Taxation Law

1
COVERAGE
LAW ON TAXATION
2014 BAR EXAMINATIONS
I. General Principles of Taxation
A. Definition and concept of taxation
Taxation is the power by which the sovereign raises revenue to defray the necessary
expenses of the government. It is merely a way of apportioning the cost of
government among those who in some measure are privileged to enjoy its benefits
and must bear its burdens. It includes, in its broadest and most general sense,
every charge or burden imposed by the sovereign power upon persons, property, or
property rights for the use and support of the government and to enable it to
discharge its appropriate functions, and in that broad definition there is included a
proportionate levy upon persons or property and all the various other methods and
devices by which revenue is exacted from persons and property for public purposes.
(51 Am. Jur 34-35)
Taxation is described as a destructive power which interferes with the personal and
property rights of the people and takes from them a portion of their property for the
support of the government. (Paseo Realty & Development Corporation v. Court of
Appeals, GR No. 119286, October 13, 2004)
B. Nature of taxation
Taxation is inherent in nature, being an attribute of sovereignty. (Chamber of Real
Estate and
Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))
As an incident of sovereignty, the power to tax has been described as unlimited in
its range, acknowledging in its very nature no limits, so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who are to pay it. (Mactan Cebu International Airport
Authority v. Marcos, 261 SCRA 667 (1996))
The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. (Pepsi-Cola Bottling Company of the Phil. V. Mun.
of Tanauan, Leyte, 69 SCRA 460)
The power to tax is inherent in the State, such power being inherently legislative,
based on the principle that taxes are a grant of the people who are taxed, and the
grant must be made by the immediate representative of the people, and where the
people have laid the power, there it must remain and be exercised. (Commissioner
of Internal Revenue v. Fortune Tobacco Corporation, 559 SCRA 160 (2008))
The power of taxation is essentially a legislative function. The power to tax includes
the authority to:
determine the
nature (kind);
object (purpose);
extent (amount of rate);
coverage (subjects and objects);
Bar Ops Pilipinas 2015
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apportionment of the tax (general or limited application);

situs (place) of the imposition; and
method of collection;
grant tax exemptions or condonations; and
specify or provide for the administrative as well as judicial remedies that either the
government or the taxpayer may avail themselves in the proper implementation of
the tax measure. (Petron v. Pililla, GR No. 158881, April 16, 2008)
In other words, the legislature wields the power to define what tax shall be imposed,
why it should be imposed, how much tax shall be imposed, against whom (or what)
it shall be imposed and where it shall be imposed. (Chamber of Real Estate and
Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))
C. Characteristics of taxation
As a principal attribute of sovereignty, the exercise of taxing power derives its
source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. (National Power Corporation
v. City of Cabanatuan, GR No. 149110, April 9, 2003)
The power to tax is so unlimited in force and so searching in extent, that courts
scarcely venture to declare that it is subject to any restrictions whatever, except
such as rest in the discretion of the authority which exercises it. (Tio v. Videogram
Regulatory Board et al., 151 SCRA 213)
It is a settled principle that the power of taxation by the state is plenary.
Comprehensive and supreme, the principal check upon its abuse resting in the
responsibility of the members of the legislature to their constituents. (PLANTERS
PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)
Taxes being the lifeblood of the government that should be collected without
unnecessary hindrance, every precaution must be taken not to unduly suppress it.
(Republic v. Caguioa, 536 SCRA 193 (2007))
The power to tax is sometimes called the power to destroy. Therefore, it should be
exercised with caution to minimize injury to the proprietary rights of the taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax collector kills the hen
that lays the golden egg.
(Commissioner of Internal Revenue v. SM Prime Holdings, Inc., 613 SCRA 774
(2010))
In order to maintain the general publics trust and confidence in the government,
this power must be used justly and not treacherously. (Roxas y Cia v. Court of Tax
Appeals, 23 SCRA 276)
Tax laws are prospective in operation, unless the language of the statute clearly
provides otherwise. (Commissioner of Internal Revenue v. Acosta, 529 SCRA 177
(2007))

D. Power of taxation compared with other powers

1. Police power
Police Power is the power to make, ordain and establish all manner of wholesome
and reasonable laws, statutes and ordinances whether with penalties or without, not
repugnant to the Constitution, the good and welfare of the commonwealth, and for
the subjects of the same.
(Metropolitan Manila Development Authority v. Garin, GR No. 130230, April 15,
2005)
The main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The "lawful subjects" and "lawful means" tests are
used to determine the validity of a law enacted under the police power. The power
of taxation, on the other hand, is circumscribed by inherent and constitutional
limitations. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No.
166006, March 14, 2008)
The motivation behind many taxation measures is the implementation of police
power goals. Progressive income taxes alleviate the margin between rich and poor;
the so-called sin taxes on alcohol and tobacco manufacturers help dissuade the
consumers from excessive intake of these potentially harmful products. (SOUTHERN
CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)
Taxation is distinguishable from police power as to the means employed to
implement these public good goals. Those doctrines that are unique to taxation
arose from peculiar considerations such as those especially punitive effects of
taxation, and the belief that taxes are the lifeblood of the state yet at the same
time, it has been recognized that taxation may be made the implement of the
states police power. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3,
2005)
Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost
the governments general funds but to provide means for the rehabilitation and
stabilization of a threatened industry, the coconut industry, which is so affected with
public interest as to be within the police power of the State. The subject laws are
akin to the sugar liens imposed by Sec. 7(b) of P.D. 388, and the oil price
stabilization funds under P.D. 1956, as amended by E.O. 137. (PAMBANSANG
KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.
EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
If generation of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that
revenue is incidentally raised does not make the imposition a tax. (GEROCHI v.
DEPARTMENT OF ENERGY, 527 SCRA 696 (2007))
While it is true that the power of taxation can be used as an implement of police
power, the primary purpose of the levy is revenue generation. If the purpose is
primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. (PLANTERS PRODUCTS, INC. v.
FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)

It has been the settled law that municipal license fees could be classified into those
imposed for regulating occupations or regular enterprises, for the regulation or
restriction of non-useful occupations or enterprises and for revenue purposes only.
Licenses for non-useful occupations are also incidental to the police power and the
right to exact a fee may be implied from the power to license and regulate, but in
fixing the amount of the license fees the municipal corporations are allowed a much
wider discretion in this class of cases. (ERMITA-MALATE HOTEL AND MOTEL
OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO CHIU v. THE
HONORABLE CITY MAYOR OF MANILA, G.R. No. L-24693, July 31, 1967)
2. Power of eminent domain
Be it stressed that the privilege enjoyed by senior citizens does not come directly
from the State, but rather from the private establishments concerned. Accordingly,
the tax credit benefit granted to these establishments can be deemed as their just
compensation for private property taken by the State for public use.
(COMMISSIONER OF INTERNAL REVENUE v. CENTRAL LUZON DRUG CORPORATION
G.R. No. 159647 April 15, 2005)
Besides, the taxation power can also be used as an implement for the exercise of
the power of eminent domain. Tax measures are but "enforced contributions
exacted on pain of penal sanctions" and "clearly imposed for a public purpose." In
recent years, the power to tax has indeed become a most effective tool to realize
social justice, public welfare, and the equitable distribution of wealth.
(COMMISSIONER OF INTERNAL REVENUE v. CENTRAL LUZON DRUG CORPORATION
G.R. No. 159647 April 15, 2005)
E. Purpose of taxation
Revenue-raising
Non-revenue/special or regulatory
The Court was satisfied that the coco-levy funds were raised pursuant to law to
support a proper governmental purpose. They were raised with the use of the police
and taxing powers of the State for the benefit of the coconut industry and its
farmers in general. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT
MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April
10, 2012)
In relation to the regulatory purpose of the imposed fees, the imposition
questioned must relate to an occupation or activity that so engages the public
interest, morals, safety and development as to require regulation for the protection
and promotion of such public interest; the imposition must also bear a reasonable
relation to the probable expenses of regulation, taking into account not only the
costs of direct regulation, but also its incidental consequences as well. (CHEVRON
PHILIPPINES, INC. v. BASES CONVERSION DEVELOPMENT AUTHORITY, 630 SCRA 519
(2010))
As an elementary principle of law, license taxation must not be so onerous to show
a purpose to prohibit a business which is not injurious to health or morals.
(TERMINAL FACILITIES AND
SERVICES CORPORATION v. PHILIPPINE PORTS AUTHORITY, 378 SCRA 82 (2002))
It is a police power measure. The objectives behind its enactment are: "(1) To be
able to impose payment of the license fee for engaging in the business of massage
clinic (2) in order to forestall possible immorality which might grow out of the
construction of separate rooms for
massage of customers." (TOMAS VELASCO v. HON. ANTONIO J. VILLEGAS, G.R. No. L24153, February 14, 1983)
F. Principles of sound tax system 1. Fiscal adequacy
Certainly, to continue collecting real property taxes based on valuations arrived at
several years ago, in disregard of the increases in the value of real properties that
have occurred since then, is not in consonance with a sound tax system. Fiscal
adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenues must be adequate to meet government expenditures and their
variations. (FRANCISCO I. CHAVEZ v. JAIME B. ONGPIN, G.R. No. 76778, June 6,
1990)
Administrative feasibility
Theoretical justice
G. Theory and basis of taxation 1. Lifeblood theory
As well said in a prior case, revenue laws are not intended to be liberally construed.
Considering that taxes are the lifeblood of the government and in Holmess
memorable metaphor, the price we pay for civilization, tax laws must be faithfully
and strictly implemented. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE
ACOSTA G.R. No. 154068 August 3, 2007)
Taxes being the lifeblood of the government should be collected promptly. No court
shall have the authority to grant an injunction to restrain the collection of any
internal revenue tax, fee or charge imposed by the National Internal Revenue Code.
(ANGELES CITY v. ANGELES ELECTRIC COOPERATION, 622 SCRA 43 (2010))
We are not unaware of the doctrine that taxes are the lifeblood of the government,
without which it can not properly perform its functions; and that appeal shall not
suspend the collection of realty taxes. However, there is an exception to the
foregoing rule, i.e., where the taxpayer has shown a clear and unmistakable right to
refuse or to hold in abeyance the payment of taxes. (EMERLINDA S. TALENTO vs.
HON. REMIGIO M. ESCALADA, JR., G.R. No. 180884, June 27, 2008)
2. Necessity theory
The theory behind the exercise of the power to tax emanates from necessity,
without taxes, government cannot fulfill its mandate of promoting the general
welfare and well being of the people. (GEROCHI v. DEPARTMENT OF ENERGY, 527
SCRA 696 (2007))
3. Benefits-protection theory (Symbiotic relationship)
Despite the natural reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his share in the
running of the government. The government for its part is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the

erroneous notion that it is an arbitrary method of exaction by those in the seat of

power.
(COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE COURT OF TAX
APPEALS, G.R. No. L-28896, February 17, 1988)
The expenses of government, having for their object the interest of all, should be
borne by everyone, and the more man enjoys the advantages of society, the more
he ought to hold himself honored in contributing to those expenses. (ABAKADA
GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA,
G.R. No. 168056, September 1, 2005)
4. Jurisdiction over subject and objects
H. Doctrines in taxation
1. Prospectivity of tax laws
Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose
because the last paragraph of Section 204(c) was not found in Section 230 of the
old Code. After a thorough consideration of this matter, we find that we cannot give
retroactive application to Section 204(c) abovecited. We have to stress that tax laws
are prospective in operation, unless the language of the statute clearly provides
otherwise. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No.
154068 August 3, 2007)
Imprescriptibility
Double taxation a) Strict sense
Double taxation means taxing the same property twice when it should be taxed only
once; that is, "taxing the same person twice by the same jurisdiction for the same
thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once.
Otherwise described as "direct duplicate taxation," the two taxes must be imposed
on the same subject matter, for the same purpose, by the same taxing authority,
within the same jurisdiction, during the same taxing period; and they must be of the
same kind or character. (COMMISSIONER OF INTERNAL REVENUE v. SOLIDBANK
CORPORATION G.R. No. 148191 November 25, 2003)
b) Broad sense
Subjecting interest income to a 20% FWT and including it in the computation of the
5% GRT is clearly not double taxation: First, the taxes herein are imposed on two
different subject matters; Second, although both taxes are national in scope
because they are imposed by the same taxing authority -- the national government
under the Tax Code -- and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they affect are different; Third,
these two taxes are of different kinds or characters.
(COMMISSIONER OF INTERNAL REVENUE v. SOLIDBANK CORPORATION G.R. No.
148191 November 25, 2003)
Regulation and taxation are two different things, the first being an exercise of police
power, whereas the latter involves the exercise of the power of taxation. While R.A.
2264 provides that no city may impose taxes on forest products and although
lumber is a forest product, the tax in
question is imposed not on the lumber but upon its sale; thus, there is no double
taxation and even if there was, it is not prohibited. (SERAFICA v. CITY TREASURER
OF ORMOC, G.R. No. L-24813, April 28, 1968)
Both a license fee and a tax may be imposed on the same business or occupation,
or for selling the same article. This is not being in violation of the rule against
double taxation. (COMPANIA GENERAL DE TABACOS DE FILIPINAS v. CITY OF
MANILA, 8 SCRA 367)
c) Constitutionality of double taxation
Unlike the United States Constitution, double taxation is not specially prohibited in
the Philippine Constitution. (Manufacturers Life v. Meer, 89 Phil 210)
d) Modes of eliminating double taxation
Double taxation usually takes place when a person is resident of a contracting state
and derives income from, or owns capital in the other contracting state and both
states impose tax on that income or capital. In order to eliminate double taxation, a
tax treaty resorts to several methods.
First, it sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital. In some cases,
an exclusive right to tax is conferred on one of the contracting states; however, for
other items of income or capital, both states are given the right to tax, although the
amount of tax that may be imposed by the state of source is limited.
The second method for the elimination of double taxation applies whenever the
state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation. There are two methods of relief- the
exemption method and the credit method. In the exemption method, the income or
capital which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in determining
the rate of tax applicable to the taxpayers remaining income or capital. On the
other hand, in the credit method, although the income or capital which is taxed in
the state of source is still taxable in the state of residence, the tax paid in the
former is credited against the tax levied in the latter. The basic difference between
the two methods is that in the exemption method, the focus is on the income or
capital itself, whereas the credit method focuses upon the tax. (COMMISSIONER OF
INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No. 127105 June 25,
1999)
In negotiating tax treaties, the underlying rationale for reducing the tax rate is that
the Philippines will give up a part of the tax in the expectation that the tax given up
for this particular investment is not taxed by the other country. Thus, if the rates of
tax are lowered by the state of source, in this case, by the Philippines, there should
be a concomitant commitment on the part of the state of residence to grant some
form of tax relief, whether this be in the form of a tax credit or exemption.
(COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No.
127105 June 25, 1999)

4. Escape from taxation a) Shifting of tax burden

Section 135(a) should be construed as prohibiting the shifting of the burden of the
excise tax to the international carriers who buy petroleum products from the local
manufacturers. Said international carriers are thus allowed to purchase the
petroleum products without the excise tax component which otherwise would have
been added to the cost or price fixed by the local manufacturers or
distributors/sellers. (COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL
PETROLEUM CORPORATION, G.R. No. 188497, February 19, 2014)
(i) Ways of shifting the tax burden
It may indeed be that the economic burden of the tax finally falls on the purchaser;
when it does the tax becomes a part of the price which the purchaser must pay. It
does not matter that an additional amount is billed as tax to the purchaser. The
method of listing the price and the tax separately and defining taxable gross
receipts as the amount received less the amount of the tax added, merely avoids
payment by the seller of a tax on the amount of the tax.
(PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. L-19707, August 17, 1967)
Taxes that can be shifted
Meaning of impact and incidence of taxation
In indirect taxation, a distinction is made between the liability for the tax and
burden of the tax: The seller who is liable for the VAT may shift or pass on the
amount of VAT it paid on goods, properties or services to the buyer. In such a case,
what is transferred is not the seller's liability but merely the burden of the VAT.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)
b) Tax avoidance
Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length.
(COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR.
G.R. No. 147188 September 14, 2004)
c) Tax evasion
Tax evasion, on the other hand, is a scheme used outside of those lawful means and
when availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities.
G.R. No. 147188 September 14, 2004)
Tax evasion connotes the integration of three factors: (1) the end to be achieved,
i.e., the payment of less than that known by the taxpayer to be legally due, or the
non-payment of tax when it is shown that a tax is due; (2) an accompanying state of
mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and
not accidental"; and (3) a course of action or failure of action which is unlawful.
G.R. No. 147188 September 14, 2004)
Here, it is obvious that the objective of the sale to Altonaga was to reduce the
amount of tax to be paid especially that the transfer from him to RMI would then
subject the income to only 5% individual capital gains tax, and not the 35%
corporate income tax. Altonagas sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax shelter. (COMMISSIONER
OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188
September 14, 2004)
5. Exemption from taxation
a) Meaning of exemption from taxation
It is the legislature, unless limited by a provision of the state constitution, that has
full power to exempt any person or corporation or class of property from taxation,
its power to exempt being as broad as its power to tax. Other than Congress, the
Constitution may itself provide for specific tax exemptions, or local governments
may pass ordinances on exemption only from local taxes. (JOHN HAY PEOPLES
ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24,
2003)
b) Nature of tax exemption
Taxation is the rule and exemption is the exception. (FELS ENERGY, INC. v.
PROVINCE OF BATANGAS, 516 SCRA 186 (2007))
Since the power to tax includes the power to exempt thereof which is essentially a
legislative prerogative, it follows that a municipal mayor who is an executive officer
may not unilaterally withdraw such an expression of a policy thru the enactment of
a tax. (PHILIPPINE PETROLEUM CORPORATION v. MUNICIPALITY OF PILILLA, G.R. No.
90776, June 3, 1991)
A tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax
exemption by the manufacturer or seller of the goods for any tax due to it as the
manufacturer or seller. The excise tax imposed on petroleum products under
Section 148 is the direct liability of the manufacturer who cannot thus invoke the
excise tax exemption granted to its buyers who are international carriers;
nevertheless, the manufacturer, as the statutory taxpayer who is directly liable to
pay the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers
(COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL PETROLEUM
CORPORATION, G.R. No. 188497, February 19, 2014)
c) Kinds of tax exemption
Express
Implied
It bears repeating that the law looks with disfavor on tax exemptions and he who
would seek to be thus privileged must justify it by words too plain to be mistaken
and too categorical to be misinterpreted. (WESTERN MINOLCO CORPORATION v.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-61632, August 16, 1983)

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(iii) Contractual
Nevertheless, since taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to private parties based
on material consideration of a mutual nature, which then becomes contractual and
is thus covered by the non-impairment clause of the Constitution. (MCIAA v. Marcos,
G.R. No. 120082 September 11, 1996)
d) Rationale/grounds for exemption
In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the protection of local
industries as well as public welfare and similar objectives. Taxation assumes even
greater significance with the ratification of the 1987 Constitution. (BATANGAS
POWER CORPORATION v. BATANGAS CITY and NATIONAL POWER CORPORATION,
G.R. No. 152675, April 28, 2004)
The PPI says that the discriminatory treatment of the press is highlighted by the fact
that transactions, which are profit oriented, continue to enjoy exemption under R.A.
No. 7716 but an enumeration of some of these transactions will suffice to show that
by and large this is not so and that the exemptions are granted for a purpose. As
the Solicitor General says, such exemptions are granted, in some cases, to
encourage agricultural production and, in other cases, for the personal benefit of
the end-user rather than for profit. (ARTURO M. TOLENTINO v. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455,
October 30, 1995)
e) Revocation of tax exemption
Since the law granted the press a privilege, the law could take back the privilege
anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign
prerogative; indeed, in withdrawing the exemption, the law merely subjects the
press to the same tax burden to which other businesses have long ago been
subject. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
The rule is that a special and local statute applicable to a particular case is not
repealed by a later statute which is general in its terms, provisions and application
even if the terms of the general act are broad enough to include the cases in the
special law unless there is manifest intent to repeal or alter the special law. (THE
PROVINCE OF MISAMIS ORIENTAL, represented by its PROVINCIAL TREASURER v.
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC., G.R. No. L-45355, January
12, 1990)
This Court recognized the removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most significant provisions of the
1991 LGC. Specifically, we stressed that Section 193 of the LGC, an express and
general repeal of all statutes granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC under its Charter.
(BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL POWER

CORPORATION, G.R. No. 152675, April 28, 2004)
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Erroneous application and enforcement of the law by public officers do not preclude
subsequent correct application of the statute, and the government is never
estopped by the mistake or error on the part of its agents. (PHILIPPINE BASKETBALL
ASSOCIATION v. COURT OF APPEALS, 337 SCRA 358)
6. Compensation and set-of
Taxes cannot be the subject of set-off or compensation for the following reasons: (1)
taxes are of distinct kind, essence and nature, and these impositions cannot be
classed in the same category as ordinary obligations; (2) the applicable laws and
principles governing each are peculiar, not necessarily common to each; and (3)
public policy is better subscribed if the integrity and independence of taxes are
maintained. (REPUBLIC v. MAMBULAO LUMBER COMPANY, 4 SCRA 622 (1962))
Taxes cannot be subject to compensation for the simple reason that the Government
and the taxpayers are not creditors and debtors of each other, debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. (SOUTH AFRICAN AIRWAYS v. COMMISSIONER OF INTERNAL
REVENUE, 612 SCRA 665 (2010))
However, if the obligation to pay taxes and the taxpayers claim against the
government are both overdue, demandable, as well as fully liquidated,
compensation takes place by operation of law and both obligations are extinguished
to their concurrent amounts. (DOMINGO v. GARLITOS, 8 SCRA 443 (1963))
Compromise
Tax amnesty a) Definition
A tax amnesty is a general pardon or the intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of violating a tax law. It
partakes of an absolute waiver by the government of its right to collect what is due
it and to give tax evaders who wish to relent a chance to start with a clean slate.
(ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF INTERNAL
REVENUE G.R. No. 179115 September 26, 2012)
A tax amnesty, much like a tax exemption, is never favored or presumed in law. The
grant of a tax amnesty, similar to a tax exemption, must be construed strictly
against the taxpayer and liberally in favor of the taxing authority. (ASIA
INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF INTERNAL REVENUE G.R.
No. 179115 September 26, 2012)
b) Distinguished from tax exemption
9. Construction and interpretation of: a) Tax laws
(i) General rule
Verily, taxation is a destructive power which interferes with the personal and
property for the support of the government. Accordingly, tax statutes must be
construed strictly against the

12
government and liberally in favor of the taxpayer. (MCIAA v. Marcos, G.R. No.
120082 September 11, 1996)
The rule that tax exemptions should be construed strictly against the taxpayer
presupposes that the taxpayer is clearly subject to the tax being levied against him.
Unless a statute imposes a tax clearly, expressly and unambiguously, what applies
is the equally well-settled rule that the imposition of a tax cannot be presumed. This
is because taxes are burdens on the taxpayer, and should not be unduly imposed or
presumed beyond what the statutes expressly and clearly import. (COMMISSIONER
OF INTERNAL REVENUE v. THE PHILIPPINE AMERICAN ACCIDENT INSURANCE
COMPANY, INC. G.R. No. 141658 March 18, 2005)
(ii) Exception
b) Tax exemption and exclusion
(i) General rule
But since taxes are what we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed in strictissimi juris against the taxpayers and
liberally in favor of the taxing authority. (MCIAA v. Marcos, G.R. No. 120082
September 11, 1996)
Entrenched in our jurisprudence is the principle that tax refunds are in the nature of
tax exemptions which are construed in strictissimi juris against the taxpayer and
liberally in favor of the government. As tax refunds involve a return of revenue from
the government, the claimant must show indubitably the specific provision of law
from which her right arises; it cannot be allowed to exist upon a mere vague
implication or inference nor can it be extended beyond the ordinary and reasonable
intendment of the language actually used by the legislature in granting the refund.
(COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068
August 3, 2007)
Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case,
are in the nature of a claim for exemption and the law is construed in strictissimi
juris against the taxpayer. The pieces of evidence presented entitling a taxpayer to
an exemption are also strictissimi scrutinized and must be duly proven. (KEPCO
PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE G.R. No.
179961 January 31, 2011)
The legislative intent, as shown by the discussions in the Bicameral Conference
Meeting, is to require PAGCOR to pay corporate income tax; hence, the omission or
removal of PAGCOR from exemption from the payment of corporate income tax. It is
a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar maxim
expressio unius est exclusio alterius. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUE G.R. No. 172087
March 15, 2011)
It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. Not being a local water district, a
cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital
or educational institution, petitioner clearly does not belong to the exception and it
is therefore incumbent upon it to point to some provisions of the
13
LGC that expressly grant its exemption from local taxes. (NATIONAL POWER
CORPORATION v. CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a
supposed "broad, pragmatic analysis" alone without substantial supportive
evidence, lest governmental operations suffer due to diminution of much needed
funds. While international comity is invoked in this case on the nebulous
representation that the funds involved in the loans are those of a foreign
government, scrupulous care must be taken to avoid opening the floodgates to the
violation of our tax laws. (COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI
METAL CORPORATION G.R. No. L-54908 January 22, 1990)
The claimed statutory exemption of the John Hay SEZ from taxation should be
manifest and unmistakable from the language of the law on which it is based; it
must be expressly granted in a statute stated in a language too clear to be
mistaken. If it were the intent of the legislature to grant to the John Hay SEZ the
same tax exemption and incentives given to the Subic SEZ, it would have so
expressly provided in the R.A. No. 7227. (JOHN HAY PEOPLES ALTERNATIVE
COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)
The Court in PLDT v. City of Davao, held that in approving Section 23 of RA No.
7925, Congress did not intend it to operate as a blanket tax exemption to all
telecommunications entities. The Court also clarified the meaning of the word
"exemption" in Section 23 of RA 7925: that the word "exemption" as used in the
statute refers or pertains merely to an exemption from regulatory or reporting
requirements of the Department of Transportation and Communication or the
National Transmission Corporation and not to an exemption from the grantees tax
liability. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491,
July 21, 2009)
In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna, the
issue that the Court had to resolve was whether PLDT was liable to pay franchise tax
to the Province of Laguna in view of the "in lieu of all taxes" clause in its franchise
and Section 23 of RA 7925. Applying the rule of strict construction of laws granting
tax exemptions and the rule that doubts are resolved in favor of municipal
corporations in interpreting statutory provisions on municipal taxing powers, the
Court held that Section 23 of RA 7925 could not be considered as having amended
petitioner's franchise so as to entitle it to exemption from the imposition of local
franchise taxes. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No.
155491, July 21, 2009)
The "in lieu of all taxes" clause in a legislative franchise should categorically state
that the exemption applies to both local and national taxes; otherwise, the
exemption claimed should be strictly construed against the taxpayer and liberally in
favor of the taxing authority. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO,
G.R. No. 155491, July 21, 2009)
PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax
exemption but to tax exclusion and hence, the strictissimi juris rule does not
apply. The Supreme Court explains that these two terms actually mean the same
thing, such that the rule that tax exemption should be applied in strictissimi juris
against the taxpayer and liberally in favor of the government applies equally to tax
exclusions (PHILIPPINE LONG DISTANCE TELEPHONE COMPANY vs PROVINCE OF

LAGUNA G.R. No. 151899, August 16, 2005)
14
(ii) Exception
However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical
effect of the exemption is merely to reduce the amount of money that has to be
handled by the government in the course of its operations. (MCIAA v. Marcos, G.R.
No. 120082, September 11, 1996)
There is parity between tax refund and tax exemption only when the former is
based either on a tax exemption statute or a tax refund statute. Obviously, that is
not the situation here since Fortune Tobaccos claim for refund is premised on its
erroneous payment of the tax, or better still, the governments exaction in the
absence of a law. (COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO
CORPORATION, G.R. Nos. 167274-75, July 21, 2008)
A claim for tax refund may be based on statutes granting tax exemption or tax
refund and in such case, the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption, a
legislative grace, which cannot be allowed unless granted in the most explicit and
categorical language. Tax refunds (or tax credits), on the other hand, are not
founded principally on legislative grace but on the legal principle which underlies all
quasi-contracts abhorring a persons unjust enrichment at the expense of another.
(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION, G.R.
Nos. 167274-75, July 21, 2008)
As a necessary corollary, when the taxpayers entitlement to a refund stands
undisputed, the State should not misuse technicalities and legalisms, however
exalted, to keep money not belonging to it. The government is not exempt from the
application of solutio indebiti, a basic postulate proscribing one, including the State,
from enriching himself or herself at the expense of another. (COMMISSIONER OF
INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos. 167274-75,
September 11, 2013)
c) Tax rules and regulations
(i) General rule only
While administrative agencies, such as the Bureau of Internal Revenue, may issue
regulations to implement statutes, they are without authority to limit the scope of
the statute to less than what it provides, or extend or expand the statute beyond its
terms, or in any way modify explicit provisions of the law. Hence, in case of
discrepancy between the basic law and an interpretative or administrative ruling,
the basic law prevails. (FORT BONIFACIO DEVELOPMENT CORPORATION v.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, September 4, 2012)
Revenue Memorandum Circulars (RMCs) must not override, supplant, or modify the
law, but must remain consistent and in harmony with the law they seek to apply
and implement.
(COMMISSIONER OF INTERNAL REVENUE v. SM PRIME HOLDINGS, INC. 613 SCRA
774 (2010))
Admittedly the government is not estopped from collecting taxes legally due
because of mistakes or errors of its agents. But like other principles of law, this
admits of exceptions in the

15
interest of justice and fair play, as where injustice will result to the taxpayer.
(COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, G.R. No. 117982,
February 6, 1997)
"When a statute is susceptible of the meaning placed upon it by a ruling of the
government agency charged with its enforcement and the [l]egislature thereafter
[reenacts] the provisions [without] substantial change, such action is to some
extent confirmatory that the ruling carries out the legislative purpose."
(COMMISSIONER OF INTERNAL REVENUE v. AMERICAN EXPRESS INTERNATIONAL,
INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)
BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to
a query made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits. Thus, all taxpayers can rely on BIR Ruling
No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal
by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional. (TEAM ENERGY CORPORATION (Formerly
MIRANT PAGBILAO CORPORATION) v. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 197760, January 13, 2014)
d) Penal provisions of tax laws
In criminal cases, statutes of limitations are acts of grace, a surrendering by the
sovereign of its right to prosecute. They receive strict construction in favour of the
Government and limitations in such cases will not be presumed in the absence of
clear legislation. (LIM, et al. v. COURT OF APPEALS, G.R. No. 48134-37, October 18,
1990)
e) Non-retroactive application to taxpayers
Revenue statutes are substantive laws and in no sense must their application be
equated with that of remedial laws. As well said in a prior case, revenue laws are
not intended to be liberally construed. (COMMISSIONER OF INTERNAL REVENUE v.
ROSEMARIE ACOSTA, G.R. No. 154068, August 3, 2007)
(i) Exceptions
While it is a settled principle that rulings, circulars, rules and regulations
promulgated by the BIR have no retroactive application if to so apply them would be
prejudicial to the taxpayers, this rule does not apply: (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue; (b) where the facts subsequently
gathered by the Bureau of Internal Revenue are materially different from the facts
on which the ruling is based; or (c) where the taxpayer acted in bad faith. Not being
the taxpayer who, in the first instance, sought a ruling from the CIR, however, FDC
cannot invoke the foregoing principle on non-retroactivity of BIR rulings.
(COMMISSIONER OF INTERNAL REVENUE v. FILINVEST DEVELOPMENT
CORPORATION, G.R. No. 163653, July 19, 2011)
I. Scope and limitation of taxation 1. Inherent limitations
a) Public purpose

16
Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D.
1468 completely ignore the fact that coco -levy funds are public funds raised
through taxation. And since taxes could be exacted only for a public purpose, they
cannot be declared private properties of individuals although such individuals fall
within a distinct group of persons.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA
NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
The Court of course grants that there is no hard-and -fast rule for determining what
constitutes public purpose. But the assailed provisions, which removed the cocolevy funds from the general funds of the government and declared them private
properties of coconut farmers, do not appear to have a color of social justice for
their purpose. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT
MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April
10, 2012)
It would be a robbery for the State to tax its citizens and use the funds generated
for a private purpose. When a tax law is only a mask to exact funds from the public
when its true intent is to give undue benefit and advantage to a private enterprise,
that law will not satisfy the requirement of "public purpose." (PLANTERS PRODUCTS,
INC. v. FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)
Jurisprudence states that "public purpose" should be given a broad interpretation. It
does not only pertain to those purposes which are traditionally viewed as essentially
government functions, such as building roads and delivery of basic services, but
also includes those purposes designed to promote social justice. (PLANTERS
PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)
b) Inherently legislative
(i) General rule
The power to tax is purely legislative, and which the central legislative body cannot
delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. ((Pepsi-Cola Bottling Company
of the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA 460)
The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power, which can
never be delegated, has been described as the authority to make a complete law
complete as to the time when it shall take effect and as to whom it shall be
applicable and to determine the expediency of its enactment. (ABAKADA GURO
PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R. No. 168056 September 1,
2005)
(ii) Exceptions
(a) Delegation to local governments
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies, no longer merely by virtue of a valid

delegation as before,
17
but pursuant to direct authority conferred by Section 5, Article X of the Constitution.

(MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)
The power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of local government units. It may also be
relevant to recall that the original reasons for the withdrawal of tax exemption
privileges granted to government-owned and controlled corporations and all other
units of government were that such privilege resulted in serious tax base erosion
and distortions in the tax treatment of similarly situated enterprises.
(MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)
Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, section 5 of the 1987 Constitution.
(NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No. 149110 April 9,
2003)
Clearly then, while a new slant on the subject of local taxation now prevails in the
sense that the former doctrine of local government units delegated power to tax
had been effectively modified with Article X, Section 5 of the 1987 Constitution now
in place, the basic doctrine on local taxation remains essentially the same. For as
the Court stressed in Mactan, "the power to tax is [still] primarily vested in the
Congress." (QUEZON CITY, et al. v. ABS-CBN BROADCASTING CORPORATION, G.R.
No. 162015, March 6, 2006)
Section 5, Article X of the Constitution does not change the doctrine that municipal
corporations do not possess inherent powers of taxation; what it does is to confer
municipal corporations a general power to levy taxes and otherwise create sources
of revenue and they no longer have to wait for a statutory grant of these powers
and the power of the legislative authority relative to the fiscal powers of local
governments has been reduced to the authority to impose limitations on municipal
powers. The important legal effect of Section 5 is thus to reverse the principle that
doubts are resolved against municipal corporations; henceforth, in interpreting
statutory provisions on municipal fiscal powers, doubts will be resolved in favor of
municipal corporations. (QUEZON CITY, et al. v. ABS-CBN BROADCASTING
CORPORATION, G.R. No. 162015, March 6, 2006)
(b) Delegation to the President
Assuming that Section 28(2) Article VI did not exist, the enactment of the SMA
[Safeguard Measure Act] by Congress would be voided on the ground that it would
constitute an undue delegation of the legislative power to tax. The constitutional
provision shields such delegation from constitutional infirmity, and should be
recognized as an exceptional grant of legislative power to the President, rather than
the affirmation of an inherent executive power. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R.
No. 158540, August 3, 2005)
When Congress tasks the President or his/her alter egos to impose safeguard
measures under the delineated conditions, the President or the alter egos may be
properly deemed as agents of Congress to perform an act that inherently belongs as

a matter of right to the legislature. It is basic agency law that the agent may not act
beyond the specifically delegated powers or
18
disregard the restrictions imposed by the principal. (SOUTHERN CROSS CEMENT

CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R.
No. 158540, August 3, 2005)
Delegation of legislative powers to the President is permitted in Sections 23 (2) and
28 (2) of Article VI of the Constitution. By virtue of a valid delegation of legislative
power, it may also be exercised by the President and administrative boards, as well
as the lawmaking bodies of all municipal levels, including the barangay. (Camarines
North Electric Cooperative v. Torres, GR No. 127249, February 27, 1998)
(c) Delegation to administrative agencies
Clearly, the legislature may delegate to executive officers or bodies the power to
determine certain facts or conditions, or the happening of contingencies, on which
the operation of a statute is, by its terms, made to depend, but the legislature must
prescribe sufficient standards, policies or limitations on their authority. While the
power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its operation
depends. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE
SECRETARY G.R. No. 168056 September 1, 2005)
In the present case, in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as
the alter ego of the President or even her subordinate; he is acting as the agent of
the legislative department, to determine and declare the event upon which its
expressed will is to take effect. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of
the Secretary of Finance and to substitute the judgment of the former for that of the
latter. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE
SECRETARY G.R. No. 168056 September 1, 2005)
c) Territorial
(i) Situs of taxation
Meaning
Situs of income tax
The important factor therefore which determines the source of income of personal
services is not the residence of the payor, or the place where the contract for
service is entered into, or the place of payment, but the place where the services
were actually rendered.
(COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793,
August 29, 2006)
(1) From sources within the Philippines
The reinsurance premiums remitted to appellants by virtue of the reinsurance
contracts, accordingly, had for their source the undertaking to indemnify

Commonwealth Insurance Co. against liability. Said undertaking is the activity that
produced the reinsurance premiums, and
19
the same took place in the Philippines. (Alexander Howden & Co., Ltd. v. Collector of
Internal Revenue as cited in COMMISSIONER OF INTERNAL REVENUE v. JULIANE
BAIER-NICKEL, G.R. No. 153793, August 29, 2006)
The "sale of tickets" in the Philippines is the "activity" that produced the income and
therefore BOAC should pay income tax in the Philippines because it undertook an
income producing activity in the country. The tickets exchanged hands here and
payments for fares were also made here in Philippine currency; thus, the situs of the
source of payments is the Philippines.
(Commissioner of Internal Revenue v. British Overseas Airways Corporation (BOAC)
as cited in COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R.
No. 153793, August 29, 2006)
For the source of income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activities within this country regardless of
the absence of flight operations within Philippine territory. Indeed, the sale of tickets
is the very lifeblood of the airline business, the generation of sales being the
paramount objective. (COMMISSIONER OF INTERNAL REVENUE v. JAPAN AIR LINES,
INC., G.R. No. 60714, March 6, 1991)
From sources without the Philippines
Income partly within and partly without the Philippines
(c) Situs of property taxes
Taxes on real property
Taxes on personal property
(d) Situs of excise tax
Since it partakes of the nature of an excise tax, the situs of taxation is the place
where the privilege is exercised, in this case in the City of Iriga, where CASURECO III
has its principal office and from where it operates, regardless of the place where its
services or products are delivered. (CITY OF IRIGA v. CAMARINES SUR III ELECTRIC
COOPERATIVE, INC., G.R. No. 192945, September 5, 2012)
Estate tax
Donors tax
(e) Situs of business tax
Sale of real property
Sale of personal property
It is not the place where the contract was perfected, but the place of delivery which
determines the taxable situs of the property sought to be taxed. In the cases of
Soriano y Cia. v. Collector of Internal Revenue, 51 O.G. 4548; Vegetable Oil
Corporation v. Trinidad, 45 Phil. 822; and Earnshaw Docks and Honolulu Iron Works
vs. Collector of Internal Revenue, 54 Phil. 696, it has been ruled that for a sale to be
taxed in the Philippines it must be consummated there; thus indicating that the
place of consummation (associated with the delivery of the things subject matter of
the contract) is the accepted criterion in determining the situs of the contract for
purposes of taxation, and not merely the place of the perfection of the contract.
(THE MUNICIPALITY OF JOSE PANGANIBAN, PROVINCE OF CAMARINES NORTE, ETC. v.

THE SHELL COMPANY OF THE PHILIPPINES, LTD., G.R. No. L-18349, July 30, 1966)

20
(3) Value-Added Tax (VAT)

As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country
where they are consumed; thus, exports are zero-rated, while imports are taxed.
(COMMISSIONER OF INTERNAL REVENUE v.AMERICAN EXPRESS INTERNATIONAL,
Consumption is "the use of a thing in a way that thereby exhausts it, and applied
to services, the term means the performance or "successful completion of a
contractual duty, usually resulting in the performers release from any past or future
liability." The services rendered by respondent are performed or successfully
completed upon its sending to its foreign client the drafts and bills it has gathered
from service establishments here; thus, its services, having been performed in the
Philippines, are also consumed in the Philippines. (COMMISSIONER OF INTERNAL
REVENUE v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R.
No. 152609, June 29, 2005)
Unlike goods, services cannot be physically used in or bound for a specific place
where their destination is determined but instead, there can only be a
"predetermined end of a course" when determining the service "location or position
for legal purposes." Respondents facilitation service has no physical existence, yet
takes place upon rendition, and therefore upon consumption, in the Philippines.
(COMMISSIONER OF INTERNAL REVENUE v.AMERICAN EXPRESS INTERNATIONAL,
International comity
Exemption of government entities, agencies, and instrumentalities
The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of
the national government which is generally exempt from payment of real property
tax. However, said exemption does not apply to the portions of the IFPC which the
Authority leased to private entities. (Philippine Fisheries Development Authority v.
Court of Appeals, G.R. No. 169836, 31 July 2007)
As property of public dominion, the Lucena Fishing Port Complex is owned by the
Republic of the Philippines and thus exempt from real estate tax. (PHILIPPINE
FISHERIES DEVELOPMENT AUTHORITY (PFDA) v. CENTRAL BOARD OF ASSESSMENT
APPEALS, G.R. No. 178030, December 15, 2010)
2. Constitutional limitations
a) Provisions directly afecting taxation
Prohibition against imprisonment for non-payment of poll tax
Uniformity and equality of taxation
Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation; inequalities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation.

21
(KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC. v. HON.

BIENVENIDO TAN, G.R. No. 81311, June 30, 1988)
(iii) Grant by Congress of authority to the president to impose tarif rates
It is Congress which authorizes the President to impose tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts. Thus, the
authority cannot come from the Finance Department, the National Economic
Development Authority, or the World Trade Organization, no matter how insistent or
persistent these bodies may be. (SOUTHERN CROSS CEMENT CORPORATION v.
CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540,
August 3, 2005)
The authorization granted to the President must be embodied in a law. Hence, the
justification cannot be supplied simply by inherent executive powers. (SOUTHERN
The authorization to the President can be exercised only within the specified limits
set in the law and is further subject to limitations and restrictions which Congress
may impose. Consequently, if Congress specifies that the tariff rates should not
exceed a given amount, the President cannot impose a tariff rate that exceeds such
amount. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)
Assuming there is a conflict between the specific limitation in Section 28 (2), Article
VI of the Constitution and the general executive power of control and supervision,
the former prevails in the specific instance of safeguard measures such as tariffs
and imposts, and would thus serve to qualify the general grant to the President of
the power to exercise control and supervision over his/her subalterns. (SOUTHERN
(iv) Prohibition against taxation of religious, charitable entities, and
educational entities
The word "charitable" is not restricted to relief of the poor or sick. The test whether
an enterprise is charitable or not is whether it exists to carry out a purpose
recoganized in law as charitable or whether it is maintained for gain, profit, or
private advantage. (LUNG CENTER OF THE PHILIPPINES v.QUEZON CITY, G.R. No.
144104, June 29, 2004)
Even as we find that the petitioner is a charitable institution, we hold that those
portions of its real property that are leased to private entities are not exempt from
real property taxes as these are not actually, directly and exclusively used for
charitable purposes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or non
-paying, are exempt from real property taxes. (LUNG CENTER OF THE PHILIPPINES
v.QUEZON CITY, G.R. No. 144104, June 29, 2004)
To be a charitable institution, however, an organization must meet the substantive
test of charity in Lung Center. Charity is essentially a gift to an indefinite number of
persons which
22
lessens the burden of government. In other words, charitable institutions provide for
free goods and services to the public which would otherwise fall on the shoulders of
government.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R.
No. 195909 September 26, 2012)
In Lung Center, this Court declared: "exclusive" is defined as possessed and enjoyed
to the exclusion of others; debarred from participation or enjoyment; and
"exclusively" is defined, "in a manner to exclude; as enjoying a privilege
exclusively." The words "dominant use" or "principal use" cannot be substituted for
the words "used exclusively" without doing violence to the Constitution and the law.
Solely is synonymous with exclusively. (COMMISSIONER OF INTERNAL REVENUE v.
ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)
Services to paying patients are activities conducted for profit. There is a "purpose to
make profit over and above the cost" of services. (COMMISSIONER OF INTERNAL
REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,
2012)
Section 30(E) and (G) of the NIRC requires that an institution be "operated
exclusively" for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax exemption
if it earns income from its for-profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to income tax, previously
at the ordinary corporate rate but now at the preferential 10% rate pursuant to
Section 27(B). (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012)
A gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an impairment of the
Constitution. The phrase "exempt from taxation," as employed in the Constitution
should not be interpreted to mean exemption from all kinds of taxes. (REV. FR.
CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-19201,
June 16, 1965)
(v) Prohibition against taxation of non-stock, non-profit institutions
An organization may be considered as non-profit if it does not distribute any part of
its income to stockholders or members. However, despite its being a tax exempt
institution, any income such institution earns from activities conducted for profit is
taxable, as expressly provided in the last paragraph of Section 30. (COMMISSIONER
OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909
September 26, 2012)
(vi) Majority vote of Congress for grant of tax exemption
The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the
extension of the same to the John Hay SEZ finds no support therein. The challenged
grant of tax exemption would circumvent the Constitution's imposition that a law
granting any tax exemption must have the concurrence of a majority of all the
members of Congress. (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al. v.

VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)

23
(vii) Prohibition on use of tax levied for special purpose

The coco-levy funds, on the other hand, belong to the government and are subject
to its administration and disposition. Thus, these funds, including its incomes,
interests, proceeds, or profits, as well as all its assets, properties, and shares of
stocks procured with such funds must be treated, used, administered, and managed
as public funds; the coco-levy funds are evidently special funds. (PAMBANSANG
KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.
EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
(viii) Presidents veto power on appropriation, revenue, tarif bills
An "item" in a revenue bill does not refer to an entire section imposing a particular
kind of tax, but rather to the subject of the tax and the tax rate; thus, in the portion
of a revenue bill which actually imposes a tax, a section identifies the tax and
enumerates the persons liable therefor with the corresponding tax rate. To construe
the word "item" as referring to the whole section would tie the President's hand in
choosing either to approve the whole section at the expense of also approving a
provision therein which he deems unacceptable or veto the entire section at the
expense of foregoing the collection of the kind of tax altogether. (COMMISSIONER
OF INTERNAL REVENUE v. HON. COURT OF TAX APPEALS, G.R. No. L-47421, May 14,
1990)
Non-impairment of jurisdiction of the Supreme Court
Grant of power to the local government units to create its own sources of
revenue
For a long time, the country's highly centralized government structure has bred a
culture of dependence among local government leaders upon the national
leadership. The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose.
(NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No. 149110 April 9,
2003)
Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove
or abolish the payment of local franchise tax; it merely replaced the national
franchise tax that was previously paid by telecommunications franchise holders and
in its stead VAT. The imposition of local franchise tax is not inconsistent with the
advent of the VAT, which renders functus officio the franchise tax paid to the
national government for VAT inures to the benefit of the national government, while
a local franchise tax is a revenue of the local government unit. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)
Flexible tarif clause
Exemption from real property taxes
For real property taxes, the incidental generation of income is permissible because
the test of exemption is the use of the property and this test requires that the
institution use the property in a certain way, i.e. for a charitable purpose. Thus, the
Court held that the Lung Center of the Philippines did not lose its charitable
character when it used a portion of its lot for commercial purposes since the effect
of failing to meet the use requirement is simply to remove from the tax exemption
that portion of the property not devoted to charity. (COMMISSIONER OF

24
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909
September 26, 2012)
The Constitution exempts charitable institutions only from real property taxes while
the NIRC extends the exemption to income taxes. However, the way Congress
crafted Section 30(E) of the NIRC is materially different from Section 28(3), Article VI
of the Constitution: Section 30(E) of the NIRC defines the corporation or association
that is exempt from income tax while Section 28(3), Article VI of the Constitution
does not define a charitable institution, but requires that the institution "actually,
directly and exclusively" use the property for a charitable purpose.
No. 195909 September 26, 2012)
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be "organized and operated
exclusively" for charitable purposes.
No. 195909 September 26, 2012)
(xiii) No appropriation or use of public money for religious purposes b)
Provisions indirectly afecting taxation
(i) Due process
In Sison, Jr. v. Ancheta, et al., we held that the due process clause may properly be
invoked to invalidate, in appropriate cases, a revenue measure when it amounts to
a confiscation of property. But in the same case, we also explained that we will not
strike down a revenue measure as unconstitutional (for being violative of the due
process clause) on the mere allegation of arbitrariness by the taxpayer. (Chamber
of Real Estate and Builders Association,
Inc. v. Romulo, 614 SCRA 605 (2010))
The support for the poor is generally recognized as a public duty and has long been
an accepted exercise of police power in the promotion of the common good but, in
the instant case, the declarations do not distinguish between wealthy coconut
farmers and the impoverished ones. Consequently, such declarations are void since
they appropriate public funds for private purpose and, therefore, violate the
citizens right to substantive due process.
(ii) Equal protection
The real estate industry is, by itself, a class and can be validly treated differently
from other business enterprises. What distinguishes the real estate business from
other manufacturing enterprises, for purposes of the imposition of the CWT, is not
their production processes but the prices of their goods sold and the number of
transactions involved. (Chamber of Real Estate and Builders Association, Inc. v.
Romulo, 614 SCRA 605 (2010))
PAGCOR cannot find support in the equal protection clause of the Constitution, as
the legislative records of the Bicameral Conference Meeting dated October 27,
1997, of the Committee on
25
Ways and Means, show that PAGCORs exemption from payment of corporate
income tax, as provided in Section 27 (c) of R.A. No. 8424, or the National Internal
Revenue Code of 1997, was not made pursuant to a valid classification based on
substantial distinctions. The legislative records show that the basis of the grant of
exemption to PAGCOR from corporate income tax was PAGCORs own request to be
exempted. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE
BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15, 2011)
(iii) Religious freedom
The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious information.
Any restraints of such right can only be justified like other restraints of freedom of
expression on the grounds that there is a clear and present danger of any
substantive evil which the State has the right to prevent.
(AMERICAN BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L-9637, April 30, 1957)
It may be true that in the case at bar the price asked for the bibles and other
religious pamphlets was in some instances a little bit higher than the actual cost of
the same but this cannot mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For this reason We believe that
the City of Manila Ordinance No. 2529 requiring the payment of license fee cannot
be applied to appellant, for in doing so it would impair its free exercise and
enjoyment of its religious profession and worship as well as its rights of
dissemination of religious beliefs. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA,
G.R. No. L-9637, April 30, 1957)
With respect to Ordinance No. 3000 which requires the obtention of the Mayor's
permit before any person can engage in any of the businesses, trades or
occupations enumerated therein, We do not find that it imposes any charge upon
the enjoyment of a right granted by the Constitution, nor tax the exercise of
religious practices. But as the City of Manila is powerless to license or tax the
business of plaintiff Society, We find that Ordinance No. 3000 is also inapplicable to
said business, trade or occupation of the plaintiff. (AMERICAN BIBLE SOCIETY v. CITY
OF MANILA, G.R. No. L-9637, April 30, 1957)
The Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are
given free to those who cannot afford to pay so that to tax the sales would be to
increase the price, while reducing the volume of sale. Granting that to be the case,
the resulting burden on the exercise of religious freedom is so incidental as to make
it difficult to differentiate it from any other economic imposition that might make the
right to disseminate religious doctrines costly. (ARTURO M. TOLENTINO v. THE
SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
On the other hand the registration fee of P1,000.00 imposed by Sec. 107 of the
NIRC, as amended by Sec. 7 of R.A. No. 7716, although fixed in amount, is really just
to pay for the expenses of registration and enforcement of provisions such as those
relating to accounting in Sec. 108 of the NIRC. That the PBS distributes free bibles
and therefore is not liable to pay the VAT does not excuse it from the payment of
this fee because it also sells some copies.

26
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER

OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
The withdrawal of the exemption did not also violate freedom of religion as regards
the activities of PBS on religious articles, as the Free Exercise of Religious clause
does not prohibit imposing a generally applicable sale and use tax on the sale of
religious materials by a religious organization as held by the US Supreme Court in
Jimmy Swaggart Ministries v. Board of Equalization (1990).
The VAT registration fee does not constitute censorship of such freedom as held in
the American Bible Society case. The fee is a mere administrative fee and not
imposed on the exercise of a privilege, much less a constitutional right. But for the
purpose of defraying cost of registration which is a requirement and a central
feature in the VAT system so as to provide record of tax credits of the taxpayer.
(iv) Non-impairment of obligations of contracts
Contractual tax exemptions, in the real sense of the term and where the nonimpairment clause of the Constitution can rightly be invoked, are those agreed to by
the taxing authority in contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind may not be revoked
without impairing the obligations of contracts. but these contractual tax exemptions
are not to be confused with tax exemptions granted under franchisesthe latter
partakes the nature of a grant which is beyond the purview of the non-impairment
clause of the Constitution. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR) v. THE BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15, 2011)
Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional
burdens upon one class and release the burdens of another, still the tax must be
paid unless prohibited by the Constitution, nor can it be said that it impairs the
obligation of any existing contract in its true legal sense." Indeed not only existing
laws but also "the reservation of the essential attributes of sovereignty, is read into
contracts as a postulate of the legal order." (ARTURO M. TOLENTINO v. THE
SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
J. Stages of taxation 1. Levy

Levy is an exercise of the power to tax, which is exclusively legislative in nature and
character. Clearly, taxes are not levied by the executive branch of government.
(NPC v. Albay, 186 SCRA 198 (1990))
Assessment and collection
Payment
Refund
27
K. Definition, nature, and characteristics of taxes

Taxes are enforced proportional contributions from persons and property, levied by
the State by virtue of its sovereignty for the support of the government and for all
its public needs.
Requisites of a valid tax
Tax as distinguished from other forms of exactions 1. Tarif
2. Toll
A tax is imposed under the taxing power of the government principally for the
purpose of raising revenues to fund public expenditures; toll fees, on the other
hand, are collected by private tollway operators as reimbursement for the costs and
expenses incurred in the construction, maintenance and operation of the tollways.
Taxes may be imposed only by the government under its sovereign authority, toll
fees may be demanded by either the government or private individuals or entities,
as an attribute of ownership. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Fees paid by the public to tollway operators for use of the tollways, are not taxes in
any sense. Parenthetically, VAT on tollway operations cannot be deemed a tax on
tax due to the nature of VAT as an indirect tax. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL v. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
3. License fee
To be considered a license fee, the imposition must relate to an occupation or
activity that so engages the public interest in health, morals, safety and
development as to require regulation for the protection and promotion of such
public interest; the imposition must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the costs of direct regulation
but also its incidental consequences as well. Accordingly, a charge of a fixed sum
which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of police power. (PROGRESSIVE DEVELOPMENT
CORP. v. QUEZON CITY, G.R. No. L-36081, April 24, 1989)
If the purpose is primarily revenue, or if revenue is at least, one of the real and
substantial purposes, then the exaction is properly called a tax. (LAND
TRANSPORTATION OFFICE v. CITY OF BUTUAN, G.R. No. 131512, January 20, 2000)
Special assessment
Debt
Taxes cannot be the subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off. (CALTEX
PHILIPPINES, INC. v. THE HONORABLE COMMISSION ON AUDIT, G.R. No. 92585, May
8, 1992)

28
N. Kinds of taxes 1. As to object
Personal, capitation, or poll tax

Property tax
Privilege tax
A contractor's tax is generally in the nature of an excise tax on the exercise of a
privilege of selling services or labor rather than a sale on products; and is directly
collectible from the person exercising the privilege. Being an excise tax, it can be
levied by the taxing authority only when the acts, privileges or business are done or
performed within the jurisdiction of said authority. (COMMISSIONER OF INTERNAL
REVENUE v. MARUBENI CORPORATION, G.R. No. 137377, December 18, 2001)
A franchise tax is a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state. It is not levied on the
corporation simply for existing as a corporation, upon its property or its income, but
on its exercise of the rights or privileges granted to it by the government. (CITY OF
IRIGA v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC., G.R. No. 192945,
September 5, 2012)
2. As to burden or incidence
Direct
Indirect
In context, direct taxes are those that are exacted from the very person who, it is
intended or desired, should pay them; they are impositions for which a taxpayer is
directly liable on the transaction or business he is engaged in. On the other hand,
indirect taxes are those that are demanded, in the first instance, from, or are paid
by, one person in the expectation and intention that he can shift the burden to
someone else. (COMMISSIONER OF INTERNAL REVENUE VS PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, G.R. No. 140230, December 15, 2005)
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. (ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF
INTERNAL REVENUE G.R. No. 179115 September 26, 2012)
The Constitution does not really prohibit the imposition of indirect taxes which, like
the VAT, are regressive since what it simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional provision has been interpreted
to mean simply that "direct taxes are to be preferred [and] as much as possible,
indirect taxes should be minimized." (ARTURO M. TOLENTINO v. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455,
October 30, 1995)

29
The seller remains directly and legally liable for payment of the VAT, but the buyer
bears its burden since the amount of VAT paid by the former is added to the selling
price. Once shifted, the VAT ceases to be a tax and simply becomes part of the cost
that the buyer must pay in order to purchase the good, property or service.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)
As to tax rates a) Specific
b) Ad valorem c) Mixed
As to purposes a) General or fiscal
b) Special, regulatory, or sumptuary
As to scope or authority to impose a) National internal revenue taxes
b) Local real property tax, municipal tax

As to graduation
Progressive
Regressive
Proportionate
INCOME TAXATION
Income taxation
Income tax systems
a) Global tax system
Global treatment is a system where the tax treatment views indifferently the tax
base and generally treats in common all categories of taxable income of the
taxpayer. (TAN v. DEL ROSARIO, JR. 237 SCRA 324)
b) Schedular tax system
Schedular approach is a system employed where the income tax treatment varies
and made to depend on the kind or category of taxable income of the taxpayer.
(TAN v. DEL ROSARIO, JR. 237 SCRA 324)
Semi-schedular or semi-global tax system
Features of the Philippine income tax law
Direct tax
Progressive
Comprehensive
Semi-schedular or semi-global tax system
Criteria in imposing Philippine income tax
Citizenship principle
Residence principle
Source principle
A non-resident German citizen, president of a domestic corporation, filed a claim for
refund with the BIR, contending that her sales commission income is not taxable in
the Philippines because the same was a compensation for her services rendered in
Germany and therefore considered as income from sources outside
30
the Philippines. While it is the rule that source of income relates to the
property, activity or service that produced the income, the documents
presented by respondent did not constitute substantial evidence that it was
in Germany where she performed the income-producing service and thus the
tax refund should be denied. (Commissioner of Internal Revenue vs. Juliane
Baier-Nickel, G.R. No. 153793, August 29, 2006)
Types of Philippine income tax

Taxable period
Calendar period
Fiscal period
Short period
Kinds of taxpayers
Individual taxpayers
Citizens
Resident citizens
Non-resident citizens
Aliens
Resident aliens
Non-resident aliens
Engaged in trade or business
Not engaged in trade or business
Special class of individual employees
Minimum wage earner
Corporations
Domestic corporations
Foreign corporations
Marubeni Japan claimed a refund for excess taxes it had paid, contending that
since it had a Philippine branch, it is a resident foreign corporation liable to
pay only 10% intercorporate final tax on dividends received from a domestic
corporation (and not to the branch profit remittance tax) following the
principal-agent theory. Marubeni Japan is considered a non-resident foreign
corporation as to the dividends because when the foreign corporation
transacts business in the Philippines independently of its branch, the
principal-agent relationship is set aside. (Marubeni Corp. vs. Commissioner of
Internal Revenue, et al., G.R. No. 76573, September 14, 1989)
BOAC is a resident foreign corporation because it maintained a general sales

agent in the Philippines. There is no specific criterion as to what constitutes
doing or engaging in or "transacting business. The term implies a
continuity of commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of

31
commercial gain or for the purpose and object of the business organization.
In order that a foreign corporation may be regarded as doing business within
a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one
of a temporary character. (CIR vs BOAC, G.R. No. L-65773-74 April 30, 1987)
Resident foreign corporations
Non-resident foreign corporations
Joint venture and consortium
Partnerships
Pursuant to reinsurance treaties, a number of local insurance firms formed
themselves into a pool in order to facilitate the handling of business
contracted with a nonresident foreign reinsurance company. The insurance
pool is deemed a partnership or association taxable as a corporation under
the NIRC because Section 24 (on tax on corporations) [now Sec. 27 of the
1997 NIRC] covered these unregistered partnerships and even associations or
joint accounts, which had no legal personalities apart from their individual
members; moreover, the insurance pool, though unregistered, satisfies the
requisites of a partnership: (1) mutual contribution to a common stock, and
(2) joint interest in the profits. (Afisco Insurance Corp., et al. vs. Court of
Appeals, et al., G.R. No. 112675, January 25, 1999)
The original purpose of the co -owners of the two lots was to divide the lots
for residential purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then they had
no choice but to resell the same to dissolve the co -ownership. The division of
the profit was merely incidental to the dissolution of the co-ownership which
was in the nature of things a temporary state. The sharing of gross returns
does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property (Obillos Jr. vs
CIR, G.R. No. L-68118, October 29, 1985)
General professional partnerships
Estates and trusts
Co-ownerships
Income taxation
Definition
Nature
General principles
Income
Definition
Nature
When income is taxable

Existence of income
Realization of income
Tests of realization
Actual vis--vis constructive receipt
Recognition of income
32
Methods of accounting
Cash method vis--vis accrual method
The accrual method relies upon the taxpayers right to receive amounts or its
obligation to pay them, in opposition to actual receipt or payment, which
characterizes the cash method of accounting. Amounts of income accrue
where the right to receive them become fixed, where there is created an
enforceable liability. Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to indeterminacy merely of time of
payment. For a taxpayer using the accrual method, the determinative
question is, when do the facts present themselves in such a manner that the
taxpayer must recognize income or expense? The accrual of income and
expense is permitted when the all-events test has been met. This test
requires: (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or
liability. (CIR vs Isabela Cultural Corp., GR 172231, February 12, 2007)
Installment payment vis--vis deferred payment vis--vis percentage
completion (in long-term contracts)
Tests in determining whether income is earned for tax purposes
Realization test
Claim of right doctrine or doctrine of ownership, command, or
control
Economic benefit test, doctrine of proprietary interest
Severance test
All events test
Gross income
Definition
Concept of income from whatever source derived
Gross income vis--vis net income vis--vis taxable income
Classification of income as to source
Gross income and taxable income from sources within the
Philippines
Gross income and taxable income from sources without the
Philippines
Income partly within or partly without the Philippines
Sources of income subject to tax
Compensation income
Fringe benefits
Special treatment of fringe benefits
Definition
Taxable and non-taxable fringe benefits
Professional income
Income from business
Income from dealings in property
Types of properties
Ordinary assets
33
(2) Capital assets

The proceeds from the inherited land of petitioners, which they
subdivided into small lots and in the process converted into a
residential subdivision and given the name Don Mariano Subdivision, is
taxable as ordinary income. Property initially classified as a capital
asset may thereafter be treated as an ordinary asset if a combination
of the factors indubitably tend to show that the activity was in
furtherance of or in the course of the taxpayer's trade or business;
thus, a sale of inherited real property usually gives capital gain or loss
even though the property has to be subdivided or improved or both to
make it salable--however, if the inherited property is substantially
improved or very actively sold or both it may be treated as held
primarily for sale to customers in the ordinary course of the heir's
business. (Tomas Calasanz, et al. vs. Commissioner of Internal
Revenue, et al., G.R. No. L-26284, October 9, 1986)
Types of gains from dealings in property
Ordinary income vis--vis capital gain
Actual gain vis--vis presumed gain
Long term capital gain vis--vis short-term capital gain
Net capital gain, net capital loss
Computation of the amount of gain or loss
Income tax treatment of capital loss
Capital loss limitation rule (applicable to both corporations and
individuals)
Net loss carry-over rule (applicable only to individuals)
Dealings in real property situated in the Philippines
Dealings in shares of stock of Philippine corporations
Shares listed and traded in the stock exchange
Shares not listed and traded in the stock exchange
Sale of principal residence
Passive investment income
Interest income
Dividend income
Cash dividend
Stock dividend
Stock dividends, strictly speaking, represent capital and do not

constitute income to its recipient. So that the mere issuance thereof is
not yet subject to
34
income tax as they are nothing but an enrichment through increase in

value of capital investment. However, the redemption or cancellation
of stock dividends, depending on the time and manner it was made, is
essentially equivalent to a distribution of taxable dividends, making
the proceeds thereof taxable income to the extent it represents profits.
The exception was designed to prevent the issuance and cancellation
or redemption of stock dividends, which is fundamentally not taxable,
from being made use of as a device for the actual distribution of cash
dividends, which is taxable. (CIR vs CA, G.R. No. 108576 January 20,
1999)
Property dividend
Liquidating dividend
Royalty income
Rental income
Lease of personal property
Lease of real property
Tax treatment of
Leasehold improvements by lessee
VAT added to rental/paid by the lessee
Advance rental/long term lease
Annuities, proceeds from life insurance or other types of
insurance
Prizes and awards
Pensions, retirement benefit, or separation pay
Income from any source whatever
Forgiveness of indebtedness
Recovery of accounts previously written-of when
taxable/when not taxable
Receipt of tax refunds or credit
Income from any source whatever
Source rules in determining income from within and without
Interests
Dividends
Services
Rentals
Royalties
Sale of real property
Sale of personal property
Shares of stock of domestic corporation

Situs of income taxation (see page 2 under inherent
limitations, territorial)
Exclusions from gross income
Rationale for the exclusions
Taxpayers who may avail of the exclusions
Exclusions distinguished from deductions and tax credit
Under the Constitution

35
Income derived by the government or its political

subdivisions from the exercise of any essential
governmental function
Under the Tax Code
Proceeds of life insurance policies
Return of premium paid
Amounts received under life insurance, endowment
or annuity contracts
Value of property acquired by gift, bequest, devise
or descent
Amount received through accident or health
insurance
Income exempt under tax treaty
Retirement benefits, pensions, gratuities, etc.
Respondent terminated petitioners services due to her
illness,
rendering her incapable of continuing to work, and gave

her retirement benefits but withheld the tax due thereon.
The retirements benefits are taxable because the
petitioner was only 41 yrs old at the time of retirement
and had rendered only 8 years of service; for these
benefits to be exempt from tax, the following requisites
must concur: (1) a reasonable private benefit plan is
maintained by the employer; (2) the retiring official or
employee has been in the service of the same employer
for at least ten (10) years; (3) the retiring official or
employee is not less than fifty (50) years of age at the
time of his retirement; and (4) the benefit had been
availed of only once. (Ma. Isabel T. Santos vs. Servier
Phil., Inc., et al., G.R. No. 166377, November 28, 2008)
Respondents contend that petitioner did not withhold the
taxes due on their retirement benefits because it had
obliged itself to pay the taxes due thereon. This was done
to induce respondents to agree to avail of the optional
retirement scheme. It was only when respondents
demanded the payment of their salary differentials that
petitioner alleged, for the first time, that it had failed to
present the 1993 CBA to the BIR for approval, rendering
such retirement benefits not exempt from taxes;
consequently, they were obliged to refund to it the
amounts it had remitted to the BIR in payment of their
taxes. Petitioner used this failure as an afterthought, as
an excuse for its refusal to remit to the respondents their
salary differentials. Patently, petitioner is estopped from
doing so. It cannot renege on its commitment to pay the

taxes on respondents retirement benefits on the pretext
that the new management had found the policy
disadvantageous. (Intercontinental Broadcasting Corp. vs.
Noemi B. Amarilla, et al., G.R. No. 162775, October 27,
2006)

36
Severance of employment is a condition sine qua non for the

release of retirement benefits. Retirement benefits are not
meant to recompense employees who are still in the employ of
the government. (Devt. Bank of the Phil. vs. Commission on
Audit,
G.R. No. 144516, February 11, 2004)
Winnings, prizes, and awards, including those in sports
competition
Under special laws
Personal Equity and Retirement Account
Deductions from gross income
General rules
Deductions must be paid or incurred in connection with
the taxpayers trade, business or profession
Deductions must be supported by adequate receipts or
invoices (except standard deduction)
Additional requirement relating to withholding
Return of capital (cost of sales or services)
Sale of inventory of goods by manufacturers and dealers
of properties
Sale of stock in trade by a real estate dealer and dealer
in securities
Sale of services
Itemized deductions
Expenses
Requisites for deductibility
Nature: ordinary and necessary
The expenses paid by Atlas for the services
rendered by a public relations firm, aimed at creating a
favorable image for Atlas, is not an allowable deduction as
business expense under the NIRC. Efforts to establish reputation
are akin to acquisition of capital assets and, therefore, expenses
related thereto are not business expense but capital
expenditures. (Atlas Consolidated Mining & Devt. Corp. vs.
Commissioner of Internal Revenue, G.R. No. L-26911, January
27, 1981)
A stock listing fee paid annually to a stock exchange for the
privilege of having a corporations stock listed is an ordinary and

business expense. This is distinguished from a single payment
made to the stock
37
exchange, which is considered a capital

expenditure. (Atlas Consolidated Mining &
Devt. Corp. vs. Commissioner of Internal
Revenue, G.R. No. L-26911, January 27,
1981)
The subject media advertising expense for
Tang incurred by respondent corporation
was not an ordinary and necessary expense,
but rather a capital expenditure because it
failed the two conditions set by U.S.
jurisprudence in determining whether or not
it is an ordinary expense: first,
reasonableness of the amount incurred and
second, the amount incurred must not be a
capital outlay to create goodwill for the
product and/or private respondents
business. The subject expense for the
advertisement of a single product is
inordinately large; furthermore, the
corporations venture to protect its brand
franchise was tantamount to efforts to
establish a reputation and was akin to the
acquisition of capital assets. (Commissioner
of Internal Revenue vs. General Foods, Inc.,
G.R. No. 143672, April 24, 2003)
(b) Paid and incurred during taxable
year
(2) Salaries, wages and other forms of
compensation for personal services
actually rendered, including the
grossed-up monetary value of the fringe
benefit subjected to fringe benefit tax
which tax should have been paid
Payment by the taxpayer-corporation to its
controlling stockholder (Hoskins) of 50% of
its supervision fees (paid by a client of the
corporation for the latter's services as
managing agent of a subdivision project) or
the amount of P99,977.91 is not a deductible
ordinary and necessary expense because it
does not pass the test of reasonable
compensation. If independently, a one-time
P100,000.00-fee to plan and lay down the
rules for supervision of a subdivision project
were to be paid to an experienced realtor
such as Hoskins, its fairness and deductibility
by the taxpayer could be

38
conceded; however, the fee paid to Hoskins

continued every year since 1955 up to 1963 and for
as long as its contract with the subdivision owner
subsisted, regardless of whether services were
actually rendered by Hoskins. (C. M. Hoskins & Co.,
Inc. vs. Commissioner of Internal Revenue, G.R. No.
L-24059, November 28, 1969)
Travelling/transportation expenses
Cost of materials
Rentals and/or other payments for use or
possession of property
Repairs and maintenance
Expenses under lease agreements
Expenses for professionals
Entertainment/Representation expenses
Political campaign expenses
Training expenses
Interest
Non-deductible interest expense
Interest subject to special rules
Interest paid in advance
Interest periodically amortized
Interest expense incurred to acquire property
for use in trade/business/profession
Reduction of interest expense/interest
arbitrage
Taxes
Margin fees paid by the petitioner to the Central
Bank on its profit remittances to its New York head
office are not allowable deductions as taxes
because it is not a tax but an exaction designed to
curb the excessive demands upon our international
reserve. Margin fees are also not ordinary and
necessary business expenses because they are not
expenses in connection with the production or
earning of petitioner's incomes in the Philippines;
they were expenses incurred in the disposition of
said incomes. (Esso Standard Eastern, Inc. vs.
Commissioner of Internal Revenue, G.R. Nos.
28508-9, July 7, 1989)

Non-deductible taxes
Treatments of surcharges/interests/fines for
delinquency
Treatment of special assessment
Tax credit vis--vis deduction
Losses
39

Other types of losses
Capital losses
Securities becoming worthless
Securities becoming worthless resulting from
China Banks equity investment in the
First CBC Capital (Asia) Ltd., a Hongkong subsidiary,
is capital loss and not an ordinary loss. An equity
investment is a capital, not ordinary, asset of the
investor the sale or exchange of which results in
either a capital gain or a capital loss; shares of
stock would be ordinary assets only to a dealer in
securities or a person engaged in the purchase and
sale of, or an active trader (for his own account) in,
securities. (China Banking Corp. vs. Court of
Appeals, et al., G.R. No. 125508, July 19, 2000)
Losses on wash sales of stocks or securities
Wagering losses
Net Operating Loss Carry-Over (NOLCO)
Bad debts
In claiming deductions for bad debts, the only
evidentiary support given by PRC was the
explanation posited by its accountant, whose
allegations were not supported by any
documentary evidence. One of the requisites to
qualify as
bad debt is that the debt must be actually
ascertained to be worthless and uncollectible
during the taxable year, and the taxpayer must
prove that he exerted diligent efforts to collect the
debts by (1) sending of statement of accounts;
(2) sending of collection letters; (3) giving the
account to a lawyer for collection; and (4) filing a
collection case in court. (Philippine Refining
Company vs. Court of Appeals, et al., G.R. No.
118794, May 8, 1996)
Efect of recovery of bad debts
Depreciation
Depreciation is the gradual diminution in the useful

value of tangible property resulting from wear and
tear and normal obsolescense. The term is also
applied to amortization of the value of intangible
assets, the use of which in the trade or business is
definitely limited in duration. Depreciation
commences with the acquisition of the property
and its owner is not bound to see his property
40
gradually waste, without making provision out of earnings for its

replacement. (Basilan Estates, Inc. vs. Commissioner of Internal
Revenue, et al., G.R. No. L-22492, September 5, 1967)
Both depletion and depreciation are predicated on the same
basic promise of avoiding a tax on capital. The allowance for
depletion is based on the theory that the extraction of minerals
gradually exhausts the capital investment in the mineral
deposit. The purpose of the depiction deduction is to permit the
owner of a capital interest in mineral in place to make a tax-free
recovery of that depleting capital asset. A depletion is based
upon the concept of the exhaustion of a natural resource
whereas depreciation is based upon the concept of the
exhaustion of the property, not otherwise a natural resource,
used in a trade or business or held for the production of income.
Thus, depletion and depreciation are made applicable to
different types of assets. And a taxpayer may not deduct that
which the Code allows as of another. (Consolidated Mines, Inc.
vs. Court of Tax Appeals, et al., G.R. Nos. L-18843 & 18844,
August 29, 1974)
Methods of computing depreciation allowance
Straight-line method
Declining-balance method
Sum-of-the-years-digit method
Charitable and other contributions
Amount that may be deducted
Contributions to pension trusts
Deductions under special laws
Optional standard deduction
Individuals, except non-resident aliens
Corporations, except non-resident foreign corporations
Partnerships
Personal and additional exemption (R.A. No. 9504,
Minimum Wage Earner Law)
The increased personal and additional exemptions under the
NIRC cannot be availed of by the petitioner for purposes of
computing his income tax liability for the taxable year 1997.
Since the NIRC took effect on January 1, 1998, the increased

amounts of personal and additional exemptions under Section
35, can only be allowed as deductions from the individual
41
taxpayers gross or net income, as the case maybe, for the taxable year 1998
to be filed in 1999; the NIRC made no reference that the personal and
additional exemptions shall apply on income earned before January 1, 1998,
and it is a rule that tax laws are to be applied prospectively unless its
retroactive application is expressly provided. (Carmelino F. Pansacola vs. CIR,
G.R. No. 159991, November 16, 2006)
Basic personal exemptions
Additional exemptions for taxpayer with dependents
Status-at-the-end-of-the-year rule
Exemptions claimed by non-resident aliens
Items not deductible
General rules
Personal, living or family expenses
Amount paid for new buildings or for permanent improvements
(capital expenditures)
Amount expended in restoring property (major
repairs)
Premiums paid on life insurance policy covering life or any other
officer or employee financially interested
Interest expense, bad debts, and losses from sales of property
between related parties
Losses from sales or exchange or property
Non-deductible interest
Nondeductible taxes
Non-deductible losses
Losses from wash sales of stock or securities
Exempt corporations
Propriety educational institutions and hospitals
Government-owned or controlled corporations
Others
Taxation of resident citizens, non-resident citizens, and resident
aliens
General rule that resident citizens are taxable on income from all
sources within and without the Philippines
(i) Non-resident citizens
Taxation on compensation income
Inclusions
Monetary compensation
Regular salary/wage
Separation pay/retirement benefit not otherwise exempt
Bonuses, 13th month pay, and other benefits not exempt
Directors fees
Non-monetary compensation
Fringe benefit not subject to tax
Exclusions
Fringe benefit subject to tax
42
De minimis benefits
13th month pay and other benefits, and payments specifically
excluded from taxable compensation income
Deductions
Personal exemptions and additional exemptions
Health and hospitalization insurance
Taxation of compensation income of a minimum wage earner
Definition of statutory minimum wage
Definition of minimum wage earner
Income also subject to tax exemption: holiday pay, overtime pay,
night-shift diferential, and hazard pay
Taxation of business income/income from practice of profession
Taxation of passive income
Passive income subject to final tax
Interest income
Treatment of income from long-term deposits
Royalties
Dividends from domestic corporations
Prizes and other winnings
Passive income not subject to final tax e) Taxation of capital gains
Income from sale of shares of stock of a Philippine corporation
Shares traded and listed in the stock exchange
Shares not listed and traded in the stock
exchange
Income from the sale of real property situated in the Philippines
Income from the sale, exchange, or other disposition of other capital
assets
The acquisition by the Government of private properties through the exercise
of the power of eminent domain, said properties being justly compensated, is
embraced within the meaning of the term sale or disposition of property
and the definition of gross income. Profit from the transaction constitutes
capital gain. (Gonzales vs CTA, GR L-14532, May 26, 1965)
Taxation of non-resident aliens engaged in trade or business
General rules
Cash and/or property dividends
Capital gains
Exclude: non-resident aliens not engaged in trade or business
Individual taxpayers exempt from income tax
Senior citizens
43
Minimum wage earners

Exemptions granted under international agreements
Taxation of domestic corporations
Tax payable
Regular tax
Minimum Corporate Income Tax (MCIT)
For its fiscal year ending 31 March 2001 (FY 2000-2001), PAL incurred zero
taxable income and did not pay MCIT, for which BIR assessed PAL for
deficiency MCIT. PAL is not liable to pay MCIT because under its franchise, PAL
has the option to pay basic corporate income tax or franchise tax, whichever
is lower; and the tax so paid shall be in lieu of all other taxes, except real
property tax. MCIT falls within the category of
all other taxes from which PAL is exempted because although both are
income taxes, the MCIT is different from the basic corporate income tax, not
just in the rates, but also in the bases for their computation. (Commissioner
of Internal Revenue vs. PAL, Inc., G.R. No. 180066, July 7, 2009)
(a) Imposition of MCIT

MBC being a new thrift bank is not yet liable to the MCIT since it will apply
only beginning on the 4th years from commencement of its operations. The
date of commencement of operations of a thrift bank is the date it was
registered with the SEC or the date it was granted authority by BSP to
operate as such, whichever comes later. As newly operated thrift bank it is
entitled to a grace period of 4 years counted from the date when it was
authorized by BSP to operate as thrift bank. MBC is entitled to the refund of
the taxes paid under the MCIT.
The intent of Congress relative to the MCIT is to grant a 4 year suspension of
tax payment to newly formed corporations. Corporations still starting have to
stabilize their venture in order to obtain stronghold in the industry. It is not a
surprise when many corporations reported losses in their initial years of
operations. (Manila Banking Corp. v. CIR, 499 SCRA 782)
Carry forward of excess minimum tax
Relief from the MCIT under certain conditions
Corporations exempt from the MCIT
Applicability of the MCIT where a corporation is governed both under
the regular tax system and a special income tax system
Allowable deductions
Itemized deductions
Optional standard deduction
Taxation of passive income

Passive income subject to tax
44
Interest from deposits and yield, or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements
and royalties
Capital gains from the sale of shares of stock not traded in the stock
exchange
Income derived under the expanded foreign currency deposit system
Inter-corporate dividends
Capital gains realized from the sale, exchange, or disposition of
lands and/or buildings
Passive income not subject to tax
Taxation of capital gains
Income from sale of shares of stock
Income from the sale of real property situated in the Philippines
Income from the sale, exchange, or other disposition of other capital
assets
Tax on proprietary educational institutions and hospitals
St. Lukes is a proprietary non-stock and non-profit hospital catering to nonpaying patients but also derives profit from paying patients. It is subject to
the preferential tax rate of 10% for its profit-generating activities under sec.
27(B) of NIRC; it cannot be exempt from income tax under sec. 30(E) and (G)
because it is not organized and operated exclusively for charitable
purposes, which is a requirement under the aforementioned provision. (CIR
vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 & 195960, September
26, 2012)
Tax on government-owned or controlled corporations, agencies or
instrumentalities
Taxation of resident foreign corporations
General rule
With respect to their income from sources within the Philippines
Minimum Corporate Income Tax
Tax on certain income
Interest from deposits and yield, or any other monetary benefit from
deposit substitutes, trust funds and similar arrangements and
royalties
Income derived under the expanded foreign currency deposit system
Capital gains from sale of shares of stock not traded in the stock
exchange
Exclude:
International carrier
Ofshore banking units
Branch profits remittances
Regional or area headquarters and regional operating headquarters
of multinational companies
45
Taxation of non-resident foreign corporations

General rule
Tax on certain income
Interest on foreign loans
Capital gains from sale of shares of stock not traded in the stock
exchange
Exclude:
Non-resident cinematographic film-owner, lessor or distributor
Non-resident owner or lessor of vessels chartered by Philippine
nationals
Non-resident owner or lessor of aircraft machineries and other
equipment
16. Improperly accumulated earnings of corporations
Petitioner cannot avoid paying surtax on improperly accumulated earnings
because the
purchase of the U.S.A. Treasury bonds were in no way related to petitioners
business of importing and selling wines liquors. The immediacy test
determines the reasonable needs of the business in order to justify an
accumulation of earningsthat is, if the corporation did not prove an
immediate need for the accumulation of the earnings and profits, the
accumulation was not for the reasonable needs of the business, and the
penalty tax would apply; investment of the earnings and profits of the
corporation in stock or securities of an unrelated business usually indicates
an accumulation beyond the reasonable needs of the business (Manila Wine
Merchants, Inc. vs. Commissioner of Internal Revenue, G.R. No. L-26145,
February 20, 1984)
BIR assessed petitioner for surtax on improperly accumulated profits, which
petitioner contested. In order to determine whether profits are accumulated
for the reasonable needs of the business, it must be shown that: (1) the
controlling intention of the taxpayer is manifest at the time of accumulation,
not intentions declared subsequently, which are mere afterthoughts; and (2)
the accumulated profits must be used within a reasonable time after the
close of the taxable year. (Cyanamid Philippines, Inc. vs. Court of Appeals, et
al., G.R. No. 108067, January 20, 2000)
Previous accumulations should be considered in determining unreasonable
accumulations for the year concerned. In determining whether accumulations
of earnings or profits in a particular year are within the reasonable needs of a
corporation, it is necessary to take into account prior accumulations, since
accumulations prior to the year involved may have been sufficient to cover
the business needs and additional accumulations during the year involved
would not reasonably be necessary. (Basilan Estates, Inc. vs. Commissioner of
Internal Revenue, et al., G.R. No. L-22492, September 5, 1967)
17. Exemption from tax on corporations

YMCA, a non-stock non-profit corporation with charitable objectives, claimed
exemption from payment of income tax by invoking the NIRC and the
Constitution. While the income received by the organizations enumerated in
Section 26 of the NIRC is, as a rule, exempted from the payment of tax in
respect to income received by them as such, the exemption does not apply
to income derived from any of their
46
properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income; Moreover, charitable
institutions under Art. VI, sec. 28 of the Constitution are only exempted from
property taxes, and YMCA is not an educational institution under Article XIV, Section
4 of the Constitution. (Commissioner of Internal Revenue vs. Court of Appeals, et
al., G.R. No. 124043, October 14, 1998)
Lung Center, charitable institution, does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. However, it is not
exempt from real property tax as to the portions of the land leased to private
entities as well as those parts of the hospital leased to private individuals because
under the Constitution, it is only exempt when its real properties are actually,
directly, and exclusively used for charitable purposes. (Lung Center of the Phil. vs.
Quezon City, et al., G.R. No. 144104, June 29, 2004)
Taxation of partnerships
Taxation of general professional partnerships
Withholding tax
Concept
Kinds
Withholding of final tax on certain incomes
Withholding of creditable tax at source
Withholding of VAT
Filing of return and payment of taxes withheld
Return and payment in case of government employees
Statements and returns
Final withholding tax at source
Citytrust and Asianbank are domestic corporations which paid gross receipts tax
and claimed a refund on the basis of a CTA ruling that the 20% FWT on a banks
passive income does not form part of the taxable gross receipts. The 20% FWT on a
banks interest income forms part of the taxable gross receipts because
gross receipts means the entire receipts without any deduction; moreover, the
imposition of the 20% FWT and 5% GRT does not constitute double taxation
because GRT is a percentage tax while FWT is an income tax, and the two concepts
are different from each other. (Commissioner of Internal Revenue vs. Citytrust
Investment Phils., Inc., G.R. Nos. 139786 & 140857, September 27, 2006)
Creditable withholding tax
Expanded withholding tax
Withholding tax on compensation
Timing of withholding
B. Estate tax
1. Basic principles
47
Definition
Nature
Purpose or object
Time and transfer of properties
Post-mortem dispositions typically
Convey no title or ownership to the transferee before the death of the transferor; or,
what amounts to the same thing, that the transferor should retain the ownership
(full or naked) and control of the property while alive;
That before the [donors] death, the transfer should be revocable by the transferor
at will, ad nutum; but revocability may be provided for indirectly by means of a
reserved power in the donor to dispose of the properties conveyed;
That the transfer should be void if the transferor should survive the transferee;
[4] [T]he specification in a deed of the causes whereby the act may be revoked by
the donor indicates that the donation is inter vivos, rather than a disposition mortis
causa;
[5] That the designation of the donation as mortis causa, or a provision in the deed
to the effect that the donation is to take effect at the death of the donor are not
controlling criteria; such statements are to be construed together with the rest of
the instrument, in order to give effect to the real intent of the transferor; and
(6) That in case of doubt, the conveyance should be deemed donation inter vivos
rather than mortis causa, in order to avoid uncertainty as to the ownership of the
property subject of the deed. (GONZALO VILLANUEVA vs. SPOUSES FROILAN, G.R.
No. 172804, January 24, 2011)
The conveyance in question is not, first of all, one of mortis causa, which should be
embodied in a will. In this case, the monies subject of savings account were in the
nature of conjugal funds. In the case relied on, Rivera v. People's Bank and Trust
Co., we rejected claims that a survivorship agreement purports to deliver one
party's separate properties in favor of the other, but simply, their joint holdings.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA
FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)
But although the survivorship agreement is per se not contrary to law its operation
or effect may be violative of the law. For instance, if it be shown in a given case that
such agreement is a mere cloak to hide an inofficious donation, to transfer property
in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed
and annulled upon such grounds.
48
Classification of decedent
Gross estate vis--vis net estate
Determination of gross estate and net estate
Composition of gross estate
Items to be included in gross estate
Deductions from estate
As held in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from deducting
the entire amount of the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death developments are not
material in determining the amount of the deduction. (RAFAEL ARSENIO S. DIZON
vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)
We express our agreement with the date -of-death valuation rule. There is no law,
nor do we discern any legislative intent in our tax laws, which disregards the dateof-death valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. It bears emphasis
that tax burdens are not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death. Therefore, the claims existing
at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. (RAFAEL ARSENIO S. DIZON vs. COURT OF
TAX APPEALS, G.R. No. 140944, April 30, 2008)
Administration expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to include all
expenses "essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate and expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 123206, March 22, 2000)
Thus, in Lorenzo v. Posadas, the Court construed the phrase "judicial expenses of
the testamentary or intestate proceedings" as not including the compensation paid
to a trustee of the decedent's estate when it appeared that such trustee was
appointed for the purpose of managing the decedent's real estate for the benefit of
the testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the giving
of a bond is in the nature of a qualification for the office, and not necessary in the
settlement of the estate. Neither may attorney's fees incident to litigation incurred
by the heirs in asserting their respective rights be claimed as a deduction from the
49
gross estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.

No. 123206, March 22, 2000)
The notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonar's estate to his lawful
heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro
Pajonar's property should also be considered as a deductible administration expense
as PNB provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.
(COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 123206,
March 22, 2000)
Exclusions from estate
Tax credit for estate taxes paid in a foreign country
Exemption of certain acquisitions and transmissions
Filing of notice of death
Estate tax return
C. Donors tax
Basic principles
Definition
Nature
Purpose or object
Requisites of valid donation
Neither is the survivorship agreement a donation inter vivos, for obvious reasons,
because it was to take effect after the death of one party. Secondly, it is not a
donation between the spouses because it involved no conveyance of a spouse's own
properties to the other.
In the case at bar, when the spouses Vitug opened savings account, they merely put
what rightfully belonged to them in a money-making venture. They did not dispose
of it in favor of the other, which would have arguably been sanctionable as a
prohibited donation. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS
and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)
The granting clause shows that Diego donated the properties out of love and
affection for the donee which is a mark of a donation inter vivos; second, the
reservation of lifetime usufruct indicates that the donor intended to transfer the
naked ownership over the properties; third, the donor reserved sufficient properties
for his maintenance in accordance with his standing in society, indicating that the
donor intended to part with the six parcels of land; lastly, the donee accepted the
donation. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF
APPEALS, G.R. No. 111904, October 5, 2000)

In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an
acceptance clause is a mark that the donation is inter vivos. Acceptance is a
requirement for donations inter vivos.
50
Donations mortis causa, being in the form of a will, are not required to be accepted
by the donees during the donors' lifetime. (SPS. AGRIPINO GESTOPA and ISABEL
SILARIO GESTOPA vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer the ownership over the
properties upon the execution of the deed. (SPS. AGRIPINO GESTOPA and ISABEL
SILARIO GESTOPA vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
A remuneratory donation is one where the donee gives something to reward past or
future services or because of future charges or burdens, when the value of said
services, burdens or charges is less than the value of the donation. (De Luna v.
Abrigo, G.R. No. L-57455, January 18, 1990)
6. Transfers which may be constituted as donation
a) Sale/exchange/transfer of property for insufficient consideration b)
Condonation/remission of debt
7. Transfer for less than adequate and full consideration
8. Classification of donor
9. Determination of gross gift
10. Composition of gross gift
11. Valuation of gifts made in property
12. Tax credit for donors taxes paid in a foreign country 13. Exemptions of
gifts from donors tax
14. Person liable
15. Tax basis
D. Value-Added Tax (VAT)

1. Concept
As its name implies, the Value-Added Tax system is a tax on the value added by the
taxpayer in the chain of transactions. For simplicity and efficiency in tax collection,
the VAT is imposed not just on the value added by the taxpayer, but on the entire
selling price of his goods, properties or services. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)
However, the taxpayer is allowed a refund or credit on the VAT previously paid by
those who sold him the inputs for his goods, properties, or services. The net effect is
that the taxpayer pays the VAT only on the value that he adds to the goods,
properties, or services that he actually sells. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)
VAT is a tax on transactions, imposed at every stage of the distribution process on
the sale, barter, exchange of goods or property, and on the performance of services,
even in the absence of profit attributable thereto. The term "in the course of trade
or business" requires the regular conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is profit-oriented. (COMMISSIONER
OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)
51
The VAT is not a license tax; it is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for
revenue purposes.
2. Characteristics/Elements of a VAT-Taxable transaction

VAT is not a singular-minded tax on every transactional level; its assessment bears
direct relevance to the taxpayer's role or link in the production chain. Hence, as
affirmed by Section 99 [now Sec. 105] of the Tax Code and its subsequent
incarnations, the tax is levied only on the sale, barter or exchange of goods or
services by persons who engage in such activities, in the course of trade or
business. (COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R.
No. 146984. July 28, 2006)
The Court rules that given the undisputed finding that the transaction in question
was not made in the course of trade or business of the seller, NDC that is, the sale is
not subject to VAT pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter
how the said sale may hew to those transactions deemed sale as defined under
Section 100 [now Sec. 106].
(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No.
146984. July 28, 2006)
Thus, there must be a sale, barter or exchange of goods or properties before any
VAT may be levied. Certainly, there was no such sale, barter or exchange in the
subsidy given by SIS to Sony; it was but a dole out by SIS and not in payment for
goods or properties sold, bartered or exchanged by Sony. (COMMISSIONER OF
INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697, November 17,
2010)
Goods or properties must be used directly or indirectly in the production or sale of
taxable goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356,
December 14, 2009)
it is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-on-cost
basis only, without realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT. ( COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)
3. Impact of tax
Under Section 105 of the Tax Code, VAT is imposed on any person who, in the
course of trade or business, sells or renders services for a fee. In other words, the
seller of services, who in this case is the tollway operator, is the person liable for
VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll
fees. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE,
G.R. No. 193007, July 19, 2011)
4. Incidence of tax
52
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on
goods, properties or services to the buyer. In such a case, what is transferred is not
the seller's liability but merely the burden of the VAT. (RENATO V. DIAZ and AURORA
MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Thus, the seller remains directly and legally liable for payment of the VAT, but the
buyer bears its burden since the amount of VAT paid by the former is added to the
selling price. Once shifted, the VAT ceases to be a tax and simply becomes part of
the cost that the buyer must pay in order to purchase the good, property or service.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)
A seller who is directly and legally liable for the payment of an indirect tax, such as
the VAT on goods or services is not necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser of consumer of such goods or
services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax. (Contex v. CIR, G.R. No. 151135, July 2,
2004)
In the case of the VAT, the law minimizes the regressive effects of indirect taxation
by providing for zero rating of certain transactions, while granting exemptions to
other transactions. On the other hand, the transactions which are subject to the VAT
are those which involve goods and services which are used or availed of mainly by
higher income groups. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
Tax credit method
Destination principle
According to the Destination Principle, goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the Cross
Border Doctrine mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT. (ATLAS CONSOLIDATED
MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)
Applying the destination principle to the exportation of goods, automatic zero rating
is primarily intended to be enjoyed by the seller who is directly and legally liable for
the VAT, making such seller internationally competitive by allowing the refund or
credit of input taxes that are attributable to export sales. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)
Under the cross-border principle of the VAT system being enforced by the Bureau of
Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border of the taxing authority. If
exports of goods and services from the Philippines to a foreign country are free of
the VAT, then the same rule holds for such exports from the national territory
except specifically declared areas to an
53
ecozone. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY

(PHILIPPINES), G.R. No. 153866, February 11, 2005)
While an ecozone is geographically within the Philippines, it is deemed a separate
customs territory and is regulated in laws as foreign soul. Sales by supplies outside
the borders of ecozone to this separate customs territory are deemed exports and
treated as export sales.
(CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21, 2006)
For as long as the goods remain within the zone, whether we call it an economic
zone or a freeport zone, for as long as we say in this law that all goods entering this
particular territory will be duty-free and tax-free, for as long as they remain there,
consumed there or re-exported or destroyed in that place, then they are not subject
to duties and taxes in accordance with the laws of the Philippines. (Coconut Oil
Refiners Association v. Executive Secretary, G.R. No. 132527, July 29, 2005)
Persons liable
VAT on sale of goods or properties
Goods, as commonly understood in the business sense, refer to the product which
the VAT-registered person offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which constitute their goods. Such real
properties are the operating assets of the real estate dealer. (Fort Bonifacio
Development Corporation vs. CIR, G.R. Nos. 158885 and 170630, April 2, 2009)
a) Requisites of taxability of sale of goods or properties
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction. However,
it does not follow that an isolated transaction cannot be an incidental transaction for
purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code
would show that a transaction "in the course of trade or business" includes
"transactions incidental thereto." (MINDANAO II GEOTHERMAL PARTNERSHIP vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and
equipment.
Therefore, the sale of the Nissan Patrol is an incidental transaction made in the
course of Mindanao IIs business which should be liable for VAT. (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
193301, March 11, 2013)
9. Zero-rated sales of goods or properties, and efectively zero-rated sales
of goods or properties
Zero-rated transactions generally refer to the export sale of goods and supply of
services. The tax rate is set at zero and when applied to the tax base, such rate
obviously results in no tax chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers. (COMMISSIONER OF
February 11, 2005)

54
Effectively zero-rated transactions, however, refer to the sale of goods or supply of

services to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such
transactions to a zero rate. Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser. The seller who charges zero output
tax on such transactions can also claim a refund of or a tax credit certificate for the
VAT previously charged by suppliers. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
If respondent is located in an export processing zone within that ecozone, sales to
the export processing zone, even without being actually exported, shall in fact be
viewed as constructively exported under EO 226. Considered as export sales, such
purchase transactions by respondent would indeed be subject to a zero rate.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been
thoroughly and extensively discussed in Commissioner of Internal Revenue v.
Acesite (Philippines) Hotel Corporation. Acesite sought the refund of the amount it
paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate
as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR and Acesite
were both exempt from paying VAT. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087,
March 15, 2011)
No prior application for the effective zero rating of its transactions is necessary. The
BIR regulations additionally requiring an approved prior application for effective zero
rating cannot prevail over the clear VAT nature of respondent's transactions. Other
than the general registration of a taxpayer the VAT status of which is aptly
determined, no provision under our VAT law requires an additional application to be
made for such taxpayer's transactions to be considered effectively zero-rated.
G.R. No. 153866, February 11, 2005)
The Omnibus Investments Code of 1987 recognizes as export sales the sales of
export products to another producer or to an export trader, provided that the export
products are actually exported. For purposes of VAT zero-rating, such producer or
export trader must be registered with the BOI and is required to actually export
more than 70% of its annual production. (ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. Nos.
141104 & 148763, June 8, 2007)
In terms of the VAT computation, zero rating and exemption are the same, but the
extent of relief that results from either one of them is not. In both instances of zero
rating, there is total relief for the purchaser from the burden of the tax but in an
exemption there is only partial relief, because the purchaser is not allowed any tax
refund of or credit for input taxes paid. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
10. Transactions deemed sale
Transfer, use or consumption not in the course of business of
goods/properties originally intended for sale or use in the course of

business
Distribution or transfer to shareholders, investors or creditors
55
Consignment of goods if actual sale not made within 60 days from date of
consignment
Retirement from or cessation of business with respect to inventories on
hand
Change or cessation of status as VAT-registered person a) Subject to VAT
(i) Change of business activity from VAT taxable status to VAT-exempt
status
(ii) Approval of request for cancellation of a registration due to reversion
to exempt status
(iii) Approval of request for cancellation of registration due to desire to
revert to exempt status after lapse of 3 consecutive years
b) Not subject to VAT
(i) Change of control of a corporation
(ii) Change in the trade or corporate name (iii) Merger or consolidation of
corporations
VAT on importation of goods
a) Transfer of goods by tax exempt persons
13. VAT on sale of service and use or lease of properties
Service has been defined as the art of doing something useful for a person or
company for a fee or useful labor or work rendered or to be rendered another for a
fee. (CIR v. American Express International, Inc., G.R. No. 152609, June 29, 2005)
By qualifying "services" with the words "all kinds," Congress has given the term
"services" an all-encompassing meaning. The listing of specific services are
intended to illustrate how pervasive and broad is the VAT's reach rather than
establish concrete limits to its application; thus, every activity that can be imagined
as a form of "service" rendered for a fee should be deemed included unless some
provision of law especially excludes it. (RENATO V. DIAZ and AURORA MA. F. TIMBOL
vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Tollway operators not only come under the broad term "all kinds of services," they
also come under the specific class described in Section 108 as "all other franchise
grantees" who are subject to VAT, "except those under Section 119 of this Code."
Tollway operators are franchise grantees and they do not belong to exceptions (the
low-income radio and/or television broadcasting companies with gross annual
incomes of less than P10 million and gas and water utilities) that Section 119 spares
from the payment of VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
In specifically including by way of example electric utilities, telephone, telegraph,
and broadcasting companies in its list of VAT-covered businesses, Section 108 opens
other companies rendering public service for a fee to the imposition of VAT.
Businesses of a public nature such as public utilities and the collection of tolls or
charges for its use or service is a franchise. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
In the case of CIR v. Court of Appeals (CA), the Court had the occasion to rule that
services rendered for a fee even on reimbursement-on-cost basis only and without
realizing profit are also subject to VAT. In that case, COMASERCO rendered service to
its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which
means that it was paid the cost or
56
expense that it incurred although without profit. (COMMISSIONER OF INTERNAL

REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697, November 17, 2010)
Among those included in the enumeration is the lease of motion picture films, films,
tapes and discs. This, however, is not the same as the showing or exhibition of motion
pictures or films. The legislative intent is not to impose VAT on persons already covered
by the amusement tax and this holds true even in the case of cinema/theater operators
taxed under the LGC of 1991 precisely because the VAT law was intended to replace the
percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. and First Asia Realty
Development Corp., G.R. No. 183505, February 26, 2010)
a) Requisites for taxability

Zero-rated sale of services
VAT exempt transactions
An exempt transaction involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code,
without regard to the tax status VAT-exempt or not of the party to the
transaction. Indeed, such transaction is not subject to the VAT, but the seller is not
allowed any tax refund of or credit for any input taxes paid. (COMMISSIONER OF
February 11, 2005)
An exempt party, on the other hand, is a person or entity granted VAT exemption
under the Tax Code, a special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from the VAT. Such party is also not subject to the VAT, but may be allowed
a tax refund of or credit for input taxes paid, depending on its registration as a VAT
or non-VAT taxpayer. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
a) VAT exempt transactions, in general
By extending the exemption to entities or individuals dealing with PAGCOR, the
legislature clearly granted exemption also from indirect taxes. It must be noted that
the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer,
transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by
extending the tax exemption to entities or individuals dealing with PAGCOR in casino
operations, it is exempting PAGCOR from being liable to indirect taxes. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL
REVENUE, G.R. No. 172087, March 15, 2011)
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the
extension of such exemption to entities or individuals dealing with PAGCOR in casino
operations are best elucidated from the 1987 case of Commissioner of Internal
Revenue v. John Gotamco & Sons, Inc., where the absolute tax exemption of the
World Health Organization (WHO) upon an international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to
mean that the entity or person exempt is the contractor itself who constructed the
building owned by contractee WHO, and such does not violate the rule that tax
exemptions are personal because the manifest intention of the agreement is to
exempt the contractor so that no contractor's tax may be shifted to the contractee
WHO. (PHILIPPINE

57
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL

Pawnshops- considered as non-bank financial intermediary is exempted from VAT
but liable to percentage tax. (Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085,
January 21, 2010)
b) Exempt transaction, enumerated 16. Input tax and output tax, defined
Under the present method that relies on invoices, an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
If at the end of a taxable quarter the output taxes charged by a seller are equal to
the input taxes passed on by the suppliers, no payment is required. It is when the
output taxes exceed the input taxes that the excess has to be paid. (COMMISSIONER
OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)
17. Sources of input tax
Purchase or importation of goods
Purchase of real properties for which a VAT has actually been paid
Purchase of services in which VAT has actually been paid
Transactions deemed sale
Presumptive input
Transitional input
Prior payment of taxes is not necessary before a taxpayer could avail of the 8%
transitional input tax credit: first, it was never mentioned in Section 105 of the old
NIRC [now Sec. 111] that prior payment of taxes is a requirement; second, since the
law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require
it now would be tantamount to judicial legislation which, to state the obvious, is not
allowed; third, a transitional input tax credit is not a tax refund per se but a tax
credit; fourth, if the intent of the law were to limit the input tax to cases where
actual VAT was paid, it could have simply said that the tax base shall be the actual
value-added tax paid; and fifth, this Court had already declared that prior payment
of taxes is not required in order to avail of a tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash refund or tax credit of
transitional input tax in the case of zero-rated or effectively zero-rated VAT
registered taxpayers, who do not have any output VAT. The phrase "except
transitional input tax" in Section 112 of the Tax Code was inserted to distinguish
creditable input tax from transitional input tax credit. (FORT BONIFACIO
173425, January 22, 2013)
It is apparent that the transitional input tax credit operates to benefit newly VAT-
registered persons, whether or not they previously paid taxes in the acquisition of their
beginning inventory of goods, materials and supplies. During that period of transition
from non-VAT to VAT
58
status, the transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer.
(FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE, G.R. No. 173425, January 22, 2013)
18. Persons who can avail of input tax credit
In a VAT-exempt transaction, the seller is not allowed to charge VAT to his customer.
Since no output tax is shifted by the seller, there is no output tax against which the
related input taxes may be credited. Neither can he credit this input tax against the
VAT due on other sales. In this case, he is treated as the end user who will shoulder
the cost of the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION,
G.R. No. 187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input taxes related to zero-rated
sales may be credited against output taxes on other sales and in case it is not fully
utilized, the excess may be carried over to the succeeding quarter or quarters and
there is no prescription period for the carry-over. The law gives the taxpayer another
option for the recovery of used input taxes: application for refund or tax credit
certificate. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
Determination of output/input tax; VAT payable; excess input tax credits a)
Determination of output tax
b) Determination of input tax creditable
c) Allocation of input tax on mixed transactions
d) Determination of the output tax and VAT payable and computation of
VAT payable or excess tax credits
Substantiation of input tax credits
Refund or tax credit of excess input tax
If, however, the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zerorated or effectively zero-rated transactions or from the acquisition of capital goods,
any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11,
2005)
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. (FORT BONIFACIO
173425, January 22, 2013)
As regards Section 110, while the law only provides for a tax credit, a taxpayer who
erroneously or excessively pays his output tax is still entitled to recover the
payments he made either as a tax credit or a tax refund. In this case, since
petitioner still has available transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively paid for the 1st quarter of 1997.
Thus, there is no reason for denying its claim for tax refund/credit.
(FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
59
Even if the law does not expressly state that the Ironcons excess creditable VAT
withheld is refundable, it may be the subject-of a claim for refund as an erroneously
collected tax under Sec. 204 (C) and 229 of the NIRC. It should be clarified that this
ruling only refers to creditable VAT withheld pursuant to Sec. 114 of the NIRC prior
to its amendment. After its amendment by R.A. 9337, the amount withheld under
Sec. 114 of the NIRC is now treated as final VAT, no longer under the creditable
withholding tax system (CIR v. Ironcon Builders and Development Corp., G.R. No.
180042, February 8, 2010)
The input VAT is not "excessively" collected as understood under Section 229
because at the time the input VAT is collected the amount paid is correct
and proper. The person legally liable for the input VAT cannot claim that he
overpaid the input VAT by the mere existence of an "excess" input VAT. The term
"excess" input VAT simply means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected because it is more than
what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim
for refund or credit of the input VAT as "excessively" collected under Section 229.
G.R. No. 187485, February 12, 2013)
If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has
output VAT. The VAT System does not allow such refund or credit and such "excess"
input VAT is not an "excessively" collected tax under Section 229. (COMMISSIONER
OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)
a) Who may claim for refund/apply for issuance of tax credit certificate
Having determined that respondent's purchase transactions are subject to a zero
VAT rate, the tax refund or credit is in order. To repeat, the VAT is a tax imposed on
consumption, not on business. Although respondent as an entity is exempt, the
transactions it enters into are not necessarily so. The VAT payments made in excess
of the zero rate that is imposable may certainly be refunded or credited.
G.R. No. 153866, February 11, 2005)
b) Period to file claim/apply for issuance of tax credit certificate
The Court, in San Roque, ruled that equitable estoppel had set in when respondent
issued BIR Ruling No. DA-489-03 which was a general interpretative rule, which
effectively misled all taxpayers into filing premature judicial claims with the CTA.
Thus, taxpayers could rely on the ruling from its issuance on 10 December 2003 up
to its reversal on 6 October 2010, when CIR v. Aichi Forging Company of Asia, lnc.
was promulgated. (PROCTER & GAMBLE ASIA PTE LTD. vs.COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 202071, February 19, 2014)
In a nutshell, the rules on the determination of the prescriptive period for filing a tax
refund or credit of unutilized input VAT, as provided in Section 112 of the Tax Code,
are as follows:
(1) An administrative claim must be filed with the CIR within two years after the
close of the taxable quarter when the zero-rated or effectively zero-rated sales were
made.

60
The CIR has 120 days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to grant a refund
or issue a tax credit certificate. The 120-day period may extend beyond the twoyear period from the filing of the administrative claim if the claim is filed in the later
part of the two-year period. If the 120-day period expires without any decision from
the CIR, then the administrative claim may be considered to be denied by inaction.
A judicial claim must be filed with the CTA within 30 days from the receipt of the
CIRs decision denying the administrative claim or from the expiration of the 120day period without any action from the CIR.
All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, as an exception to the mandatory and jurisdictional 120+30 day periods.
(COMMISSIONER OF INTERNAL REVENUE vs.TOLEDO POWER, INC., G.R. No. 183880,
January 20, 2014)
The lessons of this case may be summed up as follows:
Two-Year Prescriptive Period
It is only the administrative claim that must be filed within the two-year prescriptive
period. (Aichi)
The proper reckoning date for the two-year prescriptive period is the close of the
taxable quarter when the relevant sales were made. (San Roque)
The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12
September 2008. Atlas states that the two-year prescriptive period for filing a claim
for tax refund or credit of unutilized input VAT payments should be counted from the
date of filing of the VAT return and payment of the tax. (San Roque)
120+30 Day Period
The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner denies the claim within the 120-day period, or
(2) file the judicial claim within thirty days from the expiration of the 120-day period
if the Commissioner does not act within the 120-day period.
The 30-day period always applies, whether there is a denial or inaction on the part
of the CIR.
As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional.
(Aichi and San Roque)
As an exception to the general rule, premature filing is allowed only if filed between
61
10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in
force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA489-03 was in force. (San Roque) (COMMISSIONER OF INTERNAL REVENUE vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, G.R. No. 191498, January 15, 2014)
It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of action,
with the effect that the CTA does not acquire jurisdiction over the taxpayers
petition. (MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
Stated otherwise, the two-year prescriptive period does not refer to the filing of the
judicial claim with the CTA but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase within two years x x x apply for the
issuance of a tax credit or refund refers to applications for refund/credit with the
CIR and not to appeals made to the CTA."
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
San Roque's failure to comply with the 120-day mandatory period renders its
petition for review with the CTA void as Article 5 of the Civil Code provides, "Acts
executed against provisions of mandatory or prohibitory laws shall be void, except
when the law itself authorizes their validity." San Roque's void petition for review
cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself
authorizes [its] validity," and there is no law authorizing the petition's validity.
G.R. No. 187485, February 12, 2013)
Sec. 112(A) clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to the input VAT regardless
of whether said tax was paid or not. The reckoning frame would always be the
end of the quarter when the pertinent sales or transaction was made, regardless
when the input VAT was paid. (COMMISSIONER OF INTERNAL REVENUE vs. MIRANT
PAGBILAO CORPORATION, G.R. No. 172129. September 12, 2008)
This prescriptive period has no relation to the date of payment of the "excess"
input VAT since the "excess" input VAT may have been paid for more than two years
but this does not bar the filing of a judicial claim for "excess" VAT under Section 112
(A), which has a different reckoning period from Section 229. Moreover, the person
claiming the refund or credit of the input VAT is not the person who legally paid the
input VAT. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER

62
The mere filing by a taxpayer of a judicial claim with the CTA before the expiration
of the 120-day period cannot operate to divest the Commissioner of his jurisdiction
to decide an administrative claim within the 120-day mandatory period, unless the
Commissioner has clearly given cause for equitable estoppel to apply as expressly
recognized in Section 246 of the Tax Code. (COMMISSIONER OF INTERNAL REVENUE
vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)
Because the 120+30 day period is jurisdictional, the issue of whether petitioner
complied with the said time frame may be broached at any stage, even on appeal.
(NIPPON EXPRESS (PHILIPPINES) CORPORATION vs. COMMISSIONER OF INTERNAL
Manner of giving refund
Destination principle or cross-border doctrine 22. Invoicing requirements
For a judicial claim for refund to prosper, however, respondent must not only prove
that it is a
VAT registered entity and that it filed its claims within the prescriptive
period. It
must substantiate the input VAT paid by purchase invoices or official receipts:
1)
A "sales
or commercial invoice" is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which
is used in the ordinary course of business evidencing sale and transfer or agreement
to sell or transfer goods and services; and 2) A "receipt" on the other hand is a
written acknowledgment of the fact of payment in money or other settlement
between seller and buyer of goods, debtor or creditor, or person rendering services
and client or customer. (ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 141104 &
148763, June 8, 2007)
a) Invoicing requirements in general
The requisite that the receipt be issued showing the name, business style, if any,
and address of the purchaser, customer or client is precise so that when the books
of accounts are subjected to a tax audit examination, all entries therein could be
shown as adequately supported and proven as legitimate business transactions. The
absence of official receipts issued in the taxpayer's name is tantamount to noncompliance with the substantiation requirements provided by law. (BONIFACIO
WATER CORPORATION (formerly BONIFACIO VIVENDI WATER CORPORATION) vs. THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22, 2013)
Taxpayers claiming for a refund or tax credit certificate must comply with the strict
and mandatory invoicing and accounting requirements provided under the 1997
NIRC, as amended, and its implementing rules and regulations. Thus, the change of
petitioner's name to "Bonifacio GDE Water Corporation," being unauthorized and
without approval of the SEC, and the issuance of official receipts under that name
which were presented to support petitioner's claim for tax refund, cannot be used to
allow the grant of tax refund or issuance of a tax credit certificate in petitioner's
favor. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142,
July 22, 2013)
63
Failure to print the word zero-rated on the invoices or receipts is fatal to a claim
for credit of refund of input VAT on zero-rated sales (J.R.A. Philippines, Inc. v. CIR,
G.R. No. 177127, October 11, 2010)
If the claim for refund/ tax credit certificate is based on the existence of zero-rated
sales by the taxpayer but it fails to comply with the invoicing requirements in the
issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the invoice it
is issuing to its customers does not depict its being a VAT-registered taxpayer whose
sales are classified as zero-rated sales. Nonetheless, this treatment is without
prejudice to the right of the taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to depreciation, whichever is applicable
(Panasonic Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8,
2010)
Invoicing and recording deemed sale transactions
Consequences of issuing erroneous VAT invoice or VAT official receipt 23.
Filing of return and payment
24. Withholding of final VAT on sales to government
TAX REMEDIES UNDER THE NIRC

Assessment
An assessment contains not only a computation of tax liabilities, but also a demand
for payment within a prescribed period. It also signals the time when penalties and
protests begin to accrue against the taxpayer. To enable the taxpayer to determine
his remedies thereon, due process requires that it must be served on and received
by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers
stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax
evasion, cannot be deemed an assessment that can be questioned before the Court
of Tax Appeals. (CIR vs Pascor Realty and Development Corp., GR no. 128315, June
29, 1999)
Concept of assessment
Requisites for valid assessment
Constructive methods of income determination
The rule is that in the absence of the accounting records of a taxpayer, his tax
liability may be determined by estimation. The petitioner is not required to compute
such tax liabilities with mathematical exactness. Approximation in the calculation of
the taxes due is justified. To hold otherwise would be tantamount to holding that
skillful concealment is an invincible barrier to proof. However, the rule does not
apply where the estimation is arrived at arbitrarily and capriciously. In fine, then, the
petitioner acted arbitrarily and capriciously in relying on and giving weight to the
machine copies of the Consumption Entries in fixing the tax deficiency assessments
against the respondent. (CIR vs Hantex Trading Co., GR no. 136975, March 31,
2005)
The "best evidence" envisaged in Section 16 of the 1977 NIRC [now Sec. 6, 1997
NIRC], as amended, includes the corporate and accounting
64
records of the taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of business,
including their gross profit and net profit sales. The law allows the BIR access
to all relevant or material records and data in the person of the taxpayer. It
places no limit or condition on the type or form of the medium by which the
record subject to the order of the BIR is kept. The purpose of the law is to
enable the BIR to get at the taxpayers records in whatever form they may be
kept. Such records include computer tapes of the said records prepared by
the taxpayer in the course of business. 68 In this era of developing
information-storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping capabilities from BIR
scrutiny. The standard is not the form of the record but where it might shed
light on the accuracy of the taxpayers return. However, the best evidence
obtainable under Section 16 of the 1977 NIRC [now Sec. 6, 1997 NIRC], as
amended, does not include mere photocopies of records/documents. The
petitioner, in making a preliminary and final tax deficiency assessment
against a taxpayer, cannot anchor the said assessment on mere machine
copies of records/documents. Mere photocopies of the Consumption Entries
have no probative weight if offered as proof of the contents thereof. (CIR vs
Hantex Trading Co., GR no. 136975, March 31, 2005)
Inventory method for income determination
Jeopardy assessment
Tax delinquency and tax deficiency
Power of the Commissioner to make assessments and prescribe
additional requirements for tax administration and enforcement
Power of the Commissioner to obtain information, and to
summon/examine, and take testimony of persons
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed. Sec. 15 of the NIRC, on the other hand,
provides that "[w]hen a report required by law as a basis for the assessment
of any national internal revenue tax shall not be forthcoming within the time
fixed by law or regulation, or when there is reason to believe that any such
report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable."
Clearly, Section 15 does not provide an exception to the statute of limitations
on the issuance of an assessment, by allowing the initial assessment to be
made on the basis of the best evidence available. Having made its initial
assessment in the manner prescribed, the commissioner could not have been
authorized to issue, beyond the five-year prescriptive period, the second and
the third assessments under consideration before us. (CIR vs BF Goodrich
Phils., Inc., GR no. 104171, February 24, 1999)
(iii) When assessment is made

65
An assessment is deemed made only when the collector of internal

revenue releases, mails or sends such notice to the taxpayer. (CIR vs
Pascor Realty and Development Corp., GR no. 128315, June 29, 1999)
Prescriptive period for assessment
The statute of limitations on assessment and collection of taxes is for
the protection of the taxpayer and, thus, shall be construed liberally in
his favor. Though the statute of limitations on assessment and
collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The
indefinite extension of the period for assessment is unreasonable
because it deprives the said taxpayer of the assurance that he will no
longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time. (BPI vs CIR, GR 139736,
October 17, 2005)
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of
the Administrative Code of 1987 deal with the same subject matter
the computation of legal periods. Under the Civil Code, a year is
equivalent to 365 days whether it be a regular year or a leap year.
Under the Administrative Code of 1987, however, a year is composed
of 12 calendar months. Needless to state, under the Administrative
Code of 1987, the number of days is irrelevant. There obviously exists
a manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. For this
reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the
computation of legal periods. (CIR vs Primetown Property Group Inc.,
GR 162155, August 28, 2007)
Considering that the deficiency assessment was based on the
amended return which, as aforestated, is substantially different from
the original return, the period of limitation of the right to issue the
same should be counted from the filing of the amended income tax
return. We believe that to hold otherwise, we would be paving the way
for taxpayers to evade the payment of taxes by simply reporting in
their original return heavy losses and amending the same more than
five years later when the Commissioner of Internal Revenue has lost
his authority to assess the proper tax thereunder. The object of the Tax
Code is to impose taxes for the needs of the Government, not to
enhance tax avoidance to its prejudice. (CIR vs Phoenix Assurance Co.,
L-19127, May 20, 1965)
A waiver of the statute of limitations under the NIRC, to a certain
extent, is a derogation of the taxpayers right to security against
prolonged and unscrupulous investigations and must therefore be
carefully and strictly construed. The waiver of the statute of limitations
is not a waiver of the right to invoke the defense of prescription as
erroneously held by the Court of Appeals. It is an agreement between
the taxpayer and the BIR that the period to issue an assessment and
collect the taxes due is extended to a date certain. The waiver does
not mean that the taxpayer relinquishes the right to
66
invoke prescription unequivocally particularly where the language

of the document is equivocal. The Waiver of Statute of Limitations,
signed by petitioners comptroller on September 22, 1997 is not
valid and binding because it does not conform with the provisions of
RMO No. 20-90. It did not specify a definite agreed date between
the BIR and petitioner, within which the former may assess and
collect revenue taxes. Thus, petitioners waiver became unlimited in
time, violating Section 222(b) of the NIRC. (Philippine Journalists, Inc
vs CIR, GR 162852, December 16, 2004)
The waiver required under the Tax Code is one which is not
unilateral nor can it be said that concurrence to such agreement is
a mere formality because it is the very signatures of both the
Commissioner and the taxpayer which give birth to such valid
agreement. (CIR v. CA, G.R. 115712, Feb. 25, 1999)
A waiver of the statute of limitations being a derogation of the
taxpayers right to security against prolonged and unscrupulous
investigations must be carefully and strictly construed. (CIR v. FMF
Devt Corp., 556 SCRA 698)
The requirement to furnish the taxpayer a copy of the waiver of the
Statute of Limitations is not only to give notice of the existence of
the document but of the acceptance by the BIR and the perfection
of the agreement. (Phil. Journalists, Inc. v. CIR, GR 162852, Dec. 16,
2004)
(1) False, fraudulent, and non-filing of returns

Petitioner insists that private respondent committed "falsity" when
it sold the property for a price lesser than its declared fair market
value. This fact alone did not constitute a false return which
contains wrong information due to mistake, carelessness or
ignorance. 13 It is possible that real property may be sold for less
than adequate consideration for a bona fide business purpose; in
such event, the sale remains an "arm's length" transaction. In the
present case, the private respondent was compelled to sell the
property even at a price less than its market value, because it
would have lost all ownership rights over it upon the expiration of
the parity amendment. (CIR vs BF Goodrich Phils., Inc., GR no.
104171, February 24, 1999)
Fraud cannot be presumed but must be proven. As a corollary thereto,
we can also state that fraudulent intent could not be deduced from
mistakes however frequent they may be, especially if such mistakes
emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities. The
lower court's conclusion regarding the existence of fraudulent intent to
evade payment of taxes was based merely on a presumption and not
on evidence establishing a willful filing of false and fraudulent returns
so as to warrant the imposition of the fraud penalty. The fraud
contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done

or resorted to in order to
67
induce another to give up some legal right. Negligence, whether slight or

gross, is not equivalent to the fraud with intent to evade the tax
contemplated by the law. (Aznar vs CTA, GR L-20569, August 23, 1974)
Suspension of running of statute of limitations
Petitioners also argue that the governments right to assess and collect the
subject tax had prescribed. Petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool changed its
address, for they stated that the pools information return filed in 1980
indicated therein its present address. The Court finds that this falls short of
the requirement of Section 333 [now section 223] of the NIRC for the
suspension of the prescriptive period. The law clearly states that the said
period will be suspended only if the taxpayer informs the Commissioner of
Internal Revenue of any change in the address. (Afisco Insurance vs CA, GR
112675, January 25, 1999)
Sec. 271 [1977 NIRC] (now Sec. 223 of 1997 NIRC) limits the suspension of
the running of prescription to instances when reinvestigation is requested by
a taxpayer and is granted by the CIR. Only a request for reinvestigation can
toll the running of the period of the statute of limitations because it would
entail reception and evaluation of additional evidence and will take more time
than a request for reconsideration where the evaluation of the evidence is
limited only to the evidence already at hand. (CIR v. Phil. Global
Communications, 506 SCRA 427)
General provisions on additions to the tax
Civil penalties
Interest
Compromise penalties
It does not appear that petitioner accepted the imposition of the compromise
amounts. It is now a well settled doctrine that compromise penalty cannot be
imposed or collected without the agreement or conformity of the taxpayer.
(Wonder Mechanical Engineering vs CTA, GR L-22805 & L-27858, June 30,
1975)
Assessment process
Tax audit
Notice of informal conference
Under Rev. Reg. 12-99, a notice of informal conference is sent to the taxpayer
informing him of the findings of the audit conducted on his books and records
indicating that there is a discrepancy in his tax payments which has to be
paid. However under Rev. Reg. 18-2013 dated Nov. 28, 2013 the requirement
for the issuance of a letter of informal conference has been removed.
(c) Issuance of preliminary assessment notice
Sec. 228 of the Tax Code clearly requires that the taxpayer must be informed
that he is liable for deficiency taxes through the sending of a Preliminary
68
Assessment Notice. The sending of a PAN to the taxpayer is to inform

him of the assessment made is but part of due process requirement in
the issuance of a deficiency tax assessment, the absence of which
renders nugatory any assessment made by the tax authorities. (CIR v.
Metro Star Superama, Inc. 637 SCRA 633)
Notice of informal conference [ is this same as (b) above?]
Issuance of preliminary assessment notice [ is this same as
(c)?]
Exceptions to issuance of preliminary assessment notice
Reply to preliminary assessment notice
Issuance of formal letter of demand and assessment
notice/final assessment notice
Tax assessments by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and
approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments. (Sy
Po vs CTA, GR 81446, August 18, 1988)
An assessment fixes and determines the tax liability of a taxpayer. As
soon as it is served, an obligation arises on the part of the taxpayer
concerned to pay the amount assessed and demanded. Hence,
assessments should not be based on mere presumptions no matter
how reasonable or logical said presumptions may be. In order to stand
the test of judicial scrutiny, the assessment must be based on actual
facts. (CIR vs Island Garment Manufacturing Co., GR L-46644,
September 11, 1987)
Taxpayers shall be informed in writing of the law and the facts on
which the assessment is made, otherwise, the assessment shall be
void. The old requirement of merely notifying the taxpayer of the CIRs
findings was changed in 1998 to inform the taxpayer of not only the
law but also the facts on which an assessment would be made. Failure
to comply with Sec. 228 of the Tax Code does not only render the
assessment void, but also finds no validation in any provision in the Tax
Code. (CIR vs. Reyes, 480 SCRA 382)
A taxpayer must be informed in writing of the legal and factual bases
of the tax assessment made against him. This is a mandatory
requirement. The advice of a tax deficiency given by the CIR to an
employee of Enron as well as the preliminary 5-day letter notice, were
not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. Sec. 228 of the NIRC requires
that the legal and factual bases be stated in the formal letter of
demand and assessment notice. Otherwise the law and RR 12-99
would be rendered nugatory. In view of the absence of a fair
opportunity for Enron to be informed of the bases of the assessment,
the assessment was void. This is a requirement of due process. (CIR v.
Enron Subic Power Corp. 575 SCRA 212)

Disputed assessment
Administrative decision on a disputed assessment
69
The authority to make tax assessments may be delegated to subordinate

officers. Said assessment has the same force and effect as that issued by the
Commissioner himself, if not reviewed or revised by the latter. (Oceanic
Network Wireless Inc., GR 148380, December 9, 2005)
Protesting assessment
Protest of assessment by taxpayer
Protested assessment
When to file a protest
Forms of protest
This Court had consistently ruled in a number of cases that a request for
reconsideration or reinvestigation by the taxpayer, without a valid waiver of
the prescriptive periods for the assessment and collection of tax, as required
by the Tax Code and implementing rules, will not suspend the running
thereof. (BPI vs CIR, GR 139736, October 17, 2005)
It bears to emphasize that under Section 224 of the Tax Code of 1977, as
amended, the running of the prescriptive period for collection of taxes can
only be suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend the running of the
statute of limitations on collection of the assessed tax, while the latter can
not. (BPI vs CIR, GR 139736, October 17, 2005)
Content and validity of protest
Submission of documents within 60 days from filing of protest
Petitioner 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 has not paid, the DST on the deposit on subscription. The term
relevant supporting documents should be understood as 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. The BIR 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. (CIR vs First Express Pawnshop Company, GR 172045-46, June
16, 2009)
Efect of failure to protest
The rule is that for the Court of Tax Appeals to acquire jurisdiction, an
assessment must first be disputed by the taxpayer and ruled upon by the
Commissioner of Internal Revenue to warrant a decision from which a petition
for review may be taken to the Court of Tax Appeals. Where an adverse ruling
has been rendered by the Commissioner of Internal Revenue with reference
to a disputed assessment or a claim for refund or credit, the taxpayer may
appeal the same within thirty (30) days after receipt thereof. A request for
reconsideration
70
must be made within thirty (30) days from the taxpayers receipt of the tax
deficiency assessment, otherwise, the decision becomes final, unappealable
and therefore, demandable. A tax assessment that has become final,
executory and enforceable for failure of the taxpayer to assail the same as
provided in Section 228 can no longer be contested. (Oceanic Network
Wireless Inc., GR 148380, December 9, 2005)
Period provided for the protest to be acted upon
Rendition of decision by Commissioner
Denial of protest
Records show that petitioner disputed the PAN but not the Formal Letter of
Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for
not filing a protest against the Formal Letter of Demand with Assessment Notices
since the language used and the tenor of the demand letter indicate that it is the
final decision of the respondent on the matter. We have time and again reminded
the CIR to indicate, in a clear and unequivocal language, whether his action on a
disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Viewed in the light of the foregoing, respondent is now estopped from
claiming that he did not intend the Formal Letter of Demand with Assessment
Notices to be a final decision. (Allied Banking Corporation vs CIR, G.R. No.
175097, February 5, 2010)
Commissioners actions equivalent to denial of protest

The request for reinvestigation and reconsideration was in effect considered
denied by petitioner when the latter filed a civil suit for collection of
deficiency income. Under the circumstances, the Commissioner of Internal
Revenue, not having clearly signified his final action on the disputed
assessment, legally the period to appeal has not commenced to run. Thus, it
was only when private respondent received the summons on the civil suit for
collection of deficiency income on December 28, 1978 that the period to
appeal commenced to run. (CIR vs Union Shipping Corporation, GR L-66160,
May 21, 1990)
The letter of February 18, 1963, in the view of the Court, is tantamount to a
denial of the reconsideration or protest of the respondent corporation on the
assessment made by the petitioner, considering that the said letter is in itself
a reiteration of the demand by the Bureau of Internal Revenue for the
settlement of the assessment already made, and for the immediate payment
of the sum of P758, 687.04 in spite of the vehement protest of the respondent
corporation on April 21, 1961. This certainly is a clear indication of the firm
stand of
petitioner against the reconsideration of the disputed assessment in view of
the continued refusal of the respondent corporation to execute the waiver of
the period of limitation upon the assessment in question. (CIR vs Ayala
Securities Corp., GR L-29485, March 31, 1976)
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Filing of criminal action against taxpayer

Issuing a warrant of distraint and levy
Inaction by Commissioner
Remedies of taxpayer to action by Commissioner
In case of denial of protest
In case of inaction by Commissioner within 180 days from
submission of documents
In case the Commissioner failed to act on the disputed assessment within the
180-day period from date of submission of documents, a taxpayer can either:
(1) file a petition for review with the Court of Tax Appeals within 30 days after
the expiration of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to
the Court of Tax Appeals within 30 days after receipt of a copy of such
decision. (RCBC vs CIR, G.R. No. 168498, April 24, 2007)
Efect of failure to appeal
Collection
Requisites
Prescriptive periods
The BIR has three years, counted from the date of actual filing of the return
or from the last date prescribed by law for the filing of such return, whichever
comes later, to assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment. In case of a
false or fraudulent return with intent to evade tax or the failure to file any
return at all, the prescriptive period for assessment of the tax due shall be 10
years from discovery by the BIR of the falsity, fraud, or omission. When the
BIR validly issues an assessment, within either the three-year or ten-year
period, whichever is appropriate, then the BIR has another three years [now 5
years under Sec. 222, 1997 NIRC] after the assessment within which to
collect the national internal revenue tax due thereon by distraint, levy, and/or
court proceeding. (BPI vs CIR, GR 139736, October 17, 2005)
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential
that the Warrant of Distraint and/or Levy be fully executed so that it can
suspend the running of the statute of limitations on the collection of the tax.
It is enough that the proceedings have validly began or commenced and that
their execution has not been suspended by reason of the voluntary
desistance of the respondent BIR Commissioner. Existing jurisprudence
establishes that distraint and levy proceedings are validly begun or
commenced by the issuance of the Warrant and service thereof on the
taxpayer. It is only logical to require that the Warrant of Distraint and/or Levy
be, at the very least, served upon the taxpayer in order to suspend the
running of the prescriptive period for collection of an assessed tax, because it
may only be upon the service of the Warrant that the taxpayer is informed of
the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed. (BPI vs CIR, GR
139736, October 17, 2005)

72
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer, there
are cases however where a taxpayer may be prevented from setting up the
defense of prescription even if he has not previously waived it in writing as
when by his repeated requests or positive acts the Government has been, for
good reasons, persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant by
the Government. (CIR vs Kudos Metal Corp., GR 178087, May 5, 2010)
The running of the prescription period where the acts of the taxpayer
did not prevent the government from collecting the tax. Partial
payment would not prevent the government from suing the taxpayer.
Because, by such act of payment, the government is not thereby
persuaded to postpone collection to make him feel that the demand
was not unreasonable or that no harassment or injustice is meant.
(CIR vs Philippine Global Communication, GR 167146, October 31,
2006)
The act of requesting a reinvestigation alone does not suspend the
period. The request should first be granted, in order to effect
suspension. The burden of proof that the taxpayers request for
reinvestigation had been actually granted shall be on respondent BIR
Commissioner. The grant may be expressed in communications with
the taxpayer or implied from the actions of the respondent BIR
Commissioner or his authorized BIR representatives in response to the
request for reinvestigation. (BPI vs CIR, GR 139736, October 17, 2005)
(iii) Distraint of personal property including garnishment
The prohibition against examination of or inquiry into a bank deposit
under Republic Act 1405 does not preclude its being garnished to
insure satisfaction of a judgment. Indeed there is no real inquiry in such
a case, and if existence of the deposit is disclosed the disclosure is
purely incidental to the execution process. It is hard to conceive that it
was ever within the intention of Congress to enable debtors to evade
payment of their just debts, even if ordered by the Court, through the
expedient of converting their assets into cash and depositing the same
in a bank. (PCIB vs CA, GR 84526, January 28, 1991)
Summary remedy of distraint of personal property
Purchase by the government at sale upon distraint
Report of sale to the Bureau of Internal Revenue (BIR)
Constructive distraint to protect the interest of the
government
Summary remedy of levy on real property
Advertisement and sale
Redemption of property sold

Final deed of purchaser
Forfeiture to government for want of bidder
Remedy of enforcement of forfeitures
Action to contest forfeiture of chattel
Resale of real estate taken for taxes
73
When property to be sold or destroyed

Disposition of funds recovered in legal proceedings or obtained from
forfeiture
Further distraint or levy
Tax lien
It is settled that the claim of the government predicated on a tax lien is
superior to the claim of a private litigant predicated on a judgment. The tax
lien attaches not only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable. Besides, the
distraint on the subject properties of Maritime Company of the Philippines as
well as the notice of their seizure were made by petitioner, through the
Commissioner of Internal Revenue, long before the writ of execution was
issued by the Regional Trial Court. (Republic vs Enriquez, GR 78391, October
21, 1988)
Compromise
Authority of the Commissioner to compromise and abate taxes
Civil and criminal actions
Suit to recover tax based on false or fraudulent returns
The contention is made, and is here rejected, that an assessment of the
deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the violator
has, as in this case, knowingly and willfully filed fraudulent returns with intent
to evade and defeat a part or all of the tax. While there can be no civil action
to enforce collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution under the
Code. (Ungab vs Cusi Jr., GR L-41919-24, May 30, 1980)
Sec. 269 [now Sec. 222 of the 1997 NIRC] provides that when fraudulent tax
returns are involved, a proceeding in court after the collection of such tax
may be begun without assessment. The gross disparity in the taxes due and
the amounts actually declared constitutes badges of fraud. Applying Ungab v.
Cusi, 97 SCRA 877 [1980], assessment is not necessary in filing criminal
complaints for tax violations. Assessment of a deficiency is not necessary to a
criminal prosecution for tax evasion. The crime is complete when the violator
knowingly and willfully filed fraudulent return with intention to evade the tax.
(Adamson v. Court of Appeals, 588 SCRA 27)
c) Refund
A corporation entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid has two options: (1) to carry over the excess
credit or (2) to apply for the issuance of a tax credit certificate or to claim a
cash refund. If the option to carry over the excess credit is exercised, the
same shall be irrevocable for that taxable period. This is known as the
irrevocability rule and is embodied in the last sentence of Section 76 of the
Tax Code. (Systra Philippines vs CIR, GR 176290, September 21, 2007)
74
No refund for documentary stamp taxes : documentary stamp taxes are

levied on the exercise by persons of certain privileges conferred by law for
the creation, revision, or termination of specific legal relationships through
the execution of specific instruments. Documentary stamp taxes are thus
levied on the exercise of these privileges through the execution of specific
instruments, independently of the legal status of the transactions giving rise
thereto. The documentary stamp taxes must be paid upon the issuance of the
said instruments, without regard to whether the contracts which gave rise to
them are rescissible, void, voidable, or unenforceable. (Philippine Home
Assurance Corp. vs CA, GR 119446, January 21, 1999)
Sec. 79 of the 1997 NIRC laid down the irrevocability rule. The taxpayer with
excess income tax credits is given the option to either (1) to credit the same
to its tax liability for the succeeding taxable periods; or (2) refund the amount
or issue tax credit certificate. Once the carry-over option is taken, actually or
constructively, it becomes irrevocable. It can never be refunded. The
controlling factor for the operation of the irrevocability rule is that the
taxpayer chose an option; and once it had already done so, it could no longer
make another one. No application for refund or tax credit certificate shall be
allowed. The option of the BPI to carry-over the 1998 excess credits is
irrevocable. BPI cannot anymore apply for the refund in the event it is unable
to credit the said excess. The crediting of the excess credits in the succeeding
taxable periods has no prescription unlike the claim for refund which
prescribes after two years from the filing of the ITR. In the event the taxpayer
fails to make an appropriate marking of its option in the ITR, does not mean
that the taxpayer is barred from choosing his option later on. The reason for
requiring that a choice be made upon the filing of the ITR is to ease tax
administration. Failure to make a choice means that the taxpayer is still
uncertain and would show simple negligence or plain oversight. The taxpayer
may still make his choice later but once the choice is made, irrevocability of
the said choice sets in. (CIR vs. BPI, 592 SCRA 219)
Grounds and requisites for refund
Requirements for refund as laid down by cases
In cases before tax courts, Rules of Court applies only by analogy or in a
suppletory character and whenever practicable and convenient shall be
liberally construed in order to promote its objective of securing a just, speedy
and inexpensive disposition of every action and proceeding. Since it is not
disputed that petitioner is entitled to tax exemption, it should not be
precluded from presenting evidence to substantiate the amount of refund it is
claiming on mere technicality especially in this case, where the failure to
present invoices at the first instance was adequately explained by petitioner.
(Philippine Phosphate Fertilizer Corp. vs CIR, GR 141973, June 28, 2005)
(a) Necessity of written claim for refund
A claimant must first file a written claim for refund, categorically demanding
recovery of overpaid taxes with the CIR, before resorting to an action in court.
This obviously is intended, first, to afford the CIR an opportunity to correct the
action of subordinate officers; and second, to notify the government that such
taxes have been questioned, and the

75
notice should then be borne in mind in estimating the revenue

available for expenditure. (CIR vs Acosta, GR 154068, August 3,
2007)
Claim containing a categorical demand for
reimbursement
Filing of administrative claim for refund and the
suit/proceeding before the CTA within 2 years from date
of payment regardless of any supervening cause
This two-year prescriptive period is intended to apply to suits or
proceedings for the recovery of taxes, penalties or sums
erroneously, excessively, illegally or wrongfully collected.
Accordingly, an availment of a tax credit granted by law may
have a different prescriptive period. Absent any specific
provision in the Tax Code or special laws, that period would be
ten years under Article 1144 of the Civil Code. (Concurring
opinion of Justice Vitug in CIR vs The Philippine American Life
Insurance Co., G.R. No. 105208, May 29, 1995)
Section 230 [now Sec. 229, 1997 NIRC] of the Tax Code, as
couched, particularly its statute of limitations component, is, in
context, intended to apply to suits for the recovery of internal
revenue taxes or sums erroneously, excessively, illegally or
wrongfully collected. Black defines the term erroneous or illegal
tax as one levied without statutory authority. In the strict legal
viewpoint, therefore, PNBs claim for tax credit did not proceed
from, or is a consequence of overpayment of tax erroneously or
illegally collected. It is beyond cavil that respondent PNB issued
to the BIR the check for P180 Million in the concept of tax
payment in advance, thus eschewing the notion that there was
error or illegality in the payment. (CIR vs PNB, GR 161997,
October 25, 2005)
Whenever applicable, the two-year prescriptive period starts
from the full and final payment of the tax sought to be
recovered. (Concurring opinion of Justice Vitug in CIR vs The
Philippine American Life Insurance Co., G.R. No. 105208, May
29, 1995)
For corporations, the two-year prescriptive period within which
to claim a refund commences to run, at the earliest, on the date
of the filing of the adjusted final tax return. The rationale in
computing the two-year prescriptive period with respect to the
petitioner corporation's claim for refund from the time it filed its
final adjustment return is the fact that it was only then that
ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations. (ACCRA Investments vs CA,
G.R. No. 96322, December 20, 1991)
Even if the two (2)-year prescriptive period, if applicable, had
already lapsed, the same is not jurisdictional and may be
suspended for reasons of equity and other special

circumstances. Records show that the BIRs very own conduct
led PNB to believe all along that its original intention to apply
the advance payment to its future income tax obligations will be
respected by the BIR. (CIR vs PNB, GR 161997, October 25,
2005)
76
The claim for refund with the Commissioner of Internal Revenue and
the subsequent action before the Court of Tax Appeals regarding the
refund should all be done within the said period of two years. (CIR vs
NPC, G.R. No. L-18874 January 30, 1970)
Legal basis of tax refunds
Statutory basis for tax refund under the tax code
Scope of claims for refund
Necessity of proof for claim or refund
Burden of proof for claim of refund
Tax refunds, like tax exemptions, are construed strictly against the
taxpayer. The claimants have the burden of proof to establish the
factual basis of their claim for refund or tax credit. (Hitachi Global vs
CIR, G.R. No. 174212, October 20, 2010)
The Commissioners contention that a tax refund partakes the nature
of a tax exemption does not apply to the tax refund to which Fortune
Tobacco is entitled. There is parity between tax refund and tax
exemption only when the former is based either on a tax exemption
statute or a tax refund statute. Obviously, that is not the situation here.
Quite the contrary, Fortune Tobaccos claim for refund is premised on its
erroneous payment of the tax, or better still the governments exaction
in the absence of a law. (CIR vs Fortune Tobacco Corp., GR 167274-75,
July 21, 2008)
Nature of erroneously-paid tax/illegally assessed collected
Tax refund vis--vis tax credit
Formally, a tax refund requires a physical return of the sum erroneously
paid by the taxpayer, while a tax credit involves the application of the
reimbursable amount against any sum that may be due and collectible
from the taxpayer. On the practical side, the taxpayer to whom the tax
is refunded would have the option, among others, to invest for profit
the returned sum, an option not proximately available if the taxpayer
chooses instead to receive a tax credit. (CIR vs Philippine Phosphate
Fertilizer Corporation, G.R. No. 144440, September 1, 2004)
Essential requisites for claim of refund
Who may claim/apply for tax refund/tax credit
Taxpayer/withholding agents of non-resident foreign
corporation
The proper party to question, or seek a refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even if he shifts the burden thereof to another.
Even if Petron Corporation passed on to Silkair the burden of the tax,
the additional amount billed to Silkair for jet fuel is not a tax but part of
the price which Silkair had to pay as a purchaser. (Silkair vs CIR, G.R.
Nos. 171383 & 172379, November 14, 2008)

A withholding agent is a proper party to claim tax refund. He is liable
to pay the tax and subject to tax. The withholding agent is
constituted
77
the agent of both the Government and the taxpayer. With respect to the collection
and/or withholding of the tax, he is the Government's agent. In regard to the filing
of the necessary income tax return and the payment of the tax to the Government,
he is the agent of the taxpayer. (CIR vs Procter & Gamble, GR L-66838, December 2,
1991)
Prescriptive period for recovery of tax erroneously or illegally collected
Other consideration afecting tax refunds
Government remedies
Administrative remedies
Tax lien
Levy and sale of real property
Forfeiture of real property to the government for want of bidder
Further distraint and levy
Suspension of business operation
Non-availability of injunction to restrain collection of tax
The National Internal Revenue Code of 1997 (NIRC) expressly provides that no court
shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the code. The situation,
however, is different in the case of the collection of local taxes as there is no
express provision in the LGC prohibiting courts from issuing an injunction to restrain
local governments from collecting taxes. Such statutory lapse or intent, however it
may be viewed, may have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural rules and requirements under Rule 58.
(Angeles City vs. Angeles City Electric Corp., GR 166134, June 29, 2010)
Judicial remedies
Statutory ofenses and penalties
Civil penalties
It is mandatory to collect penalty and interest at the stated rate in case of
delinquency. The intention of the law is to discourage delay in the payment of taxes
due the Government and, in this sense, the penalty and interest are not penal but
compensatory for the concomitant use of the funds by the taxpayer beyond the
date when he is supposed to have paid them to the Government. If penalties could
be condoned for flimsy reasons, the law imposing penalties for delinquencies would
be rendered nugatory, and the maintenance of the Government and its multifarious
activities will be adversely affected. (Philippine Refining Company vs. CA, GR
118794, May 8, 1996)
The taxpayer should be liable only for tax proper and should not be held liable for
the surcharge and interest when it appears that the assessment is highly
controversial. The Commissioner at the outset was not certain as to petitioner's
income tax liability. (Cagayan Electric Power Light vs CIR, G.R. No. L-60126,
September 25, 1985)
Surcharge
Interest
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In general
Deficiency interest
Delinquency interest
Interest on extended payment
Compromise and abatement of taxes
Compromise
Compromise may be the favored method to settle disputes, but when it involves
taxes, it may be subject to closer scrutiny by the courts. A compromise agreement
involving taxes would affect not just the taxpayer and the BIR, but also the whole
nation, the ultimate beneficiary of the tax revenues collected. (PNOC vs CA, G.R.
No. 109976, April 26, 2005)
The discretionary authority to compromise granted to the BIR Commissioner is
never meant to be absolute, uncontrolled and unrestrained. No such unlimited
power may be validly granted to any officer of the government, except perhaps in
cases of national emergency. The BIR Commissioner would have to exercise his
discretion within the parameters set by the law, and in case he abuses his
discretion, the CTA may correct such abuse if the matter is appealed to them.
(PNOC vs CA, G.R. No. 109976, April 26, 2005)
RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the
required tax because of neglect, ignorance of the law, or his belief that he was not
required by law to withhold tax, to apply for a compromise settlement of his
withholding tax liability under E.O. No. 44. A withholding agent, in such a situation,
may compromise the withholding tax assessment against him precisely because he
is being held directly accountable for the tax. RMO No. 39-86 distinguishes between
the withholding agent in the foregoing situation from the withholding agent who
withheld the tax but failed to remit the amount to the Government. A withholding
agent in the latter situation is the one disqualified from applying for a compromise
settlement because he is being made accountable as an agent, who held funds in
trust for the Government. (PNOC vs CA, G.R. No. 109976, April 26, 2005)
b) Abatement
The BIR may therefore abate or cancel the whole or any unpaid portion of a tax
liability, inclusive of increments, if its assessment is excessive or erroneous; or if the
administration costs involved do not justify the collection of the amount due. No
mutual concessions need be made, because an excessive or erroneous tax is not
compromised; it is abated or canceled. Only correct taxes should be paid. (People
vs Sandiganbayan, GR 152532, August 16, 2005)
F. Organization and Function of the Bureau of Internal Revenue 1. Rulemaking authority of the Secretary of Finance
The authority of the Minister of Finance (now the Secretary of Finance), in

conjunction with the Commissioner of Internal Revenue, to promulgate all needful
rules and regulations for the effective enforcement of internal revenue laws cannot
be controverted. Neither can it be disputed that such rules and regulations, as well
as administrative opinions and rulings, ordinarily should deserve weight and respect
by the courts. Much more fundamental than either of the above, however, is that all
such issuances must not override, but must remain consistent and in harmony with,
the law they seek to apply and implement. Administrative rules and regulations are
intended to

79
carry out, neither to supplant nor to modify, the law. (CIR vs CA, G.R. No. 108358,
January 20, 1995)
Authority of Secretary of Finance to promulgate rules and regulations
Specific provisions to be contained in rules and regulations
Non-retroactivity of rulings
Power of the Commissioner to suspend the business operation of a
taxpayer
III. Local Government Code of 1991, as amended

A. Local government taxation
Fundamental principles
The fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while the
local government units are being strengthened and made more autonomous, the
legislature must still see to it that (a) the taxpayer will not be over-burdened or
saddled with multiple and unreasonable impositions; (b) each local government unit
will have its fair share of available resources, (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will be fair, uniform,
and just.(Manila Electric Co. v. Province of Laguna, G.R. No. 131359, May 05, 1999)
2. Nature and source of taxing power
Under the now prevailing Constitution, where there is neither a grant nor prohibition by
statute, the taxing power of local governments must be deemed to exist although
Congress may provide statutory limitations and guidelines in order to safeguard the
viability and self-sufficiency of local government units by directly granting them general
and broad tax powers. (City Government of San Pablo, Laguna, et al., v. Reyes, et al.,
G.R. No. 127708, March 25, 1999)
a) Grant of local taxing power under the local government code

Local governments do not have the inherent power to tax except to the extent that
such power might be delegated to them either by the basic law or by statute.
Presently, under Article X of the 1987 Constitution, a general delegation of that
power has been given in favor of local government units. (Manila Electric Company
vs Province of Laguna, G.R. No. 131359, May 5, 1999)
Authority to prescribe penalties for tax violations
Authority to grant local tax exemptions
Withdrawal of exemptions
Authority to adjust local tax rates
Residual taxing power of local governments
Authority to issue local tax ordinances

An ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry.(Victorias Milling Co., Inc. v.
Municipality of Victorias, G.R. No. L-21183, September 27, 1968)
80
Local taxing authority

Power to create revenues exercised through Local Government Units
Procedure for approval and effectivity of tax ordinances
It is clear under Sec. 188 of R.A. No. 7160 and Art. 277 of its implementing rules
that the requirement of publication is MANDATORY and leaves no choice. The use
of the word "shall" in both provisions is imperative, operating to impose a duty that
may be enforced (Coca-Cola Bottlers Phil., Inc. v. City of Manila, G.R. No. 156252,
June 27, 2006)
It is categorical, therefore, that a public hearing be held prior to the enactment of
an ordinance levying taxes, fees, or charges; and that such public hearing be
conducted as provided under Section 277 of the Implementing Rules and
Regulations of the Local Government Code.(Ongsuco v. Malones, G.R. No. 182065,
October 27, 2009)
4. Scope of taxing power
The taxing power of cities, municipalities and municipal districts may be used (1)
upon any person engaged in any occupation or business, or exercising any privilege
therein; (2) for services rendered by those political subdivisions or rendered in
connection with any business, profession or occupation being conducted therein,
and (3) to levy, for public purposes just and uniform taxes, licenses or fees
(Philippine Match Co., Ltd. v. City of Cebu, G.R. No. L-30745, January 18, 1978)
Specific taxing power of Local Government Units
Taxing powers of provinces
Tax on transfer of real property ownership
Tax on business of printing and publication
Franchise tax
As commonly used, a franchise tax is "a tax on the privilege of transacting business
in the state and exercising corporate franchises granted by the state." To determine
whether the petitioner is covered by franchise tax, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges under this franchise
within the territory of the respondent city government. (National Power Corporation
v. City of Cabanatuan, G.R. No. 149110, April 09, 2003)
Meralco is subject to the local franchise tax. Its exemption has been withdrawn
under Sec. 137 and Sec. 193 of RA 7160. The LGU (San Pablo and Laguna) is correct
on relying the provisions of Secs. 137 & 193 that Meralcos tax exemption has been
withdrawn. Sec. 137 authorizes the province to impose franchise tax
notwithstanding any exemption granted by any law or other special law. The local
franchise tax is imposable despite any exemption enjoyed under special laws. Sec.
193 provides the withdrawal of all tax exemptions or incentives granted to or
presently enjoyed by all persons whether natural or juridical including GOCCs. Thus,
any existing tax exemption or incentive enjoyed by Meralco under existing law was
clearly intended to be withdrawn. Further, the LGC contains a general repealing
clause in its Sec. 534 (f).

81
Accordingly, we held in Mactan Cebu Intl Airport Authority v. Marcos, 261 SCRA 667,
that Sec. 193 of the LGC prescribes the general rule, viz., the tax exemptions or
incentives granted to persons are withdrawn upon effectivity of RA 7160, except to
those entities enumerated. Invoking the non-impairment clause is non-availing
because a franchise granted is subject to amendment, or repeal by Congress when
public interest so requires, which restriction was not only present in 1935
Constitution (Art. XIV, Sec. 8) but in the 1973 (Art. XIV, Sec. 5), as well as in the
1987 Constitution (Art. XII, Sec. 11). With or without reservation clause, franchises
are subject to alterations as an exercise of police power or the power to tax. (City of
San Pablo v. Judge Reyes, 305 SCRA 353; Meralco v. Prov. Of Laguna, 306 SCRA 750)
Tax on sand, gravel and other quarry services
Under the Local Tax Code. there is no question that the authority to impose the
license fees collected from the hauling of sand and gravel excavated properly
belongs to the province concerned and not to the municipality where they are found
which is specifically prohibited under Section 22 of the same Code "from levying
taxes, fees and charges that the province or city is authorized to levy in this Code."
(Municipality of San Fernando, La Union v. Sta. Romana, G.R. No. L-30159, March
31, 1987)
In order for an entity to legally undertake a quarrying business, he must first comply
with all the requirements imposed not only by the national government, but also by
the local government unit where his business is situated. Particularly, Section 138
(2) of RA 7160 requires that such entity must first secure a governor's permit prior
to the start of his quarrying operations||| (Province of Cagayan v. Lara, G.R. No.
188500, July 24, 2013)
The principle that when a company is taxed on its main business, it is no longer
taxable for engaging in an activity that is but a part of, incidental to, and necessary
to such main business, applies to business taxes and not to taxes such as the sand
and gravel tax imposed by the provincial government, based on the reasoning that
the incidental activity could not be treated as a business separate and distinct from
the main business of the taxpayer as the sand and gravel tax is an excise tax
imposed on the privilege of extracting sand and gravel. It is settled that provincial
governments can levy excise taxes on quarry resources independently from national
government. (Lepanto Consolidated Mining Company v. Ambanloc, G.R. No. 180639,
June 29, 2010)
Professional tax
Amusement tax
Resorts, swimming pools, bath houses, hot springs, and tourist spots are not among
those places expressly mentioned by Section 140 of the LGC as being subject to
amusement taxes. (Principle of Ejusdem Generis) (Pelizloy Realty Corp. v.
Province of Benguet, G.R. No. 183137, April 10, 2013)
In determining the meaning of the phrase "other places of amusement," under Sec.
13 of the Local Tax Code, one must refer to the prior enumeration of theaters,
cinematographs, concert halls and circuses with artistic expression as their common
characteristic. Professional basketball games do not fall under the same category as
theaters, cinematographs, concert halls and circuses as the latter basically belong
to artistic forms of entertainment while the
82
former caters to sports and gaming. (Philippine Basketball Assn. v. Court of Appeals,
G.R. No. 119122, August 08, 2000)
It is the intent of the legislature not to impose VAT on persons already covered by
the amusement tax. (CIR v. SM Prime Holdings, Inc., G.R. No. 183505, February 26,
2010)
Tax on delivery truck/van
Taxing powers of cities
Taxing powers of municipalities
Tax on various types of businesses
Business taxes imposed in the exercise of police power for regulatory purposes are
paid for the privilege of carrying on a business in the year the tax was paid. It is
paid at the beginning of the year as a fee to allow the business to operate for the
rest of the year. It is deemed a prerequisite to the conduct of business.||| (Mobil
Philippines Inc. v. City Treasurer of Makati, G.R. No. 154092, July 14, 2005)
When a municipality or city has already imposed a business tax on manufacturers,
etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant
to Section 143 (a) of the LGC, said municipality or city may no longer subject the
same manufacturers, etc. to a business tax under Section 143 (h) of the same Code.
Section 143 (h) may be imposed only on businesses that are subject to excise tax,
VAT, or percentage tax under the NIRC, and that are "not otherwise specified in
preceding paragraphs".
(City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, August 04,
2009)
By its very nature a condominium corporation is not engaged in business, and any profit
that it derives is merely incidental, hence it may not be subject to business taxes.
(Yamane , etc.
BA Lepanto Condominium Corporation, G. R. No. 154993, October 25, 2005)

Ceiling on business tax impossible on municipalities within Metro Manila
Tax on retirement on business
Rules on payment of business tax
Tax should be computed based on gross receipts; the right to receive income, and
not the actual receipt, determines when to include the amount in gross income. The
imposition of local business tax based on petitioners gross revenue will inevitably
result in the constitutionally proscribed double taxation taxing of the same person
twice by the same jurisdiction for the same thing inasmuch as petitioners revenue
or income for a taxable year will definitely include its gross receipts already
reported during the previous year and for which local business tax has already been
paid. (Ericsson Telecoms vs. City of Pasig. G.R. NO. 176667, November 22, 2007)
Fees and charges for regulation & licensing
A municipality is authorized to impose three kinds of licenses: 1) license for
regulation of useful occupations or enterprises; 2) license for restriction or
regulation of non-useful occupations or enterprises; and 3) license for revenue. The

first two easily fall within the broad police power granted under the general welfare
clause; the third class, however, is for revenue
83
purposes. (Victorias Milling Co., Inc. v. Municipality of Victorias, G.R. No. L-21183,
September 27, 1968)
Situs of tax collected
The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the excise,
nor upon the physical location of the property and in connection with the act or
occupation taxed, but depends upon the place in which the act is performed or
occupation engaged in. (Allied Thread Co., Inc. v. City Mayor of Manila, G.R. No. L40296, November 21, 1984)
Under a city ordinance which imposes tax on sales of goods in the city, the city can
validly tax sales to customers outside of the city as long as the orders were booked
and paid for, and the goods were delivered to the carrier, in the city. The goods can
be regarded as sold in the city because delivery to the carrier is delivery to the
buyer.||| (Philippine Match Co., Ltd.
City of Cebu, G.R. No. L-30745, January 18, 1978)
Taxing powers of barangays
Common revenue raising powers
Service fees and charges
Public utility charges
Toll fees or charges
Community tax
Common limitations on the taxing powers of LGUs
The fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while the
local government units are being strengthened and made more autonomous, the
legislature must still see to it that (a) the taxpayer will not be over-burdened or
saddled with multiple and unreasonable impositions; (b) each local government unit
will have its fair share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will be fair, uniform,
and just. (Manila Electric Company vs Province of Laguna, G.R. No. 131359, May 5,
1999)
While the power to tax by local governments may be exercised by local legislative
bodies, no longer merely be virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the Constitution, the basic
doctrine on local taxation remains essentially the same, the power to tax is [still]
primarily vested in the
Congress. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No.
166408, October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169 in turn
referring to Mactan Cebu International Airport Authority, v. Marcos, G.R. No. 120082,
September 11, 1996, 261 SCRA 667, 680)
Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of
fees
as well as all other taxes or charges in any form whatsoever on goods or
merchandise. It is therefore irrelevant if the fees imposed are actually for police
surveillance on the goods,
84
because any other form of imposition on goods passing through the territorial
jurisdiction of the municipality is clearly prohibited by Section 133(e). (Palma
Development Corp. v. Municipality of Malangas, G.R. No. 152492, October 16, 2003)
The language of Section 133 (h) of RA No. 7160 makes plain that the prohibition
with respect to petroleum products extends not only to excise taxes thereon, but all
"taxes, fees and charges." ||| While local government units are authorized to burden
all such other class of goods with "taxes, fees and charges", excepting excise taxes,
a specific prohibition is imposed barring the levying of any other type of taxes with
respect to petroleum products. (Petron Corporation v. Tiangco, G.R. No. 158881,
April 16, 2008)
Collection of business tax

Tax period and manner of payment
Accrual of tax
Time of payment
Penalties on unpaid taxes, fees or charges
Authority of treasurer in collection and inspection of books
Taxpayers remedies
As a general precept, a taxpayer may file a complaint assailing the validity of the
ordinance and praying for a refund of its perceived overpayments without first filing
a protest to the payment of taxes due under the ordinance. (Jardine Davies
Insurance Brokers Inc. v. Aliposa, G.R. No. 118900, February 27, 2003)
Periods of assessment and collection of local taxes, fees or charges
Protest of assessment
Claim for refund of tax credit for erroneously or illegally collected tax, fee or charge
Civil remedies by the LGU for collection of revenues
Local governments lien for delinquent taxes, fees or charges
Civil remedies, in general
Administrative action
Judicial action
Unlike the National Internal Revenue Code, the Local Tax Code does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes. Such
Statutory lapse or intent, however it may be viewed, may have allowed preliminary
injunction where local taxes are involved but cannot negate the procedural rules
and requirements under Rule
(Valley Trading Co., Inc. v. CFI of Isabela, Branch II, G.R. No. L-49529, March 31,
1989)
B. Real property taxation

Fundamental principles
Nature of real property tax
85
Imposition of real property tax

Power to levy real property tax
Exemption from real property tax
As a general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. (Lung Center of the
Phil. v. Quezon City, G.R. No. 144104, June 29, 2004)
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled
to the exemption, the petitioner is burdened to prove, by clear and unequivocal
proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY,
DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a
privilege exclusively." (Lung Center of the Phil. v. Quezon City, G.R. No. 144104, June
29, 2004)
Under Section 234(a), real property owned by the Republic is exempt from real
estate tax except when the government gives the beneficial use of the real property
to a taxable entity. The justification for the exception to the exemption is that the
real property, although owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person. (Manila International
Airport Authority v. Court of Appeals, G.R. No. 155650, July 20, 2006)
In MIAA v. Court of Appeals & Paraaque City, 495 SCRA 591 [2006], the Supreme
Court resolved this issue that MIAA is not a government owned or controlled
corporation but a government instrumentality vested with corporate powers and
performing essential public services. MIAA is not subject to any local tax except
when its properties are used by taxable entity or if the beneficial use of real
property owned by the Republic is given to a taxable entity.
The airport lands and buildings of MIAA are properties devoted to public use and
thus are properties of public dominion. They are owned by the State or the Republic
under Art. 420 of the NCC. Hence, the properties of MIAA are exempted from the
real property tax under Sec. 234(a) LGC. Only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are the ones
subject to the real property tax by Pasay City. (MIAA v. City of Pasay, 583 SCRA 234)
Appraisal and assessment of real property tax

Rule on appraisal of real property at fair market value
Real properties shall be appraised at the current and fair market value prevailing in
the locality where the property is situated and classified for assessment purposes on
the basis of its actual use. (Allied Banking Corporation, etc., v. Quezon City
Government, et al., G. R. No. 154126, October 11, 2005)

86
In fixing the value of real property, assessors have to consider all the circumstances
and elements of value and must exercise prudent discretion in reaching conclusions.
(Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005)
b) Declaration of real property
A tax declaration does not prove ownership; it is merely an indicium of a claim of
ownership. Neither tax receipts nor declaration of ownership for taxation purposes
are evidence of ownership or of the right to possess realty when not supported by
other effective proofs. (De Vera-Cruz v. Miguel, G.R. No. 144103, August 31, 2005)
Although tax declarations or realty
tax payment of property are not
conclusive
evidence of ownership,
nevertheless,
they
are
good indicia of possession
in
the
concept of owner, for no one in his right mind would be paying taxes for a property
that is not in his actual or constructive possession. They constitute at least proof
that the holder has a claim of title over the property. (Heirs of Santiago v. Heirs of
Santiago, G.R. No. 151440, June 17, 2003)
It is `the duty of each person' acquiring real estate in the city to make a new
declaration thereof, with the advertence that failure to do so shall make the
assessment in the name of the previous owner 'valid and binding on all persons
interested, and for all purposes, as though the same had been assessed in the
name of its actual owner.' (Heirs of Tajonera v. Court of Appeals, G.R. No. L-26677,
March 27, 1981)
Listing of real property in assessment rolls
Preparation of schedules of fair market value
Authority of assessor to take evidence
Amendment of schedule of fair market value
Classes of real property
Actual use of property as basis of assessment
Assessment of real property
Assessment levels
General revisions of assessments and property classification
Date of effectivity of assessment or reassessment
Assessment of property subject to back taxes
Notification of new or revised assessment
Appraisal and assessment of machinery

Collection of real property tax
Date of accrual of real property tax and special levies
Collection of tax
Collecting authority
Duty of assessor to furnish local treasurer with assessment rolls
Notice of time for collection of tax
Periods within which to collect real property tax
Special rules on payment
Payment of real property tax in installments
Interests on unpaid real property tax
Condonation of real property tax
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Remedies of LGUs for collection of real property tax

Issuance of notice of delinquency for real property tax payment
With regard to determining to whom the notice of sale should have been sent,
settled is the rule that, for purposes of real property taxation, the registered owner
of the property is deemed the taxpayer. Thus, in identifying the real delinquent
taxpayer, a local treasurer cannot rely solely on the tax declaration but must verify
with the Register of Deeds who the registered owner of the particular property is.
(Spouses Hu v. Spouses Unico, G.R. No. 146534, September 18, 2009)
It has been ruled that the notices and publication, as well as the legal requirements
for a tax delinquency sale, are mandatory; and the failure to comply therewith can
invalidate the sale. The prescribed notices must be sent to comply with the
requirements of due process. (De Knecht v. Court of Appeals, G.R. No. 108015,
109234, May 20, 1998)
The delinquent taxpayer referred to under Sec. 72 of PD No. 464 is the actual owner
of the property at the time of the delinquency and mere compliance by the
provincial or city treasurer with Sec. 65 of the decree is no longer enough. The
notification to the right person, i.e., the real owner, is an essential and indispensable
requirement of the law, non-compliance with which renders the auction sale void.
(Estate of Jacob v. Court of Appeals, G.R. No. 120435, 120974, December 22, 1997)
Local governments lien
Remedies in general
Resale of real estate taken for taxes, fees or charges
Further levy until full payment of amount due
Refund or credit of real property tax
Payment under protest
Repayment of excessive collections
Taxpayers remedies
Contesting an assessment of value of real property
Appeal to the Local Board of Assessment Appeals
Appeal to the Central Board of Assessment Appeals
Effect of payment of tax
Payment of real property tax under protest
File protest with local treasurer
The protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a
question as to the reasonableness of the amount assessed. Hence, if a taxpayer
disputes the reasonableness of an increase in a real estate tax assessment, he is
required to "first pay the tax" under protest; otherwise, the city or municipal
treasurer will not act on his protest. (Ty v. Trampe, G.R. No. 117577, December 01,
1995)
The trial court has no jurisdiction to entertain a Petition for Prohibition absent
petitioner's payment, under protest, of the tax assessed as required by Sec. 64 of
the
88
RPTC. Payment of the tax assessed under protest, is a condition sine qua non before
the trial court could assume jurisdiction over the petition and failure to do so, the
RTC has no jurisdiction to entertain it. (Manila Electric Co. v. Barlis, G.R. No. 114231,
May 18, 2001)
Under then Sec. 30 of PD 464 [now under Sec. 226, LGC], having failed to appeal
the real property assessments to the LBAA, taxpayer now cannot assail the validity
of the tax assessment before the courts. For failure to exhaust administrative
remedies, the assessment became final. Under Sec. 64 of PD 464 [now under Sec.
252, LGC), the taxpayer must first pay under protest and then assail the validity of
the assessment. (Davao Oriental Electric Coop vs. Prov. Dvo. of Oriental, 576 SCRA
645)
Appeal to the Local Board of Assessment Appeals

Under Section 226 of R.A. No 7160, the last action of the local assessor on a
particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure
likewise does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. (Fels Energy, Inc. v. Province of Batangas,
G.R. No. 168557, 170628, February 16, 2007)
Appeal to the Central Board of Assessment Appeals
Appeal to the CTA
Appeal to the Supreme Court
IV. Tarif and Customs Code of 1978, as amended

A. Tariff and duties, defined
"Customs duties" is "the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or
exported to, a foreign country. (Nestle Philippines, Inc. v. Court of Appeals, G.R. No.
134114, July 06, 2001)
General rule: all imported articles are subject to duty.
Importation by the government taxable
Purpose for imposition
Flexible tariff clause
Requirements of importation
Beginning and ending of importation
Section 1202 of the Tariff and Customs Code provides that importation begins when
the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention
to unload therein. It is clear from the provision of the law that mere intent to unload
is sufficient to commence an importation and "intent," being a state of mind, is
rarely susceptible of direct proof, but must ordinarily be inferred from the facts, and
therefore can only be proved by unguarded, expressions, conduct and
circumstances generally. (Feeder International Line, Pte., Ltd. v. Court of Appeals,
G.R. No. 94262, May 31, 1991)

89
Importation is terminated only upon the payment of duties, taxes and other charges
upon the articles, or secured to be paid, at the port of entry and the legal permit for
withdrawal shall have been granted. Payment of the duties, taxes, fees and other
charges must be in full.
(Papa v. Mago, G.R. No. L-27360, February 28, 1968)
Under Section 1202 of the TCCP, importation takes place when merchandise is
brought into the customs territory of the Philippines with the intention of unloading
the same at port. An exception to this rule is transit cargo entered for immediate
exportation which may be allowed under Section 2103 of the TCCP when the
following concur:
there is a clear intent to export the article as shown in the bill of lading, invoice,
cargo manifest or other satisfactory evidence;
the Collector must designate the vessel or aircraft wherein the articles are laden as
a constructive warehouse to facilitate the direct transfer of the articles to the
exporting vessel or aircraft;
the imported articles are directly transferred from the vessel or aircraft designated
as a constructive warehouse to the exporting vessel or aircraft and
an irrevocable domestic letter of credit, bank guaranty or bond in an amount equal
to the ascertained duties, taxes and other charges is submitted to the Collector
(unless it appears in the bill of lading, invoice, manifest or satisfactory evidence that
the articles are destined for transshipment). (Commissioner of Customs v. Court of
Tax Appeals, G.R. Nos. 171516-17, February 13, 2009)
Obligations of importer
Cargo manifest
Import entry
The term "entry" in Customs law has a triple meaning. It means (1) the documents
filed at the Customs house; (2) the submission and acceptance of the documents;
and (3) the procedure of passing goods through the Customs house. (Jardeleza v.
People, G.R. No. 165265, February 06, 2006)
Declaration of correct weight or value
Liability for payment of duties
Liquidation of duties
Keeping of records
Importation in violation of tax credit certificate 1. Smuggling
Smuggling is committed by any person who: (1) fraudulently imports or brings into
the Philippines any article contrary to law; (2) assists in so doing any article contrary
to law; or (3) receives, conceals, buys, sells or in any manner facilitate the
transportation, concealment or sale of such goods after importation, knowing the
same to have been imported contrary to law. (Jardeleza v. People, G.R. No. 165265,
February 06, 2006)

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The Tariff and Customs law subjects to forfeiture any article which is removed
contrary to law from any public or private warehouse under customs supervision, or
released irregularly from Customs custody. Before forfeiture proceedings are
instituted the law requires the presence of probable cause; once established, the
burden of proof is shifted to the claimant. (Carrara Marble Phil., Inc. v. Commissioner
of Customs, G.R. No. 129680, September 01, 1999)
In order to warrant forfeiture, it is not necessary that the vessel or aircraft must
itself carry the contraband. There is nothing in the law that so requires. (Llamado v.
Commissioner of Customs, G.R. No. L-28809, May 16, 1983)
Other fraudulent practices G. Classification of goods
Taxable importation
Prohibited importation
Prohibited importations are subject to forfeiture whether the importation is direct or
indirect such as when the shipper and the consignee are one and the same person.
(Paterok v. Bureau of Customs, G.R. Nos. 90660-61, January 21, 1991)
Although the illegally imported articles may not be absolutely prohibited, but only
qualifiedly prohibited under Sec. 102 (K) of the Tariff and Customs Code, for it may
be imported subject to certain conditions, it is nonetheless prohibited and is a
contraband (Comm. of Customs vs. CTA & Dichoco, L-33471, Jan. 31, 1972), and the
legal effects of the importation of qualifiedly prohibited articles are the same as
those of absolutely prohibited articles. (Auyong Hian v. CTA, G.R. No. L-28782,
September 12, 1974)
Conditionally-free importation
H. Classification of duties
Ordinary/regular duties
Ad valorem; methods of valuation
Transaction value
Transaction value of identical goods
Transaction value of similar goods
Deductive value
Computed value
Fallback value
Specific
Special duties
Dumping duties
Countervailing duties
Marking duties
Retaliatory/discriminatory duties
91
Safeguard I. Remedies
Government
Administrative/extrajudicial
Search, seizure, forfeiture, arrest
It is quite clear that seizure and forfeiture proceedings under the tariff and customs
laws are not criminal in nature as they do not result in the conviction of the offender
nor in the imposition of the penalty provided for in section 3601 of the Code. As can
be gleaned from Section 2533 of the code, seizure proceedings, such as those
instituted in this case, are purely civil and administrative in character, the main
purpose of which is to enforce the administrative fines or forfeiture incident to
unlawful importation of goods or their deliberate possession. (People v. Court of
First Instance of Rizal, G.R. No. L-41686, November 17, 1980)
In administrative proceedings, such as those before the BOC, technical rules of
procedure and evidence are not strictly applied and administrative due process
cannot be fully equated with due process in its strict judicial sense. The essence of
due process is simply an opportunity to be heard or, as applied to administrative
proceedings, an opportunity to explain one's side or an opportunity to seek
reconsideration of the action or ruling complained of. (El Greco Ship Manning and
Management Corporation v. Commissioner of Customs, G.R. No. 177188, December
04, 2008)
It is settled that the Bureau of Customs acquires exclusive jurisdiction over imported
goods for purposes of enforcing the Customs laws, from the moment the goods are
actually in possession and control of said Bureau even in the absence of any
warrant of seizure or detention. (Papa v. Mago, G.R. No. L-27360, February 28,
1968)
Regional trial courts are devoid of any competence to pass upon the validity or
regularity of seizure and forfeiture proceedings conducted by the BOC and to enjoin
or otherwise interfere with these proceedings. Regional trial courts are precluded
from assuming cognizance over such matters even through petitions for certiorari,
prohibition or mandamus. (Subic Bay Metropolitan Authority v. Rodriguez, G.R. No.
160270, April 23, 2010)
Even if the seizure by the Collector of Customs were illegal, which has yet to be
proven, we have said that such act does not deprive the Bureau of Customs of
jurisdiction thereon. The allegations of petitioners regarding the propriety of the
seizure should properly be ventilated before the Collector of Customs. (Jao v. Court
of Appeals, G.R. No. 104604, 111223, October 06, 1995)
A forfeiture proceeding is in the nature of a proceeding in rem, i.e., directed against
the res or imported articles and entails a determination of the legality of their
importation. In this proceeding, it is in legal contemplation the property itself which
commits the violation and is treated as the offender, without reference whatsoever
to the character or conduct of the owner. (Transglobe International, Inc. v. Court of
Appeals, G.R. No. 126634, January 25, 1999)
Settlement of the case by payment of the fine or redemption of the forfeited
property, prior to the filing of the criminal action, does not extinguish the offender's
criminal liability

92
under Section 3601 of the Tariff and Customs Code. (People v. Desiderio, G.R. No. L20805, November 29, 1965)
The requisites for the forfeiture of goods under Section 2530(f), in relation to (1) (35), of the Tariff and Customs Code are: (a) the wrongful making by the owner,
importer, exporter or consignee of any declaration or affidavit, or the wrongful
making or delivery by the same person of any invoice, letter or paper all touching
on the importation or exportation of merchandise; (b) the falsity of such declaration,
affidavit, invoice, letter or paper; and (c) an intention on the part of the
importer/consignee to evade the payment of the duties due. (Republic v. CTA, G.R.
No. 139050, October 02, 2001)
Once probable cause has been shown for the institution of forfeiture proceedings,
the burden of proof is upon claimant to establish that he fell within the purview of
the exception. The legal presumption in Section 5(j), Rule 131 of the Rules of Court
and Article 541 of the Civil Code are of a general character and cannot prevail over
the specific provisions of the Tariff and Customs Code. (Acting Commr. of Customs v.
CTA, G.R. No. 62636, April 27, 1984)
Judicial
Rules on appeal including jurisdiction
Taxpayer
Protest
Abandonment
Both the Import Entry Declaration (IED) and Import Entry and Internal Revenue
Declaration (IEIRD) should be filed within 30 days from the date of discharge of the
last package from the vessel or aircraft. (Chevron Philippines, Inc. v. Commr., G.R.
No. 178759, August 11, 2008)
Abatement and refund
V. Judicial Remedies (R.A. No. 1125, as amended, and the Revised Rules of
the Court of Tax Appeals)
A. Jurisdiction of the Court of Tax Appeals
Exclusive appellate jurisdiction over civil tax cases
Cases within the jurisdiction of the court en banc
The appellate jurisdiction of the CTA is not limited to cases which involve decisions
of the CIR on matters relating to assessments or refunds. Section 7 of Republic Act
No. 1125||| covers other cases that arise out of the National Internal Revenue Code
(NIRC) or related laws administered by the Bureau of Internal Revenue (BIR).
(Commr. v. Hambretch & Quist Philippines, Inc., G.R. No. 169225, November 17,
2010)

93
In line with the lifeblood doctrine, the National Internal Revenue Code of 1997
(NIRC) expressly provides that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by the code. An exception to this rule obtains only when in the
opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the
interest of the government and/or the taxpayer. (Angeles City v. Angeles Electric
Corporation, G.R. No. 166134, June 29, 2010)
b) Cases within the jurisdiction of the court in divisions
Without the automatic review by the Commissioner of Customs and the Secretary of
Finance, a collector in any of our country's far-flung ports, would have absolute and
unbridled discretion to determine whether goods seized by him are locally
produced, hence, not dutiable, or of foreign origin, and therefore subject to payment
of customs duties and taxes. His decision, unless appealed by the aggrieved party
(the owner of the goods), would become final with no one the wiser except himself
and the owner of the goods. (Yaokasin v. Commissioner of Customs, G.R. No. 84111,
December 22, 1989)
Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in providing
for appeals from '(1) Decisions of the Collector of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of the law administered by the
Bureau of Internal Revenue allows an appeal from a decision of the Collector in
cases involving 'disputed assessments' as distinguished from cases involving
'refunds of internal revenue taxes, fees or other charges, . . .'; To hold that the
taxpayer has now lost the right to appeal from the ruling on the disputed
assessment but must prosecute his appeal under Section 306 of the Tax Code,
which requires a taxpayer to file a claim for refund of the taxes paid as a condition
precedent to his right to appeal, would in effect require of him to go through a
useless and needless ceremony that would only delay the disposition of the case,
for the Collector (now Commissioner) would certainly disallow the claim for refund in
the same way as he disallowed the protest against the assessment. (Vda. de San
Agustin v. Commr., G.R. No. 138485, September 10, 2001)
While the law confers on the CTA jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of a law or rule is challenged.
Where what is assailed is the validity or constitutionality of a law, or a rule or
regulation issued by the administrative agency in the performance of its quasilegislative function, the regular courts have jurisdiction to pass upon the same.
(British American Tobacco v. Camacho, G.R. No. 163583, August 20, 2008)
The reviewable decision of the Bureau of Internal Revenue is that contained in the
letter of its Commissioner, that such constitutes the final decision on the matter
which may be appealed to the Court of Tax Appeals and not the warrants of
distraint. It was likewise stressed that the procedure enunciated is demanded by the
pressing need for fair play, regularity and orderliness in administrative action.
(Commr. v. Union Shipping Corp., G.R. No. 66160, May 21, 1990)
A final demand letter from the Bureau of Internal Revenue, reiterating to the
taxpayer the immediate payment of a tax deficiency assessment previously made,
is tantamount to a
94
denial of the taxpayer's request for reconsideration. Such letter amounts to a final
decision on a disputed assessment and is thus appealable to the Court of Tax
Appeals (CTA). (Commr. v. Isabela Cultural Corp., G.R. No. 135210, July 11, 2001)
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax Appeals within (30) days
from receipt of the said decision, or from the lapse of the one hundred eighty (180)day period; otherwise the decision shall become final, executory and demandable.|||
(Rizal Commercial Banking Corp. v. Commr., G.R. No. 168498, June 16, 2006)
The period to appeal from a decision of the Commissioner of Internal Revenue to the
Court of Tax Appeals under Republic Act No. 1125 is jurisdictional and nonextendible and a taxpayer may not delay indefinitely a tax assessment by
reiterating his original defenses over and over again, without substantial variation.
(Filipinas Investment & Finance Corp. v. Commr., G.R. No. L-23501, May 16, 1967)
To allow a litigant to assume a different posture when he comes before the court
and challenge the position he had accepted at the administrative level, would be to
sanction a procedure whereby the Court which is supposed to review
administrative determinations would not review, but determine and decide for
the first time, a question not raised at the administrative forum. Thus, it is well
settled that under the same underlying principle of prior exhaustion of
administrative remedies, on the judicial level, issues not raised in the lower court
cannot be raised for the first time on appeal. (Commr. v. Wander Phils., Inc., G.R.
No. 68375, April 15, 1988)
By withdrawing the appeal, petitioner is deemed to have accepted the decision of
the CTA. Petitioner cannot be allowed to circumvent the denial of its request for a
tax credit by abandoning its appeal and filing a new claim. (Central Luzon Drug
Corp. v. Commr., G.R. No. 181371, March 02, 2011)
Sec. 7 of RA 1125 provides that the CTA has exclusive appellate jurisdiction to
review by appeal decisions of the CIR in cases involving disputed assessments.
Likewise Sec. 4 of the 1997 NIRC [RA 8424] provides that the CIR has the power to
decide disputed assessments subject to the exclusive appellate jurisdiction of the
CTA. The latest law on the jurisdiction of the CTA under Sec. 7 of RA 9282 provides
that the CTA exercises exclusive appellate jurisdiction to review by appeal decisions
of the CIR in cases involving disputed assessments. Thus the
CTAs jurisdiction is to entertain an appeal only from a final decision or assessment
of the CIR or in cases where the CIR has not acted within the period prescribed by
the NIRC. So when the CIR has not issued an assessment, then there is nothing to
protest or dispute. (Adamson vs. Court of Appeals, 588 SCRA 27)
The period to appeal the decision or ruling of the RTC in local tax cases to CTA via
petition for review is governed by Sec. 11 of RA 9282 and Sec. 3(a), Rule 8 of the
Revised Rules of CTA, which is 30 days from receipt of decision or ruling. To appeal
an adverse ruling of the RTC to the CTA the taxpayer must file a petition for review
with the CTA within 30 days from receipt of the adverse decision or ruling. An
extension may be granted for 15 days. With the several extensions asked the CTA
can dismiss the petition. Failure to comply with

95
requirements would also be a ground to dismiss the petition. (City of Manila vs.
Coca Cola Bottlers Phils., 595 SCRA 299)
Criminal cases
Exclusive original jurisdiction
Exclusive appellate jurisdiction in criminal cases B. Judicial procedures
Judicial action for collection of taxes
Internal revenue taxes
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on
a taxpayer's request for reinvestigation before he can go to court for the purpose of
collecting the tax assessed. On the contrary, Section 305 of the same Code
withholds from all courts, except the Court of Tax Appeals under Section 11 of
Republic Act 1125, the authority to restrain the collection of any national internalrevenue tax, fee or charge, thereby indicating the legislative policy to allow the
Collector of Internal Revenue much latitude in the speedy and prompt collection of
taxes. (Republic v. Lim Tian Teng Sons & Co., Inc., G.R. No. L-21731, March 31,
1966)
For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the
collection of taxes. (Commissioner of Internal Revenue v. B.F. Goodrich Phils, Inc.,
(now Sime Darby International Tire Co., Inc.), et al., G.R. No. 104171, February 24,
1999, 303 SCRA 546; Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004), as well as their assessments.
The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because
tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse
to inspect the books of taxpayers, not to determine the latters real liability, but to
take advantage of every opportunity to molest peaceful, law-abiding citizens.
Without such a legal defense taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment
by unscrupulous tax agents. (Bank of Philippine Islands (Formerly Far East Bank and
Trust Company) v. Commissioner of Internal Revenue, G. R. No. 174942, March 7,
2008)
Unreasonable investigation contemplates cases where the period for assessment
extends indefinitely because this deprives the taxpayer of the assurance that it will no
longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004)
For the purpose of safeguarding taxpayers from any unreasonable examination,

investigation or assessment, our tax law provides a statute of limitations in the
collection of taxes. Thus, the law on prescription, being a remedial measure, should
be liberally construed in order to afford such protection and the exceptions to the
law on prescription should perforce be strictly construed. (Philippine Journalists Inc.
v. Commr., G.R. No. 162852, December 16, 2004)

96
The signatures of both the Commissioner and the taxpayer, are required for a
waiver of the prescriptive period, thus a unilateral waiver on the part of the
taxpayer does not suspend the prescriptive period. (Commissioner of Internal
Revenue v. Court of Appeals, et al.,G.R. No. 115712, February 25, 1999)
The act of requesting a reinvestigation alone does not suspend the running of the
prescriptive period. The request for reinvestigation must be granted by the CIR.
(Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v.
Commissioner of Internal Revenue, G. R. No. 174942, March 7, 2008)
Local taxes
Prescriptive period
Civil cases
Who may appeal, mode of appeal, effect of appeal
Suspension of collection of tax
Injunction not available to restrain collection
Taking of evidence
Motion for reconsideration or new trial
It is true that petitioner could not move for new trial on the basis of newly
discovered evidence because in order to have a new trial on the basis of newly
discovered evidence, it must be proved that: (a) the evidence was discovered after
the trial; (b) such evidence could not have been discovered and produced at the
trial with reasonable diligence; (c) it is material, not merely cumulative,
corroborative or impeaching; and (d) it is of such weight that, if admitted, will
probably change the judgment. This does not mean however, that petitioner is
altogether barred from having a new trial if the reasons put forth by petitioner could
fall under mistake or excusable negligence. (Philippine Phosphate Fertilizer Corp. v.
Commr., G.R. No. 141973, June 28, 2005)
Before the CTA En Banc could take cognizance of the petition for review concerning
a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently
show that it sought prior reconsideration or moved for a new trial with the
concerned CTA division. Procedural rules are not to be trifled with or be excused
simply because their non-compliance may have resulted in prejudicing a party's
substantive rights. (Commisioner of Customs v. Marina Sales, Inc., G.R. No. 183868,
November 22, 2010)
The Commissioner of Internal Revenue, not having clearly signified his final action
on the disputed assessment, legally the period to appeal has not commenced to
run. The request for reinvestigation and reconsideration was in effect considered
denied by CIR when the latter filed a civil suit for collection of deficiency income.
(Commissioner of Internal Revenue vs Union Shipping Corporation and the Court of
Tax Appeals, G.R. No. L-66160, May 21, 1990)
A letter of the BIR Commissioner reiterating to a taxpayer his previous demand to
pay an assessment is considered a denial of the request for reconsideration or
protest and is appealable to the Court of Tax Appeals. (Commr. v. Ayala Securities
Corp., G.R. No. L-29485, March 31, 1976)

97
b) Appeal to the CTA, en banc

The petition for review to be filed with the CTA en banc as the mode for appealing a
decision, resolution, or order of the CTA Division, under Section 18 of Republic Act
No. 1125, as amended, is not a totally new remedy, unique to the CTA, with a
special application or use therein. Accordingly, doctrines, principles, rules, and
precedents laid down in jurisprudence by this Court as regards petitions for review
and appeals in courts of general jurisdiction should likewise bind the CTA, and it
cannot depart therefrom. (Santos v. People, et al, G. R. No. 173176, August 26,
2008)
c) Petition for review on certiorari to the Supreme Court
BOC committed procedural missteps and the decision of the CTA division has
become final. The Supreme Court is without jurisdiction to review decisions
rendered by a division of the CTA but the decision of the CTA en banc. Under Sec. 9
of RA 9282, a party affected by the ruling or decision of a division of the CTA may
file an MR within 15 days. Sec. 11 of RA 9282 provides that if the MR is denied, a
petition for review is filed with the CTA en banc. From an adverse ruling or decision
from the CTA en banc, the appeal by way of petition for review on certiorari under
Rule 45 is filed with the Supreme Court. Thus the Supreme Court has no jurisdiction
to review the decision of a division of the CTA. (Com. of Customs v. Gelmart
Industries, 579 SCRA 272)
Criminal cases
Institution and prosecution of criminal actions
Any subsequent satisfaction of the tax liability, by payment or prescription, will not
operate to extinguish criminal liability, since the duty to pay the tax is imposed by
statute independent of any attempt on the part of the taxpayer to evade payment.
The failure of the government, therefore, to enforce by appropriate civil remedies
the collection of the taxes, does not detract from its right criminally to prosecute
violations of the Code. (People v. Tierra, G.R. Nos. L-17177-80, December 28, 1964)
Institution of civil action in criminal action
Section 222 of the NIRC specifically states that in cases where a false or fraudulent
return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Section 205 of the same Code clearly mandates that the civil and criminal aspects
of the case may be pursued simultaneously. (Commr. v. Pascor Realty &
Development Corp., G.R. No. 128315, June 29, 1999)
Since the civil liability is not deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does not necessarily entail exoneration from his
liability to pay the taxes. The acquittal in a criminal case cannot operate to
discharge defendant from the duty of paying the taxes which the law requires to be
paid, since that duty is imposed by

98
statute prior to and independently of any attempts by the taxpayer to evade

payment. (Republic v. Patanao, G.R. No. L-22356, July 21, 1967)
With regard to the tax proper, the state correctly points out in its brief that the
acquittal in the criminal case could not operate to discharge petitioner from the
duty to pay the tax, since that duty is imposed by statue prior to and independently
of any attempts on the part of the taxpayer to evade payment. The obligation to
pay the tax is not a mere consequence of the felonious acts charged in the
information, nor is it a mere civil liability derived from crime that would be wiped
out by the judicial declaration that the criminal acts charged did not exist. (Castro v.
Collector of Internal Revenue, G.R. No. L-12174, April 26, 1962)
Appeal and period to appeal
Solicitor General as counsel for the people and government officials sued in their
official capacity
Petition for review on certiorari to the Supreme Court
Taxpayers suit impugning the validity of tax measures or acts of taxing authorities
1. Taxpayers suit, defined
It is hornbook principle that a taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is wastage of public funds through the enforcement
of an invalid or unconstitutional law. For a taxpayer's suit to prosper, two requisites
must be met namely, (1) public funds derived from taxation are disbursed by a
political subdivision or instrumentality and in doing so, a law is violated or some
irregularity is committed; and (2) the petitioner is directly affected by the alleged
act. (LBP v. Cacayuran, G.R. No. 191667, April 17, 2013)
What is a taxpayers suit? In the case of a taxpayer, he is allowed to sue where
there is a claim that public funds are illegally disbursed, or that public money is
being deflected to any improper purpose, or that there is a wastage of public funds
through the enforcement of an invalid or unconstitutional law. Before he can invoke
the power of judicial review, however, he must specifically prove that he has
sufficient interest in preventing the illegal expenditure of money raised by taxation
and that he would sustain a direct injury as a result of the enforcement of the
questioned statute or contract. It is not sufficient that he has merely a general
interest common to all members of the public. At all events, courts are vested with
discretion as to whether or not a taxpayer's suit should be entertained. This Court
opts to grant standing to most of the petitioners, given their allegation that any
impending transmittal to the Senate of the Articles of Impeachment and the ensuing
trial of the Chief Justice will necessarily involve the expenditure of public funds.
(Francisco, Jr. vs. Nagmamalasakit na mga Manananggol ng mga Manggagawang
Pilipino, 415 SCRA 44)
2. Distinguished from citizens suit

Taxpayers have been allowed to sue where there is a claim that public funds are
illegally disbursed or that public money is being deflected to any improper purpose,
or that public funds are wasted through the enforcement of an invalid or

unconstitutional law. On the other hand, as citizens, petitioners have must fulfill the
standing requirement given that the issues they
99
have raised may be classified as matters "of transcendental importance, of

overreaching significance to society, or of paramount public interest." (Belgica v.
Ochoa, G.R. No. 208566, 208493, 209251, L-20768, November 19, 2013)
What is a citizens suit? When suing as a citizen, the interest of the petitioner
assailing the constitutionality of a statute must be direct and personal. He must be
able to show, not only that the law or any government act is invalid, but also that he
sustained or is in imminent danger of sustaining some direct injury as a result of its
enforcement, and not merely that he suffers thereby in some indefinite way. It must
appear that the person complaining has been or is about to be denied some right or
privilege to which he is lawfully entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute or act complained of. In fine, when the
proceeding involves the assertion of a public right, the mere fact that he is a citizen
satisfies the requirement of personal interest. (Francisco, Jr. vs. Nagmamalasakit na
mga Manananggol ng mga Manggagawang Pilipino, 415 SCRA 44)
Requisites for challenging the constitutionality of a tax measure or act of taxing

authority
Concept of locus standi as applied in taxation
Legal standing or locus standi has been defined as a personal and substantial
interest in the case such that the party has sustained or will sustain direct injury as
a result of the governmental as that is being challenged. The gist of the question of
standing is whether a party alleges such personal stake in the outcome of the
controversy as to assure the concrete adverseness which sharpens the presentation
of issues upon which the court depends for illumination of difficult constitutional
questions.
To invest him with locus standi, the plaintiff has to adequately show that he is
entitled to judicial protection and has a sufficient interest in the vindication of the
asserted public right. In case of taxpayers suits, the party suing as a taxpayer must
prove that he has sufficient interest in preventing the illegal expenditure of money
raised by taxation. (Public Interest Center vs. Roxas, 513 SCRA 457)
Locus standi, however, is merely a matter of procedure and it has been recognized
that in some cases, suits are not brought by parties who have been personally
injured by the operation of a law or any other government act but by concerned
citizens, taxpayers or voters who actually sue in the public interest. Consequently,
the Court, in a catena of cases, has invariably adopted a liberal stance on locus
standi, including those cases involving taxpayers. The prevailing doctrine in
taxpayers suits is to allow taxpayers to question contracts entered into by the
national government or government-owned or controlled corporations allegedly in
contravention of law. A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that money is being deflected to any improper
purpose, or that there is wastage of public funds through the enforcement of an
invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the
contract to challenge its validity. (Abaya vs. Ebdane, Jr. 515 SCRA 720)

100
Doctrine of transcendental importance

What is transcendental importance? There being no doctrinal definition of
transcendental importance, the following instructive determinants are instructive:
the character of the funds or other assets involved in the case, (2) the presence of a
clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government, and the
the lack of any other party with a more direct and specific interest in raising the
questions being raised. The Court has adopted a liberal attitude on locus standi
where the petitioner is able to craft an issue of transcendental significance to the
people, as when the issues raised are of paramount importance to the public.
(Francisco, Jr. vs. Nagmamalasakit na mga Manananggol ng mga Manggagawang
Pilipino, 415 SCRA 44)
Only a person who stands to be benefited or injured by the judgment in the suit or
entitled to the avails of the suit can file a complaint or petition. Respondents claim
that petitioner is not a proper party-in-interest as he was unable to show that he
has sustained or is in immediate or imminent danger of sustaining some direct and
personal injury as a result of the execution and enforcement of the assailed
contracts or agreements. Moreover, they assert that not all government contracts
can justify a taxpayers suit especially when no public funds were utilized in
contravention of the Constitution or a law. We explicated in Chavez v. PCGG, 299
SCRA 744 (1998), that in cases where issues of transcendental public importance
are presented, there is no necessity to show that petitioner has experienced or is in
actual danger of suffering direct and personal injury as the requisite injury is
assumed. We find our ruling in Chavez v. PEA, 384 SCRA 152 (2002), as conclusive
authority on locus standi in the case at bar since the issues raised in this petition
are averred to be in breach of the fair diffusion of the countrys natural resources
and the constitutional right of a citizen to information which have been declared to
be matters of transcendental public importance. Moreover, the pleadings especially
those of respondents readily reveal that public funds have been indirectly utilized in
the Project by means of Smokey Mountain Project Participation Certificates (SMPPCs)
bought by some government agencies. Hence, petitioner, as a taxpayer, is a proper
party to the instant petition before the court. (Chavez vs. NHA, 530 SCRA 235)
c) Ripeness for judicial determination
PREPARED BY:
UNIVERSITY OF SAN CARLOS
PLAZA, ATHENA
PLAZA, LADY LOVE
JACILDO, JECCA


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1

apportionment of the tax (general or limited application);

Bar Ops Pilipinas 2015

D. Power of taxation compared with other powers

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erroneous notion that it is an arbitrary method of exaction by those in the seat of

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4. Escape from taxation a) Shifting of tax burden

COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-61632, August 16, 1983)

Bar Ops Pilipinas 2015

(BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL POWER

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exclusions (PHILIPPINE LONG DISTANCE TELEPHONE COMPANY vs PROVINCE OF

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may be exercised by local legislative bodies, no longer merely by virtue of a valid

but pursuant to direct authority conferred by Section 5, Article X of the Constitution.

properly deemed as agents of Congress to perform an act that inherently belongs as

disregard the restrictions imposed by the principal. (SOUTHERN CROSS CEMENT

contracts, accordingly, had for their source the undertaking to indemnify

(THE MUNICIPALITY OF JOSE PANGANIBAN, PROVINCE OF CAMARINES NORTE, ETC. v.

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(3) Value-Added Tax (VAT)

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(KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC. v. HON.

members of Congress. (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al. v.

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(vii) Prohibition on use of tax levied for special purpose

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this fee because it also sells some copies.

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(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER

J. Stages of taxation 1. Levy

K. Definition, nature, and characteristics of taxes

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N. Kinds of taxes 1. As to object

Personal, capitation, or poll tax

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b) Local real property tax, municipal tax

Types of Philippine income tax

BOAC is a resident foreign corporation because it maintained a general sales

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When income is taxable

(2) Capital assets

Stock dividends, strictly speaking, represent capital and do not

income tax as they are nothing but an enrichment through increase in

Shares of stock of domestic corporation

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Income derived by the government or its political

rendering her incapable of continuing to work, and gave

doing so. It cannot renege on its commitment to pay the

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Severance of employment is a condition sine qua non for the

A stock listing fee paid annually to a stock exchange for the

privilege of having a corporations stock listed is an ordinary and

exchange, which is considered a capital

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conceded; however, the fee paid to Hoskins

Requisites for deductibility