petitioner is undoubtedly a government-owned corporation it necessarily follows that
its exemption from such tax granted it in Section 14 of its Charter, RA No. 6958, has been withdrawn.
Furthermore, note that Section 40(a) of PD 464 as reproduced in Section 234(a), the phrase “and any
GOCC so exempt by its charter” was excluded in the enumeration of exemption from real property
tax. (Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, Sept. 11, 1996)
2. Charitable institutions, churches, parsonages, or convents appurtenant

thereto, mosques, non-profit or religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used for religious, charitable, or
educational purposes. NOTE: the tax exemption herein rests on the premise that
they are actually, directly and exclusively used by said entities or institutions
for their stated purposes and not necessarily because they are owned by religious,
charitable or educational institutions.
3. All machineries and equipment that are actually, directly and
exclusively used by local Water utilities and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric165 power.166
4. All real property owned by duly registered Cooperatives as provided for under
RA 6938.
165Republic Power Corporation (RPC) is a government-owned and controlled corporation engaged in

the supply, generation and transmission of electric power. In 2005, 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 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 all real estate taxes and assessments, rates and other charges, in
respect of the power barges, shall be for the account of RPC. In 2007, JEC received an
assessment of real property taxes on 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 therefore, in
accordance with the terms of the lease agreement. Is the contention of JEC correct? Explain your
answer. (4%) SUGGESTED ANSWER: The contention of JEC is not correct. *****The owner of the
power barges is JEC which is required to operate, manage and maintain the power barges for the
purpose the claim that RPC, a government-owned and controlled corporation engaged in the supply,
generation and transmission of electric power, is the actual, direct and exclusive user of the barge,
hence, does not fall within the purview of the exempting provision of Section 234[c] of R.A.
7160. Likewise, the argument that RPC should be liable to the real property taxes consonant with the
contract is devoid of merit. ******The liability for the payment of the real estate taxes is determined
by law and not by the agreement of the parties (FELS Energy Inc. P. The Province of Batangas, 516
SCRA 186 [2007]). (BAR 2009)
166Q: Napocor entered into a build-operate-transfer (BOT) agreement with First Private Power
Corporation (FPPC) for the construction of a power plant in Bauang, La Union and the creation
of Bauang Private Power Corporation (BPPC), a corporation that will own, manage and operate the
power plant. When BPPC was assessed for real property taxes on the machineries and equipment,
NAPOCOR sought the exemption of the machineries and equipment from RPT on the
ground of its exemption from taxes and the provision under the BOT Agreement whereby
Napocor assumes responsibility for all real estate taxes. Is Napocor liable to pay tax? A: NO.
Under Sec. 234(c) of the LGC of 1991, machineries and equipment actually, directly and exclusively
used by a government-owned or controlled corporation are exempt from real property tax.
*****BPPC, not being a GOCC, is not entitled to the Sec. 234(c) exemption. NAPOCOR, not
being the actual, direct and exclusive user of the machineries and equipment, cannot invoke the
Sec. 234(c) exemption either. (National Power Corp. v. CBAA, G.R. No. 171470, January 30, 2009)
5. Machinery and equipment used for Pollution control and environmental

protection. (Sec. 234, LGC)167
6. Except as herein provided, 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 the LGC. A taxpayer claiming
exemption must submit sufficient documentary evidence to the local
assessor within thirty (30) days from the date of the declaration of real
property; otherwise, it shall be listed as taxable in the Assessment Roll. (Sec. 206,
LGC)
7. Scenarios:
a. Meralco’s electric posts and machineries are no longer exempt.168
167NB: Pollution control and infrastructure devices refers to infrastructure, machinery, equipment and/
or improvements used for impounding, treating or neutralizing, precipitating, filtering, conveying and
cleansing mine industrial waste and tailings as well as eliminating or reducing hazardous effects of solid
particles, chemicals, liquids or other harmful by-products and gases emitted from any facility utilized in
mining operations for their disposal (RA No. 7942, Sec. 3)
168 Q: Are the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO exempt from real property taxes? A: NO. The transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO are no longer exempted from real property tax
based on its franchise, and may qualify as "machinery" subject to real property tax under the
LGC. MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters constitute the physical facilities through which
MERALCO delivers electricity to its consumers. Each may be considered as one or more of the
following: a "machine," "equipment," "contrivance," "instrument," "appliance," "apparatus," or
“installation." The Court highlights that under Sec. 199(o) of the LGC, machinery, to be deemed real
property subject to real property tax, need no longer be annexed to the land or building as these
"may or may not be attached, permanently or temporarily to the real property," and in fact, such
machinery may even be "mobile." The same provision though requires that to be machinery subject
to real property tax, the physical facilities for production, installations, and appurtenant service
facilities, those which are mobile, self-powered or self-propelled, or not permanently attached to the
real property (a) must be actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (2) by their very nature and purpose, are designed for, or
necessary for manufacturing, mining, logging, commercial, industrial, or agricultural
purposes.As the Court pointed out earlier, the ruling in the 1964 MERALCO case - that the electric
poles (including the steel towers) of MERALCO are not subject to real property tax - was primarily
based on the express exemption granted to MERALCO under its previous franchise. The 1964
MERALCO case do not hold true anymore under the Local Government Code. (MERALCO v. City
Assessor, G.R. No. 166102, August 5, 2015)
b. PEZA169 is an instrumentality of the government, hence, exempt—it

cannot be taxed by an LGU. Examples of (other) instrumentalities of the
national government are the MIAA, Philippine Fisheries Development Authority,
GSIS, and Philippine Reclamation Authority. These entities are not integrated
within the department framework but are nevertheless vested with special
functions to carry out a declared policy of the national government.
c. LRT improvements (carriageways & terminals) are subject to RPT. Even
granting that the national government owns the carriageways and terminal
stations, the property is not exempt because their beneficial use has been
granted to LRTA which is a taxable entity.170
d. RCPI’s radio relay station tower, radio station building, and machinery
shed are real properties and are thus subject to real property tax. The LGC
“withdrew all the tax exemptions existing at the time of its passage — including
that of RCPI’s” with respect to local taxes like the real property tax. It is an
elementary rule in taxation that exemptions are strictly construed against
the taxpayer and liberally in favor of the taxing authority. It is the taxpayer’s
169 Q: Is PEZA a government instrumentality or a GOCC? Is it exempt from real property taxation? A:
PEZA is an instrumentality of the government. Being an instrumentality of the national government, it
cannot be taxed by local government units. Instrumentality is "any agency of the National
Government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter." Similarly, the PEZA is an instrumentality of
the national government. It is not integrated within the department framework but is an agency
attached to the Department of Trade and Industry. PEZA is also vested with special functions or
jurisdiction by law. Congress created the PEZA to operate, administer, manage and develop special
economic zones in the Philippines.
Although a body corporate vested with some corporate powers, the PEZA is not a
government-owned or controlled corporation taxable for real property taxes. To be considered a
GOCC, the entity must have been organized as a stock or non-stock corporation. Under its
charter, the PEZA was created a body corporate endowed with some corporate powers. However, it
was not organized as a stock or non-stock corporation. Nothing in the PEZA’s charter provides that
the PEZA’s capital is divided into shares. The PEZA also has no members who shall share in the
PEZA’s profits. PEZA, therefore, is not a government-owned or controlled corporation liable for real
property tax. (PEZA v. Lapu-lapu City, 742 SCRA 524)
170Q: The Light Rail Transit Authority (LRTA) resolutely argues that the improvements such as,
carriageways, passenger terminal stations and similar structures, not of its properties, but of the
government-owned national roads to which they are immovably attached. They are thus not taxable as
improvements under the Real Property Tax Code. It contends that to impose a tax on the carriageways
and terminal stations would be to impose taxes on public roads. Are the LRT improvements subject to
real property tax? A: YES. While it is true that carriageways and terminal stations are anchored, at
certain points, on public roads, said improvements do not form part of the public roads since the
former are constructed over the latter in such a way that the flow of vehicular traffic would not be
impaired. These carriageways and terminals serve a function different from the public roads. The
former are part and parcel of the LRT system which, unlike the latter, are not open to use by the
general public. The carriageways are accessible only to the LRT trains, while the terminal
stations have been built for the convenience of LRTA itself and its customers who pay the
required fare. Even granting that the national government owns the carriageways and terminal
stations, the property is not exempt because their beneficial use has been granted to LRTA
which is a taxable entity. (LRTA v. CBAA, G.R. No. 127316, October 12, 2000)
duty to justify the exemption by words too plain to be mistaken and too
categorical to be misinterpreted (Radio Communications of the Philippines , Inc.
v. Provincial Assessor of South Cotabato, A.C. No. 5637, April 13, 2005).171
e. GSIS is not exempt from RPT only from 1992-1996.172
——————————————————
D. Appraisal and Assessment of Real Property Tax

D1. Rule on Appraisal of Real Property Tax at Fair Market Value
1. All real property, whether taxable or exempt, appraised at the current and fair
market value prevailing in the locality where the property is situated (Sec. 201,
LGC)
a. Fair market value (FMV) is the price at which a property may be sold
by a seller who is not compelled to sell and bought by a buyer who is not
compelled to buy. (Sec. 199(I), LGC)
b. Assessed value is the fair market value of the real property multiplied by
the assessment level. It is synonymous to taxable value. (Sec.199(h), LGC)
2. Distinguish “fair market value” from “assessed value”
Fair Market Value Assessed Value
171 Q: In 1957, R.A. 2036 granted RCPI a 50 year franchise and Sec. 14 thereof mandates it to pay
the taxes required by law on real estate, buildings and other personal property except radio equipment,
machinery and spare parts needed in connection with its business. In consideration of the franchise, a
tax equal to one and one-half per centum of all gross receipts from the business transacted under this
franchise by the grantee shall be paid and such shall be in lieu of any tax collected by any authority. The
municipal treasurer of Tupi, South Cotabato subsequently assessed RCPI real property tax on
its radio station building, machinery shed, radio station tower and its accessories and generating
sheds. RCPI protested such assessment. Is RCPI liable to pay real property tax on the said properties?
A: YES. RCPI’s radio relay station tower, radio station building, and machinery shed are real properties
and are thus subject to real property tax. The “in lieu of all taxes” clause in Section 14 of R.A. 2036, as
amended by R.A. 4054, cannot exempt RCPI from the real estate tax because the same Section 14
expressly states that RCPI “shall pay the same taxes on real estate, buildings.” Subsequent legislations
have radically amended the “in lieu of all taxes” clause in franchises of public utilities. The Local
Government Code of 1991 “withdrew all the tax exemptions existing at the time of its passage —
including that of RCPI’s” with respect to local taxes like the real property tax. Also, R.A. 7716
abolished the franchise tax on telecommunications companies effective 1 January 1996. To replace the
franchise tax, R.A. 7716 imposed a 10% VAT on telecommunications companies under Sec.102, NIRC.
Lastly, it is an elementary rule in taxation that exemptions are strictly construed against the taxpayer and
liberally in favor of the taxing authority. It is the taxpayer’s duty to justify the exemption by words too
plain to be mistaken and too categorical to be misinterpreted (Radio Communications of the
Philippines , Inc. v. Provincial Assessor of South Cotabato, A.C. No. 5637, April 13, 2005).
172Q: Is GSIS exempt from real property taxes? A: YES. Pursuant to Sec. 33 of P.D. 1146, GSIS
enjoyed tax exemption from real estate taxes, among other tax burdens, until January 1, 1992
when the LGC took effect and withdrew exemptions from payment of real estate taxes privileges
granted under PD 1146. R.A. 8291 restored in 1997 the tax exempt status of GSIS by reenacting
under its Sec. 39 what was once Sec. 33 of P.D. 1146. If any real estate tax is due, it is only for the
interim period, or from 1992 to 1996, to be precise. (GSIS v. City Treasurer and City Assessor of the
City of Manila, G.R. No. 186242, Dec. 23, 2009)
As to Determination Declared by the owner Determined by the

subject to final application of the
determination by the assessment level to the
assessor. FMV. It is synonymous to
the taxable value.
As to Basis Supposed to be the actual Merely a percentage of
value of the real property the FMV depending on
in the open market. the assessment level of
the property in question.
3. Approaches in estimating the fair market value of real property for RPT
purposes
a. Sales analysis approach –The sales price paid in actual market transactions
is considered by taking into account valid sales data accumulated from among the
Register of Deeds, notaries public, appraisers, brokers, dealers, bank officials, and
various sources stated under the Local Government Code;
b. Income capitalization approach – The value of an income-producing
property is no more than the income derived from it. An analysis of the income
produced is necessary in order to estimate the sum which might be invested in the
purchase of the property.
c. Reproduction cost approach – a formal approach used exclusively in
appraising man-made improvements such as buildings and other structures, based
on such data as materials and labor costs to reproduce a new replica of the
improvement. (Allied Banking Corporation, et. al., v. Quezon City Government,
G.R. No. 154126, Oct. 11, 2005)
4. Steps in determination of Fair market value [FMV]
a. Assessor of the province/city or municipality may summon the owners
of the properties to be affected and may take depositions concerning the property,
its ownership, amount, nature and value (Sec. 213, LGC)
b. Assessor prepares a schedule of FMV for different classes of properties.
c. The schedule of FMV is published in a newspaper of general circulation
in the province, city or municipality concerned or in the absence thereof, shall be
posted in the provincial capitol, city or municipal hall and in two other
conspicuous public places therein (Sec. 212, LGC)
d. General revision of property assessment is made (Sec. 219, LGC)
e. Sanggunian enacts a real property tax ordinance.
Q: Quezon City passed an ordinance which contains a proviso, to wit: “The

parcels of land sold, ceded, transferred and conveyed for remuneratory
consideration after the effectivity of this revision shall be subject to real estate tax
based on the actual amount reflected in the deed of conveyance or the current
approved zonal valuation of the Bureau of Internal Revenue prevailing at the time
of the sale, cession, transfer and conveyance, whoever is higher, as evidenced by
the certificate of payment of the capital gains tax issued therefore.” Is the said
proviso valid? A: NO. The said proviso mandates an exclusive rule in determining
the fair market value and departs from the established procedures such as sales
analysis approach, the income capitalization approach and reproduction cost
approach under the rules implementing the statute. (Local Assessment Regulation
No. 1-92) It unduly interferes with the duties statutorily placed upon the local
assessor by completely dispensing with his analysis and discretion which the LGC
ad the regulations require to be exercised. (Allied Banking Corporation, v. Quezon
City Government, G. R. No. 154126, Oct. 11, 2005)
D2. Declaration of Real Property

1. Duty to declare the real property - It shall be the duty of all persons, natural or
juridical, owning or administering real property, including the improvements
therein, within a city or municipality, or their duly authorized representative, to
prepare, or cause to be prepared, and file with the provincial, city or municipal
assessor, a sworn statement declaring the true value of their property, whether
previously declared or undeclared, taxable or exempt, which shall be the current
and fair market value of the property, as determined by the declarant (Sec. 202,
LGC)
2. When real property declared - Once every 3 years during the period from
January 1 to June 30 commencing with the calendar year 1992 (Sec. 202, LGC)
3. Rules on the declaration of real property by the owner or administrator
For Newly Acquired For Improvement on
Property Property
What to File Sworn statement containing the fair market value and
description of the property
When to File File with the assessor File within 60 days upon
within 60 days from date completion or occupation
of transfer (whichever comes earlier)
4. Declaration of real property by the assessor is required when: Any person, by
whom real property is required to be declared under Sec. 202 of the LGC refuses
or fails for any reason to make such declaration within the time prescribed the
assessor shall himself declare the property in the name of the defaulting owner, if
known, or against an unknown owner, as the case may be, and shall assess the
property for taxation. (Sec. 204, LGC) NB: No oath by the assessor is required.
5. Duty of any person transferring ownership of real property: Any person who
shall transfer real property ownership to another shall notify the assessor
concerned within 60 days from the date of such transfer. The notification shall
include the mode of transfer, the description of the property alienated, the name
and address of the transferee. (Sec. 208, LGC)
6. Duty of the Registrar of Deeds before entering the real property in the registry:
It is to require every person who shall present for registration a document of
transfer, alienation, or encumbrance of real property to accompany the same with
a certificate to the effect that the real property subject has been fully paid of all
real property taxes due. Failure to provide such certificate shall be a valid cause for
the refusal of the registration of the document. (Sec. 209[B], LGC)
D3. Listing of Real Property in Assessment Rolls

1. Assessment roll is a listing of all real property, whether taxable or exempt,
located within the territorial jurisdiction of the local government unit concerned
prepared and maintained by the provincial, city or municipal assessor. NB: Real
property shall be listed, valued and assessed in the name of the owner or
administrator, or anyone having legal interest in the property.
a. The undivided real property may be listed, valued and assessed in the
name of the estate or of the heirs and devisees without designating them
individually; and undivided real property other than that owned by a deceased may
be listed, valued and assessed in the name of one or more co-owners.
b. Corporation, partnership, or association shall be listed, valued and
assessed in the same manner as that of an individual.
c. Real property owned by the Republic of the Philippines, its
instrumentalities and political subdivisions, the beneficial use of which has been
granted, for consideration or otherwise, to a taxable person,, shall be listed, valued
and assessed in the name of the possessor, grantee or of the public entity if such
property has been acquired or held for resale or lease. (Sec. 205, LGC)
2. Procedure on listing of real property in the assessment roll
a. Listing of all real property whether taxable or exempt within the
jurisdiction of LGU
b. All declarations shall be kept and filed under a uniform classification
system to be established by the provincial, city or municipal assessor.
D4. Preparation of Schedules of Fair Market Value

1. Schedule of fair market value, when made: Before any general revision of
property assessment is made pursuant to the provisions of this Title, there shall be
prepared a schedule of fair market values by the provincial, city and municipal
assessors of the municipalities within the Metropolitan Manila Area for the
different classes of real property situated in their respective local government
units for enactment by ordinance of the sanggunian concerned.
2. Fair Market Value, where published or posted - The schedule of fair market
values shall be published in a newspaper of general circulation in the province,
city or municipality concerned or in the absence thereof, shall be posted in the
provincial capitol, city or municipal hall and in two other conspicuous public
places therein. (Sec. 212, LGC)
3. The following are the procedure in Preparation of Schedule of Fair Market
Values; Determining the assessed value; adn Determining the real property tax
a. Preparation of Schedule of Fair Market Values
i. A schedule of fair market values (SMV) is prepared by the
provincial, city and municipal assessor of the municipalities within the
Metropolitan Manila Area for the different classes of real property situated in
their respective local government units.
ii. Respective sanggunians enact ordinance adopting the SMV.
iii. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality concerned
or in the absence thereof, shall be posted in the provincial capitol, city or
municipal hall and in two other conspicuous public places therein. (Sec. 212, LGC)
b. Determining the assessed value - To determine the assessed value, the fair
market value of the property is multiplied by the assessment level as determined
from an ordinance promulgated by the sanggunian concerned.
c. Determining the real property tax - Real property tax is computed by
multiplying the assessed value with the applicable RPT rate.
D4a. Authority of Assessor to take Evidence

1. Assessor may issue summons, administer oaths or take depositions, when: For
the purpose of obtaining information on which to base the market value of any
real property, the assessor of the province, city or municipality or his deputy may
summon the owners of the properties to be affected or persons having legal
interest therein and witnesses, administer oaths, and take deposition concerning
the property, its ownership amount, nature, and value. (Sec. 213, LGC)
D4b. Amendment of Schedule of Fair Market Value

1. The provincial, city or municipal assessor may recommend to the sanggunian
concerned amendments to correct errors in valuation in the schedule of fair
market values. The sanggunian concerned shall, by ordinance, act upon the
recommendation within ninety (90) days from receipt thereof. (Sec. 214, LGC)
D5. Classes of Real Property

1. Classes of real property for assessment purposes
a. Residential
b. Agricultural
3. Commercial
d.Industrial
e. Mineral
f. Timberland
g. Special
2. Special classes of real property; Lands, buildings, and other improvements
thereon which are:
a. Actually, directly and exclusively used for hospitals, cultural, or scientific
purposes;
b. Owned and used by local water districts;
c. Owned and used by Government-owned or controlled corporations
rendering essential public services in the supply and distribution of water and/or
generation and transmission of electric power. (Sec. 216, LGC) NB: Special classes
of real property have lower assessment level compared with other classes of real
property.
D6. Actual Use of Property as Basis of Assessment

1. Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. (Sec. 199[b], LGC).
The basis of taxing real property is actual use, even if the user is not the owner.
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. (Sec. 217,
LGC). This is known as the Principle of Actual Use.173
2. Unpaid realty taxes attach to the property and are chargeable against the
person who had actual or beneficial use and possession of it regardless of
whether or not he is the owner. To impose the real property tax on the
subsequent owner which was neither the owner nor the beneficial user of the
property during the designated periods would not only be contrary to law but also
unjust. (Estate of Lim vs. City of Manila, G.R. No. 90639, February 21, 1990)
D7. Assessment of Property

1. Assessment is the act or process of determining the value of a property, or
proportion thereof subject to tax, including the discovery, listing, classification,
and appraisal of properties. (Sec. 199[f], LGC)
173The 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 1990. However, since Januray 1997, when the
spouses left for the United States to stay there permanently with their children, the property has
been rented to a single proprietor engaged in the sale of the appliances and agri-products. The
Provincial Assessor reclassified the property as commercial for tax purposes starting January 1998.
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) A: The Appeal should be decided against Mr. and Mrs. Angeles. *****The
law imposes the tax based on the actual use of the property for classification, valuation and
assessment purposes regardless of ownership. Section 217 of the Local Government Code provides
that “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”.
2. Reassessment is the assigning of new assessed values to property, particularly

real estate, as the result of a general, partial, or individual reappraisal of the
property. (Sec. 199[q], LGC)
3. Effect of assessment: An assessment fixes and determines the tax liability of
the taxpayer. It is a notice to the effect that the amount therein stated is due as tax
and a demand for payment thereof.
4. Instances when the provincial, city or municipal assessor or his duly authorized
deputy shall make classification, appraisal and assessment of real property
irrespective of any previous assessment or taxpayers’ valuation thereon [1st GR]
a. Real property is declared and listed for taxation purposes for the 1st time;
b. There is an ongoing General revision of property classification and
assessment;
c. A Request is made by the person in whose name the property is declared
assessor shall make a classification, appraisal and assessment or taxpayer's
valuation. (Sec. 220, LGC) NB: Provided, however, that the assessment of real
property shall not be increased oftener than once every 3 years except in case of
new improvements substantially increasing the value of said property or of any
change in its actual use.
5. Assessment level is the percentage applied to the fair market value to determine
the taxable value of the property. (Sec. 199[g], LGC)
a. The assessment levels to be applied to the fair market value of real
property to determine its assessed value shall be fixed by ordinances of the
sangguniang panlalawigan, sangguniang panlungsod or sangguniang bayan of a
municipality within the Metropolitan Manila Area, at the rates not exceeding those
enumerated under Sec 218 of the LGC.
D7a. General Revisions of Assessments and Property

The provincial, city or municipal assessor shall undertake a general revision of real
property assessments within 2 years after the effectivity of this Code and every 3
years thereafter. (Sec. 219, LGC)
D7b. Date of Effectivity of Assessment or Reassessment

[] Time when Assessments and Reassessments take effect: *****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: Provided, however, That the
reassessment of real property due to its partial or total destruction, or to a
major change in its actual use, or to any great and sudden inflation or
deflation of real property values, or to the gross illegality of the assessment
when made or to any other abnormal cause, shall be made within 90 days
from the date of any such cause or causes occurred, and shall take effect at the
beginning of the quarter next following the reassessment. (Sec. 221, LGC)174
D7c. Assessment of Property Subject to Back Taxes

Time when assessment of property shall be subject to back taxes: Real property
declared for the first time shall be assessed for taxes (back taxes) for the period
during which it would have been liable but in no case of more than 10 years prior
to the date of initial assessment: Provided, however, that such taxes shall be
computed on the basis of the applicable schedule of values in force during the
corresponding period. If such taxes are paid on or before the end of the quarter
following the date the notice of assessment was received by the owner, no interest
for delinquency shall be imposed thereon; otherwise, taxes shall be subject to
interest at the rate of 2% per month or a fraction thereof from the date of the
receipt of the assessment until such taxes are fully paid. (Sec. 222, LGC)
D7d. Notification of New or Revised Assessment

1. Assessor shall give a written notice to the person whose property is assessed in
case of new or revised assessment: When real property is assessed for the first
time or when an existing assessment is increased or decreased, the provincial, city
or municipal assessor shall within 30 days give written notice of such new or
revised assessment to the person in whose name the property is declared. The
notice may be delivered personally or by registered mail or through the assistance
174Q: Mr. Jose Castillo is a resident Filipino Citizen. He purchased a parcel of land in Makati City in
1970 at a consideration of P1 Million. In 2011, the land, which remained undeveloped and idle,
had a fair market value of P20Million. Mr. Antonio 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 re-assessed in 2011 the property at P10 Million.
a. When is Mr. Castillo liable for real property tax on the land beginning 2011 or beginning
2012? Explain your answer. Suggested Answer: Mr. Castillo shall be liable to the real property tax
based on the re-assessment beginning 2012. All re-assessment made after the first day of any year
shall take effect on the first day of January of the succeeding year (Sec. 221, LGC).  
b. Is Mr. Castillo liable for income tax in 2011 based on the offer to buy by Mr. Ayala?
Explain your answer. NO. Mr. Castillo is not liable for income tax in 2011 because no income is
realized by him during that year. *****Tax liability for income tax attaches only if there is a gain
realized resulting from a closed and complete transaction (Madrigal v. Rafferty, G.R. No. L-12287,
August 7, 1918).  
c. Should Mr. Castillo agree to sell the land to Mr. Ayala in 2012 for P20 Million, subject to
the condition as stated in The Deed of Sale that the buyer shall assume the capital gains tax
thereon, how much is the income tax due on the transaction and when must the tax return be filed and
the tax be paid by the taxpayer? Explain your answer. (2012) *****He shall be liable to pay 6% capital
gains tax (CGT) based on the Gross Selling Price of the Property which is 20 Million plus the
GCT assumed by the buyer. He should file the return within 30 days from date of the sale (date
of notarization) and shall pay the tax as he files the return (Sec. 24(D), NIRC). ALTERNATIVE
ANSWER: The income tax due on the transaction is P1,276,595.74 which is computed as 6% of the
Gross Selling Price (GSP). The tax based of the 6% capital gains tax (CGT) is the higher between the
GSP and the fair market value (FMV). The GSP is 20 Million plus the CGT to be assumed by the
buyer, following the doctrine of constructive receipt of income or a total of P21,276,595.74,
which amount is higher than the FMV of P20 Million.
of the punong barangay to the last known address of the person to be served.
(Sec. 223, LGC)
2. Classification of Machineries: (Sec. 199[o], LGC) (Not part of BAR Coverage)
a. Realty by Destination – machinery essential to the business NB: Movable
equipments to be immobilized in contemplation of the law must first be “essential
and principal elements” of an industry or works without which such industry or
works would be “unable to function or carry on the industrial purpose for which it
was established.” (Mindanao Bus Co. v. City Assessor, G.R. no. L-17870,
September 29, 1962)
b. Realty by Incorporation – Machinery permanently attached
3. Appraisal and Assessment of Machinery
a. For brand new machinery, FMV is the acquisition cost
b. In all other cases:
FMV=Remaining of Eco. Life x Replacement(or Reproduction) cost
Estimated Economic Life
c. Depreciation allowance:
i. Rate not exceeding 5% of original cost OR replacement or
reproduction cost for each year of use;
ii. Remaining value shall be fixed at not less than 20% of the cost;
iii. Machinery remains useful and in operation
4. MACHINERY FOR PURPOSES OF RPT [Sec 199(o)]
a. Machinery embraces machines, equipment or instruments which may or
may not be permanently or temporarily attached to the real property.
b. It includes physical facilities for production, which are ACTUALLY,
DIRECTLY and EXCLUSIVELY used to meet the needs of a PARTICULAR
business or industry.
c. SC: underground tank, storage tank, pipeline are considered machineries
subject to RPT because they are used for the BUSINESS of the TP.
——————————————
E. Collection of Real Property Tax
E1. Date of Accrual of Real Property Tax and Special Levies
1. Accrual of Real Property Tax: Real property tax for any year shall accrue on the
first day of January. From that date it shall constitute a lien on the property
superior to any other lien, mortgage, or encumbrance of any kind whatsoever
extinguished only upon the payment of the delinquent tax. (Sec. 246, LGC)
E2. Collection of Tax

E2a. Collecting Authority
1. Persons who collect real property tax
GR: The collection of real property tax with interest thereon and related
expenses, and the enforcement of the remedies are the responsibility of the city or
municipal treasurer.
XPN: Treasurer may deputize the barangay treasurer to collect all taxes on
real property located in the barangay , provided that:
a. The barangay treasurer is properly bonded for the purpose:
provided, further,
b. The premium on the bond shall be paid by the city or municipal
government concerned. (Sec. 247, LGC)
E2b. Duty of Assessor to Furnish Local Treasurer with Assessment Rolls

Duty of the Assessor after assessment or reassessment
The provincial, city or municipal assessor shall prepare and submit to the treasurer
of the local government unit, on or before the 31st day of December each year,
an assessment roll containing a list of all persons whose real properties have been
newly assessed or reassessed and the values of such properties (Sec. 248, LGC).
E2c. Notice of Time for Collection of Tax

Time for collection of tax: Treasurer shall post the notice of the dates when the
tax may be paid without interest in a publicly accessible place at the city or
municipal hall. Notice shall likewise be published in a newspaper of general
circulation in the locality once a week for two consecutive weeks on or before the
31st day of January each year in the case of the basic real property tax and the
additional tax for the Special Education Fund or any other date to be prescribed
by the sanggunian concerned in the case of any other tax levied under this title
(Sec. 249, LGC).
E3. Periods within which to Collect Real Property Tax

1. Period of collection of real property tax
GR: Within 5 years from the date taxes become due.
XPN: In case of fraud or intent to evade payment - within 10 years from
discovery of fraud or intent (Sec. 270, LGC).
2. Prescriptive period to collect is suspended; The period of prescription within
which to collect shall be suspended for the time during which: [PRO]
a. The local treasurer is legally Prevented from collecting the tax;
b. The owner of the property or the person having legal interest therein
Requests for reinvestigation and executes a waiver in writing before the expiration
of the period within which to collect; and
c. The owner of the property or the person having legal interest therein is
Out of the country or otherwise cannot be located.
3. Tax discount for advanced/prompt payment: If the basic real property tax and
the additional tax accruing to the Special Education Fund (SEF) are paid in
advance the sanggunian may grant a discount not exceeding 20% of the annual tax
due. (Sec. 251, LGC) NB: For prompt payment – discount not exceeding 10% of
annual tax due (Art. 342, IRR)
E4. Special Rules on Payment

E4a. Payment of Real Property Tax in Installments
RPT may be paid in installments: The owner or the person having legal interest
may pay the basic real property tax and the additional tax for Special Education
Fund (SEF) due without interest in four equal installments (on or before March
31/June30/September 30/December 31). (Sec. 250, LGC)
E4b. Interests on Unpaid Real Property Tax

Rate of interest on unpaid real property tax: The rate is (2%) per month on the
unpaid amount until the delinquent tax shall have been fully paid. Provided, in no
case shall the total interest on the unpaid tax or portion thereof exceed 36
months. (Sec. 255, LGC)
E4c. Condonation of Real Property Tax

1. Instances which the sanggunian may condone or reduce real property tax: The
sanggunian by ordinance passed prior to the 1st day of January of any year and
upon recommendation of the Local Disaster Coordinating Council, may condone
or reduce, wholly or partially, the taxes and interest thereon for the succeeding
year or years in the city or municipality affected by the calamity in cases of: [P-Cal-
Cro]
a. General failure of Crops;
b. Substantial decrease in the Price of agricultural or agri-based products;
c. Calamity in any province, city or municipality.
2. President’s power to condone or reduce real property tax: The president may,
when public interest so requires , condone or reduce the real property tax and
interest for any year in any province or city or a municipality within the Metro
(Sec. 277, LGC).
3. Disposition of proceeds; Division in the distribution of proceeds: Proceeds of
real property tax, including interest thereon plus proceeds from the use, lease or
disposition, sale or redemption of property acquired at a public auction shall be
distributed as follows:
a. In the case of provinces:
i. Province —35% shall accrue to the general fund;
ii. Municipality —40% to the general fund of the municipality where
the property is located; and
iii. Barangay —25% shall accrue to the barangay where the property is
located.
b. In the case of cities:
i. City –70% shall accrue to the general fund of the city; and
ii. Component barangays – 30% shall be distributed among the

component barangays of the cities where the property is located in the following
manner:
(a) 50% shall accrue to the barangay where the property is
located;
(b) 50% shall accrue equally to all component barangays of the
city; and
c. In the case of a municipality within the Metropolitan Manila Area:
i. Metropolitan Manila Authority – 35% shall accrue to the general
fund of the authority;
ii. Municipality – 35% shall accrue to the general fund of the
municipality where the property is located;
iii. Barangays – 30% shall be distributed among the component
barangays of the municipality where the property is located in the following
manner:
(a) 50% shall accrue to the barangay where the property is
located;
(b) 50% shall accrue equally to all component barangays of the
municipality. (Sec. 271, LGC) NB: The share of each barangay shall be released,
without need of any further action, directly to the barangay treasurer on a
quarterly basis within 5 days after the end of each quarter and shall not be subject
to any lien or holdback for whatever purpose.
4. Application of the proceeds of the additional one percent SEF tax - The
proceeds from the additional 1% tax on real property accruing to the Special
Education Fund (SEF):
a. Shall be automatically released to the local school boards, provided, in
case of provinces, the proceeds shall be divided equally between the provincial
and municipal school boards
b. The proceeds shall be allocated for the:
i. Operation and maintenance of public schools;
ii. Construction and repair of school buildings, facilities and
equipment;
iii. Educational research;
iv. Purchase of books and periodicals;
v. Sports development as determined and approved by the Local
School Board
5. Proceeds of the tax on idle lands; It shall accrue to the:
a. Respective general fund of the province or city where the land is located
b. In the case of a municipality within the Metropolitan Manila Area, the
proceeds shall accrue equally to the Metropolitan Manila Authority and the
municipality where the land is located (Sec. 273, LGC).
6. Proceeds of the special levy - The proceeds of the special levy on lands
benefited by public works, projects and other improvements shall accrue to the
general fund of the local government unit which financed such public works,
projects or other improvements (Sec. 274, LGC).
E5. Remedies of LGUs for Collection of Real Property Tax

E5a. Issuance of Notice of Delinquency for Real Property Tax Payment
Effect of failure of the taxpayer to pay tax on time: When real property tax or
other tax imposed becomes delinquent, the local treasurer shall immediately cause
a notice of the delinquency to be posted at the main hall and in a publicly
accessible and conspicuous place in each barangay of the local government unit
concerned. Notice of delinquency shall also be published once a week for two (2)
consecutive weeks, in a newspaper of general circulation in the province, city, or
municipality.
E5b. Local Government's Lien

1. Guidelines in the exercise of local government lien
a. A legal claim on the property subject on the real property tax as security
for the payment of tax obligation.
b. It is constituted on the property subject to the tax from the date the RPT
accrued, i.e., first day of January. (Sec. 246, LGC)
c. It is superior to any lien, mortgage, or encumbrance of any kind
whatsoever. (Sec. 246, LGC) in favor of any person, irrespective of the owner or
possessor thereof. (Sec. 257, LGC)
d. It is enforceable by administrative or judicial action. (Sec. 257, LGC)
e. It may be extinguished only upon payment of the tax and related interests
and expenses. (Sec. 246 and 257, LGC)
Ebc. Remedies in General

1. Remedies of the local government units for the collection of real property tax
a. Administrative action
i. Exercise of lien on the property subject to tax: Superior to all
liens, charges or encumbrances and is enforceable by administrative or
judicial action. It is extinguished only upon payment of tax and other
expenses. (Sec. 257, LGC)
ii. Levy on the real property subject of the tax
iii. Distraint of personal property
b. Judicial action
2. Right of redemption of owner of the delinquent property - Within 1 year
from the date of sale, the owner of the delinquent real property or person
having legal interest therein, or his representative, shall have the right to redeem
the property upon payment to the local treasurer of the:
a. Amount of the delinquent tax;

b. The interest due thereon
c. The expenses of sale from the date of delinquency to the date of sale
d. Plus interest of not more than 2% per month on the purchase price
from the date of sale to the date of redemption. (Sec.261, LGC)
3. Effect of the redemption of the delinquent property: Such payment shall
invalidate the certificate of sale issued to the purchaser and the owner of the
delinquent real property or person having legal interest therein shall be entitled to
a certificate of redemption which shall be issued by the local treasurer or his
deputy. (Ibid.) NB: From the date of sale until the expiration of the period of
redemption, the delinquent real property shall remain in possession of the
owner or person having legal interest therein who shall be entitled to the
income and other fruits thereof.
4. Effect of failure to redeem: In case the owner or person having legal interest
fails to redeem the delinquent property, the treasurer shall execute a deed
conveying to the purchaser said property, free from lien of the delinquent tax,
interest due thereon and expenses of sale.
5. Distraint of personal property how effected under real property taxation:
When notice of delinquency has been accordingly posted and published, the local
treasurer shall proceed to sell the personal property of the delinquent
taxpayer in order to satisfy his unpaid obligation. (Sec. 254, LGC)
6. *****LGUs may purchase real property advertised for sale when
a. There is no bidder; or
b. The highest bid is for an amount insufficient175 to pay the real

property tax, fees, charges, surcharges, interests or penalties. (Sec. 263, LGC)
175Ms. Edna Dinoso is the registered owner of a residential lot with a two-story house situated
in Naga City. The lot with an area of 328 sq. meter is described and covered by TCT No. 4739 of the
Registry of Deeds of Naga City. On September 12. 1977, 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, 1977, 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 the final bill of sale were annotated at the back of TCT No.
4739 by the Register of Deeds.) On March 15, 1979, Edna filed a complaint to annul the auction
sale which was denied by the CFI Judge of Naga City. In fact, the CFI Judge ordered the TCT #
4739 of Edna be cancelled and that a new title be issued to Angel Chua. On appeal, the Court of
Appeals affirmed the CFI decision in toto. Edna then elevated the case to the Supreme Court citing
several grave errors of law, among which are: 1. 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; 2. That the price of P5,800.00 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; 3. That the public auction made on her property is void. Discuss the merits of the appeal. 
ANSWER:1. The decision of the Court of Appeals affirming the CFI decision must be affirmed.
On the procedural aspect, it has not been shown, as required under the Real Property Tax Code that
plaintiff has paid the amount for which the real property has been sold plus interest. *****On the claim
of extinction of tax liability by legal compensation, there is jurisprudence to the effect that the
doctrine of equitable recoupment does not apply in this Jurisdiction. Assuming it does, the facts
of the case bear out that the Government does not owe the plaintiff any amount; 2. On the claim that
the price for the property was grossly inadequate, the Real Property Tax Code specifically mentions
that the sale of real property at public auction is “to satisfy all the taxes and penalties due and
costs of sale" (Sec. 73). *****Thus, the selling price is based not on the fair market value of the
property sold at public auction but the amount of real property taxes due thereon. In any case, the
delinquent taxpayer is given one year from the date of registration of the sale within which to
redeem the property by paying the taxes due plus costs and interest. 3. On the claim that the public
auction made on the property is void, the Real Property Tax Code provides (Sec. 83,2nd par.) that
*****a court shall not declare a sale invalid due to irregularities in the proceedings unless such
irregularities have impaired the substantial rights of the taxpayer. In the case at bar, the plaintiff
received a notice of hearing for the petition for entry of a new certificate of title during which she
could have questioned any irregularity in the conduct of the sale. (BAR 1992)
7. In auction sales of property for tax delinquency, notice to delinquent

landowners and to the public in general is an essential and indispensable
requirement of law, the non-fulfillment of which vitiates the same.176
Ebd. Resale of Real Estate taken for Taxes, Fees or Charges

Sanggunian may dispose of the real property acquired: The sanggunian concerned
may, by ordinance duly approved an upon notice of not less than twenty (20) days,
sell and dispose of the real property acquired under the preceding Section at
public auction. The proceeds of the sale shall accrue to the general fund of the
local government unit concerned. (Sec. 264, LGC)
E5e. Further Levy until Full Payment of Amount Due

1. Levy may be repeated if necessary until the full amount due, including all
expenses, is collected. (Sec. 265, LGC)
2. Procedure for levy for purposes of satisfying real property taxes local
government code
Tax constitutes a lien on the property superior to all liens and may only be
extinguished upon payment of the tax and charges (Sec. 257, LGC) Issuance of
the certificate of sale to the purchaser. (Sec. 178, LGC)
↓
Time for payment of real property tax expires (Sec. 258, LGC) The delinquent
taxpayer has one (1) year from the date of sale to redeem the property. If
property is redeemed, a certificate of redemption will be issued (Sec. 179, LGC)
176Q: Quezon City published on January 30, 2006 a list of delinquent real property taxpayers in 2
newspapers 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 1996 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 the publication and posting of notice are sufficient compliance with the
requirements of the law.
a. If you were the judge, how will you resolve this issue? A: I will resolve the issue in favor of
Joachin. *****In auction sales of property for tax delinquency, notice to delinquent landowners
and to the public in general is an essential and indispensable requirement of law, the non-fulfillment
of which vitiates the same. (Tiongco v. Phil. Veterans Bank, G.R. No. 82782, Aug. 5, 1992) *****The
failure to give notice to the right person i.e., the real owner, will render an auction sale void.
(Tan v. Bantegui, G.R. No. 154027, Oct. 24, 2005; City Treasurer of Q.C. v. CA, G.R. No. 120974, Dec.
22, 1997)
b. Assuming Joachin is a registered owner, will your answer be the same? (2006 Bar) A:
YES. The law requires that a notice of the auction sale must be properly sent to Joachin and not
merely through publication. (Tan v. Bantegui, G.R. No, 154027, October 24, 2005; Estate of
Mercedes Jacob v. CA, G.R. No. 120435, Dec. 22, 1997)
↓
Warrant of levy issued by LT which has the force of legal execution in the LGU
concerned, Warrant of levy issued by LT, which has the force of legal execution
in the LGU concerned. If property is not redeemed, a final deed of sale shall be
issued to the purchaser.
↓
Warrant mailed to or served upon the delinquent owner. Written notice of levy
and warrant is mailed/served upon the assessor and the Register of Deeds of
the LGU (Sec. 258, LGC)The local treasurer shall purchase the property on
behalf of the LGU if:
a.) There is no bidder b.)The highest bid is insufficient to pay the deficiency tax
(Sec. 181, LGC)
↓
Before the
date of sale
the owner
30 days from
may stay the
service of
proceedings
warrant, LT shall Sale is held (Sec. 260,
by paying the ← →
advertise sale of LGC)
delinquent
property (Sec.
tax, interest
260, LGC)
and expenses
of sale (Sec
260, LGC)
↓ ↓
IF there is no bidder OR
highest bid is insufficient
to pay real property tax
IF there is a bidder AND highest bid is and related interest and
sufficient to pay real property tax and related costs, LT shall purchase
interests and costs, bidder pays and treasurer the prop in behalf of
reports sale to sanggunian 30 days after the the LGU.
sale. LT will deliver to purchaser the
certificate of sale. Proceeds of sale in excess Registrar of Deeds shall
of delinquent tax, interest, expenses of sale transfer the title of
remitted to owner. (Sec. 260, LGC) forfeited prop to LGU
without need of Court
Within one year from sale, owner may redeem order.
upon payment of the delinquent tax, interest
due, expenses of sale (from date of Within one year from
delinquency to date of sale), and additional forfeiture, owner may
interest of 2% per month on the purchase redeem prop by paying
price from date of sale to date of redemption. to Treasurer full amount
Delinquent owner retains possession and right of tax, interest, costs of
to the fruits. Price paid plus interest of 2% sale (Sec.
per month shall be returned to the buyer. (Sec. 263, LGC)
261, LGC)
Sanggunian concerned
IF not redeemed, deed of conveyance shall be may by ordinance, sell/
issued to the purchaser. (Sec. 262, LGC) dispose by public
auction of prop acquired
by forfeiture. (Sec. 264,
LGC)
↓
Levy may be repeated until full amount due; including all expenses is collected
(Sec. 265, LGC)
———————————————-
F. Refund or Credit of real Property Tax

1. Remedy of a taxpayer in case of excessive collections: The taxpayer may file
a written claim for refund or credit for taxes and interests with the local
treasurer, in case an assessment of RPT or any other tax under Real Property
Taxation (Title II, Local Government Code) is found to be illegal or erroneous

(Sec. 253, LGC)177
2. Period for claim for refund: The claim must be filed with the local treasurer
within two (2) years from the date the taxpayer is entitled to such reduction
or adjustment (Ibid.)
3. Procedure for claim for refund or credit
Taxpayer files a written claim for refund or credit with the treasurer within 2
years from the date the taxpayer is entitled to such reduction or adjustment
↓
Provincial or City Treasurer should decide the claim within 60 days from
receipt of the claim.
↓
In case of denial, appeal to the LBAA within 30 days as in protest case.
↓
Appeal to CBAA within 30 days if LBAA gives an adverse decision.
177 Apparently the law does not provide for the refund of real property taxes that have been collected
as a result of an erroneous or illegal assessment by the provincial or city assessor. What should be done
in such instance to avoid an injustice? (2011 Bar Question) (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.
F1. Payment Under Protest

1. Guidelines in paying tax under protest178
a. No protest shall be entertained unless the taxpayer first pays the
tax. There shall be annotated on the tax receipts the words "paid under protest"
The protest in writing must be filed within thirty (30) days from payment of
the tax to treasurer who shall decide the protest within sixty (60) days from
receipt.
b. The tax or a portion paid under protest shall be held in trust by the
treasurer concerned.
178 On February 13, 1969, X obtained a loan of P800.000.00 from the GSIS secured by the mortgage
of a parcel of land including its 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 the lot and the GSIS
consolidated its title to the lot in 1977. In 1979, however, the GSIS allowed X to repurchase the lot.
After assessment by the City Assessor, the City Treasurer of Manila required X to pay the real
estate taxes due on the lot for the years 1977 and 1978. X paid under protest. On September 5,
1979, X sent a demand letter to the City Treasurer for refund. The demand was refused. X then
filed with the Regional Trial Court a complaint against the City of Manila for a “sum of money
and/or recovery of real estate taxes paid under protest." The City questioned the jurisdiction of the
Court. Decide. ANSWER: Section 62 of the Real Property Tax Code provides that: "Sec. 62.Payment
under protest. — When a taxpayer desires for any reason to pay his tax under protest, he shall indicate
the amount or portion thereof he is contesting and such protest shall be annotated on the tax receipts
by writing thereon the words ‘paid under protest.' Verbal protests shall be confirmed in writing, with a
statement of the ground, therefor, within thirty days. The tax may be paid under protest, and in such
case it shall be the duty of the Provincial, City or Municipal Treasurers to annotate the ground or
grounds therefor on the receipt. In case of payments under protest, the amount or portion of the tax
contested shall be held in trust by the treasurer and the difference shall be treated as revenue.
In the event that the protest is finally decided in favor of the government the amount or portion of the
tax held in trust by the treasurer shall accrue to the revenue account, but if the protest shall be decided
finally in favor of the protestant. the amount or portion of the tax protested or applied as tax credit to
any other existing or future tax liability of the said protestant.” *****If the owner is not satisfied
with the action of the provincial or city assessors in the assessment of his property, he may file an
appeal to the Board of Assessment Appeals of the province on city, within sixty (60) days from
the receipt of the decision (Section 30 of the Real Property Tax Code). If the owner is not satisfied
with the decision of the Board of Assessment Appeals, he may appeal the said decision to the
Central Board of Assessment Appeals within thirty (30) days after the receipt of the decision
(Sections 34 and 36 of the Real Property Tax Code). As enunciated in the case of Victorias Milling Co.,
Inc., vs. Court of Tax Appeals 22 SCRA 1008, 1001 (1968): ******”It is settled in our Jurisdiction that
where an assessment is illegal and void, the remedy of a taxpayer, who has already paid the realty
tax under protest, is to sue for refund in the competent court of first instance. On the other hand,
where the assessment is merely erroneous, his recourse is to file an appeal in the Provincial
Board of Assessment Appeals within 60 days from receipt of the assessment." In view of the
foregoing, the legal recourse of X is to appeal the decision of the City Treasurer to the Board of
Assessment appeal, and not to file an action for sum of money and/or recovery of real estate taxes.
Hence, the Regional Trial Court has [no] jurisdiction over the complaint filed by X.
ALTERNATIVE ANSWERS: The Regional Trial Court has jurisdiction. It has been held that
the regular courts have jurisdiction over actions for refund of real estate taxes paid under
protest on the ground of solution indebiti.
ANOTHER: The RTC does not have jurisdiction over the matter. Section 30 of PD. No.
464 (The Real Property Tax Code) prescribes the proper remedy of the taxpayer. It requires X, who is
not satisfied with the action of the city assessor, to appeal his case to the Local Board of
Assessment Appeal within sixty days from date or receipt by X of the written notice denying his
request for refund of real property taxes paid. (BAR 1993)
c. In the event that the protest is finally decided in favor of the taxpayer, the
amount or portion of the tax protested shall be refunded to the protestant, or
applied as tax credit against his existing or future tax liability.
d. In the event that the protest is denied or upon the lapse of the sixty
day period, the taxpayer may avail (sic) appeal the assessment before the Local
Board of Assessment Appeals. (Sec. 252, LGC)
e. In case there is adverse decision by the LBAA, the taxpayer may
appeal with the CBAA within 30 from receipt of the adverse decision by the
LBAA.179
2. XPN: The protest contemplated in Section 252 of the LGC is needed when
there is a question as to the reasonableness of the amount assessed, not where
the question raised is on the very authority and power of the assessor to
impose the assessment and of the treasurer to collect the tax. (Ty v. Trampe, G. R.
No. 117577, December 1, 1995)
F2. Repayment of Excessive Collections

Remedy available for a taxpayer whose real property was erroneously assessed:
When an assessment of basic real property tax, or any other tax levied under this
Title, is found to be illegal or erroneous and the tax is accordingly reduced or
adjusted, the taxpayer may file a written claim for refund or credit for taxes and
interests with the provincial or city treasurer within two (2) years from the date the
taxpayer is entitled to such reduction or adjustment. (Sec. 253, LGC)
——————————————
179Q: Madam X owns real property in Caloocan City. On July 1, 2014, 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.
a. What are the administrative remedies available to Madam X in order to contest the
assessment and their respective prescriptive periods? A: The administrative remedies available to
Madam X to contest the assessment and their respective prescriptive periods are as follows: i) Pay the
deficiency real property tax under protest (Section 252, LGC); ii) File the protest with the local
treasurer – The protest in writing must be filed within 30 days from payment of the tax to the
provincial, city, or municipal treasurer, in the case of a municipality within Metropolitan Manila Area,
who shall decide the protest within 60 days from receipt (Section 252, LGC); iii) Appeal to the
LBAA – If protest is denied or upon the lapse of the 60-day period for the treasurer to decide, the
taxpayer may appeal to the LBAA within 60 days and the case decided within 120 days (Section
226 & 229, LGC); iv) Appeal to the CBAA – If not satisfied with the decision of the LBAA, appeal to
the CBAA within 30 days from receipt of a copy of the decision (Section 229(c), LGC).
b. May Madam X refuse to pay the deficiency tax assessment during the pendency of her
appeal? (2014 Bar) A: NO. ******The payment of the deficiency tax is a condition before she can
protest the deficiency assessment. It is the decision on the protest or inaction thereon that gives
her the right to appeal. This means that she cannot refuse to pay the deficiency tax assessment during
the pendency of the appeal because it is the payment itself which gives rise to the remedy. The law
provides that no protest (which is the beginning of the disputation process) shall be entertained unless
the taxpayer first pays the tax (Section 252, LGC).
ASSESSMENT vs. APPRAISAL

1. Assessment: the act or process of determining the VALUE of the property,
including classification, listing, discovery and appraisal; it is BROADER in scope
—it includes appraisal.
2. Appraisal: an act or process of determining the VALUE of the property AS OF
THE SPECIFIED PURPOSE for specified TIME.
3. Can the appraisal assessment or payment of RPT be delegated to a private
person? NO.
G. Taxpayer’s Remedies
[] Available remedies to the taxpayer under real property taxation
a. Dispute assessment (Protest)
i. Any owner or person having legal interest in the property who is
not satisfied with the action of the assessor in the assessment of his property; or
ii. Any owner of real property affected by a special levy or any person
having legal interest therein may protest the assessment by filing an appeal to the
LBAA within 60 days from receipt of notice of the assessment.
b. Claim for refund or tax credit
c. Redemption of Real Property (Sec. 261, LGC)
d. Judicial
i. Court Action
(a) Appeal to the CTA en banc within 15 days from receipt
in case of adverse decision by the Central BAA180
(b) Appeal by certiorari with the SC within 15 days from
notice in case of adverse decision by the CTA.
ii. Suit assailing the validity of the tax sale (Sec. 267, LGC)
180 Q: A Co., a Philippine corporation, is the owner of machinery, equipment and fixtures located
at its plant in Muntinlupa City. The City Assessor characterized all these properties as real
properties subject to the real property tax. A Co. appealed the matter to the Muntinlupa Board of
Assessment Appeals. The Board ruled in favor of the City. A Co. brought a petition for review before
the CTA to appeal the decision of the City Board of Assessment Appeals. Is the Petition for Review
proper? Explain. (1999 Bar) A: NO. *****The CTA is devoid of jurisdiction to entertain appeals
from the decision of the City Board of Assessment Appeals. Said decision is instead appealable
to the Central Board of Assessment Appeals, which under the Local Government Code, has
appellate jurisdiction over decisions of Local Board of Assessment Appeals. (Caltex Phils. v.
CBAA, G.R. No. L50466, May 31, 1982)
[] NB: The CTA is the proper appellate court if the appeal was from the Central BAA, not the
City BAA. Central BAA is the last administrative tribunal a taxpayer can go before it can file a judicial
appeal. The next step would be to go to the Courts, which would be the CTA.
[] RE CTA jurisdiction includes: ******“Expanded jurisdiction of the CTA under RA 9282
(2010 Bar) xxx Appellate jurisdiction over decisions of the Central Board of Assessment Appeals
(CBAA) in the exercise of their appellate jurisdiction over cases involving the assessment of taxation of
real property. (R.A. 9282)"
(a) Deposit of amount for which the real property was sold
together with interest of 2% per month from date of sale to the time of
institution of action.
G1. Contesting an Assessment of Value of Real Property

[] Available remedy for a taxpayer contesting an assessment: *****Any owner
or person having legal interest in the property not satisfied with the action of
the assessor in the assessment of his property may within 60 days181 from the
date of receipt of the written notice of assessment appeal to the Board of
Assessment Appeals of the provincial (sic) or city by filing a petition under
oath in the form prescribed for the purpose, together with copies of the tax
declarations and such affidavits or documents submitted in support of the appeal.
(Sec. 226, LGC)
G1a. Appeal to the Local Board of Assessment Appeals

1. Composition of the LBAA
a. The Registrar of Deeds, as Chairman;
b. The provincial or city prosecutor as member;
c. The provincial or city engineer as a member. (Sec. 227, LGC)
2. Jurisdiction of the LBAA: LBAA has Jurisdiction to hear appeals of owners
or persons having legal interest in the property who are not satisfied with
the action of the assessor on an assessment of his property. NB: In the exercise
of its appellate jurisdiction, the LBAA shall have the power to summon
witnesses, administer oaths, conduct ocular inspection, take depositions,
and issue subpoena and subpoena duces tecum. The proceedings of the Board
shall be conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial proceedings. (Sec.
229[b], LGC)
3. Period for the decision of an appeal: The LBAA shall decide the appeal
within one hundred twenty (120) days from the date of receipt of such appeal. The
Board, after hearing, shall render its decision based on substantial evidence or
such relevant evidence on record as a reasonable mind might accept as adequate to
support the conclusion. (Sec 229[a], LGC)
G1b. Appeal to the Central Board of Assessment Appeals

181 Where the real property tax assessment is erroneous, the remedy of the property owner is: (2012
BAR) a) To file a claim for refund in the Court of Tax Appeals if he has paid the tax,
within thirty (30) days from date of payment; b) To file an appeal with the Provincial Board of
Assessment Appeals within thirty (30) days from receipt of the assessment; c) To file an appeal with the
Provincial Board of Assessment Appeals within sixty (60) days from receipt of the assessment; d) To
file an appeal with the Provincial Board of Assessment Appeals within sixty (60) days from receipt of
the assessment and playing the assessed tax under protest. SUGGESTED ANSWER: c) To file an
appeal with the Provincial Board of Assessment Appeals within sixty (60) days from receipt of
the assessment; Section 226, RA 7160.
1. Composition of the Central BAA

a. A Chairman; and
b. Two (2) members. (Sec. 230, LGC)
2. Jurisdiction of the CBAA: The Board shall have appellate jurisdiction over all
assessment cases decided by the Local Board of Assessment Appeals (Sec.
230, LGC) NB: The Central BAA can be appointed by the Supreme Court to act
as a court-appointed fact finding commission to assist the Court in resolving
the factual issues raised in the cases before it. In that regard, the Central BAA is
not acting in its appellate jurisdiction (Mathay v. Undersecretary of Finance, En
banc Minute Resolution, Nov. 5, 1991). The owner of the property or the person
having legal interest therein or the assessor who is not satisfied with the decision
of the Board may, within 30 days after receipt of the decision of said Board,
appeal to the Central Board of Assessment Appeals, as herein provided. *****The
decision of the Central Board shall be final and executory. (Sec. 229[c], LGC)
3. *****CBAA has NO authority to hear purely legal issues: Such authority is
lodged with the regular courts. Thus, the issue of whether R.A. 7160 repealed P.D.
921, is an issue which does not find referral to the CBAA before resort is made to
the courts (Ty, v. Trampe, G.R. No. 117577. December 1, 1995)
4. *****Appeal to LBAA or CBAA do NOT suspend the collection of tax: An
appeal on assessments of real property shall in no case, suspend the collection of
the corresponding realty taxes the property involved as assessed. This is without
prejudice to subsequent adjustment depending upon the final outcome of the
appeal. (Sec. 231) NB: No court shall have the authority to enjoin or restrain
the collection of any tax, fee, or charge collected by the provincial, city or
municipal treasurer. “No injunction rule”.
*INJUNCTION IN LOCAL TAXES [Angeles City vs. AC Electric 29 Jun
2010]: a. There is NO EXPRESS provision in the LGC prohibiting courts
from issuing injunction to restrain LG from collecting taxes; b. Such statutory
lapse or intent may have allowed PRELIMINARY INJUNCTION where local
taxes are involved, but cannot negate the procedural rules and requirements under
Rule 58 (Preliminary Injunction).
5. Instances where CTA (En Banc) has exclusive appellate jurisdiction over cases
filed with CBAA
a. In the exercise of its appellate jurisdiction
b. Over cases involving the assessment and taxation of real property
c. Originally decided by the provincial or City BAA
6. Period within which CBAA should resolve a case submitted to it for decision:
The Central Board shall decide cases brought on appeal within 12 months from
the date of receipt thereof, which decision shall become final and executory
after the lapse if 15 days from the date of receipt thereof by the appellant.
G1c. Effect of Payment of Tax

Appeal on assessments of real property shall, in no case, suspend the collection of

the corresponding realty taxes on the property involved as assessed by the
provincial or city assessor, without prejudice to subsequent adjustment depending
upon the final outcome of the appeal. (Sec. 231, LGC)
G2. Payment of Real Property Tax under Protest

1. Reason for the necessity of prior payment before protest may be entertained by
the courts: The basis for requiring payment before protest can be entertained is
that taxes are the lifeblood of the nation and as such collection cannot be
restrained by injunction or any like action. (Manila Electric Company v. Barlis, et.
al., G.R. No. 114231, May 18, 2001)
2. Rules as to the necessity of paying real property tax prior to protest
GR: The taxpayer must pay the real property tax assessed prior to protesting
a real property tax assessment. (Sec. 252, LGC)
XPN: The payment of the tax prior to protest is not necessary where the
taxpayer questions the authority and power of the assessor to impose the
assessment and of the treasurer to collect the tax. (Ty, et. al., v. Trampe, G.R. No.
117577. December 1, 1995) NB: The protest contemplated under Section 252 is
required where there is a question as to the reasonableness or correctness of the
amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase
in a real property tax assessment, he is required to “first pay the tax” under
protest. Otherwise, the city or municipal treasurer will not act on his protest.
(Ibid.)
Q: The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for

unpaid real property taxes. Napocor, which entered into a Build-OperateTransfer
(BOT) Agreement with Mirant, protested the assessment before the Local Board
of Assessment Appeals (LBAA), claiming entitlement to the tax exemptions
provided under Section 234 of the Local Government Code (LGC). The real
property taxes assessed were not paid prior to the protest. The LBAA dismissed
Napocor’s petition for exemption for its failure to comply with Section 252 of the
LGC requiring payment of the assailed tax before any protest can be made. The
Central Board of Assessment Appeals (CBAA) ultimately dismissed Napocor’s
appeal for failure to meet the requirements for tax exemption; however, the CBAA
agreed with Napocor’s position that the protest contemplated in Section 252 (a) is
applicable only when the taxpayer is questioning the reasonableness or
excessiveness of an assessment. The CBAA ruled that the requirement of
payment prior to protest does not apply where the legality of the assessment is
put in issue on account of the taxpayer’s claim that it is exempt from tax. The
Court of Tax Appeals (CTA) en banc agreed with the CBAA’s discussion.
1. If the taxpayer claims that the property is exempt from real property tax, is the
taxpayer required to pay the tax pursuant to Section 252? A: YES. By claiming
exemption from realty taxation, Napocor is simply raising a question of the

correctness of the assessment. As such, the real property tax must be paid prior to
the making of a protest. On the other hand, if the taxpayer is questioning the
authority of the local assessor to assess real property taxes, it is not necessary to
pay the real property tax prior to the protest. A claim for tax exemption, whether
full or partial, does not question the authority of local assessor to assess real
property tax.
2. Is Napocor’s action before the LBAA prematurely filed? A: YES. It was an ill-
advised move for Napocor to directly file an appeal with the LBAA under Section
226 without first paying the tax as required under Section 252. Sections 252 and
226 provide successive administrative remedies to a taxpayer who questions the
correctness of an assessment. Section 226, in declaring that “any owner or person
having legal interest in the property who is not satisfied with the action of the
provincial, city, or municipal assessor in the assessment of his property may appeal
to the Board of Assessment Appeals,” should be read in conjunction with Section
252 (d), which states that in the event that the protest is denied, the taxpayer may
avail of the remedies as provided for in Chapter 3, Title II, Book II of the LGC
[Chapter 3 refers to Assessment Appeals, which includes Sections 226 to 231].
The “action” referred to in Section 226 (in relation to a protest of real property
tax assessment) thus refers to the local assessor’s act of denying the protest filed
pursuant to Section 252. Without the action of the local assessor, the appellate
authority of the LBAA cannot be invoked. Napocor’s action before the LBAA
was thus prematurely filed (NAPOCOR v. Province of Quezon, G.R. No. 171586,
January 25, 2010)
G2a. File Protest with Local Treasurer

G2b. Appeal to the Local Board of Assessment Appeals
G2c. Appeal to the Central Board of Assessment Appeals
G2d. Appeal to the CTA
G2e. Appeal to the Supreme Court
1. Taxpayer’s remedies involving collection of real property tax local government

code
Assessor submits assessment roll to Local Treasurer on or before the 31st of
December each year. (Sec. 248, LGC)
↓
Posting of notice of deadline for payment
at a conspicuous place at the LGU once a
week for two consecutive weeks. (Sec. 249,
LGC)
↓
Protest Taxpayer pays the tax then Protest is denied or
decided in files a protest within thirty upon the lapse of
favor of the (30) days from payment of sixty (60) day period
taxpayer, the the tax with the treasurer who in which the
amount or shall decide within sixty (60) treasurer must
portion of the days from receipt (Sec. 252[a], decide, taxpayer
tax protested LGC) → may appeal with the
shall be LBAA (Sec. 226,
refunded or LGC) who shall
applied decide the appeal
as tax credit within 120 days
(Sec. 252 [c], from receipt (Sec.
LGC) 229, LGC)
↓
If the LBAA rejects
the protest, the
owner may appeal
to CBAA within 30
days from receipt
of decision of the
LBAA (Sec. 229 [c],
LGC)
↓
Appeal with the Appeal with the CTA if

the taxpayer is not satisfied
Supreme Court ←
with the decision of the
within 15 days. CBAA (R.A. 9282)
Module 13. Customs Modernization and Tariff Act

[RA 10863: CMTA of 2016]. Old Law: Tariff and Customs Code
A. Tariff and Duties 180

A1. Tariff and duties, defined 180
A2. Purpose for Imposition 181
A3. Kinds or Classification of Duties 181
Kinds of Tariff or customs duties 183
Ordinary/Regular Duties 184
Special Duties 185
Flexible Tariff Clause 190
B. Requirements of importation 191
B1. Beginning and ending of importation 191
B2. Obligatons of importer 193
C. Accrual and Payment of Tax Duties 197
C1. General rule: all imported articles are subject to duty 197
C1a. Taxable Importations 198
C1b. Prohibited importation 199
C1c. De Minimis Importations (Small Value Importations) 201
C1d. Conditionally-Free and Duty-Exempt Importations 201
C2. Goods Declaration 215
C2a. Formal Entry 215
C2b. Filing of Goods Declaration 216
C2c. Assessment and Payment of Duties and Taxes, Interest and Surcharge 216
C2d. Provisional Goods Declaration 217
C2d. Relief Consignment 217
C2f. Misdeclaration, Misclassification and Undervaluation in Goods Declaration 218
D. Unlawful Importation and Exportation 219
D1. Technical Smuggling and Outright Smuggling 219
D2. Other Fraudulent Practices 222
E. Remedies 223
E1. Government 223
E1a. Administrative/Extrajudicial 223
E1a-1. Search, Seizure, Forfeiture and Arrest 223
Procedure in seizure cases until the Supreme Court 228
FORFEITURE CASES 229
Remedies of the importer during the pendency of seizure proceedings 229
Warrant of seizure and detention 233
E1a-2. Authority of the Commissioner to Compromise 234
E1b. Judicial 234

Rules on Appeal including Jurisdiction 234
E2. Taxpayer 237
E2a. Protest 237
E2b. Abandonment 239
E2c. Abatement and Refund 240
AUTOMATIC REVIEW IN CUSTOMS PROCEEDINGS 244
———————————————————————————————
 
Tariff and Customs Code of the Philippines, as amended by the Customs
Modernization and Tariff Act (RA 10863 which took effect on June 16, 2016)
The said law shall be known as the “Customs Modernization and Tariff Act
(CMTA)”. The repealing clause of the said law reads: “PD No. 1464, otherwise
known as the Tariff and Customs Code of the Philippines of 1978, as amended,
and PD No. 1853 which require any applicant for letter of credit covering
imports to deposit the full amount of duties due on the importation are
hereby expressly repealed. All other laws, acts, presidential decrees, executive
orders, rules and regulations or parts thereof inconsistent with the provisions of
the Act are hereby expressly repealed.”
A. Tariff and Duties
Composition of Tariff and Customs Law

1. Provisions of the Tariff and Customs Code of the Philippines and regulations
issued pursuant thereto; and
2. Other laws and regulations subject to the enforcement by the Bureau of
Customs or otherwise within its jurisdiction
A1. Tariff and duties, defined

1. Tariff
a. It is the list or schedule of articles in which a duty is imposed upon the
importation into the country with the rates at which they are severally taxed. It is
the system of imposing duties or taxes on the importation of foreign
merchandise.
b. Tariff includes:
i. Customs duties, toll or tribute payable upon merchandise to the
general government;
ii. Rate of customs; or
iii. List of articles liable to duties.
2. Customs Duties
a. It is the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or
exported to, a foreign country (Garcia v. Executive Secretary, G.R. No. 101273,
July 03, 1992). NB: Customs duties and tariffs are synonymous with one another
because they both refer to taxes imposed on imported and exported wares, articles
or merchandise.
A2. Purpose for Imposition

- Customs duties are imposed for any one and, sometimes, for all of the following
purposes, to:
a. Raise revenue – BoC second only to BIR b.
Support foreign policy – Flexible Tariff Clause c. Protect domestic economy –
Prohibited importations d. Implement commitment to other nations –
Asean Integration
A3. Kinds or Classification of Duties

a. Ordinary/Regular Duties
a1. Ad Valorem (Exclude: Methods of Valuation)
a2. Specific
b. Special Duties
b1. Dumping Duties
b2. Countervailing Duties
b3. Marking Duties
b4. Retaliatory/Discriminatory Duties
b5. Safeguard Measure
A4. Flexible Tariff Clause
Customs valuation
1. Customs valuation is a procedure for determining the customs value of
imported goods. If the rate of duty is ad valorem, the customs value is essential to
determine the duty to be paid on an imported good.
2. Computation of customs duties - The importer/broker shall compute the
duties and taxes using the appropriate valuation method. There are two processes
involved in the computation of customs duties on imported articles:
a. Classification of the articles into their appropriate tariff heading;
b. Determination of the valuation if the rate is ad valorem or mixed.
TRANSACTION VALUE182
1. TRANSACTION VALUE: The DUTIABLE VALUE of an IMPORTED
article subject to an AD VALOREM183 rate of duty shall be the
TRANSACTION VALUE, which is the PRICE ACTUALLY PAID or PAYABLE
for the GOODS when sold for export to the Philippines.
2. TRANSACTION VALUE OF IDENTICAL GOODS: The DUTIABLE
VALUE shall be the transaction value of identical goods sold for export to the
Philippines and EXPORTED AT or ABOUT the SAME TIME as the goods
being valued;
3. TRANSACTION VALUE OF SIMILAR GOODS: where the DUTIABLE
VALUE CANNOT BE DETERMINED under the preceding method, the DV
shall be the transaction value of SIMILAR goods for export to the Philippines
and exported at or about the same time as the goods being valued.
TAXING PREVIOUSLY EXPORTED GOODS FROM PH
182*The dutiable value of an imported article subject to an ad valorem rate of duty under existing law
shall be: (2012 Bar Question)
a) The home consumption value;
b) The total value; 
c) The total landed cost; 
d) The transaction value [Section 201, Tariff and Customs Code, as amended by RA 8181
dated March 28, 1996]
[] On what is the dutiable value of any imported article based? ANSWER: The dutiable
value of imported articles is the home consumption cost value, i.e., the cost or fair market value
or price of the imported articles in wholesale quantities in the principal market of the exporting
country or country of origin, including expenses collected from importation such as insurance,
freight, packaging, loading and unloading charges but excluding internal excise taxes. In case
such value is unascertainable, the Commissioner may also determine the home consumption value from
any reliable and available data (Sec. 20l.TCC, as amended: Commissioner vs. Court of Tax Appeals, G.R
No. 72069,21 May 1988). (BAR 1991)
183 State and explain the basis of dutiable value of an imported article subject to an ad valorem
tax under the Tariff and Customs Code. SUGGESTED ANSWER: *****The basis of dutiable value
of an imported article subject to an ad valorem tax under the Tariff and Customs Code is its
transaction value. (Sec. 201 (A), Tariff and Customs Code, as amended by R.A. No. 9135). If such
value could not be determined, then the following values are to be utilized in their sequence:
Transaction value of identical goods (Secs. 201 (B), Ibid; Sec. II. C.l, C.A.O. No. 4-2004); Transaction
value of similar goods (Sec. 201 (C), Ibid.; Sec. II, D. 1, C.A.O. No. 4-2004); Deductive value (Sec. II,
E. 1, C.A.O. No. 4-2004); Computed value (Sec. n, F.l, C.A.O. No. 1-20040) and Fallback value (Sec.
201 (F), Ibid.) ANOTHER SUGGESTED ANSWER: The basis of dutiable value of an imported
article subject to an ad valorem tax under the Tariff and Customs Code is its transaction value which
shall be the price actually paid or payable for the goods when sold for export to the Philippines,
adjusted by adding certain cost elements to the extent that they are incurred by the buyer but are
not included in the price actually paid or payable for the imported goods (Sec. 201(A), Tariff and
Customs Code, as amended by R.A. No. 9135) If such value could not be determined, then the
following values are to be utilized in their sequence: Transaction value of identical goods (Sec. 201 (B)
ibid; Sec. n, C. 1, C.A.O. No. 4-2004); Transaction value of similar goods (Sec. 201 (C), Ibid,; Sec. n, D.l,
C.A.O. No. 4-2004); Deductive value (Sec. 11, E.l, C.A.O. No. 4-2004); Computed value (Sec. II, F.l,
C.A.O. No. 1-20040) and Fallback value (Sec. 201 (F) ibid.) (BAR 2005)
[] Is an article previously exported from the Philippines subject to the

payment of customs duties? (2011 Bar Question): (A) Yes, because all articles that
are imported from any foreign country are subject to duty. (B) No, because there
is no basis for imposing duties on articles previously exported from the
Philippines. (C) Yes, because exemptions are strictly construed against the
importer who is the taxpayer. (D) No, if it is covered by a certificate of
identification and has not been improved in value.
Kinds of Tariff or customs duties

1. Regular tariff or customs duties - these are taxes imposed or assessed upon
merchandise from, or exported to, a foreign country for the purpose of raising
revenues.
2. Special tariffs or custom duties - these are additional import duties imposed on
specific kinds of imported articles under certain conditions. They are imposed for
the protection of consumers and manufacturers, as well as Philippine products
from undue competition posed by foreign made products.
3. Preferential Tariffs
1. It is the imposition of high customs duties which results to making the foreign
goods more expensive compared with locally produced articles. This is to protect
Philippine manufacturers from competition posed by foreign manufacturers.
4. Other types of fees charged by the Bureau of Customs
a. Arrastre charge
b. Wharfage dues – counterpart of license, charged not for the use of any
wharf but for a special fund known as the Port Works Fund. NB: Wharfage dues
may be imposed whether or not the wharf is privately owned or owned by the
government.
c. Berthing fee
d. Harbor fee
e. Tonnage dues
BERTHING CHARGE
1. The amount assessed against a VESSEL for
a. MOORING or DOCKING at a PIER, WHARF, bulkhead-wharf,
RIVER or CHANNEL marginal wharf at ANY PORT in the Philippines;
b. or for MOORING or making FAST to a vessel so berthed;
c. or for berthing or mooring within any SLIP, CHANNEL, BASIN RIVER
or CANAL under the jurisdiction of any port of the Philippines.
2. The OWNER/AGENT/OPERATOR/MASTER of the vessel is LIABLE for
this charge.
3. ****Comm of Customs v. CTA-Litonjua, 21 July 1993: our considered opinion
that under Section 2901 of the Tariff and Customs Code, as amended by
Presidential Decree No. 34, only vessels berthing at national ports are liable
for berthing fees. The berthing fees imposed upon vessels berthing at national
ports are applied by the national government for the maintenance and repair of
said ports. The national government does not maintain municipal ports
which are solely maintained by the municipalities or private entities which
constructed them, as in the case at bar. Thus, no berthing charges may be collected from
vessels moored at municipal ports nor may berthing charges be imposed by a municipal council
4. It is to be stressed that there are differences between national ports and
municipal ports, namely:
a. the maintenance of municipal ports is borne by the municipality,
whereas that of the national ports is shouldered by the national government;
b. municipal ports are created by executive order, while national ports are
usually created by legislation;
c. berthing fees are not collected by the government from vessels
berthing at municipal ports, while such berthing fees are collected by the
government from vessels moored a national ports.
Ordinary/Regular Duties
Kinds of Regular Customs Duties:
1. Ad valorem
a. Customs duties that are computed on the basis of value of the imported
article. NB: Customs valuation is a procedure for determining the customs value
of imported goods. If the rate of duty is ad valorem, the customs value is essential
to determine the duty to be paid on an imported good.
b. The importer/broker shall compute the duties and taxes using the
appropriate valuation method. There are two processes involved in the
computation of customs duties on imported articles:
i. Classification of the articles into their appropriate tariff heading;
ii. Determination of the valuation if the rate is ad valorem or mixed.
Q: State and explain the basis of dutiable value of an imported article subject to
an ad valorem tax under the TCC? (2005 Bar Question)A: The basis of dutiable
value of an imported article subject to an ad valorem tax under the TCC is its
transaction value which shall be the price actually paid or payable for the goods
when sold for export to the Philippines, adjusted by adding certain cost elements
to the extent that they are incurred by the buyer but are not included in the price
actually paid or payable for the imported goods. (Sec. 201, TCC). If such value
could not be determined, then the following values are to be used respectively;
transaction value of identical goods, transaction value of similar goods, computed
value and fallback value.
2. Specific duty - Customs duties that are computed on the basis of dutiable
weight of good i.e. a unit of measure such as per kilogram, per liter, etc.
3. Alternating duty - alternates between ad valorem and specific
4. compound duty - Customs duties that impose both ad valorem and specific
customs duties. E.g. 10% ad valorem plus P100 per liter.
Special Duties184
Kinds of Special Customs Duties (Under the TCC):
1. Anti-Dumping Duties
a. imposed on IMPORTED goods where it APPEARS that a SPECIFIC
kind or class of foreign article is being imported into or sold or is LIKELY to
be sold in PH at a PRICE LESS than its fair value
b. Amount generally imposed as anti-dumping duty - The amount imposed
shall be equal to the margin of dumping on such product, commodity or article
and on like product, commodity or article thereafter imported to the Philippines
under similar circumstances, in addition to ordinary duties, taxes and charges
imposed by law on the imported product, commodity or article. (Sec. 3(a), R.A.
8752) NB: If a large quantity of goods were imported from a foreign country into
the Philippines at a very low price, much lesser than the normal value of such
goods, and such importation threatens to cause material injury to our domestic
industry, the remedy is to impose anti-dumping duty in addition to the ordinary
duties, taxes and charges on the imported goods.
Q: What happens when products are not imported directly from the country of
origin but exported to the Philippines from an intermediate country? A: The price
at which the products are sold from the country of export to the Philippines shall
184 Explain briefly each of the special customs duties authorized under the Tariff and Customs Code.
ANSWER: *****The following are the special duties imposed under the Tariff and Customs Code:
1. Dumping Duty - This is a duty levied on imported goods where it appears that a specific kind or
class of foreign article is being imported into or sold or is likely to be sold in the Philippines at a
price less than its fair value:
2. Countervailing Duty - This is a duty equal to the ascertained or estimated amount of the
subsidy or bounty or subvention granted by the foreign country on the production, manufacture, or
exportation into the Philippines of any article likely to injure an industry in the Philippines or
retard or considerable (sic) retard the establishment of such industry:
3. Marking Duty - This is a duty on an ad valorem basis imposed for improperly marked articles.
The law requires that foreign importations must be marked in any official language of the
Philippines the name of the country of origin of the article:
4. Discriminatory or Retaliatory Duty - This is a duty imposed on imported goods whenever it is
found as a fact that the country of origin discriminates against the commerce of the Philippines
in such a manner as to place the commerce of the Philippines at a disadvantage compared with
the commerce of any foreign country. (BAR 1997)
[] Distinguish countervailing duty from dumping duty. (5%) SUGGESTED ANSWER:
*****Countervailing duty is a duty imposed in an amount equal to the ascertained or estimated
amount of the subsidy or bounty or subvention granted by the foreign country on the
production, manufacture or exportation into the Philippines of any article likely to injure an
industry in the Philippines or retard or considerably retard the establishment of such industry. (Section
302, Tariff and Customs Code). On the other hand. Dumping Duty is a duty levied on imported goods
where it appears that a specific kind or class of foreign article is being imported into or sold or is likely
to be sold in the Philippines at a price, less than its fair value. (Section 301, Tariff and Customs
Code). (BAR 2005)
normally be compared with the comparable price in the country of export.

However, comparison may be made with the price in the country of origin if, for
example, the products are merely transshipped through the country of export, or
such products are not produced in the country of export, or there is no
comparable price for them in the country of export.
2. Countervailing Duties
a. : duty EQUAL to the ascertained or estimated amount of the subsidy
or bounty or subvention granted by the foreign country on the production,
manufacture, or exportation into PH of any article LIKELY to INJURE an
industry in PH or RETARD or CONSIDERABLY retard the establishment of
domestic industry. NB: The Philippine Government may avail of this remedy to
protect its local industy against unfair competition. For example, where goods to
be imported to the Philippines are given subsidy by the foreign origin, importer
may impose a lower price, threatening to cause material injury to the domestic
products, hence countervailing duty may be imposed.
b. Kinds of specific subsidy:
i. Bounty – cash award paid to an exporter or manufacturer
ii. Subsidy – financial incentives not in the form of direct or cash
award to encourage manufacturers or exporters
iii. Subvention – any assistance other than a bounty or subsidy given
by the government for the manufacture and/or exportation of an article.
3. Marking Duties
a. duty imposed on an AD VALOREM basis imposed for
IMPROPERLY MARKED articles.
b. Exemption of imported articles from the marking requirement; if:
i. Such article is incapable of being marked
ii. Such article cannot be marked prior to shipment to the Philippines
without injury
iii. Such article cannot be marked prior to shipment to the Philippines,
except at an expense economically prohibitive of its importation
iv. The marking of a container of such article will reasonably indicate
the origin of such article.
v. Such article is a crude substance
vi. Such article is imported for use by the importer and not intended
for sale in its imported or any other form
vii. Such article is to be processed in the Philippines by the importer
or for his account otherwise than for the purpose of concealing the origin of such
article and in such manner that any mark contemplated by this section would
necessarily be obliterated, destroyed or permanently concealed
viii. An ultimate purchaser, by reason of the character of such article
or by reason of the circumstances of its importation must necessarily know the
country of origin of such article even though it is not marked to indicate its
origin.
ix. Such article was produced more than twenty years prior to its
importation into the Philippines
x. Such article cannot be marked after importation except at an
expense which is economically prohibitive, and the failure to mark the article
before importation was not due to any purpose of the importer, producer, seller
or shipper to avoid compliance with this section. (Sec. 303, TCC)
4. Retaliatory/Discriminatory Duties185: duty imposed on IMPORTED
goods whenever it is found as a fact that the COUNTRY OF ORIGIN
DISCRIMINATES against the commerce of PH in such a manner as to
place the commerce of PH at a DISADVANTAGE compared with the
commerce of any foreign country. NB: For example, a foreign country imposed
very high and unreasonable duties on Philippine articles entering its jurisdiction,
while not imposing the same high rates on other countries’ goods.
5. Additional tariff imposed as a safeguard measure under the Safeguard
Measure Act (Under R.A. 8800).
a. Purposes:
i. GENERAL – imposed upon goods or products imported in
increased quantities
ii. SPECIAL – volume of imports exceed a base trigger level or price
falls below a trigger price level
5. Comparison of Special Duties
Special Nature Purp Amount Imposing Judicial Review
Duty ose /Rate Authority
*Discriminatory duties may NOT be imposed upon articles: (2011 Bar Question): (A) wholly
185
manufactured in the discriminating country but carried by vessels of another country. (B) not
manufactured in the discriminating country but carried by vessels of such country. (C) partly
manufactured in the discriminating country but carried by vessels of another country. (D) not
manufactured in the discriminating country and carried by vessels of another country.
Anti- Imposed on imported goods where it Differen Any interested

Dumpi appears that a specific kind or class of ce party who is
ng foreign article is being imported into or sold between adversely
Duty or is likely to be sold in the Philippines at a the affected by a
price less than its fair value export final ruling
price imposing an
and the antidumping
normal duty may file
price with the CTA
a petition for
(export review within
price - thirty (30) days
normal from his
price = receipt of
anti- notice of the
dumpin assailed
g duty) decision. But
such appeals
shall not stop
or suspend the
imposition of
the duty
Count Duty equal to the ascertained or estimated
er- amount of the subsidy or bounty or
vailing subvention granted by the foreign country
Duty on the production, manufacture, or
exportation into the Philippines of any
article likely to injure an industry in the
Philippines or retard or retard considerably
the establishment of such industry
NB: The Philippine Government may avail
of this remedy to protect its local industy
unfair competition. For example, where
goods to be imported to the Philippines are
given subsidy by the foreign
origin,
importer may impose a lower price,
threatening to cause material injury to the
domestic products, Hence countervailing
duty may be imposed.
Marki Duty imposed on an ad valorem basis To 5% ad Commiss
ng imposed preve valorem io
Duty for improperly marked articles. nt of the -ner of
possi goods Customs
ble
decep
-tion
Discri- Duty imposed on imported goods whenever To Not President None

minato it is found as a fact that the country of prote exceedin of the
ry/ origin discriminates against the commerce of ct the g 100% Philippin
Retalia the Philippines in such a manner as to place natio ad es
-tory the commerce of the Philippines at a nal valorem
Duty disadvantage compared with the commerce intere
of any foreign country. NB: For example, a st
foreign country imposed very high and
unreasonable duties on Philippine articles
entering its jurisdiction, while not imposing
the same high rates on other countries’
goods.
Safe- a. GENERAL SAFEGUARD – To a. a. Any interested
guard imposed upon goods or products imported prote GENE GENER party who is
in ct RAL – AL – adversely
increased quantities dome tariff Secretary affected by the
s-tic increase, of Trade ruling of the
b. SPECIAL – volume of imports exceed a indus either and Secretary in
base trigger level or price falls below a -tries ad Industry connection
trigger price level and valorem and with the
prod or Secretary imposition of
u- specific of a safeguard
cers or both, Agricultu measure may
from to be re file with the
in- paid CTA a petition
creas through b. for review of
ed a cash SPECIA such ruling
impo bond L– within thirty
rts set at a Secretary (30) days from
level of receipt thereof
sufficien Agricultu BUT the filing
t to re of such
redress petition for
or review shall
prevent not in any way
injury to stop, suspend
the or otherwise
domesti toll the
c imposition or
industry collection of
the appropriate
b. tariff duties or
SPECI the adoption
AL of other
i. appropriate
Volume safeguard
Test ii. measures, as
Price the case may
Test be.
Flexible Tariff Clause

1. The term "flexible tariff clause" refers to the authority given to the President to
adjust tariff rates under Section 401 of the Tariff and Customs Code, which is the
enabling law that made effective the delegation of the taxing power to the
President under the Constitution.
2. Article VI, Section 28, paragraph 2 (Phil. Consti.) - The Congress may, by
law, authorize the President to fix within specified limits, and subject to
such limitations and restriction as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the
Government.
3. Section 401 of the Tariff and Customs Code (TCC) - In the interest of national
economy, general welfare and/or national security, and subject to the limitations
provided in the TCC, the President, upon recommendation of the National
Economic and Development Authority (NEDA), is empowered to:
a. Increase, reduce or remove existing protective rates of import duty
(including any necessary change in classification). The existing rates may be
increased or decreased to any level, in one or several stages but in no case shall the
increased rate of import duty be higher than a maximum of one hundred (100)
per cent ad valorem;
b. Establish import quota or to ban imports of any commodity, as may be
necessary;
c. Impose an additional duty on all imports not exceeding ten (10%) percent
ad valorem whenever necessary.
4. Limitations imposed on the flexible tariff clause
a. Before any recommendation is submitted by NEDA to the President,
except in the imposition of an additional duty not exceeding (10%) ad valorem,
the Commission shall conduct an investigation and hold a public hearing to give
reasonable opportunity for any interested party to be produce evidence and be
heard. The Commission shall also hear the views and recommendations of any
government office, agency or instrumentality concerned. The Commission shall
submit their findings and recommendations to the NEDA within thirty (30) days
after the termination of the public hearings. The NEDA thereafter submits its
recommendation to the President (Sec. 1608(b), CMTA)
b. The power of the President to increase or decrease the rates of import
duty within the abovementioned limits shall include the modification in the form
of duty. In such a case, the corresponding ad valorem or specific equivalents of
the duty with respect to the imports from the principal competing foreign country
for the most recent representative period shall be used as basis (Sec. 1608(b),
CMTA).
c. Any order of the President pursuant to this section shall take effect 30
days after, except in the imposition of additional duty not exceeding (10%) ad
valorem which shall take effect at the discretion of the President.
d. The power delegated to the President as provided for in this section shall
be exercised only when Congress is not in session.
e. The power herein delegated may be withdrawn or terminated by Congress
through a joint resolution.
5. Q: What do you understand by the term "flexible tariff clause" as used in the
Tariff and Customs Code? (2001 Bar) A: *****The term "flexible tariff clause"
refers to the authority given to the President to adjust tariff rates under
Section 401 of the Tariff and Customs Code,186 which is the enabling law that
made effective the delegation of the taxing power to the President under the
Constitution.
—————————————————-
B. Requirements of importation
1. The Tariff and Customs Law becomes applicable after importation has begun
and before importation is terminated.
2. The jurisdiction of the BOC to enforce the provisions of the TCC, including
seizure and forfeiture, begins from the commencement of importation. The BOC
loses jurisdiction to enforce the TCC after importation is deemed terminated.
B1. Beginning and ending of importation

*****Bar 2015: When does importation begin and when is it deemed
terminated?
1. Importation begins when the carrying vessel or aircraft enters the
Philippine territory with the intention to unload therein. Hence MERE
INTENT TO UNLOAD is SUFFICIENT to commence an importation;
and INTENT—being a state of mind—is rarely susceptible of direct proof, but
186In view of the unfavorable balance of payment condition and the increasing budget deficit, the
President of the Philippines, upon recommendation of the National Economic and
Development Authority, issues during a recess of Congress an Executive Order imposing an
additional duty on all imports at the rate of ten (10%) percent ad valorem. The Executive Order
also provides that the same shall take effect immediately. Ricardo San Miguel, an importer, questions
the legality of the Executive Order on the grounds that only Congress has the authority to fix the
rates of import duties and, in any event, such an Executive Order can take effect only thirty
(30) days after promulgation and the President has no authority to shorten said period. Are the
objections of Mr. San Miguel tenable? ANSWER: No. The objections are not tenable as the
Executive Order cannot take effect “immediately". Being an “external” law and having the effect
of law, the Executive Order cannot become effective without publication, a requirement of due
process (Tanada vs. Tuvera, 136 SCRA27; Executive Order No. 202). ALTERNATIVE ANSWER:
*****Under the Flexible Tariff Clause (Sec. 401, Tariff and Customs Code), any order issued by the
President thereunder can generally take effect only thirty (30) days after its issuance. In cases
however of an order imposing additional import duties, the law provides that the same can take
effect immediately. (BAR 1991)
must ordinarily be inferred from the facts, and therefore can only be proved by
unguarded expressions, conduct & circumstances general [Feeder Intl v. CA 31
May 1991].
2. DEEMED TERMINATED: upon PAYMENT of duties, taxes and other
charges due upon the articles, or secured to be paid, at the port of entry AND
upon grant of the LEGAL PERMIT for withdrawal.187 ,188 In case the articles
are FREE of duties, taxes and other charges, UNTIL they have LEGALLY
LEFT the JURISDICTION of the customs. (Sec. 103, CMTA). Importation
of goods is deemed terminated: (2012 Bar Question)
a. When the customs duties are paid, even if the goods remain within the
customs premises; 
b. When the goods are released or withdrawn from the customs house
upon payment of the customs duties or with legal permit to withdraw; 
c. When the goods enter Philippines territory and remain within the
customs house within thirty (30) days from date of entry; 
d. When there is part payment of duties on the imported goods located in
the customs area.
3. ******Why is it important to know when importation begins and ends? The
jurisdiction of the BOC to enforce the provisions of the TCC, including
seizure and forfeiture, begins from the commencement of importation. The
BOC loses jurisdiction to enforce the TCC after importation is deemed
terminated.
4. The term "Entry" in Customs Law has a three-fold meaning:
a. The documents filed at the Customs house;
b. The submission and acceptance of the documents; and
187 LEGAL PERMIT FOR WITHDRAWAL NEEDED: Amaretto, Inc., imported 100 cases of
Marula wine from South Africa. The shipment was assessed duties and value-added taxes of
P300,000 which Amaretto, Inc. immediately paid. The Bureau of Customs did not, however, issue
the release papers of the shipment yet since the Food and Drug Administration (FDA) needed
to test the suitability of the wine for human consumption. Is the Bureau of Customs at fault for
refusing to release the shipment just as yet? (2011 Bar Question): (A) Yes, because the importation was
already terminated as a result of the payment of the taxes due. (B) Yes, the Bureau of Customs is
estopped from holding the release of the shipment after receiving the payment. (C) No, if the amount
paid as duties and value-added taxes due on the importation was insufficient. (D) No, because the
Bureau of Customs has not yet issued the legal permit for withdrawal pending the FDA's
findings.
188Importation of goods is deemed terminated: (2012 BAR) a) When the customs duties are paid,
even if the goods remain within the customs premises; b) When the goods are released or withdrawn
from the customs house upon payment of the customs duties or with legal permit to withdraw; c)
When the goods enter Philippines territory and remain within the customs house within thirty (30) days
from date of entry; d) When there is part payment of duties on the imported goods located in the
customs area. SUGGESTED ANSWER: b) When the goods are released or withdrawn from the
customs house upon payment of the customs duties or with legal permit to withdraw. Section
1202, Tariff and Customs Code
c. Customs declaration forms or customs entry forms required to be

accomplished by passengers of incoming vessels or passenger planes as
envisaged under Sec. 2505189 of the TCCP (Failure to declare baggage). (Jardeleza
v. People, G.R. No. 165265, February 6, 2006)
B2. Obligatons of importer

1. Manifest
a. It is a listing of the passengers or cargoes carried by a vessel or aircraft,
whether engaged in the coastwise (domestic) or foreign trade.
b. Cargo Manifest - It is a document used in shipping, containing the list of
the contents, value, origin, carrier and destination of the goods to be shipped.
c. As a Requirement
i. A manifest in coastwise trade for cargo and passengers transported
from one place or port in the Philippines to another is required when one or both
of such places is a port of entry (Sec. 906, TC). Manifests are also required of a
vessel from a foreign port (Sec. 1005, TCC).
ii. Unmanifested cargo is subject to forfeiture whether the act of
smuggling is established or not under the principle of res ipsa loquitur. It is
enough that the cargo was unmanifested and that there was no showing
that payment of duties thereon had been made for it to be subject to
forfeiture.
iii. Articles subject to seizure do not have to be imported goods.
Manifests are also required for articles found on vessels or aircraft engaged in
coastwise trade (Rigor v. Rosales, G.R. No. L--33756, October 23, 1982).
2. Import entry
a. It is a declaration to the Bureau of Customs showing the description,
value, tariff classification and other particulars of the imported article to enable
the customs authorities to determine the correct customs duties and internal
revenue taxes due on the importation.
189 Q: A flight attendant arrived from Singapore. Upon her arrival, she was asked whether she has
anything to declare. She answered none and submitted her “Customs Baggage Declaration Form”
which she accomplished and signed with nothing written for items to be declared. When her bag
were examined, pieces of jewelry were found concealed within the lining of the bag. She was
convicted of violating Sec. 3601 of TCC for unlawful importation. She filed an appeal claiming
that the lower court erred in convicting her under Sec. 3601, when the facts alleged both in the
information and those shown by the prosecution constitute an offense under Sec. 2505 “Failure to
Declare Baggage” of which she was acquitted. Is she correct? A: NO. Section 2505 does not define
a crime. It merely provides the administrative remedies which can be resorted to by the BoC
when seizing dutiable articles found in the baggage of any person arriving in the Philippines which
is not included in the accomplished baggage declaration submitted to the customs authorities and
the administrative penalties that such person must pay for the release of such goods if not (sic)
imported contrary to law. Such administrative penalties are independent of any criminal liability
for smuggling that may be imposed under Sec. 3601. (Jardeleza v. People, G.R. No. 165265, February
6, 2006)
b. GR: All imported articles shall be subject to formal or informal entry.

XPN: Except containers for re-export subject to conditionally free-
importation. (Sec. 1302, TCC as amended by RA 9135)
c. Kinds:
i. Informal entry
(a) Articles of a commercial nature intended for sale, barter or
hire, the dutiable value of which is P2,000 or less
(b). Personal household effects or articles, not in commercial
quantity, imported in passenger’s baggage, mail or otherwise, for personal use
ii. Formal entry
(a) Articles of a commercial nature intended for sale,
barter, or hire, the dutiable value of which is more than P2,000.00;
(b) Articles for, which the Collector may, upon the
recommendation of the Tariff Commission for the protection of a local
industry, or the revenue, require formal entry regardless of value and
whatever purpose and nature of the importation. NB: All imported articles
are subject to Formal and Informal entry except importation admitted free
of duty for the official use of embassies, legation and other agencies of
foreign governments who accord like privileges to corresponding agencies of
the Philippines.
d. Persons authorized to make import entry:
i. The importer, being the holder of a bill of lading
ii. A duty licensed customs broker acting under authority from a
holder of a bill;
iii. A person duly empowered to act as agent or attorney-in-fact for
each holder of the bill of lading. (Sec. 1301, TCC as amended by R.A. 9135)
e. Period for filing import entry
i. Imported articles must be entered in the customhouse at the port
of entry within 30 days, which shall not be extendible, from the discharge
of the last package from the vessel or aircraft. (Sec. 1301, TCC as amended by
R.A. 9135)
ii. "Discharge of last package" - It is when the unloading of the
shipment from the carrier is completed. In case of transshipment, the discharge
of the last package from the domestic carrier at the port of final destination.
Q: Are tax-free goods required to enter into a customs house even the imported
will not pay a tax? A: Yes. TCC provides that all articles imported into the
Philippines, whether subject to tax or not, shall be entered into a custom house at
a port of entry. Violation of TCCP is a valid ground for the search and seizure of
the properties or articles.
3. Declaration of correct weight or value
a. "Consumption Entry" - It is a government form accomplished by an
importer or his representative, which is ultimately submitted to the proper office
of the Bureau of Customs as a basis for inspection of the importations of an

importer and for the computation of the correct customs duties and
internal revenue taxes due on importation.
4. Liability for payment of duties
a. "Computation and payment of customs duties" - the Philippines adopts
the “self-assessment” system. Thus, it is the importer which initially
determines the customs duties and other charges due from him and pays
the same. However, his computation and payment is subject to the review of the
taxing authorities.
5. Liquidation of duties
a. Liquidation is the final computation and ascertainment by the
Collector of Customs of the duties due on imported merchandise based on
official reports as to the quantity, character and value thereof, and the Collector
of Customs' own finding as to the applicable rate of duty. It is akin to an
assessment of internal revenue taxes under the NIRC where the tax liability of
the taxpayer is definitely determined.
b. Liquidation is considered to have been made when the entry is officially
stamped “liquidated” (Pilipinas Shell Petroleum Corporation v. Republic of the
Philippines, etc., G. R. No. 161953, Mar. 6, 2008).
c. When liquidation is deemed final - An assessment or liquidation by the
Bureau of Customs attains finality and conclusiveness three (3) years from the date of
the final payment of duties except when:
i. There was fraud;
ii. There is a pending protest; or
iii. The liquidation of import entry was merely tentative. (Sec. 1603
TCC, as amended by R.A. 9135)
Q: On October 15, 2011, ABC Corp. imported 1,000 kilos of steel ingots and
paid customs duties and VAT to the Bureau of Customs on the importation. On
February 17, 2015, the Bureau of Customs, citing provisions of the Tariff and
Customs Code on postaudit, investigated and assessed ABC Corp. for deficiency
customs duties and VAT. Is the Bureau of Customs correct? (2013 Bar) A: NO.
An assessment or liquidation by the Bureau of Customs attains finality and
conclusiveness three (3) years from the date of the final payment of duties.
However, if there was fraud, pending protest or if the liquidation of the import
entry was merely tentative, then the Bureau of Customs can still assess deficiency
duties. (Sec. 1603 TCC, as amended by R.A. 9135).
d. Tentative Liquidation - If to determine the exact amount due under
the law in part some future action is required, the liquidation shall be
deemed to be tentative as to the item or items affected and shall to that extent
be subject to future and final readjustment and settlement within a six (6)
months from date of tentative liquidation. (Sec. 1602, TCC)
Q: On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and
Customs Code on post-audit, investigated and assessed ABC Corp. for deficiency
customs duties and VAT. Is the Bureau of Customs correct? (2013 Bar Question)
A: No. An assessment or liquidation by the Bureau of Customs attains finality and
conclusiveness three (3) years from the date of the final payment of duties.
However, if there was fraud, pending protest or if the liquidation of the import
entry was merely tentative, then the Bureau of Customs can still assess deficiency
duties. (Sec. 1603 TCC, as amended by R.A. 9135).
6. Keeping of records
a. The Bureau of Customs shall examine, inspect and verify the books,
records and documents necessary or relevant for the purpose of collecting the
proper duties and taxes. (Compliance Audit)
b. All importers are required to keep at their principal place of business, in
the manner prescribed by regulations to be issued by the Commissioner of
Customs and for a period of three (3) years from the date of importation, all
the records of their importations and/or books of accounts, business and
computer systems and all customs commercial data including payment records
relevant for the verification of the accuracy of the transaction value declared by
the importers/customs brokers on the import entry. (Sec. 3514, TCC; Sec. 8, R.A.
9135) (Required from the importer for purposes of compliance audit)
c. Effects of denial by Employer of access to its records - The Bureau of
Customs may, in case of disobedience:
i. Invoke the aid of the proper regional trial court within whose
jurisdiction the matter falls. The court may punish contumacy or refusal as
contempt;
ii. File a criminal case imposed by the TCC;
iii. Subject the importer/broker administrative sanctions that the
Bureau of Customs may impose against contumacious importers under existing
laws and regulations including the authority to hold delivery or release of their
imported articles. NB: The fact that the importer/broker denies the authorized
customs officer full and free access to importation records during the conduct of
a post-entry audit shall create a presumption of inaccuracy in the transaction
value declared for their imported goods and constitutes grounds for the Bureau
of Customs to conduct a re-assessment of such goods.
Effects of the failure to pay correct duties and taxes after post-entry audit
and investigation - Any person who, after being subjected to post-entry audit
and examination and is found to have incurred deficiencies in duties and taxes
paid for imported goods, shall be penalized according to the three (3) degrees of
culpability subject to any mitigating, aggravating or extraordinary factors that
clearly established by the available evidence. (Sec. 3611, TCC as amended by R.A
9135)
———————————————
C. Accrual and Payment of Tax Duties

C1. GR: All goods imported are subject to duty upon importation
1. General Rule: Except as otherwise provided, all goods imported into the
Philippines shall be subject to duty upon importation, including goods
previously exported from the Philippines
a. Taxable Importations
b. Prohibited Importations
c. De Minimis Importations (Small Value Importations)*
d. Conditionally-Free and Duty-Exempt Improtations
d1. Returning Residents
d2. Conditions for Exemption from tax duties
d3. Balikbayan Box
C1. General rule: all imported articles are subject to duty

1. All articles imported from any country into the Philippines, shall be subject to
duty upon each importation, even though previously exported from the
Philippines, except as otherwise specifically provided for in the Tariff and
Customs Code or in other laws. (Sec. 101, TCC)190
2. GR: There shall be no exemptions from the payment of customs duties.
3. XPNs:
a. Those provided under the Tariffs and Customs Code (e.g. conditionally-
free importations)
b. Those granted to government agencies, instrumentalities or government-
owned or controlled corporation with existing contracts, commitments,
agreements, or obligations (requiring such exemptions) with foreign countries;
c. International institutions, associations or organization entitled to
exemption pursuant to agreements or special laws;
190Q: Dagat-dagatan Shipping Corp (DSC) brought into the country two non-propelled foreign
barges which DSC chartered for use in the Philippines coastwise trade under a temporary Certificate
of Philippine Registration to be returned to the foreign owner upon the termination of the charter
period but not beyond 2000, pursuant to P.D. No. 780 as amended. Upon arrival, the barges were
subjected to duty by the Bureau of Customs. DSC refused to pay any customs duty contending
that the chartered or leased barges, which will be returned to the foreign owner when the charter
expires, is not an importation and therefore cannot be subjected to any customs duty. Is DSC’s
refusal with or without legal basis? (1991 Bar Question) A: DSC’s refusal is without legal basis. *****All
imported articles when imported in the Philippines from a foreign country are subject to customs
duty upon each importation. The tax exemption granted to chartered vessels/leased ocean
vessels does not apply to the barges because they are non-propelled and are to be used for
coastwise trade.
d. Those that may be granted by the President of the National

Economic Development Authority in the interest of national economic
development. (Sec. 105, TCC)
Importation by the government taxable

1. GR: All importations by the government for its own use or that of its
subordinate branches or instrumentalities, or corporations, agencies or
instrumentalities owned or controlled by the government shall be subject to the
duties, taxes, fee and other charges provided for in the Tariff and Customs Code.
(Sec. 1205, TCC)
XPNs:
a. If expressly exempted under a special law;
b. If imported as conditionally-free importations.
c. Those granted to government agencies, instrumentalities or government-
owned or controlled corporations with existing contracts, commitments,
agreements or obligations (requiring such exemptions) with foreign countries. NB:
Upon certification of the head of the department or political subdivision
concerned, with the approval of the COA, that the imported article is actually
being used by the government or any of its political subdivision concerned, the
amount of duty, tax, fee or charge shall be refunded to the government or the
political subdivision which paid it.
Classification of goods
1. The term “articles” refer to goods, wares and merchandise and in general,
anything that may be the subject of importation or exportation. (Sec. 3574, TCC)
NB: The term merchandises may include checks and money order, as well as
dollar bills which are not legal tender in the Philippines. (Batisda v. Commsissioner
of Customs, 35 SCRA 448)
2. Classification of articles subject to tariff and customs laws:
a. Articles subject to duty
b. Articles of prohibited importation
c. Articles free from duties subject to conditions prescribed by law
(conditionally-free importation)
d. Duty free articles- Enterprises located in special economic zones are
allowed to import capital equipment and raw materials free from duties, taxes and
other import restrictions. (R.A. 7916)
C1a. Taxable Importations

Articles subject to Duty or Dutiable importations - All articles when imported
from a foreign country including those previously exported from the Philippines
are subject to duty unless otherwise specifically provided for in the Tariff and
Customs Code. (Sec. 100, TCCP)
Abandoned Imported Products

*****Under the Tariff and Customs Code, abandoned imported articles
becomes the property of the government whatever be the circumstances (2011
Bar Question)191
C1b. Prohibited importation

[] NB: Pursuant to RA 10863, otherwise known as Customs Modernization and
Tariff Act (CMTA) of 2016, importations are now DIVIDED into
PROHIBITED and RESTRICTED importations. *****Prior to amendment,
Tariff and Customs Code of 1978 only provides for prohibited importation;
there was no distinction between prohibited and restricted importation.
1. Prohibited Importation and Exportation
a. Written or printed articles in any form containing any matter
advocating or inciting treason, or rebellion, insurrection, sedition, against
the Government of the Philippines, or forcible resistance to any law of the
Philippines, or containing any threat to take the life of, or inflict bodily harm
upon any person in the Philippines;
b. Goods, instruments, drugs and substances designed, intended or adapted for
producing unlawful abortion, or any printed matter which advertises,
describes or gives direct or indirect information where, how or by whom unlawful
abortion is committed;
c. Written or printed goods, negatives or cinematographic film,
photographs, engravings, lithographs, objects, paintings, drawings, or other representation of an
obscene or immoral character;
d. Any article manufactured in whole or in part of gold, silver or other
precious metals or alloys and the stamp, brand or mark does not indicate the
actual fineness of quality of the metals or alloys.
e. Any adulterated or misbranded food or goods for human consumption
or any adulterated or misbranded drug in violation of relevant laws and
regulations;
f. Infringing goods as defined under the Intellectual Property Code and related
laws; and
g. All other articles and parts thereof, the importation and exportation are
explicitly prohibited by law or rules and regulations issued by competent
authority. (Sec 118, CMTA)
2. Restricted Importation and Exportation
191 Under the Tariff and Customs Code, abandoned imported articles becomes the property of the:
(2011 Bar Question)(A) government whatever be the circumstances. (B) insurance company that
covered the shipment. (C) shipping company in case the freight was not paid. (D) bank if the shipment
is covered by a letter of credit.
a. Dynamite, gunpowder, ammunitions and other explosives, firearms,

and weapons of war, and parts thereof. XPN: When authorized by law.
b. Roulette wheels, gambling outfits, loaded dice, marked cards,
machines, apparatus or mechanical devices used in gambling or distribution of
money, cigars, cigarettes, or other goods when such distribution is dependent
on chance, including jackpot and pinball machines or similar contrivances, or
parts thereof.
c. Lottery and sweepstakes tickets, except advertisements thereof and
list of drawings therein. XPN: Those tickets authorized by the Philippine
Government.
d. Marijuana, opium, poppies, coca leaves, heroin or any other
narcotics or synthetic drugs which are or may hereafter be declared habit
forming by the President of the Philippines, or any compound, manufactured salt,
derivative, or preparation thereof. XPN: When imported by the government of the
Philippines or any person duly authorized by the Dangerous Drugs Board,
for medicinal purposes;
e. Opium pipes or parts thereof, of whatever material; and
f. Any other goods whose importation and exportation are restricted. (Sec.
119, CMTA)
3. Duty of the Collector of Customs over articles of prohibited importation
a. The District Collector shall have the duty to prevent importation and
exportation of prohibited goods. (Sec. 210(2), CMTA)
b. Upon reasonable cause, any person exercising police authority may
open and examine any box, trunk, envelope, or other container for purposes of determining the
presence of dutiable or prohibited goods. Such authority likewise includes the power to
stop, search, and examine any vehicle or carrier, person or animal suspected of
holding or conveying dutiable or prohibited goods. (Sec. 222, CMTA)
c. *****Prohibited goods shall not be released under any
circumstance. (Sec. 707, CMTA)
d. Where articles are of prohibited importation or subject to importation
only upon conditions prescribed by law, it shall be the duty of the Collector to
exercise such jurisdiction in respect thereto as will:
i. Prevent importation; or
ii. Otherwise secure compliance with all legal requirements. (Sec.
1207, TCC)
4. Qualifiedly Prohibited Importation - Where such conditions as to warrant a lawful
importation do not exist, the legal effects of the importation of the qualifiedly
prohibited articles are the same as those absolutely prohibited articles (Auyong
v. CTA, G.R. No. L-28782, September 12, 1974)
MANDATORY PHYSICAL EXAM192 OF IMPORTED PRODUCTS

[] Section 1401, Tariff and Customs Code, as amended by RA 7650.
C1c. De Minimis Importations (Small Value Importations)

1. *****All importations below P10,000 shall be treated as "de minimis or small
value importations" which shall not be subject to tax.
2. Determination of the De Minimis Value. – No duties and taxes shall be
collected on goods with an FOB or FCA value of ten thousand pesos
(P10,000.00) or below. The Secretary of Finance shall adjust the de minimis
value as provided herein every three (3) years after the effectivity of this Act.
The value herein stated shall be adjusted to its present value using the CPI, as
published by the PSA. (Sec. 423 CMTA)
3. Purpose - to reduce the administrative costs for importations with de
minimis value. The government recognizes that it makes little sense to spend
the same administrative costs on these importations as the government
does for high-value importations only to collect minimum amounts of
duties and taxes.
C1d. Conditionally-Free and Duty-Exempt Importations

1. Conditionally-free importation
a. These are imported articles that are allowed to enter the Philippines free
of duties and taxes after the compliance with certain conditions as imposed in
the Tariff and Customs Code and other Customs regulation.
b. Kinds of Conditionally-free importations; Those:
i. Provided in Sec. 105, TCC (now Sec. 800, CMTA);
ii. Granted to government agencies, instrumentalities and GOCCs in
agreements with foreign countries;
iii. Given to international institutions entitled to exemption by
agreement or special laws;
iv. Granted by the President upon recommendation of NEDA;
v. *****Those provided in the Code in favor of RETURNING
RESIDENTS with respect to their personal and household effects:
(a) Personal and household effects including luxury items
brought out of the Philippines and returned;
(b) Personal and household effects except luxury items
purchased abroad and imported to the Philippines;
192The imported articles shall in any case be subject to the regular physical examination when: (2012
Bar Question)*****: a) The importer disagrees with the findings as contained in the government
surveyor’s report; b) The number, weight and nature of packages indicated in the customs entry
declaration and supporting documents differ from that in the manifest; c) The container is not
leaking or damaged; d) The shipment is covered by alert/hold orders issued pursuant to an existing
order.
(c) The purchase abroad of consumables, livelihood tools,

personal and household effects by Overseas Filipino Workers (OCW) and
Balikbayans;
(d) The purchase abroad of consumables, livelihood tools,
personal and household effects by Overseas Filipino Workers (OCW) and
Balikbayans at Philippine duty-free shops; and
(e) Personal and household effects of members of Philippine
diplomatic missions including civil or military attaches.
c. *****Returning residents for purposes of conditionally-free
importation of personal and household effect must be those:
i. Nationals (Filipino);
ii. Who have stayed in the foreign country;
iii. For a period of AT LEAST six (6) months.
2. Absolutely-free or Duty-Free/Exempt importation. Enterprises located in
special economic zones are allowed to import capital equipment and raw
materials free from duties, taxes and other import restrictions (R.A. 7916).
a. Exemptions/Duty-Free Concessions:
i. Adult Passengers:
(a) Two (2) reams of cigarette or two (2) tins of tobacco
(b) Two (2) bottles of liquor or wine not exceeding one (1)
liter per bottle
ii. Balikbayan and Overseas Filipino Workers (OFWs) are entitled
to Php150,000,00 duty exemption on their USED personal and household
effects. Any excess thereof is subject to an ad valorem duty (Executive Order 206). In
addition, OFWs are entitled to duty and tax-free privileges on their USED appliances
limited to one of every kind provided the total value does not exceed
PHP150,000.00. Any excess is subject to duty and tax.
b. Balikbayan Categories
i. Filipino citizen who has been continuously out of the
Philippines for a period of at least one (1) year from the date of last
departure;
ii. A Filipino overseas worker (OFW); or
iii. Former Filipino with foreign passport and members of his
family (i.e. spouse and children) who are traveling with him. (LUMBERA
NOTES)
3. The following are the significant amendments to conditionally-free
importation (Sec. 800, CMTA):
a. The amount of bond requirement conditioned for the exportation or
payment of the corresponding duties, taxes and other charges (DTO) of certain
importations has been reduced from 1 ½ times the ascertained DTO to 100%
of the ascertained DTO.
b. *****Personal and household effects of returning residents or

OFWs should arrive with them or within a reasonable time after their arrival
but not to exceed 60 days after the owner’s return (previously 90 days). (Sec.
800[f], CMTA)
c. To be free from tax and duty, the FCA or FOB value of the returning
residents’ personal and household effects and other goods expressly allowed to be
conditionally free SHOULD NOT EXCEED:
i. P350,000 for those who have stayed in the foreign country for at
least 10 years and have not availed of this privilege within 10 years prior to
arrival (previous amount is P10,000);
ii. P250,000 for those who have stayed in the foreign country for at
least 5 but not more than 10 years and have not availed of this privilege within
5 years prior to arrival (previous amount is P10,000);
iii. P150,000 for those who have stayed in a foreign country for a
period of less than 5 years and have not availed of this privilege within 6
months prior to arrival (previous amount is P10,000); NB: ANY AMOUNT IN
EXCESS of the above-stated threshold shall be subject to the corresponding
duties and taxes. (Sec. 800[f], CMTA)
d. To be free from tax or duty, the FCA of the household effects or duty-
free appliances of a returning OFW should not exceed P150,000 and this privilege
may be availed only once in a given calendar year. (Sec. 800[f], CMTA)
c. To be free of tax and duty, the FCA value of coffins or urns containing
human remains, bones or ashes, used personal and household effects of the
deceased should not exceed P150,000. (Sec. 800[q], CMTA)
d. To be free of tax and duty, the FCA value of commercial samples of any
kind should not exceed P50,000 (previous amount is P10,000) (Sec. 800[r],
CMTA)
4. Conditionally-free importations as amended under Sec. 800 of the CMTA
(previously Sec. 105 of TCC):
ARTICLES REQUIREMENTS EXCEPTIONS
1. Aquatic a. Caught or gathered by fishing vessels of Philippine registry
Products b. Imported in such vessels or in crafts attached thereto
c. Have not landed in any foreign territory; or
d. If so landed, solely for transshipment without having been
advanced in condition.
2. Equipment for a. Payment of bond equal to 100% of the ascertained duties,
salvage of vessels taxes and other charges (DTO) thereon
and aircrafts b. Conditioned on: i. Exportation or ii. Payment of DTO
unavailable locally within 6 months from acceptance of import entry. NB: Under
TCC of 1987, the amount of bond is equal to 1 ½ of the
ascertained DTO
3. Cost of repairs Satisfactory proof to the Collector of Customs of:

made in foreign a. Adequate facilities for repairs not afforded in the
countries on Philippines
Philippine b. Vessel/aircraft was compelled by stress of weather or other
registered/ casualty to dock into a foreign port to secure safety and sea/
licensed vessels or air-worthiness
aircrafts c. Excluding the value of the article used
4. Articles Bond in amount equal to 100% the ascertained DTO thereon,
brought for conditioned on:
repairs, a. exportation
processing or b. payment of DTO within 6 months from acceptance of
reconditioning to import entry. NB: Under TCC of 1987, the amount of bond
be exported upon is equal to 1 ½ of the ascertained DTO
completion of
repairs
5. Medals, badges, Bestowed as trophies or prizes or those received as honorary
cups and other distinction
small articles
6. a. Personal and a. Formally declared and listed before departure Vehicles,

household effects b. Identified under oath before Collector watercrafts,
of residents of the c. Personal and household effects shall neither be in aircraft and
Philippines commercial quantities nor intended for barter, sale, hire animals
returning from d. FCA or FOB value not exceeding: 1. P350,000 for those purchased in
abroad including who have stayed in the foreign country for at least 10 years foreign
household
and have not availed of this privilege within10 years prior to countries which
appliances, jewelry,
precious stone and arrival; (previous amount P10,000) 2. P250,000 for those who were necessary,
other goods of have stayed in the foreign country for at least 5 but not more appropriate,
luxury than 10 years and have not availed of this privilege within 5 normally used
b. Personal and years prior to arrival; (previous amount P10,000) 3. P150,000 for comfort and
household effects for those who have stayed in a foreign country for a period of convenience
purchased in less than 5 years and have not availed of this privilege within 6 during their stay
foreign countries months prior to arrival; (previous amount P10,000) NB: Any abroad.
by residents of the amount in excess of the above-stated threshold shall be
Philippines which subject to the corresponding duties and taxes.
were necessary, e. In addition, returning OFWs shall have the privilege to
appropriate and bring in, tax and duty-free home appliances and other
normally used for the
durables, limited to one of every kind once in every given
convenience in their
journey and during calendar year accompanying them in their return or arriving
their stay abroad within reasonable time not exceeding 60 days provided that
including wearing the FCA value shall not exceed P150,000
toilet goods,
apparel, goods of
personal adornment,
instruments related
to one’s profession
and analogous
personal or
household effects
NB: Returning
residents shall refer
to nationals who have
stayed in a foreign
country for a period
of at least six (6)
months
7. Residents, a. *****Balikbayan boxes shall contain personal and

OFWs or other household effects only
Filipinos while b. Shall neither be in commercial quantities nor intended
residing abroad or for barter, sale or for hire
upon their return c. FCA value of which shall not exceed P150,000
to the Philippines d. Privilege may be availed up to 3 times in a calendar year
shall be allowed
to bring in or
send balikbayan
boxes which shall
be exempt from
duties and taxes
8. Wearing Written commitment or bond equal to 100% of the Not applicable

apparel, articles ascertained DTO conditioned on: i. Exportation ii. payment to articles
of personal of DTO within 3 months from acceptance of import entry intended for
adornment, NB: Under TCC of 1987, the amount of bond is equal to 1 ½ other persons
theatrical of the ascertained DTO or for barter,
costumes and sale or hire.
similar effects
accompanying
travelers or
tourists, in
quantities and
kind necessary
and suitable to
the profession,
rank or position
of the person
importing them
for their own use.
9. Personal and In quantities and of the kind necessary and suitable to the
household effects profession, rank or position of the person importing them.
and vehicles Bureau may require written commitment or bond equal to
belonging to 100% of the ascertained DTO conditioned on: a. Exportation
foreign b. payment of DTO within 3 months from acceptance of
consultants and import entry
experts hired by NB: Under TCC of 1987, the amount of bond is equal to 1 ½
and/or rendering of the ascertained DTO
services to the
Government and
their staff or
personnel and
families.
10. Professional a. In quantities and of the class suitable to their profession, Vehicles,
instruments and rank or position vessels, aircrafts,
implements, tools b. For their own use and not for barter or sale, accompanying machineries and
of trade, such persons other similar
occupation or c. Arriving within reasonable time d. Upon satisfactory goods for use in
employment, evidence that such persons are actually coming to settle in the manufacture
wearing apparel, Philippines
domestic animals, e. Goods are brought from their former place of abode
and personal and
household effects
belonging to
persons coming
to settle in the
Philippines or
Filipinos or their
families and
descendants who
are now residents
or citizens of
other countries
11. a. Goods used a. Identification, examination, appraisal

exclusively for b. Payment of bond equal to 100% of the ascertained DTO
public conditioned on: iii. Exportation iv. payment of DTO within 6
entertainment months from acceptance of import entry
and for display in Underdeveloped and underexposed outside the Philippines
public films require an affidavit by the importer that such films were
expositions, or previously exported from the Philippines
for exhibition or NB: Under TCC of 1987, the amount of bond is equal to 1 ½
competition for of the ascertained DTO
prizes, and
devices for
projecting
pictures and parts
and
appurtenances
thereof
b. Goods brought
by foreign film
producers directly
and exclusively
used for making
or recording
motion picture
films on location
in the Philippines
12. Importations a. Foreign countries accord like privileges to Philippines
for the official agencies
use of foreign b. Privilege granted upon instruction of the Secretary of
embassies, Finance upon request by the DFA
legations and c. Privileges must be contained in a special agreement between
other agencies the Philippines and a foreign country
Articles for
personal or family
use of members
and attaches of
foreign embassies,
legation, consular
offices and
foreign
representatives
13.Imported Certified by DSWD , DepED, or DOH
articles donated
to or for the
account of any
duly registered
relief
organization not
operated for
profit, for free
distribution
among the needy
14. Containers, a. Identification, examination, appraisal Other

holders and b. Payment of bond equal to 100% of the ascertained duties, containers made
similar receptacles taxes and other charges (DTO) thereon of paper,
of any material c. Conditioned on: i. Exportation or ii. Payment of DTO paperboard and
including kraft within 6 months from acceptance of import entry fabrics which
paper bags for NB: Under TCC of 1987, the amount of bond is equal to 1 ½ are readily
locally of the ascertained DTO identifiable and
manufactured reusable for
cement for shipment
export, including
corrugated boxes
for bananas,
mangoes,
pineapples and
other fresh fruits
for export
15. Necessary a. Any surplus or excess of such vessel or aircraft supplies
supplies for the arriving from foreign ports shall be dutiable
reasonable b. For use or consumption by passengers or its crew on board
requirements of
the vessel or
aircraft in her
voyage outside
the Philippines
16. Goods and Parts must be from a foreign vessels have been wrecked or
salvage from abandoned in Philippine waters (or elsewhere) Goods and
vessels recovered salvage recovered within the said period of two (2) years shall
after a period of be dutiable
2 yrs from the
date of filing of
the marine
protest or the
time when the
vessel was
wrecked or
abandoned
17. Coffins or FCA value does not exceed P150,000 Vehicles
urns containing
human remains,
bones or ashes,
used personal and
household effects
of the deceased
18. a. Samples of a. For the purpose of introducing new goods in the Philippine
the kind, in such market
quantity and of b. Imported only once in a quantity sufficient for such
such dimension purpose by a person duly registered to engage in trade
or construction as c. Such importations shall be previously authorized by the
to render them Secretary of Finance
unsaleable or of d. importation of sample medicines shall have been previously
no commercial authorized by the Secretary of Health, and that such samples
value are new medicines not available in the Philippines
b. models not e. FCA value does not exceed P50,000 f. giving of a security in
adapted for an amount equal to the ascertained DTO, conditioned for the
practical use exportation of said samples within 3 months
c. samples of g. if the FCA value exceeds P50,000, the importer thereof
medicines, may select any portion of the same not exceeding P50,000 and
properly marked the excess of the consignment may be entered in bond, or for
“sample-sale consumption
punishable by
law”
19. Animals and a. By order of the Government and other duly authorized Race Horses
plants for institutions
scientific, b. Duly registered in the book of record established for that
experimental, breed
propagation, c. Certificate of record and pedigree of such animal duly
botanical, authenticated by the proper custodian
breeding, d. NEDA certification
zoological and
national defense
purposes
20. Economic,
technical,
vocational,
scientific,
philosophical,
historical and
cultural books
and/or
publications;
bibles, missals,
prayer books,
Koran Ahadith,
other religious
books
21. Philippine If a drawback or bounty was allowed to any Philippine article,
articles previously upon re-importation, article shall be subject to duty equal to
exported from the bounty or drawback
the Philippines
and returned
without having
advanced in value
or improved in
condition by any
process of
manufacture
22. Aircraft a. Such articles or supplies are not available locally (in
equipment, reasonable quantity, quality and price)
machinery, spare b. Articles are necessary or incidental for the proper operation
parts, commissary of airline importing
and catering
supplies, aviation
gas, fuel and oil
and such other
articles or
supplies imported
by and for the use
of scheduled
airlines operating
under
congressional
franchise
23. Machineries, a. Certification of DAR and DENR Secretaries upon
equipment, tools recommendation of Director of Mines
for production b. Articles are not locally available
plants to convert
to mineral ores
into saleable
form, spare parts,
supplies, materials
and accessories,
explosives,
chemicals and
transportation
and
communication
facilities imported
by and for the use
of mines
24. Spare parts of Satisfactory proof to the Collector of Customs that such
vessels or spare parts shall be utilized to secure the safety of the vessel
aircrafts of or aircraft to enable it to continue its voyage or flight
foreign registry
engaged in
foreign trade
brought into the
Philippines
exclusively as
replacements and
emergency repairs
25. Articles of a. Without having been substantially advanced in value
easy identification b. Subsequently reimported in its original form and in the
exported from same state
the Philippines c. Not capable of being repaired locally
for repair, In case the reimported goods advanced in value, whether or
processing or not in their original state, the value added shall be subject to
reconditioning the applicable duty rate of the tariff heading of the
reimported goods
26. Trailer chassis a. Posting of bond in amount equal to 100% the ascertained
imported by duties and other charges
shipping b. Properly identified and registered with the LTO
companies for c. Subject to customs supervision fee fixed by the Collector of
their exclusive use Customs
in handling d. Deposited in the Customs zone when not in use e. e. Duties
containerized and taxes paid upon the expiration of the period prescribed
cargo UNLESS otherwise re-exported
NB: Under TCC of 1987, the amount of bond is equal to 1 ½
of the ascertained DTO
27. Any officer or a. The motor car must have been ordered or purchased prior
employee of the to the receipt by the mission or consulate of the order of
DFA, including recall, and must be registered in the name of the officer or
any attaché, civil employee
or military or b. The value of the motor car and to the aggregate assessed
member of the value of the personal and household effects should not exceed
staff assigned to a 30% of the total amount received by the officer or employee
Philippine in salary and allowances during the latest assignment abroad,
diplomatic but not to exceed 4 years
mission abroad c. Exemption shall not be availed of more than once every
by the four (4) years
Department or d. The officer or employee concerned must have served
any similar officer abroad for not less than two (2) years.
or employee of
other
departments
assigned to any
Philippine
consular office
abroad, or any
AFP military
personnel
accorded
assimilated
diplomatic rank
or on duty abroad
who is returning
from a regular
assignment
abroad, for
reassignment to
the home office,
or who dies,
resigns, or is
retired from the
service, after the
approval of this
Act, shall be
exempt from the
payment of all
duties and taxes
on personal and
household effects,
including one (1)
motor car
5. WHAT ARE THE CONDITIONS AND LIMITATIONS ATTACHED TO
TAX EXEMPTION PRIVILEGES? *****The following are the conditions for
availment of duty and tax privileges;
a. Presentation to the Bureau of Customs of a favorable written
endorsement which department controls the availment of duty and tax free
exemptions.
b. The goods extended duty and tax free privilege are not to be sold,
bartered nor traded.
c. The quantity is not commercial.
d. The goods are not prohibited importations. (See Chapter VI.
Prohibited/Restricted Importations)
e. For regulated items, endorsements from the proper regulatory
agency. (See Chapter V. Pet/Animals & Household Plants)
*For items below: http://www.manilaforwarder.com/vehicleshipment.html
5. WHO IS QUALIFIED TO IMPORT USED MOTOR VEHICLES? Under
Executive Order No. 284 as implemented by BIS, in relation to BSP Circular-
Letter, Series of 1995, dated October 19, 1995, the following individuals may be
allowed to bring in used motor vehicles:
a. A returning Filipino or a former Filipino citizen who has stayed abroad
for more than a year;
b. An immigrant to the Philippines (shall be at least a holder of a 13G Visa
duly issued by the Bureau of Immigration and Deportation).
Provided further that:
a. Only one (1) unit motor vehicle per family is allowed to be brought in. (A
motorcycle is considered a motor vehicle for this purpose).
b. The vehicle is registered in his name for at least six (6) months prior to
shipment to the Philippines;
c. Proof can be presented that the vehicle was acquired out of the earnings
abroad.
6. IS PERSONAL PRESENCE OF THE CAR-OWNER NECESSARY?
Personal presence by the car-owner of the used motor vehicle is required.
7. IS THERE ANY OTHER RESTRICTION ON THE MOTOR VEHICLE
THAT MAY BE BROUGHT IN? Yes. Whether brand-new or not, the motor
vehicle should be left-hand drive.
8. IS THE IMPORTED VEHICLE SUBJECT TO TAXES AND DUTIES? Yes.
Whether brand-new or used, purchased or donated, the imported vehicle is
subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from 15% to 100%
depending on its piston displacement. Its book value serves as the tax base and
not the purchase price nor the acquisition cost. The book value is sourced from
universally accepted motor vehicle reference books such as the Red Book, Blue
Book, World Book depending on the origin of the imported vehicle
9. ARE SPARE PARTS SENT WITH THE MOTOR VEHICLE ALSO
TAXABLE? Yes. These are taxed separately.
10. Q: Jacob, after serving a 5-year tour of duty as military attaché in Jakarta,
returned to the Philippines bringing with him his personal effects including a
personal computer and a car. Would Jacob be liable for taxes on these items?
Discuss fully. (2005 Bar Question) A: No. *****Jacob would not be liable for
the payment of taxes on his personal effects including a personal computer
and a car provided he is able to prove his qualification for conditional free
importation. The requirements are: 1. The officer or employee is for
reassignment to his home office, or dies, resigns or is retired from the service;
2. The motor car must have been ordered or purchased prior to the receipt by
the mission or consulate of the order of recall, must be registered in the
employee’s name; 3. The personal effects should not exceed 30% of the total
amount received by such employee or officer in salary and allowances during
his latest assignment abroad but not to exceed four years; 4. The exemption shall
not be availed of oftener than once every four years; 5. The officer or
employee concerned must have served abroad for not less than two years. (Sec.
105, TCC)
11. [] Q: X and his wife, Y, Filipinos living in the Philippines, went on a three-
month pleasure trip around the world during the months of June, July and
August 2015. In the course of their trip, they accumulated some personal
effects which were necessary, appropriate and normally used in leisure trips,
as well as souvenirs in non-commercial quantities. Are they "returning residents"
for purposes of Section 105 of the Tariff and Customs Code? (2003 Bar) A: NO.
*****The term "returning residents" refers to nationals who have stayed in a
foreign country for a period of at least six (6) months. (Section 105(f), TCC).
Due to their limited duration of stay abroad X and Y are not considered as
"returning residents" but they are merely considered as travelers or tourists
who enjoy the benefit of conditionally free importation.
12. [] Q: Mr. Balikbayan has a used car among the items he brought home to the
Philippines where he will resettle permanently after living forty years in
California, USA. He also brought along a VCD machine and a stereo. Discuss
whether or not he is liable for payment of import duties for bringing to the
Philippines the above-mentioned items (1988 Bar Question). A: *****Mr.
Balikbayan is considered as a returning resident entitled to tax and duty free
entry of his VCD machine and stereo, the said articles being considered as used
personal and household effects. He is, however, required to pay import
duties for the used car which is not considered as part of his personal and
household effects entitled to tax and duty free entry.
13. [] Q: Are tax-free goods required to enter into a customs house even the
imported will not pay a tax? A: YES. ******TCC provides that all articles
imported into the Philippines, whether subject to tax or not, shall be
entered into a customs house at a port of entry. Violation of TCC is a valid
ground for the search and seizure of the properties or articles.
——————————————
C2. Goods Declaration

a. Formal Entry
b. Filing of Goods Declaration
c. Assessment and Payment of Duties and Taxes, Interest and Surcharge

d. Provisional Goods Declaration
e. Relief Consignment
f. Misdeclaration, Misclassification and Undervaluation in Goods
Declaration
f1. Definition and Distinction
f2. Imposition of Surcharge
C2. Goods Declaration

1. Importations Subject to Goods Declaration – Unless otherwise provided for in
this Act, all imported goods shall be subject to the lodgement of a goods
declaration. A goods declaration may be for consumption, for customs bonded
warehousing, for admission, for conditional importation, or for customs transit.
(Sec. 401 CMTA)
C2a. Formal Entry

[] Goods Declaration for Consumption – All goods declaration for consumption
shall be cleared through a formal entry process except for the following goods
which shall be cleared through an informal entry process:
1. Goods of a commercial nature with Free on Board (FOB)193 or Free Carrier
At (FCA)194 value of less than fifty thousand pesos (P50,000.00). Every three (3)
years after the effectivity of this Act, the Secretary of Finance shall adjust this
amount as provided herein to its present value, using the Consumer Price Index
(CPI) as published by the PSA; and
b. Personal and household effects or goods, not in commercial quantity,
imported in a passenger's baggage or mail. NB: The Commissioner may adjust the
value of goods of commercial nature that shall be cleared through an informal
entry process without prejudice to the periodic adjustment period in subparagraph
(a) of this section. All importations entered through a formal entry process shall
193Seller delivers goods, cleared for export, loaded on board the vessel at the named port.
Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs
thereafter. Use of this rule is restricted to goods transported by sea or inland waterway. In practice it
should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk
cargos or non-containerised goods. For containerised goods, consider “Free Carrier FCA” instead.
194"Free Carrier” (FCA) means that the seller fulfils his obligation to deliver when he has handed
over the goods, cleared for export, into the charge of the carrier named by the buyer at the named
place or point. In all cases, the seller is responsible for export clearance; the buyer assumes all
risks and costs after the goods have been delivered at the named place. FCA is the rule of choice
for containerised goods where the buyer arranges for the main carriage. For example: 1. Seller
arranges pre-carriage from seller’s depot to the named place, which can be a terminal or transport hub,
forwarder’s warehouse etc. Delivery and transfer of risk takes place when the truck or other
vehicle arrives at this place, ready for unloading – in other words, the carrier is responsible for
unloading the goods. (If there is more than one carrier, then risk transfers on delivery to the first
carrier.); 2. Where the named place is the seller’s premises, then the seller is responsible for
loading the goods onto the truck etc. NB this is an important difference from Ex Works EXW
be covered by a letter of credit or any verifiable commercial document evidencing

payment or in cases where there is no sale for export, by any commercial
document indicating the commercial value of the goods. (Sec. 402 CMTA)
C2b. Filing of Goods Declaration

Goods declaration must be lodged within fifteen (15) days from the date of
discharge of the last package from the vessel or aircraft. The period to file the
goods declaration may, upon request, be extended on valid grounds for another
fifteen (15) days: Provided, That the request is made before the expiration of the
original period within which to file the goods declaration: Provided, however, That
the period of the lodgement of the goods declaration maybe adjusted by the
Commissioner. (Sec. 407 CMTA)
C2c. Assessment and Payment of Duties and Taxes, Interest and Surcharge
1. Determination of the De Minimis Value – No duties and taxes shall be
collected on goods with an FOB or FCA value often thousand pesos (P10,000.00)
or below. The Secretary of Finance shall adjust the de minimis value as provided
herein every three (3) years after the effectivity of this Act. (Sec. 423 CMTA)
2. Tentative Assessment of Goods Subject to Dispute Settlement – Assessment
shall be deemed tentative if the duties and taxes initially assessed are disputed by
the importer. The assessment shall be completed upon final readjustment based
on the tariff ruling in case of classification dispute, or the final resolution of the
protest case involving valuation, rules of origin, and other customs issues. The
District Collector may allow the release of the imported goods under tentative
assessment upon the posting of sufficient security to cover the applicable duties
and taxes equivalent to the amount that is disputed. (Sec. 425 CMTA)
3. Final Assessment – Assessment shall be deemed final fifteen (15) days after
receipt of the notice of assessment by the importer or consignee. (Sec. 429
CMTA)
4. Period of Limitation – In the absence of fraud and when the goods have been
finally assessed and released, the assessment shall be conclusive upon all parties
three (3) years from the date of final payment of duties and taxes, or upon
completion of the post clearance audit. (Sec. 430 CMTA)
5. Release of Goods after Payment of Duties and Taxes – Goods declared shall be
released when duties and taxes and other lawful charges have been paid or secured
and all the pertinent laws, rules and regulations have been complied with. When
the Bureau requires laboratory analysis of samples, detailed technical documents
or expert advice, it may release the goods before the results of such examination
are known after posting of sufficient security by the declarant. (Sec. 431 CMTA)
6. Withholding Release Pending Satisfaction of Lien – When the District Collector
is duly notified through a lawful order of a competent court of a Hen for freight,
lighterage or general average upon any imported goods, the District Collector shall
withhold the release of the goods unless the claim has been paid or secured. In
case of disagreement, the District Collector may release the goods after payment
of the freight and lighterage due on the quantity or weight landed as actually
determined. (Sec. 435 CMTA)
7. Fine or Surcharge on Goods – Goods subject to any fine or surcharge shall be
released only after the payment of the fine or surcharge. (Sec. 436 CMTA)
C2d. Provisional Goods Declaration

1. Where the declarant does not have all the information or supporting documents
required to complete the goods declaration, the lodging of a provisional goods
declaration may be allowed:
a. Provided, That it substantially contains the necessary information
required by the Bureau and the declarant undertakes to complete the information
or submit the supporting documents within forty-five (45) days from the filing of
the provisional goods declaration, which period may be extended by the Bureau
for another forty-five (45) days for valid reasons.
b. If the Bureau accepts a provisional goods declaration, the duty treatment
of the goods shall not be different from that of goods with complete declaration.
i. Goods under a provisional goods declaration may be released upon
posting of any required security equivalent to the amount ascertained to be the
applicable duties and taxes. (Sec. 403 CMTA)
C2d. Relief Consignment

1. Goods such as food, medicine, equipment and materials for shelter, donated or
leased to government institutions and accredited private entities for free
distribution to or use of victims of calamities shall be treated and entered as relief
consignment. (Sec. 120 CMTA)
2. Upon declaration of a state of calamity, clearance of relief consignment shall
be a matter of priority and subject to a simplified customs procedure. The Bureau
shall provide for:
a. Lodging of a simplified goods declaration or of a provisional or
incomplete goods declaration subject to completion of the declaration within a
specified period;cralawlawlibrary
b. Lodging, registering and checking of the goods declaration and
supporting documents prior to the arrival of the goods, and their release upon
arrival;cralawlawlibrary
c. Clearance beyond the designated hours of business or away from customs
offices and waiver of any corresponding charges; and
d. Examination and/or sampling of goods only in exceptional
circumstances. NB: The Department of Finance (DOF) and the Department of
Social Welfare and Development (DSWD) shall jointly issue the rules and
regulations for the implementation of this provision. (Sec. 120 CMTA)
3. Duty and Tax Treatment – Relief consignment, as defined in Section 120,

imported during a state of calamity and intended for a specific calamity area for
the use of the calamity victims therein, shall be exempt from duties and taxes.
(Sec. 121 CMTA)
C2f. Misdeclaration, Misclassification and Undervaluation in Goods

Declaration
1. Definition and Distinction
a. Misdeclaration - false or erroneous declaration as to quantity, quality,
description, weight, or measurement of the goods resulting to a discrepancy in
duty and tax to be paid between what is legally determined upon assessment and
what is declared
b. Misclassification - insufficient or wrong description of the goods or use
of wrong tariff heading resulting to a discrepancy in duty and tax to be paid
between what is legally determined upon assessment and what is declared
c. Undervaluation - when:
i. the declared value fails to disclose in full the price actually paid or
payable or any dutiable adjustment to the price actually paid or payable; or
ii. when an incorrect valuation method is used or the valuation rules
are not properly observed, resulting in a discrepancy in duty and tax to be paid
between what is legally determined as the correct value against the declared value.
(Sec. 1400 CMTA)
2. Imposition of Surcharge
a. When there is misdeclaration or misclassification - the importer/taxpayer
shall be subject to a surcharge equivalent to two hundred fifty percent (250%) of
the duty and tax due.
i. No surcharge shall be imposed when the discrepancy in duty is less
than ten percent (10%), or when the declared tariff heading is rejected in a formal
customs dispute settlement process involving difficult or highly technical question
of tariff classification, or when the tariff classification declaration relied on an
official government ruling.
b. When the undervaluation is established without the need to go through
the formal dispute settlement process provided for in this Act, a surcharge shall be
imposed equivalent to two hundred fifty percent (250%) of the duty and tax due.
i. No surcharge shall be imposed when the discrepancy in duly is less
than ten percent (10%); or the declared value is rejected as a result of an official
ruling or decision under the customs dispute settlement process involving difficult
or highly technical question relating to the application of customs valuation rules.
c. A discrepancy in duty and tax to be paid between what is legally
determined and what is declared amounting to more than thirty percent (30%)
shall constitute a prima facie evidence of fraud.
d. When the misdeclaration, misclassification or undervaluation is

intentional or fraudulent, such as when a false or altered document is submitted
or when false statements or information are knowingly made, a surcharge shall be
imposed equivalent to five hundred percent (500%) of the duty and tax due and
that the goods shall be subject to seizure regardless of the amount of the
discrepancy without prejudice to the application of fines or penalties provided
under Section 1401 of this Act against the importer and other person or persons
who willfully participated in the fraudulent act. (Sec. 1400 CMTA)
———————————————
D. Unlawful Importation and Exportation (Exclude Penalties)

D1. Technical Smuggling and Outright Smuggling
D2. Other Fraudulent Practices
—————————————————————————
D. Unlawful Importation and Exportation
D1. Technical Smuggling and Outright Smuggling

1. *****Smuggling refers to an act of any person who:195
a. FRAUDULENTLY imports or brings into PH any article contrary to
law; or
b. ASSISTS in RECEIVING, CONCEALING, BUYING, SELLING,
DISPOSING or TRANSPORTING such goods, WITH FULL KNOWLEDGE
that the same has been FRAUDULENTLY IMPORTED; or
c. FRAUDULENTLY exports goods. [Sec. 103(nn), CMTA].196
195[] SECTION 3602 (TCC). Various Fraudulent Practices against Customs Revenue. — Any person
who makes or attempts to make any entry of imported or exported article by means of any false
or fraudulent invoice, declaration, affidavit, letter, paper, or by means of any false statement, written
or verbal, or by means of any false or fraudulent practice whatsoever, or shall be guilty of any willful
act or omission by means of whereof the Government might be deprived of the lawful duties, taxes
and other charges, or any portion thereof, accruing from the article or any portion thereof, embraced or
referred to in such invoice, declaration, affidavit, letter, paper, or statement, or affected by such act or
omission, shall, for each offense, be punished by a fine of not less than six hundred pesos nor more
than five thousand pesos and by imprisonment for not less than six months nor more than two years
and if the offender is an alien, he shall be deported after serving the sentence.
196 Choose the correct answer. Smuggling - (1%) (A) does not extend to the entry of imported or
exported articles by means of any false or fraudulent invoice, statement or practices; the entry of goods
at less than the true weight or measure; or the filing of any false or fraudulent entry for the payment of
drawback or refund of duties. (B) is limited to the import of contraband or highly dutiable cargo
beyond the reach of customs authorities. (C) is committed by any person who shall fraudulently
import or bring into the Philippines, or assist in so doing, any article, contrary to law, or shall
receive, conceal, buy, sell or any manner facilitate the transportation, concealment or sale of
such article after importation, knowing the same to have been imported contrary to law. (2014
Bar Question)
2. Port of entry - It is a domestic port open to both foreign and coastwise

trade including “airport of entry”. (Sec. 3514, TCC) All articles imported into
the Philippines whether subject to duty or not shall be entered through a customs
house at a port of entry. NB: The Philippines is divided into various ports of
entry. *****Entry in any place other than those ports will be considered
smuggling.
3. Fraudulent or false declaration of imported or exported articles is
smuggling.197
4. Outright vs. Technical Smuggling*****
a. Outright Smuggling refers to an act of importing goods into the
country without complete customs prescribed importation documents, or
without being cleared by customs or other regulatory government agencies,
for the purpose of evading payment of prescribed taxes, duties and other
government charges (Sec. 103(ff), CMTA).
b. Technical Smuggling refers to the act of importing goods into the
country by means of fraudulent, falsified or erroneous declaration of the
goods to its nature, land, quality, quantity or weight, for the purpose of reducing
or avoiding payment of prescribed taxes, duties and other charges (Sec. 103(pp),
CMTA).
5. Things subject to confiscation in smuggling cases
GR: Anything that was used for smuggling is subject to confiscation, like
the vessel, plane, etc. (Llamado v. Commissioner of Customs, G.R. No. L-28809,
May 16, 1983).
197*Bar 2014: Smuggling is committed by any person who shall fraudulently import or bring into the
Philippines, or assist in so doing, any article, contrary to law, or shall receive, conceal, buy, sell or
any manner facilitate the transportation, concealment or sale of such article after importation,
knowing the same to have been imported contrary to law.
[] Example of smuggling: Mr. Z made an importation which he declared at the Bureau of
Customs (BOC) as "Used Truck Replacement Parts". Upon investigation, the container vans contained
15 units of Porsche and Ferrari cars. Why? Under Section 3602 of the Tariff and Customs Code of the
Philippines, *****fraudulent or false declaration of imported or exported articles is smuggling.
The following are WRONG: Mr. Z did not commit smuggling because he submitted his shipment to
BOC examination; Mr. Z only made a misdeclaration, but did not commit smuggling; Mr. Z did not
commit smuggling because the shipment has not left the customs area.
XPN: Common carriers which are not privately chartered cannot be

confiscated.198 NB: Common carriers are generally not subject to forfeiture
except if the owner has knowledge of and consented to its use in smuggling. Lack of
personal knowledge of the owner or carrier does not constitute a valid
defense in forfeiture cases.
6. ******Elements of smuggling or illegal importation:
a. That the merchandise must have been fraudulently or knowingly
imported contrary to law;199
b. That the defendant, if he is not the importer himself, must have
received, concealed,200 bought, sold or in any manner facilitated the
transportation, concealment or sale of the merchandise; and
c. That the defendant must be shown to have knowledge that the
merchandise has been illegally imported.
7. Proof before a person may be found guilty of smuggling:
198Q: In smuggling a shipment of garlic, the smugglers used an eight-wheeler truck which they
hired for the purpose of taking out the shipment from the customs zone. Danny, the truck owner,
did not have a certificate of public convenience to operate his trucking business. Danny did not
know that the shipment of garlic was illegally imported. Can the Collector of Customs of the
port seize and forfeit the truck as an instrument in the smuggling? (1994 Bar) A: YES, since the
same was used unlawfully in the importation of smuggled articles. The mere carrying of such
articles on board the truck (in commercial quantities) shall subject the truck to forfeiture, since it
was not being used as a duly authorized common carrier, which was chartered or leased as such.
(Sec. 2530 [a], TCC) Moreover, although forfeiture of the vehicle will not be effected if it is established
that the owner thereof had no knowledge of or participation in the unlawful act, there arises a prima
facie presumption or knowledge or participation if the owner is not in the business for which the
conveyance is generally used. Thus, not having a certificate of public convenience to operate a
trucking business, he is legally deemed not to have been engaged in the trucking business.
(Sec. 2531, TCC)
199 Q: An information was filed against Jardeleza in violation of the TCC for bringing 20.1 kilograms of
assorted gold jewelry with an estimated value of P7,562,231.50. Such was effected by hiding said jewelry
inside a hanger bag and, by not declaring it in the Customs Declaration form and, by verbally denying
that she is carrying said items by answering “no” when asked by Bureau of Customs if she has anything to
declare prior to the actual inspection of her luggage. The accused denied the allegations against her. Is the
accused guilty of smuggling the jewelries? A. YES. A person arriving in the Philippines with baggage
containing dutiable articles is bound to declare the same in all respects. Adequate reporting of dutiable
merchandise being brought into the country is absolutely necessary to the enforcement of customs laws, and
failure to comply with those requisites is as condemnable as failure to pay customs fees. Any administrative
penalty imposed on the person arriving in the Philippines with undeclared dutiable articles is separate from and
independent of criminal liability for smuggling under Sec. 3601 of the TCC and for violation of other provisions
in the TCC.
The phrase “contrary to law” in Sec. 3601 of the TCC qualifies the phrases “imports or brings into
the Philippines” and “assists in so doing,” and not the word “article”. The word “law” includes regulations
having the force and effect of law, meaning substantive or legislative type rules as opposed to general
statements of policy or rules of agency, organization, procedures or positions. (Jardeleza v. People of the
Philippines, G.R. No. 165265, February 06, 2006)
200Q. Mr. Z made an importation which he declared at the Bureau of Customs (BOC) as "Used Truck
Replacement Parts". Upon investigation, the container vans contained 15 units of Porsche and
Ferrari cars. Is Mr. Z guilty of smuggling? (2013 Bar) A. YES. Mr. Z is guilty of smuggling.
*****Concealing or facilitating in the concealment of an article is also a form of smuggling under
Sec. 3601 of the TCC.
GR: *****Mere possession of the alleged smuggled goods is a prima

facie evidence of guilt of smuggling.201
XPN: If defendant could explain that his possession is lawful.
8. Contrabands - These are articles of prohibited importation or exportation.
(Sec. 3519, TCC)
[] Imported goods not considered as contrabands - Imported goods must
be entered into a customs house at their port of entry, otherwise they shall be
considered as contraband and the importer is liable for smuggling. (Sec. 101,
TCC)
9. *****Payment of the tax due is not a defense in smuggling. The law
expressly provides “that payment of the tax due after apprehension shall not
constitute a valid defense in any prosecution under this section.”(Sec. 3601,
TCC)
D2. Other Fraudulent Practices

1. Types of valuation frauds:
a. Undervaluation – reporting lower values than the actual transaction value
b. Overvaluation – reporting values higher than the transaction value
c. False invoice description through reporting lower qualities in the invoice
not identifying branded items as such
d. False country of origin
2. Fraudulent practices considered as criminal offenses against Customs Revenue
Laws:
a. Unlawful importation
b. Entry of imported or exported article by means of any false or
fraudulent practices, invoice, declaration, affidavit, or other documents
c. Entry of goods at less than their true weights or measures or upon a
classification as to quality or value
d. Payment of less than the amount due
e. Filing any false or fraudulent claim for the payment of drawback or
refund of duties upon the exportation of merchandise
f. Filing any affidavit, certificate or other document to secure to himself or
others the payment of any drawback, allowance or refund of duties on the
exportation of merchandise greater than that legally due thereon. (Sec. 3602,
TCC) NB: The CTA held that in the prosecution for the violation of Sec. 3602 of
201Q: Is mere possession of the alleged smuggled goods enough evidence for the conviction of
smuggling? A. YES. After importation, the act of facilitating the transportation, concealment or sale
of the unlawfully imported article must be with the knowledge that the article was smuggled.
However, if upon trial the defendant is found to have been in possession of such article, this shall
be sufficient to authorize conviction unless the defendant explains his possession to the
satisfaction of the court. The receipt, concealment, sale, purchase or the facilitation thereof after the
unlawful importation with the knowledge that the textile is smuggled becomes punishable under
Section 3601 of the Code. (Rodriguez v. CA, G.R. No. 115218, Sept. 18, 1995)
TCC, in relation to Art. 172 of the Revised Penal Code, it must be proven beyond
reasonable doubt that the accused in conspiracy with the other accused, made or
attempted to make an entry of the alleged imported article through the filing of
the said Import Entry at The Bureau of Customs. (People v. Brines et. al., CTA
Criminal Case No. 0-158, July 23, 2012)
—————————————————
E. Remedies
E1. Government
a. Administrative/Extrajudicial
a1. Search, Seizure, Forfeiture and Arrest
a2. Authority of the Commissioner to Compromise
b. Judicial
b1. Rules on Appeal including Jurisdiction
E2. Taxpayer
a. Protest
b. Abandonment
c. Abatement and Refund
E1. Government
E1a. Administrative/Extrajudicial
1. Enforcement of Tax Lien - Tax lien attaches on the goods regardless of
ownership while still in the custody of the Government and it is availed of when
the importation is neither prohibited nor improperly made.
2. Reduction of Customs Duties - see new version under CMTA under
authority of the Commissioner to compromise, infra.
3. Administrative Fine and forfeitures - Administrative fine and forfeiture available
only when the importation is unlawful and may be exercised when the articles are
no longer under the custody of BOC unless the importation is merely attempted
in which case it may be effected only while the goods are still within the
jurisdiction of the BOC or in the hands of the person who is aware thereof.
E1a-1. Search, Seizure, Forfeiture and Arrest

1. These remedies are available in cases of smuggling which may refer to the
following: Prohibited articles; Wrong entry of port; Export of goods contrary to
law; Contraband.
2. *****Doctrine of Primary Jurisdiction of the BOC202 (Doctrine of

Exclusive Customs Jurisdiction over customs cases) - The BOC has EXCLUSIVE
ADMINISTRATIVE JURISDICTION to conduct searches, seizures and
forfeitures of contraband without the interference from the courts. The BOC
could conduct searches and seizures WITHOUT NEED OF JUDICIAL
WARRANT except if search is to be conducted in a dwelling place. NB:
PRIMARY JN is vested in SEIZURES and FORFEITURE PROCEEDINGS in
the COLLECTOR and the COMMISSIONER of Customs to the EXCLUSION
of the regular COURTS [CIR v. Navarro 31 May 1977].
a. Rationale: The rule that the RTC has no power of review over such
proceedings is anchored upon:
i. The policy of placing no unnecessary hindrance on the
government’s drive, not only to prevent smuggling and other frauds upon
Customs; but more importantly,
ii. 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. NB: Warehouse does not become a
dwelling house merely by reason of the fact that a person employed as a
watchman lives in the place.
3. Requisites of the Doctrine of Hot Pursuit in TCC
202 Q: Sometime in 15 September 1990, 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 custom duties, international revenue taxes, fees and other charges, the
packages were released from Manila Customs House. As the packages were being transported from the
customs area to their destination, the truck carrying them was intercepted at TM Kalaw St, Ermita,
Manila by WPD-PNP personnel. In the formal communication, 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. Seizure
proceeding was then instituted and the Collector of Customs issued a warrant of seizure and
detention. During the process and while the goods were being removed by the customs agents from
the bodega where they were stored, the consignee filed a petition with the RTC of Manila asking
that the Collector of Customs and all his agents be restrained from enforcing the warrant aforesaid and
from proceeding with the trial of seizure proceeding and the said warrant be declared void since the
Collector no longer has 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.
(1991 Bar)
a. ******Did the Collector of Customs have jurisdiction to issue the warrant of seizure and
detention? A: YES, because the importation has not yet ended. This is so because the 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? A: NO. Until the correct duties and taxes have been paid and the proper permits then
customs authorities have the authority to issue warrants for seizure and detention.
c. Has the Regional Trial Court jurisdiction to hear and decide the civil case? A: NO, for the
following reasons: i. There should be no unnecessary hindrance on the government’s drive to
prevent smuggling and other frauds upon the Customs. ii. To render effective and efficient the
collection of import and export duties due to the State which enables the government to carry out
the functions it has been instituted to perform. iii. The doctrine of primary jurisdiction.
a. Over vessels:
i. Act is done in Philippines waters;
ii. Act constitutes a violation of TCC;
iii. Pursuit of such vessel began within the jurisdictional waters:
(a) Which may continue beyond the maritime zone;
(b) And the vessel may be seized on the high seas.
b. Over imported articles:
i. There is violation of TCC;
ii. As a consequence, they may be pursued in their transportation in
the Philippines by land, water or air;
iii. Such jurisdiction over them at any place therein as may be
necessary for the due enforcement of the law. (Sec 603, TCC)
4. Persons having police authority to enforce tariff and customs laws
a. Officials of the Bureau, district collectors, police officers, agents,
inspectors and guests of the Bureau;
b. Officers of the Philippine Navy and other members of the AFP and
national law enforcement agencies, when authorized by the Commissioner of
Customs;
c. Officials of the BIR in cases falling within the regular performance of
their duties, when payment of internal revenue taxes are involved;
d. Officers generally empowered by law to effect arrests and execute
processes of courts when acting under the direction of the Collector. (Sec. 2203,
TCC) NB: All persons conferred with powers to enforce tariff and customs laws
may exercise the same at any place within the jurisdiction of the Bureau of
Customs.
5. Nature of Customs Search and Seizure cases
a. They are administrative and civil in nature and are directed against the res
or imported articles and entail the determination of the legality of the
importation. These are actions in rem. Thus, it is of no defense that the owner of
the vessel sought to be forfeited had no actual knowledge that his property was
used illegally. The absence or lack of actual knowledge of such use is a defense
personal to the owner himself, which cannot in any way absolve the vessel from
the liability of forfeiture. (Commissioner of Customs v. Manila Star Ferry, Inc.,
G.R. Nos. 31776-78, Oct. 21, 1993)
b. Forfeiture proceedings are purely civil and administrative in character, the
main purpose of which is to enforce the administrative fines or forfeiture incident
to unlawful importation of goods or their deliberate possession. The penalty in
seizure cases is distinct and separate from the criminal liability that might be
imposed against the indicted importer or possessor and both kinds of penalties
may be imposed. (Peo v. CFI of Rizal, No. L-41686, November 17, 1990)
6. Customs officers on seizure and arrest
a. May seize any vessel, aircraft, cargo, article, animal or other movable
property when the same is subject to forfeiture or liable for any time as imposed
under tariff and customs laws, rules & regulations;
b. May exercise such powers only in conformity with the laws and
provisions of the TCC.
7. Requirements for customs forfeiture of imported goods
a. The wrongful making by the owner, importer, exporter or consignee of
any declaration or affidavit, or the wrongful making or delivery by the same
persons of any invoice, letter or paper - all touching on the importation or
exportation of merchandise;
b. That such declaration, affidavit, invoice, letter or paper is false; and
c. An intention on the part of the importer/consignee to evade the payment
of the duties due. (Republic, etc., v. CTA, et al., G.R. No. 139050, Oct. 2, 2001)
8. Things subject to confiscation in smuggling cases
GR: Anything that was used for smuggling is subject to confiscation, like
the vessel, plane, etc. (Llamado v. Commissioner of Customs, G.R. No. L-28809,
May 16, 1983).
XPN: Common carriers which are not privately chartered cannot be
confiscated. NB: Common carriers are generally not subject to forfeiture except if
the owner has knowledge of and consented to its use in smuggling. Lack of
personal knowledge of the owner or carrier does not constitute a valid defense in
forfeiture cases.
9. Properties are not subject to forfeiture in the absence of prima facie evidence -
The forfeiture of a vehicle, vessel or aircraft shall not be effected if it is
established that the owner thereof or his agent in charge of the means of
conveyance used has no knowledge of or participation in an unlawful act.
10. Subject of customs search and seizure
a. Land or enclosure or any warehouse, store or other building, not being a
dwelling house (Sec. 2208, TCC)
b. Dwelling house (Sec. 2209, TCC). NB: If the search and seizure is to be
conducted in a dwelling place, then a search warrant should be issued by the
regular courts not the Bureau of Customs.203
c. Vessels or aircrafts and persons or articles conveyed therein (Sec. 2210,
TCC). NB: No warrant is required to be issued by the Bureau of Customs or the
regular courts in search and seizures of motor vehicles and vessels since it is
not practicable to secure a warrant because vehicles can be quickly moved out
of the locality or jurisdiction in which the warrant must be sought.
d. Vehicles, beasts and persons (Sec. 2211, TCC)
e. Persons arriving from foreign countries (Sec. 2212, TCC).
[] Burden of proof in seizure or forfeiture is on the claimant. (Sec. 2535,
TCC)
11. Settlement of forfeiture cases
GR: Settlement of cases by fine or redemption is generally allowed.
XPNs:
i. The importation is absolutely prohibited;
ii. The surrender of the property to the person offering to redeem
would be contrary to law; or
iii. There is fraud. (Sec. 2307, TCC)
NB:
i. At any time prior to the sale, the delinquent importer may settle his
obligations with the Bureau of Customs, in which case the aforesaid articles may
203A 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 on the goods. Accordingly, the Commissioner of
Customs, upon the request of the Economic Intelligence and Investigation Bureau (EIIB), issued
warrants of seizure and detention and directed EIIB 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 warrants were in violation of the Rules of Court and the Bill of Rights. If you
are a newly-appointed Solicitor in the office of the Solicitor General representing the Commissioner of
Customs, how would you defend the latter? Give the specific defenses. ANSWER: Appurtenant to its
power under the Tariff and Customs Code to enforce the provisions of such law, the Bureau of
Customs may conduct searches and seizures even without the benefit of a warrant issued by a
judge upon probable cause. This is historically considered an exemption from the constitutional
guarantee against unreasonable searches and seizures.
[] Assuming that the enforcement of the warrant had been extended to the residence of the
President of Apache Corporation, is such enforcement valid? Explain. ANSWER: *****No. The
Tariff and Customs Code authorizes custom officials and agents to search any building, except
dwelling houses.
[] Do you think the petition for certiorari, prohibition and mandamus filed by Apache
Corporation will prosper in the Supreme Court? Discuss. ANSWER: No. The choice of remedy
assumes want of authority and jurisdiction. Warrantless searches and seizures are, however, authorized
under TCC. Such searches and seizures are not considered unreasonable within the meaning of the
constitutional guarantee. (BAR 1992) [TOM thinks the answer is nebulous]
be delivered upon payment of the corresponding duties and taxes and compliance
with all other legal requirements (Sec. 1508, TCC)
ii. Fraud must be actual and not merely constructive. It must be
intentional and deliberate. (Transglobe International, Inc. cs. CA & CC, G.R. No.
126634, January 25, 1999).
Procedure in seizure cases until the Supreme Court

[] The Collector of Customs instituted seizure proceedings against a shipment of
motor vehicles for having been misdeclared as second-hand vehicles. State the
procedure for the review of the decision up to the Supreme Court of the
Collector of Customs adverse to the importer. ANSWER: The procedure in
seizure cases may be summarized as follows:
1. The Collector issues a warrant for the detention or forfeiture of the imported
articles; (Sec. 2301. Tariff and Customs Code)
2. The Collector gives the importer a written notice of the seizure and fixes a
hearing date to give the importer an opportunity to be heard: (Sec. 2303, TCC)
3. A formal hearing is conducted; (Sec. 2312. TCC) 
4. The Collector renders a declaration of forfeiture; (Sec. 2312, TCC) 
5. The importer aggrieved by the action of the Collector in any case of seizure
may appeal to the Commissioner for his review within fifteen (15) days from
written notice of the Collector’s decision; (Sec. 2313, TCC) 
6. The importer aggrieved by the action or ruling of the Commissioner in any case
of seizure may appeal to the Court of Tax Appeals; (Sec. 2402, TCC) 
7. The importer adversely affected by the decision of the Court of Tax Appeals
may appeal to the Court of Appeals within fifteen (15) days which may be
extended for another fifteen (15) days or such period as the Court of Tax Appeals
may decide. (BAR 1994) [TOM thinks that number 7 does not apply anymore
because the CTA is on the same level as the CA].
FORFEITURE CASES
1. The COLLECTOR of Customs sitting in the seizure and forfeiture
proceedings has EXCLUSIVE JN204 to HEAR & DETERMINE ALL
QUESTIONS touching on the seizure & forfeiture proceedings of
DUTIABLE goods.
2. The RTC are precluded from assuming cognizance over such even
through petition for certiorari, prohibition or mandamus [Jao v. CA]205
Remedies of the importer during the pendency of seizure proceedings

[] Q: Discuss briefly the remedies of an importer during the pendency of
seizure proceedings. (1996 Bar) A: During the pendency of seizure proceedings
the importer may secure the release of the imported property for legitimate
use by posting a bond in an amount to be fixed by the Collector, conditioned for the
payment of the appraised value of the article and/or any fine, expenses and
costs which may be adjudged in the case; provided, that articles, the importation of
which is prohibited by law shall not be released under bond. The importer
204M/V Floria, 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 Floria and its cargo. The owner of M/V
Floria filed a complaint in the Regional Trial Court to obtain possession of the vessel and the
beans. Does the RTC have jurisdiction over the case? ANSWER: *****The RTC has no jurisdiction.
The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction
to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The
RTC has no jurisdiction to pass upon the validity or regularity of the seizure and forfeiture proceedings
conducted by the Bureau of Customs. [Commissioner of Customs vs. Makasiar. 177 SCRA 27, 33-34
(1989) citing Pacis vs. Averin, 18 SCRA 9071966)]. *****Neither has RTC review powers over actions
concerning seizure and forfeiture proceedings conducted by the Collector of Customs which is
reviewable by the Commissioner of Customs whose decision, in turn, is reviewable by the
Court of Tax Appeals (ibid) [Bar 1993]
205 Q: On January 1, 2015, armed with warrants of seizure and detention issued by the Bureau of
Customs, members of the customs enforcement and security services coordinated with the Quezon
City police to search the premises owned by a certain Mr. Ho along Kalayaan Avenue, Quezon
City, which allegedly contained untaxed vehicles and parts. While inside the premises, the member of
the customs enforcement and security services noted articles which were not included in the list
contained in the warrant. Hence, on January 15, 2015, an amended warrant and seizure was issued.
On January 25, 2015, 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, 2015. 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 RTC 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. A: The motion to dismiss should be granted. ******Seizure and forfeiture
proceedings are within the exclusive jurisdiction of the Collector of Customs to the exclusion of
regular Courts. RTCs are devoid of competence to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with
these proceedings (Republic v. CFI of Manila, G.R. No. 43747, September 2, 1992; Jao v. CA,G.R. No.
104604, October 6, 1995)
may also offer to pay to the collector a fine imposed by him upon the property
to secure its release or in case of forfeiture, the importer shall offer to pay for the
domestic market value of the seized article, which offer subject to the approval of
the Commissioner may be accepted by the Collector in settlement of the seizure
case, except when there is fraud. Upon payment of the fine or domestic
market value, the property shall be forthwith released and all liabilities which
may or might attach to the property by virtue of the offense which was the
occasion of the seizure and all liability which might have been incurred under any
bond given by the importer in respect to such property shall thereupon be deemed
to be discharged.
Q: Can owner or agent of vessel object on the ground that he has no knowledge
that the cargo consists of contraband or is good faith a defense? A: IT
DEPENDS. If the cargo is a common carrier, such that it is engaged in coastwise
shipping, good faith is not a defense. Forfeiture proceedings are in rem and are
directed against the res. The rule is otherwise if the vessel is used as a private
carrier. In such case, forfeiture cannot be effected if the owner or his agent has no
knowledge of, or participation in the unlawful act (CC vs. CTA & Pascual, 138
SCRA 581).
Q: On January 7, 2015, the vessel M/V ”Star Ace” coming from Singapore loaded
with cargo, entered the Port of San Fernando, La Union for needed repairs. When
the Bureau of Customs later became suspicious that the vessel’s real purpose in
docking was to smuggle cargo into the country, seizure proceedings were
instituted and subsequently two Warrants of Seizure and Detention were issued
for the vessel and its cargo. Mr. X does not own the vessel or any of its cargo but
claimed a preferred maritime lien. He then brought several cases in the RTC to
enforce his lien. Would these suits prosper? A: NO. The Bureau of Customs
having first obtained possession of the vessel and its goods has obtained
jurisdiction to the exclusion of the trial courts. When Mr. X has impleaded the
vessel as a defendant to enforce his alleged maritime lien, in the RTC, he brought
an action in rem under the Code of Commerce under which the vessel may be
attached and sold. However, the basic operative fact is the actual or constructive
possession of the res by the tribunal empowered by law to conduct the
proceedings. This means that to acquire jurisdiction over the vessel, the trial court
must have obtained either actual or constructive possession over it. Neither was
accomplished by the RTC as the vessel was already in the possession of the
Bureau of Customs. (Commissioner of Customs v. CA, et al., G. R. Nos.
111202-05, Jan. 31, 2006)
Q: Is a judicial search warrant necessary in case of customs search and seizures?

A: NO. It is one of the exceptions to the judicial warrant requirement under the
Constitution. Under the Tariff and Customs Code, a search, seizure and arrest
may be made even without a warrant for purposes of enforcing customs and
tariff laws. (Rieta v. People, 436 SCRA 273, August 12, 2004)
Q: When can a dwelling house be searched? A: Only upon a warrant issued by a

judge of the regular court and upon a sworn application showing probable cause
and particularly describing the places to be searched and person or thing to be
seized. (Sec. 2209, TCCP)
Q: MR owns an electronic shop at Mile Long Shopping Center in Makati. The

shop sells various imported items such as camera, television sets, video cassette
recorders, and similar items. In February 10, 2015, agents of the Commissioner of
Customs visited the shop and asked that they be shown the official of Bureau of
Customs receipts evidencing payment of the duties and taxes on all imported
items displayed on the shop. Since MR could not show any receipt, the custom
agents seized all the imported items displayed on the shop. Upon a tip by a
disgruntled employee of the MR, the Customs agents preceded to the house of
MR at Sam Lorenzo Village in Makati. More untaxed imported electronics items
were found there. The customs agents also seized the same. Discuss the legality of
the seizure made by the customs agents. (1990 Bar) A: The seizure conducted at
MR’s shop is valid because it is not a dwelling place. The Bureau of Customs has
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.
Q: Can goods in the custom’s custody pending payment of customs duties be

attached? A: NO. Goods in the custom’s custody pending payment of customs
duties are beyond the reach of attachment. As long as the importation has not
been terminated, the imported goods remain under the jurisdiction of the Bureau
of Customs. (Viduya v. Berdiago, G.R. No. L-29218, October 29, 1976)
Q: May seizure be effected even outside the territorial limits of the Philippines
(doctrine of hot pursuit)? A: YES. A vessel loaded with contraband while in the
high seas headed towards Tawi-tawi was considered to have been lawfully seized.
The power of a nation to secure itself from injury may be exercised beyond the
territorial limits (Asaali, et al. v. Commissioner of Customs, G.R. No. L24170, Feb.
28, 1969)
Q: X is the importer of obscene and pornographic magazines. The Collector

of Customs initiated forfeiture proceedings and X manifested his willingness to
post a bond for the articles to secure their release from Customs custody. May
the articles be released by virtue of the bond to be put by X? Explain. A: NO, the
filing of the bond would not release the obscene and pornographic
magazines from detention because essentially, the importation is prohibited
by law.
Q: When is administrative fine and forfeiture availed of ? A: Only when the

importation is unlawful and may be exercised when the articles are no longer
under the custody of BOC unless the importation is merely attempted in which
case it may be effected only while the goods are still within the jurisdiction of the
BOC or in the hands of the person who is aware thereof.
Q: When is fine payable? A: GR: In case of settlement of any seizure. XPNs: 1.

When importation is absolutely prohibited; 2. If release would be contrary to law;
3. When there is an actual and intentional fraud.
Q: When can forfeiture be effected? A: 1. Forfeiture shall be effected only when

and while the article is in the custody or within the jurisdiction of the customs
authority; 2. In the hands or subject to the control of importer/exporter, original
owner, consignee, agent, or other person effecting the importation entry or
exportation; 3.In the hands or subject to the control of some person who shall
receive, conceal, buy, sell or transport or aid in such acts with knowledge.
Q: Is non-appearance of the importer in the forfeiture proceedings considered

estoppel in claiming the right to redeem the articles? A: NO, estoppel does not lie
by reason of the nonappearance of the importer in the forfeiture proceedings.
The forfeiture proceedings are proceedings in rem and are directed against the res.
The property itself is contemplated by law to be the violator. The property is the
offender without reference to the character or conduct of the owner (Transglobe
International, Inc. vs. CA & CC, G.R. No. 126634, January 25, 1995).
Q: On January 30, 2015, the vessel S/S "Pacific Hawk" arrived at the Port of
Manila carrying, among others, 80 bales of screen net consigned to Bagong Buhay
Trading. Since the customs examiner found the subject shipment reflective of the
declaration, Bagong Buhay paid the duties and taxes due in the amount of P11,
350.00 which was paid through the Bank of Asia thereafter, the customs appraiser
made a return of duty. The Collector of Customs determined the subject
shipment classifiable at 100% ad valorem. Thus, Bagong Buhay Trading was
assessed P272, 600.00 as duties and taxes due on the shipment in question. Since
the shipment was misdeclared as to quantity and value, the Collector of Customs
forfeited the subject shipment in favor of the government. Is the shipment in
question subject to forfeiture? A: Although it cannot be denied that Bagong Buhay
caused to be prepared through its customs broker a false import entry or
declaration, it cannot be charged with the wrongful making thereof because such
entry or declaration merely restated faithfully the data found in the corresponding
certificate of origin, certificate of manager of the shipper, the packing lists and
the bill of lading which were all prepared by its suppliers abroad. If at all, the
wrongful making or falsity of the documents above-mentioned can only be
attributed to Bagong Buhay's foreign suppliers or shippers. With regard to the
second requirement on falsity, it bears mentioning that the evidence on record,
specifically, the decisions of the Collector of Customs and the Commissioner of
Customs, do not reveal that the importer or consignee, Bagong Buhay Trading had
any knowledge of any falsity on the subject importation (Farolan, Jr. v. CTA, G.R.
No. 42204, Jan. 21, 1993).
Warrant of seizure and detention

1. Q: What is required before a warrant of seizure and detention may be
issued? A: The Collector206 of Customs upon probable cause that the articles
imported or exported, or are attempted to be imported or exported are contrary to the TCC.
(Sec. 6, Title III, C.A.O. No. 9-93)
[] Q: 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 CTA. The Collector moved to dismiss the petition for lack of Jurisdiction.
(2000 Bar)
a. Rule on the motion. A: MOTION GRANTED. *****The CTA 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
206Jessie brought into the Philippines a foreign-made luxury car, and paid less than the actual taxes and
duties due. Due to the discrepancy, the Bureau of Customs instituted seizure proceedings and issued a
warrant of seizure and detention. The car, then parked inside a pay parking garage, was seized and
brought by government agents to a government impounding facility. The Collector of Customs denied
Jessie’s request for the withdrawal of the warrant. Aggrieved, Jessie filed against the Collector a criminal
complaint for usurpation of judicial functions on the ground that only a judge may issue a warrant
of search and seizure. Resolve with reasons Jessie’s criminal complaint. (4%) SUGGESTED
ANSWER: The criminal complaint is bereft of merit. *****The issuance of a warrant of seizure and
detention by the Collector of Customs for goods released contrary to law, as when there is
underpayment of taxes and duties, is his primary and exclusive jurisdiction and precludes the
judge of regular courts from taking cognizance of the subject matter. Accordingly, what was done
by the Collector could not be a basis of a prosecution for the usurpation of judicial functions
(Commissioner v. Navarro, 77 SCRA 264[1977]).
[] Would your answer be the same if the luxury car was seized while parked inside the
garage of Jessie’s residence? Why or why not? (4%) SUGGESTED ANSWER: No. *****The luxury
car being in a dwelling house, cannot be seized by officers of the Bureau of Customs exercising
police authority without a search warrant issued by a judge of a competent court (Section 2209,
TCC; Pads v. Pamaran, 56 SCRA 16 [1974]). (BAR 2009)
from receipt of the decision to the Commissioner of Customs. The

Commissioner’s adverse decision would then be the subject of an appeal to
the CTA.
b. Under the same facts, could the importer file an action in the RTC 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? A: NO. *****The legislators intended to divest the RTCs 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 la 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 (Jao v. CA, G.R. No. 104604, October 6, 1995)
E1a-2. Authority of the Commissioner to Compromise

[] Under the CMTA: Sec. 1131. Authority of the Commissioner to Make
Compromise. – Subject to the approval of the Secretary of Finance, the
Commissioner may compromise any administrative case arising under this Act
involving the imposition of fines and surcharges, including those arising from
the conduct of a post clearance audit, unless otherwise specified by law.
*****Cases involving forfeiture proceedings shall however not be subject
to any compromise.
————————————————
E1b. Judicial
Rules on Appeal including Jurisdiction207

1. Judicial remedy of either civil or criminal action: *****Judicial remedy is availed
of when the tax lien is lost by the release of the goods. The government can
207What is the rule on appeal from decisions of the Collector of Customs in protest and seizure
cases? When is the decision of the Collector of Customs appealable to the Court of Tax Appeals?
Explain. (5%) SUGGESTED ANSWER: *****Decisions of the Collector of Customs in protest and
seizure cases are appealable to the Commissioner of Customs within 15 days from receipt of
notice of the written decision. As a rule, decisions of the Collector of Customs are not appealable to
the Court of Tax Appeals. If the Collector of Customs, however, does not decide a protest for a
long period of time, the inaction may be considered as an adverse decision by the Collector of
Customs and the aggrieved taxpayer may appeal to the CTA even without the Collector’s and
Commissioner’s actual decision (Commissioner of Customs v. Planters Products, Inc. G.R. No. 82018,
March 16, 1989).
seek payment of the tax liability through judicial action since the tax liability
of the importer constitutes a personal debt to the government.
2. Remedy of the Government if the decision of the Collector or the
Commissioner in a protest is adverse to it:208
a. Automatic review by the Commissioner - If the Collector renders a
decision adverse to the Government (the importer’s protest is granted).
b. Automatic review by the Secretary of Finance - If the decision of the
Commissioner of Customs is adverse to the Government.
3. The decision of the Commissioner is appealable to the CTA: 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.209
4. *****Administrative vs. Judicial remedies: [] Q: TCC allows the Bureau of
Customs to resort to the administrative remedy of seizure, such as by
enforcing the tax lien on the imported article, and to the judicial remedy of
filing an action in court. When does the Bureau of Customs normally avail itself:
(1997 Bar Question)
208In what easels (sic) is the decision of the Collector automatically reviewed by the Commissioner of
Customs? In what instance/s is the decision of the Commissioner automatically appealed to the
Secretary of Finance? (2015 Bar Question) SUGGESTED ANSWER: ******Whenever the decision of
the Collector of Customs is adverse to the government, the said decision is automatically
elevated to the Commissioner of Customs for review, and if such decision is affirmed by the
Commissioner of Customs, the same will be automatically elevated to and be finally reviewed by
the Secretary of Finance.
209 Q: 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 CTA 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 CTA. (2002 Bar Question)
1. *****Does the CTA have jurisdiction over the petition for review and writ of prohibition?
Explain. A: 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, G.R No. L--32542, 1970).
2. Will an appeal to the CTA for tax refund be possible? Explain. A: 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 Philippines, Inc. v. CA, G.R. No. 134114, July 6, 2001).
a. Of the administrative, instead of the judicial remedy? A:The Bureau of

Customs avails of the administrative remedy of seizure if the imported article
which is burdened by a lien for the unpaid customs duties could still be found.
The Bureau of Customs normally avails itself of the administrative remedy of
seizure, such as by enforcing the tax lien on the imported articles, instead of
the judicial remedy when the goods to which the tax lien attaches, regardless of
ownership, is still in the custody or control of the Government. In the case,
however, of importations which are prohibited or undeclared, the remedy of
seizure and forfeiture may still be exercised by the Bureau of Customs even
if the goods are no longer in its custody.
b. Of the latter, instead of the former remedy? A: If the imported article
could no longer be found, or if it has perished, then judicial action through an
ordinary suit for the collection of sum of money is then filed. ******On the
other hand, when the goods are properly released and thus beyond the reach
of tax lien, the government can seek payment of the tax liability through judicial
action since the tax liability of the importer constitutes a personal debt to
the government, therefore, enforceable by action. In this case judicial remedy
is normally availed of instead of the administrative remedy.
5. Which cases are appealable to the CTA? (2012 BAR): a) Decisions of the
Secretary of Finance in cases involving liability for customs duties, seizure,
detention or release of property affected; b) Decisions of the Commissioner of
Customs in cases involving liability for customs duties, seizure, detention or
release of property affected; c) Decisions of the Collector of Customs in cases
involving liability for customs duties, seizure, detention or release of property
affected; d) Decisions of the BIR Commissioner in cases involving liability for
customs duties, seizure, detention or release of property affected. SUGGESTED
ANSWER: b) Decisions of the Commissioner of Customs in cases
involving liability for customs duties, seizure, detention or release of
property affected. Section 7, RA 9282.
Q: Whenever the decision of the Collector of Customs is adverse to the

government, it is automatically elevated to the Commissioner for review and, if it
is affirmed by him, it is automatically elevated to the Secretary of Finance for
review. What is the basis of the automatic review procedure in the Bureau of
Customs? Explain your answer (2002 Bar Question) A: Automatic review is
intended to protect the interest of the Government in the collection of taxes and
customs duties in seizure and protest cases. Without such automatic review,
neither the Commissioner of Customs nor the Secretary of Finance would know
about the decision laid down by the Collector favoring the taxpayer. The power to
decide seizure and protest cases may be abused if no checks are instituted.
Automatic review is necessary because nobody is expected to appeal the decision
of the Collector which is favorable to the taxpayer and adverse to the
Government. This is the reason why whenever the decision of the Collector is
adverse to the Government, the said decision 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 be finally reviewed by the Secretary
of Finance (Yaokasin v. Commissioner of Customs, G.R. No. 84111, Dec. 22,
1989)
Q: X attempted to smuggle into the Philippines pieces of assorted jewelry and

assorted stones, which were hidden among the fruits or sewn into the four corners
of the blanket she carried. On trial, the prosecution presented the Custom
officials who conducted the examination of the articles to testify. X argued that he
presented to the Customs officers baggage declaration, indicating all the imported
items in question and the secondary evidence in the form of testimony of
customs officials are not admissible without proof of loss of the baggage
declaration. May such secondary evidence be admissible? A: Yes. As correctly held
by the Court of Appeals, “the mere fact that the prosecution failed to introduce
any copy of the baggage declaration filed by the accused does not entitle her to an
acquittal.” Testimonies of the Custom authorities are admissible to establish and
prove the act of the accused (Tan vs. Court of Appeals, et al. G.R. No. 56866,
June 27, 1985).
————————————————
E2. Taxpayer
E2a. Protest210
1. Parties and Application of a Protest
210 The Collector of Customs issued an assessment for unpaid customs duties and taxes on the
importation of your client in the amount of P980.000.00. Where will you file your case to protect
your client’s right? Choose the correct courts/ agencies, observing their proper hierarchy. 5%
1. Court of Tax Appeals 
2. Collector of Customs 
3. Commissioner of Customs 4. Regional Trial Court 
5. Metropolitan Trial Court 
6. Court of Appeals 
7. Supreme Court
SUGGESTED ANSWER: I will file a protest with the Collector of Customs (Sec. 230S, TCC).
Should the Collector promulgate a decision adverse to my client, I will give a written notice to the
Collector, copy furnished the Commissioner of Customs, of my client’s desire to have the matter
reviewed by the Commissioner (Sec. 2313, TCC). If the Commissioner affirms the decision of the
Collector I will file an appeal with the Court of Tax Appeals within 30 days from receipt of the
decision (1997 Rules of Civil Procedure, RA 9282). If the Court of Tax Appeals issues a decision
adverse to my client, I will file with the Supreme Court a verified petition for review on certiorari
pursuant to Rule 45 (RA 9282).
ANOTHER SUGGESTED ANSWER: I will file my case as follows:****** 
1. Protest with the Collector of Customs (Sec. 2308, TCC); 
2. Review by the Commissioner of Customs (Sec. 2313, TCC); 
3. Appeal to the Court of Tax Appeals (RJL 9282); and 
4. Petition for Review on Certiorari with the Supreme Court (RJL 9282). (BAR 2006)
a. Any importer or interested party - if dissatisfied with published value

within 15 days from date of publication or within 5 days from date the importer is
entitled to refund in case payment is rendered erroneous or illegal by events
occurring after the payment.
b. Taxpayer - within 15 days from assessment. *****Payment under
protest is necessary. NB: In all cases subject to protest, the interested party who
desires to have the action of the Collector reviewed, shall make a protest,
otherwise the action of the collector shall be final and conclusive against him.
[] effect of the failure of the importer to file a written protest on
the assessment of the Collector - If the importer fails to file a formal protest, he
could not obtain a refund of the duties and other charges claimed to have been
erroneously paid by him.
2. Customs protest cases - These are cases which deal solely with liability for
customs duties, taxes, fees and other charges. A customs protest, which is a tax
protest case under the TCC, involves a protest of the liquidation of import
entries.
3. When protest is filed - Protest is required to be filed only in case the liability of
the taxpayer for duties, taxes, fees and other charges is determined and the
taxpayer disputes said liability.
4. Protest not required to be filed - When there is no dispute as to the correctness
of the duties and taxes paid but the claim for the refund arises by reason of the
happening of supervening events such as when the raw material imported is
utilized in the production of finished products subsequently reported and a duty
drawback is claimed (Commissioner of Customs v. Philippine Phosphate Fertilizer
Corp., G.R. 144440, September 1, 2004).
5. Requirements for protest [SamPoWL-15G]
a. In Writing;
b. Points out the particular decision or ruling by the Collector of Customs
to which exception is taken or objection is made;
c. States the Grounds relied upon for relief;
d. Limited to the subject matter of a single adjustment;
e. Filed when the amount claimed is paid or within 15 days after payment;
f. Sample of goods under protest must be furnished by the protestant, when
required.
6. Customs Protest Procedure
a. Collector (within his jurisdiction) shall cause the imported goods to be
entered at the custom house
b. Collector shall assess, liquidate and collect the duties thereon or detain the
said goods, in case of nonpayment
c. The party adversely affected (protestant) may file a written protest on

his assessed liability to the Collector211 of Custom within 15 days after
paying the liquidated amount (payment under protest)
d. Collector shall conduct a hearing within 15 days from receipt of the duly
presented protest
e. Decision shall be made by the Collector within 30 days upon termination
of the hearing (Sec. 2312, TCC)
******REMEDY OF THE AGGRIEVED PARTY BY THE DECISION OF THE COLLECTOR
If an owner or importer If the government
1. Appeal with the Commissioner of Customs 1. Automatic Review by the COC
within 15 days from notice; 2. Automatic Review by the Secretary of the
2. Then, appeal with CTA Division within 30 Dept. of Finance
days from receipt of ruling; 3. If owner or importer is aggrieved by the
3. Then, file a motion for reconsideration or decision of the COC or Secretary of the Dept.
new trial within 15 days from notice; of Finance, appeal to CTA Division within 30
4. If resolution is adverse to the taxpayer, file a days from notice. Then file MR/MNT.
petition for review with the CTA en banc; 5. Then Appeal to CTA en banc
5. Then, petition for review on certiorari with 6. Appeal to SC by certiorari within 15 days
the SC within 15 days from notice.
NB: Automatic review is intended to protect the interests of the government in the collection of
taxes and customs duties in seizure and protest cases. Without such automatic review, neither the
COC nor the Sec. of Dept. of Finance would know about the decisions of the Collector of
Customs favoring the taxpayer. Automatic review is necessary because nobody is expected to
appeal the decision of the Collector which is favorable to the taxpayer and adverse to the
government (Yaokasin v. Collector of Customs, 180 SCRA 591).
*****The table talks about the remedy of the aggrieved party. In case of the
government, if after the automatic review by the SOF and the decision is still
adverse to the government, the protest ends there and the taxpayer wins.
E2b. Abandonment
1. Abandonment in customs is the renunciation by an importer of all his interests
and property rights in the importer article. Abandonment may be made expressly
or impliedly.
2. Express Abandonment - When the owner, importer, consignee of the imported
article expressly signifies in writing and under oath to the Collector of Customs
his intention to abandon his shipment in favor of the government. (Sec. 1801,
TCC)
3. Implied Abandonment
a. By failure to file an import entry within 30 days from the discharge of
goods; or
A protest against an assessment issued by the Collector of Customs for unpaid customs duties on
211
imported goods shall be filed with: (2012 Bar Question): a) The Commissioner of Customs; b) The
Regional Trial Court; c) The Court of Tax Appeals; d) The Collector of Customs. [Section 2308,
Tariff and Customs Code]
b. Having filed an entry fails to claim within 15 days but it shall not be so
effective until so declared by the collector. (Sec. 1801, as amended by RA 7651)
4. Effects of abandonment
a. Deemed to have renounced all interests and property rights (Sec. 1801,
TCC)
b. Ipso facto deemed the property of the government
c. Disposed of in accordance with the TCC (Sec. 1802, TCC)
d. Shall not relieve the owner from criminal liability which may arise in
connection with the importation (Sec. 1802, TCC)
Q: Does the trial court have jurisdiction to pass upon and nullify the seizure of
cargo and declaration in abandonment proceedings? A: No. The trial court is
incompetent to pass upon and nullity the seizure of cargo in the abandonment
proceedings and the declaration made by the District Collector of Customs that
the cargo was abandoned and ipso facto owned by the government. The trial
court likewise has no jurisdiction to resolve whether or not the importer was the
owner of the cargo before it was gutted by fire. (RV Marzan Freight, Inc. v. CA,
G.R. No. 128064)
E2c. Abatement and Refund

1. Abatement is the reduction or non-imposition of custom duties on certain
imported materials as a result of:
a. Damaged incurred during voyage;
b. Deficiency in contents of packages;
c. Loss or destruction of articles after arrival; or
d. Death or injury of animals.
2. Refund arising from correction of errors - Manifest clerical errors made on an
invoice or entry, errors in return of weight, measure and gauge, may be corrected
in the computation of duties, if such errors are discovered before the payments
of duties, or if discovered within one (1) year after release from customs custody
of imported goods upon written request and notice of error from the importer,
or upon statement of error certified by the District Collector. For the purpose of
correcting errors specified in the next preceding paragraph, the Bureau is
authorized to make refunds within the statutory time limit. (Sec. 912, CMTA)
3. Application for Refund
a. All claims and application for refund of duties and taxes shall be made in
writing and filed with the Bureau within twelve (12) months from the date of
payment of duties and taxes. (Sec. 913, CMTA)
b. All claims for refund of duties shall be made in writing and forwarded to
the Collector whom duties are paid; and upon receipt of claim, the Collector shall
verify the same through his records; and shall certify to the Commission with his
recommendations together with all necessary papers and documents; and upon
receipt by the Commission, he shall cause the same to be paid if found correct.
c. The importer may file an appeal of a denial of a claim for refund or
abatement, whether it is a full or partial denial, with the Commissioner within
thirty (30) days from the date of the receipt of the denial. The Commissioner shall
render a decision within thirty (30) days from the receipt of all the necessary
documents supporting the application. Within thirty (30) days from receipt of the
decision of the Commissioner, the case may also be appealed to the CTA. (Sec.
913, CMTA)
4. Duty Drawback - A device resorted to for enabling a commodity affected by
taxes to be exported and sold in foreign markets upon the same terms as if it had
not been taxed at all.
Q: Philippine Phosphate Fertilizer Corporation (Philphos), a domestic corporation

engaged in the manufacture and production of fertilizers for domestic and
international distribution. It is registered with the Philippine Export Zone
Authority (PEZA). The manufacture of fertilizers required Philphos to purchase
fuel and petroleum products for its machineries. These fuel supplies are
considered indispensable by Philphos, as they are used to run the machines and
equipment and in the transformation of raw materials into fertilizer. Petron
Corporation (Petron) was Philphos’ supplier, which imports the same and pays the
corresponding customs duties to the Bureau of Customs; and, the ad valorem and
specific taxes to the BIR. When the fuel and petroleum products are delivered at
Philphos’ manufacturing plant, Philphos is billed by Petron the corresponding
customs duties imposed on these products. Effectively thus, Philphos reimburses
Petron for the customs duties on the purchased fuels and petroleum products
which are passed on by the Petron as part of the selling price. Philphos sought the
refund of customs duties it had paid on the ground that Philphos is entitled to tax
incentives under Presidential Decree No. 66 (EPZA Law). The Bureau of
Customs denied the claim for refund.
1. Is Philphos entitled to refund? A: Yes. The incentives offered to
enterprises duly registered with the PEZA consist, among others, of tax
exemptions. The expectation is that the tax breaks ultimately redound to the
benefit of the national economy, enticing as they do more enterprises to invest
and do business within the zones; thus creating more employment opportunities
and infusing more dynamism to the vibrant interplay of market forces. It is clear
that Section 17(1) of EPZA Law considers such supplies exempt even if they are
used indirectly, as they had been in this case.
2. Has the claim for refund prescribed? A: No. The EPZA Law itself is
silent on the matter, and the prescriptive periods under the Tariff and Customs
Code and other revenue laws are inapplicable, by specific mandate of Section
17(1) of the EPZA Law. Thus, the Civil Code provisions on solutio indebiti may
find application. The Court has in the past sanctioned the application of the
provisions on solutio indebiti in cases when taxes were collected thru error or
mistake. Thus, the claim for refund must be commenced within six (6) years from
date of payment pursuant to Article 1145(2) of the New Civil Code.
(Commissioner of Customs v. Philippine Phosphate Fertilizer Corporation, G.R.
No. 144440, Sept. 1, 2004)
Judicial
Appeal to the CTA

1. The appeal should be filed to the CTA, within 30 days from receipt of decision
of the Commissioner of Customs or Secretary of Finance, as the case may be.
Q: Can aggrieved importers appeal from the adverse decision of the
Collector of Customs with regular courts? A: No. It is well settled that the
Collector of Customs has exclusive jurisdiction over seizure and forfeiture
proceedings, and regular courts cannot interfere with his exercise thereof or stifle
or put it at naught. The Collector of Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear and determine all questions touching
on the seizure and forfeiture of dutiable goods. Courts such as Regional Trial
Courts are devoid of any competence to pass upon the validity or regularity of
seizure and forfeiture proceedings conducted by BOC and to enjoin or otherwise
interfere with these proceedings. RTCs are precluded from assuming cognizance
over such matters even though petitions for certiorari, prohibition, or mandamus
(Subic Bay Metropolitan Authority vs. Merlino E. Rodriguez and Wira
International Trading Corp., G.R. No. 160270, April 23, 2010). The Tariff &
Customs Code provides the proper remedy of aggrieved importers: To appeal the
actions of the Collector of Customs to the Commissioner of Customs whose
decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals, and from there to the Supreme Court via petition for review on
certiorari (Bureau of Customs vs. Nelson Ogario; G.R. No. 138081).
Q: Mr. X claiming to be the owner of a vessel which is the subject of

customs warrant of seizure and detention sought the intercession of the RTC to
restrain the Bureau of Customs from interfering with his property rights over the
vessel. Would the suit prosper? A: No. The proper remedy is not with the RTC
but with the CTA. Issues of ownership of goods in the custody of customs
officials are within the power of the CTA to determine.The Collector of Customs
has exclusive jurisdiction over seizure and forfeiture proceedings and trial courts
are precluded from assuming cognizance over such matters even through petitions
for certiorari, prohibition or mandamus. (Commissioner of Customs v. Court of
Appeals, et al., G. R. Nos. 111202-05, Jan. 31, 2006) NB: Motion for
Reconsideration from the decision of a division of the Court of Tax
Appeals is mandatory prior to elevating the case to the Court of Tax

Appeals en banc. Rule 8, Section 1 of the Revised Rules of Court of Tax
Appeals (CTA) requiring that “the petition for review of a decision or resolution
of the Court in Division must be preceded by the filing of a timely motion for
reconsideration or new trial with the Decision” is mandatory. The word “must”
clearly indicate the mandatory of a requirement. The rules are clear. Before the
CTA En Banc could take cognizance of the petition for review concerning a case
falling under its exclusive appellate jurisdiction, the litigant must sufficiently show
that it sought prior reconsideration or moved for a new trial with the concerned
CTA division. Procedural rules are not to be trifled with or be excused simply
because their non-compliance may have resulted in prejudicing a party’s
substantive rights. Rules are meant to be followed. They may be relaxed only for
very exigent and persuasive reasons to relieve a litigant of an injustice not
commensurate to his careless non-observance of the prescribed rules.
(Commissioner of Customs vs. Marina Sales, Inc., G.R. No. 183868, November
22, 2010)
RULE ON APPEAL FROM DECISIONS OF COLLECTOR IN PROTEST &

SEIZURE CASES (2010 Bar Question)
1. Decisions of the Collector of Customs in protest and seizure cases are
appealable to the Commissioner of Customs within 15 days from receipt of
notice of the written decision of the Collector.
RULE OF APPEALS FROM COLLECTOR TO CTA (2010 Bar Question)

1. GR: As a rule, decisions of the Collector of Customs are not appealable to
the CTA.
2. XPN: However, if the Collector does not decide a protest for a long period
of time, the inaction may be considered as an adverse decision by the
Collector of Customs and the aggrieved taxpayer may appeal to the CTA, even
without the Collector’s and Commissioner’s actual decision.
JURISDICTION OF CUSTOMS in SEIZURES & FORFEITURE

1. The territorial JN of the BOC embraces “ALL SEAS within the JN of PH, and
over ALL COASTS, PORTS, HARBORS, BAYS, RIVERS and INLAND
WATERS, whether navigable or not from the sea” [Sec 604 TCC]
2. Rule of search/seizure/arrest:
a. GR: A search, seizure and arrest may be made EVEN WITHOUT
A WARRANT for purposes of enforcing CUSTOMS & TARIFF LAWS.
b. XPN: if the search & seizure is to be conducted in a DWELLING place,
then a search warrant should be issued by the regular COURTS, not the BOC.
3. The Collector of Customs may declare forfeiture on imported goods which are
undervalued or entered and valued through fraudulent means or device to
the prejudice of the Government.212
AUTOMATIC REVIEW213 IN CUSTOMS PROCEEDINGS

1. Whenever the decision of the Collector is adverse to the government, said
decision is AUTOMATICALLY ELEVATED to the Commissioner for review;
2. And if the such decision is AFFIRMED by the Commissioner, the same shall
be AUTOMATICALLY ELEVATED to and FINALLY received by the
SECRETARY of FINANCE.
3. Without this automatic review, the Collector would have absolute and unbridled
discretion to determine WON goods seized by him are locally-produced, hence
not dutiable, or of foreign origin, and therefore subject to payment of customs
duties and taxes [Yaokasin v. CIR 22 Dec 1989]
CASES ELEVATED FOR AUTOMATIC REVIEW

1. Decisions of the Collector FAVORABLE to the taxpayer (TP);
2. Decisions of the Commissioner of Customs is FAVORABLE to the TP—auto-
elevated to the SOF;
212 William Antonio imported into the Philippines a luxury car worth US$100,000. This car was,
however, declared only for US$20,000 and corresponding customs duties and taxes were paid
thereon. Subsequently, the Collector of Customs discovered the underdeclaration and he initiated
forfeiture proceedings of the imported car. May the Collector of Customs declare the imported
car forfeited in favor of the government? Explain. (3%) SUGGESTED ANSWER: Yes. ******The
Collector of Customs may declare forfeiture on imported goods which are undervalued or
entered and valued through fraudulent means or device to the prejudice of the Government.
*****Since the undervaluation is more than 30% of the actual value of the vehicle, it gives rise to a
prima facie evidence of fraud which subjects the vehicle to forfeiture. (Section 2530, TCC).
[] Are forfeiture proceedings of goods illegally imported criminal in nature? Explain. (3%)
SUGGESTED ANSWER: No. *****An action for forfeiture is an action in rem, or an action
directed against the imported goods themselves independently of any criminal action, which is
in the nature of an action in personam, that may result as a consequence of a violation of an existing
law. (C.F. Sharp and Co. Inc., v. Commissioner of Customs, 22 SCRA 760 [1968]). (BAR 2008)
213 *Whenever the decision of the Collector of Customs is adverse to the government, it is
automatically elevated to the Commissioner for review and, if it is affirmed by him, it is automatically
elevated to the Secretary of Finance for review. What is the basis of the automatic review procedure
in the Bureau of Customs? Explain your answer. (2002) A: *****Automatic review is intended to
protect the interest of the Government in the collection of taxes and customs duties in seizure
and protest cases. Without such automatic review, neither the Commissioner of Customs nor the
Secretary of Finance would know about the decision laid down by the Collector favoring the
taxpayer. The power to decide seizure and protest cases may be abused if no checks are
instituted. Automatic review is necessary because nobody is expected to appeal the decision of
the Collector which is favorable to the taxpayer and adverse to the Government. This is the reason
why whenever the decision of the Collector is adverse to the Government, the said decision 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 be finally reviewed by the Secretary of
Finance (Yaokasin v. Commissioner of Customs, 180 SCRA 591 [1989]).
3. Decisions of the SOF, if adverse to the TP, is APPEALABLE to the CTA.
POST-AUDIT
1. On October 15, 2005, ABC Corp. imported 1,000 kilos of steel ingots and
Customs Code on post-audit, investigated and assessed ABC Corp. for
deficiency customs duties and VAT. Is the Bureau of Customs correct? (2013
Bar Question) A: The Bureau of Customs was not correct.
a. As to the VAT: The Bureau of Customs has no authority to assess
ABC Corp. as this falls under the jurisdiction of the Bureau of Internal
Revenue (BIR). Under Sec. 2 of the NIRC, the BIR’s powers and duties include,
among others, the assessment and collection of all national internal revenue taxes,
fees and charges. VAT is a national internal revenue tax under Title IV of the
NIRC. Under Sec. 12 of the NIRC, ****the Commissioner of Customs and his
subordinates are merely agents and deputies for collection, not assessment
of national internal revenue taxes.
b. As to the deficiency customs duties found on post-audit: The Bureau of
Customs was not correct in assessing deficiency customs duties. The facts show
that the investigation and assessment on post-audit were made on February 17,
2009, which is more than three (3) years from October 15, 2005 which is the date
of payment by ABC Corp. Sec. 4 of Republic Act 9135 amended Section 1603 of
the Tariff and Customs Code of the Philippines. The provision states that when
articles have been entered and passed free of duty or final adjustments of duties
made, with subsequent delivery, such entry and passage free of duty or settlements
of duties will, after the expiration of three (3) years from the date of the final
payment of duties, in the absence of fraud or protest or compliance audit
pursuant to the provisions of this Code, be final and conclusive upon all parties,
unless the liquidation of the import entry was merely tentative. Customs
Administrative Order No. 5-2001 which implements RA 9135, confirms the above
conclusion.
Module 14. Tax Remedies under the NIRC
PRELIMINARIES 248
REMEDIES OF THE TAXPAYER IN GENERAL 249
REMEDIES OF THE GOVERNMENT IN GENERAL 250
SUBJECTS OF TAX REMEDIES IN INTERNAL REVENUE TAXATION 250
TAX RETURN 251
RULES ON RETURNS OF INDIVIDUALS 252
Where to File? 253
When to File? 254
SPECIFIC PERSONS CONCERNED TO FILE ITR 256
RULES ON CORPORATE RETURNS 257
Extension of Time to File Returns 258
Returns of General Professional Partnerships 258
Kinds of filing of return: 258
SUBSTITUTED FILING 258
PARTIES IN TAX REMEDIES 259
1. Tax Remedies 259
A. ASSESSMENT 259
A1. DEFINITION AND REQUISITES OF A VALID ASSESSMENT 259
PAY-AS-YOU-FILE SYSTEM 260
PRINCIPLES GOVERNING TAX ASSESSMENTS [PAD3] 261
IMPORTANCE OF A TAX ASSESSMENT 262
A3. JEOPARDY ASSESSMENT 264
WHEN ASSESSMENT IS MADE 264
A4. PRESCRIPTIVE PERIOD FOR ASSESSMENT 265
PP assessments at the NIRC vs. LGC vs. RPT vs. TCC***** 265
EFFECT OF AMENDED RETURN 270
False vs. Fraudulent vs. Failure to File Return 270
COLLECTION with vs. without prior assessment 273
PRESCRIPTIVE PERIODS FOR ASSESSMENT vs. COLLECTION****** 273
BASIC RULES ON PRESCRIPTION 275
WAIVER OF THE STATUTE OF LIMITATIONS 276
Guidelines for Execution of Waivers (RMO 14-2016) 277
REQUIREMENTS OF A VALID WAIVER OF THE STATUTE OF LIMITATIONS 277
EFFECT OF FAILURE TO CONFORM TO THE REQUIREMENTS OF WAIVER OF THE
STATUTE OF LIMITATIONS 278
GROUNDS FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF ASSESSMENT******
279
A5. CIVIL PENALTIES, ADDITIONS TO TAX 280

A6. ASSESSMENT PROCESS AND REGLEMENTARY PERIOD 282
A61. LETTER OF AUTHORITY AND TAX AUDIT 283
A62. NOTICE OF INFORMAL CONFERENCE 284
A63. ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE, GENERAL RULE AND
EXCEPTIONS 284
A64. ISSUANCE OF FORMAL LETTER OF DEMAND AND FINAL ASSESSMENT
NOTICE 288
FINAL ASSESSMENT NOTICE (FAN) 288
WHEN IS THERE A VALID SERVICE OF FAN? 289
PENALTIES/DEFICIENCY ASSESSMENT****** 290
WHEN IS FAN ISSUED? Within the Prescriptive Periods: 292
REQUISITES FOR A VALID WAIVER***** 293
REMEDIES OF THE TAXPAYER AFTER THE ISSUANCE OF A FAN 294
A7. DISPUTED ASSESSMENT 295
B. COLLECTION 297
B1. REQUISITES 298
B2. PRESCRIPTIVE PERIODS; SUSPENSION OF RUNNING OF STATUTE OF
LIMITATIONS 299
COMMENCEMENT OF CRIMINAL ACTION 299
2. TAXPAYER’S REMEDIES 300
A. PROTEST 300
I. PERIOD TO ACT UPON OR DECIDE ON PROTEST FILED 307
INSTANCES WHEN DIRECT APPEAL TO CTA EN BANC IS ALLOWED:***** 311
II. REMEDIES OF THE TAXPAYER IN CASE THE COMMISSIONER DENIES THE
PROTEST OR FAILS TO ACT ON THE PROTEST 312
B. COMPROMISE AND ABATEMENT OF TAXES 316
ABATEMENT 319
C. TAX REFUND & CREDIT: RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY
COLLECTED 320
TAX REFUND 320
TAX CREDIT CERTIFICATE (TCC) 320
C1. TAX REFUND vs. TAX CREDIT 321
CONDITIONS FOR THE GRANT OF TAX REFUND WHEN THE CREDITABLE
WITHHOLDING TAX IS IN EXCESS OF THE AMOUNT OF THE TAX DUE 327
CORPORATE TAXPAYER HAS TWO ALTERNATIVE OPTIONS. 333
3. GOVERNMENT REMEDIES 341
A. ADMINISTRATIVE REMEDIES 341
A1. TAX LIEN 341
A2. DISTRAINT AND LEVY 342
B. JUDICIAL REMEDIES 353

B1. CIVIL ACTIONS 353
B2. CRIMINAL ACTIONS 355
———————————————————————————————
PRELIMINARIES
1. The discussion of tax remedies start with a “tax return”. In the Philippines, we
follow the “self-assessment method”, that is,
a. The income tax payer files his own income tax return (ITR) based on his
own assessment;
b. The executor/administrator of an estate files the estate tax return (ETR);
c. The donor files the donor’s tax return (DTR).
2. What do you file? A tax return.
3. Where do you file it? Venue is critical like in remedial and criminal law. If it is
filed in the wrong venue:
a. It is equivalent to non-filing and non-payment of tax;
b. Taxpayer may ask for refund, but (a) still holds.
[] Note that the BIR is divided into regional offices, similar to court
subdivisions, whereby each is its own territorial jurisdiction headed by a Regional
District Officer.
4. When to file? It depends on whether one is a purely compensation income
earner, a business income earner, a mixed earner or a corporation, infra.
5. Summary of the procedure on tax remedies (explained infra)******
a. Letter of Authority (LOA);
b. Preliminary Assessment Notice (PAN);
c. Final Assessment Notice (FAN);
d. Protest;
e. Action of the BIR
f. Appeal to the CTA
g. Petition for review on certiorari (R45) or petition for certiorari (R65) to SC.
6. NB: The veil of corporation fiction can be pierced if it is used for tax evasion
purposes.214
REMEDIES OF THE TAXPAYER IN GENERAL

1. Under the NIRC
a. Administrative
i. Before payment: (a) Dispute assessment (protest), either through: 
(1) Reconsideration (2) Reinvestigation; (b) Compromise agreement
ii. After payment: (a) Tax refund; (b) Tax credit
b. Judicial
i. Civil
ii. Criminal
c. Substantive215
2. Under the LGC
a. Prior to assessment: To question the constitutionality or legality of a tax
214 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 this
subsequent sale. Characterize the arrangement. (1%) (2013 Bar Question)
(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 collects 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. 
(D) The government must respect Gonmad's separate juridical personality and Deltoid's taxable sale to
it. SUGGESTED ANSWER: (C) The plan is improper; the veil of corporate fiction can be
pierced so that the second sale will be considered the taxable sale. The given problem is similar to
the case of Commissioner of Internal Revenue v. Norton and Harrison Company (G.R. No. L-17618,
August 31, 1964). *****The Supreme Court held that “a taxpayer may gain advantage of doing business
thru a corporation if he pleases, but the revenue officers in proper cases, may disregard the
separate corporate entity where it serves but as a shield for tax evasion and treat the person who
actually may take benefits of the transactions as the person accordingly taxable. To allow a taxpayer to
deny tax liability on the ground that the sales were made through another and distinct corporation
when it is proved that the latter is virtually owned by the former or that they are practically one
and the same is to sanction a circumvention of our tax laws.”
215 Examples of substantive remedies:
a. Questioning the constitutionality of validity of tax statutes or regulations – a tax statute may be
attacked in the courts not only by reason of non- observance or violation of the constitutional
limitations on the exercise of the taxing power, but also on account of violation or non-observance of
the procedure laid down by the fundamental law on enactment of legislation (Manila Electric Co. v. Public
Service Commission, 73 Phil. 128).  
b. Non-retroactivity of rulings (Sec. 246, NIRC).  
c. Failure to inform the taxpayer in writing of the legal and factual bases of assessment (Sec. 228,
NIRC) – the taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
d. Publication of Revenue Memorandum Order (RMO) and Revenue Memorandum Circular (RMC) –
While the rule-making authority of the Commissioner of Internal Revenue is not doubted, like any
other government agency, the Commissioner may not disregard legal requirements or applicable
principles in the exercise of quasi-legislative powers (Commissioner v. Michel Lhuillier Pawnshop, G.R. No.
150947, July 15, 2003).
ordinance
b. After assessment: i. Protest; ii. Tax refund; iii. Right of redemption  
3. Under the TCC
a. Protest
b. Abandonment
c. Refund, drawback, abatement
d. Payment of fine or redemption
e. Appeal to Customs Commissioner
4. Under RPT
a. Protest
b. Tax refund or tax credit
c. Redemption of real property
REMEDIES OF THE GOVERNMENT IN GENERAL

1. Under the NIRC
a. Tax lien (Sec. 219)
b. Distraint and levy
c. Civil or Criminal action (Sec. 205)
d. Compromise (Sec. 204)
e. Forfeiture (Sec. 224)
f. Civil penalties (Sec. 248)
2. Under the LGC
b. Distraint (Sec. 175)
c. Levy (Sec. 176)
3. Under the TCC
b. Compromise
c. Distraint in the nature of seizure (Sec. 2301)
d. Administrative fines and forfeitures
*****There is no levy because the subject is personal property
4. Under RPT
b. Levy (Sec. 258)
SUBJECTS OF TAX REMEDIES IN INTERNAL REVENUE

TAXATION
*They include the action of the BIR where there may be controversy between the
taxpayer and the State such as:
1. Assessment of internal revenue taxes
2. Collection of internal revenue taxes
3. Refund of internal revenue taxes
4. Imposition of administrative or civil fines, penalties, interests or surcharges;

promulgation and/or enforcement of administrative rules and regulations for the
effective and efficient enforcement of internal revenue laws
5. Prosecution of criminal violations of internal revenue laws.
TAX RETURN
1. A subscribed and sworn statement filed by the taxpayer containing relevant
and material information. All taxes under the NIRC are in the nature of self-
assessed taxes.
[] ****There is a disputable presumption that the tax return was filed in
good faith. 
[] ****Since a tax return is VERIFIED, if the taxpayer falsifies or forges
an entry or files a return fraudulently216 or in bad faith, he will be
CRIMINALLY LIABLE for PERJURY or FALSIFICATION as the
circumstances may apply, PLUS DEFICIENCY TAXES.
2. Information required in a tax return:
a. Name, address and TIN of taxpayer  
b. For INCOME TAX: source of income and deductions allowed  
c. For ESTATE TAX: list of properties in the estate and the deductions
allowed  
3. *****In case of individuals engaged in trade or business, AUDITED
financial statements by a CPA are necessary to support the return;
4. There is no return filed by the taxpayer who was subjected to final
withholding tax, but the withholding agent must file the WT return;  
5. In case of CGT, a return is filed 30 days after each transaction  
216 Mr. A was preparing his income tax return and had some doubt on whether a commission he
earned should be declared for the current year or for the succeeding year. He sought the opinion
of his lawyer who advised him to report the commission in the succeeding year. He heeded his
lawyer's advice and reported the commission in the succeeding year. The lawyer's advice turned out
to be wrong; in Mr. A's petition against the BIR assessment, the court ruled against Mr. A. Is Mr. A
guilty of fraud? (1%)(2013 Bar Question) (A) Mr. A is not guilty of fraud as he simply followed the
advice of his lawyer. (B) Mr. A is guilty of fraud; he deliberately did not report the commission in the
current year when he should have done so. (C) Mr. A's lawyer should pay the tax for giving the wrong
advice. (D) Mr. A is guilty for failing to consult his accountant. In Santos v. People of the Philippines
and BIR, the Court of Tax Appeals (CTA) acquitted Santos from the criminal case of tax evasion
and ruled that failure to supply correct and accurate information must be fully established as a
positive act or state of mind; it cannot be presumed nor attributed to mere inadvertent or
negligent acts. Moreover, the CTA reiterated the doctrine in Yulivo Sons hardware v. Court of Tax
Appeals (G.R. No. L- 13203), January 28, 1961, 1 SCRA 169) that *****mere understatement of a
tax is not itself proof of fraud for the purpose of tax evasion. In the present case, Mr. A relied in
good faith on the expertise of his lawyer in not declaring his income for that year. Therefore, he
is not guilty of fraud.
RULES ON RETURNS OF INDIVIDUALS

1. INDIVIDUAL TP REQUIRED TO FILE RETURNS:217  
(a) Every Filipino citizen residing in the Philippines; 
(b) Every Filipino citizen residing outside the Philippines, on his income
from sources within the Philippines; 
(c) A resident alien - on his income derived from sources within the
Philippines;218 and 
(d) Every nonresident alien engaged in trade or business or in the
exercise of profession in the Philippines.  
2. INDIVIDUAL TP NOT REQUIRED TO FILE RETURNS:  
(a) An individual whose *****gross income does not exceed his total
personal and additional exemptions for dependents under Section 35: Provided,
That a citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippines shall file an income tax return,
regardless of the amount of gross income;  
(b) An individual with respect to pure compensation income, as defined
in Section 32 (A)(1), derived from sources within the Philippines, the income tax
on which has been correctly withheld under the provisions of Section 79 of this
Code: *****Provided, That an individual deriving compensation concurrently
217Indicate whether each of the following individuals is required or not required to file an income tax
return: (2015 Bar Question)
a) Filipino citizen residing outside the Philippines on his income from sources outside the
Philippines. SUGGESTED ANSWER: No, because a non-resident Filipino citizen is taxable only in
income sourced within the Philippines
b) Resident alien on income derived from sources within the Philippines: Yes because a
resident alien is taxable for income derived from sources within the Philippines. 
c) Resident citizen earning purely compensation income from two employers within the
Philippines, whose income taxes have been correctly withheld: Yes. *****A resident citizen who is
earning purely compensation income from two employers should file income tax return for not being
qualified for substituted filing. 
d) Resident citizen who falls under the classification of minimum wage earners: No. Under the
law, all minimum wage earners in the private and public sector shall be exempt from payment
of income tax.
e) An individual whose sole income has been subjected to final withholding tax: No.
Under the law, an individual whose sole income has been subjected to final withholding tax pursuant to
Section 57(A) of the NIRC need not file a return.
218Robert Patterson is an American who first arrived in the Philippines in 1944 as a member of the U.S.
Armed Forces that liberated the Philippines. After the war, he returned to the United States but came
back to the Philippines in 1958 and stayed here up to the present. He is presently employed in
the United States Naval Base. Olongapo City. For the year 1985, he earned US$10,856.00. Sometime
in 1986, the District Revenue Office of the Bureau of Internal Revenue served him a notice informing
him that he did not file his income tax return for the year 1985 and directing him to file said return in
10 days. He refused to file any return claiming that he is not a resident alien and is therefore not
required to file any income tax return. Is Patterson’s claim correct? ANSWER: Patterson’s claim is not
correct. *****While Paterson is exempt from income tax, an exemption from income tax does not,
however, necessarily mean an exemption likewise from the filing of an income tax return
(Garrison vs. Court of Appeals, 187 SCRA 525). (BAR 1991)
from two or more employers at any time during the taxable year shall file an
income tax return: Provided, further, That an individual whose compensation
income derived from sources within the Philippines exceeds Sixty thousand
pesos (P60,000) shall also file an income tax return;219  
(c) An individual whose sole income220 has been subjected to final
withholding tax pursuant to Section 57(A) of this Code; and  
(d) An individual who is exempt from income tax pursuant to the
provisions of this Code and other laws, general or special.  
****The foregoing notwithstanding, any individual not required to file
an income tax return may nevertheless be required to file an information
return pursuant to rules and regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner.
3. INCOME COVERED BY THE RETURNS: The income tax return shall be
filed in duplicate by the following persons:  
(a) A resident citizen - on his income from all sources; 
(b) A nonresident citizen - on his income derived from sources within the
Philippines; 
(c) A resident alien - on his income derived from sources within the
Philippines; and 
(d) A nonresident alien engaged in trade or business in the Philippines -
on his income derived from sources within the Philippines.  
WHERE TO FILE?
*Except in cases where the Commissioner otherwise permits, the return shall be
filed with
219A bachelor was employed by Corporation A on the first working day of January 1996 on a part-
time basis with a salary of P3.500.00 a month. He then received the 13th month pay. In September
1996, he accepted another part-time job from Corporation B from which he received a total
compensation of P14,500.00 for the year 1996. The correct total taxes were withheld from both
earnings. With the withholding taxes already paid, would he still be required to file an income tax
return for his 1996 income? ANSWER: *****Yes, because what is exempt from filing are those
individuals who have total compensation income not exceeding P60.000 with the taxes correctly
withheld only by one employer. In this case, even if his aggregate compensation income from both
his employers does not exceed P60.000 and that total withholding taxes were correctly withheld
by his employers, *****the fact that he derives compensation income concurrently from two
employers at anytime during the taxable year, does not exempt him from filing his income tax return
(RA 7497. as implemented by RR No. 4-93). (BAR 1997)
220Is a non-resident alien who is not engaged in trade or business or in the exercise of profession in
the Philippines but who derived rental income from the Philippines required to file an income tax
return on April of the year following his receipt of said income? If not, why not? Explain your answer.
(5%) SUGGESTED ANSWER: No. *****The income tax on all income derived from Philippine
sources by a non-resident alien who is not engaged in trade or business in the Philippines is withheld
by the lessee as a Final Withholding Tax. (Section 57(A), NIRC). The government cannot require
persons outside of its territorial jurisdiction to file a return; for this reason, the income tax on
income derived from within must be collected through the withholding tax system and thus relieve
the recipient of the income the duty to file income tax returns. (Section 51, NIRC). (BAR 2001)
1. an authorized agent bank,

2. Revenue District Officer,
3. Collection Agent or
4. duly-authorized Treasurer of the city or municipality in which such person
has his legal residence or principal place of business in the Philippines,
5. or if there be no legal residence or place of business in the Philippines, with
the Office of the Commissioner.
[] Note than
WHEN TO FILE?
DUE DATES FOR FILING OF RETURNS*****
1. For INCOME TAX RETURNS:
1a. Individual Taxpayers, who are:
a. Purely compensation income earners (CIE): April 15 of each year.
Substituted filing221 can be had if the CIE had only one (1) employer (ER) and
had no other income other than that derived from employment. The latter is filed
on February 28 of each year. It does not apply to individual taxpayers who:
i. have more than one employers;
ii. have sources of income other than from mere employment, i.e., he
is a mixed-income earner.
b. For both (a) Compensation and business income earners; (b) purely
business income earners (BIE); and (c) professional income earners (PIE): File
quarterly returns within 60 days from the close of the quarter, and the last quarter
shall be paid together with the consolidated annual return on April 15, that is:
i. Q1 (Jan to March): pay not later than May 15;
ii. Q2 (April to Jun): pay not later than August 15;
iii. Q3 (July to Sept): pay not later than November 15;
iv. Consolidated/Final return: pay not later than April 15.
221 *If the spouses are qualified under “substituted filing,” they need not file Income Tax Returns. In
case of married individuals who are still required to file returns or in those instances not covered by the substituted filing
of returns, only one return for the taxable year shall be filed by either spouse to cover the income
of the spouses, which return shall be signed by the husband and wife, unless it is physically impossible to
do so, in which case signature of one of the spouses would suffice
[] For individuals receiving purely compensation income from a single employer, although
the income of which has been correctly withheld, but whose spouse is not entitled to substituted
filing, the spouses are required to file income tax returns.
******Substituted filing applies only if all of the following requirements are present :
a. the employee received purely compensation income (regardless of amount) during the
taxable year  
b. the employee received the income from only one employer in the Philippines during the
taxable year  
c. the amount of tax due from the employee at the end of the year equals the amount of tax withheld by
the employer  
d. the employee’s spouse also complies with all 3 conditions stated above  
e. the employer files the annual information return (BIR Form No. 1604-CF)  
f. the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.
1b. Corporate Taxpayer: it depends on the taxable period:222

a. Three (3) quarterly returns on a cumulative basis - 60 days from the
end of the quarter 
b. One final consolidated return filed on:
i. Calendar year: April 15th 
ii. Fiscal year: 15th day of the 4th month following close of fiscal year
2. For VAT RETURNS: three (3) quarterly returns plus 1 final consolidated
return but with monthly remittances on or before the 20th day of the month covering
the transactions for the previous month.
a. monthly: on the 20th of the following month;
b. quarterly: on the 25th of the month following the close of the quarter
(for that month, there is only one return for the monthly & quarterly returns)
3. For ESTATE TAX RETURNS: filed only once, that is, within six (6)
months from death.223 Follow the Administrative Code224 for the the counting
of the six months, not the Civil Code. EG: If death is on April 14, file it on or
222How often does a domestic corporation file income tax return for income earned during a single
taxable year? Explain the process. (3%) What is the reason for such procedure? (2%) SUGGESTED
ANSWER: *****A domestic corporation is required to file income tax returns four (4) times for
income earned during a single taxable year. Quarterly returns are required to be filed for the first
three quarters where the corporation shall declare its quarterly summary of gross income and
deductions on a cumulative basis. (Section 75, NIRC). Then, a final adjustment return is required
to be filed covering the total taxable income for the entire year, calendar or fiscal. (Section 76,
NIRC). *****The reason for this procedure is to ensure the timeliness of collection to meet the
budgetary needs of the government. Likewise, it is designed to ease the burden on the taxpayer
by providing it with an installment payment scheme, rather than requiring the payment of the tax
on a lump-sum basis after the end of the year. ALTERNATIVE ANSWER: The reason for the
quarterly filing of tax returns is to allow partial collection of the tax before the end of the taxable
year and also to improve the liquidity of government. (BAR 2001)
223Gerardo died on July 31, 2011. His estate tax return should be filed within: (2011 Bar Question)
(A) six months from filing of the notice of death. (B) sixty days from the appointment of an
administrator. (C) six months from the time he died on July 31, 2011. (D) sixty days from the time
he died on July 31, 2011.
224Also for other prescriptive periods: COMPUTATION OF THE THREE (3) YEAR PERIOD
re ASSESSEMENT: It is computed based on the Administrative Code, where a "year” shall be
understood to be 12 calendar months. E.O. 292 or the Administrative of 1987, specifically Section
31, Chapter VIII, Book I provides “Legal Periods” – ‘Year’ shall be understood to be twelve calendar
months; ‘months’ of thirty days, unless it refers to a specific calendar month in which case it shall be
computed according to the number of days the specific month contains. (Primetown doctrine) (CIR v.
Primetown Property Group, Inc., G.R. No. 162155, August 28, 2007)
NOTE: Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a
leap year. There obviously exists a manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. The Administrative Code of 1987, being
the more recent law governs the computation of legal periods (id.).
before October 14.225

4. For DONOR’S TAX RETURNS: count the number of days this time, since it
should be filed within 30 days after each gift given; 30 days is reckoned from the date
of document.
[] NB: Individuals subject to tax on capital gains;
(a) From the sale or exchange of SHARES OF STOCK not traded thru a
local stock exchange as prescribed under Section 24(c) shall file a return within
thirty (30) days after each transaction and a final consolidated return on or
before April 15 of each year covering all stock transactions of the preceding
taxable year; and
(b) From the sale or disposition of REAL PROPERTY under Section
24(D) shall file a return within thirty (30) days following each sale or other
disposition.
SPECIFIC PERSONS CONCERNED TO FILE ITR

1. Husband and Wife: Married individuals, whether citizens, resident or
nonresident aliens, who do not derive income purely from compensation, shall
file a return for the taxable year to include the income of both spouses, but
where it is impracticable for the spouses to file one return, each spouse may
file a separate return of income but the returns so filed shall be consolidated
by the Bureau for purposes of verification for the taxable year.226
2. Return of Parent to Include Income of Children: The income of
225 Also in Tax Refund cases: TWO (2)-YEAR PERIOD SHALL BE COMPUTED
1. Under the Administrative Code of 1987, a year is composed of 12 calendar months. The number
of days is irrelevant (CIR v. Primetown Property Group, Inc. 531 SCRA 436,).
2. *****The two-year period for filing tax refund is not jurisdictional: The Supreme Court held that
even if the two-year period had already lapsed, the same is not jurisdictional and may be suspended
for reasons of equity and other special circumstances (CIR v. PNB, 474 SCRA 303).
226 Raffy and Wena, husband and wife, are both employed by XXX Corporation. After office hours,
they jointly manage a coffee shop at the ground floor of their house. The coffee shop is registered in
the name of both spouses. Which of the following is the correct way to prepare their income tax
return? Write the letter only. DO NOT EXPLAIN YOUR ANSWER. (2%)
A. Raffy will declare as his income the salaries of both spouses, while Wena will declare he income
from the coffee shop.
B. Wena will declare the combined compensation income of he spouses, and Raffy will declare the
income from the coffee shop.
C. All the income will be declared by raffy alone, because only one consolidated return is required to be
filed by the spouses.
Page 224 of 450 Law on Taxation
D. Raffy will declare his own compensation income and Wena will declare hers. The income
from the coffee shop shall be equally divided between them. *****Each spouse shall be taxed
separately on their corresponding taxable income to be covered by one consolidated return for
the spouses.
E. Raffy will declare his own compensation income and Wena will declare hers. The income from the
coffee shop shall be equally divided between them. Raffy will file one income tax return to cover all the
income of both spouses, and the tax is computed on the aggregate taxable income of the spouses.
(BAR 2009)
unmarried minors derived from property received from a living parent shall be
included in the return of the parent, except****
a. when the donor's tax has been paid on such property, or
b. when the transfer of such property is exempt from donor's tax.
3. Persons Under/With Disability: If the taxpayer is unable to make his own
return, the return may be made by his duly authorized agent or representative
or by the guardian or other person charged with the care of his person or
property, the principal and his representative or guardian assuming the
responsibility of making the return and incurring penalties provided for
erroneous, false or fraudulent returns.
4. ****Signature Presumed Correct: The fact that an individual's name is signed
to a filed return shall be PRIMA FACIE EVIDENCE for all purposes that the
return was actually signed by him.
RULES ON CORPORATE RETURNS

1. Requirements:
a. Every corporation subject to the tax herein imposed, except foreign
corporations not engaged in trade or business in the Philippines, shall render,
in duplicate, a true and accurate
i. QUARTERLY INCOME TAX RETURN and
ii. FINAL OR ADJUSTMENT RETURN in accordance with the
provisions of Chapter XII of this Title.
b. The return shall be filed by the president, vice-president or other
principal officer, and
c. shall be sworn to by such officer and by the treasurer or assistant treasurer.
2. TAXABLE YEAR of Corporation:
A corporation may employ either calendar year or fiscal year as a basis
for filing its annual income tax return: Provided, That the corporation shall not
change the accounting period employed without prior approval from the
Commissioner;
3. Return of Corporation Contemplating Dissolution or Reorganization:
Every corporation shall, within thirty (30) days after the adoption by the
corporation of a resolution or plan for its DISSOLUTION, or for the
LIQUIDATION of the whole or any part of its capital stock, including a
corporation which has been notified of possible INVOLUNTARY
DISSOLUTION by the Securities and Exchange Commission, or for its
REORGANIZATION, render a correct return to the Commissioner, verified
under oath, setting forth the terms of such resolution or plan and such other
information as the Secretary of Finance, upon recommendation of the
commissioner, shall, by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the issuance
by the Securities and Exchange Commission of the Certificate of Dissolution
or Reorganization, as may be defined by rules and regulations prescribed by the

Secretary of Finance, upon recommendation of the Commissioner, secure a
CERTIFICATE OF TAX CLEARANCE from the Bureau of Internal Revenue
which certificate shall be submitted to the Securities and Exchange
Commission.
4. Return on CAPITAL GAINS Realized from Sale of Shares of Stock not
Traded in the Local Stock Exchange:
Every corporation deriving capital gains from the sale or exchange of shares
of stock not traded thru a local stock exchange as prescribed under Sections 24
(c), 25 (A)(3), 27 (E)(2), 28(A)(8)(c) and 28 (B)(5)(c), shall file a return within
thirty (30) days after each transaction and a final consolidated return of all
transactions during the taxable year on or before the fifteenth (15th) day of
the fourth (4th) month following the close of the taxable year.
EXTENSION OF TIME TO FILE RETURNS

The Commissioner may, in meritorious cases, grant a reasonable extension
of time for filing returns of income (or final and adjustment returns in case of
corporations), subject to the provisions of Section 56 of this Code.
RETURNS OF GENERAL PROFESSIONAL PARTNERSHIPS

Every general professional partnership shall file, in duplicate, a return of its
income, except income exempt under Section 32 (B) of this Title, setting forth the
items of gross income and of deductions allowed by this Title, and the names,
Taxpayer Identification Numbers (TIN), addresses and shares of each of the
partners.
KINDS OF FILING OF RETURN:

1. Filing in good faith  
2. Filing in bad faith
3. Fraudulent filing)  
3. Non-filing: BIR may file a return on behalf of the taxpayer.  
SUBSTITUTED FILING
*It applies to a compensation income earner who:
1. is employed only by one227 employer  
2. there is no other form of income but compensation  
227In the year 2000, X worked part time as a waitress in a restaurant in Mega Mall from 8:00 a.m. to
4:00 p.m. and then as a cashier in a 24-hour convenience store in her neighborhood. The total income
of X for the year from the two employers does not exceed her total personal and additional exemptions
for the year 2000. Was she required to file an income tax return last April? Explain your answer. (5%)
SUGGESTED ANSWER: Yes. *****An individual deriving compensation concurrently from two or
more employers at any time during the taxable year shall file an income tax return (Sec. 51(A)(2)(b),
NIRC.)(BAR 2001)
3. not received any investigation PRIOR to said substituted filing

—————————————————
PARTIES IN TAX REMEDIES

1. There are only 2 parties in tax remedies:
a. the Taxpayer (TP) and
b. the BIR
2. Can the tax return be amended? YES. *****A return may be AMENDED
within 3 years from the date of filing of the original return, provided that no
notice of investigation has ACTUALLY been received by the taxpayer, i .e.,
there is not letter of authority to investigate yet, otherwise, the taxpayer would go
scott free by just amending the return.
3. Sec. 5 to 15 NIRC provide for powers of BIR to determine whether or not
the entries in the return are true and correct. When BIR exercises any or all
the powers in Sec. 5-15 NIRC and has negative findings, an investigation will
be conducted. Steps:******
a. A Letter of Authority (LA) shall first be issued,
*Taxpayer files a reply within 15 days from receipt of LA;
[] BIR would know possible deficiencies in the returns based on the
“TAX MAP” they have for your business (see the BIR stickers on offices).
b. then by a preliminary assessment notice (PAN), and
[] the issuance of a PAN is a general rule, see exemptions infra.
*Taxpayer files a reply within 15 days from receipt.
c. eventually a Final Assessment Notice (FAN) will be issued.
*****Failure to follow the sequence of this procedure by the BIR is
tantamount to a denial of DUE PROCESS.
******NB: the PAN is not protested, only the FAN. And the FAN is not
appealed to the CTA, only the decision of the BIR.
—————————————————-
1. Tax Remedies
A. ASSESSMENT  
A1. DEFINITION AND REQUISITES OF A VALID ASSESSMENT

1. Different kinds of assessments
a. Pre-Assessment – informs the taxpayer of the findings of the examiner who
recommends a deficiency assessment. The taxpayer is usually given 10 days from
notice within which to explain his side.
b. Self-Assessment – one in which the tax is assessed by the taxpayer himself.  
c. Official Assessment – issued by the BIR in case the taxpayer fails to respond
to the pre-assessment, or his explanation is not satisfactory to the CIR.
d. Illegal and Void Assessment – tax assessor has no power to assess at all.
e. Erroneous Assessment – assessor has power to assess but errs in the exercise
thereof.
f. Jeopardy Assessment (refer to further discussion below)
2. Concept of assessment
a. It is a written notice and demand made by the BIR on the taxpayer for the
settlement of a due tax liability that is there definitely set and fixed. A written
communication by a revenue officer of tax liability of the taxpayer, giving him an
opportunity to contest or disprove the BIR examiner’s findings is not an
assessment since it is yet indefinite. The recommendation of the Commissioner
cannot be considered a formal assessment. (Adamson v. Cam 588 SCRA 27)
b. An assessment contains not only a computation of tax liabilities, but also
a demand for payment within a prescribed period. It signals the time when the
penalties and interest begin to accrue against the taxpayer. (CIR v. PASCOR, 309
SCRA 402)
c. Generally, an assessment refers to the formal assessment notice (FAN),
which is serially numbered, accountable form of the government. Thus, a pre-
assessment notice (PAN) issued by a revenue official preparatory to the issuance
of a formal or final assessment notice (FAN) as part of procedural due process is
not, legally speaking, an assessment, even if it contains a computation of tax
liabilities of a taxpayer and a demand for payment of the computed tax liabilities.
3. Assessment precedes collection except when the unpaid tax is a tax due per return as
in the case of a self- assessed income tax under the pay-as-you-file system, in which case, the
collection may be instituted without need of assessment pursuant to Section 56 of
the NIRC. Collectibility of the tax liability attaches only when the assessment
becomes final and unappealable (Dimaampao, J., 2015).
PAY-AS-YOU-FILE SYSTEM
1. The Tax Code follows the pay-as-you-file system of taxation under which the
taxpayer computes his own tax liability, prepares the return, and pays the tax as he
files the return.
2. GR: Internal Revenue Taxes are self-assessing. They do not require the issuance
of an assessment notice in order to establish the tax liability of a taxpayer.
3. XPNs:
a. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)
b. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)
c. In case of deficiency tax liability arising from a tax audit conducted by the
BIR (Sec. 56 [B], NIRC)
d. Tax lien (Sec. 219, NIRC)
e. Dissolving corporation (Sec. 52 [c], NIRC)
PRINCIPLES GOVERNING TAX ASSESSMENTS [PAD3]

1. They are prima facie presumed correct and made in good faith.228 Hence,
the burden of proof is on the taxpayer contesting the validity or correctness
of an assessment to prove not only that the Commissioner of Internal
Revenue is wrong but the taxpayer is right. Otherwise, the presumption in
favor of correctness of tax assessment stands.
[] Reasons for presumption of correctness of assessments: (a) Lifeblood
Theory; (b) Presumption of regularity in the performance of public functions;
(c) The likelihood that the taxpayer will have access to the relevant information;
(d) The desirability of bolstering the record-keeping requirements of the NIRC.
2. Should be based on Actual facts; (estimates can also be a basis given that it is
not arrived at arbitrarily or capriciously)
[] *****Instance where prima facie correctness of a tax assessment
does not apply - The prima facie correctness of a tax assessment does not apply
upon proof that an assessment is utterly without foundation, meaning it is
arbitrary and capricious.229 Where the BIR has come out with a “naked
assessment” i.e., without any foundation character, the determination of the tax
due is without rational basis (CIR v. Hantex Trading Co. Inc., G.R, No. 136975, March
31, 2005). 2
3. Discretionary on the part of the Commissioner; The authority vested in the
Commissioner to assess taxes may be Delegated
4. Must be Directed to the right party.
DUE PROCESS
The concept of due process in assessment can be summarized as follows:
1. Taxpayer should be notified that there is an assessment
2. In such notice, he must be informed of the legal and factual basis of
assessment, for both PAN and FAN (CIR v. Metro Star Suprema Inc., G.R. No.
185371, December 8, 2010).
SERVICE OF ASSESSMENT
3 Ways to serve PAN/FAN/FDDA are as follows:
228 settled is the rule that assessments are prima facie presumed correct and made in good faith, with
the taxpayer having the burden of proving otherwise. (FELS Energy, Inc. V. The Province of Batangas, et
al., G.R. No. 168557, February 16, 2007) It is an elementary rule that in the absence of any irregularities
in the performance of official duties, an assessment will not be disturbed. Verily, failure to present
proof of error in assessments will justify judicial affirmance of said assessment. (ACMDC v. CA, 242
SCRA 289)
229Which among the following circumstances negates the prima facie presumption of correctness
of a BIR assessment? (2011 Bar Question): (A) The BIR assessment was seasonably protested within
30 days from receipt. (B) No preliminary assessment notice was issued prior to the assessment notice.
(C) Proof that the assessment is utterly without foundation, arbitrary, and capricious. (D) The
BIR did not include a formal letter of demand to pay the alleged deficiency.
1. Personal service, or
2. Registered mail
3. Substituted delivery (RR 18-2013)
IMPORTANCE OF A TAX ASSESSMENT

TO THE GOVERNMENT TO THE TAXPAYER
1. In the proper pursuit of judicial and extrajudicial remedies to 1. To inform the taxpayer
enforce taxpayer liabilities and certain matters that relate to it, such as of his liabilities;  
the imposition of surcharges and interests;   2. To determine the period
2. In the application of the Statute of Limitations;   within which to protest.  
3. In the establishment of tax liens; and 3. To determine
4. In estimating the   prescription of
revenues that may be collected by the government. government claim.
[] Q: Is assessment necessary before a taxpayer may be prosecuted for
willfully attempting in any manner to evade of defeat any tax imposed by the
Internal Revenue Code? (2008 Bar): NO, because of the following differences
between a criminal charge and an assessment:
1. Criminal charge need only be supported by a prima facie showing of
failure to file required return while the fact of failure to file a return need not
be proven by an assessment;
2. Before an assessment is issued, there is, by practice a pre-assessment
notice sent to the taxpayer while such is not so with a criminal charge;
3. A criminal complaint is instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax Code while the purpose of the
issuance of an assessment is to collect the tax.
4. *****The Tax Code allows the BIR Commissioner230 to file criminal
action without assessment231 (CIR v. Pascor Realty and Development Corporation, et.
al., GR no. 128315, June 29, 1999). The affidavit-report of BIR examiner showing
computation of tax liabilities, and recommending the issuance of a notice of
230Q: May the CIR be compelled by mandamus to make an assessment? A: NO, Mandamus
cannot lie to compel the CIR to impose deficiency tax assessment. The CIR’s power to assess is a
discretionary one (MERALCO v. Sevillano, G.R. No. L-46245, 23 October 1982).
[] Do you think an action for mandamus with the RTC can prosper to compel the
Commissioner to issue a deficiency assessment? ANSWER: No. *****It has been held that the
assessment of taxes is not a ministerial duty compellable by mandamus. It is a discretionary
power vested by law on the Commissioner of Internal Revenue in the exercise of which the
regular courts may not interfere with. (BAR 1992)
231Q: Is assessment of the tax deficiency required in a criminal prosecution for tax evasion? A.
No. A criminal complaint instituted for violation of the tax code is not to demand payment, but to
penalize the taxpayer for violation of the Tax Code. Further, *****tax evasion is deemed complete
when the violator has knowingly and willfully filed a fraudulent return with intent to evade and
defeat a part or all of the tax. Corollarily, an assessment of the tax deficiency is not required in a
criminal prosecution for tax evasion. However, in CIR v. CA, the Court clarified that although a
deficiency assessment is not necessary, the fact that a tax is due must first be proved before one can
be prosecuted for tax evasion (CIR vs. Court of Appeals, Spouses Antonio Villan Manly, And Ruby Ong
Manly, G.R. No. 197590, November 24, 2014).
assessment, is not an assessment itself which is the subject of a motion for

reconsideration/reinvestigation or protest by the taxpayer. This is so, because it
was not sent to the taxpayer, and does not demand payment of the tax within a
certain period of time. An assessment is deemed made only when the BIR release,
mails, or sends such notice to the taxpayer (Id.).
BIR COMMISSIONER SHALL COMPUTE INCOME FOR TAXATION

IN ACCORDANCE WITH THE METHOD AS IN HIS OPINION
CLEARLY REFLECT INCOME:
1. If no method of accounting was employed by the taxpayer, or
2. The accounting method employed does not clearly reflect the income (Sec. 43,
NIRC).
A2. TAX DELINQUENCY AND TAX DEFICIENCY*****  

1. Delinquency Tax - A taxpayer is considered delinquent in the payment of
taxes when:232
a. Self-assessed tax per return filed by the taxpayer on the prescribed date
was not paid at all or only partially paid; or  
b. Deficiency tax assessed by the BIR becomes final and executory
and the taxpayer has not paid it within the period given in the notice of
assessment.  
2. Deficiency Tax
a. The amount by which the tax imposed by law as determined by the CIR
or his authorized representative exceeds the amount shown as tax by the
taxpayer upon his return; or
b. If no amount is shown as tax by the taxpayer upon his return is made by
the taxpayer, then the amount by which the tax as determined by the CIR or his
authorized representative exceeds the amounts previously assessed or collected
without assessment as deficiency.
3. Distinguish Delinquency from Deficiency Taxes*****
DELINQUENCY TAX DEFICIENCY TAX
Can immediately be collected Can be collected through administrative and/or

administratively through the judicial remedies but has to go through the
Collection issuance of a warrant of process of filling the protest by the taxpayer
distraint and levy, and/or against the assessment and the denial of such
judicial action protest by the BIR
232When is a revenue tax considered delinquent? [3%I What constitutes prima facie evidence of a false
or fraudulent return? [2%] SUGGESTED ANSWER: *****A revenue tax is considered delinquent
when it is unpaid after the lapse of the last day prescribed by law for its payment. Likewise, it could
also be considered as delinquent where an assessment for deficiency tax has become final and the
taxpayer has not paid it within the period given in the notice of assessment. (BAR 1998)
The filling of a civil action at the ordinary court

The filing of a civil action for for collection during the pendency of protest
the collection of the delinquent
Civil Action may be the subject of a motion to dismiss. In
tax in the ordinary court is a addition to a motion to dismiss, the taxpayer must
proper remedy file a petition for review with the CTA to toll
the running of the prescriptive period
A delinquent tax is subject to A deficiency tax is generally not subject to the
administrative penalties such 25% surcharge, although subject to interest and
Penalties as 25% surcharge, interest, compromise penalty
and compromise penalty
A3. JEOPARDY ASSESSMENT

1. A Jeopardy Assessment is a delinquency tax assessment made without the
benefit of a complete or partial investigation by an authorized revenue officer
who has reason to believe that the assessment and collection of a deficiency
tax will be jeopardized by delay caused by the taxpayer’s failure to:
a. Comply233 with audit and investigation requirements to present his books
of accounts and/or pertinent records, or
b. Substantiate all or any of the deductions, exemptions or credits claimed
in his return (Sec. 3 (1)(a), R.R. 30- 2002).234  
2. *****This is issued when the revenue officer finds himself without enough
time to conduct an appropriate or thorough examination in view of the
impending expiration of the prescriptive period for assessment. To prevent
the issuance of a jeopardy assessment, the taxpayer may be required to execute a
waiver of the statute of limitations.235  
WHEN ASSESSMENT IS MADE

1. An assessment is deemed made only when the Collector of Internal Revenue
RELEASES, MAILS OR SENDS such notice to the taxpayer (CIR, v. Pascor
Realty and Development Corporation, et. al. G.R. no. 128315, June 29, 1999).
2. Q: Is it necessary that the notice of assessment be received by the taxpayer
233PRELIMINARY ASSESSMENT NOTICE (PAN) - It is a form of informal conference with the

taxpayer and allows the BIR to open his books of account. The taxpayer‘s refusal to open books
of account will cause the BIR to issue a jeopardy assessment. Final Assessment Notice is later
issued;
234What should the BIR do when the prescriptive period for the assessment of a tax deficiency is about
to prescribe but the taxpayer has not yet complied with the BIR requirements for the production
of books of accounts and other records to substantiate the claimed deductions, exemptions or
credits? (2011 Bar Question) (A) Call the taxpayer to a conference to explain the delay. (B) Immediately
conduct an investigation of the taxpayer's activities. (C) Issue a jeopardy assessment coupled with
a letter of demand. (D) Issue a notice of constructive distraint to protect government interest.
235*****Jeopardy assessment is a valid ground to compromise a tax liability (2011 Bar Question) 
(A) involving deficiency income taxes only, but not for other taxes. (B) because of doubt as to the
validity of the assessment. (C) if the compromise amount does not exceed 10% of the basic tax. (D)
only when there is an approval of the National Evaluation Board.
within the prescriptive period? A: No, notice of the assessment must be released,
mailed or sent to the taxpayer within the 3 year period. It is not required that the notice
be received by the taxpayer within the prescribed period, but the sending of the notice must
clearly be proven (Basilan Estate, Inc. v. CIR, GR L-22492, September 5, 1967). NB:
When an assessment notice is sent by mail, the presumption is that a letter duly
directed and mailed was received in the regular course of mail.
3. Q: GJM filed its Annual Income Tax Return for the taxable year 1999 on April
12, 2000. BIR sent FAN through registered mail on April 14, 2003, well within the
3-year prescriptive period. GJM however denies having received any FAN. BIR
failed to prove that GJM received the FAN. Should the assessment be given due
course? A: NO. The court has held that when an assessment is made within the
prescriptive period, as in the case at bar, receipt by the taxpayer may or may not be
within said period. But the rule does not dispense with the requirement that the
taxpayer should actually receive the assessment notice, even beyond the
prescriptive period. If the taxpayer denies having received the assessment from
the BIR, it then becomes incumbent upon the latter to prove by competent
evidence that such notice was indeed received by the addressee.
Here, the onus probandi has shifted to the BIR to show by contrary evidence
that GJM indeed received the assessment in the due course of mail. While it is
true that an assessment is made when the notice is sent within the prescriptive
period, the release, mailing, or sending of the same must still be clearly and
satisfactorily proved. (CIR v. GJM, G.R. No. 202695, February 29, 2016)
A4. PRESCRIPTIVE PERIOD236 FOR ASSESSMENT
PP assessments at the NIRC vs. LGC vs. RPT vs. TCC*****

NIRC LGC RPT TCC
236RATIONALE FOR THE PRESCRIPTIVE PERIOD FOR ASSESSMENT

*It benefits both the government and the taxpayers:
1. The government is benefited because tax officers would be obliged to act properly and promptly in
making assessments.
2. The citizens are benefited because after the lapse of the period of prescription, citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books
of taxpayers.
3. Without such legal defense, taxpayers would furthermore be under obligation to always keep their
books and keep the open for inspection subject to harassment by unscrupulous tax agents.
NOTE: the law on prescription being a remedial measure should be liberally construed in favor of the
taxpayer
GR: Three (3) years from the date of: 1. Actual filing GR: Five GR: Five Does not express
of the return or 2. From the last date prescribed by (5) years (5) years or prescribes
law for the filing of such return, whichever comes from the from the statute of
later. (Sec. 203, NIRC)   date they date they limitation but it
XPNs: 1. In case of false or fraudulent return with became become provides that the
intent to evade tax, or the failure to file any return at due due entry and
all: Ten (10) years: a. From discovery of the falsity, XPN: Ten XPN: Ten passage free of
b. From discovery of fraud, or c. Omission to file a (10) years (10) years duty will, after
return; 2. If before the expiration of the three (3) from from the expiration of
year period for the assessment of the tax, there is an discovery discovery 3 years from
agreement in writing between the taxpayer and the of: of: date of final
BIR Commissioner – the period agreed upon which 1. Fraud 1. Fraud or   payment of
may be extended by subsequent written agreements or  2. Intent duties, shall
made before the period previously agreed upon. It is 2. Intent to evade become final and
known as “extended assessment”. (Sec. 222 (b), to evade payment of conclusive upon
NIRC) payment of taxes the parties. (Sec.
taxes 4, R.A. 9135)
Bar scenarios:
a. These periods are exceptions to the imprescriptibility of taxes;237
When partial payment has been made, BIR still has to follow the periods set
herein to collect the remainder. It is the postmark on the envelope bearing the
assessment that is material in determining the date.238 Hence, even if the taxpayer
237Taxes were generally imprescriptible; statutes, however, may provide otherwise. State the rules
that have been adopted on this score by – The National Internal Revenue Code; SUGGESTED
ANSWER: The statute of limitation for assessment of tax if a return is filed is within three (3)
years from the last day prescribed by law for the filing of the return or if filed after the last day,
within three years from date of actual filing. If no return is filed or the return filed is false or
fraudulent, the period to assess is within ten years from discovery of the omission, fraud or falsity.
(BAR 1997)
vs. TCC: The rules that have been adopted on prescription are as follows: Tariff and Customs
Code - *****It does not express any general statute of limitation; it provided, however, that
"when articles have entered and passed free of duty or final adjustment of duties made, with
subsequent delivery, such entry and passage free of duty or settlement of duties will, after the
expiration of one (1) year, from the date of the final payment of duties, in the absence of fraud
or protest, be final and conclusive upon all parties, unless the liquidation of import entry was
merely tentative" (Sec 1603, TCC). (BAR 1997)
vs. LGC: The rules that have been adopted on prescription are as follows: *****Local taxes,
fees, or charges shall be assessed within five (5) years from the date they became due. In case of
fraud or intent to evade the payment of taxes, fees or charges the same maybe assessed within ten
years from discovery of the fraud or intent to evade payment. They shall also be collected either by
administrative or judicial action within five (5) years from date of assessment (Sec. 194, LGC).
(BAR 1997)
238Mia, a compensation income earner, filed her income tax return for the taxable year 2007 on
March 30, 2008. On May 20, 2011, Mia received an assessment notice and letter of demand
covering the taxable year 2007 but the postmark on the envelope shows April 10, 2011. Her return is
not a false and fraudulent return. Can Mia raise the defense of prescription? (2011 Bar Question)
(A) No. The 3 year prescriptive period started to run on April 15, 2008, hence, it has not yet
expired on April 10, 2011. (B) Yes. The 3 year prescriptive period started to run on April 15, 2008,
hence, it had already expired by May 20, 2011. (C) No. The prescriptive period started to run on March
30, 2008, hence, the 3 year period expired on April 10, 2011. (D) Yes. Since the 3-year prescriptive
period started to run on March 30, 2008, it already expired by May 20, 2011.
received the mail after the three-year period, it is still valid as long as the postmark
on the envelope is within the said three-year prescriptive period.239
b. If the ITR is filed before April 15, the prescriptive period still starts on
April 15.240 When assessment was issued by BIR beyond the prescriptive periods,
239 On April 15, 2011, the Commissioner of Internal Revenue mailed by registered mail the final
assessment notice and the demand letter covering the calendar year 2007 with the QC Post Office.
Which statement is correct? (2012 BAR) a) The assessment notice is void because it was mailed beyond
the prescriptive period; b) The assessment notice is void because it was not received by the taxpayer
within the three-year period from the date of filing of the tax return; c) The assessment notice is void
if the taxpayer can show that the same was received only after one (1) month from date of mailing; d)
The assessment notice is valid even if the taxpayer received the same after the three-year period from
the date of filing of the tax return. SUGGESTED ANSWER: d) The assessment notice is valid even if
the taxpayer received the same after the three-year period from the date of filing of the tax return. 
Section 203, NIRC; BPI v. CIR, G.R. No. 139736, October 17, 2005. [TOM: Since the taxable period is
2007, the last day of filing is on April 15, 2008. Add three years, and so, the deadline for the issuance of
an assessment notice is April 15, 2011.]
240 Q: Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his 2004 ITR on Mar. 30,
2005. On Dec. 30, 2005, he left the Phil. as an immigrant to join his family in Canada. After
investigation of said return, the BIR issued a notice of deficiency income tax assessment on Apr.
15, 2008. Mr. Reyes returned to the Phil. as a balikbayan on Dec. 8, 2008. Finding his name to be in the
list of delinquent taxpayers, he filed a protest against the assessment on the ground that he did not
receive a notice of assessment and the assessment had prescribed. Will the protest prosper?
(2000 Bar) A: NO, the assessment has not yet prescribed since the BIR has a period of 3 years
from the last day prescribed by law for the filing of the return. The return was filed on March 30,
2005, that is, before the last day prescribed by law for its filing, hence the law considers it as being
filed on the last day prescribed by law for the filing of the same, which is April 15, 2005. The
assessment issued on Apr. 15, 2008 is therefore within the 3 year prescriptive period.
file a protest alleging prescription;241 ,242

b. On deficiency taxes for RPT: within 10 years from discovery of intent to
241 The Commissioner of Internal Revenue issued an assessment for deficiency income tax for
taxable year 2000 last July 31, 2006 in the amount of P10 Million inclusive of surcharge and
interests. If the delinquent taxpayer is your client, what steps will you take? What is your defense? 10%
SUGGESTED ANSWER: Since my client has already lost his right to protest the assessment
having been issued on July 31, 2006 and that he is already categorized as a delinquent tax payer.
I will advise him to wait for a collection action to be instituted by the commissioner. Once collection
is pursued. I will file a petition for review with the CTA to question the validity of the
commissioner’s action. My defense would be prescription. Since the assessment was issued
beyond the prescriptive period to assess, the assessment is invalid and any action to collect an
invalid assessment is not warranted (Phil. Journalists, Inc. v. CIR, 447 SCRA 214 [2004])
ANOTHER SUGGESTED ANSWER: I will advise my client, who is a delinquent taxpayer, to
file a request with the Commissioner of Internal Revenue for the abatement of the entire
assessment on the ground that the same is unjustly assessed (Sec, 204, NIRC). I will invoke
prescription as a defense against the assessment. I will tell the Commissioner that the assessment
having been issued beyond the prescriptive period, the deficiency income tax would appear to be
unjustly assessed which would justify the abatement or cancellation of the entire assessment.
ANOTHER SUGGESTED ANSWER: *****I will immediately file a protest within thirty
(30) days from receipt of the assessment by my client addressed to the Commissioner of Internal
Revenue, alleging prescription as my defense because the assessment was issued beyond three (3)
years as required by law (Sec. 228 and 203, NIRC). Should the Commissioner deny my protest, I will file an
appeal to the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision (Sec.
228, NIRC). Should the CTA Division deny my petition for review, I will file a Motion for Reconsideration
within 15 days from receipt of the denial. Should the Division deny my Motion for Reconsideration, I
will appeal to the CTA en banc and from the latter’s denial, I will appeal to the Supreme Court by way
of a petition for certiorari [TOM: isn't this supposed to be petition for review on certiorari under
Rule 45?] within 15 days from receipt of the en banc decision. (BAR 2006) [TOM prefers this one].
242 Q: Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged
exclusively in international shipping. He and his wife, who manages their business, filed a joint
ITR for 1997 on Mar. 15, 1998. After an audit of the return, the BIR issued on Apr. 20, 2001 a
deficiency income tax assessment for the sum of P250,000 inclusive of interest and penalty. For
failure of Mr. and Mrs. Sebastian to pay the tax within the period stated in the notice of assessment,
the BIR issued on Aug. 19, 2001 warrants of distraint and levy to enforce collection of the tax. If
you are the lawyer of Mr. and Mrs. Sebastian, what possible defenses will you raise in behalf of your
clients against the action of the BIR in enforcing collection of the tax? (2002 Bar) A: I will raise the
defense of prescription. The right of the BIR to assess prescribes after three years counted from
the last day prescribed by law for the filing of the income tax returns when the said return is filed
on time (Sec. 203, NIRC). The last day for filing the 1997 income tax return is April 15, 1998. Since
the assessment was issued only on Apr. 20, 2001, the BIR's right to assess has already prescribed.
evade payment of the correct taxes.243

a. As to TCC, there is no exact period mentioned as to fraudulent payment
of customs duties. What we know is deficiency duties can still be collected even
after the three year period when there is fraud.244
243KaTato owns a parcel of land in San Jose, Batangas declared for real property taxation, as
agricultural. In 1990, he used the land for a poultry feed processing plant but continued to declare
the property as agricultural. In March 2011, the local tax assessor discovered KaTato’s change
of use of his land and informed the local treasurer who demanded payment of deficiency real
property taxes from 1990 to 2011. Has the action prescribed? (2011 Bar Question) (A) No, the
deficiency taxes may be collected within five years from when they fell due. (B) No. The deficiency
taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011. (C)
Yes. More than 10 years had lapsed for the period 1990 up to 2000, 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 1990 up to 2005.
244When liquidation is deemed final - *****An assessment or liquidation by the Bureau of Customs
attains finality and conclusiveness three (3) years from the date of the final payment of duties except when: i.
There was fraud; ii. There is a pending protest; or iii. The liquidation of import entry was merely
tentative. (Sec. 1603 TCC, as amended by R.A. 9135)
[] Q: On October 15, 2011, ABC Corp. imported 1,000 kilos of steel ingots and paid
customs duties and VAT to the Bureau of Customs on the importation. On February 17, 2015, the
Bureau of Customs, citing provisions of the Tariff and Customs Code on postaudit, investigated and
assessed ABC Corp. for deficiency customs duties and VAT. Is the Bureau of Customs correct?
(2013 Bar) A: NO. An assessment or liquidation by the Bureau of Customs attains finality and
conclusiveness three (3) years from the date of the final payment of duties. However, if there was
fraud, pending protest or if the liquidation of the import entry was merely tentative, then the Bureau
of Customs can still assess deficiency duties. (Sec. 1603 TCC, as amended by R.A. 9135).
*****As to the VAT: The Bureau of Customs has no authority to assess ABC Corp. as
this falls under the jurisdiction of the Bureau of Internal Revenue (BIR). Under Sec. 2 of the
NIRC, the BIR’s powers and duties include, among others, the assessment and collection of all national
internal revenue taxes, fees and charges. VAT is a national internal revenue tax under Title IV of the
NIRC. Under Sec. 12 of the NIRC, the Commissioner of Customs and his subordinates are
merely agents and deputies for collection, not assessment of national internal revenue taxes.
ALTERNATIVE [***TOM prefers this because there is no showing of fraud, protest,
compliance audit or mere tentativeness of the liquidation]: *****As to the deficiency customs duties
found on post-audit: The Bureau of Customs was not correct in assessing deficiency customs
duties. The facts show that the investigation and assessment on post-audit were made on February 17,
2009, which is more than three (3) years from October 15, 2005 which is the date of payment by
ABC Corp. Sec. 4 of Republic Act 9135 amended Section 1603 of the Tariff and Customs Code of the
Philippines. *****The provision states that when articles have been entered and passed free of
duty or final adjustments of duties made, with subsequent delivery, such entry and passage
free of duty or settlements of duties will, after the expiration of three (3) years from the date of
the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to the
provisions of this Code, be final and conclusive upon all parties, unless the liquidation of the
import entry was merely tentative. Customs Administrative Order No. 5-2001 which implements RA
9135, confirms the above conclusion.
EFFECT OF AMENDED RETURN

1. *****Where an amended return is substantially245 different from the original
return, the prescriptive period within which to assess is counted from the date
of filing the amended return and not the date when the original return was
filed. (CIR v. Phoenix, May 20, 1965)
2. When amendment is considered substantial:
a. There is under declaration (exceeding 30% of that declared) of taxable sales,
receipts or income; or 
b. There is overstatement (exceeding 30% of deductions) (Sec. 248(B), NIRC).
SCENARIOS RELATED TO THE RETURN & PRESCRIPTIVE

PERIODS
1. It is considered filed, when the return is valid and appropriate.246 Hence, the three-
year prescriptive period stands:
a. Valid – When it has complied substantially with the requirements of
law.
b. Appropriate – When it is a return for the particular tax required by law.
3. *****If the return was defective, it is as if no return was filed - The corollary
prescription will be 10 years from and after the discovery of the failure or
omission and not the 3 year prescriptive period. There is an omission when the
taxpayer failed to file a return for the particular tax required by law (Butuan Sawmill
v. CTA, G.R. L-20601, February 28, 1966).
False vs. Fraudulent vs. Failure to File Return

FAILURE TO FILE A
FALSE RETURN FRAUDULENT RETURN RETURN
245 Q: A Co., a DC filed its 1995 ITR on Apr. 15, 1996 showing a net loss. On Nov. 10, 1996, it
amended its 1995 ITR to show more losses. After an investigation, the BIR disallowed certain
deductions claimed by A Co., putting A Co., in a net income position. As a result, on Aug. 5, 1999,
the BIR issued a deficiency income assessment against A Co. A Co., protested the assessment on
the ground that it has prescribed. (1999 Bar) A: The right of the BIR to issue an assessment has not
yet prescribed since the return was amended. The rule is that internal revenue taxes shall be
assessed within 3 years after the last day prescribed by law for the filing of the return (Sec. 203,
NIRC). *****However, if the return originally filed is amended substantially, the counting of the
3-year period starts from the date the amended return was filed. There is substantial amendment
in this case because a new return was filed declaring more losses, which can only be done either in
reducing gross income or in increasing the items of deduction. Thus, the period within which to
assess shall prescribe on November 10, 1999.
246NOTE: The assessment of the tax is deemed made and the three year period for collection of the
assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the
BIR to the taxpayer. *****Thus, failure of the BIR to file a warrant of distraint or serve a levy on
taxpayer's properties nor file collection case within the three year period is fatal. Also, the attempt
of the BIR to collect the tax through its Answer with a demand for the taxpayer to pay the assessed
DST in the CTA is not deemed compliance with the Tax Code (China Banking Corporation vs.
Commissioner of Internal Revenue, G.R. No. 172509, February 04, 2015).
Contains wrong
information due to
mistake,
Intentional and deceitful with the
carelessness or Omission to file a return in the
sole aim of evading the correct tax
ignorance (Aznar v. date prescribed by law
due
CTA, G.R. No.
L-20569, August 23,
1974).
Deviation from the Omission can be intentional or
Intentional or deceitful entry with
truth, whether not,
intent to evade the taxes due.
intentional or not,
Filing a fraudulent return will make the
The mere omission is already a
taxpayer liable for the crime of moral
violation regardless of the
Does not make the turpitude as it entails willfulness and
fraudulent intent or willfulness
taxpayer criminally fraudulent intent on the part of the
of the individual (CIR vs. Bank of
liable individual (Republic v. Marcos II, G.R.
Commerce, CTA EB Case No. 654,
Nos. 130371 & 130855, August 4, 2009,
March 14, 2011).
595 SCRA 43).
The tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission
1. False vs. Fraudulent returns247 vs. Effect of filing a wrong return.248
2. GR: The willful neglect to file the required tax return or the fraudulent
247 T/F. A false return and a fraudulent return are one and the same. SUGGESTED ANSWER: False.
There is a difference between a false return and a fraudulent return. *****The first merely implies a
deviation from the truth or fact whether intentional or not, whereas the second is intentional and
deceitful with the aim of evading the correct tax due (Aznar v. Commissioner, GR No. L-20569,
August 23, 1974, 58 SCRA S19[1974]). (BAR 2009)
[] Distinguish a false return from a fraudulent return. ANSWER: The distinction between a
false return and a fraudulent return is that the first merely implies a deviation from the truth or fact
whether intentional or not, whereas the second is intentional and deceitful with the sole aim of
evading the correct tax due [Aznar vs. Commissioner, L-20569. August 23, 1974). ALTERNATIVE
ANSWER: A false return contains deviations from the truth which may be due to mistakes,
carelessness or ignorance of the person preparing the return. A fraudulent return contains an
intentional wrongdoing with the sole object of avoiding the tax and it may consist in the
intentional under declaration of income, intentional over declaration of deductions or the
recurrence of both. A false return is not necessarily tainted with fraud because the fraud
contemplated by law is actual and not constructive. Any deviation from the truth on the other
hand, whether intentional or not, constitutes falsity. [Aznar vs. Commissioner, L-20569, August 23,
1974) (BAR 1996)
248 If what was filed was a wrong return, the ten (10)-year prescriptive period will still apply. This is true
even if the information embodied in the wrong return could enable the BIR to assess the tax liability
of the taxpayer (Butuan Sawmill, Inc., v. CTA, 16 SCRA 277). A taxpayer whose accountant filed a
falsified tax return without his knowledge is only liable for the deficiency tax and interest. The
accountant will however be criminally liable under the NIRC. (2005 BAR)
[] Caveat: The accused’s mere reliance on the representations made by his accountant, with
deliberate refusal or avoidance to verify the contents of his tax return and to inquire on its
authenticity constitutes: (2012 BAR) a) Simple negligence; b) Gross negligence; c) Willful blindness; d)
Excusable negligence. SUGGESTED ANSWER: c) Willful blindness; CTA E.B. Criminal Case No.
006; People vsKintanar, G.R. No. 196340.
intent to evade the payment of taxes cannot be presumed. The burden of

proof to prove that the return was false and fraudulent lies against the
government through the BIR.
3. XPN: But there is prima facie evidence249 of a false or fraudulent return
when there is:*****250
a. A substantial underdeclaration251 of taxable sales, receipts, or income,
or a substantial overstatement of deductions, as declared by the CIR pursuant to
rules and regulations to be promulgated by the Secretary of Finance, that is,
failure to report sales, receipts or income in an amount exceeding thirty
percent (30%) of that declared per tax return;
b. A substantial overstatement252 of deductions, that is, a claim of
deductions in an amount exceeding thirty percent (30%)253 of the actual
deductions (Sec.248 (B), NIRC)
c. When the taxpayer has willfully and knowingly filed it with the intent
to evade a part or all of the tax legally due from him (Ungab v. Cusi, 97 SCRA
877). (2002 Bar Question)
4. Effect: a 50% surcharge on the deficiency tax due. In case of willful neglect to
file the return within the period prescribed by this Code or by rules and
regulations, or in case a false or fraudulent return is willfully made, the
penalty to be imposed shall be 50% of the tax or of the deficiency tax, in case
any payment has been made on the basis of such return before the discovery of
the falsity or fraud.
249Q: When is a return deemed false or fraudulent? A: A prima facie evidence of false or fraudulent
return arises when there is: a. A substantial under declaration of taxable sales, receipts or income; or b. A
substantial overstatement of deductions (Sec. 248, NIRC)
250What 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. (5%) SUGGESTED
ANSWER: 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). (BAR 2002)
251 Q: When is there a substantial underdeclaration of taxable sales, receipts or income? A: When there
is failure to report sales, receipts or income in an amount exceeding 30% of that declared per return.
252Q: When is there a substantial overstatement of deductions? A: There is a substantial
overstatement of deductions where a claim of deduction exceeds 30% of actual deductions.
253There is prima facie evidence of a false or fraudulent return where the: (2011 Bar Question) (A) tax
return was amended after a notice of assessment was issued. (B) tax return was filed beyond the
reglementary period. (C) taxpayer changed his address without notifying the BIR. (D) deductions
claimed exceed by 30% the actual deductions.
COLLECTION with vs. without prior assessment

RETURN FILED WAS NOT FALSE OR NO RETURN WAS FILED OR THE
FRAUDULENT RETURN WAS FALSE OR FRAUDULENT
Collection with prior assessment
Assessment should be made within 3 years Assessment should be made within 10 years
from the date of filing of the return or from the from the date of discovery of the failure to file
last day required by law for filing, whichever is the return, or the falsity or fraud in the return
later (Sec. 203, NIRC) (Sec.222 [a], NIRC)
Collection should be made within 5 years from the date of assessment or from the filing of the
return, either by: 1. Summary proceedings; or 2. Judicial proceedings (Sec.222 [c], NIRC)
Collection Without Prior Assessment
Assessment should be made within 3 years from Assessment should be made within 10 years
the date of filing of the return or from the last from the date of discovery of the failure to file
day required by law for filing, whichever is later the return, or the falsity or fraud in the return
(Sec. 203, NIRC) (Sec.222 [a], NIRC)
Collection should be made within 10 years after the discovery of falsity or fraud or non-filing and
it should only be by judicial proceeding (Sec. 222 [a], NIRC)
If the government makes another assessment or the assessment made is revised, the prescriptive
period for collection of such tax should be counted from the date the last or revised assessment
was made.
PRESCRIPTIVE PERIODS FOR ASSESSMENT vs.

COLLECTION******
ASSESSMENT (A) COLLECTION (C)
Return is filed on or
3 years from due date 5 years from receipt of A
before due date
Return is filed after due
3 years from actual filing 5 years from receipt of A
date
Fraudulent filing of 10 years from discovery of fraud/bad
5 years from receipt of A
return faith
Non-filing 10 years from discovery of non-filing 5 years from receipt of A
No assessment is The BIR may opt not to issue 10 years from discovery of
issued by the BIR  assessment when: a) return is filed filing of fraudulent return or
fraudulently; or b) no return is filed non-filing
[] Bar scenarios: Is collection five years from receipt of the assessment notice?254
Yes, it’s 5 years from receipt255 of notice of the FAN. However, the prescriptive
period provided by law to make collection by distraint and/or levy or by a
proceeding in court is interrupted once a taxpayer protests the assessment and
254 On September 19, 1973, the BIR sent a notice of assessment to X to pay P300.000.00 as forest
charges for the year 1970-73. X made a partial payment of P100.000.00 on September 28,1973. X
died in November, 1977. On July 29, 1979, the BIR filed in the Testate Estate Proceedings of X
a claim for P200.000.00 the unpaid forest charges left by X. the administrator of the estate opposed
the claim on the ground of prescription. Decide. ANSWER: *****Where assessment was made, the
tax may be collected within five (5) years (now 3 years) [TOM: collection is 5 years] from the
date of assessment [Collection of Internal Revenue v. Pineda, 2 SCRA 401; Umali, Roman A.,
Reviewer in Taxation, 1985. pp. 486-487; Vitug, JoseC., Compendium of Tax Law and Jurisprudence,
2nd Rev., Ed.. 1986, p. 255). In the case at bar, on the basis of the notice of assessment, X voluntarily
made a partial payment to the Bureau of Internal Revenue in the amount of One Hundred
Thousand Pesos (P100,000.00). However, it took the BIR almost more than five (5) years to take
the necessary legal action to collect the remaining amount of taxes due. This is clearly beyond the
five (5) now three (3) year period for the collection of taxes. Hence, the claim filed by the BIR against
the Estate of X for the payment of Two Hundred Thousand Pesos (P200.000.00) has prescribed.
ALTERNATIVE ANSWERS: The claim has prescribed as the BIR has only three (3) years
[TOM: collection is 5 years] from the date of the assessment to collect. Taxes are money claims
that must be filed with the probate court within the period provided for in the Rules of Court (Sections
1 and 2. Rule 86). In the case of Domingo v. Garlttos (8 SCRA 443), the court ruled that the claims
shall be barred if filed beyond the prescribed period Just like any other money claims. But the
ruling in Garlitos was superseded by Vera v. Fernandez which ruled that estate taxes are payable even
if presented beyond the period in the statute of non-claims in the Rules of Court. (BAR 1993)
255On March 30, 2005 Miguel Foods, Inc. received a notice of assessment and a letter of demand
on its April 15, 2002 final adjustment return from the BIR. Miguel Foods then filed a request for
reinvestigation together with the requisite supporting documents on April 25, 2005. On June 2, 2005,
the BIR issued a final assessment reducing the amount of the tax demanded. Since Miguel Foods
was satisfied with the reduction, it did not do anything anymore. On April 15, 2010 the BIR
garnished the corporation's bank deposits to answer for the tax liability. Was the BIR action
proper? (2011 Bar Question) (A) Yes. The BIR has 5 years from the filing of the protest within which
to collect. (B) Yes. The BIR has 5 years from the issuance of the final assessment within which
to collect. (C) No. The taxpayer did not apply for a compromise. (D) No. Without the taxpayer’s prior
authority, the BIR action violated the Bank Deposit Secrecy Law.
requests for its cancellation.256

[] What if the BIR files a collection suit with the court and the taxpayer is still
preparing his protest to the assessment? File the protest and answer the
complaint.
a. If the answer is not filed, taxpayer may be declared in default and
BIR will present evidence ex-parte which may consequently lead to rendition
of judgment in favor of BIR and against the taxpayer which is prejudicial to any
possible appeal to the CTA that the taxpayer may avail of in relation to the
protest. 
b. If answer is filed and without filing a protest, then the assessment
becomes final and executory which may be used by the BIR against the
taxpayer in the civil action for collection pending before the regular court.
c. If there is a pending protest and BIR filed an action for collection,
filing of the action will be equivalent to a denial of the protest, and the
*****taxpayer may appeal to CTA division on the basis of the summons and
copy of the complaint filed served by the regular court to the taxpayer.
BASIC RULES ON PRESCRIPTION

1. *****When the tax law itself is silent on prescription, the tax is
imprescriptible;257
256 Fitness, Inc. is a domestic corporation engaged in the manufacture and sale of nutritional products.
It pays royalties to its foreign licensor. After investigation, the BIR on December 17, 1974, sent a
notice of assessment to Fitness, Inc. for allegedly failing to remit withholding tax at source for the
fourth quarter of 1973 on its royalties. It demanded payment of P3,000,000.00. The notice was re-
ceived by Fitness, Inc. on December 19, 1974. On February 8,1975, Fitness, Inc., through its counsel,
protested the assessment and requested its cancellation or withdrawal on the ground that it lacked
factual and legal bases. On December 10, 1979, the Commissioner of the BIR rendered a decision
reducing the assessment to PI.500.000.00. Fitness. Inc. was not satisfied and on January 18, 1980, it
filed a petition for review of the decision in the CTA to enjoin the enforcement of the assessment.
On February 7, 1980, the BIR issued a warrant of distraint against Fitness. Inc. The CTA
enjoined the collection of the deficiency taxes by virtue of the warrant of distraint. It was
argued by Fitness, Inc. that the right of the BIR to collect its alleged deficiency taxes had already
prescribed. Rule on the argument. ANSWER: The warrant of distraint was served on the taxpayer
within the prescriptive period (then 5 years, now three (3) years) [now back to 5 years]. In
Commissioner v. WyethSuaco (202 SCRA125), the court ruled that the prescriptive period provided by
law to make collection by distraint and/or levy or by a proceeding in court is interrupted once a
taxpayer protests the assessment and requests for its cancellation. Thus, when the taxpayer
protested the assessment on 8 February 1975, the prescriptive period to collect was interrupted
and resumed on 10 December 1979. When the Commissioner issued the warrant of distraint on 7
February 1980 it was well within the five-year (now 3 years) prescriptive period [now back to 5] to
collect. NB: Beginning 1984, the prescriptive period of the right of the government to assess and
collect internal revenue taxes was reduced from five (5) to three (3) years. (BAR 1993) [TOM: now it’s
back to 5 years—see the table]
257Q: May the collection of taxes be barred by prescription? Explain your answer. (2001 Bar) A: YES.
The collection of taxes may be barred by prescription. The prescriptive periods for collection of taxes
are governed by the tax law imposing the tax. However, if the tax law does not provide for
prescription, the right of the government to collect taxes becomes imprescriptible.
2. When no return is required, tax is imprescriptible and tax may be assessed at

any time as the prescriptive periods provided in Sec. 203 and 222, NIRC are not
applicable. Remedy of the taxpayer is to file a return for the prescriptive period to
commence. NB: Limitation on the right of the government to assess and
collect taxes will not be presumed in the absence of a clear legislation to the
contrary.
3. Prescription is a matter of defense, and it must be proved or established by
the taxpayer relying upon it.
4. Defense of prescription is waivable, such defense is not jurisdictional and
must be raised seasonably, otherwise it is deemed waived.
5. Being a remedial measure, it should be interpreted liberally in order to protect
the taxpayer.
6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in
the place where the Court sits, the time shall not run until the next working day.
(Sec. 1, Rule 22, ROC). NB: Assessment and collection by the government of the
tax due must be made within the prescribed period as provided by the Tax Code;
otherwise, the right of the government to collect will be barred.
WAIVER OF THE STATUTE OF LIMITATIONS

1. It is an agreement between the taxpayer and the BIR that the period to issue
an assessment and collect the taxes due is extended258 to a date contained therein.
The waiver of the statute of limitations, whether on assessment or collection,
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, G.R. No. 139736, October 17,
2005).
2. The Commissioner 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).
3. 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.
258What is the effect of the execution by a taxpayer of a “waiver of the statute of limitations” on his
defense of prescription? (2%) SUGGESTED ANSWER: ******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 (sic), the taxpayer can still raise
prescription as a defense (Phil. Journalists Inc., v. CIR, GR No. 162852, Dec. 16, 2004)
GUIDELINES FOR EXECUTION OF WAIVERS (RMO 14-2016)

1. Since the taxpayer (TP) 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 TP is charged with the burden of ensuring that
the waivers of statute of limitation are validly executed by its authorized
representative;  
2. The authority of the TP representative who participated in the conduct of
audit or investigation shall not be thereafter contested to invalidate the waiver;  
3. The waiver may or may not be notarized. It is sufficient that the waiver is
in writing;
4. Considering that the waiver is a voluntary act of TP, the waiver shall take
legal effect and be binding on the taxpayer upon its execution thereof;  
5. TP‘s duty to submit waiver to the CIR or officials previously designated in
existing issuances or the concerned revenue district officer or group supervisor as
designated in the Letter of Authority/Memorandum of Assignment who shall
then indicate acceptance by signing the same.  
6. *****Waiver shall be executed and duly accepted prior to the expiration of
the period to assess or to collect.  
7. TP has the duty to retain a copy of the accepted waiver.  
8. *****Two (2) material dates259 that need to be present on the waiver:  
a. The date of execution of the waiver by the taxpayer or its authorized
representative; and
b. The expiry date of the period the taxpayer waives the statute of
limitations 
9. Before the expiration of the period set on the previously executed waiver, the
period earlier set may be extended by subsequent written waiver;
REQUIREMENTS OF A VALID WAIVER OF THE STATUTE OF

LIMITATIONS
1. The waiver must be in the proper form.
2. The waiver shall be signed by the taxpayer himself or his duly representative.
3. Signature260 of the proper authority indicating that the BIR has accepted
259Q: Taxpayer A was required by the BIR to sign and submit a waiver of the statute of limitations on
the assessment period, to give the BIR more time to complete its investigation. The BIR accepted the
waiver but failed to indicate the date of its acceptance. What is the legal status of the waiver? A:
The waiver is invalid; the date of acceptance is crucial in counting the start of the period of
suspension of the prescriptive period. Section 2 of the Revenue Memorandum Order No. 20-90
provides that the date of such acceptance by the BIR should be indicated. *****Both the date of
execution by the taxpayer and date of acceptance by the BIR should be before the expiration
of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
260NOTE: The signatures of both the CIR and the taxpayer are required for a waiver of the
prescriptive period, thus *****a unilateral waiver on the part of the taxpayer does not suspend the
prescriptive period (CIR v. CA, G.R. No. 115712, February 25, 1999).
and agreed to the waiver. NB: For tax cases involving P1 million or above, the
Commissioner must sign.
4. The date of the acceptance by the BIR should be indicated.  
5. The waiver must be executed in 3 copies, the original to be attached to the
docket, the second copy for the taxpayer and the third copy for the Office
accepting the waiver (RMO 20-90).
EFFECT OF FAILURE TO CONFORM TO THE REQUIREMENTS

OF WAIVER OF THE STATUTE OF LIMITATIONS
1. Section 222(b) of the NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement between the CIR and the
taxpayer executed before the expiration of the three-year period. In order to be
valid and binding, said waiver of the statute of limitations must faithfully
comply with the provisions of RMO No. 20-90 and RDAO 05-01.
2. Under RDAO 05-01, it is the duty of the authorized revenue official to
ensure that the waiver is duly accomplished and signed by the taxpayer or
his authorized representative before affixing his signature to signify acceptance
of the same. It also instructs that in case the authority is delegated by the taxpayer
to a representative, the concerned revenue official shall see to it that such
delegation is in writing and duly notarized. Furthermore, it mandates that the
waiver should not be accepted by the concerned BIR office and official unless
duly notarized. *****The general rule is that when a waiver does not comply
with the requisites for its validity specified under RMO No. 20-90 and
RDAO 01-05, 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)261
TAXPAYER ESTOPPED FROM QUESTIONING VALIDITY OF

WAIVERS
1. A taxpayer through its partial payment of the revised assessments issued within
the extended period as provided for in the questioned waivers, impliedly admitted
the validity of those waivers. The Doctrine of estoppel applies (RCBC v. CIR,
G.R. 170257, September 7, 2011).
261Q: In 1993, the BIR issued against respondent assessment notice for deficiency income tax for 1989.
A waiver of the defense of prescription was executed but it was not signed by the Commissioner or
any of his authorized representatives and did not state the date of acceptance. Has the right to collect
of the 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, December 03, 2014)
GROUNDS262 FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF

ASSESSMENT******
[] The date of issuance AND receipt of notice of assessment is important in
determining prescriptive period.
1. Taxpayer requests for reinvestigation which is granted by the
Commissioner;263 
2. Taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected;264  
3. When the warrant of distraint or levy is duly served upon the taxpayer and
no property could be located;265  
4. When the taxpayer is out of the Philippines (Sec. 223, NIRC) 
5. Where the CIR is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court for 60 days thereafter, 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);  
6. Where CIR and the taxpayer agreed in writing for the extension of the
assessment, the tax may be assessed within the period so agreed upon (Sec. 222 [b],
NIRC);  
7. When there is an answer filed by the BIR to the petition for review in the CTA
262[] SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of
Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of
distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be
SUSPENDED for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return filed upon which a
tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any
change in address, the running of the Statute of Limitations will not be suspended; when the
warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.
263 When the taxpayer requests for reinvestigation which is granted by the Commissioner (Collector v.
Suyoc Consolidated Mining Co., G.R. L-11527, November 25, 1958); *****NOTE: A request for reconsideration
alone does not suspend the period to assess/collect.
[] The prescriptive period for the collection of the deficiency tax assessment will be tolled:
(2012 BAR) a) If the taxpayer files a request for reconsideration with the Asst. Commissioner; b) If the
taxpayer files a request for reinvestigation that is approved by the Commissioner of Internal Revenue;
c) If the taxpayer changes his address in the Philippines that is communicated to the BIR official; d) If
a warrant of levy is served upon the taxpayer’s real property in Manila. SUGGESTED ANSWER: b)
If the taxpayer files a request for reinvestigation that is approved by the Commissioner of
Internal Revenue Section 223, NIRC; BPI v. Commissioner, G.R. No. 139736, October 17, 2005.
When taxpayer cannot be located in the address given by him in the return, unless he informs the
264
CIR of any change in his address thru a written notice to the BIR;
265When the warrant of distraint and levy is duly served upon the taxpayer, his authorized
representative or a member of his household with sufficient discretion and no property is located
(proper only for suspension of the period to collect
(Hermanos v. CIR, GR. No. L-24972. September 30, 1969) where the court justified
this by saying that in the answer filed by the BIR, it prayed for the collection of
taxes.  
WHEN COMMISSIONER IS PROHIBITED FROM MAKING THE

ASSESSMENT OR COLLECTION OF TAXES IN A PROCEEDING IN
COURT
1. When in the opinion of the CTA, the collection by the BIR may jeopardize the
interest of the Government and/or the taxpayer, the Court in any stage of the
proceeding may suspend the said collection and require the taxpayer either
a. to deposit the amount claimed or
b. to file a surety bond for not more than double the amount with the Court
(Sec. 11, R.A. No. 1125).
2. Q. Do the provisions of the Civil Code on suspension of the prescriptive
period by extrajudicial demand suspend the running period of prescription of
actions in tax collection cases? 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 provisions of the Tax Code were crafted to ensure
expeditious collection of tax money to ensure the continuous delivery of
government services.
——————————————-
A5. CIVIL PENALTIES, ADDITIONS TO TAX

1. INTEREST. Kinds of interest in income taxation:
a. Deficiency interest,266 in general. The interest assessed and collected on
any unpaid amount of tax at the rate of twenty percent (20%) per annum or
such higher rate as may be prescribed by regulations, from the date prescribed
for payment until the amount is fully paid (Sec. 249 (A)(B), NIRC). Deficiency
interest on deficiency income tax accrues and commences from the date of
assessment as shown in the assessment notice.
b. Interest on extended payment. There shall be assessed and collected
interest at the rate of 20% per annum, or such higher rate as may be prescribed
by the rules and regulations, on the tax or deficiency tax or any part thereof
unpaid from the date of notice and demand until paid, under the following
circumstances: i) If any person required to pay the tax is qualified and elects to pay
266What is a “deficiency interest" for purposes of the income tax? Illustrate. ANSWER:
*****Deficiency interest for purposes of the income tax is the interest due on any amount of tax
due or installment thereof which is not paid on or before the date prescribed for its payment
computed at the rate of 20% per annum or the Manila Reference Rate, whichever is higher, from the
date prescribed for its payment until it is fully paid. If for example after the audit of the books of
XYZCorp. for taxable year 1993 there was found to be due a deficiency income tax of PI25,000.00
inclusive of the 25% surcharge imposed under Section 248 of the Tax Code, the interest will be
computed on the P125.000.00 from April 15, 1994 up to its date of payment. (BAR 1995)
the tax on installment under the provisions of the NIRC, but fails to pay the
tax or any installment hereof, or any part of such amount or installment on or
before the date prescribed for its payment; or ii) Where the CIR has authorized
an extension of time within which to pay a tax or a deficiency tax or any part
thereof (Sec. 249 (A)(D)).
c. Delinquency interest.267 The unpaid amount shall be subject to twenty
(20%) per annum, or such higher rate as may be prescribed by regulations in
case of: i) The amount of the tax due on any return required to be filed; or ii)
The amount of the tax due for which no return is required; or iii) A deficiency
tax, or any surcharge or interest thereon on the due date appearing in the notice
and demand of the CIR (Sec. 249 (C), NIRC). *****Collection of delinquency
interest is mandatory: The intention of the law is to discourage delay in the
payment of taxes to the State and, in this sense, the surcharge and interest
charged are not penal in nature – they are compensation to the State for the
delay in payment or for the concomitant use of the funds by the taxpayer
beyond the date he is supposed to have paid them to the State
[] Q: When does the period of interest commence to run? A: Interest shall
be assessed and collected from the date prescribed for payment until the
amount is fully paid (Sec. 249, NIRC).
2. SURCHARGE: It is a civil penalty imposed by law as an addition to the
main tax required to be paid. It is a civil administrative sanction provided as a
safeguard for the protection of the State revenue and to reimburse the
government for the expenses of investigation and the loss resulting from the
taxpayer’s fraud. A surcharge added to the main tax is subject to interest.
There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to be paid:
a. 25% surcharge of the amount due in the following cases: i.
i. Failure to file any return and pay the tax due thereon as required
under the provisions of the NIRC or rules and regulations on the date prescribed
ii. Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment  
iii. Unless otherwise authorized by the CIR, filing a return with an
internal revenue officer other than those with whom the return is required
to be filed
267What is a “delinquency interest" for purposes of the income tax? Illustrate. ANSWER:
*****Delinquency interest is the interest of 20% or the Manila Reference Rate, whichever is higher,
required to be paid in case of failure to pay: 1. the amount of the tax due on any return required
to be filed; or 2. the amount of the tax due for which return is required; or 3. the deficiency tax or
any surcharge or interest thereon, on the due date appearing in the notice and demand of the
Commissioner of Internal Revenue. If in the above illustration the assessment notice was
released on December 31,1994 and the amount of deficiency tax, inclusive of surcharge and
deficiency interest were computed up to January 30, 1995 which is the due date for payment per
assessment notice, failure to pay on this latter date will render the tax delinquent and will require
the payment of delinquency interest. (BAR 1995)
iv. Failure to pay the full or part of the amount of tax shown on
any return required to be filed under the provisions of the NIRC or rules and
regulations, or the full amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment (Sec 248 [A], NIRC)
b. *****The penalty shall be fifty percent (50%) of the tax or of the
deficiency tax, in the following cases:
i. Willful neglect to file the return within the period prescribed; or
ii. False or fraudulent return is willfully made (Sec. 248 [B], NIRC)  
3. Compromise Penalty: It is a certain amount of money which the taxpayer
pays to compromise a tax violation. *****Compromise penalties are paid in lieu
of criminal prosecution, and cannot be imposed in the absence of a showing
that the taxpayer consented268 thereto. If an offer of compromise is rejected by
the taxpayer, the compromise penalty cannot be enforced through an action in
court or by distraint and levy. The CIR should file a criminal action if he
believes that the taxpayer is criminally liable for violation of the tax law as the
only way to enforce a penalty (Dimaampao, J. 2015).
—————————————
A6. ASSESSMENT PROCESS AND REGLEMENTARY PERIOD

1. The assessment process starts with the self-assessment by the taxpayer of his
tax liability, the filing to the tax return, and the payment of the entire tax due
shown in his tax return in accordance with the methods and within the dates
prescribed in the law and regulations.
2. The role of the government in the assessment process includes the following:
a. Tax audit - examination of books of accounts and other accounting
records of taxpayers by revenue officers to determine correct tax liability.
b. Issuance of Preliminary Assessment Notice (PAN)
c. Reply to PAN
d. Issuance Formal Letter of Demand And Final Assessment Notice (FLD/
FAN).
e. Disputed assessment  
NOTE: R.R. 18-2013 deleted the requirement for issuance of Notice for
Informal Conference. A PAN shall be issued instead of the Notice for Informal
Conference.
268Q: A domestic corporation failed to withhold and remit the tax on income received from
Philippine sources by a non-resident foreign corporation. In addition to the civil penalties provided
for under the Tax Code, a compromise penalty was imposed for violation of the withholding tax
provisions. May the Commissioner of Internal Revenue legally enforce the collection of compromise
penalty? (2000 Bar) A: No. There is no showing that the compromise penalty was imposed by the
Commissioner of Internal Revenue with the agreement and conformity of the taxpayer (Wonder
Mechanical Engineering Corporation u. Court of Tax Appeals, et. al., 64 SCRA 555)
A61. LETTER OF AUTHORITY AND TAX AUDIT

1. It is an official document that empowers a Revenue Officer (RO) to examine
and scrutinize a taxpayer’s books of accounts and other accounting records, in
order to determine the taxpayer’s correct internal revenue tax liabilities (Sec. 13,
NIRC).
a. There must be a grant of authority before any revenue officer can
conduct an examination or assessment and the revenue officer must not go
beyond authority. Otherwise, the assessment or examination is a nullity.
b. A LA should cover a taxable period not exceeding one taxable year. The
practice of issuing LAs covering audit of “unverified prior years” is therefore
prohibited (CIR v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010).
2. Cases which need not be covered by a Valid LA
a. Cases involving civil or criminal tax fraud which fall under the jurisdiction
of the tax fraud division of the Enforcement Services; and  
b. Policy cases under audit by the Special Teams in the National Office
(RMO 36-99).
3. Service of Letter of Authority (LA) - It must be served to the taxpayer within
30 days from its date of issuance; otherwise, it shall become null and void. The
taxpayer shall then have the right to refuse the service of this LA, unless the LA is
revalidated.
4. Q: How is LA revalidated? How often can it be revalidated? A: Revalidated
through the issuance of a new LA. It can be revalidated only once, if issued by the
Regional Director; twice, if issued by the CIR. The suspended LA(s) must be
attached to the new issued LA (RMO 38-88).
5. Period within which an RO should conduct an audit - A RO is allowed only 120
days to conduct the audit and submit the required report of investigation from the
date of receipt of a LA by the taxpayer. If the RO is unable to submit his final
report of investigation within the 120-day period, he must then submit a Progress
Report to his Head of Office, and surrender the LA for revalidation.
6. Q: How many times can a taxpayer be subjected to examination and
inspection for the same taxable year?******
a. GR: Only once per taxable year.
b. XPNs: [FRC3]
i. When the CIR determines that Fraud, irregularities, or mistakes
were committed by the taxpayer269

ii. When the taxpayer himself requests for the Re-investigation or
re-examination of his books of accounts and it was granted by the commissioner
iii. When there is a need to verify the taxpayer’s Compliance with
withholding and other internal revenue taxes as prescribed in a Revenue
Memorandum Order issued by the Commissioner
iv. When the taxpayer’s Capital gains tax liabilities must be verified
v. When the Commissioner chooses to exercise his power to
obtain information relative to the examination of other taxpayers (Secs. 5 and
235, NIRC).
PRINCIPLE OF ESTOPPEL
1. The error made by a tax official in the assessment of his tax liabilities does not
have the effect of relieving the taxpayer from the obligation to pay the full
amount of his tax liability, for taxes are fixed by law and the government is never
stopped to collect the legitimate taxes because of errors committed by its agents
(Commissioner v. Atlas Consolidated Mining Co., 102 SCRA 246).
2. Like other principles, the principle of estoppels also admits of exceptions in the
interest of justice and fair play.
A62. NOTICE OF INFORMAL CONFERENCE

*R.R. 18-2013 deleted the requirement for issuance of Notice for Informal
Conference. A PAN shall be issued instead of the Notice for Informal
Conference.
A63. ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE,

GENERAL RULE AND EXCEPTIONS
1. PRELIMINARY ASSESSMENT NOTICE (PAN) - It is a form of informal
conference with the taxpayer and allows the BIR to open his books of
account. The taxpayer‘s refusal to open books of account will cause the BIR
to issue a jeopardy assessment. Final Assessment Notice is later issued;
a. A Pre-Assessment Notice (PAN) is a communication issued by the
Regional Assessment Division, or any other concerned BIR Office, informing a
taxpayer who has been audited of the findings of the RO, following the review of
these findings.
269Q: In 2010, pursuant to a Letter of Authority (LA) issued by the Regional Director, Mr. Abcede was
assessed deficiency income taxes by the BIR for the year 2009. He paid the deficiency. In 2011,
Mr. Abcede received another LA for the same year 2009, this time from the National Investigation
Division, on the ground that Mr. Abcede's 2009 return was fraudulent. Mr. Abcede contested the LA
on the ground that he can only be investigated once in a taxable year. Decide. (2013 Bar) A: Mr.
Abcede’s contention is not correct. He may be re- investigated because he filed a fraudulent tax
return for 2009. Section 235 of the NIRC provides that the books and records of taxpayers may be
examined and inspected only once in a taxable year, except in cases of fraud, irregularity or
mistakes, as determined by the Commissioner.
b. If after review and evaluation by the Commissioner or his duly

authorized representative, as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said
Office shall issue to the taxpayer a PAN for the proposed assessment. It shall show in
detail the facts and the law, rules and regulations, or jurisprudence on which the
proposed assessment is based (R.R. No. 18-2013).
2. ******No Preliminary Assessment Notice (PAN) is required (Sec. 228,
NIRC): In the cited cases, a FLD/FAN shall be issued outright. Should an
assessment notice has been issued, it shall be regarded as a FLD/FAN, hence, a
protect can already me made by the taxpayer. (2002 BAR)
a. When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the return;271
270
or 
b. When a discrepancy272 has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
c. When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
270Q: Mr. Tiaga has been a law-abiding citizen diligently paying his income taxes. On May 5, 2014, he
was surprised to receive an assessment notice from the Bureau of Internal Revenue (BIR) informing
him of a deficiency tax assessment as a result of a mathematical error in the computation of his
income tax, as appearing on the face of his income tax return for the year 2011, which he filed on
April 15, 2012. Mr. Tiaga believes that there was no such error in the computation of his income tax
for the year 2011. Based on the assessment received by Mr. Tiaga, may he already file a protest
thereon? (2014 Bar) A: YES, Mr. Tiaga may already file a protest. Rev. Regs. No. 18-2013, implementing
Sec. 228 of the Tax Code, states that no PAN is required if the deficiency tax is a result of a
mathematical error in the computation of tax as appearing on the face of the tax return. In such
case, an FLD/FAN shall be issued outright. ******Thus, the assessment notice sent by the BIR
is deemed an FLD/FAN which may be the subject of a protest.
271A preliminary Assessment Notice (PAN) is NOT required to be issued by the BIR before issuing
a Final Assessment Notice (FAN) on one of the following cases: (2012 BAR) a) When a taxpayer does
not pay the 2010 deficiency income tax liability on or before July 15 of the year; b) When the finding
for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; c) When a discrepancy has been determined between the value
added tax paid and the amount due for the year; d) When the amount of discrepancy shown in the
Letter Notice is not paid within thirty (30) days from date of receipt.
272Q: In the investigation of the withholding tax returns of AZ Medina Security Agency (AZ) 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
protested the assessment for being null and void on the ground that no pre-assessment notice had
been issued. Is the contention of the counsel tenable? (2002 Bar) A: NO, the contention of the
counsel is untenable. *****Sec. 228, NIRC expressly provides that no pre-assessment notice is
required when a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent. Since the amount assessed relates to deficiency
withholding taxes, the BIR is correct in issuing the assessment and demand letter calling for the
immediate payment of the deficiency withholding taxes.
over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
d. When the excise tax due on exciseable articles has not273 been paid; or
e. When the article locally purchased or imported by an exempt person,
such as, but not limited to, vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-exempt persons.
*****The taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request
for reconsideration or reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment
shall become final.
****If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to the Court
of Tax Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall become
final, executory and demandable.
3. Requirements of a valid PAN******
a. In writing; and
b. Should inform the taxpayer of the law and the facts on which the
assessment is made (Sec. 228, NIRC).
[] Compare with this one (to be followed by TOM): REQUISITES OF
VALID ASSESSMENT
a. Be in writing and signed by the BIR;
273 When is a pre-assessment notice required under the following cases? (1%)(A) When the finding
for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on
the face of the return. (B) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent. (C) When the excise tax due on excisable
articles has been paid. (D) When an article locally purchased or imported by an exempt person, such
as, but not limited to vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons. (2014 Bar Question)
b. Contain the law and the facts274 on which the assessment is based; [This
is part of the DUE PROCESS REQUIREMENT275 in the issuance of a deficiency
tax assessment. Otherwise, it is void.]; and
c. Contain a demand for payment276 within the prescribed period (Sec.
228, NIRC).
REPLY TO PAN
274Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the BIR
containing only the computation of the deficiency tax and the penalties, without any explanation of the
factual and legal bases for the assessment. Is the assessment valid? (1%) (2013 Bar Question) (A) The
assessment is valid; all that Mr. Alvarez has to know is the amount of the tax. (B) The assessment is
invalid; the law requires a statement of the facts and the law upon which the assessment is based. (C)
The assessment is valid but Mr. Alvarez can still contest it. (D) The assessment is invalid because Mr.
Alvarez has no way to determine if the computation is erroneous. SUGGESTED ANSWER: (B) The
assessment is invalid; the law requires a statement of the facts and the law upon which the
assessment is based. Section 228 of the NIRC provides that a preliminary assessment notice shall
inform the taxpayer in writing of the law and the facts on which the assessment is based as part of due
process; otherwise, the assessment shall be void. In relation to this provision, *****Section 3 of RR No.
12-99 states that the preliminary assessment notice shall show in detail the facts and the law,
rules and regulations, or jurisprudence on which the assessment is based. (See also:
Commissioner of Internal Revenue v. Reyes, G.R. No. 159694, January 27, 2006)
275NOTE: The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to
informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made. Otherwise, the assessment itself would be invalid. Thus, the sending of PAN to taxpayer to
inform him of the assessment made is but part of the “due process requirement in the issuance of a
deficiency tax assessment,” the absence of which renders nugatory any assessment made by the
tax authorities. Therefore, for its failure to send the PAN stating the facts and the law on which the
assessment was made as required by the law, the assessment made by CIR is void (CIR v. Metro Star
Suprema, Inc., G.R. No. 185371, December 8, 2010).
276After examining the books and records of EDS Corporation, the 2004 final assessment notice,
showing basic tax of PI ,000,000., deficiency interest of P400,000, and due date for payment of April
30, 2007 but without the demand letter, was mailed and released by the BIR on April 15, 2007. The
registered letter, containing the tax assessment, was received by the EDS Corporation on April 25,
2007. What is an assessment notice? SUGGESTED ANSWER: An assessment notice is a formal
notice to the taxpayer stating that the amount thereon is due as a tax and containing a demand for
the payment thereof. {Alhambra Cigar and Cigarette Mfg. Co.v. Collector, 10S PR 1337[1959]; CIR v.
Pascor Realty and Development Corp., 309 SCRA 402 [1999]). To be valid, the taxpayer must be
informed in writing of the law and the facts on which the assessment is made. (Section 228, NIRC).
(BAR 2008)
[] The requisites of a valid assessment are: It must be made within the prescriptive period to
assess; (Section 203, NIRC); There must be a preliminary assessment previously issued, except in those  
instances allowed by law; (Section 228, NIRC); The taxpayer must be informed in writing about the law
and facts on which the assessment is based; (Section 228, NIRC) and It must be served upon the
taxpayer or any of his authorized representatives. (Estate of Juliana Diez vda. De Gabriel v. CIR, 421
SCRA 266[2004]).
[] As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the
assessment? Explain. (3%) SUGGESTED ANSWER: I will question the validity of the assessment
because of the failure to send the demand letter which contains a statement of the law and the facts
upon which the assessment is based. If an assessment notice is sent without informing the taxpayer in
writing about the law and facts on which the assessment is made, the assessment is void. (Section 228,
NIRC; Azucena T. Reyes v. CIR, 480 SCRA 382 [2006]). (BAR 2008)
1. It is the answer of the taxpayer in contesting the findings of the revenue

officers contained in a PAN.
2. Period for the taxpayer to respond to PAN via “Reply” - The taxpayer has 15
days from receipt of PAN to file a written reply contesting the proposed
assessment.
3. Effect of taxpayer’s failure to respond to PAN - The taxpayer shall be
considered in default, in which case, a Formal Letter of Demand and Final
Assessment Notice (FLD/FAN) shall be issued calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties. (Par. 2, Sec.
3.1.1, R.R. No. 18-2013).
a. The failure to file a reply to PAN will not bar the taxpayer from
protesting the FAN because PAN is not the final assessment which can be
protested as contemplated under the NIRC.
b. *****For the purpose of contesting in writing the findings contained in a
PAN, the regulations use the term “reply” to distinguish the written
objections against a FAN issued by the BIR, where the generic term
“protest” or the specific term “request for reconsideration” or “request for
reinvestigation” is utilized.
A64. ISSUANCE OF FORMAL LETTER OF DEMAND AND FINAL

ASSESSMENT NOTICE
FINAL ASSESSMENT NOTICE (FAN)

1. This refers to assessment for deficiency tax. It is also known as:
a. Final note of demand;
b. Final letter of demand;
c. Deficiency Assessment.
[] all these terms have the same meaning: the taxpayer paid less than what
the law requires when he filed his return, hence, he is given a deficiency
assessment notice. Hence, he has to pay the penalties, infra.
2. The taxpayer must file an administrative protest within 30 days from
receipt of final assessment (non-extendible);
a. It need not be in the form of a pleading and may be a letter for
reinvestigation, re-computation or motion for reconsideration  
b. If the taxpayer files beyond the 30-day period, it is automatically
denied  
c. If the last day of filing falls on a Saturday, the next business day shall be  
considered as the last day
3. *****Requisites for the validity of a FAN:
a. It must be in writing;
i. Meaning of “in writing” under Sec. 228 - It does not exclusively
mean written words. “Writing” consists of letters, word, numbers, or their
equivalent, set down by handwriting, typewriting, printing, photostating,

photographing, magnetic impulse, mechanical or electronic recording, or other
form of data compilation. Indubitably, figures are also “writings” and if the
numerical presentation is understandable enough, then there is no reason why it
should be automatically rejected as inadequate compliance with the law (Sevilla, v.
CIR, CTA Case 6211, October 4, 2004).
b. addressed to the taxpayer;
c. It provides for the amount of tax due;
d. It has a basis in law and in fact;
e. There is demand to pay;
f. It was issued by a duly-authorized BIR representative;
g. It was sent to and received by the taxpayer.
4. Is substantial compliance of the notice requirement under Section 228 of the
NIRC allowed? A: YES. The notice requirement under Section 228 of the NIRC
is substantially complied with whenever the taxpayer had been fully informed in
writing of the factual and legal bases of the deficiency taxes assessment, which
enabled the latter to file an effective protest.
a. In the case of Samar Electric v. CIR, the court held that although the
FAN and demand letter issued to petitioner were not accompanied by a written
explanation of the legal and factual bases of the deficiency taxes assessed against
the petitioner, the records showed that respondent responded to the petitioner’s
letter-protest, explaining at length the factual and legal bases of the deficiency tax
assessments and denying the protest.
b. Considering the foregoing exchange of correspondence and documents
between the parties, we find that the requirement of Sec. 228 was substantially
complied with. Respondend had fully informed petitioner in writing of the factual
and legal bases of the deficiency taxes assessment, which enabled the latter to file
an “effective” protest, much unlike the taxpayer’s situation in Enron. Petitioner’s
right to due process was thus not violated. (Samar Electric Cooperative v. CIR, GR
193100, 10 December 2014)
5. Issuance of FAN - It is within 15 days from receipt of the protest to PAN.
WHEN IS THERE A VALID SERVICE OF FAN?

****NB: The FAN should be issued within the prescriptive period, but not
necessarily received by the TP within the said period.
1. Personal service, within reasonable hours. If a natural person, in the place of
work or residence;
2. Substituted service, with a person of sufficient discretion
[] sufficient discretion: someone who understands the consequences and
materiality of the FAN.
[] it can be a housemaid; the burden of proof falls on the BIR that FAN
was left to a person with sufficient discretion; it must be mentioned in the return.
3. For (1) & (2), what if they do not want to receive the FAN? Go to the barangay
office and ask help from a barangay officer, to show proof that it was served but
the TP did not want to receive it. *****Failure to follow this procedure is
tantamount to a denial of due process.
4. By mail: usually through an accredited courier or registered mail—show proof
of receipt of mail.
5. For corporate TPs:
a. [] [Section 11, Rule 14]. When the defendant is a corporation,
partnership or association organized under the laws of the Philippines with a
juridical personality, service may be made on the
i. president,
ii. managing partner, (not on any other partner)
iii. general manager,
iv. corporate secretary, (not on any secretary)
v. treasurer, or (not on the cashier)
vi. in-house counsel. (not on any other counsel)
b. Substituted service: to anybody with sufficient discretion. EG: someone
doing OJT in the corporation is not qualified.
PENALTIES/DEFICIENCY ASSESSMENT******
1. For one day (or a second) of delay: 25% penalty on the principal amount of
tax due;
2. Plus 20% per annum computed per day of delay;
3. And if there is fraud,277 plus 50% surcharge.278 NB: when the word
‘surcharge’ is used, it connotes the commission of a criminal offense.
4. On top of the three, a taxpayer shall pay a 25% DELINQUENCY
INTEREST on the total amount due if he does not pay the amount of tax due
on or before the date specified in the FA.
5. EG: Taxpayer (TP) paid the tax due (on April 15) in July. He was issued a FAN
saying “pay on or before December 8, 2016”. Compute for the tax due:
a. Say, deficiency assessment is P100K
b. Add the following penalties:
277Danilo, 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. (5%)
SUGGESTED ANSWER: Yes, Danilo is liable for the deficiency tax as well as for the deficiency
interest. However, *****he is not liable to the fraud penalty because the accountant acted beyond
the limits of his authority. A tax return which does not correctly reflect taxable income may only be
false but not necessarily fraudulent where it appears that the return was not prepared by the
taxpayer himself but by his accountant. Accordingly, the 50% surcharge for fraud could not be
imposed. [Aznar v. CTA, 58 SCRA 719, (1974)]. On the other hand, the accountant may be held
criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring
the sale and overstating the expense deductions. (Sec. 257, NIRC). If Danny's accountant is a Certified
Public Accountant, his certificate as CPA shall automatically be revoked or cancelled upon
conviction. (BAR 2005)
278 Q: Businessman Lincoln filed an income tax return for 1993 showing business net income of
P350,000 on which he paid an income tax of P61,000. After filing the return he realized that he
forgot to include an item of business income in 1993 for P50.000. Being an honest taxpayer, he
included this income in his return for 1994 and paid the corresponding income tax thereon. In the
examination of his 1993 return the BIR examiner found that Lincoln failed to report this item of
P50.000 and assessed him a deficiency income tax on this item, plus a 50% fraud surcharge.
a. Is the examiner correct? A: The examiner is correct in assessing a deficiency income tax
for taxable year 1993 but not in imposing the 50% fraud surcharge. The amount of all items of
gross income must be included in gross income during the year in which received or realized (Sec. 38,
NIRC). The 50% fraud surcharge attaches only if a false or fraudulent return is willfully made by
Lincoln (Sec. 248, NIRC). The fact that Lincoln included it in his 1994 return belies any claim of
willfulness but is rather indicative of an honest mistake which was sought to be rectified by a
subsequent act that is the filing of the 1994 return.
b. If you were the lawyer of Lincoln, what would you have advised your client before he
included in his 1994 return the amount of P50.000 as 1993 income to avoid the fraud surcharge?
Lincoln should have amended his 1993 income tax return to allow for the inclusion of the P50,000
income during the taxable period it was realized.
c. Considering that Lincoln had already been assessed a deficiency income tax for 1993 for
his failure to report the P50.000 income, what would you advise him to do to avoid the penalties for tax
delinquency? Lincoln should file a protest questioning the 50% surcharge and ask for the
abatement thereof.
d. What would you advise Lincoln to do with regard to the income tax he paid for the P50,000
in his 1994 return? In case your remedy fails, what is your other recourse? (1995 Bar) Lincoln should
file a written claim for refund with the CIR of the taxes paid on the P50,000 income included in 1994
within 2 years from payment pursuant to Sec. 204 [3] of the NIRC. *****Should this remedy fail in
the administrative level, a judicial claim for refund can be instituted before the expiration of
the 2 year period.
i. 25% upon delay: P25K;

ii. 20% per annum computed per day of delay: P20K/365 days x
number of days of delay;
iii. 50% surcharge if there is fraud.
b. If TP did not pay on or before December 8, he will pay 25% delinquency
interest on the total amount due [add 5(b)(i) to (iii)] plus continue the 20% per
annum computed per day of delay.
WHEN IS FAN ISSUED? Within the Prescriptive Periods:

DATE OF FILING PRESCRIPTIVE PERIOD
Filed on due date 3 years from due date
Filed before due date 3 years from due date
Filed beyond due date 3 years from actual filing
Fraudulent/false filing 10 years from BIR’s discovery of bad faith/fraud
Non-filing 10 years from BIR’s discovery of non-filing
WAIVER BY TP: Depends on the agreement of the parties provided that the agreement to
extend is executed prior to expiration of the original period of assessment
1. Codal******
[] SEC. 203. Period of Limitation Upon Assessment and Collection. -
Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed. For purposes of this
Section, a return filed before the last day prescribed by law for the filing thereof
shall be considered as filed on such last day.
[] SEC. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in court
for the collection of such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have agreed
in writing to its assessment after such time, the tax may be assessed within the
period agreed upon. The period so agreed upon may be extended by
subsequent written agreement made before the expiration of the period
previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period
of limitation as prescribed in paragraph (a) hereof may be collected by distraint
or levy or by a proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove, may be collected by
distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5)-year period. The period so agreed
upon may be extended by subsequent written agreements made before the
expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding and
paragraph (a) hereof shall be construed to authorize the examination and
investigation or inquiry into any tax return filed in accordance with the
provisions of any tax amnesty law or decree.
2. IMPORTANCE OF ASSESSMENT MADE BASED ON SEC 222 
a. The BIR will result to admin. or judicial remedies 
b. Note that under Section 222 (c) and (d), PRIOR assessment is required;
otherwise, the government or the BIR cannot resort to admin or judicial remedies.
c. SECTION 203 irt SECTION 222 SHOWS THAT COLLECTION CAN
BE HAD EVEN WITHOUT PRIOR ASSESSMENT.
3. For non-filing, BIR has *****two options:
a. File a return for the taxpayer;
b. BIR issues a deficiency assessment to the taxpayer.
4. Note that for Fraudulent filing and non-filing, the prescriptive period is
counted from BIR’s discovery. Hence, a tax not filed in 2017 may still be issued
a FAN by the BIR anytime before 2060, it BIR only discovered it in 2050.
5. Non-filing vs. Late Filing
a. If the filing of return is beyond the taxable year, it is equivalent to
non-filing 
b. If the filing is made within the taxable year but beyond the due date,
it is late filing
6. If the three-year period is about to expire and the BIR is not yet done with its
investigation, it usually asks the TP to sign a waiver. *****If the TP does not sign
a waiver, BIR issues a JEOPARDY ASSESSMENT, which is in the nature of
a FAN.
REQUISITES FOR A VALID WAIVER*****

*When a TP signs a waiver, he is allowing the BIR to extend the period of
assessment: it is a contractual agreement, without it, the period cannot be
extended once prescribed. But if there is a valid waiver, assessment can still be had
by the BIR even beyond the prescriptive periods.
1. It was signed and executed by the TP before the expiration of the original
period of prescription;279
2. The date of acceptance by the BIR and the TP is indicated on the face of the
waiver;
[] Two (2) material dates that need to be present on the waiver:  
a. The date of execution of the waiver by the taxpayer or its authorized
representative; and
b. The expiry date of the period the taxpayer waives the statute of
limitations
3. The signatures of the BIR representative and the TP are indicated on the face
of the waiver;
[] The date and the signature will determine if the period shall be extended.
4. Three copies of the waiver are executed for:
a. the BIR;
b. the TP;
c. the files.
REMEDIES OF THE TAXPAYER AFTER THE ISSUANCE OF A FAN

1. *****The taxpayer may protest the assessment within 30 days from receipt. Otherwise,
the assessment becomes final, executory, demandable and not appealable to the CTA.
2. Q: Taxpayer duly protested a PAN it received from the BIR. Subsequently, the
BIR issued a FAN to the taxpayer. The demand letter states: “This is our final
decision based on investigation. If you disagree, you may appeal the final decision within 30 days
from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and
demandable.” Instead of filing a protest on the assessment, the taxpayer filed a
petition for review with the CTA. The BIR filed a motion to dismiss on the
ground that the taxpayer failed to exhaust administrative remedies by filing a
protest on the assessment. Should the motion be granted? A: NO, this case is an
exception to the rule on exhaustion of administrative remedies on the ground that
the BIR is in estoppel. The taxpayer cannot be blamed for not filing a protest
279T/F. In civil cases involving the collection of internal revenue taxes, prescription is construed
strictly against the government and liberally in favor of the taxpayer. (1%) SUGGESTED
ANSWER: TRUE. [CIR v. BF Goddrich., Phils. Inc., GR No. 104171, Feb 24, 1999; Phil. Journalists
Inc. v. CIR G.R. No. 162852, Dec. 16, 2004]
[] T/F. In criminal cases involving tax offenses punishable under the National Internal
Revenue Code (NIRC), prescription is construed strictly against the government. (1%)
SUGGESTED ANSWER: FALSE. [Lim v. Court of Appeals, GR No. 48134-37, Oct 18, 1990.]
[] 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. 
[] Proceedings before the CTA in the exercise of its exclusive original jurisdiction are in the
nature of trial de novo. (1%) SUGGESTED ANSWER: True.
[] 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.
against the FAN since the language used and the tenor of the demand letter
indicate that it is the final decision of the CIR on the matter. The court reminded
the CIR to indicate, in a clear and unequivocal language, whether its action on a
disputed assessment constitutes its final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Thus, the CIR is now estopped from claiming that it did not intend the
FAN to be a final decision (Allied Banking Corp. v. CIR, G.R. No. 175097, February
5, 2010).
A7. DISPUTED ASSESSMENT

1. An assessment becomes a “disputed” assessment when petitioner requests for
the cancellation and/or withdrawal of the same.
2. It is when the taxpayer, indicates its protest against the delinquent assessment
of the RO and requests for reconsideration, through a letter. After the request is
filed and received by the BIR, the assessment becomes a disputed assessment (CIR
v. Isabela Cultural Corp., G.R. No. 135210, July 11, 2001).
3. The taxpayer or its authorized representative or tax agent may protest
administratively against the aforesaid FLD/FAN within thirty (30) days from date of
receipt thereof. The taxpayer protesting an assessment may file a written request for
reconsideration or reinvestigation. (Sec. 3.1.4, R.R. No. 18-2013).
4. Failure to file a valid protest against the FLD/FAN within the 30-day period
shall render the assessment final, executory and demandable.
5. *****If there are several issues involved in the FLD/FAN but the taxpayer
only disputes or protests against the validity of some of the issues raised:
a. The assessment attributable to the undisputed issue or issues shall
become final, executory and demandable; and
b. The taxpayer shall be required to pay the deficiency tax or taxes
attributable thereto, in which case, a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency tax or taxes, inclusive of the
applicable surcharge and/or interest (par. 3, ibid.).
c. No action shall be taken on the taxpayer’s disputed issued until the
taxpayer has paid the taxes attributable to the said undisputed issues [in the
assessment notice].280  
6. If there are several issues involved in the disputed assessment and the taxpayer
fails to state the facts, the applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues on which the assessment
is based:
a. The same shall be considered undisputed issue or issues;
280No action shall be taken by the BIR on the taxpayer’s disputed issues until the taxpayer has paid the
deficiency taxes: (2011 Bar Question) (A) when the assessment was issued against a false and fraudulent
return. (B) if there was a failure to pay the deficiency tax within 60 days from BIR demand. (C) if the
Regional Trial Court issues a writ of preliminary injunction to enjoin the BIR. (D) attributable to the
undisputed issues in the assessment notice.
b. In which case, the assessment attributable thereto shall become final,

executory and demandable; and
c. The taxpayer shall be required to pay the deficiency tax or taxes
attributable thereto and a collection letter shall be issued to the taxpayer calling for
payment of the said deficiency tax, inclusive of the applicable surcharge and/or
interest (Par. 4, ibid).
7. An assessment becomes a “disputed” assessment when petitioner requests for
the cancellation and/or withdrawal of the same. Protested assessment is the same
as disputed assessment.
8. Effect of a protest against an assessment - Prescriptive period provided by law
to make collection by distraint or levy or by a proceeding in court is interrupted
once a taxpayer protests the assessment and requests for its cancellation.
ADMINISTRATIVE DECISION ON DISPUTED ASSESSMENT

1. Final Decision on a Disputed Assessment (FDDA) - The decision of the
Commissioner or his duly authorized representative shall state:
a. The facts, the applicable law, rules and regulations, or  
jurisprudence on which such decision is based,  
otherwise, the decision shall be void, and
b. That the same is his final decision (Sec. 3.1.5, R.R. No.  
18-2013).  
2. If the protest is denied, in whole or in part, by the Commissioner’s duly
authorized representative, the taxpayer may either:*****
a. Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from
date of receipt of the said decision; or
b. Elevate his protest through request for reconsideration to the
Commissioner within thirty (30) days from date of receipt of the said decision
(par.7, ibid.). NB: *****No request for reinvestigation shall be allowed in
administrative appeal and only issues raised in the decision of the
Commissioner’s duly authorized representative shall be entertained by the
Commissioner.
3. Q: Can a taxpayer go to the CIR when a protest is denied by the CIR’s
authorized representative? A: Yes, the taxpayer may elevate the protest to the CIR
within 30 days from receipt of the decision for a request for reconsideration and
that his case is referred to the Bureau’s Appellate Division. Otherwise, it becomes
final and appeal to the CTA may be taken.
a. The authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and effect as that issued by the CIR if
not revised or reviewed by the latter (Oceanic Network Wireless Inc. v. CIR, GR
148380, December 9, 2005).
4. Q: The FDDA issued by the CIR to Liquigaz merely contained a table of
Liquigaz’s supposed tax liabilities, without providing any details. The CIR explains
that the FDDA still complied with the requirements of the law as it was issued in
connection with the PAN and FLD/FAN, which had an attachment of the details
of discrepancies. Hence, the CIR concludes that Liquigaz was sufficiently
informed in writing of the factual bases of the assessment. Is the CIR correct? A:
NO. It is undisputed that the FDDA merely showed Liquigaz’ tax liabilities
without any details on the specific transactions which gave rise to its supposed tax
deficiencies. While it provided for the legal bases of the assessment, it fell short of
informing Liquigaz of the factual bases thereof. The CIR erred in claiming that
Liquigaz was informed of the factual bases of the assessment because the FDDA
made reference to the PAN and FAN/FLD, which were accompanied by details
of the alleged discrepancies.
The CTA En Banc highlighted that the amounts in the FAN and the FDDA
were different. Section 3.1.6 of RR No. 12- 99 specifically requires that the
decision of the CIR or his duly authorized representative on a disputed
assessment shall state the facts, law and rules and regulations, or jurisprudence on
which the decision is based. Failure to do so would invalidate the FDDA. To
rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file
an intelligent appeal before the CTA as they would be unaware on how the CIR or
his authorized representative appreciated the defense raised in connection with the
assessment. On the other hand, it raises the possibility that the amounts reflected
in the FDDA were arbitrarily made if the factual and legal bases thereof are not
shown. (CIR v. Liquigaz Philippines Corp., G.R. No. 215534, April 18, 2016)
5. Q: What is the effect of a void FFDA? A: FDDA that does not inform the
taxpayer in writing of the facts and law on which it is based renders the decision
void. It is as if there was no decision rendered by the CIR. It is tantamount
to a denial by inaction by the CIR, which may still be appealed before the CTA
and the assessment evaluated on the basis of the available evidence and
documents. However, a void FDDA does not ipso facto render the assessment
void. Court has long recognized that a “decision” differs from an “assessment”.
Clearly, a decision of the CIR on a disputed assessment differs from the
assessment itself. Hence, the invalidity of one does not necessarily result to the
invalidity of the other—unless the law or regulations otherwise provide. (CIR v.
Liquigaz Philippines Corp., G.R. No. 215534, April 18, 2016)
B. COLLECTION
1. The legislature may adopt any reasonable method for the effective enforcement of
the collection of taxes, subject to:
a. The right of the person to notice; and
b. The opportunity to be heard.
2. The power to impose taxes is clothed with the implied authority to devise ways
and means to accomplish collection in the most effective manner. Without this
implied power, the ends of government may fail (CIR v. Pineda, G.R. No. L-22734,
September 15, 1967).

3. Collectibility of tax liability arises in the following instances:
a. Self-assessed tax shown in the return was not paid within the date
prescribed by law.- internal revenue taxes are self-assessing and no further
assessment by the government is required to create the tax liability. The taxpayer is
immediately considered as delinquent with respect to the unpaid amount of tax.
b. Final assessment is not protested administratively within 30 days from the
date of receipt
c. Failure to question assessment served upon the decedent’s heirs (Marcos II
v. Court of Appeals, 273 SCRA 47)
d. Non-compliance with the condition laid in the approval of protest -
construed as if no protest was filed
e. Failure to file a timely appeal to the CTA on the final decision of the
Commissioner or his authorized representative on the disputed assessment
B1. REQUISITES
*****Collection is only allowed when there is already a final281 assessment made
for the determination of the tax due. Assessments are deemed final when:
1. The taxpayer failed to file a protest 30 days from receipt of the assessment
2. After the 180 day period and the CIR has not yet acted on the protest, the
taxpayer fails to appeal it
3. After 30 days from the receipt of the decision of the CIR the taxpayer fails
281 Q: Minolta is an EPZA-registered enterprise enjoying preferential tax treatment under a special
law. After investigation of its withholding tax returns for the taxable year 1997, the BIR issued a
deficiency withholding tax assessment in the amount of P150,000. On May 15, 1999, because of
financial difficulty, the deficiency tax remained unpaid, as a result of which the assessment became
final and executory. The BIR also found that, in violation of the provisions of the NIRC, Minolta
did not file its final corporate income tax return for the taxable year 1998, because it allegedly
incurred net loss from its operations. On May 17, 2002, the BIR filed with the RTC an action for
collection of the deficiency withholding tax for 1997.
a. Will the BIR's action for collection prosper? As counsel of Minolta, what action will you
take? A: YES. BIR's action for collection will prosper because  
the assessment is already final and executory, it can already be enforced through judicial
action. As counsel of Minolta, I will introduce evidence that the income payment was reported by the
payee and the income tax was paid thereon in 1997 so that my client may only be allowed to pay
the civil penalties for non-withholding pursuant to RMO 38-83.
b. May criminal violations of the NIRC be compromised? If Minolta makes a voluntary
offer to compromise the criminal violations for non- filing and non-payment of taxes for the year
1998, may the CIR accept the offer? (2002 Bar). A: *****All criminal violations of the NIRC may be
compromised except those already filed in court or those involving fraud (Sec. 204, NIRC).
Accordingly, if Minolta makes a voluntary offer to compromise the criminal violations for non-filing
and non-payment of taxes for the year 1998, the CIR may accept the offer which is allowed by law.
*****However, if it can be established that a tax has not been paid as a consequence of non-
filing of the return, the civil liability for taxes may be dealt with independently of the criminal
violations. The compromise settlement of the criminal violations will not relieve the taxpayer
from its civil liability. But the civil liability for taxes may also be compromised if the financial position
of the taxpayer demonstrates a clear inability to pay the tax.
to appeal.
B2. PRESCRIPTIVE PERIODS; SUSPENSION OF RUNNING OF

STATUTE OF LIMITATIONS
*These are all lumped together in one thought unit to avoid confusion.
JURISDICTION IN TAX COLLECTION SUIT (apply BP 129 and RA 9282)

MTC & LCs RTC CTA
Within Metro P0.00 to More than P400,000 to P 1M & above exclusive of interest,
Manila P400,000 below P 1 M penalties, surcharges
Outside Metro P0.00 to More than P300,000 to P 1M & above exclusive of interest,
Manila P300,000 below P 1 M penalties, surcharges
[] TOTALITY RULE: ******Where the claims in all the causes of action

are principally for recovery of money, the aggregate amount claimed shall be
the test of jurisdiction. (Rule 2 Sec. 5[d], Rules of Court)
[] Did RA 9282 (CTA Law) amend the Totality Rule under the Rules of
Court by giving CTA exclusive original jurisdiction of collection suits involving
the amount of at least P1M exclusive of penalties, surcharges and interests? No.
*****If the case is with the MTC, RTC and other regular courts, we follow the
Totality Rule. If the case is originally filed with CTA, we exclude penalties,
surcharges and interests.
COMMENCEMENT OF CRIMINAL ACTION

1. A criminal action is commenced by:
a. By the filing of a complaint with the proper court of first instance, or
where the assessment is appealed to the CTA; or
b. By filing an answer to the taxpayer's petition for review wherein payment
of the tax is prayed for. (Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551,
September 30, 1969)
i. Collection by judicial action is deemed instituted upon filing of the
corresponding complaint in the court of competent jurisdiction. In administrative
remedies, upon service of the distraint and levy on the taxpayer or persons or
entity authorized to receive the same (Diluangco v. CIR, G.R. No. L-16661, January.
31, 1962).
2. Q: What is the prescriptive period where the government action is on a bond
which the taxpayer executes in order to secure the payment of his tax obligation?
A: Ten (10) years under Art. 1144 (1) of the Civil Code and not 3 years under the
NIRC. In this case, the Government proceeds by court action to forfeit a bond.
The action is for the enforcement of a contractual obligation (Republic v. Araneta,
G.R. No. L-14142, May 30, 1961).
3. Q: On Aug. 5, 1997, Adam filed a request for reconsideration of the deficiency
withholding tax assessment on July 10, 1997, covering the taxable year 1994. After
administrative hearings, the original assessment of P150,000 was reduced to
P75,000. A modified assessment was thereafter issued on Aug. 5, 1999. Despite
repeated demands, Adam failed and refused to pay the modified assessment.
Consequently, the BIR brought an action for collection in the RTC on Sept. 15,
2000. Adam moved to dismiss the action on the ground that the government right
to collect the tax by judicial action has prescribed. Decide. (2002 Bar) A: The right
of the Government to collect by judicial action has not prescribed. The filing of
the request for reconsideration which was acted upon by the CIR suspended the
running of the 5-year prescriptive period for collection and commenced to run
again when a decision on the protest was made on August 5, 1999.
———————————————————————
2. TAXPAYER’S REMEDIES
A. PROTEST
A.1 PROTESTED ASSESSMENT
1. The TP files a protest of the BIR assessment within 30 days from the receipt
of the FAN, failure to file such protest would mean that the FAN has become
super-final, i.e., it can no longer be questioned. It is the act by the taxpayer of
questioning the validity of the imposition of the corresponding delinquency
increments for internal revenue taxes as shown in the notice of assessment and
letter of demand.
2. TWO (2) KINDS OF PROTEST
a. Complete – the protest includes all necessary documents  
b. Incomplete – the documents may be completed within a period of
time as maybe required by the BIR which period shall not exceed 60 days;
3. Codal [] SEC. 228. Protesting of Assessment. - When the Commissioner or his
duly authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings: provided, however, That a
preassessment notice shall not be required in the following cases: 
[see (a) to (e) supra RE: exceptions to PAN]
******The taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request
for reconsideration or reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be prescribed by implementing
rules and regulations.282 Within sixty (60) days from filing of the protest,283 all
relevant supporting documents shall have been submitted; otherwise, the
282[] Antonio Cruz was appointed by the Regional Trial Court as Administrator in the testate
proceedings for the settlement of the estate of his deceased father. On 12 February 1987, the
Commissioner of Internal Revenue issued a deficiency estate tax assessment for the estate in
question in the amount of P2.816,514.60. The notice of deficiency assessment was received by the
Administrator on 19 February 1987. In his letter to the Commissioner, dated 21 February 1987, which
was received by the latter’s office two (2) days later, the Administrator requested for a
reconsideration of the assessment on the ground that the same is contrary to law and is not
supported by sufficient evidence. He also requested for a period of fifteen (15) days within
which to submit the estate’s position paper. On 4 August 1988, not having received the promise
position paper, the Commissioner filed with the Court a motion for allowance of claim and for an
order of payment of estate taxes, praying therein that the administrator be directed to pay the BIR
the aforementioned deficiency tax. The Administrator opposed the motion alleging that by
reasons of the pendency of his request for reconsideration, the deficiency assessment has not
become final and executory and, therefore, the absence of a decision on the disputed'
assessment is a bar against collection of taxes. He further argued that it is the Court of Tax
Appeals, and not the Regional Trial Court, which has exclusive jurisdiction over the claim. Resolve the
motion and issues raised. ANSWER: Evidently, the request for reconsideration did not express or
specify the grounds therefor. A request for reconsideration in the tenor stated in the problem is
insufficient, not being substantiatied, to stop the running of the 30-day period within which the
assessment may be disputed (Dayrit vs. Cruz, G.R No. 39919, 26 September 1988). *****The failure of
the taxpayer to submit the promised position paper within the said 30-day period had the effect
of rendering the assessment final and executory. In addition, the pendency of a decision on a
disputed assessment does not bar the collection of the NIRC taxes, and no injunction maybe
issued by any court (except by the Court of Tax Appeals as an incident to a timely petition for
review). In the absence of a petition for review with the Court of Tax Appeals which may be brought
by a taxpayer within thirty (30) days from the receipt of the final decision of the Commissioner, the
Court of Tax Appeals has no jurisdiction to take cognizance thereof (See Sec. 11, RA. 1125).
Premises considered, the action taken by the Commissioner with the Regional Trial Court was
appropriate and in accordance with law. ALTERNATIVE ANSWER: Once a request for
reconsideration is made by the taxpayer on an assessment of the BIR within 30 days from receipt
thereof, the Commissioner is bound to make a decision thereon. That decision is the one appealable
to the Court of Tax Appeals. But if the taxpayer does not appeal within the 30-day period, the
assessment becomes final and executory and demandable. The implication of this new provision in the
NIRC is that the Commissioner cannot collect the tax as long as the taxpayer has still the right to
appeal from the Commissioner’s action. (BAR 1991)
283******The submission of the required documents within sixty (60) days from the filing of the
protest is available only where: (2012 BAR) a) The taxpayer previously filed a Motion for
Reconsideration with the BIR official; b) The taxpayer previously filed a request for reconsideration
with the BIR official; c) The taxpayer previously filed a request for reinvestigation with the BIR official;
d) The taxpayer previously filed an extension to file a protest with the BIR official. SUGGESTED
ANSWER: c) The taxpayer previously filed a request for reinvestigation with the BIR official
Section 228, NIRC; RCBC v. CIR.
assessment shall become final.284

If the protest is denied in whole or in part, or is not acted upon within
one hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.
A2. WHEN TO FILE A PROTEST

1. An assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment.
2. Procedure to be followed in protesting an assessment - BIR issues assessment
notice.
a. The taxpayer files an administrative protest against the assessment. Such
protest may either be a request for reconsideration or for reinvestigation. The
protest must be filed within 30 days from receipt of assessment. (“30-day period”)
i. The FAN must be protested by the taxpayer within the 30-day
period, despite the fact that exactly the same issues were raised by the revenue
officers in the PAN. The protest against the FAN is not the same as the reply to
the PAN.
b. All relevant documents must be submitted within 60 days from filing of protest;
otherwise, the assessment shall become final and unappealable. (“60-day period”)
c. In case the CIR decides adversely or if no decision yet after the lapse of
180 days, the taxpayer may appeal to the CTA Division, 30 days from the receipt
of the decision or from the lapse of the 180 days otherwise the decision shall
become final, executory and demandable. (RCBC v. CIR, G.R. No. 168498, April
24, 2007)
d. If the decision is adverse to the taxpayer, he may file a motion for
reconsideration or new trial before the same Division of the CTA within 15 days from
notice thereof. e. In case the resolution of a Division of the CTA on a motion for
reconsideration or new trial is adverse to the taxpayer, he may file a petition for
review with the CTA en banc.
e. The ruling or decision of the CTA en banc may be appealed with the
Supreme Court through a verified petition for review on certiorari pursuant to Rule 45
of the 1997 Rules of Civil Procedure.  
284 What is the effect on the tax liability of a taxpayer who does not protest an assessment for
deficiency taxes? (2011 Bar Question) (A) The taxpayer may appeal his liability to the CTA since the
assessment is a final decision of the Commissioner on the matter. (B) The BIR could already enforce
the collection of the taxpayer's liability if it could secure authority from the CTA. (C) The taxpayer's
liability becomes fixed and subject to collection as the assessment becomes final and collectible.
(D) The taxpayer's liability remains suspended for 180 days from the expiration of the period to
protest. SUGGESTED ANSWER: (C) The taxpayer's liability becomes fixed and subject to
collection as the assessment becomes final and collectible.
Q: A taxpayer receives two final assessments, one for Net Income Tax
(NIT) and one for VAT. If the taxpayer would only like to protest the one
for NIT and not the one for VAT, what should he do to file a protest for the
NIT?
A: The taxpayer should first pay the tax due under the VAT, where he does not
intend to file a protest.
NOTE: This is not payment under protest for this is neither a tax under the TCC
nor a Real Property Tax (RR 12-99).
A3. FORM, CONTENT AND VALIDITY OF PROTEST

1. Requisites of a protest
a. In writing;
b. Addressed to the CIR;
c. Accompanied by a waiver of the Statute of Limitations in favor of the
Government. Without the waiver the prescriptive period will not be tolled; (BPI v.
CIR, G.R. No. 139736, October 17, 2005)
d. State the facts, applicable law, rules and regulations or jurisprudence on
which the protest is based otherwise the protest would be void; and
e. Must contain the following:
i. Name of the taxpayer and address for the immediate past 3 taxable
years;
ii. Nature of the request, specifying the newly discovered evidence to
be presented;
iii. Taxable periods covered by the assessment;
iv. Amount and kind of tax involved and the assessment notice
number;
v. Date of receipt of the assessment notice or letter of demand;
vi. Itemized statement of the finding to which the taxpayer agrees (if
any) as basis for the computation of the tax due, which must be paid upon filing
of the protest;
vii. Itemized schedule of the adjustments to which the taxpayer does
not agree;
viii. Statements of facts or law in support of the protest; and
ix. Documentary evidence as it may deem necessary and relevant to
support its protest to be submitted 60 days from the filing thereof.
2. Q: A taxpayer receives two final assessments, one for Net Income Tax (NIT)
and one for VAT. If the taxpayer would only like to protest the one for NIT and
not the one for VAT, what should he do to file a protest for the NIT? A: The
taxpayer should first pay the tax due under the VAT, where he does not intend to
file a protest.
a. This is not payment under protest for this is neither a tax under the TCC
nor a Real Property Tax (RR 12-99).

3. Forms285 of Protest******286
REQUEST FOR RECONSIDERATION REQUEST FOR REINVESTIGATION
A claim for re-evaluation of the assessment A Claim for re-evaluation of the assessment based
based on existing records without need of on newly-discovered evidence or additional
additional evident. evidence
It may involve a question of fact or law or both It may also involve a question of fact or law or both.
It does not toll the statute of limitations. It tolls the statute of limitations.
285The BIR issued in 2010 a final assessment notice and demand letter against X Corporation
covering deficiency income as for the year 2008 in the amount of P10 Million. X Corporation earlier
requested the advice of a lawyer on whether or not it should file a request for reconsideration or a
request for reinvestigation. The lawyer said it does not matter whether the protest against the
assessment is a request for reconsideration or a request for reinvestigation, because it has same
consequences or implications.
a. What are the differences between a request for reconsideration and a request for
reinvestigation? Suggested Answer: ******Request for Reconsideration – plea for evaluation of
assessment on the basis of existing records without need of presentation of additional evidence. It
does not suspend the period to collect the deficiency tax. Request for Reinvestigation – plea for re-
evaluation on the basis of newly discovered evidences which are to be introduced for examination
for the first time. It suspends the prescriptive period to collect.
b. Do you agree with the advice of the lawyer? Explain your answer (2012) NO, in view of the
aforesaid difference between Request for Reconsideration & Request for Reinvestigation.
286 NOTE: *****A motion for reconsideration of the denial of the administrative protest does
not toll the 30-day period to appeal to the CTA (Fishwealth Canning Corporation v. CIR, G.R. No. 179343,
January 21, 2010). A reinvestigation which entails the reception and evaluation of additional evidence
will take more time than a reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the reinvestigation can suspend the running of the statute of
limitations on collection of the assessed tax, while the reconsideration cannot. Hence, the period for
BIR to collect the deficiency DST already prescribed as the protest letter of BPI was a request for
reconsideration, which did not suspend the running of the prescriptive period to collect. (BPI v.
CIR, G.R. No. 181836, July 9, 2014)
[] Caveat (it refers to withholding tax assessment though): On August 5, 1997, Adamson Co.,
Inc. (Adamson) filed a request for reconsideration of the deficiency withholding tax assessment
on July 10, 1997, covering the taxable year 1994. After administrative hearings, the original
assessment of P150,000.00 was reduced to P75,000.00 and a modified assessment was thereafter
issued on August 5, 1999. Despite repeated demands, Adamson failed and refused to pay the
modified assessment. Consequently, the BIR brought an action for collection in the Regional Trial
Court on September 15, 2000. Adamson moved to dismiss the action on the ground that the
government’s right to collect the tax by judicial action has prescribed. Decide the case. (5%)
SUGGESTED ANSWER: The right of the Government to collect by judicial action has not
prescribed. The filing of the request for reconsideration suspended the running of the
prescriptive period and commenced to run again when a decision on the protest was made on
August 5, 1999. *****It must be noted that in all cases covered by an assessment, the period to
collect shall be five (5) years from the date of the assessment but this period is suspended by the
filing of a request for reconsideration which was acted upon by the Commissioner of internal
Revenue (CIR v. Wyeth Suaco Laboratories, Inc., 202 SCRA 125 [1991]). (BAR 2002)
*Requisites for a request for reinvestigation.287
A4. SUBMISSION OF SUPPORTING DOCUMENTS

1. For requests for reinvestigation, the taxpayer shall submit all relevant supporting
documents in support of his protest within sixty (60) days from date of filing of
his letter of protest. Otherwise, the assessment shall become final.
a. The sixty (60)-day period for the submission of all relevant supporting
documents shall not apply to requests for reconsideration.
2. “Relevant supporting documents”
a. The term “relevant supporting documents” refer to those documents
necessary to support the legal and factual bases in disputing a tax
assessment as determined by the taxpayer.
b. These are documents which the taxpayer feels would be necessary to
support his protest and not what the Commissioner feels should be submitted,
otherwise, the taxpayer would always be at the mercy of the BIR which may
require production of such documents which taxpayer could not produce
(Standard Chartered Bank v. CIR, CTA case No. 5696, August 16, 2001).
A5. EFFECT OF FAILURE TO FILE PROTEST

1. Failure to file a valid protest against the FLD/FAN within the 30-day period
shall render the assessment final, executory and demandable and the taxpayer loses his
right to contest the assessment, at the administrative and judicial levels. Thus, the
tax shall be collectible.
2. The filing of the protest within 30-day period from the receipt of the
assessment would be mandatory for the taxpayer to use the other administrative
and judicial remedies.
3.“The assessment shall become final”
a. The term “the assessment shall become final” shall mean the taxpayer is
barred from disputing the correctness of the issued assessment by introduction of
newly discovered or additional evidence, and the Final Decision on a Disputed
Assessment (FDDA) shall consequently be denied.
A6. DECISION OF THE COMMISSIONER ON THE PROTEST

FILED
FORMS OF DENIAL OF THE PROTEST

1. Direct Denial of Protest – By an administrative decision on a disputed
assessment, stating the facts, applicable law, rules and regulations or
287What are the requisites before a taxpayer's request for reinvestigation may be granted by the BIR?
Discuss briefly. ANSWER: A request for re-investigation refers to a plea for re- evaluation of an
assessment on the basis of newly-discovered evidence or additional evidence the taxpayer intends
to present in the re-investigation. (BAR 1992)
jurisprudence on which such decision is based otherwise, the decision shall be

void in which case the same shall not be considered a decision on a disputed
assessment and that the same is his final decision (R.R. 12-99).
*Also, a denial of a request for reinvestigation.288
2. Indirect Denial of Protest:
a. Formal and final letter of demand from the BIR to the taxpayer.
b. Civil collection can also be considered as denial of protest of
assessment (BIR v. Union Shipping Corp., G.R. No. 66160, May 21, 1990).
c. Commissioner did not rule on the taxpayer’s motion for
reconsideration of the assessment, the period to appeal will only start when
the respondent would receive the summons for the civil action for collection
of deficiency tax (BIR v. Union Shipping Corp., G.R. No. 66160, May 21, 1990).
NOTE: Preliminary collection letter may serve as assessment notice. (United
International Pictures v. CIR, G.R. No. 110318, August 28, 1996)
d. Filing of criminal action against the taxpayer
288 On June 1, 2003, Global Bank received a final notice of assessment from the BIR for deficiency
documentary stamp tax in the amount of P5 Million. On June 30, 2003, Global Bank filed a request
for reconsideration with the Commissioner of Internal Revenue. The Commissioner denied the
request for reconsideration only on May 30, 2006, at the same time serving on Globed Bank a
warrant of distraint to collect the deficiency tax. If you were its counsel, what will be your advice to
the bank? Explain. 5% SUGGESTED ANSWER: The denial of the request for reconsideration is a
final decision of the Commissioner of Internal Revenue. I would advise Global Bank to appeal the
Commissioner’s denial to the Court of Tax Appeals (CTA) within 30 days from receipt, if the
remedy of appeal is still available. I will further advise the bank to file a motion for injunction with
the Court of Tax Appeals to enjoin the Commissioner from enforcing the assessment pending
resolution of the appeal. While an appeal to the CTA will not suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of its tax liability, the CTA
is authorized to give injunctive relief if the enforcement would jeopardize the interest of the
taxpayer, as in this case where the assessment has not become final.
ANOTHER SUGGESTED ANSWER: Since the denial of the protest was made on May
30, 2006, I would assume that Global Bank has already lost its right to appeal. The assessment
having become final for failure to file a timely appeal, I will now advise my client to file a request
with the Commissioner of Internal Revenue for a compromise settlement of the tax assessed, which
has already become final by invoking doubtful validity of the assessment (Sec. 204, NIRC).
ANOTHER SUGGESTED ANSWER: Since the assessment has already become final, I will
now advise Global Bank to pay the assessment in order to save on the 20% interest which
continues to run indefinitely until the entire obligation is paid (Sec. 249, NIRC). This will also save
the taxpayer and its officers from possible criminal prosecution for non-payment of taxes considering
that in taxation, criminal liability arises as a result of the civil liability to pay taxes (Republic v.
Patanao,L-22356, 20 SCRA 712 [1967]). (BAR 2006)
e. Issuance of warrant of distraint and levy289 to enforce collection of

deficiency assessment is outright denial of the request for reconsideration
(Hilado v. CIR, CTA case 1256, Feb. 25, 1964). EG: issuance of a final notice before
seizure.290
f. After the expiration of the period fixed by law for action, in which case
the inaction by the Commissioner within 180 days from submission of documents
shall be deemed a denial.
I. PERIOD TO ACT UPON OR DECIDE ON PROTEST FILED

OUTCOME OF THE PROTEST
289 CFB Corporation, a domestic corporation engaged in food processing and other allied activities,
received a letter from the BIR assessing it for deliquency income taxes. CFB filed a letter of protest.
One month after, a warrant of distraint and levy was served on CFB Corporation. If you were the
lawyer engaged by CFB Corporation to contest the assessment made by the BIR, what steps will you
take to protect your client? (5%) SUGGESTED ANSWER: I shall immediately file a motion for
reconsideration of the issuance of the warrant of distraint and levy and seek from the BIR
Commissioner a denial of the protest “in clear and unequivocal language.” This is so because
the issuance of a warrant of distraint and levy is not considered as a denial by the BIR of the protest
filed by CFB Corporation (CIR v. Union Shipping Corp. 185 SCRA 547). Within thirty (30) days from
receipt of such denial “ln clear and unequivocal language," I shall then file a petition for review with
the Court of Tax Appeals. [TOM: it may be considered an indirect denial, hence the alternative answer
looks better].
ALTERNATIVE ANSWER: *****Within thirty (30) days from receipt of the warrant of
distraint and levy, I shall file a petition for review with the Court of Tax Appeals with an
application for issuance of a writ of preliminary injunction to enjoin the Bureau of Internal
Revenue from enforcing the warrant. This is the action I shall take because I shall consider the
issuance of the warrant as a final decision of the Commissioner of Internal Revenue which could
be the subject of appeal to the Court of Tax Appeals (Yabes Flojo, 15 SCRA 278). The CTA may,
however, remand the case to the BIR and require the Commissioner to specifically rule on the protest.
The decision of the Commissioner, if adverse to my client, would then constitute an appealable
decision. (BAR 1998)
[] If the request for re-investigation is denied, is it possible or advisable to file a petition for
review with any court or agency as a last resort? ANSWER: A denial of a request for re-investigation
on an assessment partakes the nature of a decision if made by the Commissioner. In this a case, an
appeal may be filed with the CTA within thirty days from receipt of the notice of denial.
ALTERNATIVE ANSWER: On the assumption that the denial by the BIR was not made by the
Commissioner himself but by the regional officer, for instance, or that the request for re-
investigation is not on an assessment as yet, then it may not necessarily constitute a decision on a
disputed assessment from which an appeal may be made to the Court of Tax Appeals. (BAR 1992)
290 Q: A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding
payment within 10 days, otherwise, it would collect through summary remedies. The taxpayer
requested for a reconsideration stating the grounds therefor. Instead of resolving the request for
reconsideration, the BIR sent a Final Notice before Seizure to the taxpayer. May this action of the
Commissioner of Internal Revenue be deemed a denial of the request for reconsideration of the
taxpayer to entitle him to appeal to the Court of Tax Appeals? Decide with reasons. (2005 Bar) A:
*****YES, the final notice before seizure was in effect a denial of the taxpayer's request for
reconsideration, not only was the notice the only response received, its nature, content and tenor
supports the theory that it was the BIR's final act regarding the request for reconsideration. (CIR v.
Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
*******The protest may result to the following actions by the BIR:291 Note that
291 Describe separately the procedures on the legal remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and judicial levels. (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 (a) assessment, (2) collection and (3) refund.
1a. 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 [TOM—this is the reply to the PAN, which has a
prescriptive period of 15 days, although it is not required]; b) If the Commissioner of Internal Revenue
Issues an assessment notice [TOM: this should be a FAN and the TP’s remedy is a protest within 30
days from receipt], 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); c) Within sixty (60) days from filing of the
protest, the taxpayer shall submit all relevant supporting documents.  
1b. 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; c)
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. [TOM: this is no longer applicable since the
CTA is now on the same level as the CA]; d) The adverse decision of the Court of Appeals [now, the
CTA] 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 [now,
CTA].
2a. 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.
2b. 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
[now, CTA] thence to the Supreme Court.
3. The remedy 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)
the taxpayers files a reply to the PAN within 15 days292 from its receipt of the
notice, while he files a protest on the FAN within 30 days.293 But a reply to the
PAN is not necessary before BIR can issue a FAN.294
1. GRANT: end of the process
2. DENIAL: the decision may be appealed to a CTA Division within 30 days
from receipt of the same;
******Although the TP has all the right to appeal the decision of BIR
RDO to the BIR commissioner, then to the Secretary of Finance, then to the
292On July 31, 2011, Esperanza received a preliminary assessment notice from the BIR demanding
that she pays P180,000.00 deficiency income taxes on her 2009 income. How many days from July 31,
2011 should Esperanza respond to the notice? (2011 Bar Question) (A) 180 days. (B) 30 days. (C) 60
days. (D) 15 days.
[] On March 10, 2010, Continental, Inc. received a preliminary assessment notice (PAN) dated
March 1, 2010 issued by the Commissioner of Internal Revenue (CIR) for deficiency income tax for its
taxable year 2008. It failed to protest the PAN. The CIR thereupon issued a final assessment
notice (FAN) with letter of demand on April 30, 2010. The FAN was received by the corporation on
May 10, 2010, following which or on May 25, 2010, it filed its protest against it. The CIR denied the
protest on the ground that the assessment had already become final and executory, the corporation
having failed to protest the PAN. Is the CIR correct? Explain. (2010 Bar Question) SUGGESTED
ANSWER: *****The issuance of preliminary assessment notice (PAN) does not give rise to the
right of the taxpayer to protest. What can be protested by a taxpayer is the final assessment
notice (FAN) or that assessment issued following the PAN. Since the FAN was timely protested,
within 30 days from receipt thereof, the assessment did not become final and executory. Sec.
228, NIRC; RR No. 12-99).
293A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on
June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was initially
given due course, but was eventually denied by the Commissioner of Internal Revenue in a
decision dated June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax
Appeals (CTA), but the CTA dismissed the same. Is the CTA correct in dismissing the petition for
review? Explain your answer. (4%) SUGGESTED ANSWER: Yes. ******The protest was filed out of
time, hence the CTA does not acquire jurisdiction over the matter (CIR v. Atlas Mining and
Development Corp. [2000]). (BAR 2009)
[] Assume that the CTA’s decision dismissing the petition for review has become final.
May the Commissioner legally enforce collection of the delinquent tax? Explain. (4%)
SUGGESTED ANSWER: No. ******The protest was filed out of time and, therefore, did not
suspend the running of the prescriptive period for the collection of the tax. Once the right to
collect has prescribed, the Commissioner can no longer enforce collection of the tax liability against
the taxpayer (CIR v. Atlas Mining and Development Corp., February 14,2000). (BAR 2009)
294 Q: Taxpayer Andy received on January 3, 2010 a preliminary assessment notice (PAN) from the
BIR, stating that he had fifteen (15) days from its receipt to comment or to file a protest. Eight (8) days
later (or on January11, 2010), before he could comment or file a protest, Andy received the final
assessment notice (FAN). Is the FAN valid? (2013 Bar) A: YES. There is no legal requirement that the
FAN should await the protest [TOM: this should be reply] to the PAN because protest [TOM: better
use the world reply for PAN, and protest for FAN] to the PAN is not mandatory.
[] Now, upon issuance of the FAN, Andy may still file an administrative protest within thirty
(30) days from the date of receipt thereof. In case of denial of the protest by the Commissioner’s
authorized representative, Andy may still elevate the adverse decision to the Commissioner within 30
days form its receipt. He may, thereafter, elevate the adverse decision to the CTA and, finally, to the
Supreme Court. Considering, therefore, that Andy could present his side before and after the issuance
of the PAN, the reply to the latter is mandatory [???].
Office of the President, note that that 30-day period shall not be tolled by
these appeals. It is non-extendible unless it falls on a weekend or a holiday, in
which case, it falls on the next working day.
[] Compare tax remedies as per assessment with claim for refund.295 Hence,
as a general rule a deficiency tax assessment is not a bar for claim of refund or tax
credit.296
3. PARTIAL GRANT/DENIAL 
4. NON-ACTION WITHIN 180 DAYS FROM FILING: Appeal may be taken
at any time from the 181st to the 210th day (30 days from lapse of 180-day
period)
a. When BIR sits on the protest, the TP has two mutually exclusive options:
i. File an appeal to a CTA division within the 30-day period from the
lapse of the 180-day period from the filing of the protest;
295 [] ALTERNATIVE: ******Under the NIRC, an aggrieved taxpayer may either (1) dispute an
assessment within thirty (30) days from receipt thereof by filing with the Commissioner of Internal
Revenue a request for reconsideration of reinvestigation, or (2) pay the assessment within the thirty
days then file a written claim with the Commissioner of Internal Revenue for refund within two
years from full and final payment. Upon an adverse decision of the Commissioner and within thirty days from
receipt of notice of denial, an appeal may be filed with the Court of Tax Appeals. However, with respect
to claims for refunds, an appeal must also be filed within two years from the date of full and final
payment. From the decision of the Court of Tax Appeals, an appeal or petition for review by certiorari
may be taken to the CA[now CTA] and then to the Supreme Court in appropriate cases. (BAR 1992)
[] Distinguish between a taxpayer’s remedies in connection with his tax assessment and/or
demand and his claim for refund of taxes alleged to have been erroneously or illegally collected.
ANSWER: A tax assessment becomes final unless it is disputed or contested within 30 days from
receipt thereof by the taxpayer. If the action taken by the Commissioner on the request for
reconsideration is unacceptable to the taxpayer, the latter must then appeal, by way of Petition for
Review to the Court of Tax Appeals within thirty days from receipt of the decision of the
Commissioner of Internal Revenue. *****The taxpayer may also opt to pay the tax before the
finality of the assessment (e.g., within 30 days from receipt of the assessment) and then file within
two years a written claim for the refund of the tax. A denial by the Commissioner of a claim for
refund must be appealed to the CTA within thirty days from receipt of notice of denial and within
two years from the day of full and final payment. Continued inaction by the Commissioner on
claims for refund may thus be taken as a denial appealable to the Court of Tax Appeals, in order to
permit the appeal to be considered or having been made within the two-year mandatory period. (BAR
1992)
296Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain. SUGGESTED
ANSWER: No. *****As a general rule, a deficiency tax assessment is not a bar to a claim for tax
refund or tax credit. It is logically appropriate, however, that if the deficiency tax assessment is
already final, the Commissioner should not grant the claim unless the taxpayer pays the
deficiency. Likewise, no tax refund or tax credit will be granted as long as there is pending a
deficiency tax assessment for the same taxable period. To award a tax refund or tax credit despite
the existence of deficiency assessment for the same taxable period is an absurdity and a polarity in
conceptual effects. A taxpayer cannot be entitled to a refund and at the same time be liable for a
tax deficiency assessment. *****In order to avoid multiplicity of suits, it is logically necessary and
legally appropriate that the issue of deficiency tax assessment be resolved jointly with the
taxpayer’s claim for tax refund, to determine once and for all in a single proceeding the true and
correct amount of tax due or refundable. [CIR v. CA, City trust Banking Corp. and CTA, 234 SCRA
348 (1994)]. (BAR 2005)
ii. Wait for BIR’s decision, and if it’s a denial of the protest, file an
appeal to a CTA division within 30 days from the receipt of the decision.
[] NB: BIR is not precluded from issuing a decision if the TP went
ahead and filed an appeal to the CTA after the 180-day period. See (c), infra.
b. In case of an incomplete protest, the 180-day period will start to run
on the day the required documents are completed (actual receipt of
documents by the BIR)
i. If the taxpayer refuses to submit the documents, the 180-day
period will not run; 
ii. If submission of complete documents is made beyond the
given period, the 180-day rule will still apply provided that the BIR
recognizes the late submission  
c. If BIR issues a decision granting/denying the protest AFTER the
180-day period and there is already an appeal pending in the CTA division,
the appeal shall continue and the taxpayer shall manifest before the CTA
that BIR has issued a decision. *****Is there a need to file another appeal on the
decision of the BIR? There is no need for filing of a new appeal as one is already
pending before the CTA.  
i. If the BIR decision is in favor of the taxpayer, the taxpayer can
withdraw his appeal or
ii. inform CTA of BIR decision if protest is denied—it can be
consolidated in the case filed before the CTA.
7. What is the effect if the BIR issues a second assessment pending a
protest regarding the first assessment?
a. If the second assessment is substantially the same as the first, there is
no need to file another protest  
b. If the two assessments are ****substantially different, another protest
is necessary, otherwise, the second assessment will become FINAL &
EXECUTORY
INSTANCES WHEN DIRECT APPEAL TO CTA EN BANC IS

ALLOWED:*****
1. Decisions of RTC in tax collection cases rendered in exercise of its
appellate jurisdiction;  
2. Decisions of the Central Board of Assessment Appeals in LOCAL
TAXATION cases  
POSSIBLE DECISIONS OF CTA DIVISION

*****NB: In protest cases, an appeal to the CTA is considered a TRIAL DE
NOVO because it would be the first time that the case enters the judicial
zone.
1. GRANT – ends the process
2. DENY:
a. file a motion for reconsideration to the CTA division;297
b. If denied, file an appeal to the CTA en banc 
3. PARTLY GRANT/DENY: appeal to the CTA en banc
[] What is the ****PERIOD TO APPEAL to the CTA en banc? RA 9282
does not provide a period so we follow the Rules of Court (15 days from
receipt of decision). In the meantime, the prejudiced party may file a motion
for reconsideration or motion for new trial within 15 days from receipt of
the unfavorable decision rendered by the Court of Appeals Division.
[] Is the BIR allowed to appeal to the CTA? *****The BIR may not appeal
its own decision to CTA division but it may appeal the decision of CTA
Division to CTA en banc. Either party or both parties may file the appeal to CTA
En Banc.
4. From the CTA en banc, go to SC under Rule 45 for pure questions of law.
Should there be GADALEJ, file a Rule 65 petition.
II. REMEDIES OF THE TAXPAYER IN CASE THE COMMISSIONER

DENIES THE PROTEST OR FAILS TO ACT ON THE PROTEST
******
1. In case of denial of protest. Q: What is the remedy available to the taxpayer if
the CIR denies his protest in whole or in part? A: The remedy is to appeal such
decision to the CTA within 30 days from receipt of the decision. Otherwise, the
assessment will become final, executory and demandable.
297 On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by
the Commissioner of Internal Revenue (CIR) dismissing the protest of CCC, Inc. and affirming the
assessment against said corporation. On June 10, 2013, CCC, Inc. filed a Petition for Review with the
Court of Tax Appeals (CTA) in division. On July 31, 2015, CCC, Inc. received a copy of the
Decision dated July 22, 2015 of the CTA division dismissing its Petition. CCC, Inc. immediately
filed a Petition for Review with the CTA en banc on August 6, 2015. Is the immediate appeal by
CCC, Inc. to the CTA en banc of the adverse Decision of the CTA division the proper remedy? (2015
Bar Question) SUGGESTED ANSWER: No, CCC, Inc. should first file a motion for
reconsideration with the CTA Division. ******Petition for review of a decision or resolution of
the Court in Division must be preceded by the filing of a timely motion for reconsideration or
new trial with the Division. Before the CTA En Banc could take cognizance of the petition for review
concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show
that it sought prior reconsideration or moved for a new trial with the concerned CTA division.
2. In case of inaction298 by commissioner within 180 days299 from submission of

documents. The taxpayer has two alternative options:
a. File a petition for review with the CTA within 30 days after the
expiration of the 180-day period; or  
b. Wait300 for the final decision of the CIR on the disputed assessment and
298 A taxpayer received an assessment notice from the BIR on February 3, 2009. The following day, he
filed a protest, in the form of a request for reinvestigation, against the assessment and submitted all
relevant documents in support of the protest. On September 11, 2009, the taxpayer, apprehensive
because he had not yet received notice of a decision by the Commissioner on his protest, sought your
advice. What remedy or remedies are available to the taxpayer? Explain. (4%) SUGGESTED
ANSWER: *****The remedy of a taxpayer is to avail of either of two options: a. File a petition for
review with the CTA within 30 days after the expiration of the 180- day period from submission
of all relevant documents; or b. Await the final decision of the Commissioner on the disputed
assessment and appeal such final decision to the CTA within 30 days after receipt of a copy of
such decision. These options are mutually exclusive such that resort to one bars the application of
the other (RCBC v. OR, 522SCRA 144(2007]). (BAR 2009)
299On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of assessment
against Blue Water Industries Inc. (BWI), a domestic corporation, informing the latter of its alleged
deficiency corporate income tax for the year 2009. On April 20, 2012, BWI filed a letter protest
before the BIR contesting said assessment and demanding that the same be cancelled or set aside.
However, on May 19, 2013, that is, after more than a year from the filing of the letter protest, the
BIR informed BWI that the latter’s letter protest was denied on the ground that the assessment had
already become final, executory and demandable. The BIR reasoned that its failure to decide the
case within 180 days from filing of the letter protest should have prompted BWI to seek
recourse before the Court of Tax Appeals (CTA) by filing a petition for review within thirty (30) days
after the expiration of the 180-day period as mandated by the provisions of the last paragraph of
Section 228 of the National Internal Revenue Code (NIRC). Accordingly, BWI’s failure to file a petition
for review before the CTA rendered the assessment final, executory and demandable. Is the contention
of the BIR correct? Explain. (2014 Bar Question) SUGGESTED ANSWER : No.
*****Notwithstanding the lapse of the 180-day period, BWI had the option to await the BIR’S
final decision on its protest before filing a Petition for Review with the CTA. Pursuant to the case of
Lascona Land Co., Inc. v. Commissioner of Internal Revenue (G.R. No. 171251, March 5, 2012), in
case the Commissioner fails to act on a taxpayer’s protest within the 180-day period, a taxpayer can
either: (i) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or (ii) await the final decision of the Commissioner on the disputed assessments,
and thereafter appeal such final decision to the CTA within 30 days after the receipt of a copy of such
decision. In the present case, BWI simply availed itself of the second option.
300When the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it
to a single remedy of filing an appeal after the lapse of 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively.
A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the
protested assessment. More so, because the law and jurisprudence have always contemplated a scenario
where the CIR will decide on the protested assessment (Lascona Land Co., Inc. v. CIR, G.R. No. 171251,
March 5, 2012). (2014 Bar)
appeal the final decision to the CTA within 30 days301 from the receipt of the
decision.302
c. *******In case the action filed by the taxpayer is a claim for refund and
not protesting the amount of the tax, the period of 180 days and 30 days must
concur with the 2 year prescriptive period. Hence, a petition for review may
already be filed even before the expiration of the 180 day period if the
period of 2 years from the date of payment will already lapse.
3. The following are the three options of the taxpayer, IOW, when he files a
protest.
a. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days from
receipt of the whole or partial denial of the protest.
b. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days from
receipt of the whole or partial denial of the protest.
c. If the CIR or his authorized representative failed to act upon the
protest within 180 days from submission of the required supporting
documents, then the taxpayer may appeal to the CTA within 30 days from the
lapse of the 180-day period. NB: As to ‘failure to act” by the CIR’s
representative, there is no such 180-30-day period provided to appeal to the
301 The taxpayer seasonably filed his protest together with all the supporting documents. It is already
July 31, 2011, or 180 days from submission of the protest but the BIR Commissioner has not yet
decided his protest. Desirous of an early resolution of his protested assessment, the taxpayer should
file his appeal to the Court of Tax Appeals not later than: (2011 Bar Question) (A) August 31, 2011.
(B) August 30, 2011. (C) August 15, 2011. (D) August 1, 2011.
[] The taxpayer received an assessment notice on April 15, 2011 and filed its request for
reinvestigation against the assessment on April 30, 2011. Additional documentary evidence in support
of its protest was submitted by it on June 30, 2011. If no denial of the protest was received by the
taxpayer, when is the last day for the filing of its appeal to the CTA? (2012 BAR) a) November 30,
2011; b) December 30, 2011; c) January 30, 2012; d) February 28, 2012.
[] Using the same facts in the immediately preceding number, but assuming that the final
decision on the disputed assessment was received by the taxpayer on July 30, 2011, when is the last day
for filing of the appeal to the CTA? (2012 BAR) a) August 30, 2011; b) September 30, 2011; c)
December 30, 2011; d) January 30, 2012. SUGGESTED ANSWER: a) August 30, 2011; 
Section 228, NIRC (nearest answer but not correct answer) [TOM: should’ve been Aug 29].
302 Spanflex Int’l Inc. received a notice of assessment from the BIR. It seasonably filed a protest with
all the necessary supporting documents but the BIR failed to act on the protest. Thirty days
from the lapse of 180 days from the filing of its protest, Spanflex still has not elevated the matter to
the CTA. What remedy, if any, can Spanflex take? (2011 Bar Question) (A) It may file a motion to
admit appeal if it could prove that its failure to appeal was due to the negligence of counsel. (B) It may
no longer appeal since there is no BIR decision from which it could appeal. (C) It may wait for the
final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of
such decision. (D) None. Its right to appeal to the CTA has prescribed.
CIR.303 The third option refers to the failure to act of either the CIR or his
authorized representative, and the next level of appeal is already with the CTA.
III. EFFECT OF FAILURE TO APPEAL

Q: WHAT IS THE EFFECT OF THE FAILURE TO APPEAL BY A
TAXPAYER?
1. The decision or assessment becomes final and executory.
2. In an action for the collection of the tax by the government, the taxpayer is
barred from re-opening the question already decided.
3. The assessment is considered correct which may be enforced by summary or
judicial remedies.
4. In a proceeding for collection of tax by judicial action, the taxpayer’s defenses
are similar to those of the defendant in a case for the enforcement of a judgment
by judicial action.
5. The assessment which has become final and executory cannot be superseded by
303 Q: PAGCOR received a FAN on January 17, 2008 for payment of deficiency Fringe Benefit Tax.
Seven days later, it filed a protest to the FAN addressed to RD Misajon of Revenue Region No. 6 of
the BIR. On August 14, 2008, PAGCOR elevated its protest to CIR, there being no action taken
thereon as of that date. On March 11, 2009, PAGCOR filed a Petition for Review before the CTA
alleging respondent’s inaction in its protest. CTA Division dismissed the petition for being filed out
of time. CTA En banc affirmed CTA Division’s ruling. In its Petition for Review before the SC, PAGCOR
argues that its protest before the CIR on August 14, 2008 starts a new period from which to
determine the last day to file its petition before the CTA. Is PAGCOR correct? A: NO. A textual
reading of Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 gives a
protesting taxpayer three options:******
a. If the protest is wholly or partially denied by the CIR or his authorized representative, then
the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of
the protest.
b. If the protest is wholly or partially denied by the CIR's authorized representative, then the
taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the
protest.
c. If the CIR or his authorized representative failed to act upon the protest within 180 days
from submission of the required supporting documents, then the taxpayer may appeal to the CTA
within 30 days from the lapse of the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR’s representative may
be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the
CTA. The CIR or the CTA’s [TOM: should be CIR’s] authorized representative’s failure to act may be
appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the
CIR's authorized representative.
PAGCOR did not wait for the RD or the CIR’s decision on its protest. PAGCOR made
separate and successive filings before the RD and the CIR before it filed its petition with the CTA.
PAGCOR rendered the second option moot when it formulated its own rule and “elevated an
appeal” to the CIR without any decision from the RD. The third option states that the remedy for
failure to act by the CIR or his authorized representative is to file an appeal to the CTA within 30
days after the lapse of 180 days from the submission of the required supporting documents.
PAGCOR clearly failed to do this. If we consider, for the sake of argument, PAGCOR’s submission
before the CIR as a separate protest and not as an appeal, then such protest should be denied for
having filed out of time. It is clear that PAGCOR failed to make use of any of the three options
described above. Indeed, PAGCOR’s lapses in procedure have made the BIR’s assessment final,
executor and demandable. (PAGCOR v. BIR, G.R. No. 208731, January 27, 2016)
a new assessment.  
NON-AVAILABILITY OF INJUNCTION TO RESTRAIN

COLLECTION OF TAX
1. GR: No court can issue an injunction (Sec 218, NIRC)
2. XPN: The injunction may be issued by the CTA to restrain collection of taxes
when in the opinion of the Court the collection may jeopardize the interest of the
Government and/or taxpayer, the Court at any stage of the proceeding may
suspend the said collection and require the taxpayer either:
a. To deposit the amount claimed, or
b. To file a surety bond for not more than double the  
amount with the Court.
—————————————
B. COMPROMISE AND ABATEMENT OF TAXES

1. It is an agreement between two or more persons who, amicably settle their
differences on such terms and conditions as they may agree on to avoid any
lawsuit between them. It implies the mutual agreement by the parties in regard to the
thing or subject matter which is to be compromised. NB: Court cannot compel
the CIR to compromise in cases when such is allowed, in order to assure that no
improper compromise is made to the prejudice of the Government.
2. When made:
a. Criminal cases – It must be entered into prior to the institution of the
corresponding criminal action arising out of a violation of the provisions of
the Tax Code.304 A compromise can never be entered into after final judgment
because by virtue of such final judgment the Government had already acquired
a vested right. (Roviro v. Amparo, G.R. No. L- 5482, May 5, 1982)  
b. Civil cases – Before litigation or at any stage of the litigation, even during
appeal, although legal propriety demands that prior leave of court should be
obtained.
3. Requisites for Compromise*****
a. Tax liability of the taxpayer;
b. An offer of the taxpayer of an amount to be paid by him; and
304*****A compromise validly entered into between the CIR and the taxpayer prior to the institution
of the corresponding criminal action arising out of a violation of the provisions of the Tax Code
becomes a bar to such criminal action (People v. Magdaluyo, G.R. No. L-16235, Apr. 20, 1965).
c. The acceptance305 (the CIR or the taxpayer306) of the offer in the

settlement of the claim
4. Cases which may be compromised [DANC3]*****307
a. Delinquent accounts
b. Cases under Administrative protest after issuance of the Final
Assessment Notice to the taxpayer which are still pending in the RO, RDO, Legal
Service, Large Taxpayer Service, Collection Service, Enforcement Service, and
other offices in the National Office
c. Cases covered by pre-assessment notices but taxpayer is Not agreeable to
the findings of the audit office as confirmed by the review office
d. Civil tax cases disputed before the courts
e. Collection cases filed in courts
f. Criminal violations except:
i. Those already filed in courts; and
ii. Those involving criminal tax fraud (Sec.3, R.R. 30-2002).
5. Cases which cannot be compromised [F3EW-CD *****
a. Criminal tax Fraud cases, confirmed as such by the CIR or his duly
authorized representative.
b. Cases where Final reports of reinvestigation or reconsideration have been
305NOTE: If an offer of compromise is rejected by the taxpayer, the CIR should file a criminal
action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to
enforce a penalty. A penalty can be imposed only on a finding of criminal liability (CIR v. Abad G.R.
No. L-19627, June 27, 1968).
306REMEDIES IN CASE THE TAXPAYER REFUSES OR FAILS TO FOLLOW THE TAX
COMPROMISE
1. Enforce the compromise: a. If it is a judicial compromise, it can be enforced by mere execution. A
judicial compromise is one where a decision based on the compromise agreement is rendered by the
court on request of the parties; b. Any other compromise is extrajudicial and like any other contract
can only be enforced by court action.  
2. Regard it as rescinded and insist upon original demand (Art. 2041, NCC).
307State and discuss briefly whether the following cases may be compromised or may not be
compromised: (5%) SUGGESTED ANSWER:****** 
[] Delinquent accounts may be compromised if either of the two conditions is present: (1)
the assessment is of doubtful validity, or (2) the financial position of the taxpayer demonstrates a
clear inability to pay the tax. (Sec. 204(A), NIRC; Sec. 2 of Revenue Regulations No. 30- 2002).
[] Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending: These may be compromised, provided that it is premised upon
doubtful validity of the assessment or financial incapacity to pay (ibid).
[] Criminal tax fraud cases: These may not be compromised, so that the taxpayer may not
profit from his fraud, thereby discouraging its commission (ibid).
[] Criminal violations already filed in court: These may not be compromised in order that the
taxpayer will not profit from his criminal acts (ibid).
[] *****Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the
required agreement form, cannot be compromised. By giving his conformity to the revised
assessment, the taxpayer admits the validity of the assessment and his capacity to pay the same.
(Sec. 2 of Revenue Regulations No. 30-2002). (BAR 2005)
issued resulting to reduction in the original assessment and the taxpayer is

agreeable to such decision by signing the required agreement form for the
purpose.
c. Cases which become Final and executory after final judgment of a court,
where compromise is requested on the ground of doubtful validity of the
assessment.
d. Estate tax cases where compromise is requested on the ground of
financial incapacity of the taxpayer.
e. Withholding tax cases, unless the applicant – taxpayer invokes provisions
of law that cast doubt on the taxpayer’s obligation to withhold.
f. Criminal violations already filed308 in courts.309
g. Delinquent accounts with duly approved schedule of installment payments (Sec.3, R.R.
30-2002).  
308 Extent of Commissioner’s Power to Compromise Criminal violations

i. Before the complaint is filed with the Prosecutor’s Office – full discretion to compromise except
those involving fraud;
ii. After the complaint is filed with the Prosecutor’s Office but before the information is filed with
the court – can still compromise provided that the prosecutor gives his consent;
iii. After the information is filed with the court – no longer permitted to compromise with or
without the consent of the Prosecutor (People v. Magdaluyo, G.R. No. L-1595, April. 20, 1961).
[] TOM: How do you reconcile it with this one?: May the tax liability of a taxpayer be
compromised during the pendency of an appeal? (1996 Bar) A: YES, as long as any of the grounds
for a compromise i.e.; doubtful validity of assessment and financial incapacity of taxpayer is present.
*****A compromise of a tax liability is possible at any stage of litigation, even during appeal,
although legal propriety demands that prior leave of court should be obtained (Pasudeco v. CIR, G.R.
No. L-39387, June 29, 1982).
[] This is a good harmonization: Which statement below on compromise of tax liability is
correct? (2012 BAR) a) Compromise of a tax liability is available only at the administrative level; b)
Compromise of a tax liability is available only before trial at the CTA; c) Compromise of a tax liability
is available even during appeal, provided that prior leave of court is obtained; d) Compromise of a tax
liability is still available even after the court decision has become final and executory. SUGGESTED
ANSWER: c) Compromise of a tax liability is available even during appeal, provided that prior
leave of court is obtained. RR 30-2002.
309An information was filed in court for willful non-payment of income tax the assessment of which
has become final. The accused, through counsel, presented a motion that he be allowed to
compromise his tax liability subject of the information. The prosecutor indicated his conformity to
the motion. Is this procedure correct? (5%] SUGGESTED ANSWER: No. *****Criminal violations, if
already filed in court, may not be compromised (Sec. 204[B], NIRC). Furthermore, the payment
of the tax due after apprehension shall not constitute a valid defense in any prosecution for
violation of any provisions of the Tax Code (Sec. 247(a), NIRC). Finally, there is no showing that
the prosecutor in the problem is a legal officer of the Bureau of Internal Revenue to whom the
conduct of criminal actions is lodged by the Tax Code.
ALTERNATIVE ANSWER: No. If the compromise referred to is the civil aspect, the
procedure followed is not correct. *****Compromise for the payment of any internal revenue tax shall
be made only by the Commissioner of Internal Revenue or in a proper case the Evaluation
Board of the BIR (Sec. 204, NIRC). Applying the law to the case at bar, compromise settlement can
only be effected by leave of Court. (BAR 1998)
6. The CTA310 may issue an injunction to prevent the government from collecting taxes under
a compromise agreement when such would be prejudicial to the government.
7. PRESCRIPTIVE PERIOD TO ENFORCE COMPROMISES: As a rule, the
obligation to pay tax is based on law. *****But when, for instance, a taxpayer enters into a
compromise with the BIR, the obligation of the taxpayer becomes one based on
contract. Compromise is a contract whereby the parties, by reciprocal concessions, avoid
litigation or put an end to one already commenced (Art. 2028 NCC). ******Since it is a
contract, the prescriptive period to enforce the same is 10 years based on Art. 1144 NCC
reckoned from the time the cause of action accrued.
AUTHORITY OF THE COMMISSIONER TO COMPROMISE OR

ABATE TAXES
*Transferred to Module 15.
LIMITATIONS ON THE POWER TO COMPROMISE A TAX

LIABILITY
*Transferred to Module 15.
ABATEMENT
1. Abatement is the cancellation311 of a tax liability
2. *****Grounds for Abatement (Sec. 204[B], NIRC)
a. The tax or any portion thereof appears to be unjustly or excessively
310Does the Court of Appeals have the power to review compromise agreements forged by the
Commissioner of Internal Revenue and a taxpayer? Explain. (2010 Bar) A: As a general rule, the Court
of Appeals does not have the power to review compromise agreements made between the
Commissioner of Internal Revenue and the tax payer considering that the Commissioner is vested with
the authority to compromise and such authority is exercised according to his discretion. Such authority
should be exercised in accordance with the CIR discretion and courts have no power, as a general rule,
to compel him to exercise such discretion one way or another. *****If the CIR abuses his discretion
by not following the parameters set by law, the CTA, not the CA, may correct such abuse if the
matter is appealed to it. In case of arbitrary or capricious exercise by the CIR of the power to
compromise, the compromise can be attacked and reversed through 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 to review a compromise settlement forged by the CIR.
311*NOTE: The abatement shall only cover the surcharge and the compromise penalty and not the
interest imposed under Sec. 249, NIRC (also applicable in number 5)
assessed;312
b. The administration and collection costs involved do not justify the
collection of the amount due.313
3. Distinguish Compromise from Abatement******
COMPROMISE ABATEMENT
Nature Involves a reduction of the taxpayer’s Involves the cancellation of the entire
liability. tax liability of a taxpayer.
Authorized Officer CIR and Regional Evaluation Board CIR
Grounds 1. Reasonable doubt as to the 1.The tax or any portion thereof appears
validity of assessment; to be unjustly or excessively assessed;
2. Financial incapacity of the or 2.The administration and collection
taxpayer costs involved do not justify the
collection of the amount due.
C. TAX REFUND & CREDIT: RECOVERY OF TAX ERRONEOUSLY

OR ILLEGALLY COLLECTED
TAX REFUND
1. It is an actual reimbursement of tax.
2. Two-fold purpose of refund
a. To afford the collector an opportunity to correct the mistake, if any,
committed by him or his subordinate officers and
b. To notify the government that such taxes have been questioned, and the
notice should be borne in mind in estimating the revenue available for expenditure
(Bermejo v. CIR, 87 Phil. 96).  
TAX CREDIT CERTIFICATE (TCC)

1. TCC is validly issued under the provisions of the NIRC and may be applied
312The tax or any portion thereof appears to be unjustly or excessively assessed: i. The filing of the
return/payment is made at the Wrong venue; ii. The taxpayer fails to file the return and pay the tax on
time due to—(1) Substantial losses from prolonged labor dispute; (2) Force majeure; (3) Legitimate
business reverses; iii. There is late payment of the tax under meritorious circumstances (i.e. Failure to
beat bank cut-off time, surcharge erroneously imposed.); iv. The assessment is brought about or
resulted from taxpayer’s non-compliance with the law due to a difficult Interpretation of said law; v.
The taxpayer fails to file the return and pay the correct tax on time due to Circumstances beyond his
control; vi. The taxpayer’s mistake in payment of his tax is due to Erroneous written official advice of
a revenue officer (Sec. 2, R.R. 13-2001).
313 The administration and collection costs involved do not justify the collection of the amount due:
i. Abatement of penalties on assessment confirmed by the lower court but Appealed by the taxpayer to
a higher court; ii. Abatement of penalties on Withholding tax assessment under meritorious
circumstances; iii. Abatement of penalties on assessment reduced after Reinvestigation but taxpayer is
still contesting reduced assessment; iv. Abatement of penalties on Delayed installment payment under
meritorious circumstances; v. Such Other circumstances which the CIR may deem analogous to the
enumeration above (Sec. 3, R.R. 13-2001).
against any internal revenue tax, excluding withholding taxes, for which the
taxpayer is directly liable (Sec. 204 [C], NIRC).
2. A transferee in good faith and for value of the TCC who has relied on the
transferor’s representation of the genuineness and validity of the TCC transferred
to it may not be legally required to pay again the tax covered by the TCC,
which have been fully utilized through settlement of internal revenue tax liabilities
and later on were declared null and void. Conversely, when the transferee is party
to the fraud as when it did not obtain the TCC for value or was a party to or has
knowledge of its fraudulent issuance, said transferee is liable for the taxes and for
the fraud committed as provided for by law (CIR v. Petron Corporation G.R., No.
185568, March 21, 2012).
C1. TAX REFUND vs.314 TAX CREDIT

TAX REFUND TAX CREDIT
As to The taxpayer asks for restitution of the The taxpayer asks that the money paid be
purpose money paid as tax applied to his existing tax liability
Reckoning 2-yr period to file the claim with the CIR 2-yr period starts from the date such
point of the starts after the payment of the tax or credit was allowed – in case credit is
2-year period penalty wrongly made
[] Scenarios:******
a. A transitional input tax credit is not a tax refund per se but a tax
314Q: Congress enacts a law granting grade school and high school students a 10% discount on all
school- prescribed textbooks purchased from any bookstore. The law allows bookstores to claim
the discount in full as a tax credit.
a. If in a taxable year a bookstore has no tax due on which to apply the tax credits, can the
bookstore claim from the BIR a tax refund in lieu of tax credit?A: No, there is nothing in the law
that grants a refund when the bookstore has no tax liability against which the tax credit can be
used. *****A tax credit is in the nature of a tax exemption and in case of doubt, the doubt should
be resolved in strictissimi juris against the claimant (CIR v. Central Luzon Drug, G.R. No. 159647, Apr.
15, 2005).
b. Can the BIR require the bookstores to deduct the amount of the discount from their gross
income? A: No,*****tax credit which reduces the tax liability is different from a tax deduction
which merely reduces the tax base. Since the law allowed the bookstores to claim the discount in full
as a tax credit, the BIR is not allowed to expand or contract the legislative mandate (CIR v.
Bicolandia Drug Corporation, G.R. 148083, July 21, 2006).
c. If a bookstore closes its business due to losses without being able to recoup the discount,
can it claim reimbursement of the discount from the government on the ground that without such
reimbursement, the law constitutes taking of private property for public use without just
compensation? (2006 Bar) A: No, if the business continues to operate at a loss and no other taxes are
due, thus compelling it to close shop, the credit can never be applied and will be lost altogether
(CIR v. Central Luzon Drug, G.R. No. 159647, Apr. 15, 2005). *****The grant of the discount to the
taxpayer is a mere privilege and can be revoked anytime. ALTERNATIVE: The tax credit privilege
given to it is the compensation for the subsidy taken by the government for the benefit of a class of
taxpayers to which the students belong. However, the privilege granted is limited only to the reduction
of a present or future tax liability because by its nature, it is the existence or lack of a tax liability that
determines whether the discount can be used as a tax credit. Accordingly, if the business continues to
operate at a loss and no other taxes are due, compelling the business to close shop, the credit can never
be applied and will be lost altogether. (CIR v. Central Luzon Drug Corp., Id.) (BAR 2006)
credit.315
315 TRANSITIONAL INPUT TAX CREDIT IS A FORM OF TAX CREDIT, NOT TAX
REFUND: A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior
payment of taxes is not required before a taxpayer could avail of transitional input tax credit. A tax
credit is not synonymous to tax refund. *****Tax refund is defined as the money that a taxpayer overpaid
and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted
directly from one’s total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or
an incentive to encourage investment. As such being a tax credit, prior payment of taxes is not required in order
to avail of tax credit (Fort Bonifacio Development Corporation v. Comm., G.R. No. 173425, January 22, 2013).
b. ******A withholding agent can claim tax refund;316,317,
316 Q: Does a withholding agent have the right to file an application for tax refund? Explain.
(2005 Bar) A: YES. A withholding agent should be allowed to claim for tax refund, because under the
law said agent is the one who is held liable for any violation of the withholding tax law should
such violation occur (Commissioner of Internal Revenue v. Wander Philippines Inc., 160 SCRA 570, 1988).
Furthermore, since the withholding agent is made personally liable to deduct and withhold any tax
under Section 53(c) of the Tax Code, it is imperative that he be considered the taxpayer for all legal
intents and purposes. Thus, by any reasonable standard, such person should be regarded as a party in
interest to bring suit for refund of taxes [Commissioner of Internal Revenue v. Procter and Gamble Philippines
Manufacturing Corporation and CTA, 204 SCRA 377, (1991).
[] DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting
December 15, 2004. DEF Corporation paid annual royalties to DEF, Inc., for the use of the latter's
software, for which the former, as withholding agent of the government, withheld and remitted
to the BIR the 15% final tax based on the gross royalty payments. The withholding tax return was
filed and the tax remitted to the BIR on January 10 of the following year. On April 10, 2007, DEF
Corporation filed a written claim for tax credit with the BIR, arising from erroneously paid income
taxes covering the years 2004 and 2005. The following day, DEF Corporation filed a petition for
review with the Court of Tax Appeals. involving the tax credit claim for 2004 and 2005. Can the BIR
lawyer raise the defense that DEF Corporation is not the proper party to file such claim for tax credit?
Explain. (3%) SUGGESTED ANSWER: No. *****The withholding agent who is mandated by law
to withhold and remit the tax on the income of a non-resident in the Philippines becomes
directly liable for the payment of the tax. Therefore, it is the proper party to file a claim for
refund in case of overwithholding. (Commissioner v. Wander Philippines, Inc., 160SCRA 573 [1988]).
(BAR 2008)
[] As a BIR lawyer handling the case, would you raise the defense of prescription in your
answer to the claim for tax credit? Explain. (3%) SUGGESTED ANSWER: Yes. *****The claim for
refund for the 2004 erroneously paid income tax was filed out of time because the claim was only
filed after more than two years had elapsed from the payment thereof. (Section 204 (c) and 229,
NIRC). (BAR 2008)
317 ABCD Corporation (ABCD) is a domestic corporation with individual and corporate
shareholders who are residents of the United States. For the 2nd quarter of 1983, these U.S.- based
individual and corporate stockholders received cash dividends from the corporation. The
corresponding withholding tax on dividend income — 30% for individual and 35% for corporate non-
resident stockholders — was deducted at source and remitted to the BIR. On May 15,1984, ABCD
filed with the Commissioner of Internal Revenue a formal claim for refund, alleging that under
the RP-US Tax Treaty, the deduction withheld at source as tax on dividends earned was fixed at
25% of said income. Thus, ABCD asserted that it overpaid the withholding tax due on the cash
dividends given to its non-resident stockholders in the U.S. the Commissioner denied the claim.
On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals (CTA) reiterating its
demand for refund. Does ABCD Corporation have the legal personality to file the refund on behalf
of its non-resident stockholders? Why or why not? (3%) SUGGESTED ANSWER: *****Yes,
withholding agents is (sic) not only an agent of the government but is also an agent of the
taxpayer/income earner. Hence, ABCD is also an agent of the beneficial owner of the dividends
with respect to the actual payment of the tax to the government, such authority may reasonably be
held to include the authority to file a claim for refund and to bring an action for recovery of
such for refund and to bring an action for recovery of such claim (CIR v. Procter & Gamble, 204
SCRA 377, {1991}) (BAR 2009)
318,319
c. Claim for refund at the BIR is necessary before raising the issue at the
318 A Co. is the wholly owned subsidiary of B Co., a non-resident German company. A Co. has a
trademark licensing agreement with B Co. On Feb. 10, 1995, A Co. remitted to B Co. royalties of P
10,000,000, which A Co. subjected to a WT of 25% or P2,500,000. Upon advice of counsel, A Co.
realized that the proper WT rate is 10%. On March 20, 1996, A Co. filed a claim for refund of
P2,500,000 with the BIR The BIR denied the claim on Nov. 15, 1996. On Nov. 28, 1996, ACo. filed a
petition for review with the CTA The BIR attacked the capacity of A Co.. as agent, to bring the refund
case. Decide the issue. (5%) SUGGESTED ANSWER: A Co., the withholding agent of the non-
resident foreign corporation is entitled to claim the refund of excess withholding tax paid on the
income of said corporation in the Philippines. *****Being a withholding agent, it is the one held
liable for any violation of the withholding tax law should such a violation occur. In the same vein,
it should be allowed to claim a refund in case of overwithholding. (CIR v. Wander Phils. Inc., GR
No. 68378, April 15, 1988, 160 SCRA 573; CIR v. Procter & Gamble PMC, 204 SCRA 377). (BAR 1999)
319Corporation X declared cash dividends in favor of its non-resident stockholders in the United States
from which amount, the tax on dividend income was withheld. Under the RP-US Tax Treaty,
deductions allowed as tax on dividends earned at source were fixed at lower rates giving rise to
overpayment of the tax on dividends paid to the nonresident US stockholders (representing the
difference between the amount of withholding tax paid and the amount supposed to have been
withheld under the mentioned tax covenant). Corporation X filed a claim for refund of said
overpayment with the Commissioner of Internal Revenue within the prescribed period which however,
remained unacted upon, and before the expiration of the two (2) year reglementary period, it filed a
judicial claim for refund with the Court of Tax Appeals. Respondent Commissioner of Internal
Revenue argues that Corporation X is not the real party in interest to prosecute a claim for
refund of the overpaid taxes of the nonresident US stockholders, who are the real parties in
interest. But neither could it maintain an action for refund in a representative capacity having failed to
show proof of authorization. Will Corporation X*s case prosper? Explain. ANSWER: Yes. *****A
subsidiary, while not the real party in interest, could prosecute a claim of refund in behalf of its
non-resident stockholders by virtue of its being the withholding agent for the government in
respect of the cash dividends it declared [Comm. vs. Wander Phils.).
proper court.320
C.2 GROUNDS, REQUISITES AND PERIOD FOR FILING A CLAIM

FOR REFUND OR ISSUANCE OF TAX CREDIT CERTIFICATE
1. Grounds for claim for refund:
a. Penalty is collected without authority.
b. Tax is illegally collected.
c. Tax is erroneously collected
d. Sum collected is excessive or in any manner wrongfully collected.
2. *****Requisites321 for a claim of tax refund or a tax credit
a. There is tax collected erroneously or illegally, or a penalty collected
without authority, or a sum excessively or wrongfully collected (Sec. 229,
320 Q: On June 16, 1997, the BIR issued against the Estate of Mott a notice of deficiency estate
tax assessment, inclusive of surcharge, interest and compromise penalty. The Executor of the Estate
of Mott filed a timely protest against the assessment and requested for waiver of the surcharge,
interest and penalty. The protest was denied by the CIR with finality on Sept. 13, 1997.
Consequently, the Executor was made to pay the deficiency assessment on Oct. 10, 1997. The
following day, the Executor filed a Petition with the CTA praying for the refund of the surcharge,
interest and compromise penalty. The CTA took cognizance of the case and ordered the CIR to
make a refund. The CIR filed a Petition for Review with the CA assailing the jurisdiction of the
CTA and the Order to make refund to the Estate on the ground that no claim for refund was filed
with the BIR.
a. Is the stand of the CIR correct? A: YES, for there was no claim for refund or credit that has
been duly filed with the CIR which is required before a suit or proceeding can be filed in any
court. (Sec. 229, NIRC) *****The denial of the claim by the CIR is the one which will vest the
CTA jurisdiction over the refund case should the taxpayer decide to appeal on time.
b. Why is the filing of an administrative claim with the BIR necessary? (2000 Bar) A: *****The
filing of an administrative claim for refund with the BIR is necessary in order: i) To afford the CIR
an opportunity to consider the claim and to have a chance to correct the errors of subordinate
officers (Gonzales v. CTA, G.R. No. 14532, May 26, 1965); and ii) To notify the Government that such
taxes have been questioned and the notice should be borne in mind in estimating the revenue
available for expenditures. (Bermejo v. Collector, G.R. No. L-3028, July 29, 1950)
321State the conditions required by the Tax Code before the Commissioner of Internal Revenue could
authorize the refund or credit of taxes erroneously or illegally received. SUGGESTED ANSWER:
*****The conditions are: 1) A written claim for refund is filed by the taxpayer with the Commissioner
of Internal Revenue. (Sec. 204, NIRC); 2. The claim for refund must be a categorical demand for
reimbursement. [Bermejo v. Collector of Internal Revenue, 87 Phil. 96 (1950)]; 3. The claim for
refund or tax credit must be filed with the Commissioner, or the suit or proceeding therefore must
be commenced in court within 2 years from date of payment of the tax or penalty regardless of
any supervening cause (Sec. 229, NIRC). (BAR 2005)
NIRC). ***NB: Payment322 under protest is not323 required.

b. There must be a written claim for refund filed by the taxpayer with the
CIR (Vda. De Aguinaldo v. CIR, G.R. No. L-19927, February 26,1965). GR: Written
claim is required.324 *****XPNs: (1) When on the face325 of the return upon
which payment was made, such payment appears clearly to have erroneously
paid, the CIR may refund or credit the tax even without a written claim (Sec.229,
NIRC). (2) A return filed showing an overpayment shall be considered as a
written claim for credit or refund (Sec. 204 (C), NIRC). (2002, 2010 Bar)
c. It must be a categorical claim for refund or credit; i) It is for the CIR to
afford an opportunity to correct the action of subordinate officers; and ii) To
notify the Government that such taxes have been questioned and the notice
should then be borne in mind in estimating the revenue  
available for expenditure (Bermejo v. CIR, G.R. No. L-3029, July 25, 1950).
d. *****Must be filed within 2 years from date of payment of the tax or
3221. Payment under protest is not a requirement: a. A suit or proceeding for tax refund may be
maintained “whether or not such tax, penalty or sum has been paid under protest or duress” (Sec. 204 [3],
NIRC); b. The taxpayer’s willingness to pay the tax is no waiver to raise, defenses against the tax’s
legality (CIR v. Gonzales, G.R. No. L-19495, November 24, 1966).
2. Payment under protest required: ******It is necessary in claims for refund for real property
taxes under Sec. 252, LGC and for customs duties under Sec. 2308, TCC.
323Is protest at the time of payment of taxes/duties a requirement to preserve the taxpayers’
right to claim a refund? Explain. ANSWER: For taxes imposed under the NIRC, protest at the time
of payment is not required to preserve the taxpayers’ right to claim refund. This is clear under Section
230 of the NIRC which provides that a suit or proceeding maybe maintained for the recovery of
national internal revenue tax or penalty alleged to have been erroneously assessed or collected, whether
such tax or penalty has been paid under protest or not. For duties imposed under the Tariff and
Customs Code, a protest at the time of payment is required to preserve the taxpayers’ claim for
refund. The procedure under the TCC is to the effect that when a ruling or decision of the Collector
of Customs is made whereby liability for duties is determined, the party adversely affected may
protest such ruling or decision by presenting to the Collector, at the time when payment is
made, or within fifteen days thereafter, a written protest setting forth his objections to the ruling
or decision in question (Sec. 2308, TCC). (BAR 1996)
324*****If the retiree is within his legal rights in claiming refund of the taxes withheld, will the BIR
automatically grant his claim? Explain your answer. ANSWER: No. Because he must file a written
claim. (BAR 1992)
325Can the Commissioner grant a refund or tax credit even without a written claim for it? (2%)
SUGGESTED ANSWER: Yes. When the taxpayer files a return which on its face shows an
overpayment of the tax and the option to refund/ claim a tax credit was chosen by the taxpayer,
the Commissioner shall grant the refund or tax credit without the need for a written claim. This is so,
because a return filed showing an overpayment shall be considered as a written claim for credit
or refund. (Secs. 76 and 204, NIRC). Moreover, the law provides that the Commissioner may, even
without a written claim therefore, refund or credit any tax where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid. ('Sec. 229, NIRC).
(BAR 2002)
penalty regardless of any supervening cause326 that may arise after payment.
No suit or proceeding shall be instituted after the expiration of the such period;
and (2008 Bar). NB: The two (2) year period applies only to suits or proceedings
for the recovery of taxes or penalties erroneously, excessively, illegally or
wrongfully collected. Accordingly, an ordinary claim for tax credit would
prescribe in ten (10) years under Art. 1144 of the Civil Code (Victorias Milling
Co. v. Central Bank, 13 SCRA 479).
e. The taxpayer must present proof of payment327 of the tax. NB: It is
necessary that the tax be paid in full, and that the claim for refund in the BIR as
well as the proceedings in the CTA be commenced within two (2) years counted
from the payment of the tax.
CONDITIONS FOR THE GRANT OF TAX REFUND WHEN THE

CREDITABLE WITHHOLDING TAX IS IN EXCESS OF THE
AMOUNT OF THE TAX DUE
1. The claim is filed with the CIR within the 2-year period from the date of
326 Mr. Dante Raymundo retired from the government service as Director of Land Transportation on
January 6, 1985. Upon retirement, Mr. Raymundo received, among other benefits, his terminal leave pay
for which the BIR withheld the sum of P56.000.00 a week following the date of his retirement. On
October 17, 1991, following the decision of the Supreme Court that the money value of the
accumulated leave credits/terminal pay is not subject to withholding tax, Mr. Raymundo filed a claim
for refund of P56.000.00 with the Commissioner of Internal Revenue. Is Mr. Raymundo within his
rights in claiming a refund of taxes withheld on his terminal leave following the Supreme Court
decision? ANSWER: No. *****Under Section 230 of the NIRC, a suit for the recovery of tax
erroneously or illegally collected cannot be filed after the expiration of two years from the date
of payment of tax regardless of any supervening cause that may arise after payment. Thus, the right
of Mr. Raymundo to claim for refund has already prescribed. (BAR 1992)
[] Assuming that the BIR denies the claim for refund, what could be the possible reason or
statutory basis for such a denial? ANSWER: The possible reason for a denial would be that the
written claim has already prescribed or that the terminal pay leave is not excluded from income
tax. Sec. 230, NIRC (supra). (BAR 1992)
[] Discuss the theory of supervening event as it applies to claims for refund of erroneously/
illegally collected taxes. Can the retiree claim a refund under this theory? Explain. SUGGESTED
ANSWER: *****The theory of supervening event expresses that an event which is beyond the
control of the parties would allow the recovery of erroneously or illegally collected taxes
provided the proceeding for such recovery is made within the prescriptive period from the
occurrence of such event. The theory of the supervening event has been abrogated by Section 230
of the NIRC. (BAR 1992)
327International Technologies, Inc. (ITI) filed a claim for refund for unutilized input VAT with the
Court of Tax Appeals (CTA). In the course of the trial, ITI engaged the services of an independent
Certified Public Accountant (CPA) who examined the voluminous invoices and receipts of ITI. ITI
offered in evidence only the summary prepared by the CPA, without the invoices and the receipts, and
then submitted the case for decision. Can the CTA grant ITI’s claim for refund based only on the CPA’s
summary? Explain. (4%) SUGGESTED ANSWER: No. *****The summary prepared by the CPA
does not prove anything unless the documents which were the basis of the summary are
submitted to the CTA and adduced in evidence. The invoices and receipts must be presented because
they are the only real and direct evidence that would enable the Court to determine with particular
certainty the basis of the refund (CIR v. Rio Tuba Nickel Mining Corp., 207SCRA S49[l992]). (BAR
2009)
payment of the tax or from the date of the filing of the Final Adjustment Return;
2. It must be shown in the return of the recipient that the income payment
received was declared as part of the gross income; and  
3. The fact of withholding is established by a copy of a statement duly issued by
the payor to the payee showing the amount of the tax withheld therefrom.
a. With regard to the second requirement, it is fundamental that the findings
of fact by the CTA in Division are not to be disturbed without any showing of
grave abuse of discretion considering that the members of the Division are in the
best position to analyze the documents presented by the parties. Consequently, the
Court adopts the findings of the CTA in Division, which the CTA En Banc
concurred with. (Republic of the Philippines, represented by the CIR vs. Team (Phils.)
Energy corporation (formerly Mirant Phils. Energy Corporation), G.R. No. 188016, January
14, 2015)
FOUNDED ON MORAL AND EQUITABLE GROUNDS, THE

FOLLOWING CIRCUMSTANCES MAY STAY THE TWO-YEAR
PERIOD:
1. Assurance on the part of the BIR that steps were being taken to credit taxpayer
with the amount sought to be refunded
2. An agreement or understanding with the BIR that they await the result of a pending cases
involving similar issue raised in the claim for refund (Panay Electric Co., Inc. v. CIR, 103 Phil
819).
3. Excess input VAT (Sec. 112) vs. Excessively collected tax (Sec. 229):
a. In a claim for refund or credit of “excess” input VAT under Section
110(B) and Section 112(A), the input VAT is not “excessively” collected as
understood under Section 229. At the time of payment of the input VAT the
amount paid is the correct and proper amount. The person legally liable for
the input VAT cannot claim that he overpaid the input VAT by the mere existence
of an “excess” input VAT. The term “excess” input VAT simply means that
the input VAT available as credit exceeds the output VAT.
b. From the plain text of section 229, it is clear that what can be refunded
or credited is a tax that is “erroneously, illegally, excessively or in any manner
wrongfully collected.” In short, there must be a wrongful payment because
what is paid, or part of it, is legally due.
C3. STATUTORY BASIS AND PROOF FOR CLAIM OF REFUND OR

TAX CREDIT
1. Tax refunds are not founded principally on legislative grace
a. It is based on legal principle which underlies in all quasi- contracts
abhorring a person’s unjust enrichment at the expense of another. The dynamic
of erroneous payment of tax fits to a tee the prototypic quasi-contract, solution
indebiti, which covers not only mistake in fact but also mistake in law. (J,
Dimaampao, 2015)
b. The pertinent laws governing this principle are found in Article 2142 and
Article 2154 of the New Civil Code.
2. Statutory basis for tax refund under the tax code (Provisions of the Tax Code
regarding refund)
a. Corporations entitled to refund of excess estimated quarterly income paid
as shown on its final adjustment return (Sec. 75 and 76, NIRC)
b. Claims for refund of VAT-registered persons, whose sales are zero-rated
or effectively zero-rated, with regard to their creditable input tax due, except
transitional input tax, to the extent that such input tax has not been applied
against output tax (Sec. 112, NIRC)
c. Locally produced or manufactured goods, whether in their original state
or as ingredients, any excise tax paid thereon shall be credited or refunded upon
submission of proof of actual exportation (Sec. 130(d), NIRC)
d. National Internal Revenue Tax: a) erroneously or illegally assessed or
collected; b) any penalty claimed to have been collected without authority; or c)
any sum allegedly to have been excessively or in any manner wrongfully collected,
may be recovered in a suit or proceeding for that purpose (Sec. 229 and Sec. 204(c),
NIRC)  
NECESSITY OF PROOF FOR CLAIM OR REFUND

1. Claim for refund partakes the nature of an exemption, hence it is strictly
construed against the claimant and the failure to discharge said burden is fatal to
the claim (CIR v. S.C. Johnson and Son Inc., et. al., G.R. No. 127105).
2. Evidence that may be presented that would best substantiate the taxpayer’s
claim for tax refund
a. The pertinent invoices, receipts, and export sales documents are the best
and competent pieces of evidence required to substantiate a taxpayer’s claim for
tax credit or refund. No evidence which has not been formally offered shall be
considered and where the pertinent invoices or receipts purportedly evidencing
the VAT paid by the taxpayer were not submitted, the court may not determine
the veracity of the amount of VAT that the taxpayer paid. Mere allegations of the
figures in the amended return are not sufficient proof of the amount of its refund
entitlement (Atlas Consolidated Mining and Development Corporation v. CIR, 546 SCRA
150).
BURDEN OF PROOF FOR CLAIM OF REFUND

1. Construction for a Claim of refund
a. Tax refunds, condonations and amnesties, being in the nature of tax
exemptions, must be strictly construed against the taxpayer and liberally in favor of
the government.
2. GR: Tax refunds, like tax exemptions, are construed strictly against the taxpayer.
The claimants have the burden of proof to establish the factual basis of their
claim for refund or tax credit (Hitachi Global Storage Philippines v. CIR G.R. No.
174212, October 20, 2010). It is logical to assume that in order to discharge this
burden, the law intends the filing of an application for a refund to necessarily
include the filing of complete supporting documents to prove entitlement for the
refund. Otherwise, the mere filing of an application without any supporting
document would be as good as filing a mere scrap of paper. (Hedcor v. CIR,
G.R. No. 207575, July 15, 2015)
3. XPN: The contention that a tax refund takes on the nature of a tax exemption
does not apply where the claim for refund is premised on erroneous payment of
tax. There is parity between tax refund and tax exemption only when the former is
based wither on a tax exemption or tax refund statute. (CIR. v. Fortune Tobacco,
Corp., G.R. No. 167274-75, July, 21, 2008).
4. Q: Fortune Tobacco Corp. was granted a tax refund representing excise taxes
erroneously collected from its tobacco products. The tax refund is being re-
claimed by the BIR in a petition before the SC. The BIR argued that tax refund
partakes of the nature of a tax exemption and should be construed against the
claimant. Is the BIR correct? A: NO, not all claims for tax refunds are in the
nature of tax exemptions. A tax refund may only be considered as a tax exemption
when it is based either on a tax-exemption statute or a tax-refund statute. The
company’s claim for tax refund is not based on either a tax-exemption statute or a
tax-refund statute, but is premised on either an erroneous payment of tax or the
government’s exaction in the absence of a law. Thus, what is controlling in this
case is the well-settled doctrine of strict interpretation in the imposition of taxes,
and not the doctrine as applied to tax exemptions. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws (CIR v.
Fortune Tobacco Corp., GR 167274-75, July 21, 2008).
5. Nature of erroneously paid tax/ illegally assessed collected (Illegally collected tax
vis-a-vis erroneously collected tax)
ILLEGALLY COLLECTED ERRONEOUSLY
TAX COLLECTED TAX
There is a violation of certain No violation of the law but
Definition provisions of tax law or statute. there is a mistake in collection.
The tax was paid by him under The payment was made under a
On the part of the Taxpayer duress. mistake of fact.
The tax was collected in patent The collection was made based
On the part of the Government disregard of the law. on a misapplication of the law.
C4. PROPER PARTY TO FILE A CLAIM FOR REFUND OR TAX

CREDIT
1. Who may claim/apply for tax refund/tax credit
a. GR: The “taxpayer” is the person entitled to claim a tax refund. He is the
“party adversely affected” who is given the right to appeal the decision or ruling
of the Commissioner.
b. XPN: Under the following situations:
CASE THE ONE ENTITLED FOR REASON
THE REFUND
Where the tax The taxpayer (even if the tax was The sales tax is imposed directly on the
has been shifted shifted by the taxpayer to his seller as an occupation tax. Once
customers as in sales tax and even if recovered, the seller must hold the
the tax has been billed as a separate refunded taxes in trust for the
item in the invoice) (CIR v. American individual purchasers who advanced
Rubber G.R. No. L-19667, November 29, payment thereof and whose name must
1966). appear on his record
Where the payer is Theater goers can claim the illegally The amount collected (the illegal
not the taxpayer exacted taxes not the theater owners municipal taxes) from the theater goers
(i.e. theater owners (Medina v. Baguio, G.R. No. L-4060, by theater owners are owned by the
who paid illegal Aug. 29, 1952). theater goers. Only owners of property
municipal taxes have the right to claim it. The theater
billed and collected owners merely acted as agents of the
from theater goers) theater goers and as such they cannot
claim the amount illegally imposed by the
municipality (Medina v. Baguio, G.R. No.
L-4060, Aug. 29, 1952).
Where the payer is 1. The withholding agent (CIR v. 1. The withholding agent is considered
the withholding Procter and Gamble, G.R. No. L-66838, a ‘taxpayer” under the NIRC as he is
agent April 15,1988). personally liable for the withholding tax
2. Withholding agent may file a as well as for deficiency assessments,
claim for refund for taxes which was surcharges, and penalties, should the
withheld and paid on behalf of a amount of the tax withheld be finally
non-resident foreign corporation found to be less than the amount that
(Filipinas Synthetic Fiber Corporation v should have been withheld under law,”
CA, G.R. Nos. 118498 & 124377. 2. As an agent of the taxpayer, the
October 12, 1999). 3. In case the withholding agent has the authority to file
taxpayer does not file a claim for the necessary income tax return and to
refund, the withholding agent has the remit the tax withheld to the government
right to file the claim, even when it is impliedly includes the authority to file a
unrelated to, or is not a wholly owned claim for refund and to bring an action
subsidiary of, the principal taxpayer for recovery of such claim.” (CIR v. Smart
(CIR vs. Smart Communications, Inc., Communications, Inc., Ibid).
G.R. No.179045-46; 25 August 2010).  
*Since this is merely an exception, the
rule is, at the withholding agent is not
considered as the taxpayer, hence he is
not entitled to a tax amnesty due for
the taxpayer’s account.
Where the donor’s Done is the proper party to claim the
tax was assumed by refund of the donor’s tax (even if the
the done tax was advanced by the donor)
PROPER PARTY TO QUESTION/SEEK A TAX REFUND IN

INDIRECT TAXES
1. The proper party is the statutory taxpayer, the person on whom the tax is
imposed by law and who paid the tax even when he shifts the burden thereof to
another because once shifted, it is no longer in the nature of a tax, but part of the
purchase price or the cost of goods or services sold (Exxon Mobil Petroleum and
Chemical Holdings, Inc. vs. CIR, G.R. No. 180909, January 19, 2011; Silkair (Singapore)
Pte., Ltd. v. CIR, G.R. No. 166482, January 25, 2012).
2. Q: Silkair purchased aviation jet fuel from Petron for use on Silkair international
flights. Silkair, contending that it is exempt from the payment of excise taxes, filed
a formal claim for refund with the CIR. Silkair claims that it is exempt from the
payment of excise tax under the NIRC, specifically Sec. 135, and under Art. 4 of
the Air Transport Agreement between the Governments of the Republic of the
Philippines and the Republic of Singapore (Air Agreement). The CIR denied the
claim contending that since the liability for the excise tax payment is imposed by
law on Petron as the manufacturer of the petroleum products, any claim for
refund should only be made by Petron as the statutory taxpayer. On appeal, the
CTA resolved to deny the claim. Silkair thus filed this Petition for Review.
a. Whether or not Silkair is the proper party to claim a refund for the excise
taxes paid.  
A: The SC held that “the proper party to question, or seek a refund of an indirect
tax is the statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even if he shifts the burden thereof to another.”  
Excise tax on petroleum is an indirect tax. Although the burden to pay an indirect
tax can be passed on to the purchaser of the goods, the liability to pay the indirect
tax remains with the petroleum manufacturer or seller. When the manufacturer or
seller decides to shift the burden of the excise tax to the tax-exempt purchaser, the
tax becomes a part of the price of the commodity. Thus, in this case, the
petroleum manufacturer who is the statutory taxpayer is the proper party to claim
the refund.
b. What is the proper remedy of the Silkair? A: The exempt entity’s remedy
is to invoke its tax exemption before buying the petroleum so that the petroleum
manufacturer would not pass on the excise taxes as part of the purchase price.
(Silkair Singapore PTE. Ltd. v. CIR, GR 171383 & 172379, Nov. 14, 2008).
3. Q: Chevron filed a claim for refund or tax credit for the excise taxes paid on its
importation of petroleum products that it had sold to the Clark Development
Corporation (CDC), en entity exempt from direct and indirect taxes. CTA
Division and CTA En banc denied its claim for refund. Is Chevron entitled to the
tax refund or tax credit? A: The basic tax principle applicable in this is case is that
excise tax is a tax on property; hence, the exemption from the excise tax expressly
granted under Section 135 of the NIRC must be construed in favor of the
petroleum products on which the excise tax was initially imposed. 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 Sec. 204 of NIRC.

Chevron, being the statutory taxpayer, paid the excise taxes on its
importation on the petroleum products. Pursuant to Section 135(c), petroleum
products sold to entities that are by law exempt from direct and indirect taxes are
exempt from excise tax. Inasmuch as its liability for the payment of the excise
taxes accrued immediately upon importation and prior to the removal of the
petroleum products from the customs house, Chevron was bound to pay, and
actually paid such taxes. But the status of the petroleum products as exempt from
the excise taxes would be confirmed only upon their sale to CDC. Consequently,
the payment of the excise taxes by Chevron upon its importation of petroleum
products was deemed illegal and erroneous upon the sale of the petroleum
products to CDC.
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 general rule applies here because Chevron
did not pass on to CDC the excise taxes paid on the importation of the petroleum
products, the latter being exempt from indirect taxes. (Chevron Phil. Inc. v. CIR,
G.R. No. 210836, September 01, 2015)
CORPORATE TAXPAYER HAS TWO ALTERNATIVE OPTIONS.

1. Filing for the tax refund; and
2. Availing of tax credit  
[] The options are alternative. Failure to indicate a choice will not bar a valid
request for a refund, should this option be taken by the taxpayer later on. The
requirement is only for the purpose of easing tax administration particularly
the self-assessment and collection aspects.
3. THE IRREVOCABILITY RULE:328 The exercise of the option to carry
over excess tax credits bars a taxpayer from claiming the same excess tax
328The exercise of an option is irrevocable and a decision to carry-over and apply tax overpayment
continues until the overpayment has been fully applied to tax liabilities (until fully exhausted) (CIR vs.
McGeorge Food Industries, Inc., G.R. No. 174157, October 20, 2010).
a. Once the option to carry-over excess income tax payments to the succeeding years has been
made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income tax
payments may no longer be allowed (Belle Corporation v. CIR, G.R. No. 181298, January 10, 2011).
b. The exercise of the option to carry-over precludes a claim for a refund (CIR v. Philippine
American Life and General Insurance Company, G.R. No. 175124, September 29, 2010).
credits for refund in the succeeding taxable year.329 Sec. 76 of the NIRC provides
that *****once the option to carry over and apply the excess quarterly income
tax due for the taxable quarters of the succeeding taxable years has been made,
329Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its taxable year 2008
on April 15, 2009. In the Return, it reflected an income tax overpayment of P1,000,000.00 and
indicated its choice to carry-over the overpayment as an automatic tax credit against its income
tax liabilities in subsequent years. On April 15, 2010, it filed its Annual Income Tax Return for its
taxable year 2009 reflecting a taxable loss and an income tax overpayment for the current year
2009 in the amount of P500,000.00 and its income tax overpayment for the prior year 2008 of
P1,000,000.00. *****In its 2009 Return, the corporation indicated its option to claim for refund
the total income tax overpayment of P1,500,000.00 Choose which of the following statements is
correct. A. Mirador, Inc. may claim as refund the total income tax overpayment of P1,500,000.00
reflected in its income tax return for its taxable year 2009; B. It may claim as refund the amount of
P500,000.00 representing its income tax overpayment for its taxable year 2009; or C. No amount may
be claimed as refund. Explain the basis of your answer. (2010 Bar Question) SUGGESTED
ANSWER: b. It may claim as refund the amount of P500,000.00 representing its income tax
overpayment for its taxable year 2009. *****Since it has opted to carry-over the Php 1.0M
overpaid income tax for taxable year 2008, said option is considered irrevocable and no application
for cash refund shall be allowed for it.
such option shall be considered irrevocable330 for that taxable period331 and no
application for cash refund or issuance of tax credit certificate shall be
330 On April 16, 2012, the corporation filed its annual corporate income tax return for 2011, showing
an overpayment of income tax of P1 Million which is to be carried over to the succeeding
year(s). On May 15, 2012, the corporation sought advice from you and said that it contemplates to file
an amended return for 2011, which shows that instead of carryover of the excess income tax
payment, the same shall be considered as a claim for tax refund and the small box shown as "refund"
in the return will be filled up. Within a year, the corporation will file the formal request for refund for
the excess payment. (2012 BAR):
a. Will you recommend to the corporation such a course of action and justify that the amended
return is the latest official act of the corporation as to how it may treat such overpayment of tax or
should you consider the option granted to taxpayers as irrevocable, once previously exercised by it?
Explain your answer. Suggested Answer: NO. *****Once the option to carry-over and apply the
excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable
years has been made, such options shall be considered IRREVOCABLE for the taxable year
period and no application for tax refund or issuance of tax credit certificate shall be allowed
therefor (Sec. 76, NIRC).  
b. Should the petition for review filed with the CTA on the basis of the amended tax
return be denied by the BIR and the CTA, could the corporations till carry over such excess payment
of income tax in the succeeding years, considering that there is no prescriptive period provided for
in the income tax law with respect to carry over of excess income tax payments? Explain your
answer. YES. The carry-over of excess income tax payments is no longer limited to the succeeding
taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is
now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded (Belle
Corp. v. CIR, G.R. No. 181298, Jan. 10, 2011).
331 Q: In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax credits
arising from its over-withholding of income payments. It opted to carry over the excess tax credits
to the following year. Subsequently, ABC Corp. changed its mind and applied for a refund of the
excess tax credits. Will the claim for refund prosper? (2013 Bar) A: NO, it is barred by the
irrevocability rule. If the corporation opts to carry-over its excess credit in the final adjustment
return, its choice shall be irrevocable for that taxable period. *****The purpose of this rule is to
prevent a taxpayer from claiming excess tax credits twice. In the given problem, ABC Corp. opted
to carry-over its excess tax credits for the 2010 taxable year. Consequently, ABC Corp. can no longer
revoke its choice to carry-over the excess tax credits and instead claim for a refund.
ALTERNATIVE: The claim for refund will not prosper as it is barred by the irrevocability
rule. Paragraph 2, Section 76 of the NIRC embodies the irrevocability rule. *****This rule provides
that a corporation which is entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid has two options: (1) to carry-over the excess credit; or (2) to apply for the
issuance of a tax credit certificate or to claim a cash refund. If the corporation opts to carry-over
its excess credit in the final adjustment return, its choice shall be irrevocable for that taxable period.
The purpose of this rule is to prevent a taxpayer from claiming excess tax credits twice.
In the given problem, ABC Corp. opted to carry-over its excess tax credits for the 2010 taxable year.
Consequently, ABC Corp. can no longer revoke its choice to carry-over the excess tax credits and
instead claim for a refund.
allowed.332 These remedies are in the alternative and the choice of one precludes
the other. NB: ******the amount being claimed as refund may be utilized in
succeeding years until fully exhausted because there is no prescriptive period
for carry over of excess income tax payments.333
a. The phrase “such option shall be considered irrevocable for that taxable
period” in Sec. 76 of the NIRC means that the option to carry over the excess tax
credits of a particular taxable year can no longer be revoked (SYSTRA Phil., Inc. v.
CIR, G.R. No. 176290, September 21, 2007).
b. Under the old provision, the option to carry-over the excess or overpaid
income tax for a given taxable year is limited to the immediately succeeding
taxable year only. In contrast, under Section 76 of the NIRC of 1997, the application
of the option to carry over the excess of creditable tax is not limited only to the
immediately following taxable year but extends to the next succeeding taxable
years. The clear intent in the amendment under section 76 is to make the option,
once exercised, irrevocable for the “succeeding taxable years” (Asiaworld Properties
Philippines Corporation v. CIR, G.R. No. 171766, July 29, 2010).
PRESCRIPTIVE PERIOD FOR RECOVERY OF TAX ERRONEOUSLY

OR ILLEGALLY COLLECTED
1. Distinguish between a Taxpayer’s Remedies in connection with his tax
332Those who claim for refund must not only prove its entitlement to the excess credits, but likewise
must prove that no carry over has been made in cases where refund is sought. However, proving that
no carry over has been made does not absolutely require the presentation of the quarterly ITRs. With
Winebrenner Inigo Insurance Brokers, Inc. having complied with the requirements for refund, and
without the CIR showing contrary evidence other than its bare assertion of the absence of the
quarterly ITRs, copies of which are easily verifiable by its very own records, the burden of proof of
establishing the propriety of the claim for refund has been sufficiently discharged. Hence, the grant of
refund is proper (Winebrenner Iñigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue, G.R. No.
206526, January 28, 2015).
333 X Corporation had excess income tax payment for the year 2008, which it chose to carry over in
2009. In filing its 2009 corporate income tax return, it signified its intention (by checking the small box
"refund" at the bottom of the return) to get a refund of the overpaid amount in 2008. Can the refund
be allowed or not, and if disallowed, does X Corporation lose the claimed amount? (2012 BAR) a) X
Corporation may not get the refund because the decision to carry over in 2008 was irrevocable for that
year, and it may not change that decision in succeeding years; b) X Corporation may not get the refund in
2009, but the amount being claimed as refund may be utilized in succeeding years until fully exhausted because there is no
prescriptive period for carry over of excess income tax payments; c) X Corporation may get the refund, provided
that it will no longer carry over such amount or utilize the same against its income tax liability in the
future; d) X Corporation may file instead a claim of tax credit, in lieu of refund. SUGGESTED
ANSWER: b) X Corporation may not get the refund in 2009, but the amount being claimed as
refund may be utilized in succeeding years until fully exhausted because there is no
prescriptive period for carry over of excess income tax payments. Section 76, NIRC. T******he
carry-over of excess income tax payments is no longer limited to the succeeding taxable year.
Unutilized excess income tax payments may now be carried over to the succeeding taxable years until
fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable.
Hence, unutilized excess income tax payments may no longer be refunded. (Belle Corp. v. CIR,
G.R. No. 181298, January 10, 2011)
assessment and/or demand and his claim for refund of taxes alleged to have been
erroneously or illegally collected.******
AGAINST AN ASSESSMENT
A tax assessment becomes final unless it is disputed or contested within 30 days from receipt
thereof by the taxpayer. If the action taken by the CIR on the request for reconsideration is
unacceptable to the taxpayer, the latter must then appeal, by way of Petition for Review to the
CTA within 30 days from receipt of the decision of the CIR.
The taxpayer may also opt to pay the tax before the finality of the assessment (e.g., within 30 days
from receipt of the assessment) and then file within 2 years a written claim for the refund of the
tax.
CLAIM FOR REFUND (SEC. 229)
A denial by the CIR of a claim for refund must be appealed to the CTA within 30 days from
receipt of notice of denial and within 2 years from the day of full and final payment.
Continued inaction by the CIR on claims for refund may thus be taken as a denial appealable to
the CTA, in order to permit the appeal to be considered or having been made within the two-
year mandatory period.
2. Period of filing an appeal to CTA in case of denial by CIR of the claim for
refund:334 ******It must be filed within 30 days335 from receipt of the decision
of the CIR but not to exceed the 2-year period from date of payment of the
tax or penalty regardless of any supervening cause that may arise after
payment.
3. *****Distinction between the Application of the 2-Year Prescriptive Period
under Sec. 229 and Under Sec. 112 (VAT)
a. Section 229 refers to recovery of tax erroneously or illegally collected.
The decision of the CIR is appealable to the CTA sitting in division within 30
days after the receipt but must be within the 2-year period from payment or filing
of the final adjusted return.336 Thus, if the Commissioner denies the claim for
refund within the 2-year period, the remedy is to file an appeal with the CTA 30
days from the receipt of such denial. But, such 30-day period must also be
334In case the decision of the CIR takes too long and the 2- year period is about to end,
proceedings in the CTA must be commenced and there would no longer be any need to wait
for the decision of the CIR.
335As a general rule, within what period must a taxpayer elevate to the Court of Tax Appeals a
denial of his application for refund of income tax overpayment? (2011 Bar Question): (A) Within 30
days from receipt of the Commissioner’s denial of his application for refund. (B) Within 30 days
from receipt of the denial which must not exceed 2 years from payment of income tax. (C)
Within 2 years from payment of the income taxes sought to be refunded. (D) Within 30 days from
receipt of the denial or within two years from payment.
336Q: Alyanna has a pending claim for refund with the CIR. The 2-year period is about to end and
the CIR has yet to decide on the claim. What must Alyanna do to pursue her claim for refund? A:
*****A claim for refund must be filed with the BIR and the commencement of the proceedings in
the CTA must be done within the 2-year period from the date of full payment of the tax or penalty
regardless of any supervening event. Thus, Alyanna must commence the proceedings with the CTA
before the end of the 2-year period without waiting for the decision of the CIR.
within the 2-year period.337 For example, if there are only 10 days left within
such 2-year period, then, the taxpayer has only 10 days within which to appeal his
claim. However, if there is an inaction on the part of the Commissioner and
the 2-year period is about to lapse, the remedy is to file an appeal also with
the CTA. NB: ******the two-year prescriptive period for tax refunds is counted
from the filing of the final, adjustment return338 under Sec. 67339 of the NIRC,
337Q: On Mar. 12, 2001, REN paid his taxes. Ten months later, he realized that he had overpaid and
immediately filed a claim for refund with the CIR. On Feb. 27, 2003, he received the decision of the
CIR denying REN's claim for refund. On Mar. 24, 2003, REN filed an appeal with the CTA. Was his
appeal filed on time or not? (2004 Bar) A: NO, his appeal was not filed on time. *****The 2-year
period for filing a claim for refund is not only a limitation for pursuing the claim at the
administrative level but also for appealing the case to the CTA. The law provides that "no suit or
proceeding shall be filed after the expiration of 2 years from the date of the payment of the tax or
penalty regardless of any supervening cause that may arise after payment. Since the appeal was only
made on Mar. 24, 2003, more than two years had already elapsed from the time the taxes were
paid on Mar. 12, 2003. Accordingly, REN had lost his judicial remedy because of prescription.
(BAR 2004)
338 XCEL Corporation filed its quarterly income tax return for the first quarter of 1985 and paid an
Income tax of P500.000.00 on May 15, 1985. In the subsequent quarters, XCEL suffered losses so
that on April 15, 1986 it declared a net loss of PI,000,000.00 in its annual income tax return. After
failing to get a refund, XCEL filed on March 1, 1988 a case with the Court of Tax Appeals to
recover the P500.000.00 in taxes paid on May 15, 1985. Is the action to recover the taxes filed
timely? ANSWER: The action for refund was filed in the Court of Tax Appeals on time. In the case of
Commissioner v. TMX Sales.fnc., 205 SCRA 184, which is similar to this case, the Supreme Court ruled
that *****in the case of overpaid quarterly corporate income tax, the two-year period for filing
claims for refund in the BIR as well as in the institution of an action for refund in the CTA, the two-
year prescriptive period for tax refunds (Sec. 230, Tax Code) is counted from the filing of the final,
adjustment return under Sec. 67 of the Tax Code, and not from the filing of the quarterly return
and payment of the quarterly tax. The CTA action on March 1, 1988 was clearly within the
reglementary two-year period from the filing of the final adjustment return of the corporation on
April 15, 1986. (BAR 1994)
339 A corporation files its income tax return on a calendar year basis. For the first quarter of 1993,
it paid on 30 May 1993 its quarterly income tax in the amount of P3.0 million. On 20 August 1993,
it paid the second quarterly income tax of P0.5 million. The third quarter resulted in a net loss,
and no tax was paid. For the fourth and final return for 1993, the company reported a net loss for the
year, and the taxpayer Indicated in the income tax return that it opted to claim a refund of the quarterly
income tax payments. On 10 January 1994, the corporation filed with the Bureau of Internal
Revenue a written claim for the refund of P3.5 million. BIR failed to act on the claim for refund;
hence, on 02 March 1996, the corporation filed a petition for review with the Court of Tax Appeals
on its claim for refund of the overpayment of its 1993 quarterly income tax. BIR, in its answer to
the petition, alleged that the claim for refund was filed beyond the reglementary period. Did the claim
for refund prescribe? ANSWER: The claim for refund has prescribed. ******The counting of the
two-year prescriptive period for filing a claim for refund is counted not from the date when the
quarterly income taxes were paid but on the date when the final adjustment return or annual
income tax return was filed (CIR v. TMX Sales Inc., G.R. No. 83736, January 15, 1992; CIR v. PhilAm
Life Insurance Co., Inc., G.R. No. 105208, May 29, 1995). It is obvious that the annual income tax
return was filed before January 10, 1994 because the written claim for refund was filed with the BIR
on January 10,1994. Since the two-year prescriptive period is not only a limitation of action in the
administrative stage but also a limitation of action for bringing the case to the judicial stage,
the petition for review filed with the CTA on March 02, 1996 is beyond the reglementary period.
(BAR 1997)
and not from the filing of the quarterly return and payment of the quarterly
tax.340
b. *****Section 112341 refers to refunds or tax credits of input tax. It is
only the administrative claim342 that must be filed within the two-year
prescriptive period; the judicial claim need not fall within the two-year
prescriptive period. If he files his claim on the last day of the two year
prescriptive period, his claim is still filed on time. The Commissioner will then
have 120 days from such filing to decide the claim. If the Commissioner
decides the claim on the 120th day or does not decide it on that day, the taxpayer
340Q: XCEL Corp. filed its quarterly income tax return for the first quarter of 1985 and paid P500.000
on May 15, 1985. In the subsequent quarters, XCEL suffered losses. On Apr. 15, 1986 it declared a
net loss of P1,000,000 in its annual income tax return. After failing to get a refund, XCEL filed on
Mar. 1, 1988 a case with the CTA to recover the P500.000 in taxes paid on May 15, 1985. Is the
action to recover the taxes filed timely? (1994 Bar) A: The action for refund was filed in the CTA on
time. In the case of CIR v. TMX Sales, Inc., GR 83736, January 15, 1992, which is similar to this case, the
SC ruled that in the case of overpaid quarterly corporate income tax, the two- year period for filing
claims for refund in the BIR as well as in the institution of an action for refund in the CTA,
*****the two-year prescriptive period for tax refunds is counted from the filing of the final,
adjustment return under Sec. 67 of the NIRC, and not from the filing of the quarterly return and
payment of the quarterly tax. The CTA action on Mar. 1, 1988 was clearly within the
reglementary 2- year period from the filing of the final adjustment return of the corporation on Apr.
15, 1986.
341 APPLICATION FOR THE ISSUANCE OF THE TAX CREDIT CERTIFICATE OR
REFUND OF CREDITABLE INPUT TAX DUE OR PAID ATTRIBUTABLE TO ZERO-RATED
SALES OR EFFECTIVELY ZERO- RATED SALES MUST BE FILED WITH THE CIR
WITHIN TWO (2) YEARS AFTER THE CLOSE OF THE TAXABLE QUARTER WHEN
THE SALES WERE MADE.
1. Section 112(D) of the NIRC, the CIR shall grant a refund or issue the tax credit certificate for
creditable input tax within 120 days from the date of the submission of the complete documents in
support of the application.
2. The 2nd paragraph of Section 112(D) of the NIRC, clearly provides for a specific period within
which a taxpayer should appeal the decision or inaction of the CIR. It envisions two scenarios:
a. When a decision is issued by the CIR before the lapse of the 120-day period; and
b. When no decision is made after the 120-day period.
3. In both instances, the taxpayer has 30 days within which to file an appeal to CTA. The 120-day
period is crucial in the filing of an appeal. If taxpayer did not wait for the decision of the CIR or
lapse of the 120-day period, the filing of claim with CTA is premature (CIR v. Aichi Forging Company of
Asia, Inc., G.R. No. 184823, October 6, 2010).
a. In claiming a tax refund or tax credit over an excess input VAT, the 30-day period of appeal
to the CTA need not necessarily fall within the two-year prescriptive period, as long as the
administrative claim before the CIR is filed within the two-year prescriptive period. This is because
section 112 (D) of the 1997 Tax Code mandates that a taxpayer can file the judicial claim: (1) only
within thirty days after the Commissioner partially or fully denies the claim within the 120-day period,
or (2) only within thirty 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, G.R. No. 187485, February 12, 2013).
342*Under Sec. 112, the 2-year prescriptive period applies only to the ADMINISTRATIVE
CLAIM BEFORE THE CIR AND NOT TO JUDICIAL CLAIM BEFORE THE CTA
because the taxpayer always has 30 days from the decision of the CIR or from the lapse of the 120-day period
even after the lapse of 2 years from the taxable quarter where the sales were made. (CIR v.
Mindanao Geothermal II Partnership, 713 SCRA 645, [2014])
still has 30 days to file his judicial claim with the CTA. The Court summarized the
rules on the determination of the prescriptive period for filing a tax refund or
credit of unutilized input VAT as provided in section 112 of the 1997 Tax Code,
as follows:
i. An administrative claim must be filed with the CIR within two
years after the close of the taxable quarter when the zero-rated or effectively
zero-rated sales were made and
ii. The CIR has 120 days from the date of submission of complete
documents in support of the administrative claim within which to decide
whether to grant a refund or issue a tax credit certificate (Mindanao II Geothermal
Partnership v. CIR G.R. No. 193301/194637, March 11, 2013). 
WAIVER OF PRESCRIPTION IN AN ACTION FOR REFUND

1. GR: The 2-year period is not jurisdictional. Therefore, if the government
failed to plead prescription in a motion to dismiss or as a defense in its answer to
the petition for review, it is deemed waived.
2. XPN: Taxpayer amends his petition for review alleging therein a new cause of
action and the government pleads prescription in his answer to the amended
petition for review.
RULE ON GOVERNMENT’S LIABILITY FOR INTERESTS ON TAX

REFUNDS
1. GR: There can be no interest on refund of tax.
2. XPNs:
a. If interest is authorized by law.
b. Arbitrariness in the collection of tax.
c. Under Sec. 79C[2] with respect to income taxes  
withheld on the wages of the employees.  
3. An action is not arbitrary when exercised honestly and upon due consideration
where there is room for two opinions, however much it may be believed that an
erroneous conclusion was reached. Arbitrariness presupposes inexcusable or
obstinate disregard of legal provisions (Philex Mining Corp. v. CIR, G.R. 120324,
April 21, 1999).
TAX REFUND OR TAX CREDIT MAY BE FORFEITED TO THE

GOVERNMENT
1. Tax Refund – When a refund check or warrant remains unclaimed or
uncashed within 5 years from date of mailing or delivery.
2. Tax Credit – a Tax Credit Certificate which remains unutilized after 5 years
from date of issue, shall be invalid. Unless revalidated (Sec. 230, NIRC).  
—————————————————————————
3. GOVERNMENT REMEDIES
A. ADMINISTRATIVE REMEDIES
Guidelines that must be observed with respect to administrative remedies

BASIS GOVERNMENT TAXPAYER
If Must observe the legal parameters set Must observe the doctrine of exhaustion of
Express forth in the law (e.g. procedure for administrative remedies. Thus, before the taxpayer
distraint of personal property (Sec. 207 may question an assessment before the CTA,
[A], NIRC), for levy on real property he must first file an administrative protest
(Sec. 207 B) and enforcement of tax lien before the BIR. (Same is true with claims for
(Sec. 219) refunds)
If Implied Both may avail of the usual remedies for convenience and expediency.
******XPN to the doctrine of exhaustion of admin remedies (DEAR): when BIR
is in estoppel343
A1. TAX LIEN

1. Tax lien is a legal claim or charge on property, personal or real, established by
law as a sort of security for the payment of tax obligations (HSBC v. Rafferty, 39
Phil. 145). Tax in itself is not a lien even upon the property against which it is
assessed, unless expressly made so by statute.
2. Nature of tax lien - It is enforced as payment of tax, interest, penalties,
343 In the examination conducted by the revenue officials against the corporate taxpayer in 2010, the
BIR issued a final assessment notice and demand letter which states: "It is requested that the
above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to
delinquency. This is our final decision based on investigation. If you disagree, you may appeal
this final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable." The assessment was immediately
appealed by the taxpayer to the Court of Tax Appeals, without filing its protest against the
assessment and without a denial thereof by the BIR. If you were the judge, would your deny the
petition for review filed by the taxpayer and consider the case as prematurely filed? Explain your
answer (2012 BAR) Suggested Answer: NO, the Petition for Review should not be denied. The case
is an exception to the rule on exhaustion of administrative remedies. The BIR is estopped from
claiming that the filing of the Petition for Review is premature because the taxpayer failed to exhaust all
administrative remedies. The statement of the BIR in its Final Assessment Notice and Demand Letter
led the taxpayer to conclude that only a final judicial ruling in his favor would be accepted by
the BIR. The taxpayer cannot be blamed for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of the demand letter
indicate that it is the final decision of the respondent on the matter. The CIR should indicate, in
a clear and unequivocal language, whether his action on a disputed assessment constitutes his
final determination thereon in order for the taxpayer concerned to determine when his or her
right to appeal to the tax court accrues. Although there was no direct reference for the taxpayer to
bring the matter directly to the CTA, it cannot be denied that the word “appeal” under
prevailing tax laws refers to the filing of a Petition for Review with the CTA (Allied Bank v. CIR,
G.R. No. 175097, Feb. 5, 2010).
costs upon the entire property and rights to property of the taxpayer. However,
to be valid against any mortgagee, purchaser or judgment creditor, notice of such
lien has to be filed by CIR with the Registry of Deeds (Sec. 219, NIRC).
a. The claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicated on a judgment. The tax claim must be given
preference over any other claim of any other creditor, in respect of any and all
properties of the insolvent (Republic v. Peralta, 150 SCRA 37).
b. A valid assessment is required to be issued before a tax lien shall be
annotated at the proper registry of property.
3. When Tax lien is applied
a. With respect to personal property – Tax lien attaches when the taxpayer
neglects or refuses to pay tax after demand and not from the time the warrant is
served (Sec. 219, NIRC).  
NOTE: the tax lien attaches not only from the service of the warrant of distraint
of personal property but form the time the tax became due and payable.  
b. With respect to real property – from time of registration with the register of
deeds.  
*The residue, if any, goes back to the taxpayer or owner of the property.
4. Extinguishment of Tax Lien
a. By payment or remission of the tax
b. By prescription of the right of government to assess or collect
c. By failure to file notice of such tax lien in the office of Register of Deeds
d. By destruction of property subject to tax lien
e. By replacing it with a bond  
*A buyer in an execution sale acquires only the rights of the judgment
creditor.
5. Distinguish lien from distraint*****
LIEN DISTRAINT
Directed against The property subject to the tax Need not be directed against the property
subject to tax
To whom directed The property itself regardless of The property should be presently owned by
the present owner of the property the taxpayer
A2. DISTRAINT AND LEVY

1. (Distraint) It is a summary remedy whereby the collection of tax is enforced
on the goods, chattels or effects of the taxpayer (including other personal
property of whatever character as well as stocks and other securities, debts,
credits, bank accounts and interest in or rights to personal property.) The property
may be offered in a public sale, if taxes are not voluntarily paid.
2. Garnishment344 - It is the taking of personal properties, cash or sums of

money owned by a delinquent taxpayer which is in the possession of a third
party (i.e., bank accounts345). *****Bank accounts are garnished by serving a
warrant upon the taxpayer and upon the president, manager, treasurer, or other
responsible officer of the bank.346
3. *****Requisites for the exercise of distraint (and levy)347 [DeF –DeP]
a. Taxpayer is Delinquent in payment of tax;
b. There must be subsequent Demand to pay;
c. Taxpayer Failed to pay delinquent tax on time; and
d. Period within which to assess and collect the tax due has not yet
prescribed.
4. Kinds of distraint
344 NOTE: Distraint of bank accounts is called garnishment.

345Is the BIR authorized to issue a warrant of garnishment against the bank account of a taxpayer
despite the pendency of taxpayer’s protest against the assessment with the BIR or appeal with the
CTA? (1998 Bar) A: YES, the BIR is authorized to issue a warrant of garnishment against the bank
account of a taxpayer despite the pendency of protest (Yabes v. Flojo, GR L- 46954 July 20, 1982).
*****Nowhere in the Tax Code is the CIR required to first rule on the protest before he can
institute collection proceedings on the tax assessed. The legislative policy is to give the CIR
much latitude in the speedy and prompt collection of taxes because it is in taxation that the
Government depends to obtain the means to carry on its operations.
346*****When a BIR decision affirming an assessment is appealed to the CTA, the BIR's power
to garnish the taxpayer's bank deposits: (2011 Bar Question) (A) is suspended to await the finality
of such decision. (B) is suspended given that the CTA can reverse BIR decisions when prejudicial
to the taxpayer. (C) is not suspended because only final decisions of the BIR are subject to
appeal. (D) is not suspended since the continued existence of government depends on
tax revenues.
[] Is the BIR authorized to issue a warrant of garnishment against the bank account of a
taxpayer despite the pendency of his protest against the assessment with the BIR or appeal with the
Court of Tax Appeals? [5%] SUGGESTED ANSWER: The BIR is authorized to issue a warrant of
garnishment against the bank account of a taxpayer despite the pendency of protest (Yabes v. Flojo, 15
SCRA 278). Nowhere in the tax Code is the Commissioner required to rule first on the protest
before he can institute collection proceedings on the tax assessed. The legislative policy is to give
the Commissioner much latitude in the speedy and prompt collection of taxes because it is in
taxation that the Government depends to obtain the means to carry on its operations (Republic v. Tim
Tian Teng Sons, Inc., 16 SCRA 584).
ALTERNATIVE ANSWER: No. because the assessment has not yet become final, executory
and demandable. The basic consideration in the collection of taxes is whether the assessment is final
and unappealable or the decision of the Commissioner is final, executory and demandable, the BIR has
legal basis to collect the tax liability by either administrative or judicial action. (BAR 1998)
347The BIR could not avail itself of the remedy of levy and distraint to implement, through
collection, an assessment that has become final, executory, and demandable where: (2011 Bar
Question) (A) the subject of the assessment is an income tax. (B) the amount of the tax involved
does not exceed P100.00. (C) the corporate taxpayer has no other uncollected tax liability. (D) the
taxpayer is an individual compensation income earner.
a. Actual distraint348 – resorted to when at the time required for payment, a

person fails to pay his delinquent tax obligation (Sec. 207 [A], NIRC). Distraint
consists in the actual seizure and taking possession of personal property of
the taxpayer.
b. Constructive distraint349 – a preventive remedy which aims at forestalling
a possible dissipation of the taxpayer’s assets when delinquency sets in. No actual
tax delinquency of the taxpayer is necessary before the same is resorted to by
government.
Actual Distraint Constructive Distraint
Nature Summary Remedy
Subject Matter Personal Property
Availability Cannot be availed of if tax is not more than P100.
To whom made Delinquent taxpayer Any Taxpayer
How made Taking of possession or Mere prohibition from disposing
transfer of control the property
How effected Leaving a list of property Requiring taxpayer to sign a receipt
distrained or service of warrant or leaving a list of such property
348[] How is actual distraint of personal property effected? Upon failure to pay the delinquent tax at
the time required, the proper officer shall seize and distraint any goods, chattels, or effects, and the
personal property, including stocks and other securities, debts, credits, bank accounts and interests in
and rights to personal property of the taxpayer in sufficient quantity to satisfy the tax, expenses of
distraint and the cost of the subsequent sale (Sec. 207 [A], NIRC).
[] Procedure that must be observed in effecting actual distraint
a. Commencement of distraint proceedings by the CIR or his duly authorized representatives or
by the revenue district officer as the case may be
b. Service of warrant of distraint upon taxpayer or upon any person in possession of the
property
c. Posting of notice in not less than 2 public places in the municipality or city and notice to
taxpayer specifying the time and place of sale and the articles distrained
d. Sale at public auction to be held not less than 20 days after notice to the owner or possessor
of the property and publication or posting of such notice
e. Disposition of proceeds of the sale
f. Residue over and above what is required to pay the entire claim, including expenses, shall be
returned to the owner of the property sold
349 CONSTRUCTIVE DISTRAINT
1. It is effected by requiring the taxpayer or any person having possession of the property:
a. To sign a receipt covering the property distrained;
b. To obligate himself to preserve it intact and unaltered; and
c. Not to dispose of it without the express authority of the CIR.
2. Cases when Constructive Distraint is Proper [CARL]
a. Retirement from any business subject to the tax;
b. Intending to Leave the Philippines or to remove his property therefrom; or to hide or
Conceal his property;
c. Intending to perform any Act tending to obstruct the  
proceedings for collecting the tax due or which may be due from him. (Sec. 206, NIRC)
Effect on collection Immediate step to collect Merely to prevent the taxpayer

from disposing his property
5. Who is authorized to issue the warrant of distraint? A:
1. CIR or his duly authorized representative – if the amount involved is in excess
of P1 million; or
2. Revenue District Officer – if the amount involved is P1 million or less (Sec. 207
[A], NIRC).
6. Persons served with the warrant of distraint. A:
a. As to tangible goods:
i. The owner or person in possession; or
ii. Someone of suitable age and discretion at the dwelling or place of
business of such person.
b. As to stocks and/or securities:
i. Upon the taxpayer; and
ii. President, manager, treasurer or other responsible officer of the
corporation.
c. As to debts/credits:
i. Upon the person owing the debt; or
ii. The person having control over the credit or his  
agent.
d. As to bank accounts:
i. Upon the taxpayer and
ii. The president, manager, treasurer or other responsible officer of the bank.
SPECIFIC CASES WHEN NOTICE OR WARRANT OF

CONSTRUCTIVE DISTRAINT OVER THE PROPERTY/IES OF A
TAXPAYER MAY BE ISSUED [LRT-CUBA]
1. Taxpayer has a record of Leaving the Philippines at least twice a year, unless
such business is justified and/or connected with his trade, business or profession;
2. Taxpayer applying for Retirement from business  
has a huge amount of assessment pending with the BIR;  
NOTE: An assessment is huge if the amount thereof is equal to or bigger than
the networth or equity of the taxpayer.  
3. Taxpayer has record of Transferring his bank deposits and other personal
properties in the Phil. to any foreign country except if taxpayer is a banking
institution;  
4. The BIR receives information or Complaint pertaining to undeclared income in
an amount of more than 30% of gross sales, receipt or revenue, and there is
enough reason to believe that said information is correct as when it is supported
by substantial and credible evidence;  
5. There is big amount of Undeclared income known to the public and to the BIR
and there is a strong reason to believe that the taxpayer will hide or conceal his
property;  
6. Taxpayer keeps Bank deposits and other properties under the name of other
persons, whether or not related to him, and the same are not under any lawful
fiduciary or trust capacity;  
7. Taxpayer uses Aliases in bank accounts other than the name for which he is
legally and/or popularly known (R.M. 5- 2001).  
IN CASE TAXPAYER OR PERSON HAVING POSSESSION OF THE

PROPERTY REFUSES OR FAILS TO SIGN THE RECEIPT
REFERRED TO.
The officer shall:
1. Prepare a list of such property; and  
2. Leave a copy of such list in the premises where the property is located, in the
presence of 2 witnesses.  
3. Property levied upon by the order of a competent court can be subsequently
distrained. Such property may, with the consent of such court, be subsequently
distrained, subject to the prior lien of the attachment creditor (CIR v. Flores, G.R. No.
L- 9675, September 28, 1957).
EFFECT OF SERVICE OF WARRANT OF DISTRAINT (OR LEVY)

1. Its timely service suspends the running of the prescriptive period to collect the
tax deficiency in the sense that the disposition of the attached properties might
well take time to accomplish, extending even after the lapse of the statutory
period for collections. In those cases, the BIR did not file any collection case but
merely relied on the summary remedy of distraint and levy to collect the tax
deficiency. Thus, the enforcement of tax collection through summary proceedings
may still be carried out as the service of warrant of distraint or levy suspends the
prescriptive period for collection (Republic v. Hizon, G.R. No. 130430, December 13,
1999).
A3. FORFEITURE OF REAL PROPERTY (LEVY)

1. It is the seizure of real property and interest in or rights to such properties for
the satisfaction of taxes due from the delinquent taxpayer.
2. It may be made before, simultaneously or after the distraint of personal property of
the same taxpayer.
3. It may be effected by serving upon the taxpayer a written notice of levy in the
form of a duly authenticated certificate prepared by Revenue District Officer
containing: [DNA]
a. Description of the property upon which levy is made;
b. Name of the taxpayer;
c. Amount of tax and penalty due.  
PROCEDURE THAT MUST BE OBSERVED IN LEVY OF REAL

PROPERTY
1. Preparation of a duly authenticated certificate which shall operate with force of a
legal execution throughout the Philippines.
2. Service of the written notice to the:
a. Delinquent taxpayer, or 
b. If he is absent from the Philippines, to his agent  

or the manager of the business in respect to  
which the liability arose, or
c. If there be none, the occupant of the property.
d. The Registry of Deeds of the place where the  
property is located shall also be notified;
3. Advertisement of the time and place of sale within 20 days after the levy by posting
of notice and by  
publication for three consecutive weeks.
4. Sale at a public auction.
5. Disposition of proceeds of sale.
6. Residue to be returned to the owner.  
Q: Suppose an auction sale of land for the collection of delinquent taxes

was held, is notice by publication enough or must there be personal service
of notice? A: Notice by publication is not enough there must be a personal notice
to the registered owner of the property for cases involving an auction sale of land
for the collection of delinquent taxes are in personam (Talusan v. Tayag, G.R. No.
133698, April 4, 2001). The taxpayer may recover his property prior to the
consummation of the sale,at any time before the day fixed for the sale, the
taxpayer may discontinue all proceeding by paying the taxes, penalties and interest.
(Sec. 213, NIRC)
REDEMPTION OF PROPERTY SOLD

1. How redemption is made - Within 1 year from the date of sale, the taxpayer or
anyone for him, may pay to the Revenue District Officer the total amount of the
following:
a. Public taxes;
b. Penalties;
c. Interest from the date of delinquency to the date of sale; and
d. Interest on said purchase price at the rate of 15% per  
annum from the date of sale to the date of redemption.  
NOTE: If the property was forfeited in favor of the government: the
Redemption price shall include only the taxes, penalties and interest plus costs of
sale – no interest on purchase price since the Government did not “purchase” the
property, for it was forfeited (Sec. 214, NIRC).
2. Effect of the redemption to the property sold - It shall entitle the taxpayer, the
delivery of the certificate issued to the purchaser and a certificate from the
Revenue District Officer that he has redeemed the property. The Revenue District
Officer shall pay the purchaser the amount by which such property has been
redeemed and said property shall be free from lien of such taxes and penalties
(Sec. 214, NIRC).
3. Person entitled to the possession of the property levied - The owner shall not
be deprived of the property until the expiration of the redemption period and
shall be entitled to rents and other income until the expiration of the period for
redemption (Sec. 214, NIRC).
4. Final deed of purchaser - In case the taxpayer shall not redeem the property, the
Revenue District Officer (RDO) shall, as grantor, execute a deed conveying to the
purchaser so much of the property as has been sold, free from all liens of any
kind whatsoever, and the deed shall succinctly recite all the proceedings upon
which the validity of the sale depends (Sec. 204, NIRC).
5. Forfeiture in favor of the government for want of bidder - BIR is allowed to
forfeit the property subject to levy - It is allowed only if:
a. There is no bidder; or
b. The bid amount is insufficient.  
FORFEITURE
1. It is the divestiture of property without compensation, in consequence of a
default or offense. It transfers the title to the specific thing from the owner to the
government. Also there would no longer be any further levy for such such would
be for the total satisfaction of the tax due (Sec. 215 NIRC).
2. The erring taxpayer may still be criminally prosecuted even if the property has
already been forfeited (Garcia v. Coll., 66 Phil. 441).
3. Rules governing Forfeiture
a. If there is no bidder in the public sale or if the amount of the highest bid
is insufficient to pay the taxes, penalties and costs, the real property shall be
forfeited by the Officer to the government.
b. Within 2 days, the Officer shall make a return of the forfeiture. The
Register of Deeds shall transfer the title of forfeited property to the Government
without necessity of a court order.
c. Within 1 year from the date of sale, the property may be redeemed by the
delinquent taxpayer or any one for him, upon payment of taxes, penalties and
interest thereon and cost of sale; if not redeemed within said period, the
forfeiture shall become absolute (Sec. 215, NIRC).
d. The Commissioner may, after 20 days notice, sell property at public
auction or at private sale with approval of the Secretary of Finance. Proceeds shall
be deposited with the National Treasury (Sec. 216, NIRC).  
NOTE: Property forfeited is transferred to another without consent of the

defaulting taxpayer or wrongdoer.
3. Difference between forfeiture and seizure to enforce a tax lien
FORFEITURE SEIZURE
Ownership Ownership is transferred to the Taxpayer retains ownership of
Government property seized
Disposition of the proceeds of sale Excess not returned to the Excess returned to taxpayer
taxpayer
4. Remedy of enforcement of forfeitures

a. The forfeiture of chattels and removable fixtures of any sort shall be
enforced by the seizure and sale, or destruction, of the specific forfeited property
(Sec. 224, NIRC).
b. In case of Real properties - The forfeiture of real property shall be
enforced by a judgment of condemnation an sale in a legal action or proceeding,
civil, or criminal, as the case may be (Sec. 224, NIRC)
5. ACTION TO CONTEST FORFEITURE OF CHATTEL
Q: When can an action to contest forfeiture of chattel be made?
A: In case of the seizure of personal property under claim of forfeiture, the
owner desiring to contest the validity of the forfeiture may, at any time before sale
or destruction of the property, bring an action against the person seizing the
property or having possession thereof to recover the same, and upon giving
proper bond, may enjoin the sale; or after the sale and within six months, he may
bring an action to recover the net proceeds realized at the sale (Sec. 31, NIRC).
a. Forfeited chattels shall not be destroyed until at least twenty days after
seizure (Sec. 225 last par., NIRC).
RESALE OF REAL PROPERTY TAKEN FOR TAXES

1. R.R. No. 22-2002 lays down the rules in the sale or disposition of real property
obtained by the Government under Sec. 216 of the NIRC.
2. Resale of real property taken for taxes may be made - All acquired/forfeited
real properties transferred in the name of the Republic of the Philippines, having
passed the one-year redemption period, shall be converted into cash from the
date of acquisition or forfeiture.
3. How resale is effected - The sale of all acquired/forfeited real properties shall
be by sealed bids in a public auction to be witnessed by a representative of the
Commission on Audit (COA).
4. Notice of Sale Required. How is it effected?
a. The notice of sale of the acquired real properties shall be published once
a week for two consecutive weeks in a newspaper of general circulation in the
Philippines which must be completed at least 20 days prior to the date of such
public auction.
5. Minimum bid price
a. Unless the Commissioner of Internal Revenue provides otherwise, the
minimum bid price or floor price shall be the latest fair market value (FMV) as
determined by the CIRor the FMV shown in the latest tax declaration issued by the
provincial, city, or municipal assessor, whichever is higher.
6. Persons allowed to bid
a. Anyone could bid except foreign nationals, corporate or otherwise, and
those qualified under existing laws, rules and regulations, including employees of
the BIR.
b. Bidders shall be required to post bond in cash or manager’s check in an
amount representing 10% of the minimum bid price
7. Who will bear the expenses relative to the issuance of title to the property sold?
A: All taxes and expenses will be borne by the winning bidder. Furthermore, he
shall be responsible at his own expense for the ejectment of squatters and/or
occupants, if any, of the auctioned property.
8. Q: May a private sale be resorted to? A: A negotiated or a private sale shall be
resorted to as a consequence of failed public bidding for two consecutive times. It
shall, in all cases, be approved by the Secretary of Finance.
WHEN PROPERTY TO BE SOLD OR DESTROYED

1. Sales of forfeited chattels and removable fixtures shall be effected, so far as
practicable, in the same manner and under the same conditions as the public
notice and the time and manner of sale as are prescribed for sales of personal
property distrained for the non-payment of taxes.
2. Forfeited property shall not be destroyed until at least twenty days after seizure
(Sec. 225, NIRC).
3. Q: How forfeited chattels disposed? A: Distilled spirits, liquors, cigars,
cigarettes, other manufactured products of tobacco, and all apparatus used in or
about the illicit production of such articles may, upon forfeiture, be destroyed by
order of the Commissioner, when the sale of the same for consumption or use
would be injurious to public health or prejudicial to the enforcement of law.
All other articles subject to excise tax, which have been manufactured or removed
in violation of this code, as well as dies for the printing or making of internal
revenue stamps and labels which are in imitation of or purport to be lawful
stamps, or labels may, upon forfeiture be sold or destroyed in the discretion of the
commissioner (Sec. 225, NIRC).
DISPOSITION OF FUNDS RECOVERED IN LEGAL PROCEEDINGS

OR OBTAINED FROM FORFEITURE
1. Q: How does funds recovered in legal proceedings or obtained from forfeitures
disposed of ? A: All judgments and monies recovered and received for taxes, costs,
forfeitures, fines and penalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required to be paid, and except as specially
provided, shall be accounted for and dealt within the same way (Sec. 226, NIRC).
NOTE: All the proceeds from the sale of forfeited property go to the
government (U.S. v. Aurea, 20 Phil. 163). In case of seizure for enforcement of tax
lien, the residue goes to the taxpayer (BPI v. Trinidad, 42 Phil. 220).
2. Further distraint or levy - *****The remedy of distraint and levy may be
repeated if necessary until the full amount of the tax delinquency due including
all expenses is collected from the taxpayer (Sec. 217, NIRC).350 Otherwise, a
clever taxpayer who is able to conceal most of the valuable part of his property
would escape payment of his tax liability by sacrificing an insignificant
portion of his holdings. However, Further distraint and levy does not apply
when the real property was forfeited to the government for it is in satisfaction
of the claim in question (Sec 215, NIRC).
3. Comparison between levy and distraint
a. Similarities between distraint and levy
i. Summary in nature
ii. Requires notice of sale
iii. May not be resorted to if the amount involved is less
b. Distinctions among warrants of distraint, levy and garnishment
DISTRAINT LEVY GARNISHMENT
Subject matter Personal property Real property owned Personal property owned
owned by and in and in the possession by the taxpayer but in
possession of the of the taxpayer the possession of the
taxpayer third party
Acquisition by the Gov’t Personal property Real property subject Personal property
distrained are to levy is forfeited to garnished are purchased
purchased by the the Government then by the Government and
Government and sold to meet the resold to meet deficiency
resold to meet deficiency.
deficiency
350 Which statement is correct? The collection of a deficiency tax assessment by distraint and levy:
(2012 BAR) a) May be repeated, if necessary, until the full amount due, including all expenses, is
collected; b) Must be done successively, first by distraint and then by levy;c) Automatically covers the
bank deposits of a delinquent taxpayer; d) May be done only once during the taxable year.
SUGGESTED ANSWER: a) May be repeated, if necessary, until the full amount due, including
all expenses, is collected. Section 217, NIRC.
Advertisement of Sale No newspaper The sale of realty No newspaper

publication required subject to levy is publication required
required to be
published once a week
for 3 consecutive
weeks in a newspaper
of general circulation
in the municipality or
city where the property
is located.
A4. SUSPENSION OF BUSINESS OPERATION

Q: When can the CIR suspend the business operation of a taxpayer? A:
1. In the case of VAT-registered person:******
a. Failure to issue receipts or invoices;
b. Failure to file a VAT return as required under Sec. 114; or
c. Understatement of taxable sales or receipts by 30% or more of his
correct taxable sales or receipts for the taxable quarter.351  
2. Failure of any person to Register as required under Sec. 236: The temporary closure of
the establishment shall be for the duration of not less than 5 days and shall be
lifted only upon compliance with whatever requirements prescribed by the CIR in
the closure order (Sec. 115 NIRC).
A.5 NON-AVAILABILITY OF INJUNCTION TO RESTRAIN

COLLECTION OF TAX
1. “No injunction to restrain tax collection rule.”
a. GR: Under this rule, “No court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue, tax, fee or
charge” (Sec. 219, R.A. 8424).
2. XPNs:
a. Filing of Injunction with the CTA as an incident to its appellate
jurisdiction
i. Showing that collection of the tax may  
jeopardize the interest of the government and / or the taxpayer;
ii. Deposit of the amount claimed or file a surety bond
351In "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 Bar Question) (A) the taxpayer has not been regularly filing its income tax returns
for the past 4 years. (B) the taxpayer deliberately filed a 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 or receipts by 30% or more for the
taxable quarter.
iii. Showing by taxpayer that appeal is not  

frivolous nor dilatory
b. The SC, on exceptional cases of suits questioning the constitutionality of
a tax law (Tolentino v. Executive Secretary)
c. In case of local taxes, RTC’s may issue an injunction upon a suit
questioning their validity
i. In the case of the collection of local taxes, there is no express
prohibition in the Local Government Code prohibiting courts from issuing an
injunction to restrain local governments from collecting taxes. Such statutory lapse
or intent, however it may be viewed, may have allowed preliminary injunction
where local taxes are involved (Angeles City v. Angeles Electric Corporation, G.R. No.
166134 [2010]).
ii. The Lifeblood doctrine requires that the collection of taxes cannot
be enjoined, without taxation, a government can neither exist nor endure.
B. JUDICIAL REMEDIES
APPROVAL OF THE COMMISSIONER
1. No civil or criminal action for the recovery of taxes or the enforcement of any
fine, penalty or forfeiture under the NIRC shall be filed in court without the
approval of the CIR (Sec. 220 NIRC). Regional Directors may approve the filing
of such if this power is expressly delegated to him by the CIR (Sec. 7, NIRC).
a. Approval of the filing of an action in court for collection of taxes may be
delegated under a revenue regulation since this is not one of the powers which
cannot be validly delegated. (Republic v. Hizon, G.R. No. 130420, December 13, 1999)
B1. CIVIL ACTIONS

1. Two ways to enforce civil liability through civil actions
a. By filing a civil case for collection of a sum of money  
with the proper regular court; or  
b. By filing an answer to the petition for review filed by  

taxpayer with CTA 2. Civil action is resorted to when
a. It is resorted to when a tax liability becomes collectible.
b. It is collectible:
i. When tax is assessed and the assessment became  
final and executory because the taxpayer fails to file  
a protest with the CIR within 30 days from receipt.
ii. When a protest against assessment is filed and a decision of the
CIR was rendered but the said decision became final, executory and demandable
for failure of the tax payer to appeal the decision to the  
CTA within 30 days from the receipt of the decision.  
iii. When the protest is not acted upon by the CIR within 180 days
from the submission of the documents and the taxpayer failed to appeal with the
CTA within 30 days from the lapse of the 180 days period (Sec. 228,  
NIRC).
3. Form and mode of proceeding
a. Civil actions shall be brought in the name of the Government of the
Philippines.
b. It shall be conducted by legal officers of the BIR.
c. The approval by the Solicitor General together with the approval of the
CIR for civil actions for collection of delinquent taxes is required before they are
filed  
(Sec. 220 NIRC).  
*NOTE: BIR legal officers deputized as Special Attorneys who are stationed
outside Metro Manila may file verified complaints with the approval of the
Solicitor General. Provided that a copy of the complaint is furnished to the
Solicitor General. The Solicitor General must file a notice of appearance in the
court where it was filed.  
JURISDICTION OVER CIVIL ACTIONS

1. CTA - where the principal amount of taxes and fees, exclusive of charges and
penalties claimed is P1 million and above;
2. RTC, MTC, MeTC - where the principal amount of taxes and fees, exclusive of
charges and penalties claimed is less than P1 million (Sec. 7, R.A. 9282).
COURTS AMOUNT OF TAXES INVOLVED
Municipal Trial Courts outside Metro Manila Amount does not exceed 300,000
Municipal Trial Courts within Metro Manila Amount does not exceed 400,000
Regional Trial Courts outside Metro Manila 300,001 to 999,999
Regional Trial Courts within Metro Manila 400,001 to 999,999

3. Effect of filing a civil action
a. Once an action is filed with the regular courts, the taxpayer can no longer
assail the validity or legality of assessment.
4. Q: On Mar. 15, 2000, the BIR issued a deficiency income tax assessment for the
taxable year 1997 against the 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 RTC for the
collection of the tax. Counsel for Valera filed an injunctive suit in the RTC to
compel the BIR to hold the collection of the tax in abeyance until the decision on
the protest was rendered.

a. Can the BIR file the civil action for collection, pending decision on the
administrative protest? A: 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 CIR on the protest
in denying the same (CIR v. Union Shipping Corp., G.R. No. 66160, May 21, 1990).
b. As counsel for Valera, what action would you take in order to protect the
interest of your client? A: 
I will wait for the filing of the civil action for collection and consider the same as
an appealable decision. Injunctive suit is not an available remedy. I would then
appeal the case to the CTA 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, G.R. No. L-46954, July 20, 1982).
B2. CRIMINAL ACTIONS

1. Nature of a criminal action filed under the NIRC - Criminal action is resorted
to not only for collection of taxes but also for enforcement of statutory
penalties of all sorts. Two common crimes punishable under the NIRC
a. Willful attempt to evade or defeat tax (Sec. 254, NIRC)
b. Failure to file return, supply correct and accurate information, pay
tax, withhold and remit tax and refund excess taxes withheld on
compensation (Sec. 255, NIRC). NB: prior assessment is not necessary before
an Information for violation of Section 255 of the NIRC could be filed in
court.352,353
2. Purpose for Filing a Criminal complaint
a. Criminal complaint is instituted to penalize taxpayer for the violation
of the NIRC, and not to demand payment.
b. Criminal action is resorted for collection of taxes and enforcement of
statutory penalties of all sorts.
3. Two common crimes punishable under the NIRC
a. Willful attempt to evade or defeat tax (Sec. 254, NIRC). -the conviction or
acquittal obtained under this Section shall not be a bar to the filing of a civil
suit for the collection of taxes.
b. Failure to file return, supply correct and accurate information, pay tax,
withhold and remit tax and refund excess taxes withheld on compensation (Sec.
255, NIRC).
4. What is the prescriptive period for filing of a criminal action? A: The period is
352 Based on the Affidavit of the Commissioner of Internal Revenue (CIR), an Information for failure
to file income tax return under Section 255 of the National Internal Revenue Code (NIRC) was
filed by the Department of Justice (DOJ) with the Manila Regional Trial Court (RTC) against XX, a
Manila resident. XX moved to quash the Information on the ground that the RTC has no
jurisdiction in view of the absence of a formal deficiency tax assessment issued by the CIR. Is a
prior assessment necessary before an Information for violation of Section 255 of the NIRC could be
filed in court? Explain. (2010 Bar Question) SUGGESTED ANSWER: No. *****In case of failure to
file a return, a proceeding in court for the collection of the tax may be filed without an
assessment. The tax can be collected by filing a criminal action with the RTC *****because a
criminal action with the RTC is a mode of collecting the tax liability. Besides, the CIR is
empowered to prepare a return on the basis of his own knowledge and upon such information
and he can obtain from testimony or otherwise, which shall be prima facie correct and sufficient
for legal purposes. The issuance of a formal deficiency tax assessment, therefore, is not required.
353 The acquittal of the accused in the criminal action for the failure to file income tax return and
failure to supply correct information will have the following consequence: (2012 BAR) a) The CTA
will automatically exempt the accused from any civil liability; b) The CTA will still hold the taxpayer
liable for deficiency income tax liability in all cases, since preponderance of evidence is merely required
for tax cases; c) The CTA will impose civil or tax liability only if there was a final assessment notice
issued by the BIR against the accused in accordance with the prescribed procedures for issuing
assessments, which was presented during the trial; d) The CTA will impose civil or tax liability, provided
that a computation of the tax liability is presented during the trial. SUGGESTED ANSWER: c) The
CTA will impose civil or tax liability only if there was a final assessment notice issued by the
BIR against the accused in accordance with the prescribed procedures for issuing
assessments, which was presented during the trial OR d) The CTA will impose civil or tax liability,
provided that a computation of the tax liability is presented during the trial. Republic v. Patanao,
L-22356, July 1, 1967; (Castro v. Collector of Internal Revenue, L- 12174, April 26, 1962).
5 years354 from commission355 or discovery of the violation, whichever is later

(Sec. 281, NIRC). The cause of action for willful failure to pay deficiency tax
occurs when the final356 notice and demand for the payment thereof is served
upon the taxpayer. The 5-year prescriptive period commences to run only after
receipt of the final notice and demand and the taxpayer refuses to pay.
In addition to the fact of discovery of the filing of a fraudulent return,
there must be a judicial proceeding for the investigation and punishment of
the tax offense before the 5-year limiting period to institute a criminal action
for filing a fraudulent return begins to run. The crime of filing false returns can
be considered "discovered" only after the manner of commission, and the
nature and extent of the fraud have been definitely ascertained. ******Note
the conjunctive word “and” between the phrases “the discovery thereof ” and
“the institution of judicial proceedings for its investigation and
354The prescriptive period to file a criminal action is: (2012 BAR) a) Ten (10) years from the date of
discovery of the commission of fraud or non- filing of tax return; b) Five (5) years from the date of
issuance of the final assessment notice; c) Three (3) years from the filing of the annual tax return; d)
Five (5) years from the commission of the violation of the law, and if the same be not known at the
time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment. SUGGESTED ANSWER: d) Five (5) years from the commission of the violation of
the law, and if the same be not known at the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment. Section 281, NIRC.
355 Gerry was being prosecuted by the BIR for failure to pay - his income tax liability for Calendar
Year 1999 despite several demands by the BIR in 2002. The Information was filed with the RTC
only last June 2006. Gerry filed a motion to quash the Information on the ground of prescription,
the Information having been filed beyond the 5-year reglementary period. If you were the judge, will
you dismiss the Information? Why? 5% SUGGESTED ANSWER: No. The trial court can exercise
jurisdiction. *****Prescription of a criminal action begins to run from the day of the commission
of the violation of the law. The criminal violation was committed when Gerry willfully refused to
pay despite repeated demands in 2002. Since the information was filed in June 2006, the criminal
case was instituted within the five- year period required by law (Tupaz v. Ulep, 316 SCRA 118 [1999];
Sec. 281, NIRC). (BAR 2006)
356 Q: TY Corp. filed its final adjusted income tax return for 1993 on Apr. 12, 1994 showing a net
loss. After investigation, the BIR issued a pre-assessment notice on Mar. 30, 1996. A final notice
and demand letter dated Apr. 15, 1997 was issued, personally delivered to and received by the
company's chief accountant. For willful refusal and failure of TY Corp. to pay the tax, warrants of
distraint and levy on its properties were issued and served upon it. On Jan. 10, 2002, a criminal
charge for violation of the NIRC was instituted in the RTC with the approval of the CIR. The
company moved to dismiss the criminal complaint on the ground that an act for violation of any
provision of the NIRC prescribes after 5 years and, in this case, the period commenced to run on
Mar. 30, 1996 when the pre-assessment was issued. How will you resolve the motion? (2002 Bar) A:
The motion to dismiss should not be granted. *****It is only when the assessment has become
final and unappealable that the 5-year period to file a criminal action commences to run. (Tupaz
v. Ulep, G.R. No. 127777, 1 October 1999) The pre-assessment notice issued on Mar. 30, 1996 is not a
final assessment which is enforceable by the BIR. It is the issuance of the final notice and demand
letter dated Apr. 15, 1997 and the failure of the taxpayer to protest within 30 days from receipt
thereof that made the assessment final and unappealable. The earliest date that the assessment has
become final is May 16, 1997 and since the criminal charge was instituted on Jan. 10, 2002, the same
was timely filed. (BAR 2002)
proceedings” (Lim, Sr. v. CA, GR 48134-37, October 18, 1990).357

5. Q: *****Does the acquittal in criminal charge in seizure or forfeiture
proceedings operate as res judicata? A: No, for the following reasons: Criminal
proceedings are actions in personam while seizure or forfeiture proceedings are
actions in rem.
6. Scenarios:
a. Prior issuance of an assessment notice is not necessary for the filing of
criminal charges if there is prima facie evidence of willful attempt to evade
payment of taxes.358
b. Where is the charge filed? The criminal charge is filed directly with the
Department of Justice with the approval of the CIR.
c. Where should the information be filed?******
i. CTA - on criminal offenses arising from violations of the NIRC
or Tariff and Customs Code and other laws administered by the BIR and
the BOC where the principal amount of taxes and fees, exclusive of charges
and penalties claimed is P1 million and above.
ii. RTC, MTC, MeTC - on criminal offenses arising from violations
of the NIRC or Tariff and Customs Code and other laws administered by the
BIR and the BOC where the principal amount of taxes and fees, exclusive of
charges and penalties claimed is less than P1 million (Sec. 7, R.A. 9282).  
d. Does acquittal in the criminal action on tax liability exonerate the
taxpayer from payment of civil liability to pay tax? A: NO. In tax cases the
criminal liability arises from the act of not paying the tax due which occurred first.
*****The basis of the civil liability is not from the criminal liability but from
the act of not paying the tax. Thus, the exoneration from criminal action will not
exonerate the taxpayer from its civil liability (Republic v. Patanao, G.R. No. L-22356,
July 21, 1967). In taxation, the taxpayer becomes criminally liable because of a
civil liability. While he may be acquitted on the criminal case, his acquittal could
not operate to discharge him from the duty to pay tax, since that duty is imposed
by statute prior to and independent of any attempt on the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is a mere civil liability derived
from crime that would be wiped out by the judicial declaration that the criminal
357Q: May a criminal action be filed despite the lapse of the period to file a civil action for
collection of taxes? A: Yes, provided that the criminal action is instituted within 5 years from the
commission of the violation or from the discovery thereof, whichever is later. Also the two have
different prescriptive periods and such period would run independently from each other.
358 Q: Is assessment necessary before a taxpayer may be prosecuted for willfully attempting in any
manner to evade or defeat any tax imposed by the NIRC? (1998 Bar) A: NO, provided there is a
prima facie showing of a willful attempt to evade taxes as in the taxpayer’s failure to declare a
specific item of taxable income in his income tax returns. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax (Ungab
v. Cusi, G.R. No. L-41919-24, May 30, 1980).
acts charged did not exist (Castro v. Collector of Internal Revenue, L-12174, April
26, 1962).
e. What is the effect of the subsequent satisfaction of civil liability? A:
*****The subsequent satisfaction of civil liability by payment or prescription
does not extinguish the taxpayer’s criminal liability. [Note that in this bar
problem, there is no showing of the filing of a criminal case359 ]
f. Can there be subsidiary imprisonment in case the taxpayer is
insolvent? A: *****In case of insolvency on the part of the taxpayer, subsidiary
imprisonment cannot be imposed as regards the tax which he is sentenced to
pay. However, it may be imposed in cases of failure to pay the fine imposed
(Sec. 280, NIRC).
g. Should the accused be found guilty beyond reasonable doubt for
violation of Sec. 255 of the Tax Code for failure to file tax return or to supply
correct information, the imposition of the civil liability by the CTA should be
automatic and no assessment notice from the BIR is necessary [Bar 2012].
*****If the failure to file tax return or to supply correct information resulted to
unpaid taxes the amount of which is proven during trial, the CTA shall not only
impose the criminal penalty but must likewise order the payment of the
civil liability (Sec. 205(b), NIRC). As a matter of fact, it is well-recognized that in
the case of failure to file a return, a proceeding in court for the collection of
the tax may be filed without the need of an assessment (Sec. 222(a), NIRC).
JURISDICTION IN CRIMINAL SUITS

*A criminal case consists of either:
1. A criminal offense with deficiency tax; or  
2. A criminal offense only;
3. Rules:
a. If the criminal action results to a civil case, we follow the rules on
jurisdiction on civil action for collection;
359 Q: Mr. Chan, a manufacturer of garments, was investigated for failure to file tax returns and to pay
taxes. Despite the subpoena duces tecum issued to him, he refused to submit his books of
accounts and allied records. Investigators, raided his factory and seized several bundles of
manufactured garments, supplies and unpaid imported textile materials. After his apprehension and
based on the testimony of a former employee, deficiency income and business taxes were
assessed against Mr. Chan. It was then that he paid the taxes. Criminal action was nonetheless
instituted against him in the RTC for violation of the NIRC. Mr. Chan moved to dismiss the
criminal case on the ground that he had already paid the taxes assessed against him. He also
demanded the return of the garments and materials seized from his factory. How will you resolve Mr.
Chan's motion? (2012 BAR) Suggested Answer: The motion to dismiss should be denied. *****The
satisfaction of the civil liability is not one of the grounds for the extinction of criminal action
(People v. Ildefonso Tierra, 12 SCRA 666 [1964]). Likewise, the payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for violation of any provision
of the Tax Code (Sec. 253[a], NIRC). *****However, the garments and materials seized from the
factory should be ordered returned because the payment of the tax had released them from any
lien that the Government has over them.
b. If the criminal case consists of a criminal offense only, criminal

procedure will apply and jurisdiction will be determined by the penalty. In
criminal offenses with deficiency of tax, both the criminal and civil cases are
filed simultaneously. ****Exoneration however from criminal offense does not
exonerate taxpayer from civil liability to pay the tax.
THE RULE ON RECOVERY OF TAX BASED ON FALSE OR

FRAUDULENT RETURNS
1. In the case of a false or fraudulent return with intent to evade tax or of failure
to file a return, a proceeding in court for the collection of such tax may be filed
without assessment, at any time within 10 years after the discovery of the falsity,
fraud or omission (Sec. 222 (a), NIRC).
2. In a fraud assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for the
collection thereof.
3. This does not authorize the examination and investigation or inquiry into any
tax return filed in accordance with the provisions of any tax amnesty law or
decree (Sec. 222 (e), NIRC).
INFORMER’S REWARD
1.Reward to persons instrumental:
a. In the discovery of violations of the NIRC; and
b. In the discovery and seizure of smuggled goods.
2. Q: What are the legal requirement/s must be complied with to claim the
reward? (2002 Bar)
a. Voluntarily file a confidential information under oath with the Law
Division of the BIR alleging therein the specific violations constituting fraud;
b. The information must not yet be in the possession of the BIR, or
refer to a case already pending or previously investigated by the BIR;
c. One should not be a government employee or a relative of a
government employee within the sixth degree of consanguinity; and
d. The information must result to collections of revenues and/or fines
and penalties (Sec. 282, NIRC).
3. Amount of the reward
a. For discovery of violations of the NIRC - The amount of reward shall be
whichever is lower between:
i. 10% of the revenues, surcharges or fees recovered and/or fine/
penalty imposed; or
ii. One Million Pesos (P1, 000,000)
NOTE: The same amount of reward shall also be given to an informer where the
offender has offered to compromise the violation of law committed by him and
his offer has been accepted by the CIR and collected from the offender.
b. For discovery and seizure of smuggled goods - a cash reward equivalent to

whichever is lower between:
i. 10% of the fair market value of the smuggled and confiscated
goods; or  
ii. One Million Pesos (P1, 000,000)  
NOTE: The informer shall not be entitled to a reward where no revenue,
surcharges or fees be actually recovered or collected.
———————————————————————————————
Module 15. Judicial Remedies
The Court of Tax Appeals 362

Bar scenarios on the CTA itself 363
Bar scenarios on CTA and CIR 365
Bar scenarios on CTA and CMTA 369
Suspension of collection of NIR taxes by CTA 371
Summary of jurisdictions (details, infra) 372
CTA en banc 372
CTA in divisions 373
Taxpayer’s Remedies 375
Taxpayer's remedies: NIRC vs CMTA 375
Miscellaneous Items 376
Taxpayer’s suit 376
Taxes vs. Other Claims 378
Documentary Stamp Tax 378
———————————————————————————————
The Court of Tax Appeals

[] Jurisdiction
Tax Cases Criminal Cases
Exclusive In tax collection cases involving All criminal cases arising from violation of the
Original final and executory assessments NIRC of the TCC and other laws, part of laws,
for taxes, fees, charges and or special laws administered by the BIR or
penalties where the principal the BOC where the principal amount of taxes
amount of taxes and fees, exclusive and fees, exclusive of charges and penalties
of charges and penalties claimed claimed is less that Php 1M or where there is no
is not less than Php 1M. specified amount claimed (the offenses or
penalties shall be tried by the regular courts and
the jurisdiction of the CTA shall be appellate).
Appellate In tax collection cases involving 1. Over appeals from the judgment, resolutions
final and executory assessments for or orders of the RTC in tax cases originally
taxes, fees, charges and penalties decided by them, in their respective territorial
where the principal amount of jurisdiction; 2. Over petitions for review of the
taxes and fees, exclusive of charges judgments, resolutions or orders of the RTC in
and penalties claimed is less the exercise of their appellate jurisdiction over
than Php 1M tried by the proper tax cases originally decided by the MeTCs, MTCs,
MTC, MeTC and RTC. and MCTCs in their respective jurisdiction.
Exclusive appellate jurisdiction to review by appeal (Sec. 7, RA 9282)
Tax Cases Criminal Cases

From 1. Decisions in cases involving disputed assessments, refunds of internal revenue
Commissi taxes, fees or other charges, penalties in relation thereto, or other matters arising
oner of under the NIRC or other laws administered by BIR;
Internal 2. Inaction by CIR in cases involving disputed assessments, refunds of IR taxes,
Revenue fees or other charges, penalties in relation thereto, or other matters arising under
the NIRC or other laws administered by BIR, where the NIRC or other applicable
law provides a specific period of action, in which case the inaction shall be
deemed an implied denial via petition for review under Rule 42.
From Decisions, orders or resolutions of the in local taxes originally decided or resolved by
RTC them in the exercise of their original or appellate jurisdiction via petition for review
under Rule 43.
From 1. Decisions in cases involving liability for customs duties, fees or other charges,
Commissi seizure, detention or release of property affected, fines, forfeitures or other
oner of penalties in relation thereto; or
Customs 2. Other matters arising under the Customs law or other laws, part of laws or special
laws administered by BOC; (via petition for review under Rule 42).
From Central Decisions in the exercise of its appellate jurisdiction over cases involving the
Board of
Assessment assessment and taxation of real property originally decided by the provincial or city
Appeals board of assessment appeals via petition for review under Rule 43.
From Decision on customs cases elevated to him automatically for review from decisions of
Secretary the Commissioner of Customs which are adverse to the government under Sec.
of Finance 2315 of the TCC via petition for review under Rule 42.
From Decisions of Secretary of Trade and Industry in the case of non-agricultural product,
Secretary of
Trade and
commodity or article, and the Secretary of Agriculture in the case of agricultural
Industry and product, commodity or article, involving dumping duties and counterveiling duties
the Secretary under Secs. 301 and 302, respectively, of the TCC, and safeguard measures under RA
of 8800, where either party may appeal the decision to impose or not to impose said
Agriculture
duties (via petition for review under Rule 42).
Bar scenarios on the CTA itself

1. The proceeding before the CTA in the exercise of its exclusive original
jurisdiction are in the nature of trial de novo;360
2. 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
360The 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]
certiorari in the exercise of its appellate jurisdiction.361 ,362

3. A Motion for Reconsideration from the decision of a division of the
Court of Tax Appeals is mandatory prior to elevating the case to the Court of
361 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.
362GGG, 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, 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.
Tax Appeals en banc..363

4. In criminal cases, take note of Sec. 11, Rule 9 of the Revised Rules on the CTA:
In cases within the jurisdiction of the Court, 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.364,365
Bar scenarios on CTA and CIR

2. Very common: CTA’s exclusive appellate jurisdiction over disputed
assessments made by the CIR. If the CIR collects on the assessment, without
363Q: MSI Corp. imports orange and lemon concentrates as raw materials for the fruit drinks it sells
locally. The Bureau of Customs (BOC) imposed a 1% duty rate on the concentrates. Subsequently,
the BOC changed its position and held that the concentrates should be taxed at 7% duty rate.
MSI disagreed with the ruling and questioned it in the CTA which upheld MSI's position. The
Commissioner of Customs appealed to the CTA en banc without filing a motion for
reconsideration. Is the appeal of the Custom’s commissioner proper? (2013 Bar) A. NO the appeal by
the Custom’s Commissioner is not proper and should be dismissed. *****This is because a Motion for
Reconsideration from the decision of a division of the Court of Tax Appeals is mandatory
prior to elevating the case to the Court of Tax Appeals en banc.
[Commissioner of Customs vs. Marina Sales, Inc. (G.R. No. 183868, November 22, 2010) where the
Supreme Court held that Rule 8, Section 1 of the Revised Rules of Court of Tax Appeals requires that
“the petition for review of a decision or resolution of the Court in Division must be preceded by
the filing of a timely motion for reconsideration or new trial with the Division.” The word “must”
clearly indicates the mandatory, not merely directory, nature of a requirement.”]
364T/F. 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.]
365 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 Question)
SUGGESTED ANSWER: 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 the civil action,
and no right to reserve the filing of such civil action separately from the criminal action shall be
recognized.
deciding on the protest, it is deemed as a denial of the same.366 The 30-day period
to file a petition before the CTA is counted from the receipt of the final
assessment of the CIR.367 Note that before going up to the CTA, under the
doctrine of exhaustion of administrative remedies, a protest must first be filed
before the CIR within 30 days from receipt of the final assessment notice.368 Also,
366 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)
367 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)
368 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? 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).
[] Under the above factual setting, the taxpayer, instead of questioning the assessment he
received on 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? 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)
the filing of a civil action for collection (by the CIR) during the pendency of
an administrative protest constitutes the final decision of the Commissioner
on the protest.369
2. CTA has jurisdiction to determine if the warrant of distraint and levy issued by
the BIR is valid and to rule if the waiver of the Statute of Limitations was validly
effected;370
3. A claim for refund or tax credit that has been duly filed with the CIR 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 CIR is the one which will vest the CTA
with jurisdiction over the refund case should the taxpayer decide to appeal on
369 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)
370Which court has jurisdiction to determine if the warrant of distraint and levy issued by the BIR is
valid and to rule if the waiver of the Statute of Limitations was validly effected? (2012 BAR) 
a) City Courts; b) Regional Trial Court; c) Court of Tax Appeals; d) Court of Appeals. SUGGESTED
ANSWER: c) Court of Tax Appeals Section 7, RA 9282.
time.371
4. The power to review rulings issued by the Commissioner is lodged with the
CTA, not the RTC.372
5. The Court of Appeals does not have power to review compromise agreements
forged between the CIR and the taxpayer.373
6. The CTA is not vested with original jurisdiction to issue writs of
prohibition or injunction independently of and apart from an appealed case. The power
to issue writ of injunction provided for under Section 11 of RA 1125 is only
371On 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 with
the Court of Appeals [TOM: now, file this at the SC] 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)
372Mr. 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. *****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)
373 Does the Court of Appeals have the power to review compromise agreements forged by the
Commissioner of Internal Revenue and a taxpayer? Explain. (2010 Bar Question) SUGGESTED
ANSWER: No, for either of two reasons: i) in instances in which the CIR is vested with authority to
compromise, such authority should be exercised in accordance with the CIR discretion and
courts have no power, as a general rule, to compel him to exercise such discretion one way or another;
ii) If the CIR abuses his discretion by not following the parameters set by law, the CTA, not the
CA, may correct such abuse if the matter is appealed to it. In case of arbitrary or capricious exercise
by the CIR of the power to compromise, the compromise can be attacked and reversed through
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 to review a compromise
settlement forged by the CIR.
ancillary to its appellate jurisdiction.374,375 
Bar scenarios on CTA and CMTA

[] see CMTA notes for more examples
1. The CTA has exclusive appellate jurisdiction over decisions of the
Commissioner of Customs in cases involving the imposition of fines, forfeitures
374In 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 of and apart from an appealed case. The remedy is to appeal the decision of the
BIR. (Collector v. Yuseco, 3 SCRA 313 [1981]). (BAR 2002)
375 *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 non-
payment 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.
a. Does the Court of Tax Appeals have jurisdiction over the petition for review and writ of
prohibition? Explain: 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]). 
b. Will an appeal to the CTA for tax refund be possible? Explain. (2002) A: 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).
or other penalties;376
2. The CTA 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). If there is no decision yet by the Commissioner
—say, only the Collector made one—CTA has nothing to review.377
376 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
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
fine 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)
377 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’s 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)
Suspension378 of collection of NIR taxes by CTA

[] What are the conditions that must be complied with before the Court of Tax
Appeals may suspend the collection of national internal revenue taxes? (3%)
SUGGESTED ANSWER: The CTA may suspend the collection of internal
revenue taxes if the following conditions are met:****** 
1. the case is pending appeal with the CTA;
2. in the opinion of the Court the collection will jeopardize379 the interest of
the Government and/ or the taxpayer; and 
3. the taxpayer is willing to deposit in Court the amount being collected or to
file a surety bond for not more than double the amount of the tax (Sec. 11,
RA 1125, as amended by RA 9282).
[] This is done through the filing of a motion for injunction380 while the case is
under appeal at the CTA
378May the courts enjoin the collection of revenue taxes? Explain your answer. (2%) SUGGESTED
ANSWER: *****As a general rule, the courts have no authority to enjoin the collection of revenue
taxes. (Sec. 218, NIRC). However, the Court of Tax Appeals is empowered to enjoin the collection
of taxes through administrative remedies when collection could jeopardize the interest of the
government or taxpayer. (Section 11, RA 1125) (BAR 2001). [TOM: this is not complete; just follow the
3 conditions, supra]
379RR disputed a deficiency tax assessment and upon receipt of an adverse decision by the
Commissioner of Internal Revenue, filed an appeal with the Court of Tax Appeals. While the appeal is
pending, the BIR served a warrant of levy on the real properties of RR to enforce the collection of
the disputed tax. Granting arguendo that the BIR can legally levy on the properties, what could RR do
to stop the process? Explain briefly. (5%) SUGGESTED ANSWER: *****RR should file a motion
for injunction with the Court of Tax Appeals to stop the administrative collection process. An
appeal to the CTA shall not suspend the enforcement of the tax liability, unless a motion to that
effect shall have been presented in court and granted by it on the basis that such collection will
jeopardize the interest of the taxpayer or the Government (Pirovano v. CIR, 14 SCRA 832 [1965]).
The CTA is empowered to suspend the collection of internal revenue taxes and customs duties in
cases pending appeal only when: (1) in the opinion of the court the collection by the BIR will
jeopardize the interest of the Government and/or the taxpayer; and (2) the taxpayer is willing to
deposit the amount being collected or to file a surety bond for not more than double the amount of
the tax to be fixed by the court (Section 11, R.A. NO. 1125). (BAR 2004)
380May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes by the Bureau of
Internal Revenue? Explain. ANSWER: Yes. *****When a decision of the Commissioner on a tax
protest is appealed to the CTA pursuant to Sec. 11 of RA No. 1125 (law creating the CTA) in relation
to Sec. 229 of the NIRC, such appeal does not suspend the payment, levy, distraint and/or sale
of any of the taxpayer’s property for the satisfaction of his tax liability. However, when in the
opinion of the CTA the collection of the tax may jeopardize the interest of the Government and/or
the taxpayer, the Court at any stage of the proceedings may suspend or restrain the collection of
the tax and 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. (BAR 1996)
Summary of jurisdictions (details, infra)

Court Jurisdictional Amount
MTC If principal amount of taxes, fees, exclusive of charges and penalties do not exceed
Original P300,000 (or P400,000 in Metro Manila)
RTC If principal amount of taxes, fees exclusive of charges and penalties exceeds P300,000
Original (or P400,000 in Metro Manila); Provided, the amount is less than 1 million
RTC The RTC shall exercise appellate jurisdiction over all cases decided by the MeTC,
Appellate MTC, and MCTC in their respective territorial jurisdiction
CTA If principal amount of taxes, fees exclusive of charges and penalties is P 1 million or
Division above
Original
CTA Over appeals from the judgments, resolutions or orders of the RTC in tax collection
Division cases originally decided by them in their respective jurisdiction. ******Note that
Appellate decisions of the RTC in the exercise of its appellate JN go straight to CTA en banc.
CTA En 1. Decisions or resolutions over petitions for review of the Court in Divisions in the
Banc exercise of its exclusive appellate jurisdiction over local taxes decided by the RTC in
Appellate the exercise of their original jurisdiction;
2. Over petitions for review of the judgments, resolutions or orders of the RTC in the
exercise of their appellate jurisdiction over tax collection cases originally decided
by the MeTC, MTC and MCTC in their respective territorial jurisdiction.
CTA en banc
[] SEC. 2. Cases within the jurisdiction of the Court en banc. – The Court en
banc shall exercise exclusive appellate jurisdiction to review by appeal the
following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the
Court in Divisions in the exercise of its exclusive appellate jurisdiction over:
(1) Cases arising from administrative agencies – Bureau of Internal
Revenue, Bureau of Customs, Department of Finance, Department of Trade and
Industry, Department of Agriculture;
(2) Local tax cases decided by the Regional Trial Courts in the exercise
of their original jurisdiction; and
(3) Tax collection cases decided by the Regional Trial Courts in the
exercise of their original jurisdiction involving final and executory assessments
for taxes, fees, charges and penalties, where the principal amount of taxes and
penalties claimed is less than one million pesos;
(b) Decisions, resolutions or orders of the Regional Trial Courts in local tax
cases decided or resolved by them in the exercise of their appellate jurisdiction;
(c) Decisions, resolutions or orders of the Regional Trial Courts in tax collection
cases decided or resolved by them in the exercise of their appellate jurisdiction;
(d) Decisions, resolutions or orders on motions for reconsideration or new trial of

the Court in Division in the exercise of its exclusive original jurisdiction over
tax collection cases;
(e) *****Decisions of the Central Board of Assessment Appeals (CBAA) in the
exercise of its appellate jurisdiction over cases involving the assessment and
taxation of real property originally decided by the provincial or city board of assessment
appeals;
(f) Decisions, resolutions or orders on motions for reconsideration or new trial of
the Court in Division in the exercise of its exclusive original jurisdiction over cases
involving criminal offenses arising from violations of the National Internal
Revenue Code or the Tariff and Customs Code and other laws administered by
the Bureau of Internal Revenue or Bureau of Customs;
(g) Decisions, resolutions or orders on motions for reconsideration or new trial of
the Court in Division in the exercise of its exclusive appellate jurisdiction over
criminal offenses mentioned in the preceding subparagraph; and
(h) Decisions, resolutions or orders of the Regional trial Courts in the exercise
of their appellate jurisdiction over criminal offenses mentioned in
subparagraph (f).
CTA in divisions
[] SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in
Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code or other applicable law provides a
specific period for action: Provided, that in case of disputed assessments, the
inaction of the Commissioner of Internal Revenue within the one hundred eighty
day-period under Section 228 of the National Internal revenue Code shall be
deemed a denial for purposes of allowing the taxpayer to appeal his case to the
Court and does not necessarily constitute a formal decision of the Commissioner
of Internal Revenue on the tax case; Provided, further, that should the taxpayer
opt to await the final decision of the Commissioner of Internal Revenue on the
disputed assessments beyond the one hundred eighty day-period abovementioned,
the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8
of these Rules; and Provided, still further, that in the case of claims for refund of
taxes erroneously or illegally collected, the taxpayer must file a petition for review
with the Court prior to the expiration of the two-year period under Section 229
of the National Internal Revenue Code;
(3) Decisions, resolutions or orders of the Regional Trial Courts in local
tax cases decided or resolved by them in the exercise of their original jurisdiction;
(4) Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures of other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
(5) Decisions of the Secretary of Finance on customs cases elevated to
him automatically for review from decisions of the Commissioner of Customs
adverse to the Government under Section 2315 of the Tariff and Customs Code;
and
(6) Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture, in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively, of the
Tariff and Customs Code, and safeguard measures under Republic Act No. 8800,
where either party may appeal the decision to impose or not to impose said duties;
(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
(1) Original jurisdiction over all criminal offenses arising from violations of
the National internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue of the Bureau of Customs,
where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is one million pesos or more; and
(2) Appellate jurisdiction over appeals from the judgments, resolutions or
orders of the Regional Trial Courts381 in their original jurisdiction in criminal
offenses arising from violations of the National Internal Revenue Code or Tariff
and Customs Code and other laws administered by the Bureau of Internal
Revenue or Bureau of Customs, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than one million pesos or where
there is no specified amount claimed;
(c) Exclusive jurisdiction over tax collections cases, to wit:
(1) Original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties, where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is one million pesos or
more; and
381 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.] b. Exclusive appellate jurisdiction in criminal cases
(2) Appellate jurisdiction over appeals from the judgments, resolutions or

orders of the Regional Trial Courts in tax collection cases originally decided by
them within their respective territorial jurisdiction. (n)
—————————————————
Taxpayer’s Remedies
Taxpayer's remedies: NIRC vs CMTA

******382
Tax Remedies
NIRC TCC (CMTA)
As to payment Discrepancies in the form of Payment must first be effected
additional taxes are not paid
if contested
As to protest There is no need for Payment under protest is required
payment under protest
As to who takes action Commissioner takes action Collector first takes action before the
in case of protest Commissioner
Filing period in protest Within 30 days from the At the time of payment or within 15
cases receipt of assessment notice days thereafter
382 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 [TOM: no more CA
because it’s on the same level as CTA] 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)
Period within which to Commissioner is given 180 No time period is allowed within
decide days from receipt of which the Collector must decide the
complete supporting case
documents.
As to automatic review There is no automatic review A decision of the Customs
should the Commissioner Commissioner against the Government
decide against the is subject to an automatic review by
Government the Secretary of Finance.
—————————————————
Miscellaneous Items
Taxpayer’s suit
1. When may a taxpayer’s suit be allowed? ANSWER: A taxpayer's suit may only
be allowed when an act complained of, which may include a legislative enactment,
directly involves the illegal disbursement of public funds derived from
taxation (Pascual vs. Secretary of Public Works, 110 Phil. 331). (BAR 1996)
2. Four stringent requirements for the exercise of the power of judicial review:
(ALEL)
a. there is an ACTUAL case or controversy;383
383In accordance with the opinion of the Secretary of Justice, and believing that it would be good for
the country, the President enters into an agreement with the Americans for an extension for
another five (5) years of their stay at their military bases in the Philippines, in consideration of:
1. A yearly rental of one billion U.S. dollars, payable to the Philippine government in advance;
2. An undertaking on the part of the American government to implement immediately the mini-
Marshall plan for the country involving ten billion U.S. dollars in aids and concessional loans; and
3. An undertaking to help persuade American banks to condone interests and other charges on
the country's outstanding loans.
In return, the President agreed to allow American nuclear vessels to stay for short visits
at Subic, and in case of vital military need, to store nuclear weapons at Subic and at Clark Field. A
vital military need comes, under the agreement, when the sealanes from the Persian Gulf to the Pacific,
are threatened by hostile military forces.
The Nuclear Free Philippine Coalition comes to you for advice on how they could legally
prevent the same agreement entered into by the President with the US government from going
into effect. What would you advise them to do? Give your reasons. (1988 Bar Question)
SUGGESTED ANSWER: If the Agreement is not in the form of a treaty, it is not likely to be
submitted to the Senate for ratification as required in Art. VII, sec. 21. It may not, therefore, be
opposed in that branch of the government. Nor is judicial review feasible at this stage because
there is no justiciable controversy. While art. VIII, sec. 1, par. 2 states that judicial power includes the
duty of court of justice to “determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government,” it is clear that this provision does not do away with the political question doctrine.
It was inserted in the Constitution to prevent courts from making use of the doctrine to avoid what
otherwise are justiciable controversies, albeit involving the Executive Branch of the government during
the martial law period. On the other hand, at this stage, no justiciable controversy can be framed to
justify judicial review. I would, therefore, advice the Nuclear Free Philippine Coalition to resort to
the media to launch a campaign against the Agreement.
b. petitioners possess LOCUS STANDI;384

c. the question of constitutionality is raised at the EARLIEST
OPPORTUNE TIME; and
d. the issue of constitutionality is the very LIS MOTA of the case.385
*****This suit for this type of case is called a Taxpayer’s suit when
disbursement of public funds is involved.386
384A person who has a personal and substantial interest in the case, such that he has sustained, or
will sustain, direct injury as a result of its enforcement is considered to have: (2012 BAR EXAMS): a.
understanding to challenge the governmental act; b. standing to challenge the governmental act; c.
opportunity to challenge the governmental act; d. familiarity to challenge the governmental act.
SUGGESTED ANSWER: (B) PEOPLE VS VERA, 65 PHIL. 56
385 Assume that the constitutional question raised in a petition before the Supreme Court is the lis mota
of the case, give at least two other requirements before the Court will exercise its power of judicial
review?(1994 Bar Question)
SUGGESTED ANSWER: According to Macasiano vs. National Housing Authority, 224 SCRA 236, in
addition to the requirement that the constitutional question raised be the lis mota of the case, the
following requisites must be present for the exercise of the power of Judicial review:
a.There must be an actual case or controversy involving a conflict of legal rights susceptible of
Judicial determination; b.The constitutional question must be raised by the proper party; and c.The
constitutional question must be raised at the earliest opportunity.
386When the Marcos administration was toppled by the revolutionary government, the Marcoses left
behind several Old Masters’ paintings and antique silverware said to have been acquired by them as
personal gifts. Negotiations were then made with Ellen Layne of London for their disposition and
sale at public auction. Later, the government entered into a “Consignment Agreement" allowing
Ellen Layne of London to auction off the subject art pieces. Upon learning of the intended sale,
well-known artists, patrons and guardians of the arts of the Philippines filed a petition in
court to enjoin the sale and disposition of the valued items asserting that their cultural
significance must be preserved for the benefit of the Filipino people.
A. Can the court take cognizance of the case? Explain. (1995 Bar Question). SUGGESTED
ANSWER: No, the court cannot take cognizance of the case. As held in Joya vs. Presidential
Commission on Good Government, 225 SCRA 569, since the petitioners were not the legal owners
of paintings and antique silverware, they had no standing to question their disposition. Besides, the
paintings and the antique silverware did not constitute important cultural properties or national
cultural treasures, as they had no exceptional historical and cultural significance to the
Philippines.
B. What are the requisites for a taxpayer’s suit to prosper? (1995 Bar Question): According to
Joya vs. Presidential Commission on Good Government 225 SCRA 568, ******for a taxpayer’s suit to
prosper, four requisites must be considered: (1) the question must be raised by the proper party; (2)
there must be an actual controversy; (3) the question must be raised at the earliest possible
opportunity; and (4) the decision on the constitutional or legal question must be necessary to the
determination of the case. In order that a taxpayer may have standing to challenge the legality of
an official act of the government, the act being questioned must involve a disbursement of public
funds upon the theory that the expenditure of public funds for an unconstitutional act is a
misapplication of such funds, which may be enjoined at the instance of a taxpayer.
Taxes vs. Other Claims

1. GR: The claim of the government for unpaid taxes are generally preferred over
the claims of laborers for unpaid wages.387
2. XPN: Article 110 of the Labor Code, which gives laborers’ claims preference
only in case of bankruptcy or liquidation of the employer’s business.
Documentary Stamp Tax

[] 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
plaintiff 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 Bar
Question) SUGGESTED ANSWER: No. The Contract of Sale cannot be
admitted in evidence. The document is clearly taxable because the law imposes
a documentary stamp tax (DST) on Sales and Agreements to Sell, and
Memoranda of Sale (Section 175, NIRC). *****Since the DST thereon is not
paid, the effect is that the instrument, document or paper which require (sic)
by law to be stamped and which has been signed, issues, accepted and transferred
without being duly stamped shall not be recorded, nor shall it be used in
evidence in any court until the requisite stamp or stamps shall have been affixed
thereto and cancelled (Section 201, NIRC). In the case at bar, no documentary
stamp tax was paid on the Contract of Sale, hence, it cannot be used as her
evidence in court.
387 For failure of Oceanic Company, Inc. (OCEANIC), to pay deficiency taxes of P20 Million,
the Commissioner of Internal Revenue issued warrants of distraint on OCEANIC’s personal
properties and levied on its real properties. Meanwhile, the Department of Labor through the
Labor Arbiter rendered a decision ordering OCEANIC to pay unpaid wages and other benefits
to its employees. Four barges belonging to OCEANIC were levied upon by the sheriff and later
sold at public auction. The Commissioner of Internal Revenue filed a motion with the Labor
Arbiter to annul the sale and enjoin the sheriff from disposing the proceeds thereof. The
employees of - OCEANIC opposed the motion contending that Art. 110 of the Labor Code gives first
preference to claims for unpaid wages. Resolve the motion. Explain. ANSWER: *****The motion filed
by the Commissioner should be granted because the claim of the government for unpaid taxes are
generally preferred over the claims of laborers for unpaid wages. The provision of Article 110 of
the Labor Code, which gives laborers’ claims for preference applies only in case of bankruptcy or
liquidation of the employer’s business. In the instant case, Oceanic is not under bankruptcy or
liquidation at the time the warrants of distraint and levy were issued hence, the opposition of the
employees is unwarranted. (CIR vs. NLRC et at G.R No. 74965, November 9, 1994). (BAR 1995)
Module 16. Organization and Function of the SOF & BIR
The Secretary of Finance (SOF) 379

RULE-MAKING AUTHORITY OF THE SECRETARY OF FINANCE 379
LARGE TAXPAYER 381
The Commissioner on Internal Revenue (CIR) 382
A. POWER AND DUTIES OF THE BUREAU OF INTERNAL REVENUE 382
B. POWER OF THE COMMISSIONER TO INTERPRET TAX LAWS AND TO DECIDE
TAX CASES. 386
C. NON-RETROACTIVITY OF RULINGS. 388
D. Power of the Commissioner to suspend the business operation of a taxpayer 388
E. AUTHORITY OF THE COMMISSIONER TO COMPROMISE OR ABATE TAXES388
LIMITATIONS ON THE POWER TO COMPROMISE A TAX LIABILITY 394
———————————————————————————————
The Secretary of Finance (SOF)
RULE-MAKING AUTHORITY388 OF THE SECRETARY OF FINANCE

[] Sec. 244 of the NIRC provides the authority for the Secretary of
Finance. It states, upon recommendation of the CIR, the Secretary of Finance
388The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, issued
a Revenue Regulation using gross Income as the tax base for corporations doing business in the
Philippines. Is the Revenue Regulation valid? ANSWER: *****The regulation establishing gross
income as the tax base for corporations doing business in the Philippines (domestic as well as resident
foreign) is not valid. This is no longer implementation of the law but actually it constitutes
legislation because among the powers that are exclusively within the legislative authority to tax is the
power to determine the amount of the tax. (See 1 Cooley 176-184). Certainly, if the tax is limited
to gross income without deductions of these corporations, this is changing the amount of the tax
as said amount ultimately depends on the taxable base. (BAR 1994)
shall promulgate389 all needful rules and regulations for the effective
389 MMM, Inc., a 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 Sentral ng Pilipinas. MMM, Inc. filed its
Quarterly VAT Returns for 2000. Subsequently, MMM, Inc. timely filed with the BIR an
administrative 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, Inc. because the VAT official receipts submitted by MMM, Inc. to substantiate said
claim did not bear the words "zero-rated" as required under Section 4.108-1 of Revenue
Regulations (RR) No. 7-95. On appeal, the CTA division and the CTA en bane 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. SUGGESTED ANSWER: The appeal of MMM, Inc.
must be denied. MMM, Inc.’s position that the requirements under RR No. 7-95 should not prevail
over a taxpayer’s substantive right to claim tax refund or credit is unmeritorious. *****The Secretary
of Finance has the authority to promulgate the necessary rules and regulations for the effective
enforcement of the provisions of the NIRC. Such rules and regulations are given weight and
respect by the courts in view of the rule-making authority given to those who formulate them and
their specific expertise in their respective fields. An applicant for a claim for tax refund or tax credit
must not only prove entitlement to the claim but also compliance with all the documentary and
evidentiary requirements. Consequently, the CTA and the CTA en banc correctly ruled that the
failure to indicate the words “zero-rated” on the invoices and receipts issued by a taxpayer
would result in the denial of the claim for refund or tax credit. 
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 2012? (2015 Bar Question) No. In
Kepco Philippines Corporation v. Commissioner of Internal Revenue, the Supreme Court ruled that
the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113(B)(2)(c) of RA 9337
actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts
– a case falling under the principle of legislative approval of administrative interpretation by
reenactment.
enforcement of the provisions of the NIRC.390
LARGE TAXPAYER
1. A taxpayer is anyone who satisfies any of the following criteria:
a. For VAT- Business establishment with VAT paid or payable of at least
P100,000 for any quarter of the preceding taxable year;  
390 SPECIFIC PROVISIONS TO BE CONTAINED IN RULES AND REGULATIONS. Rules and

regulations issued by the secretary of finance must contain provisions specifying, prescribing, or
defining: (Sec. 245, NIRC)
1. The time and manner in which Revenue Regional Director shall canvass their respective Revenue
Regions to discover persons and property liable to national internal revenue taxes, and the manner their
lists and records of taxable persons and taxable objects shall be made and kept.  
2. The forms of labels, brands or marks to be required on goods subject to excise tax, and the manner
how the labeling, branding or marking shall be effected.  
3. The condition and manner for goods intended for export, which if not exported would be subject to
an excise tax, shall be labeled, branded or marked.  
4. The conditions to be observed by revenue officers respecting the institutions and conduct of legal
actions and proceedings;  
5. The conditions under which goods intended for storage in bonded warehouses shall be conveyed
thither, their manner of storage and method of keeping entries and records, also the books to be kept
by Revenue Inspectors and the reports to be made by them in connection with their supervision of
such houses.
6. The conditions under which denatured alcohol may be removed and dealt in, the character and
quantity of the denaturing material to be used, the manner in which the process of denaturing shall be
effected, so as to render the alcohol suitably denatured and unfit for oral intake, the bonds to be given,
the books and records to be kept, the entries to be made therein, the reports to be made to the CIR,
and the signs to be displayed in the business ort by the person for whom such denaturing is done or by
whom, such alcohol is dealt in.  
7. The manner in which revenue shall be collected and paid, the instrument, document or object to
which revenue stamps shall be affixed, the mode of cancellation, the manner in which the proper
books, records, invoices and other papers shall be kept and entries therein made by the person subject
to the tax, as well as the manner in which licenses and stamps shall be gathered up and returned after
serving their purposes.  
8. The conditions to be observed by revenue officers respecting the enforcement of Title III imposing
a tax on estate of a decedent, and other transfers mortis causa, as well as on gifts and such other rules
and regulations which the CIR may consider suitable for the enforcement of the said Title III.  
9. The manner tax returns, information and reports shall be prepared and reported and the tax
collected and paid, as well as the conditions under which evidence of payment shall be furnished the
taxpayer, and the preparation and publication of tax statistics.  
10. The manner in which internal revenue taxes, such as income tax, including withholding tax, estate
and donor's taxes, value-added tax, other percentage taxes, excise taxes and documentary stamp taxes
shall be paid through the collection officers of the BIR or through duly authorized agent banks which
are hereby deputized to receive payments of such taxes and the returns, papers and statements that may
be filed by the taxpayers in connection with the payment of the tax:  
Provided, however, that notwithstanding the other provisions of the NIRC prescribing the place
of filing of returns and payment of taxes, the CIR may, by rules and regulations require that the tax
returns, papers and statements and taxes of large taxpayers be filed and paid, respectively, through
collection officers or through duly authorized agent banks: Provided, further, That the CIR can exercise
this power within 6 years from the approval of RA 7646 or the completion of its comprehensive
computerization program, whichever comes earlier: Provided, finally, That separate venues for the
Luzon, Visayas and Mindanao areas may be designated for the filing of tax returns and payment of
taxes by said large taxpayers.
b. For Excise Tax- Business establishment with excise tax paid or payable of
at least P1 million for the preceding taxable year;  
c. For Corporate Income Tax- Business establishment with annual income tax
paid or payable of at least P1 million for the preceding taxable year; and  
d. For Withholding Tax- Business establishment with withholding tax payment
or remittance of at least P1 million for the preceding taxable year.  
Provided, however, That the Secretary of Finance, upon
recommendation of the CIR, may modify or add to the above criteria for
determining a large taxpayer after considering such factors as inflation, volume of
business, wage and employment levels, and similar economic factors.
2. The penalties prescribed under Sec. 248 of the NIRC shall be imposed on any
violation of the rules and regulations issued by the Secretary of Finance, upon
recommendation of the CIR, prescribing the place of filing of returns and
payments of taxes by large taxpayers (Sec. 245, NIRC).
—————————————————
The Commissioner on Internal Revenue (CIR)
A. POWER AND DUTIES OF THE BUREAU OF INTERNAL

REVENUE
1. Powers and duties of the BIR [AEJ-AdR]
a. Assessment and collection of all national internal revenue taxes, fees and
charges;  
b. Enforcement of all forfeitures, penalties and fines;  
c. Execution of judgments in all cases decided in its  
favor (by the CTA and regular courts);  
d. Give effect and administer the supervisory and police powers conferred
to it by the NIRC and other laws.  
e. Recommend to the Secretary of Finance all needful rules and regulations
for the effective enforcement of the provision of the NIRC.
[] NB: collection of taxes is an executive function.391
2. Powers of the Commissioner [DO TIRE- RAID PIA]
a. Decide disputed assessments, refunds of internal revenue taxes, fees,
charges and penalties in relation thereto or other matters related to it subject
391 Q: Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy
upon and sale of real properties of the decedent without first securing the authority of the court
sitting in probate over the supposed will of the decedent? (1998 Bar) A: *****YES, the BIR is
authorized to collect estate tax deficiency through the summary remedy of levying upon and sale
of real properties of a decedent without the cognition and authority of the court sitting in
probate over the supposed will of the deceased *****because of the collection of estate tax is
executive in character. As such the estate tax is exempted from the application of the statute of
non-claims, and this is justified by the necessity of government funding, immortalized in the maxim
that taxes are the lifeblood of the government (Marcos v. CIR, G.R. No. 120880, June 5, 1997).
to the exclusive appellate jurisdiction of the CTA;392 NOTE: R.R. 12-99 -

Power to decide disputed assessments may also be exercised by Regional
Directors.  
b. To Obtain information, summon, examine and take testimony of
persons.  
c. To Terminate taxable period for reasons provided in the NIRC;  
d. To Interpret provisions of the NIRC and other tax laws subject to review
by the Secretary of Finance;  
e. To make or amend Return in case taxpayer fails to file a return or files a
false or fraudulent return;  
f. To Examine returns and determine tax due;  
g. To prescribe any additional Requirements for the submission or
preparation of financial statements accompanying tax returns;  
h. To make Assessments, prescribe additional requirements for tax
administration and purposes;  
392 Which court acts on: disputed assessments? ANSWER: ******The CTA exercises exclusive
appellate jurisdiction over disputed assessments. (BAR 1992)
[] Pursuant to the National Internal Revenue Code and under existing rules and regulations, the
Commissioner of Internal Revenue is clothed with the authority/power to evaluate facts of tax cases
and issue assessments/demands against a taxpayer for deficiency taxes. If a KTC [sic] Judge, on motion
of an informer, renders a decision ordering the Commissioner to assess and collect from the
taxpayer certain deficiency taxes when, in fact, the BIR has already ascertained that no deficiency
taxes are due the taxpayer, what proper course of action would you advise your informer-client to
undertake? ANSWER: *****The issue being disputed assessment, jurisdiction, if at all, lies with
the Court of Tax Appeals and not with the RTC. The court decision, in my view, can be voided. I
would simply advice my client to pursue the matter administratively. If the evidence warrants, I
could have the matter investigated by the Ombudsman. ALTERNATIVE ANSWER: I will advise the
client to go to the BIR to file an information under oath so that it may consider any evidence my client
may have in his possession. (BAR 1992)
[] When a protest against the deficiency income tax assessment was denied by the BIR
Regional Director of Quezon City, the appeal to the Court of Tax Appeals must be filed by a taxpayer:
(2012 BAR) a) If the amount of basic tax assessed is P100,000.00 or more; b) If the amount of
basic tax assessed is P300,000.00 or more; c) If the amount of basic tax assessed is P500,000.00 or
more; d) If the amount of basic tax assessed is P1 Million or more; SUGGESTED ANSWER: All the
choices are correct. All decisions on disputed assessments are appealable to the CTA (in Division)
irrespective of the amount (Section 3, RA 9282).
i. ******To Inquire into bank deposits of393

i. Decedent to determine his gross income;394  
ii. A taxpayer who filed application to compromise payment of
393 Can the Commissioner of Internal Revenue inquire into the bank deposits of a taxpayer? If so,
does this power of the Commissioner conflict with R.A. 1405 (Secrecy of Bank Deposits Law). (1998
Bar) A: *****The Commissioner of Internal Revenue is authorized to inquire into the bank deposits
of: a. A decedent to determine his gross estate; b. Any taxpayer who has filed an application for
compromise of his tax liability by means of financial Incapacity to pay his tax liability (Sec. 6(F),
NIRC). See (c), supra. The limited power of the Commissioner does not conflict with R.A. No. 1405
because the provisions of the Tax Code granting this power is an exception to the Secrecy of Bank
Deposits Law as embodied in a later legislation. Furthermore, in case a taxpayer applies for an
application to compromise the payment of his tax liabilities on his claim that his financial position
demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless
and until he waives in writing his privilege under R.A. No. 1405, and such waiver shall
constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer. (BAR 1998)
[] A Co., a Philippine corporation, is a big manufacturer of consumer goods and has several
suppliers of raw materials. The BIR suspects that some of the suppliers are not properly reporting
their income on their sales to A Co. The CIR therefore: Issued an access letter to A Co. to furnish the
BIR information on sales and payments to its suppliers. Issued an access letter to a bank (X Bank)
to furnish the BIR on deposits of some suppliers of A Co. on the alleged ground that the suppliers are
committing tax evasion. A Co., X Bank and the suppliers have not been issued by the BIR letter of
authority to examine. A Co. and X Bank believe that the BIR is on a “fishing expedition" and come
to you for counsel. What is your advice? (10%) SUGGESTED ANSWER: I will advise A Co. and B
Co. [TOM: this should be X bank] that the BIR is justified only in getting information from the
former but not from the latter. The BIR is authorized to obtain information from other persons
other than those whose internal revenue tax liability is subject to audit or investigation. However, this
power shall not be construed as granting the Commissioner the authority to inquire into bank deposits.
(Section 5, NIRC). (BAR 1999)
394X dies in year 2000 leaving a bank deposit of P2, 000,000.00 under joint account with his
associates in a law office. Learning of X’s death from the newspapers, the Commissioner of Internal
Revenue wrote to every bank in the country asking them to disclose to him the amount of deposits
that might be outstanding in his name or jointly with others at the date of his death. May the bank
holding the deposit refuse to comply on the ground of the Secrecy of Bank Deposit Law? Explain.
SUGGESTED ANSWER: No. *****The Commissioner of Internal Revenue has the authority to
inquire into bank deposit accounts of a decedent to determine his gross estate notwithstanding
the provisions of the Bank Secrecy Law. Hence, the banks holding the deposits in question may not
refuse to disclose the amount of deposits on the ground of secrecy of bank deposits. (Section 6(F)
of the 1997 Tax Code). The fact that the deposit is a joint account will not preclude the
Commissioner from inquiring thereon because the law mandates that if a bank has knowledge of
the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall
not allow any withdrawal from the said deposit account, unless the Commissioner has certified
that the taxes imposed thereon have been paid. (Section 97 of the 1997 Tax Code). Hence, to be
able to give the required certification, the inclusion of the deposit is imperative, which may be
made possible only through the inquiry made by the Commissioner. (BAR 2003)
tax liability by reason of financial incapacity;395  

iii. A specific taxpayer or taxpayers subject of a request for the
supply of tax information from a foreign tax authority pursuant to an
international convention or agreement on tax matters to which the
Philippines is a signatory or a party of. Provided, That the information
obtained from the banks and other financial institutions may be used by the BIR
for tax assessment, verification, audit and enforcement purposes;  
j. To Delegate powers vested upon him to subordinate officials with rank
equivalent to Division Chief or higher, subject to limitations and restrictions
imposed under the rules and regulations.
k. To Prescribe real property values;  
l. To take Inventory of goods of any taxpayer, and  
place any business under observation or surveillance IF there is reason to believe
that such is not declaring his correct income, sales or receipts for tax purposes;  
m. To register tax Agents;  
4. Q: What are the purposes of these powers?
a. To ascertain correctness of the return;  
b. To make a return when none has been made;  
c. To determine liability of any person for any internal revenue tax;  
d. To collect such liability;  
e. To evaluate tax compliance.  
5. What is the scope of such powers?
a. To examine any book, paper, record or other data which may be relevant
or material to such inquiry;  
b. To obtain any information (costs, volume of production, receipts, sales,
gross income) on a regular basis, from any person other than the person under
investigation and any office or officer of the national/local government;  
c. To summon the following to produce records and to give testimony:
i. The person liable for tax or required to file a return;
ii. Any officer or employee of such person;  
iii. Any person having in his possession, custody and care the books
395A taxpayer is suspected not to have declared his correct gross income in his return filed for
1997. The examiner requested the Commissioner to authorize him to inquire into the bank
deposits of the taxpayer so that he could proceed with the net worth method of investigation to
establish fraud. May the examiner be allowed to look into the taxpayer’s bank deposits? In what cases
may the Commissioner or his duly authorized representative be allowed to Inquire or look into the
bank deposits of a taxpayer? (5%) SUGGESTED ANSWER: No, as this would be violative of
Republic Act No. 1405, the Bank Deposits Secrecy Law. *****The Commissioner of Internal Revenue
or his duly authorized representative may be allowed to inquire or look into the bank deposits of a
taxpayer in the following cases: For the purpose of determining the gross estate of a decedent
[TOM: in the problem, the dude is not yet dead]; Where the taxpayer has filed an application for
compromise of his tax liability by reason of financial incapacity to pay such tax liability. [Sec. 6
(F), NIRC of 1997]; Where the taxpayer has signed a waiver authorizing the Commissioner or his
duly authorized representatives to inquire into the bank deposits. (BAR 2000)
of accounts, accounting records of entries related to the business of  

such taxpayer.  
6. Q: *****What are the powers of the BIR which cannot be delegated? [RICA]
a. To Recommend promulgation of rules and regulations by the Secretary
of Finance;  
b. To Issue rulings of first impression or to reverse,  
revoke or modify any existing rule of the BIR;  
c. GR: To Compromise or abate any tax liability;  
XPN: The Regional Evaluation Board may compromise assessments
involving deficiency taxes of P500,000 or less and minor crime violations.  
d. To Assign or reassign internal revenue officers to establishments where
articles subject to excise tax are kept.  
7. Q: Will errors or mistakes of administrative officials bind the government
as to the collection of taxes?******
a. GR: Errors or mistakes of administrative officials (including the BIR)
should never be allowed to jeopardize the financial position of the government
Reason: Taxes are the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its functions for the
welfare of its constituents (CIR v. Citytrust and CTA, G.R. No. 106611, July 21,
1994).
b. XPN: For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such protection.
As a corollary, the exceptions to the law on prescription should perforce be strictly
construed (CIR v. Goodrich Philippines Inc., G.R No. 104171, February 24, 1999)
c. In the Citytrust case, which involves a claim for refund, the error or neglect was
the failure of the Solicitor General to present its evidence, as counsel for the CIR,
due to the unavailability of the necessary records from BIR, prompting the
Solicitor to submit the case for decision without presenting any evidence. While in
Goodrich, the error committed refers to the neglect of the BIR to make assessment
within the 3-year period as required in Sec. 203, NIRC.
B. POWER OF THE COMMISSIONER TO INTERPRET TAX LAWS

AND TO DECIDE TAX CASES.
*not included the GN
1. STATUTORY BASIS [] NIRC, Section 4396 confers upon the CIR both:
a. The power to interpret tax laws in the exercise of her quasi-legislative
function; and
b. The power to decide tax cases in the exercise of her quasi-judicial
function.
2. Remedy or review against the decision of the Commissioner under Sec. 4
a. Under the first paragraph, the power to interpret the provisions of the
NIRC – review by the Secretary of Finance. Review of the decision of the
Secretary of Finance is Appealable to CTA as implied from Sec. 7(a)(1) of RA
1125 (Philam Life v. Secretary of Finance, G.R. No. 210987, 24 November 2014).397 Note
that CTA has certiorari decision under Art. VIII, Sec. 1 of the 1987
396SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - *****The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
[] The Commissioner of Internal Revenue issued a BIR ruling to the effect that the
transaction is liable to income tax and value added tax. Upon receipt of the ruling, a taxpayer does
not agree thereto. What is his proper remedy? (2012 BAR) a) File a petition for review with the Court
of Tax Appeals within thirty (30) days from receipt thereof; b) File a motion for reconsideration with
the Commissioner of Internal Revenue; c) File an appeal to the Secretary of Finance within thirty (30)
days from receipt thereof; d) File an appeal to the Secretary of Justice within thirty (30) days from
receipt thereof. SUGGESTED ANSWER: c) File an appeal to the Secretary of Finance within
thirty (30) days from receipt thereof Section 4, NIRC. [*****TOM—since it involves
interpretation of a tax law]
397Rationale for the implied interpretation - Indeed, to leave undetermined the mode of appeal from
the Secretary of Finance would be an injustice to taxpayers prejudiced by his adverse rulings. To
remedy this situation, We imply from the purpose of RA 1125 and its amendatory laws that the CTA is
the proper forum with which to institute the appeal. This is not, and should not, in any way, be
taken as a derogation of the power of the Office of President but merely as recognition that
matters calling for technical knowledge should be handled by the agency or quasi-judicial body with
specialization over the controversy. As the specialized quasi-judicial agency [TOM: this must be
referring to the old CTA because it refers to it as a quasi-judicial agency] mandated to adjudicate tax,
customs, and assessment cases, there can be no other court of appellate jurisdiction that can decide the
issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold. Quoted
by LPS.
Constitution.398
b. Under the second paragraph, the power to decide tax cases (power to
decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising from the
code and other laws administered by the BIR) – appeal is within the jurisdiction of
CTA.
C. NON-RETROACTIVITY OF RULINGS.
*See similar topic under General Principles (Module 1).
D. Power of the Commissioner399 to suspend the business operation of a

taxpayer
E. AUTHORITY OF THE COMMISSIONER TO COMPROMISE OR

ABATE TAXES
1. The CIR may compromise with respect to criminal and civil cases arising
398 Does the absence of a provision granting the CTA certiorari powers mean it cannot determine lack
or excess of jurisdiction or grave abuse of discretion? No, in City of Manila v. Grecia-Cuerdo (G.R. No.
175723, February 4, 2014), the Court en banc has ruled that the CTA now has the power of certiorari
in cases within its appellate jurisdiction. In the case, the court ruled that the Doctrine that the
authority to issue writs of certiorari involves the exercise of original jurisdiction which must be
expressly conferred by the Constitution or by law and cannot be implied from the mere existence
of appellate jurisdiction only applies to agencies exercising quasi-judicial functions and not courts, (the
CTA belongs to the latter). This is based on Sec. 1 Art. 8 of the Constitution, that judicial power shall
be vested in one Supreme Court and in such lower courts as may be established by law
*NB LPS– The ruling of the SC in Philam life v. Secretary of Finance is in complete contrast
with its ruling in the 2015 case of CIR v. CA and Petron Corp., G.R. No. 207843, July 15, 2015 where the
court held that the CTA is a court of special jurisdiction, with power to review by appeal decisions
involving tax disputes rendered by either the CIR or the COC. Conversely, it has no jurisdiction to
determine the validity of a ruling issued by the CIR or the COC in the exercise of their quasi-
legislative powers to interpret tax laws. (In which case, the proper mode of appeal should be from
the Sec. of finance – Office of the President – then Ordinary Courts). It is however submitted that the
Philam ruling be followed for there the court ruled that “City of Manila diametrically opposes British
American Tobacco to the effect that it is now within the power of the CTA, through its power of
certiorari, to rule on the validity of a particular administrative rule or regulation so long as it is within
its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.” (The 2015 CIR v. CA case was based
from British American Tobacco ruling)
399Which of the following defenses may XYZ Corp. interpose in an assessment against it by the BIR?
(1%) (2013 Bar Question) (A) The BIR has no authority to obtain third party information to assess
taxpayers. (B) The third party information is inadmissible as hearsay evidence. (C) The system of
requiring taxpayers to submit third party information is illegal for violating the right to privacy. (D)
None of the above. SUGGESTED ANSWER: (D) None of the above. Section 6(B) of the
*****NIRC authorizes the Commissioner to assess the property tax due from a taxpayer when he
believes that the report the taxpayer submitted is false, incomplete, or erroneous. The same
provision authorizes the Commissioner to amend the return from his own knowledge and from such
information he can obtain through testimony or otherwise, which is deemed prima facie correct and
sufficient for all legal purposes.
from violations of the NIRC as well as the payment of any internal revenue tax
when: (2000, 2009 Bar)******
a. A reasonable doubt400 as to the validity of the claim against the
taxpayer exists provided that the minimum compromise entered into is equivalent
to 40% of the basic tax (Doubtful Validity);
b. The financial position of the taxpayer demonstrates a clear inability401
to pay the assessed tax provided that the minimum compromise entered into is
400 *****There is reasonable doubt on the validity of the assessment when: (2004 Bar) [JAF4BWA]
i. The delinquent account or disputed assessment is one resulting from a Jeopardy assessment.
ii. The Assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is
reason to believe that it is lacking in legal and/or factual basis.
iii. The taxpayer Failed to file an administrative protest on account of the alleged failure to receive
notice of assessment and there is reason to believe that the assessment is lacking in legal and/or factual
basis.
iv. The taxpayer Failed to file a request for reinvestigation/reconsideration within 30 days from receipt
of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or
factual basis.
v. The taxpayer Failed to elevate to the CTA an adverse decision of the CIR, or his authorized
representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the
assessment is lacking in legal and/or factual basis.
vi. The assessment were issued on or after January 1, 1988, where the demand notice allegedly failed to
comply with the Formalities prescribed under Section 228 of the Tax Code of 1997.
vii. Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe
that the same can be disputed by sufficient and competent evidence.
viii. Assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s
execution of Waiver of the Statute of Limitations the validity or authenticity of which is being
questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic
(Sec. 3.1, RR 30-2002).
ix. The assessment is based on an issue where a court of competent jurisdiction made an Adverse
decision against the bureau, but for which the Supreme Court has not decided upon with finality (R.R.
8-2004).
401T/F. When the financial position of the taxpayer demonstrates a clear inability to pay the tax, the
Commissioner of Internal Revenue may validly compromise the tax liability. SUGGESTED ANSWER:
True. Financial incapacity is a ground allowed by law in order that the Commissioner of Internal
Revenue may compromise a tax liability (Section 204, NIRC), (BAR 2009)
*****equivalent to 10%402 of the basic assessed tax (Financial Incapacity),

The offer for compromise based on financial incapacity may be accepted upon
showing that: [CB- DIN]. NB: the “clear inability to pay” ground does not apply
to the withholding agent because the withholding of taxes is a mere procedure, it
it is not a tax against the withholding agent, hence, not a ground for
compromise.403
i. The corporation ceased operation or is already Dissolved.
Provided, that tax liabilities corresponding to the Subscription Receivable or
Assets distributed/distributable to the stockholders representing return of capital
at the time of cessation of operation or dissolution.
ii. The taxpayer, as reflected in its latest Balance Sheet supposed to be
filed with the Bureau of Internal Revenue, is suffering from surplus or earnings
deficit resulting to Impairment in the original capital by at least 50%. NOTE:
That amounts payable or due to stockholders other than business-related
transactions which are properly includible in the regular “accounts payable” are by
fiction of law considered as part of capital and not liability, and that the taxpayer
has no sufficient liquid asset to satisfy the tax liability
iii. The taxpayer is suffering from a Net worth deficit (total liabilities
exceed total assets) computed by deducting total liabilities (net of deferred credits
and amounts payable to stockholders/owners reflected as liabilities, except
business related transactions)) from total assets (net of pre-paid expenses,
402Q: After the tax assessment had become final and unappealable, the CIR initiated the filing of
a civil action to collect the tax due from NX. After several years, a decision was rendered by the court
ordering NX to pay the tax due plus penalties and surcharges. The judgment became final and
executory, but attempts to execute the judgment award were futile. Subsequently, NX offered the
CIR a compromise settlement of 50% of the judgment award, representing that this amount is all
he could really afford. Does the CIR have the power to accept the compromise offer? Is it legal and
ethical? (2004 Bar) A: *****YES, the CIR has the power to accept the offer of compromise if the
financial position of the taxpayer clearly demonstrates a clear inability to pay the tax (Sec. 204,
NIRC). As represented by NX in his offer, only 50% of the judgment award is all he could really
afford. This is an offer for compromise based on financial incapacity which the CIR shall not accept
unless accompanied by a waiver of the secrecy of bank deposits (Sec. 6 [F], NIRC). *****The
waiver will enable the CIR to ascertain the financial position of the taxpayer, although the
inquiry need not be limited only to the bank deposits of the taxpayer but also as to his financial
position as reflected in his financial statements or other records upon which his property holdings can
be ascertained. If indeed, the financial position of NX as determined by the CIR demonstrates a clear
inability to pay the tax, the acceptance of the offer is legal and ethical for the ground upon which
the compromise was anchored is within the context of the law and the rate of compromise is well
within and far exceeds the minimum prescribed by law which is only 10% of the basic tax
assessed.
403Q: May the CIR compromise the payment of withholding tax where the financial position of the
taxpayer demonstrates a clear inability to pay the assessed tax? (1998 Bar) A: No, a taxpayer who is
constituted as withholding agent who has deducted and withheld at source the tax on the income
payment made by him holds the taxes in trust for the government (Sec. 58 [D], NIRC) and is obligated
to remit them to the BIR. *****The subsequent inability of the withholding agent to pay/remit
the taxes withheld is not a ground for compromise because the withholding tax is not a tax
upon the withholding agent but it is only a procedure for the collection of a tax.
deferred charges, pre-operating expenses, as well as appraisal increases in fixed

assets,) taken from the latest audited financial statements, NOTE: In the case of
an individual taxpayer, he has no other leviable properties under the law other
than his family home
iv. The taxpayer is a Compensation income earner with no other
source of income and the family’s gross monthly compensation income does not
exceed the levels of compensation income provided for Sec. 4.1.1. of Revenue
Regulations 30-2002404 and it appears that the taxpayer possesses no other leviable/
distrainable assets, other than his family home
v. The taxpayer has been declared by any competent tribunal/
authority/body/ government agency as Bankrupt or insolvent.
*A preliminary compromise may be entered into by subordinate officials subject to
review by the CIR:
(1) Tax assessments by revenue officers involving basic
deficiency taxes of P500, 000 or less; and
(2) For minor criminal violations (R.R. 30-2002).
2. *****Requisites in order that compromise settlement on the ground of
financial incapacity may be allowed.
a. Clear inability to pay the tax; and
b. The taxpayer must waive in writing405 his privilege of the secrecy of
bank deposit under RA 1405 or other general or special laws, which shall
constitute as the CIR’s authority to inquire into said bank deposits (Sec. 6 [F],
NIRC).
3. Grounds for Denial of Compromise Settlement Based on Financial
Incapacity:
a. If the taxpayer has a Tax Credit Certificate, issued under the NIRC, or
404NOTE: Sec. 4.1.1 of RR 30-2002: “If taxpayer is an individual whose only source of income is
from employment and whose monthly salary, if single, is P10,500 or less, or if married, whose salary
together with his spouse is P21,000 per month, or less, and it appears that the taxpayer possesses no
other leviable/distrainable assets, other than his family home”
405 Anion, Inc. received a notice of assessment and a letter from the BIR demanding the payment of P3
million pesos in deficiency income taxes for the taxable year 2008. The financial statements of the
company show that it has been suffering financial reverses from the year 2009 up to the present.
Its asset position shows that it could pay only P500,000.00 which it offered as a compromise to the
BIR. Which among the following may the BIR require to enable it to enter into a compromise with
Anion, Inc.? (2011 Bar Question) (A) Anion must show it has faithfully paid taxes before 2009. 
(B) Anion must promise to pay its deficiency when financially able. (C) Anion must waive its right to
the secrecy of its bank deposits. (D) Anion must immediately deposit the P500,000.00 with the BIR.
[] The Commissioner of Internal Revenue may NOT inquire into the bank deposits of a
taxpayer, except: (2012 BAR) a) When the taxpayer files a fraudulent return; b) When the taxpayer
offers to compromise the assessed tax based on erroneous assessment; c) When the taxpayer offers to
compromise the assessed tax based on financial incapacity to pay and he authorizes the Commissioner
in writing to look into his bank records; d) When the taxpayer did not file his income tax return for the
year. SUGGESTED ANSWER: c) When the taxpayer offers to compromise the assessed tax
based on financial incapacity to pay and he authorizes the Commissioner in writing to look
into his bank records; Section 6(F), NIRC.
b. If the taxpayer has a pending claim for tax refund or tax credit with
the BIR, Department of Finance One- Stop-Shop Tax Credit and Duty Drawback
Center (Tax Revenue Group or Investment Incentive Group) and/or the courts,
or
c. If the taxpayer has an existing finalized agreement or prospect of
future agreement with any party that resulted or could result to an increase
in the equity of the taxpayer at the time of the offer for compromise or at a
definite future time, or
d. If the taxpayer failed to execute a waiver of his privilege of the
secrecy of bank deposits under Republic Act No. 1405406 or under other
406*The limited power of the Commissioner does not conflict with R.A. No. 1405 because the
provisions of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law
as embodied in a later legislation. Furthermore, in case a taxpayer applies for an application to
compromise the payment of his tax liabilities on his claim that his financial position demonstrates a
clear inability to pay the tax assessed, his application shall not be considered unless and until he waives
in writing his privilege under R.A. No. 1405, and such waiver shall constitute the authority of the
Commissioner to inquire into the bank deposits of the taxpayer
general or special laws (R.R. 30-2002).407

4. SUMMARY: ******Explain the extent of the authority of the CIR to
compromise and abate taxes (1996 Bar) A: The authority of the CIR to
compromise encompasses both civil and criminal liabilities of the taxpayer.
a. The civil compromise is allowed only in cases: (1) where the tax
assessment is of doubtful validity, or (2) when the financial position of the
taxpayer demonstrates a clear inability to pay the tax.
b. All criminal violations may be compromised except: (1) those already
filed in court, or (2) those involving fraud.
c. The compromise settlement of any tax liability shall be subject to the
following minimum amounts: (1) ten percent (10%) of the basic assessed tax
in case of financial (in)capacity; and (2) forty percent (40%) of the basic
assessed tax in other cases.
d. Where the basic tax involved exceeds P1 million or where the
settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the Evaluation Board which
407 a. May the bank deposits – peso and foreign currency — of the an individual taxpayer be
disclosed by a commercial bank to the Commissioner of Internal Revenue, in connection with a tax
investigation being conducted by revenue officials, without violating the relevant bank secrecy
laws? Explain your answer. (2012 BAR) Suggested Answer: No. As a general rule, bank deposits of an
individual taxpayer may not be disclosed by a commercial bank to the Commissioner. As exceptions,
the Commissioner is authorized to inquire into the bank deposits of: 1. A decedent to determine his
gross estate; 2. Any taxpayer who has filed an application for compromise of his tax liability by reason
of financial incapacity to pay his tax liability. In case a taxpayer files an application to compromise the
payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay
the tax assessed, his application shall not be considered unless and until he waives in writing his
privilege under RA 1405 (Bank Secrecy Law) or under other general or special laws, and such
waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the
tax payer (Sec. 6, NIRC).  
b. In 2011, the Commissioner of the U.S. Internal Revenue Service (IRS) requested in writing
the Commissioner of Internal Revenue to get the information from a bank in the Philippines,
regarding the deposits of a U.S. Citizen residing in the Philippines, who is under examination by
the officials of the US IRS, pursuant to the US-Philippine Tax Treaty and other existing laws.
Should the BIR Commissioner agree to obtain such information from the bank and provide the same
to the IRS? Explain your answer. (2012 BAR): YES. The Commissioner should agree to the request
pursuant to the principle of international comity. The Commissioner of Internal Revenue has
the authority to inquire into bank deposits accounts and related information held by financial
institutions of a specific taxpayer subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international convention or agreement to which the
Philippines is a signatory or party of (Sec. 3, RA 10021).  
c. Is the bank secrecy law in the Philippines violated when the BIR issues a Warrant of
Garnishment directed against a domestic bank, requiring it not to allow any withdrawal from any
existing bank deposit of the delinquent taxpayer mentioned in the Warrant and to freeze the same
until the tax delinquency of said taxpayer is settled with the BIR? Explain your answer. (2012
BAR) *****NO. Garnishment is an administrative remedy allowed by law to enforce a tax liability.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon
the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of
garnishment, the bank shall turnover to the Commissioner so much of the bank accounts as
may be sufficient to satisfy the claim of the Government (Sec. 208, NIRC).
shall be composed of the CIR and the four (4) Deputy Commissioners.
e. ******The CIR may also abate or cancel a tax liability when: (1) the tax
or any portion thereof appears to have been unjustly or excessively assessed;
or (2) the administrative and collection costs involved do not justify
collection of the amount due (Sec. 204, NIRC).
LIMITATIONS ON THE POWER TO COMPROMISE A TAX

LIABILITY
1. The CIR is allowed to enter into a compromise only if the basic tax involved
does not exceed P1M and the settlement offered is not less than the
prescribed percentages (Sec. 204 [A], NIRC). Minimum compromise rate:
a. For cases of “financial incapacity” -If taxpayer is an individual whose
only source of income is from employment and whose monthly salary, if single is
P10,500 or less or if married, whose salary together with his spouse is P21,000 per
month, or less and it appears that the taxpayer possesses no other available
distrainable assets other than his family home – 10%
b. If taxpayer is an individual without any source of income – 10%
c. Taxpayer is under any of the following conditions
i. Zero net worth – 10%
ii. Negative net worth – 10%
iii. Dissolved corporations – 20%*****
iv. Already non-operating companies for a period of: (a) 3 years or
more as of the date of application for compromise settlement - 10%; (b) less
than 3 years – 20%
v. Surplus or earning deficit resulting to impairment in the original
capital by at least 50% - 40%
vi. Declared insolvent or bankrupt unless taxpayer falls squarely under
any situation as discussed above, thus resulting to the application of the
appropriate rate – 10%
d. For cases of “doubtful validity” – a minimum compromise rate
equivalent to 40% of the basic tax assessed (Sec. 4, R.R. 30-2002).
2. Subject to approval of Evaluation Board:
a. When basic tax involved exceeds P1,000,000
b. Where the settlement offered is less than the prescribed minimum
rates. (Sec. 204, NIRC).
c. When the CIR is not authorized to compromise
———————————————————————————————
REFERENCES
1. UST Notes:408 GN; Bar Q&As; lectures and notes of Atty. Lumbera & J.
Dimaampao
2. Tax law books of J. Dimaampao, Atty. Ingles, J. Vitug & Acosta.
3. Contributions from: Kyle (esp. LGC & CMTA), Lau (esp. Tax Remedies), Decs
and Denis. 
408These notes were culled mainly from notes (GN), lectures, outlines, case summaries, etc. provided to
students at the UST Faculty of Civil Law, plus researches and updates by those who write them in and
contribute to their present form. Errors are to be attributed to the main author and he is asking you to
send him whatever you think needs to be corrected at tomlawnotes@gmail.com. Aside from that, all
he requests from you is prayers for him, his family and friends. Yes, seriously, if you are happy with
these notes, please send him prayers, generous prayers, if possible. His favorite prayer is the Holy Mass,
and oh, Rosaries :)

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TOM Bar Reviewer on Taxation Law II

Module 9. Transfer Taxes I: Estate Tax

1a. Funeral Expense (FE) 42

SUMMARY OF TAX CONSEQUENCES IN ESTATE TAX

SUMMARY OF TAX CONSEQUENCES IN DONOR’S TAX

b. from a donor to a donee. [DONOR’S TAX; donations inter vivos]3

3 ***NUANCES OF DONATION INTER VIVOS

DONATION INTER VIVOS DONATION MORTIS CAUSA

i. tax on the right of the deceased person to TRANSMIT his estate

ESTATE TAX DONOR’S TAX

ESTATE TAX DONOR’S TAX

INCOME TAX (IT) vs. VAT vs. ET vs. DT*****

TRANFER TAX INCOME TAX

FOUR KINDS OF ESTATES & DONORS

KINDS OF PROPERTIES FOR TRANSFER TAXATION

non-resident alien decedent or donor, the following intangible personal properties

i. TOTAL EXEMPTION: if the foreign country of the non-

WHERE TAX RETURN IS FILED

MORE ON ESTATE TAXATION

GROSS ESTATE (GE)

shall be subject to tax.

ESTATE TAX NUANCES

NATURE & CHARACTERISTICS OF ESTATE TAX

b. AD VALOREM tax: it is based on the fair market value as of the time of

e. GENERAL: PURPOSE is to RAISE REVENUE for the government

REQUISITES for the imposition of Estate Tax (DANd):

TIME & TRANSFER OF PROPERTIES

Estate Tax vs. Inheritance tax

THEORIES FOR THE IMPOSITION OF ESTATE TAX

THEORIES vs. PURPOSES FOR IMPOSING ESTATE TAX

4. To Compensate the government for the protection given to the decedent

ESTATE TAX RATES

A. Some considerations under Sec 84 NIRC:

b. Assessment/collection: administrative in character; implementation/

B. Valuation of the Gross Estate

a. The FMV as determined by the Commissioner; or

b. Real Property: Art 415 NCC11

11 [] Art. 415. The following are immovable property:

C. Payment of Tax [SEC. 91]

iii. Such beneficiary shall be subsidiarily liable for the payment of

e. *****The approval of the court, sitting in probate or as a settlement tribunal

Administrator [SEC. 94] - ******No judge shall authorize the executor or

C. Duties of certain officers: SEC. 95. Duties of Certain Officers and

D. Summary of Effects of non-payment of ET

1. As the name “transfer tax” implies, there can be NO transfer of properties

Determination of the Gross Estate

A. Types of Estate Taxpayers; Classification of Decedent

2. Composition of the gross estate: ******the value at the time19 of death20 of

a. RESIDENT DECEDENT: If the decedent is a resident22 or non-

resident citizen, or a resident23 alien24: all properties, real or personal, tangible

RESIDENT DECEDENT NON-RESIDENT DECEDENT

***ON SURVIVORSHIP AGREEMENTS

ITEMS OF INCLUSIONS26 IN THE GROSS ESTATE

A. Decedent's interest (DI)

B. Transfer in contemplation of death (TCD)

30 Other descriptions for transfer in contemplation of death:

TRUST is covered because there is NO TRANSFER OF OWNERSHIP in such arrangement.

included in the decedent’s GE.

G. Transfers of insufficient consideration (TIC)

LOSS DT/ET Sec. 127, DT, ET CGT (6%) DT/ET

C. Revocable transfer (RT)

full ownership is now vested in him.

11 [] Art. 415. The following are immovable property: 

included in the decedent’s GE.  

full ownership is now vested in him. 

1c. Claims against the estate (CAE) 

entire amount subject to IT;  