Updates on Taxation

2014

GENERAL PRINCIPLES
CHEVRON PHILIPPINES, INC. vs. BCDA & CDC
CDC imposed on Chevron a royalty fee of P0.50 per liter on fuel
deliveries made to customers inside the CSEZ. Chevron protested
stating that the imposition is a tax which CDC has no power to
impose.
??? Is the royalty fee a tax or a regulatory measure?
!!! It is a REGULATORY FEE. The royalty fee was deemed imposed
primarily for regulatory purposes and not for generation of income
which is the primary feature of a tax levy. The Court mentioned
that the oil industry is greatly imbued with public interest and
that the highly combustible product poses serious threat to life
and property. It also upheld the reasonable relation between the
fee and the regulation sought to be attained given the high
volume of fuel entering the CSEZ and the fact that the increasing
administrative costs were triggered by security risks arising from
possible terrorist strikes. Thus, CDC was authorized to impose the
fee.

GENERAL PRINCIPLES
ANGELES UNIVERSITY FOUNDATION vs. CITY OF
ANGELES

Petitioner is a non-stock, non-profit educational foundation. It

received a Building Permit Fee assessment for the construction of
the AUF Medical Center but claimed exemption from the same as
well as from other permits and fees by virtue of Republic Act 6055.
Respondent disputed the claimed exemption by stating that the
impositions are regulatory in nature and not taxes from which
Petitioner is exempt under the said law.
??? Is the building permit fee a tax from which Petitioner is
exempt?
!!! It is a REGULATORY FEE. The DPWH has in fact issued
implementing rules which provide the bases for the assessment of
fees and Petitioner has failed to show that they were arbitrarily
determined or unrelated to the activity being regulated. Neither
has there been proof that the fee was unreasonable or in excess
of the cost of regulation or inspection. The Court added that even
if there was incidental revenue, the same is deemed not to
change the nature of the charge. Thus, the City of Angeles was
+
justified in its assessment.

GENERAL PRINCIPLES
CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION
Shell filed a claim for refund for excise taxes it paid on sales of
gas and fuel oils to various international carriers. The Court
initially denied the claims but the Respondent filed a Motion for
Reconsideration.
??? Is Shell entitled to refund the excise taxes?
!!! YES. Section 135 is concerned with the exemption of the article
itself and not the ostensible exemption of the international carrierbuyer. In addition, the failure to grant exemption will cause
adverse impact on the domestic oil industry (similar to the
practice of tankering) as well as result to violations of
international agreements on aviation. Thus, Respondent, as the
statutory taxpayer who is directly liable to pay the excise tax, is
entitled to a refund or credit for taxes paid on products sold to
international carriers.
*** The subsequent sale of the taxable goods to international
carriers confirms the proper tax treatment of the goods previously
subjected to the excise tax.

GENERAL PRINCIPLES
PHILIPPINE AIRLINES INC. vs. CIR
Caltex sold aviation fuel to PAL and included excise taxes in its
billings. PAL filed for a refund of the excise taxes passed-on to it
by Caltex. The claim was based on PALs franchise (P.D. 1590)
which confers upon PAL tax exemption on purchases of fuel. The
CTA denied PALs claim using as basis the earlier decision in
Silkair.

??? Does PAL have standing to refund the excise taxes passed-on
by Caltex?

!!! YES. The case of Silkair is not applicable since PALs franchise
provides it with tax exemption privileges from both direct and
indirect taxes. While there have been previous cases discussing
which party is entitled to a refund in the case of excise taxes sold
to exempt entities, the Court reiterated the statement in Silkair
which said that it is primarily the statutory taxpayer which has the
right to file the claim. However, the above rule was deemed not to
apply in PALs case since the law/franchise clearly grants the party
to which the economic burden of the tax is shifted (i.e., PAL) an
+ the
exemption from both direct and indirect taxes, thus following

GENERAL PRINCIPLES
BUREAU OF CUSTOMS EMPLOYEES ASSOCIATION
(BOCEA) vs. TEVES
BOCEA questions R.A. 9335 (Attrition Act of 2005) and states
that the law violates their rights to (1) due process; (2) equal
protection of the laws; and (3) security of tenure. They likewise
claim that the same is an undue delegation of legislative power
and is a bill of attainder.
??? Is the law unconstitutional?
!!! NO.
(1)Given the clear parameters on revenue targets, rewards,
removal levels, etc., R.A. 9335 is complete in all its essential
terms and conditions and contains sufficient standards that
negate a claim of undue delegation.
(2)BOC and BIR are both revenue-generating agencies that are
both under the DOF. Such substantial distinction Is germane
and related to the purpose of the law.
(3)The law does not deny the BOC employees their right to be
heard and they still can not be arbitrarily removed.
(4)It is not a bill of attainder as the same does not seek to punish
without a judicial trial as all it does is lays down the grounds for
possible termination.

GENERAL PRINCIPLES
ASIA INTERNATIONAL AUCTIONEERS, INC. vs. CIR
??? Is a deficiency VAT assessment tantamount to a an
assessment for withholding tax liabilities such that the taxpayer
cannot avail of a tax amnesty program?
!!! NO. The CIR did not assess AIA as a withholding agent that
failed to withhold or remit the deficiency VAT and excise tax to the
BIR under relevant provisions of the Tax Code. Hence, the
argument that AIA is deemed a withholding agent for these
deficiency taxes is fallacious. Indirect taxes, like VAT and excise
tax, are different from withholding taxes. To distinguish, in indirect
taxes, the incidence of taxation falls on one person but the burden
thereof can be shifted or passed on to another person, such as
when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. On the other hand, in case of
withholding taxes, the incidence and burden of taxation fall on the
same entity, the statutory taxpayer. The burden of taxation is not
shifted to the withholding agent who merely collects, by
withholding, the tax due from income payments to entities arising
from certain transactions and remits the same to the government.
+

GENERAL PRINCIPLES
DEUTSCHE BANK AG MANILA BRANCH vs. CIR
Petitioner withheld a 15% tax on its remittances to its head
office in Germany using as basis the Tax Code provision on BPRT.
Believing that it overpaid the BPRT since the RP-Germany provides
for a lower rate of 10% on branch remittances, the Petitioner filed
a refund with the BIR and subsequently with the CTA. Both the BIR
and the CTA denied stating that the branch office should have
filed a tax treaty relief application prior to availing of the
preferential treaty rate in view of the existing doctrine in the
Mirant case.
??? Is Deutsche Bank entitled to the claim for refund even if it did
not file a tax treaty relief application with the BIR?

GENERAL PRINCIPLES
DEUTSCHE BANK AG MANILA BRANCH vs. CIR
!!! YES! The Court initially stated that the minute resolution
upholding the doctrine in Mirant is not a binding precedent
specially since there are differences in the parties, taxable period,
etc. On the substantive issue, the Court said that the principle of
pacta sunt servanda requires the performance in good faith of
treaty obligations. Thus, to require that taxpayers must first
comply with an administrative requirement (under RMO 1-2000) is
not in consonance with the performance in good faith. The
obligation to comply with a tax treaty must take precedence over
the objectives of the said RMO. In addition, it was pointed out that
the prior application becomes illogical if the premise of the claim
was an erroneous payment since the taxpayer could not have
known it would be entitled to the refund since precisely it was
using a different basis when it paid the taxes due.

GENERAL PRINCIPLES
SWEDISH MATCH PHILIPPINES, INC. vs.
TREASURER OF THE CITY OF MANILA
The City of Manila sought to enforce both Sections 14 and 21 of
the Manila Revenue Code claiming that the former is a tax on
manufacturers, etc. while the latter applies to business subject to
excise, VAT or percentage tax.
??? Will the imposition of both sections amount to invalid double
taxation?
!!! YES. There is in fact double taxation since both sections are
being imposed on the same subject matter (privilege of doing
business within the city), for the same purpose, by the same
taxing authority, within the same taxing jurisdiction, for the same
taxing period, and of the same kind or character (a local business
tax imposed on gross sales or receipts). The Court further said
that the LGC provision applicable (Section 143) clearly states that
Section 143 (h) may be imposed only on businesses that are
subject to excise tax, VAT, and percentage tax and that are not
otherwise specified in the preceding paragraphs.

GENERAL PRINCIPLES
LAND BANK OF THE PHILIPPINES vs. CACAYURAN
The Municipality of Agoo in La Union province passed a
resolution authorizing its mayor to obtain a loan from the
Petitioner and mortgaging as collateral a portion of the Agoo
plaza. As additional security, the municipality assigned a portion
of its internal revenue allotment (IRA) in favor of the Petitioner.
The loan proceeds were used to construct a commercial center on
the plaza which was objected to by the local residents including
the Respondent.
??? Did the Respondent have standing to file for the nullification of
the loan?
!!! YES. The two requisites for a taxpayers suit have been
complied with. First, even if the construction of the commercial
center would be sourced from the loan proceeds from the
Petitioner, the said funds were already converted into public funds
upon receipt by the municipality and the assignment of the IRA
likewise characterized the funds as public. Second, since the plaza
is for public use, the Respondent, like all other Agoo residents, is
directly affected. Besides it has been held that as long as taxes
+
are involved, people have a right to question government

INCOME TAX
CIR vs. JULIA CAMPOS BENEDICTO
After the PCGG filed cases to recover the ill-gotten wealth of the
late husband of the Respondent, a compromise agreement was
reached wherein the parties agreed that Swiss cases involving
Respondents husbands bank deposits would be terminated in
exchange for the PCGG unfreezing all of the deposits so that
Benedicto could get his 49% share from the deposits. The CIR
assessed the amount of the unfrozen accounts claiming that the
same was income subject to tax.
??? Did the Respondents husband realize income as a result of
the compromise agreement which led to him receiving 49% of the
deposits?
!!! NO. The 49% was in no way income because the Respondents
husband did not gain any wealth nor did he become any richer
than he was before as in fact his wealth diminished to the extent
of the 51% which he ceded to the PCGG. The 49% was a mere
return of capital not subject to income tax. The Court ruled that it
is only the interest income of the deposits which may be+
subjected

INCOME TAX
CIR vs. ST. LUKES MEDICAL CENTER, INC.
St. Lukes is a non-stock non-profit hospital. The BIR assessed
St. Lukes based on the argument that Section 27 (B) of the Tax
Code should apply to it and hence all of St. Lukes income should
be subject to the 10% tax therein as it is a more specific provision
and should prevail over Section 30 which is a general provision.
St. Lukes countered by saying that its free services to patients
was 65% of its operating income and that no part of its income
inures to the benefit of any individual.
??? Does Section 27 (B) have the effect of taking proprietary nonprofit hospitals out of the income tax exemption under Section 30
of the Tax Code and should instead be subject to a preferential
rate of 10% on its entire income?
!!! NO. The enactment of Section 27 (B) does not remove the
possible income tax exemption of proprietary non-profit hospitals.
The only thing that Section 27 (B) captures (at 10% tax) in the
case of qualified hospitals is in the instance where the income
realized by the hospital falls under the last paragraph of +
Section

INCOME TAX
CIR vs. ST. LUKES MEDICAL CENTER, INC.

PAY PATIENTS
30%
INCOME TAX =
SUBJECT
AT 10% (ST
LUKES)

CHARITY PATIENTS
70%

RESTAURANTS,
ETC.

INCOME TAX =
EXEMPT

INCOME TAX =
SUBJECT AT 10%
RPT = SUBJECT

RPT = EXEMPT
RPT = STILL
EXEMPT (LUNG
CENTER)

INCOME TAX
CIR vs. ST. LUKES MEDICAL CENTER, INC.
!!! Some significant definitions --a. Proprietary means a private entity maintained and
administered by private individuals or groups.
b. Non-stock means that no part of the income is distributable
as dividends to its members, trustees, or officers
c. Non profit means no net income or asset inures to or
benefits any member or specific person, with all the net income
or asset devoted to the institutions purposes and all its
activities conducted not for profit.
d. Inurement means (i) any form of payment to its trustees;
(ii) exorbitant compensation to its employees; (iii) provision of
financial assistance to its members; (iv) donations to entities
not having a similar purpose as its own; (v) purchase of goods
in its excess of its fair value from entities where its trustees has
an interest in; and (vi) distribution of its assets to its members
upon dissolution .

INCOME TAX
DUMAGUETE CATHEDRAL CREDIT COOPERATIVE vs. CIR
Petitioner was assessed for deficiency withholding taxes on
interest from savings and time deposits of its members. The CTA
ruled against the Petitioner and said that the withholding of tax on
income payments subject to final withholding tax includes the said
interest as "interest from x x x similar arrangements . . ." .
??? Is Petitioner liable for the deficiency WT?
!!! NO. The BIR had earlier ruled without any qualification that
since interest from any Philippine currency bank deposit and yield
or any other monetary benefit from deposit substitutes are paid
by banks, other entities such as cooperatives are not required to
withhold the corresponding tax on the interest from savings and
time deposits of their members. The fact that similar
arrangements is preceded by banking terms means that that
those subject to withholding must have deposit peculiarities. This
is also consistent with the preferential treatment accorded to
members of cooperatives who are exempt in the same way as the
cooperatives themselves.

INCOME TAX
CIR vs. FILINVEST DEVELOPMENT CORPORATION
Filinvest Development Corporation extended advances in favor
of its affiliates and supported the same with instructional letters
and cash and journal vouchers. The BIR assessed Filinvest for
deficiency income tax by unilaterally imputing an arms length
interest rate on its advances to affiliates. Filinvest disputed this by
saying that the CIR lacks the authority to impute theoretical
interest and that the rule is that interests cannot be demanded in
the absence of a stipulation to that effect.
??? Can the CIR unilaterally impute theoretical interest on the

advances made by Filinvest to its affiliates?

!!! NO. Despite the seemingly broad power of the CIR to distribute,
apportion and allocate gross income under (now) Section 50 of the
Tax Code, the same does not include the power to impute
theoretical interests even with regard to controlled taxpayers
transactions. This is true even if the CIR is able to prove that
interest expense (on FDCs own loans) was in fact claimed by FDC.

INCOME TAX
The term in the definition of gross income that even those income
from whatever source derived is covered still requires that there
must be actual or at least probable receipt or realization of the
item of gross income sought to be apportioned, distributed, or
allocated. Finally, the rule under the Civil Code that no interest
shall be due unless expressly stipulated in writing was also
applied in this case.
The Court also ruled that the instructional letters, cash and journal
vouchers qualify as loan agreements that are subject to DST.

INCOME TAX
TAMBUNTING PAWNSHOP vs. CIR
Petitioner claimed losses as deductions arising from the auction
sales it conducted. To prove the same, Petitioner submitted in
evidence its Rematado book containing a record of items
foreclosed and Subasta book containing a record of the auction
sale of pawned items foreclosed. Petitioner likewise claimed the
gain or loss on auction sale represents the difference between the
capital (amount loaned to the pawnee, unpaid interest, and other
expenses) and the price for which the pawned articles were sold.
??? Is Petitioner entitled to the losses as deductions?
!!! NO. Petitioner did not properly prove its losses since the
Subasta books did not reflect the true amounts of the proceeds
and the Rematado books did not reflect the capital since the only
amounts therein were those given to the pawnees.
The losses claimed from fire and theft were also disallowed since
while certifications from the police and fire departments and a list
of the properties lost were submitted, the Petitioner did not
submit sworn declarations describing the loss.

INCOME TAX
CHAMBER OF REAL ESTATE AND BUILDERS
ASSOCIATION, INC. vs. EXECUTIVE SECRETARY
CREBA assails the imposition of the minimum corporate income
tax (MCIT) as being violative of the due process clause as it levies
income tax even if there is no realized gain. They also question
the creditable withholding tax (CWT) on sales of real properties
classified as ordinary assets stating that (1) they ignore the
different treatment of ordinary assets and capital assets; (2) the
use of gross selling price or fair market value as basis for the CWT
and the collection of tax on a per transaction basis (and not on the
net income at the end of the year) are inconsistent with the tax on
ordinary real properties; (3) the government collects income tax
even when the net income has not yet been determined; and (4)
the CWT is being levied upon real estate enterprises but not on
other enterprises, more particularly those in the manufacturing
sector.
??? Are the impositions of the MCIT on domestic corporations and
CWT on income from sales of real properties classified as ordinary
assets unconstitutional?

INCOME TAX
!!! NO. MCIT does not tax capital but only taxes income as shown
by the fact that the MCIT is arrived at by deducting the capital
spent by a corporation in the sale of its goods, i.e., the cost of
goods and other direct expenses from gross sales. Besides, there
are sufficient safeguards that exist for the MCIT: (1) it is only
imposed on the 4th year of operations; (2) the law allows the
carry forward of any excess MCIT paid over the normal income
tax; and (3) the Secretary of Finance can suspend the imposition
of MCIT in justifiable instances.
The regulations on CWT did not shift the tax base of a real estate
business income tax from net income to GSP or FMV of the
property sold since the taxes withheld are in the nature of
advance tax payments and they are thus just installments on the
annual tax which may be due at the end of the taxable year. As
such the tax base for the sale of real property classified as
ordinary assets remains to be the net taxable income and the use
of the GSP or FMV is because these are the only factors
reasonably known to the buyer, at the time of sale, in connection
with the performance of his duties as a withholding agent. The use
of the GSP/FMV as basis to determine the withholding taxes is
evidently for purposes of practicality and convenience.
Neither is there violation of equal protection even if the CWT
+ is
levied only on the real industry as the real estate industry is, by

INCOME TAX
MANILA MEMORIAL PARK, INC. vs. SECRETARIES OF
DSWD & DOF
??? Is the law providing that the 20% senior citizen discount may
be claimed only as a tax deduction unconstitutional?
!!! NO. The law is a legitimate exercise of police power which has
general welfare for its object. This is despite the claim of
Petitioner that the law has the effect of imposing upon private
entities the burden of partly subsidizing a government program.
Even if the current rule does not provide the entities providing
discounts a peso for peso reimbursement, no payment of just
compensation is warranted for being an exercise of police power
and not eminent domain, which is a similar characterization for
similar rules such as price control laws.
The law has also not been shown to be unreasonable, oppressive
or confiscatory and doe not necessarily affect companies rates of
return since (1) not all customers are senior citizens; (2) the level
of profit margin of the goods and services offered to the public
+through
varies; and (3) the entities ability to recoup the discounts

INCOME TAX
MERCURY DRUG CORPORATION vs. CIR
Mercury Drug granted 20% sales discount to qualified senior
citizens on their purchases of medicines. They subsequently filed
a refund for taxable years 1993 and 1994 given that the then
prevailing rule allowed that the sales discounts be claimed as tax
credits.
??? Is the claim for tax credit to be based on the full amount of the
20% senior citizen discount or the acquisition cost of the item
sold?
!!! The tax credit should be equivalent to the actual 20% sales
discount granted to the senior citizens. The previous ruling of the
CTA that the tax credit is based only on the cost of the discount
which was interpreted to cover only direct acquisition cost,
excluding administrative and other incremental costs, was struck
down by the Court.

+
Note: The case of M.E. Holdings Corporation vs. CIR & CTA

INCOME TAX
CIR vs. PHILIPPINE AIRLINES, INC.
Respondents charter entitled it to an incentive which would
make it liable for either the basic corporate income tax or the 2%
franchise tax based on gross revenue, whichever is lower, and
that the payment under either of the alternatives shall be in lieu
of other taxes except real property tax. For the year 2000, it had
zero taxable income. CIR assessed Petitioner for MCIT stating that
the Petitioner chose to be covered by the income tax provision
(and not the franchise tax) and the MCIT does not belong to the
category of other taxes. Respondent argued that MCIT is not the
corporate income tax covered by its charter and is thus part of
other taxes.
??? Is MCIT considered similar to the corporate income tax such
that Respondents selection of the same will make it liable to
MCIT?

INCOME TAX
CIR vs. PHILIPPINE AIRLINES, INC.
!!! NO. The taxable income which is the basis for basic corporate
income tax and the gross income which is the basis for MCIT have
their respective technical meanings and cannot be used
interchangeably. The rates for the taxes are different as well.
Thus, the basis corporate income tax under Respondents charter
cannot cover MCIT and the only interpretation is that MCIT is
included in all other taxes from which Respondent is exempt.
Neither can CIR argue that the in lieu of all other taxes proviso
is a mere proviso that applies only when Respondent actually
pays something. The Court ruled that it is not the fact of tax
payment that exempts it, but the exercise of the option.

INCOME TAX
CIR vs. FAR EAST BANK & TRUST COMPANY
Far East Bank filed a claim for refund of overpaid creditable
withholding taxes which included CWT on rental income allegedly
earned by the Petitioner as lessor.
??? Can a claim for refund be granted notwithstanding claimants

failure to show in the return that that income upon which the
creditable taxes withheld were based was in fact reported?

!!! NO. The 3 essential requirements for a claim for refund of this
nature to prosper are (1) filing the same within the 2-year period;
(2) establishing the fact of withholding with copies of the CWT
certificates; and (3) showing that the income received was
declared as part of gross income. Here the Petitioner failed to
prove (3) as the return in fact showed Not Applicable under the
portion referring to Rental Income. In addition, some certificates
were likewise not submitted as evidence.

INCOME TAX
CIR vs. TEAM (PHILIPPINES) OPERATIONS
CORPORATION
??? Is it necessary for the person who executed and prepared the
withholding tax certificates to be presented and to testify
personally on the authenticity of the certificates?
!!! NO. The copies of the withholding tax certificates when found
by the duly commissioned independent certified public accountant
to be faithful reproductions of the original copies would suffice to
establish the fact of withholding. This is in accordance with Rule
13 of the Revised Rules of the Court of Tax Appeals. While the
Rules further state that the documents may be subject to
verification and comparison, the CIR was not deprived of the
opportunity to examine the certificates since Respondent
manifested that the original copies of the documents are available
at the Respondents office but the CIR made no effort to examine
the same and verify their authenticity.

INCOME TAX
ASIAWORLD PROPERTIES PHILIPPINE CORPORATION vs.
CIR

Asiaworld filed its 2001 ITR stating that a portion of the amount
representing Prior Years Excess Credits was the 1999 excess
creditable withholding tax which it is now seeking to refund. The
said 1999 excess payment was previously treated as having been
carried over to 2000. Asiaworld posits its claim on the portion of
the provision which states that the such option shall be
considered irrevocable for that taxable period in that the same
refers to only a one-year prohibition for the action of the claim for
refund.
??? Is the irrevocability rule under Section 76 of the Tax Code only
applicable to the next taxable year which in this case was the
year 2000?
!!! NO. The option to carry-over is not limited to the following
taxable year of 2000 but will apply to the succeeding taxable
years until the whole amount of the 1999 creditable withholding
+

INCOME TAX
CIR vs. SMART COMMUNICATIONS, INC.
Smart entered into an Agreement with Prism, a nonresident
foreign corporation domiciled in Malaysia, whereby Prism will
provide programming and consultancy services to Smart. Thinking
that the payments to Prism were royalties, Smart withheld 25%
under the RP-Malaysia Tax Treaty. Smart then filed a refund with
the BIR alleging that the payments were not subject to Philippine
withholding taxes given that they constituted business profits paid
to an entity without a permanent establishment in the Philippines.
??? Does Smart have the right to file the claim for refund?
!!! YES. The Court reiterated the ruling in Procter & Gamble
stating that a person liable for tax has sufficient legal interest to
bring a suit for refund of taxes he believes were illegally collected
from him. Since the withholding agent is an agent of the beneficial
owner of the payments (i.e., nonresident), the authority as agent
is held to include the filing of a claim for refund. Smart was
granted a refund given that only a portion of its payments
represented royalties since it is only that portion over which Prism
maintained intellectual property rights and the rest involved full
transfer of proprietary rights to Smart and were thus treated
+ as
business profits of Prism.

INCOME TAX
Smart was granted a refund given that only a portion of its
payments represented royalties since it is only that portion over
which Prism maintained intellectual property rights and the rest
involved full transfer of proprietary rights to Smart and were thus
treated as business profits of Prism.

INCOME TAX
SUPREME TRANSLINER, INC. vs. BPI FAMILY SAVINGS
BANK, INC.

Supreme Transliner took out a loan from respondent but was

unable to pay the same. The respondent bank extrajudicially
foreclosed the collateral and, before the expiration of the one-year
redemption period, the mortgagors notified the bank of its
intention to redeem the property.
??? Is the mortgagee-bank liable to pay the capital gains tax upon
the execution of the certificate of sale and before the expiry of the
redemption period?
!!! NO. It is clear that in foreclosure sale there is no actual transfer
of the mortgaged real property until after the expiration of the
one-year period and title is consolidated in the name of the
mortgagee in case of non-redemption. This is because before the
period expires there is yet no transfer of title and no profit or gain
is realized by the mortgagor.
Note: Remember that in extrajudicial foreclosures, the mortgageebank is the statutory seller who is liable for the CGT.

INCOME TAX
CHINA BANKING CORPORATION vs. CIR
??? Is the 20% final tax withheld on a banks passive income
included in the computation of its GRT?
!!! YES. The claim of the Petitioner for the exclusion of the final
withholding tax from gross receipts operates as a tax exemption
which the law must explicitly grant. Also, the Court has held that
the term gross receipts must be used in its plain and ordinary
meaning and should be taken to refer to total (without deduction)
and not the net amount.

INCOME TAX
UNITED AIRLINES, INC. vs. CIR
Petitioner used to be an online carrier but ceased
operating cargo flights from the Philippines starting 2001. It is
now an offline international air carrier but has a general sales
agent in the Philippines which sells passage documents for its
off-line flights for carriage of passengers and cargo. It filed a
claim for refund on the Gross Philippine Billings (GPB) tax it
paid. The CTA ruled that Petitioner was not liable for the GBP
but was liable to pay 32% tax on its net income derived from
the sales of passage documents in the Philippines.

??? Is Petitioner liable for either the GPB or the 32%

tax?

INCOME TAX
UNITED AIRLINES, INC. vs. CIR
!!! 32% tax. The Court reiterated the ruling in South African

Airways and BOAC stating that it is the sale of tickets which is the
revenue-generating activity subject to Philippine tax. The correct
interpretation of the applicable rules is that, if an international air
carrier maintains flights to and from the Philippines, it shall be
taxed at the rate of 2 1/2% of its Gross Philippine Billings, while
international air carriers that do not have flights to and from the
Philippines but nonetheless earn income from other activities in
the country will be taxed at the rate of 32% of such income.
The Court also ruled that to avoid multiplicity of suits and
unnecessary difficulties and expenses the issue of deficiency tax
assessment be resolved jointly with the its claim for refund and
doing so does not violate the rule against offsetting of taxes.

INCOME TAX
PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. BIR
??? Is the requirement for a tax clearance provided under
Section 52 of Tax Code applicable to a bank subject of
liquidation proceedings?
!!! NO. Closed banks placed under liquidation under the Central
Bank law are not corporations contemplating liquidation under
the Tax Code over which the SEC has jurisdiction. It is the
Monetary Board, not the SEC, which has the power to order and
approve the closure and liquidation of banks. A tax clearance is
not a prerequisite to the approval of the project of distribution of
the assets of a bank under liquidation by the PDIC. Another reason
is that, given the timelines involved, it is unreasonable for the
liquidation court to require that a tax clearance be first secured as
a condition for the approval of a project of distribution of bank
under liquidation. Lastly, to require that a tax clearance be
secured first prior to distribution ignores the preference of credits
under the Civil Code where debts and claims (of creditors) enjoy
preference over taxes and assessments due to the government if
not in reference to a specific movable property.

INCOME TAX
REPUBLIC ACT 10378
EXEMPTION OF INTERNATIONAL AIR CARRIERS
!!! international air carriers doing business in the Philippines may
avail of a preferential rate or exemption on the basis of a tax
treaty or international agreement to which the Philippines is a
signatory or on the basis of reciprocity such that an international
carrier, whose home country grants income tax exemption to
Philippine carriers, shall likewise be exempt from the tax on Gross
Philippine Billings.
!!! Transport of passengers by international carriers are now
exempt from VAT.
!!! International air and shipping carriers doing business in the
Philippines are now subject to the 3% percentage only on their
gross receipts derived from the transport of cargo and not on their
transport of passengers.

INCOME TAX
REPUBLIC ACT 10026
TAX EXEMPTION TO LOCAL WATER DISTRICTS
!!! Local water districts are now exempt from income taxes under
Section 27 provided that the amount saved by virtue of the
exemption is to be used for capital equipment expenditure to
expand water services coverage
!!! All unpaid taxes starting August 13, 1996 are condoned
provided (1) the BIR establishes financial incapacity of the LWD
and (2) the LWD submits to Congress a program of internal
reforms.

INCOME TAX
RMC 31-2013 --- TAXATION OF COMPENSATION INCOME
OF PHILIPPINE NATIONALS AND ALIEN INDIVIDUALS
EMPLOYED BY EMBASSIES, INTERNATIONAL
ORGANIZATIONS, ETC.
!!! Foreign governments, embassies, diplomatic missions, and
international organizations as employers in the Philippines are
immune from being withholding agents on the salaries of their
employees based on international comity.
!!! However, this immunity does not translate into all employees
of these entities being exempt from income tax. Only the
individuals specifically named in the treaties, international
agreements, and laws are exempt from income taxes while
those not covered are not relieved of their duty to report their
income and pay the taxes but must do so on their own.

INCOME TAX
RMC 31-2013 --- TAXATION OF COMPENSATION INCOME
OF PHILIPPINE NATIONALS AND ALIEN INDIVIDUALS
EMPLOYED BU EMBASSIES, INTERNATIONAL
ORGANIZATIONS, ETC.
!!! Some examples of those exempted are diplomats (including
family, staff, servants if not nationals or permanent residents of
the Philippines). All employees of the following regardless of
nationality and residence --- AUSAID / UN / ILO / FAO-UN /
UNESCO / WHO / UNDP. The following entities only exempt those
that are not Philippine nationals --- JICA (must be from Japan) Red
Cross / AUSAID / CIDA / ADB / IMF / IBRD / UNICEF / IRRI / Ford
Foundation / Rockefeller Foundation. Philippine nationals claiming
exemptions under the above laws, agreements must file an
application for confirmation of tax exemption with the ITAD of the
BIR.

INCOME TAX
RR 2-2013 --- TRANSFER PRICING GUIDELINES
!!! Critical features of the TP regulations --1) The rules apply to cross border and domestic transactions.
2) For purposes of applying the rules, the parties are considered
related if
one participates directly or indirectly in the management, control
or capital of another. Control refers to any kind of control, direct or
indirect, whether exercised or not, and shall be assumed if income
or deductions have been arbitrarily shifted.
3) The transactions between related parties must be at arms
length otherwise BIR will make adjustments on the basis of the
rules.
4) Step 1 comparability analysis (same goods, risks, commercial
conditions / Step 2 determine tested party and appropriate TP
method (CUP, RPM, CPM, PSM, TNMM) / Step 3 determine arms
length results
+

INCOME TAX
RMO 20-2013 --- TRANSFER PRICING GUIDELINES
!!! Critical features of the TP regulations --5) Advance Pricing Arrangement --- either unilateral (only the
taxpayer and the BIR) or bilateral/multilateral (involves the
Philippines and one or more treaty partner/s)
6) The documentation requirements need not be submitted to the
BIR but must be retained. The same must be contemporaneous
which means it exists or is brought into existence at the time the
associated enterprises implement any arrangement that might
raise transfer pricing issues. The documentation will contain the
organizational structure, nature of business, assumptions,
comparability analysis, TP method, application, etc. The retention
period follows the rule in the Tax Code.
7) There are no safe harbor rates/rules in the TP regulations.

INCOME TAX
RR 014-2012 --- TAX TREATMENT OF INTEREST INCOME
EARNINGS ON FINANCIAL INSTRUMENTS

!!! Critical features of the regulations ---

1) Interest income from government debt instruments/securities

(T-bills, treasury bonds, etc.) are subject to WT of -- 20% --- if received by citizens, RA, NRAETB, DC, RFC
25% --- NRANETB
30% --- NRFC
(Note: Government debt issuances are considered as deposit
substitutes regardless of the number of lenders at the time of
origination as long as the same will be traded in the secondary
marked which thus upholds PEACE Bonds ruling)

2) Interest Income from Peso bank deposits, deposit substitutes,

trust funds, similar arrangements are subject to WT of -- 20% --- if received by citizens, RA, NRAETB, DC, RFC
25% --- NRANETB
30% --- NRFC except if interest income from foreign loan in
which case
20%
+

INCOME TAX

RR 014-2012 --- TAX TREATMENT OF INTEREST INCOME

EARNINGS ON FINANCIAL INSTRUMENTS

!!! Critical features of the regulations ---

3) Interest income from Long Term Deposits

Exempt if term is 5 years or more, 5% if 4-5years, 12% if 3-4

years, 20% if less than 3 years
Conditions = all individuals covered except NRANETB which
is at 25%/ certificate is in the name of the depositor and not
the bank / issued by banks / denominations of P10,000 / etc.
if any condition is absent, then same rates apply as any
interest income from bank deposit which is 20% for all
individuals except NRANETB which is 25%.

4) Interest Income under FCDU/OBU account

7.5% --- if received by citizens, RA, DC, RFC
exempt --- if received by nonresidents
50/50 (exempt/7.5%) --- if account is joint between resident
citizen and OFW

INCOME TAX
RR 014-2012 --- TAX TREATMENT OF INTEREST INCOME
EARNINGS ON FINANCIAL INSTRUMENTS

!!! Critical features of the regulations ---

exempt --- income derived BY depository banks from dealings

(loans) with nonresidents, OBUs, other FCDUs
10% --- income derived BY depository banks from dealings
(loans) with residents
30% --- income from other activities (ex. consulting)

5) Interest Income from all other instruments that are not deposit
substitutes such as interest earned by banks from loans extended
by them, etc. are subject to the following -- 2% CWT - if the borrower is a top 20,000 corporation
20% CWT - if the borrower is not a top 20,000 corporation

INCOME TAX
OTHER SIGNIFICANT ISSUANCES
!!! RMO 20-2013 --- Requires the issuance of Tax Exemption
rulings to qualified non-stock, non-profit corporations and
associations under Section 30 of the Tax Code. There must be
submitted a certificate of utilization to prove compliance with the
law. The ruling is valid for 3 years and shall be subject to renewal
thereafter.
!!! RMC 35-2012 --- Clarifies that clubs organized and operated
exclusively for pleasure, recreation, and other non-profit purposes
are subject to income tax and VAT on all their income and gross
receipts from whatever source including membership fees,
assessment dues, rental income, etc.
!!! RMC 9-2013 --- Provides for the possible income tax and VAT
exemption of association dues and income derived from rentals of
homeowners associations properties if (i) constituted as an
association under RA 9904; (ii) the LGU having jurisdiction certifies
that the basic services (i.e., security, street lights, maintenance
and repair of streets, garbage disposal, etc.) for which the dues
are being used cannot be provided by the said LGU; and (iii) the
homeowners association presents proof that the dues are used
+
for the aforesaid basic services.

INCOME TAX
OTHER SIGNIFICANT ISSUANCES
!!! RR 10-2012 --- States that joint ventures engaged in
construction projects are now considered not taxable as
corporations only if the partners are local contractors licensed by
the Philippine Contractors Accreditation Board (PCAB); otherwise
the joint venture will be treated as a taxable corporation.
!!! RR 12-2012 --- For motor vehicles allowed for use of an
employee, the company providing the same can only take up as a
deductible expense (via depreciation) the amount representing
one vehicle and the value of which should not exceed P2,400,000.
!!! RR 016-2012 --- Requiring all publicly-listed companies to
maintain at all times a minimum public ownership of 10% of their
issued and outstanding shares and stipulating that failure to
comply therewith will subject the sale of the said shares to the
capital gains tax due on unlisted shares.
!!! RMC 039-2012 --- Provides that in instances when the judgment
award in a labor dispute is enforced through garnishment of debts
due to the employer or other credits, the garnishee shall withhold
5% of the judgment amount released.

ESTATE TAX
DIZON vs. CIR
There were claims against the estate which the BIR contested
stating that lower amounts were paid as compromise payments
during the settlement of the estate and these are amounts that
should be considered as deductions in arriving at the net estate.
??? Will the compromise amounts be the amounts considered as
deductions to the gross estate?
!!! NO. The deductions allowable are the amounts determined at
the time of death. Post-death developments are not material in
determining the amount of deduction. Thus, the Court applied the
date-of-death valuation rule which is the US rule on deductions
and which is applicable also in the Philippines. The amount
deductible is the debt which could have been enforced against the
deceased in his lifetime.

DONORS TAX
METRO PACIFIC CORPORATION vs. CIR
Petitioner sold its shares with a par value of P100 per share in
Bonifacio Land Corporation to a third party in the amount of P158
per share even while it was established that the book value of the
shares was at P332 per share. Petitioner countered by saying that
donors tax should not be imposed as it was an ordinary business
transaction negotiated in good faith by unrelated parties for
legitimate business purposes. It was also stated that the
acquisition cost was higher than the book value.
??? Is donors tax due on the sale?
!!! YES. The rules clearly define fair market value of unlisted
shares as its book value. Thus, a 30% donors tax is due on the
difference between the selling price and the BV/FMV. The par
value and acquisition cost are irrelevant in determining the
imposition of the donors tax. Also, it was pointed out that the lack
of any exception/exemption under Section 100 deprives the
Petitioner its basis in claiming its aforesaid defense.

VALUE ADDED TAX

MINDANAO II GEOTHERMAL PARTNERHSIP vs. CIR
??? Is the sale of a fully depreciated motor vehicle an isolated
transaction which should not be subject to VAT in the hands of a
power generation company?
!!! NO. While the sale is admittedly an isolated transaction, it does
not follow that the same cannot be considered as an incidental
transaction which satisfies the requirement to attract VAT liability.
The Court deemed that the sale of the motor vehicle was in the
course of its business of converting steam into electricity for
supply to NPC. The case of Magsaysay cannot apply since the sale
of the vessels therein was not in the course of business of NDC
and the same was involuntary for having been made pursuant to
the Governments policy of privatization. (Note: At the time when
Magsaysay was decided the Tax Code did not cover incidental
transactions.)

VALUE ADDED TAX

CIR vs. SONY PHILIPPINES, INC.
Sony Philippines was ordered examined for the period 1997
and unverified prior years as indicated in the Letter of Authority .
The audit yielded assessments against Sony Philippines for
deficiency VAT and FWT, viz: (1) late remittance of FWT on
royalties for the period January to March 1998 and (2) deficiency
VAT on reimbursable received by Sony Philippines from its offshore
affiliate, Sony International Singapore (SIS).
??? (1) Is Petitioner liable for deficiency VAT?
(2) Was the investigation of its 1998 FWT return valid?
!!! (1) NO. Sony Philippines did in fact incur expenses supported
by valid VAT invoices when it paid for certain advertising costs.
This is sufficient to accord it the benefit of input VAT credits and
where the money came from to satisfy said advertising billings is
another matter but does not alter the VAT effect. In the same way,
Sony Philippines can not be deemed to have received the
reimbursable as a fee for a VAT-taxable activity.

VALUE ADDED TAX

The reimbursable was couched as an aid for Sony Philippines by
SIS in view of the companys dire or adverse economic
conditions. More importantly, the absence of a sale, barter or
exchange of goods or properties supports the non-VAT nature of
the reimbursement. This was distinguished from the COMASERCO
case where even if there was similarly a reimbursement-on-cost
arrangement between affiliates, there was in fact an underlying
service. Here, the advertising services were rendered in favor of
Sony Philippines not SIS.
!!! (2) NO. A Letter of Authority should cover a taxable period not
exceeding one year and to indicate that it covers unverified prior
years should be enough to invalidate it. In addition, even if the
FWT was covered by Sony Philippines fiscal year ending March
1998, the same fell outside of the period 1997 and was thus not
validly covered by the LOA.

VALUE ADDED TAX

MEDICARD PHILIPPINES, INC. vs. CIR
Petitioner provides services to its members by arranging for the
provision by the affiliated hospitals and clinics of medical and/or
hospital services. They also provide, on their own, medical and
laboratory services and only endorse to the hospitals those that
are beyond the competence of the doctors hired by Petitioner. For
their services, Petitioner is compensated in either of two ways
Cost-Plus Program (CPP) which is an administrative expense over
and above the covered expenses of the members or Standard
Corporate Program which imposes management fee of 20% of the
total premiums paid. For both cases, Petitioner claims that the
amounts eventually paid to the affiliated doctors and hospitals are
just funds held in trust and earmarked for such purpose and
should not form part of its gross receipts for VAT purposes as the
same do not redound to their benefit.
??? Is Petitioner liable for VAT on the amounts which are paid by it
to its affiliate doctors and hospitals?

VALUE ADDED TAX

MEDICARD PHILIPPINES, INC. vs. CIR
!!! YES. The Court distinguished this from the earlier case of Tours
Specialists Inc. where the payments for hotel lodging by tourists
where turned over/paid to travel agents just for the convenience
and economy of the said tourists. In short, the travel agents
merely accommodated the tourists and they (agents) had nothing
to do with the contract between the tourists and the hotels. This is
different in the case of HMOs since all the moneys are paid to
them lump sum if exchange for the provision of medical services.
Thus, the arrangement negates the concept of money in trust.
Neither can the regulation stating that amounts earmarked for
payment to unrelated 3rd parties are excluded from the gross
receipts be used as basis since it is not the members who are
obligated to the doctors and hospitals but it is actually the HMOs
since the contractual vinculum is between them (HMO and
hospitals).

VALUE ADDED TAX

LVM CONSTRUCTION CORPORATION vs. SANCHEZ
Petitioner was engaged by DPWH for the construction of roads
and bridges. In turn, LVM subcontracted construction of one of the
projects to Respondents Joint Venture. After completing the
project, the Joint Venture demanded full payment to which
Petitioner responded that they discovered that no deductions for
EVAT were made on previous payments and as such they were
going to deduct 8.5% from the payments still due. Respondent
disputed this and said that all the receipts issued to Petitioner
would have made them (Respondent) subject to VAT and,
consequently, Petitioner can thus claim the input tax thereon.
??? Can Petitioner rightfully deduct the amount representing
withholding VAT due on its transaction with the DPWH?
!!! NO. As the entity which dealt directly with the government
insofar as the main contract was concerned, LVM was itself
required by law to pay the 8.5% (now 5%) VAT which was withheld
by DPWH. Given that (1) the Joint Venture complied with their own
obligation when they paid their VAT from their own gross receipts
and
+

VALUE ADDED TAX

(2) the fact that the contract between LVM and Joint Venture did
not stipulate any obligation on LVM assuming the VAT, LVM has no
basis to withhold payments . Although the burden to pay an
indirect tax like the VAT can be passed on, the liability to pay the
same remains with the seller. In this case, both LVM and Joint
Venture are liable for their respective VAT obligations as
respective sellers.

VALUE ADDED TAX

KEPCO PHILIPPINES CORPORATION vs. CIR
Kepco filed a claim for refund of unutilized input VAT based on
its zero-rated sale of power to NPC. A substantial portion of the
claim was disallowed for having been supported by VAT invoices
which only had the TIN-VAT stamped and not printed. There were
also certain sales by Kepco which failed to indicate the words
zero-rated. Lastly, they also alleged that invoices and receipts
are interchangeable and either should suffice as proof of purchase
and consequently as support for a claim for refund.
??? Is Petitioner entitled to the claim for refund on the disallowed
portion?
!!! NO. The requirement that the TIN be imprinted and not merely
stamped is a reasonable requirement imposed by the BIR. More
importantly, the requirement of the appearance of the words
zero-rated on the face of the invoice prevents buyers from
falsely claiming input VAT from their purchases when no VAT was
actually paid. The failure to adhere to the said rules will not only
expose the taxpayer to penalties but should also serve to disallow
the claim. Finally, the Court disagreed with the position that
invoices and receipts are interchangeable since the former clearly
+
refers to sales of goods while the latter to services.

VALUE ADDED TAX

FORT BONIFACIO DEVELOPMENT CORPORATION vs. CIR
Petitioner was a real estate developer that bought from the
national government a parcel of land that used to be the Fort
Bonifacio military reservation. At the time of the said sale there
was as yet no VAT imposed so Petitioner did not pay any VAT on
its purchase. Subsequently, Petitioner sold two parcels of land to
Metro Pacific Corp. In reporting the said sale for VAT purposes
(because the VAT had already been imposed in the interim),
Petitioner claimed transitional input VAT corresponding to its
inventory of land. The BIR disallowed the claim of presumptive
input VAT and thereby assessed Petitioner for deficiency VAT.
??? Is Petitioner entitled to claim the transitional input VAT on its
sale of real properties given its nature as a real estate dealer and
if so (i) is the transitional input VAT applied only to the
improvements on the real property or is it applied on the value of
the entire real property and (ii) should there have been a previous
tax payment for the transitional input VAT to be creditable?

VALUE ADDED TAX

!!! YES. Petitioner is entitled to claim transitional input VAT based
on the value of not only the improvements but on the value of the
entire real property and regardless of whether there was in fact
actual payment on the purchase of the real property or not.
The amendments to the VAT law do not show any intention to
make those in the real estate business subject to a different
treatment from those engaged in the sale of other goods or
properties or in any other commercial trade or business. On the
scope of the basis for determining the available transitional input
VAT, the CIR has no power to limit the meaning and coverage of
the term "goods" in Section 105 of the Tax Code without statutory
authority or basis. The transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies.

VALUE ADDED TAX

CIR vs. SEKISUI JUSHI PHILIPPINES, INC.
Sekisui Jushi is a PEZA entity engaged in manufacture and
export of strapping bands and other packaging materials seeking
for refund of unutilized input taxes.
??? Being a PEZA exporter, can Petitioner claim its unutilized input
VAT?
!!! YES. PEZA entities can avail of two alternative or subsequent
incentives of ITH and 5% GIE. It is only in the latter where the VAT
is not imposed on the PEZA entity on its sales. Being under ITH, it
will be subject to VAT on sales and should VAT-register. However,
(1) sales to the PEZA entity, regardless of incentive availed, is
zero-rated on the part of the seller since PEZA is considered
foreign soil and thus sales to them are considered as export
sales and (2) if the PEZA entity is an exporter, its input VAT are
subject to refund not by virtue of its PEZA status (and thus
regardless of whether its at 5% GIE or ITH) but due to the nature
of its transactions (i.e., export sales).

VALUE ADDED TAX

ACCENTURE, INC. vs. CIR
Accenture filed a VAT claim for refund on unutilized input VAT
premised on its claim that its sales were zero-rated for being in
connection with services rendered to nonresident recipients. The
CIR denied the claim stating that Accenture failed to prove that its
foreign clients did business outside the Philippines.
??? Is Accenture entitled to the VAT refund?
!!! NO. Accenture failed to prove that services were rendered for
nonresident. The Amex case did not rule that the services
recipients need not be doing business outside the Philippines but
only that the consumption need not be abroad. However,
Accenture failed to prove that the clients/service recipients are
doing business outside the Philippines as they only submitted SEC
certifications showing that their clients have not established any
branch offices in the Philippines and billing statements issued to
the said clients. The Court ruled that while it did prove that its
clients are foreign, there was no proof that they were doing
+
business outside the Philippines.

VALUE ADDED TAX

LUZON HYDRO CORPORATION vs. CIR
Petitioner filed a VAT claim for refund on unutilized input VAT
arising from its alleged zero-rated sales of electricity to NPC. The
claims were denied since Petitioner failed to show proof of the
actual zero-rated sales since they did not present as evidence the
VAT official receipts and VAT returns.
??? Is Petitioner entitled to the VAT refund?
!!! NO. The Court reiterated the requirements for a valid input VAT
refund from zero-rated sales as follows: (a) the taxpayer is VATregistered; (b) the taxpayer is engaged in zero-rated sales; (c) the
input taxes are paid; (d) input taxes are not transitional input
taxes; (e) the input taxes are attributable to zero-rated
transactions; (f) input taxes have been unapplied; (g) filing the
claim within 2 years. In this case, the Petitioners failure to
substantiate the fact of their zero-rated sales with the VAT
receipts was considered fatal and the submission of financial
statements as secondary proof of the zero-rated sales was
deemed insufficient.
+

VALUE ADDED TAX

BIR ISSUANCES
!!! RMC 057-2013 --- RECOVERY OF UNUILIZED INPUT VAT
Unutilized creditable input taxes attributable to zero-rated sales
can only be recovered through the application for refund or tax
credit. The practice of claiming as an outright (income tax)
expense accumulated and unapplied input VAT credits after the
expiration of the 2-year period to process to claim does not have
legal basis.
!!! RR 013-12 --- VAT TREATMENT OF SALE OF ADJACENT LOTS
For purpose of determining whether the threshold on VAT exempt
sales have been breached, adjacent residential lots, house and
lots or other residential dwellings although covered by separate
titles shall be presumed as a sale of just one property when sold
or disposed to one and the same buyer.

REMEDIES
CIR vs. GONZALEZ
An investigation was conducted against LMCEC for taxable
years 1997 to 1999. The assessments that came out of the said
investigation was disputed by the taxpayers on the grounds that
(i) the assessment notices issued were invalid for not bearing
serial numbers and (ii) the examinations made on the books of
accounts and other records were done more than once in the
relevant taxable years.
??? Are the assessments invalid?
!!! NO. The formality of a control number in the assessment notice
is not a requirement for its validity but rather it is the contents
which should inform the taxpayer of the deficiency and which
should contain the facts and the laws on the which the
assessment is based. Likewise, this case is an exception to the
general rule of having the books examined only once in a year.
Section 235 of the Tax Code allows the multiple examinations
when (a) there is fraud or irregularity; (b) the taxpayer requests
for reinvestigation; (c) there is a required verification of
compliance with withholding taxes and capital gains tax +
liabilities.

REMEDIES
RIZAL COMMERCIAL BANKING CORPORATION vs. CIR
??? Whether a taxpayer, by paying the other tax assessments
covered by a Waiver of the Statute of Limitations, is consider
estopped from questioning the validity of the said waiver (on the
basis that the CIR did not sign it) with respect to the other covered
but unsettled assessments?
!!! YES. RCBC is considered estopped through its partial payment
of the revised assessments within the extended period provided in
the said waivers. Thus, it had impliedly admitted the validity of
the said waivers. Had it believed that the waiver was invalid and
that the period to assess had effectively prescribed, RCBC could
have refused to make any payment based on any assessment
against it.

REMEDIES
FLUOR DANIEL PHILIPPINES INC. vs. CIR
Fluor Daniel was initially assessed for deficiency EWT on its
software maintenance fees paid to an offshore affiliate. In
response to Petitioners protest, the CIR issued a Final Decision on
Disputed Assessment (FDDA) cancelling the deficiency EWT
assessment but issuing an assessment for FWT on the same
software fees albeit using a lower 15% rate under the RP-US Tax
Treaty.
??? Was the Petitioner deprived of due process when the FDDA

changed the assessment from deficiency EWT to deficiency FWT?

!!! YES. The change of the assessment in the FDDA itself
constituted a new assessment. As such, the taxpayer should have
been given the chance to dispute the same via the process laid
down in the Tax Code which is by way of filing a protest. Given
that this was not complied with as what was issued was already
an FDDA, the circumstances certainly deprived the Petitioner of a
reasonable opportunity to be heard and submit evidence in
support of its defense which is a clear violation of due process
requirements.
+

REMEDIES
CIR vs. ENRON SUBIC POWER CORPORATION
The BIR assessed Enron which countered by filing a Petition for
Review with the CTA stating that the assessment disregarded the
provisions of the Tax Code and of RR No. 12-99, when the
assessment failed to provide the legal and factual bases of the
assessment. The CTA and CA ruled that the assessment notice
must not only refer to the supporting revenue laws or regulations
for the assessment but must also justify their applicability to the
factual milieu of the assessment.
??? Is the disputed assessment valid?

!!! NO. The assessment is not valid. Although the revenue

examiners discussed their findings with Respondents
representative during the pre-assessment stage, the same,
together with the Preliminary Five-Day Letter and Petitioners
Annex G, were not sufficient to comply with the procedural
requirement of due process. The Tax Code provides that a
taxpayer shall be informed (and not merely notified as was the
requirement before) in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall+be void.
The use of the word shall indicates the mandatory nature of the

REMEDIES
CIR vs. UNITED SALVAGE AND TOWAGE (PHILS.) ,INC.
CIR issued assessments against Respondent but when the same
were disputed before the CTA it failed to mark and formally
introduce as evidence the PAN issued to the taxpayer. It was
claimed, however, that their existence and value were properly
established since the BIR records were forwarded by the CIR to the
CTA.
??? Can the CTA consider the PAN even if the same were not
formally offered in evidence? Has the right to collect prescribe?
!!! NO. The Court said that the rule of requiring offer may be
relaxed provided that the same must have been (1) duly identified
by testimony and (2) incorporated in the records of the case. The
CIR only said the PAN was anyway tackled in the petitioners
witnesses testimonies but did not (1) claim that the same were
positively identified and (2) explain why it failed to formally offer
the same.
As the assessments were issued after January 1, 1998, the rules
under the current Tax Code were deemed applicable.
+

REMEDIES
CIR vs. UNITED SALVAGE AND TOWAGE (PHILS.) ,INC.
!!! YES. While the Respondent did file a request for reinvestigation
subsequent to the assessment, there is no proof that the same
was granted (or acted upon) to cause the suspension of the period
to collect. Neither can the CIR claim that Respondents elevation
of its dispute of the assessment to the CTA served to interrupt the
period since Respondent was merely exercising its right to resort
to the proper court and does not in any way deter CIRs right to
collect taxes from Respondent. Since CIR did nothing to collect
(i.e., distraint, levy, or court proceeding), its right to do has
prescribed.

REMEDIES
CIR vs. FIRST EXPRESS PAWNSHOP COMPANY, INC.
CIR issued assessment notices against Respondent for
deficiency income tax, VAT and documentary stamp tax on deposit
on subscription and on pawn tickets. Respondent filed its written
protest on the assessments. When the CIR did not act on the
protest during the 180-day period (reckoned from the filing of the
protest), respondent filed a petition before the CTA.
??? Has the assessment become final and unappealable given that
no supporting documents were submitted during the 60-day
period?
!!! NO. The assessment against Respondent has not become final
and unappealable. It cannot be said that respondent failed to
submit relevant supporting documents that would render the
assessment final because when Respondent submitted its protest,
Respondent attached all the documents it felt were necessary to
support its claim. Further, CIR cannot insist on the submission of
proof of DST payment because such document does not exist as
Respondent claims that it is not liable to pay (and in fact has not
paid) the DST on the deposit on subscription.

REMEDIES
!!! The term "relevant supporting documents" are those
documents necessary to support the legal basis in disputing a tax
assessment as determined by the taxpayer. The BIR can only
inform the taxpayer to submit additional documents and cannot
demand what type of supporting documents should be submitted.
Otherwise, a taxpayer will be at the mercy of the BIR, which may
require the production of documents that a taxpayer cannot
submit. Since the taxpayer is deemed to have submitted all
supporting documents at the time of filing of its protest, the 180day period likewise started to run on that same date.

REMEDIES
LASCONA LAND CO., INC. vs. CIR
Lascona Land appealed a decision by the CIR holding that the
assessment against it has become final and executory for failure
to appeal to the CTA within 30 days from the lapse of the 180-day
period provided for under the Tax Code.
??? In cases of inaction on disputed assessments, can the taxpayer

still file an appeal with the CTA even after the lapse of the 180day period?

!!! YES. In case the CIR fails to act on a disputed assessment

within the 180-day period from the submission of documents, the
taxpayer can either (a) file an appeal with the CTA within 30 days
after the expiry of the 180-day period or (b) await the final
decision of the CIR and then appeal the same within 30 days.
These options are mutually exclusive and resort to one bars the
application of the other. A taxpayer can not be prejudiced if he
chooses to wait for the final decision of the CIR as this is the
normal expectation when a protest is filed. Thus, an appeal filed
within the 30-day period from the receipt of the decision, even if
made after the 180-day period, is still considered as having
been
+
filed on time.

REMEDIES
ALLIED BANKING CORPORATION vs. CIR
Allied Banking Corporation received a PAN from the BIR which it
timely disputed. In response, the BIR issued a Formal Letter of
Demand with Assessment Notices. Instead of protesting the FAN,
the petitioner filed a Petition for Review with the CTA. The CTA
dismissed the Petition stating that it is neither the assessment nor
the formal demand letter itself that is appealable before it but
instead it should be the decision of the CIR on the disputed
assessment.
??? Can the Formal Letter of Demand be construed as the final
decision of the CIR appealable to the CTA under Republic Act
9282?

REMEDIES
!!! YES. This is considered an exception to the general rule on
exhaustion of administrative remedies since the CIR is considered
estopped from claiming the same principle applies in its case. The
tenor of the demand letter is clear that the CIR had already made
a final decision and that the remedy of the Petitioner was to
appeal the same within 30 days of receipt. This can be gleaned
from the use of the terms final decision and appeal which
were deemed unequivocal language pointing to the finality of the
decision. While the Court cited the rules relative to (a) protesting
the FAN and not the PAN and (b) counting the 30 day period to
appeal to the CTA from receipt of the decision of the CIR and not
issuance of the assessment, this particular case was deemed a
clear exception in view of the CIRs own actions.

REMEDIES
CIR vs. HAMBRECHT & QUIST PHILIPPINES, INC.
The assessment against Hambrecht & Quist had become final
and unappelable since there was a failure to protest the same
within the 30-day period provided by law. However, the CTA held
that the BIR failed to collect within the prescribed time and thus
ordered the cancellation of the assessment notice. The CIR
disputed the jurisdiction of the CTA arguing that since the
assessment had become final and unappealable, the taxpayer can
no longer dispute the correctness of the assessment even before
the CTA.
??? Can the CTA still take cognizance of an assessment case which
has become final and unappealable for failure of the taxpayer to
protest within the 30-day protest period?

REMEDIES
!!! YES. The appellate jurisdiction of the CTA is not limited to cases
which involve decisions of the CIR on matters relating to
assessments or refunds. The CTA law clearly bestows jurisdiction
to the CTA even on other matters arising under the National
Internal Revenue Code. Thus, the issue of whether the right of
the CIR to collect has prescribed, collection being one of the
duties of the BIR, is considered covered by the term other
matters. The fact that assessment has become final for failure to
protest only means that the validity or correctness of the
assessment may no longer be questioned on appeal. However,
this issue is entirely distinct from the issue of whether the right to
collect has in fact prescribed.
The Court ruled that the right to collect has indeed prescribed
since there was no proof that the request for reinvestigation was
in fact granted/acted upon by the CIR. Thus, the period to collect
was never suspended.

REMEDIES
ADAMSON vs. COURT OF APPEALS
A deficiency tax assessment was issued against Petitioners
relating to their payment of capital gains tax and VAT on their sale
of shares of stock and parcels of land. Subsequent to the
preliminary conference, the CIR filed with the Department of
Justice her Affidavit of Complaint against Petitioners. The Court of
Appeals ultimately ruled that, in a criminal prosecution for tax
evasion, assessment of tax deficiency is not required because the
offense of tax evasion is complete or consummated when the
offender has knowingly and willfully filed a fraudulent return with
intent to evade the tax.
??? (1) Has the CIR issued an assessment?
(2) Must a criminal prosecution for tax evasion be preceded
by a deficiency tax
assessment?
(3) Does the CTA have jurisdiction on the case?

REMEDIES
!!! (1) NO. The recommendation letter of the Commissioner cannot
be considered a formal assessment as (a) it was not addressed to
the taxpayers; (b) there was no demand made on the taxpayers to
pay the tax liability, nor a period for payment set therein; (c) the
letter was never mailed or sent to the taxpayers by the
Commissioner. It was only an affidavit of the computation of the
alleged liabilities and thus merely served as prima facie basis for
filing a criminal information.
(2) NO. When fraudulent tax returns are involved as in the cases
at bar, a proceeding in court after the collection of such tax may
be begun without assessment considering that upon investigation
of the examiners of the BIR, there was a preliminary finding of
gross discrepancy in the computation of the capital gains taxes
due from the transactions. The Tax Code is clear that the remedies
may proceed simultaneously.
(3) NO. While the laws governing the CTA have expanded the
jurisdiction of the Court, they did not change the jurisdiction of the
CTA to entertain an appeal only from a final decision of the
Commissioner, or in cases of inaction within the prescribed period.
Since in the cases at bar, the Commissioner has not issued an
assessment of the tax liability of the Petitioners, the CTA has no
jurisdiction.
+

REMEDIES
PEOPLE OF THE PHILIPPINES vs. GLORIA KINTANAR
The spouses Kintanar were charged under Section 255 of the
Tax Code for alleged tax evasion and non-filing of income tax
returns. Gloria Kintanars defense was that she did not have
personal knowledge of the actual filing of the said returns since it
was her husband who filed their ITRs. The husband in turn alleged
that their ITRs were in fact prepared by their accountant and that
they necessarily just relied on the said accountant. These facts
supposedly contradicted the claim that their failure to file the
returns was willful.
??? Was the defendant guilty of tax evasion?
!!! YES. The elements of a violation under Section 255 have been
satisfied. These are (1) that the accused is a person required to
make or file a return; (2) that the accused failed to file the return
at the time required by law; and (3) that the failure to file was
willful. For (1), as income-generating spouses, they were obviously
covered by the filing requirements. For (2), the BIR witnesses
presented showed sufficient proof that indeed no returns were
filed in the RDOs where they should have filed.
+

REMEDIES
For (3), the Court said that the mere fact of having an accountant
prepare ones returns is not enough to show that that there was
no voluntary, intentional or deliberate failure to file. The Court
added that the fact of her being a businesswoman presupposes
that she ought to know and understand all matters concerning her
business including the filing of returns, citing Rule 131 on the
Rules on Evidence which states that it is presumed that a person
takes ordinary care of his concern. More importantly, the Court
found no affirmative acts on the part of defendant to make sure
her obligation to file ITRs had been fully complied with given that
she testified that she does not even know how much her tax
liabilities were. This neglect or omission was considered
tantamount to deliberate ignorance or conscious avoidance.
Lastly, the Court noted that the accountant himself was not even
presented as witness.

REMEDIES
PEOPLE OF THE PHILIPPINES vs. JUDY ANNE SANTOS
The evidence presented against defendant showed
discrepancies between the income tax return filed and the
documents which showed the amounts she earned from various
companies (ABS-CBN, Viva, Star Cinema, Century Tuna). The
defense forwarded was that she relied on her manager and CPA in
the preparation of her tax returns. The defendant likewise said
that she had signed her contracts without reading the same since
she had put her trust and confidence in her manager.
??? Was the defendant guilty of tax evasion?
!!! NO. The element of willfulness to find defendant guilty of tax
evasion is not present in this case. At most, the accused was
found guilty of being negligent and there is thus no proof of guilt
beyond reasonable doubt. The accused was merely made to pay
the deficiency assessment against her.

REMEDIES
CIR vs. KUDOS METAL CORPORATION
CIR assessed Kudos Metal Corporation for taxable year 1998. A
Waiver of the Statute of Limitations was executed on December
2001. The CTA issued a Resolution canceling the assessment
notices issued against Petitioner for having been issued beyond
the prescriptive period as the waiver purportedly failed to (a) have
the valid officer execute the same (i.e., only the Assistant
Commissioner signed it and not the CIR); (b) the date of
acceptance was not indicated; (c) the fact of receipt by the
taxpayer was not indicated in the original copy.
??? Has the CIRs right to assess prescribed?

REMEDIES
!!! YES. The requirements for a valid waiver as laid down in RMO
20-90 and RDAO No. 5-01 are mandatory to give effect to Section
222 of the Tax Code. Specifically, the flaws in the waiver executed
by Kudos Metal were as follows: (a) there was no notarized written
authority in favor of the signatory for the company; (b) there is no
stated date of acceptance by the Commissioner or his
representative; and (c) the fact of the receipt of the copy was not
indicated in the original waivers.
Neither can it be said that by merely executing the waiver the
taxpayer is already estopped from disputing an action by the CIR
beyond the statutory 3-year period since the exception under the
Suyoc case (i.e., when the delays were due to taxpayers acts)
does not apply.
Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry
date; (iii) signed by authorized officer of taxpayer and BIR; (iv)
notarized; (v) fact of receipt must be indicated in the copies

REMEDIES
CIR vs. MERALCO
Respondent obtained a loan from a Singapore branch of ING
Barings and withheld 10% on its interest payments. Subsequently,
it discovered that the lender is a foreign government-owned
financing institution of Germany and then filed a request for ruling
with the BIR seeking confirmation of the tax exempt status of the
lender and consequently their non-liability to withholding taxes.
After the BIR issued the ruling confirming the exemption,
Respondent filed a claim for refund with the CIR. The CIR denied
the claim stating that the claim has prescribed as 2 years have
lapsed from the time the withholding taxes were paid.
??? Has the right to claim refund of the erroneously paid
withholding taxes prescribed?

REMEDIES
CIR vs. MERALCO
!!! YES. The 2-year period is applied regardless of any supervening
cause that may arise after payment. In this case, the issuance by
the BIR of the ruling is merely confirmatory in nature and is not
the operative act from which an entitlement of refund is
determined. The period also cannot begin to run merely from the
discovery by the taxpayer of erroneous or excessive payment of
taxes. Neither can solution indebiti be used as basis since this
legal concept presupposes that there is no binding relationship
between the payor and the payee. There is clearly a binding
relationship since Respondent is required by law to act as
withholding agent on its payment to the lender-bank.

REMEDIES
CIR vs. AICHI FORGING COMPANY OF ASIA, INC.
On September 30, 2004, Aichi Forging filed a claim for
refund/credit of input VAT attributable to its zero-rated sales for
the period July 1, 2002 to September 30, 2002 with the CIR
through the DOF One-Stop Shop. On the same day, Aichi Forging
filed a Petition for Review with the CTA for the same action. The
BIR disputed the claim and alleged that the same was filed
beyond the two-year period given that 2004 was a leap year and
thus the claim should have been filed on September 29, 2004. The
CIR also raised issues related to the reckoning of the 2-year period
and the simultaneous filing of the administrative and judicial
claims.
??? (1) Was the Petitioners administrative claim
filed out of
time?
(2) Was the filing of the judicial claim premature?

REMEDIES
!!! (1) NO. The right to claim the refund must be reckoned from
the close of the taxable quarter when the sales were made in
this case September 30, 2004. The Court added that the rules
under Sections 204 (C) and 229 as cross-referred to Section 114
do not apply as they only cover erroneous payments or illegal
collections of taxes which is not the case for refund of unutilized
input VAT. Thus, the claim was filed on time even if 2004 was a
leap year since the sanctioned method of counting is the number
of months. The period of exception for this rule is from June 8,
2007 to September 12, 2008 when the 2-year period is reckoned
from the date of the payment of output VAT (Visayas Geothermal
Power Company vs. CIR)
(2) YES. Section 112 mandates that the taxpayer filing the refund
must either wait for the decision of the CIR or the lapse of the
120-day period provided therein before filing its judicial claim.
Failure to observe this rule is fatal to a claim. Thus, Section 112
(A) was interpreted to refer only to claims filed with the CIR and
not appeals to the CTA given that the word used is application.
Finally, the Court said that applying the 2-year period even to
judicial claims would render nugatory Section 112 (D) which
already provides for a specific period to appeal to the CTA --- i.e.,
(a) within 30 days after a decision within the 120-day period and
(b) upon expiry of the 120-day without a decision.

REMEDIES
CIR vs. MINDANAO II GEOTHERMAL PARTNERSHIP
December 10,
2003

October 5,
2010

60 (pre-Tax
Code) or 120
day waiting
period is
MANDATOY

BIR ruling
120 day waiting
applies: need
period is
not wait for
MANDATORY
expiration of
120 days (but
judicial claim
must be filed
within 120+30
from the filing of
(Notes : (i) 120 days is reckoned
from submission of complete
administrative
documents which is to be claim)
presumed to be simultaneous with the
filing of the administrative claim if no contrary proof is offered --Section 112 (C) Tax Code and CIR vs. GST, Philippines, Inc.)
(ii) The CIR loses jurisdiction on the administrative claim once the
judicial claim is filed with the CTA.

REMEDIES
MIRAMAR FISH COMPANY, INC. vs. CIR
Petitioner amended its administrative claims filed with the BIR
claiming that it had revised the amounts contained in the letterclaims. Given this claim, it also argued that that the remedy to
appeal the inaction of the BIR on the claims (using the 120+30
rule) has not yet prescribed.
??? Will the amendment of the administrative claims serve to
extend the period to appeal the inaction with the CTA?
!!! NO and YES. The claims that merely relied on the same
unamended VAT returns cannot be used since both versions of the
claim relied on the figures reflected in the VAT returns. On the
other hand, the claims that were revised relied as well on
amendments made to the VAT returns themselves and as such are
considered as validly justified amendments.

REMEDIES
UNITED AIRLINES, INC. vs. CIR
United Airlines was formerly an online carrier and stopped
being such in 1998 at which time it appointed a sales agent in the
Philippines. They filed a claim for refund in 2002 covering alleged
overpaid income taxes on gross passenger revenues arising from
the years after it became an offline carrier. While the CTA agreed
that the Petitioner can no longer be taxed for gross passenger
revenues starting 1999, it also found that Petitioner erroneously
deducted items from its gross cargo revenues which was not
consistent with the Tax Code. The CTA thus disallowed the refund
by pointing out that Petitioner in fact underpaid its taxes on cargo
revenues by P31 million which amount was higher than the P5
million being claimed for refund.
??? Can the Court, without violating the general principle against
offsetting of taxes, disallow a claim for refund on the ground that
its (Courts) finding of a deficiency assessment against the same
claimant is even higher than that sought to be refunded?

REMEDIES
!!! YES. Section 72 of the Tax Code states that When an
assessment is made in case of any list, statement or return, which
in the opinion of the Commissioner was false or fraudulent or
contained any statement or undervaluation, no tax collected
under such assessment shall be recovered by any suit, unless it is
proved that said list, statement or return was not false nor
fraudulent and did not contain any understatement or
undervaluation. While the Court reiterated and recognized the
rule against offsetting of tax claims upheld in previous cases, it
brought up the point that the grant of a refund is founded on the
assumption that the tax return is valid. It also said that the
practical benefit of dispensing of the issues on the proper
assessment in the same claim for refund case likewise avoids a
multiplicity of proceedings or suits.

REMEDIES
SMART COMMUNICATIONS, INC. vs. MUNICIPALITY OF
MALVAR

Petitioner received a closure order from the Respondent for the

non-payment of dues arising out of an ordinance regulating the
establishment of special projects which included Petitioners
telecommunications tower. Petitioner protested and upon denial of
the protest appealed the same to the Regional Trial Court of
Tanauan questioning as well the validity of the ordinance.
Thereafter, Petitioner appealed the RTCs decision to the CTA
which dismissed the same for lack of jurisdiction claiming that it
cannot resolve cases where the constitutionality of a law or rule is
challenged.
??? Does the CTA have jurisdiction over a decision of the RTC on a
purported tax case?
!!! NO. The primary reason for the CTAs lack of jurisdiction is that
what was imposed under the questioned ordinance are not taxes
but are instead regulatory fees, specifically to address the
environmental depredation of the said special projects. As such,
the case that originated from the RTC is not considered a local tax
case over which the CTA has jurisdiction.

REMEDIES
CITY OF MANILA vs. SM MART, INC.
??? Does the CTA have jurisdiction over a special civil action for
certiorari assailing an interlocutory order issued by the RTC in a
local tax case?
!!! YES. While Republic Act 9282 does not contain a categorical
statement which vests to the CTA jurisdiction over petitions for
certiorari on orders by the RTC on local tax cases, the grant of
appellate jurisdiction on local tax cases leads to an assumption
that the law intended to transfer also such power as is deemed
necessary if not indispensable in aid of such appellate jurisdiction.
The Court pointed out that to confer the power over certiorari
petitions to the Court of Appeals would create a split-jurisdiction
situation which is anathema to the orderly administration of
justice. The doctrine that the authority to issue writs of certiorari
must be expressly conferred by the Constitution or by law is not
deemed abandoned as this doctrine only applies to quasi-judicial
bodies.

REMEDIES
ST. PAUL COLLEGE OF SAN RAFEL vs. CIR
??? Does the CTA have jurisdiction to set aside a ruling issued by
the CIR even if the issuance of the same has not been appealed
with the DOF?
!!! NO. While R.A. 9282 vests the CTA with jurisdiction over
decisions of the CIR on other matters arising under the Tax
Code, the same Tax Code specifically states that the CIRs power
to interpret provisions of the Tax Code is subject to review by the
Secretary of Finance. In addition, DOF Department Order 23-01
provides the guidelines with regard to appeals filed with the DOF
on adverse rulings issued by the CIR. The failure to observe the
aforementioned processes will be deemed as a failure to exhaust
administrative remedies which affects the taxpayers right of
recourse with the CTA.

REMEDIES
COMMISSIONER OF CUSTOMS vs. MARINA SALES, INC.
??? Is a Motion for Reconsideration from the decision of a division
of the CTA mandatory prior to elevating the case to the CTA en
banc
!!! YES. The use of the term must clearly indicates that the
requirement is mandatory and not merely directory. There is no
exigent and persuasive reason (such as relieving a litigant of
injustice) to relax the rules in this case.

REMEDIES
FISHWEALTH CANNING CORPORATION vs. CIR
Petitioner was assessed for income tax, VAT and withholding
tax. After CIR issued a Final Decision on Disputed Assessment,
Petitioner filed a Letter of Reconsideration with the CIR instead of
appealing the same to the CTA within 30 days. The CIR then
issued a Preliminary Collection Letter which prompted the
Petitioner to file its Petition with the CTA. CIR argued that the
Petition with the CTA was filed out of time.
??? Did the filing of a Reconsideration toll the running of the 30day period to appeal to the CTA?
!!! NO. A Motion for Reconsideration of the denial of the
administrative protest filed with the CIR does not toll the 30-day
period to appeal to the CTA.

REMEDIES
CS GARMENT, INC. vs. CIR
Petitioner was subjected to an assessment by the CIR and while
the case disputing the assessment was pending in the CTA, the
Petitioner availed of 2007 Tax Amnesty Law. The CIR objected to
the availment and stated that the filing of an application does not
by itself entitle Petitioner to the benefits of the amnesty law and
that the BIR has one year to assess the taxpayers compliance,
specifically to dispute the correctness of the Statement of Assets,
Liabilities, and Net Worth (SALN).
??? Can Petitioner immediately enjoy the immunities under the
amnesty law as soon as they meet the requirements provided
therein?
!!! YES. The completion of the requirements under the law is
deemed full compliance with the law and as such the taxpayers
may immediately enjoy the immunities provided therein
(suspensive condition). The one year period provided under the
law is a period within which 3rd parties (those other than the BIR
and its agents) can question the SALN. Thus, if within the one year
period a 3rd party disputes the SALN on the basis of an
understatement exceeding 30%, and the privileges will then
+ not
apply (resolutory condition).

REMEDIES
REPUBLIC ACT 10021
EXCHANGE OF INFORMATION BY BTHE BUREAU OF
INTERNAL REVENUE ON INTERNATIONALLY-AGREED TAX
STANDARDS
!!! The Commissioner can now
inquire into bank deposits and
other related information held by financial institutions of a
specific taxpayer or taxpayers subject of a request for 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. The information may be
used by the BIR for tax assessment, verification, audit, and
enforcement purposes. The exchange of information shall be done
in a secure manner to ensure confidentiality.

!!! The provision of information to a foreign tax authority requires

that the requesting foreign tax authority has provided relevant
information such as the identity of the taxpayer, the tax purpose,
statement that the foreign authority has exhausted all means, etc.
!!! If the subject of the request are income tax returns, the same
shall be open to inspection upon the order of the President of the
Philippines.

REMEDIES
EXECUTIVE ORDER 56
OPENING OF INCOME TAX RETURNS TO IMPLEMENT
REPUBLIC ACT 10021
!!! The authority to order the opening for inspection of the income
tax returns of specific taxpayers for exchange of information by a
foreign tax authority is delegated to the Secretary of Finance.
!!! Any information received by the foreign tax authority as a
result of the opening of the income tax returns are absolutely
confidential and shall be disclosed only to persons or authorities
involved in the assessment or collection of, or enforcement or
prosecution in respect of the taxes covered by such
conventions/agreements.

REMEDIES
RR 18-2013 & RMC 11-2014 --- AMENDING RR 12-99
!!! The significant provisions are as follows --1) The Notice of Informal Conference step has been removed.
Thus, first step after examination is the issuance of the PAN
(unless not required)
2) The taxpayer must specify if what is being filed is a request for
reinvestigation or a request for reconsideration. If the appeal is
from the decision of an authorized representative to the CIR, the
only mode of appeal allowed is a request for reconsideration
3) The modes of service of the PAN, FAN, and FDDA have been
defined -- personal service on registered or known address (where
business is conducted)
substituted service (where the same is left with the clerk or
person-in-charge if in a place of business or with a person of
legal age if in a house or if there is nobody there or there is
refusal to receive, then 2 barangay officials will witness
+ the

REMEDIES
RR 18-2013 & RMC 11-2014 --- AMENDING RR 12-99
service by mail which is either registered or reputable
professional courier service, or, if neither is available, ordinary
mail
4) The duly authorized representatives are Revenue Regional
Directors, Assistant Commissioners LTS, and Assistant
Commissioner for Enforcement (Note: This upholds the case of
Festo which held that Revenue District Officers are not authorized
representatives for assessment purposes)
5) The issuance of FLD/FAN reiterating immediate payment of
assessment previously made in the PAN is a denial of the PAN
protest and is thus a decision on disputed assessment which may
be appealed (Note: This upholds the Allied Banking decision that
the FAN and not just the FDDA is appealable to the CTA)
6) The imposition of both the 50% and 25% surcharges in one
assessment is no longer sanctioned.

REMEDIES
OTHER SIGNIFICANT ISSUANCES
!!! RR 17-2013 --- All taxpayers are required to preserve their
books of accounts and other accounting records (including
invoices, receipts, vouchers, and other source documents) for a
period of ten (10) years reckoned from the day following the
deadline in filing a return or if filed after the deadline, from the
date of actual filing. If there is a pending examination due to an
assessment or a filed refund claim, the records are to be
preserved until the case is finally resolved. (Amended to now state
that hard copies must be retained for the first 5 years and
thereafter the taxpayer may retain only an electronic copy.)
!!! RR 005-2012 & RMC 22-2012 --- RR 5-2012 revoked rulings
prior to 1998 but RMC 22-2012 clarified that they can still be cited
and relied upon but only by the taxpayer to whom it was issued
and covering the specific transaction/s which is the subject of the
same ruling.

LOCAL BUSINESS TAX

PELIZLOY REALTY CORPORATION vs. PROVINCE OF
BENGUET

??? Can Benguet province impose amusement taxes on admission

fees for resorts, swimming pools, bath houses, hot springs, tourist
spots and other similar places for recreation?

!!! NO. The Court stated that a valid local tax imposition must (1)
be consistent with the principles under Section 130 and (2) not
breach the limitations imposed under Section 133. Even while
Petitioner disputed the imposition of the tax by stating that
Section 133 of the LGC prohibits LGUs to impose percentage taxes
(such as the amusement tax) and/or VAT, the Court ruled that
provinces are not barred from levying amusement taxes given
that the LGC expressly allows them to levy amusement taxes but
only on theaters, cinemas, and other places of amusement. The
Court ruled, however, that resorts, pools, hot springs, etc. are not
covered by other places of amusement since the enumeration
under Section 140 are all venues primarily for staging of
spectacles which cannot encompass the facilities of Petitioner.
+

LOCAL BUSINESS TAX

LEPANTO CONSOLIDATED MINING COMPANY vs.
AMBANLOC

Lepanto Consolidated Mining had a mining lease contract for a

mining claim in Benguet. They used the sand and gravel mined to
construct and maintain concrete structures needed in its mining
operations such as a tailings dam, access roads, and offices. The
provincial treasurer of Benguet then asked Lepanto Consolidated
Mining to pay sand and gravel tax for the quarry materials
extracted from the mining site. The counterargument was that the
said tax applied only to commercial extractions and since Lepanto
did not supply other users for some profit, the tax should not
apply.
??? Is Lepanto liable for the tax imposed by Benguet on the sand
and gravel that it extracted from within the area of its mining
claim used exclusively in its mining operations?

LOCAL BUSINESS TAX

!!! YES. The CTA erred in applying the provision of the Local
Government Code (Section 138) since the basis of Benguet
province emanates from the Revised Benguet Revenue Code itself.
This notwithstanding, the provincial revenue measure still did not
distinguish between commercial and non-commercial extractions.
In addition, the Petitioners argument that when a company is
taxed on its main business it can no longer be taxable for
engaging in an activity that is but part of, incidental to, and
necessary to such main business, was held to be inapplicable. The
Court said that the cases where the above principle has been
applied involved business taxes and thus the incidental activities
could not be treated as separate and distinct from the main
business. Here the tax being imposed was an excise tax levied on
the privilege of extracting gravel and sand.

LOCAL BUSINESS TAX

QUEZON CITY vs. ABS-CBN BROADCATING
CORPORATION
ABS-CBN was granted a franchise which provides that it shall
pay a 3% franchise tax and the said percentage tax shall be in
lieu of all taxes on this franchise or earnings thereof. It thus filed
a complaint against the imposition of local franchise tax.
??? Does the in lieu of all taxes provision in ABS-CBNs franchise
exempt it from payment of the local franchise tax?
!!! NO. The right to exemption from local franchise tax must be
clearly established beyond reasonable doubt and cannot be made
out of inference or implications.

LOCAL BUSINESS TAX

QUEZON CITY vs. ABS-CBN BROADCATING
CORPORATION
!!! The uncertainty over whether the in lieu of all taxes
provision pertains to exemption from local or national taxes, or
both, should be construed against Respondent who has the
burden to prove that it is in fact covered by the exemption
claimed. Furthermore, the in lieu of all taxes clause in
Respondents franchise has become ineffective with the abolition
of the franchise tax on broadcasting companies with yearly gross
receipts exceeding P10 million as they are now subject to the VAT.

LOCAL BUSINESS TAX

ANGELES CITY vs. ANGELES ELECTRIC CORPORATION
??? Can an injunction be issued to enjoin the collection of
local taxes?
!!! YES. The Local Government Code does not specifically prohibit
an injunction enjoining the collection of taxes. This is different in
the case of national taxes where the Tax Code expressly provides
that no court shall have the authority to grant an injunction to
restrain the collection on national internal revenue tax, fee or
charge with the sole exception of when the CTA finds that the
collection thereof may jeopardize the interest of the government
and/or the taxpayer. Nevertheless, there must still be proof of the
existence of the requirements for injunction to be issued under the
Rules of Court (i.e., clear right to be protected and urgent
necessity to prevent serious damage).

REAL PROPERTY TAX

PHILIPPINE RECLAMATION AUTHORITY vs. CITY OF
PARANAQUE

The City Treasurer of Paranaque City issued Warrants of Levy on

PRAs reclaimed properties within the citys jurisdiction.
??? Is the PRA subject to real property tax?
!!! NO. PRA, much like MIAA, PPA, UP, PFDA, GSIS, and BSP, is
considered a government instrumentality exercising corporate
powers but which are not considered as GOCCs as they are
neither a stock (for not having the authority to distribute
dividends) nor a non-stock (for not having members) corporation.
In addition, the Constitution likewise provides that a GOCC is
created under two conditions: (a) established for a common good
and (b) meets the test of economic viability. While test (a) is
complied with, the PRA was undoubtedly not created to engage in
economic or commercial activities as it is the only entity engaged
in reclamation which was described as essentially a public service.
Thus, the exemptions under Sections 234 (a) and 133(o) of the
LGC apply.

REAL PROPERTY TAX

CITY OF PASIG vs. PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT

MPLDC owned two parcels of land in Pasig City. In 1986, Jose Y.

Campos, the registered owner of MPLDC, voluntarily surrendered
MPLDC to the government. From 2002-2005, Pasig City sent
notices of assessment to MPLDC to demand payment of real
property taxes. PCGG filed with the RTC a petition for prohibition
with a prayer for issuance of a TRO claiming ownership over the
said properties.
??? Are the properties owned by PCGG subject to real property
taxes?
!!! Only those portions of the properties leased to taxable entities
are subject to real estate taxes for the period of such leases and
may also be sold at public auctioned to satisfy the tax
delinquency. While it was established that the owner of the
properties is now clearly the Republic of the Philippines given the
voluntary surrender, the Local Government Code clearly+
states

REAL PROPERTY TAX

PROVINCIAL ASSESSOR OF MARINDUQUE vs. COURT OF
APPEALS

The Provincial Assessor issued an assessment against

Marcopper for real property taxes supposedly due on the siltation
dam and decant system. Respondent submitted a DENR
certification stating that the dam is a structure intended primarily
for pollution control of silted materials and hence exempt from
real property taxes.
??? Are the properties exempt from real property tax?
!!! NO. While Section 234 (e) exempts from the real property tax
machinery and equipment used for pollution control, the Court
found that during the period covered by the assessment, no
evidence was presented that the property was used actually,
directly, and exclusively for pollution control purposes. In
addition, the DENR itself characterized the property as a
structure rather than as machinery or equipment which thus
+
takes it away from the exempting provision.

REAL PROPERTY TAX

Note: The assessment was for years before the law expanded the
definition of pollution control device to include infrastructure or
improvement. However, the Court said that the owner can not get
the benefit of a retroactive application of the amendment.

REAL PROPERTY TAX

NATIONAL POWER CORPORATION vs. PROVINCE OF
QUEZON

NPC is a GOCC that entered into an Energy Conversion

Agreement (ECA) under a build-operate-transfer (BOT)
arrangement with Mirant Pagbilao Corp. Under the agreement,
Mirant will build and finance a thermal power plant in Quezon, and
operate and maintain the same for 25 years, after which, Mirant
will transfer the power plant to the Respondent without
compensation. NPC also undertook to pay all taxes that the
government may impose on Mirant. Quezon then assessed Mirant
real property taxes on the power plant and its machineries.
???(1) Can Petitioner (NPC) file the protest against the real
property tax
assessment?
(2) Can Petitioner claim exemption from the RPT given the
BOT arrangement with Mirant?
(3) Is payment under protest required before an appeal to the
LBAA is made?

REAL PROPERTY TAX

!!! (1) NO. The two entities vested with personality to contest an
assessment are (a) the owner or (b) the person with legal interest
in the property. NPC is neither the owner nor the possessor/user of
the subject machineries even if it will acquire ownership of the
plant at the end of 25 years. The Court said that legal interest
should be an interest that is actual and material, direct and
immediate, not simply contingent or expectant. While the
Petitioner does indeed assume responsibility for the taxes due on
the power plant and its machineries, the tax liability referred to is
the liability arising from law that the local government unit can
rightfully and successfully enforce, not the contractual liability
that is enforceable between the parties to a contract. The local
government units cannot be compelled to recognize the protest of
a tax assessment from the Petitioner, an entity against whom it
cannot enforce the tax liability.

REAL PROPERTY TAX

!!! (2) NO. To successfully claim exemption under Section 234 (c)
of the LGC, the claimant must prove two elements: a) the
machineries and equipment are actually, directly, and exclusively
used by local water districts and government-owned or controlled
corporations; and b) the local water districts and governmentowned and controlled corporations claiming exemption must be
engaged in the supply and distribution of water and/or the
generation and transmission of electric power. Since neither the
Petitioner nor Mirant satisfies both requirements, the claim for
exemption must fall.
(3) YES. 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. The case of Ty does not apply as it involved a
situation where the taxpayer was questioning the very authority
and power of the assessor, acting solely and independently, to
impose the assessment and of the treasurer to collect the tax. A
claim for tax exemption, whether full or partial, does not question
the authority of local assessors to assess real property tax.

REAL PROPERTY TAX

CAMP JOHN HAY DEVELOPMENT CORPORATION vs.
CBAA
Petitioner was assessed by Baguio City for its buildings within
the John Hay Special Economic Zone. Petitioner protested the
same and raised as defense its alleged exemption from paying all
taxes under the Bases Conversion Act. However, there was no
payment under protest made by the Petitioner.
??? Can the CBAA/CTA assume jurisdiction over a real property
assessment case even if the taxpayer did not pay under protest?
!!! NO. A claim for tax exemption, whether full or partial, does not
deal with the authority of local assessor to assess real property
tax. Such claim questions the correctness of the assessment and
compliance with the provisions of the LGC and as such payment
under protest is mandatory. Neither can Petitioner use the
argument that the rule on paying under protest will not apply to it
since it is not a taxpayer as it is a tax-exempt entity. The Court
replied by stating that the LGC provides for a process by which an
entity claiming exemption can comply with the same and+hence it

REAL PROPERTY TAX

TALENTO vs. ESCALADA
... Petron filed a petition with the LBAA contesting the revised
assessment of its properties on the grounds that the assessments
covered more than 10 years, the assessment included items which
should properly be excluded, and that the subject assessment
should take effect on January 1st the following year. While the
appeal was pending, the Treasurer issued a warrant of levy. Petron
asked the RTC to stop the levy in view of the pending appeal and
posting of a bond with the LBAA
??? Can the RTC issue an injunction against the collection of real
property taxes if there is a pending appeal with the LBAA ?
!!! YES. Petron was granted the injunction which suspended the
collection of taxes given that it was able to show a clear and
unmistakable right to refuse or hold in abeyance the payment of
taxes. The filing of a bond was also deemed to have been in
compliance not only with the LBAA rules but also with Section
+ 11
of Republic Act 9282.

REAL PROPERTY TAX

DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. vs.
CANTOS
... Petitioner was assessed for non payment of real property tax as
it was claiming exemption on the basis of its legislative franchise
which stated that The grantee shall be liable to pay the same
taxes on its real estate, buildings, and personal property exclusive
of this franchise x x x . While the Cease and Desist order
issued by the local government was set aside, the treasurer
proceeded to collect by issuing warrants of levy. Petitioner asked
that the treasurer be cited for contempt as the warrants were
inconsistent with the previous decision and reiterated its
exemption.
??? Did the local treasurer commit reversible error when it issued
warrants of levy?

REAL PROPERTY TAX

DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. vs.
CANTOS
!!! NO. The Court ruled that Petitioners remedy if it claimed
exemption was to submit the requirements (within 30 days)
provided under the LGC to establish such grant. Alternatively, it
could have availed the remedy of paying the assessed real
property tax under protest. If it had done so, it would have
prevented the issuance of the warrants but since it failed it cannot
now fault the treasurer who was just performing his ministerial
function also under the LGC who himself would have been
subjected to the penalties prescribed for non-performance of
ministerial duties.
It was likewise pointed out that Petitioners franchise does not
imply its assets that are actually, directly, and exclusively used in
its telecommunications business are exempt from real property
tax.

REAL PROPERTY TAX

CITY MAYOR OF QUEZON CITY vs.
RIZAL COMMERCIAL BANKING CORPORATION
An auction sale of the properties of RCBC was conducted in May
30, 2003. The Certificate of Sale of Delinquent Property was
registered with the Register of Deeds of Quezon City on February
10, 2004. Respondent tendered payment on June 10, 2004 but the
Treasurer of Quezon City refused on the ground that the one-year
redemption period has lapsed.
??? Did the Respondent still have the right to redeem?
!!! YES. While the LGC provides that the one year begins from the
date of sale on which date the delinquent tax and other fees are
paid (in this case May 30, 2003), the local ordinance of Quezon
City provides that the period is reckoned from the date of
annotation of the sale (in this case February 10, 2004). To
reconcile the conflicting provisions, the Court applied the rule laid
down in the special law or the Quezon City ordinance. +

REAL PROPERTY TAX

EXECUTIVE ORDER 27
REDUCTION AND CONDONATION OF REAL PROPERTY
TAXES ON POWER GENERATION FACILITIES OF IPPs
UNDER BOT CONTRACTS

!!! Based on the case of NPC vs. Province of Quezon, Quezon

Province was allowed to impose RPT on machineries and
equipment under a BOT agreement. Given that the payment of
the same RPT has been contractually assumed by NPC/PSALM
which are GOCCs, the President reduced all RPT liabilities based
on an assessment level of 15% .
!!! All fines, penalties, and interest on all deficiencies were
likewise condoned.
!!! The reduction was made effective for all years up to 2011.

CUSTOMS
SUBIC BAY METROPOLITAN AUTHORITY vs. RODRIGUEZ
On September 29, 2001, a shipment described as agricultural
product arrived at Subic Bay Freeport Zone. On October 23, the
BOC issued a Memorandum stating that upon examination the
shipment was found to contain rice. The representative of the
importer then stated that there was a misshipment and
manifested willingness to pay appropriate duties and taxes. The
BOC then issued a Hold Order on October 25, 2001. Despite
several certifications for its clearance, Petitioner SBMA refused to
allow the release of the rice shipment. Hence, on June 11, 2002,
the respondent-importers filed with the RTC of Olongapo City a
complaint for Injunction and Damages against SBMA.
??? Did the RTC have jurisdiction over the case?

CUSTOMS
!!! NO. The Collector of Customs has exclusive jurisdiction over
seizure and forfeiture proceedings and the regular courts can not
interfere nor can it enjoin these proceedings. This is the rule the
moment the imported goods are in the possession or control of
the Customs authorities even if no warrant for seizure or detention
had previously been issued. The actions of the BOC are then only
appealed to the CTA. The Court also said that this rule, which is
anchored upon the policy of placing no unnecessary hindrance on
the governments drive to prevent smuggling and fraud and to
collect correct duties, is absolute.

CUSTOMS
PHILIPPINE BRITISH ASSURANCE COMPANY, INC. vs.
BUREAU OF CUSTOMS
Philippine British Assurance Company was an insurance
company which regularly issued customs bonds to its clients in
favor of the BOC. The bonds secure the release of imported goods
in order that the goods may be released without prior payment of
duties and taxes. Under these bonds, Petitioner and its clients
jointly bind themselves to pay BOC the value of the bonds in the
event that the bonds expire without the imported goods being reexported or the proper duties being paid. BOC then filed a
collection case alleging that Petitioner had unliquidated customs
bonds. The RTC decided in favor of BOC but the appeal filed with
the Court of Appeals was dismissed as the CA claimed lack of
jurisdiction and said that the appeal lies with the CTA as a case for
collection of taxes.
??? Did the CA, not the CTA, have jurisdiction over the appeal filed
from the RTC?
+

CUSTOMS
!!! YES. An action to collect on a bond used to secure the payment
of taxes is not a tax collection case but rather a simple case for
enforcement of contractual liability. This was the same ruling in
Mambulao Lumber where to satisfy its deficiency sales tax, the
parties agreed for the taxpayer to pay in installments and as a
security a bond was executed. Upon default, the government
proceeded against the bond while the taxpayer argued that the 5year period to collect had set in. The Court also ruled that the
prescription rules under the Tax Code do not apply and instead
those under the Civil Code apply.

CUSTOMS
DOF ORDER 011-2014
!!! The significant provisions of the Order are as follows --1) Post-entry audit is now administered by Fiscal Intelligence Unit
of the DOF and no longer the BOC-PEAG.
2) Those that are audited are (1) the firms selected by computeraided risk management system which is based on the track
record; (2) those whose importations were subject to errors; and
(3) those that volunteer.
3) Except in case of fraud, COC (upon approval by the DOF with
the recommendation of the FIU) may compromise with the erring
importer but the same has to be based to based on full disclosure
that is made prior to the issuance of the Audit Notification Letter.

CUSTOMS
DOF ORDER 011-2014
!!! The significant provisions are as follows --4) All importers and brokers are required to keep at their principal
place of business for a period of 10 years (as amended by DOF
Order 011-2014) 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 to the verification of the accuracy of the
transaction value declared by the importers/customs brokers on
the import entry.

THANK YOU.

GOOD
LUCK!