Taxation II Digests

TAXATION II DIGESTS ATTY.
BANIQUED
ALS2014B
ALS2014B 1 of 162
"#$
RIGHTS AND REMEDIES OF THE GOVERNMENT UNDER
THE NATIONAL INTERNAL REVENUE CODE
01 - CIR v. Aquafresh Seafoods, Inc. (2010) (Residential to Commercial)
Doctrine:
While the CIR is given the authority to determine the fair market value of the subject properties for the purpose of
computing internal revenue taxes, such authority is not without restriction or limitation.
The first sentence of Section 6(E) sets the limitation or condition in the exercise of such power by requiring
respondent to consult with competent appraisers both from private and public sectors.
Facts:
Aquafresh Seafoods sold to Philips Seafood two parcels of land located at Barrio Banica, Roxas City. Aquafresh
paid the corresponding Capital Gains Tax (P186,000) and Documentary Stamp Tax (P46,500). However, the BIR received
a report that the purchase price of the sale was undervalued for tax purposes. They conducted an investigation and
concluded that the subject properties were commercial and had a higher zonal value (P2000). They sent deficiency
assessment notices to Aquafresh for tax deficiencies. The deficiencies were based on the supposed selling price following
the P2000 zonal value. Aquafresh protested but the protest was denied.
Aquafresh filed a petition for review with the CTA seeking the reversal of the decision. They argued that since the
properties were located in Barrio Banica, classified as residential and given a zonal value of P650 per sq/m in the 1995
Revised Zonal Values of Real Property, the prescribed zonal value should prevail. Aquafresh contends that the BIR had
no business in re-classifying the subject properties to commercial. The CTA decided in favor of Aquafresh stating that
while the CIR is given the authority to determine the zonal values, the same is not without limitation - it should be done in
consulation with competent appraisers both from the public and private sectors (Sec. 6e, NIRC).
The CIR now assails the CTA decision. First, he argues that the requirement of consultation is mandatory only
when it is prescribing real property values that is when a formulation or change is made in the schedule of zonal
values. He argues that what they did was not to prescribe the zonal value, but merely classify the same as commercial and
apply the corresponding zonal value for such classification based on the existing schedule of zonal values. Second, he
argues that their act was pursuant to their Zonal Valuation Guidelines. According to the CIR, the guidelines provide that
All real properties, regardless of actual use, located in a street/barangay zone, the use of which are predominantly
commercial shall be classified as Commercial for purposes of zonal valuation.
Issues:
1. W/N the CIR is correct in re-classifying the subject properties from residential to commercial, consequently
raising the zonal value of the properties.
Held/Ratio:
1. NO. While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the
law is clear that the same has to be done upon consultation with competent appraisers both from the public and
private sectors. It is undisputed that at the time of the sale of the subject properties found in Barrio Banica, Roxas
City, the same were classified as residential. The petitioner cannot unilaterally classify the same to commercial
without first conducting a re-evaluation of the zonal values as mandated under Section 6(E) of the NIRC.
As to the contention that consultation is needed only when there is a change in the prescribed zonal values, and
what they did was merely to classify the properties to commercial and apply the zonal values, it should be noted
that ALL the properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values. The
act of classifying the subject properties into commercial involves a re-classification and revision of the prescribed
zonal values.

TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 2 of 162
"#$
As to the second contention, the Guidelines provision being invoked may only be used as basis when the real
property is located in an area or zone where the properties are not yet classified and their respective zonal
valuation are not yet determined. The BIR itself expressed this view in a BIR Ruling . Such is not the situation in
the case.
02 - CIR v. COA (1993)
Doctrines:
That the informers reward was sought and given in relation to tax delinquencies of government agencies provides
no reason for disallowance
Facts:
This case is a consolidated case of CIR v COA and Savellano v COA. On June 25, 1986 Tirso B. Savellano
funished BIR with a confidential affidavit of information which reveals that National Coal Authority (NCA) and
Philippine National Oil Company do not pay taxes amounting to P 234 Million. After several demands and investigation
of BIR, the two corporation NCA and PNOC paid the BIR their tax liability. A few months later, the Minister of finance
with the recommendation from BIR Commissioner Bienvenido Tan Jr. agreed to pay Savellano an informers reward
(15% of the P 15.9 M paid by NCA. In 1989, COA issued a decision wherein in disallowed the payment of informers
reward to Savellano on the ground that such payment according to Sec 281 of NIRC is conditioned upon the actual
recovery or revenue realized by the government . In this case, the government was not able to realize any benefit since the
unpaid tax liabilities were collected from 2 government agencies (NCA and PNOC.)
Issues:
1. Whether the approval by the Department of Finance of the claim of the informers reward conclusive upon the
executive agencies concerned including COA.
2. Whether the informer Savellano is not entitled to receive the informers reward because there was no actual
collection of revenues since the unpaid tax liabilities were collected from government agencies as well.
Held/Ratio:
1. NO. The Supreme Court held that the final determination made by Dept of Finance cant bind COA. COA is
vested by the Constitution with power and authority to audit and ensure that the public funds are expended and
used in conformity with the law. To bar COA from reviewing the decision of Dept. Finance and BIR is to
circumvent and ignore Sec. 3 Art IX of 1987 Constitution where it stated that no law shall be passed exempting
any entity of the government from jurisdiction of the COA. The Court, however, added that the disallowance of
COA is not absolute and final for it may still be set aside and nullified by the SC if done with grave abuse of
discretion.
2. NO. The SC held that Savellano is still entitled to the informers reward despite the fact that such unpaid tax
liabilities were recovered from 2 government agencies (NCA and PNOC.) The Court said that these 2 agencies
possess legal personalities separate and distinct from the Philippine government and they both perform
proprietary functions. This means that their revenues do not automatically goes to the general funds of the
government and it is only when such revenues are subjected to tax does it create revenue for the government. In
the end, the Court held that the Sec 281 (Now Sec 282) of NIRC does not make any distinction between
delinquent taxpayers whether private natural or juridical persons, or public or quasi-public agencies. It is
sufficient that such delinquent party is subjected and violated tax laws and the informers report resulted in the
recovery of revenues.

ALS2014B
ALS2014B 3 of 162
"#$
03 - Fitness by Design, Inc. v. CIR (2008)
Facts:
On March 17, 2004, the CIR assessed Fitness by Design, Inc. (FbD) for deficiency taxes for the taxable year
1995. FbD protested the assessment on the ground that it was issued beyond the three-year prescriptive period.
Additionally, FbD claimed that since it was incorporated only on May 30, 1995, there was no basis to assume that it had
already earned income for the tax year 1995.
On February 1, 2005, the CIR issued a warrant of distraint and/or levy against FbD, thus, the latter filed on March
1, 2005 a Petition for Review before the CTA, where it reiterated its defense of prescription.
The CIR, in his Answer, alleged that the right of the CIR to assess deficiency taxes has not yet prescribed since
the 1995 ITR filed by FbD on April 11, 1996 was false and fraudulent for deliberate failure to declare its true sales. The
CIR argued further that investigations by the revenue officers disclosed that it has been operating/doing business and had
sales operations for the year 1995 which it failed to report in its 1995 ITR, thus, there was deliberate intent to evade tax.
Hence, the CIR argued that the period of prescription shall be 10 years from the date of discovery of such fraud, pursuant
to Sec. 222(a) of the Tax Code. The CIR also contended that the deficiency tax assessments have already become final,
executory and demandable for failure of the petitioner to file a protest within the reglementary period provided for by law.
The BIR also filed on March 10, 2005 a criminal complaint before the DOJ against the officers and accountant of
petitioner for violation of the provisions of The National Internal Revenue Code of 1977, as amended, covering the
taxable year 1995.
A preliminary hearing on the issue of prescription was conducted before the CTA, during which FbDs former
bookkeeper attested that a former colleague Sablan illegally took custody of FbDs accounting records, invoices,
and official receipts and turned them over to the BIR.
A subpoena ad testificandum and subpoena duces tecum was requested by FbD for the appearance of Sablan and
the production of the Affidavit of the Informer. In a related move, FbD submitted written interrogatories addressed to
Sablan, and to the revenue officers of the BIR.
By Resolution of January 15, 2007, the CTA denied petitioners Motion for Issuance of Subpoenas and
disallowed the submission by petitioner of written interrogatories, it finding that the testimony, documents, and
admissions sought are not relevant and that to require Sablan to testify would violate Section 2 of Republic Act No. 2338,
as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of
informers of violations of internal revenue laws, except when the information is proven to be malicious or false.
Issue:
1. Whether the CTA committed grave abuse of discretion when it issued the questioned Resolution?
Held/Ratio:
1. NO. The Court found that the testimonies, documents and admissions sought by FbD to be presented in the case
through subpoenas and written interrogatories were not relevant to the issues before the CTA, since the issues
pertain only to whether the CIRs tax assessment against FbD had already prescribed, and whether FbDs tax
return was false or fraudulent. However, the reason of FbD for requesting the issuance of subpoenas and
submission of written interrogatories was to establish that its accounting records and related documents, invoices,
and receipts were illegally obtained.
Furthermore, the SC affirmed the CTAs reasoning that the subpoenas and answers to the written interrogatories
would violate Section 2 of Republic Act No. 2338 as implemented by Section 12 of Finance Department Order
No. 46-66.
FbD claims that it only intended to obtain information on the whereabouts of the documents it needs in order to
refute the assessment, and not to disclose the identity of the informer. However, the SC found that the
interrogatories addressed to Sablan and the revenue officers show that they were intended to confirm FbDs belief
that Sablan was the informer.

ALS2014B
ALS2014B 4 of 162
"#$
FbD argues that the BIR obtained the documents illegally since Sablan allegedly submitted them to the BIR
without FbDs consent. The SC, however, found that FbDs lack of consent does not imply that the BIR obtained
them illegally or that the information received is false or malicious.
Section 5 of the Tax Code allows the BIR access to all relevant or material records and data in the person of the
taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of
Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the
BIR assess and collect the correct amount of taxes.
Also, the SC said that there is no more need for the issuance of subpoena duces tecum for the production of the
documents requested by FbD since the CTA already ordered the CIR to certify and forward to it all the records of
the case.

ALS2014B
ALS2014B 5 of 162
"#$
04 - Sy Po v. CTA (1998)
Doctrine:
Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.
xxx xxx xxx
(b) Failure to submit required returns, statements, reports and other documents. - When a report required
by law as a basis for the assessment of an 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.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully
or otherwise, files a false or fraudulent return or other documents, the Commissioner shall make or amend
the return from his own knowledge and from such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all legal purposes.
Tax assessments by tax examiners are presumed correct and made in good faith.
Facts:
Sy Po is the widow of Mr. Sing which was the sole owner of a wine store and factory (Silver Cup) in Cebu. The
Secretary of Finance (Virata) conducted an investigation on Silver Cup for its alleged tax evasion amounting to millions.
A subpoena for relevant documents was issued, but Sing did not produce such. This prompted the investigators to enter
the factory bodega of Silver Cup and cease different products. They posited the deficiency income tax to be around
7million based on the confiscated goods.
Sy Po protested such deficiency assessments so the BIR recommended the reiteration of the assessments in view
of Silver Cups persistent failure to present documents which then compelled the CTA to isse warrants of distraint and
levy.
Issue:
1. W/N the assessments have valid legal bases
Held/Ratio:
1. YES. The law was specific and clear. The rule on the best evidence obtainable applies when a tax report
required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent.
In this case, the persistent failure of the late Mr. Sing and the herein petitioner to present their books of accounts
for examination for the taxable years left the CIR no other legal option except to resort to the power conferred
upon him under Section 16 of the Tax Code.
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 BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in
favor of the correctness of tax assessments.
Actually, the revenue inspector or storekeeper comes around once a week Sometimes, when the storekeeper is
around in the morning and Mr. Sing wants to operate with untaxed alcohol as raw materials, Mr. Sing tells the
storekeeper to go home because the factory is not going to operate for the day. After the storekeeper leaves, the
illegal operation then begins. Untaxed alcohol is brought in from Cebu Alcohol Plant into the compound of Silver
Cup. When the storekeeper comes, he sees nothing because untaxed alcohol is brought directly to, and stored at, a
secret tunnel within the bodega itself inside the compound of Silver Cup.

ALS2014B
ALS2014B 6 of 162
"#$
05 - Pilipinas Shell Petroleum Corporation v. CIR (2007)
Facts:
Pilipinas Petroelum Shell Corporation, PSPC for brevity, is the subsidiary of Shell Philippines, and is engaged in
the importation, refining and sale of petroleum products. From 1988 to 1997, PSPC paid part of its excise tax liabilities
with Tax Credit Certificates (TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center (Center) and other BOI registered companies.
PSPC signified its intent to use the said TCCs to pay part of its excise tax liabilities said payments were duly
approved by the center. However, on April 22, 1998 the BIR sent a collection to PSPC for alleged deficiency excise tax
liabilities. The BIR further stated that PSPC is not a qualified transferee of the TCTCs. PSPC protested the collection
letter.
On July 23, 1999 the CTA rendered a decision in favor of PSPC and that the TCCs was legal and valid.
Respondent elevated the decision to the Court of Appeals.
Meanwhile, despite the pendency of the case in the Court of Appeals, the Center sent several letters to PSPC
dated August 31, 1999 to submit copies of pertinent sales and invoices and delivery receipts covering sale transactions of
PSPC products to the TCC assignors/transferors purportedly in collection with an ongoing post audit.
PSPCs response to the letter and received by the Center emphasized that the required submission of these
documents had no legal basis, for the applicable rules and regulations on the matter on the matter only require that both
the assignor and assignee of the TCCs be BOI-registered.
On November 22, 1999, PSPC received an assessment letter from respondent for excise tax deficiencies,
surcharges, and interest based on the first batch of cancelled TCCs. PSPC protested the assessment letter but the protest
was denied by the BIR.
RA 9282 was promulgated expanding the jurisdiction of the CTA. Thus the case was heard decided by the CTA
Division.
The CTA division ruled in favor of PSPC. It held that respondent failed to prove with convincing evidence that
the TCCs transferred to PSPC were fraudulently issued as respondents finding of the alleged fraud was merely
speculative.
Respondent filed his Motion for reconsideration. CTA ruled in favor of respondent and ordered PSPC to pay its
tax deficiencies.
Thus, PSPC filed this petition.
Issues:
1. W/N the CTA gravely erred in ordering petitioner PSPC to pay the amount of 284, 760, 987.00 as alleged
deficiency excise taxes.
2. W/N the CTA gravely erred in issuing the question decision upholding the cancellation of the TCC utilized by
Petitioner PSPC in paying its excise liabilities.
3. W/N the CTA gravely erred in imposing surcharges and interests on the alleged deficiency excise tax on
Petitioner PSPC
4. W/N Assessment is void considering that it failed to comply with the statutory as well as regulatory
requirements in the issuance of assessment.
Held/Ratio: The petition is meritorious
1. Yes. It is clear that a TCC is an undertaking by the government through the BIR or DOF, acknowledging that a
taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit
granted by law or other sources and instances granted by law such as on specific unused input taxes and excise
taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations.

ALS2014B
ALS2014B 7 of 162
"#$
Therefore, the TCCs are immediately valid and effective after their issuance.
2. Yes. But even assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice PSPCs
rights as earlier explained since PSPC has not been shown or proven to have participated in the perpetration of the
fraudulent acts, nor is it shown that PSPC committed fraud in the transfer and utilization of the subject TCCs.
3. Yes. This issue has been mooted by our disquisition above resolving the first issue in that PSPC has duly settled
its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no basis for the imposition of a late
payment surcharges and for interests, and no need for further discussion on the matter.
4. Yes. PSPC was not accorded due process before the assessment was levied on it.
The Center informed PSPC of the cancellation of the subject TCCs and the TDM covering the application of the
TCCs to PSPCs excise tax liabilities. The objections of PSPC were brushed aside by the Center and respondent
issued the assessment on November 15, 1999, without following the statutory and procedural requirements clearly
provided under the NIRC and applicable regulations.
What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec. 245 of the
NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of national internal revenue taxes,
fees, and charges. The procedures delineated in the said statutory provisos and RR 12-99 were not followed by
respondent, depriving PSPC of due process in contesting the formal assessment levied against it. Respondent
ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice,
as required. PSPCs November 4, 1999 motion for reconsideration of the purported Center findings and
cancellation of the subject TCCs and the TDM was not even acted upon.
PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax returns for
1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand and assessment notice. For
being formally defective, the November 15, 1999 formal letter of demand and assessment notice is void.
Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides:
3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by personal delivery. (Emphasis supplied.)
In short, respondent merely relied on the findings of the Center, which did not give PSPC ample opportunity to air
its side. While PSPC indeed protested the formal assessment, such does not denigrate the fact that it was deprived
of statutory and procedural due process to contest the assessment before it was issued.

ALS2014B
ALS2014B 8 of 162
"#$
06 - CIR v. Menguito (2008)
Facts:
Spouses Menguito are owners of a restaurant with branches in Pasay and Baguio. In 1997, the spouses were
informed by the BIR Assessment Division of Baguio, through a ten (10) day Preliminary Letter that investigation showed
that they have undeclared sales from 1991 1993 thereby resulting to deficiency income and percentage taxes of around
34Million. Mrs. Menguito protested. The BIR alleged that Meguito committed fraud with intent to evade the payment of
tax by under-declaring his sales.
The CTA rules in favor of the CIR and ordered the spouses to pay deficiency and percentage tax. The spouses
MR was also denied. Menguitos then appealed to the CA questioning the Assessment notices.
Issues:
1. W/N the CA erred in holding that respondent was denied due process for failure of CIR to validly serve
respondent with the post-reporting and pre-assessment notices.
Held/Ratio:
1. YES. The SC stressed that the requirement that an assessment notice be satisfactorily proven to have been issued
and released or, if receipt thereof is denied, that such assessment notice have been served on the taxpayer, applies
only to formal assessments under Sec. 22 of the NIRC and NOT to post-reporting or pre- assessment notices.
According to the SC a post-reporting or pre-assessment notice do not bear the gravity of a foral assessment
notice. Such notices merely serves as hints of the initial findings f the BIR against a taxpayer and invites the latter
to an informal conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of
the taxpayer or a demand for payment. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as
long as the latter is then served a formal assessment notice.
There is no doubt that petitioner failed to prove that it served on respondent a post-reporting notice and a pre-
assessment notice. What the BIR sent was a mere letter it sent to Menguito informing him of the initial outcome
of the investigation into his sales, and the release of a preliminary assessment upon completion of the
investigation, with notice for the latter to file any objection within five days from receipt of the letter. Another,
the Preliminary Ten (10) Day Letter to respondent, informing him that he had been found to be liable for
deficiency income and percentage tax and inviting him to submit a written objection to the proposed assessment
within 10 days from receipt of notice. But nowhere on the face of said documents can be found evidence that
these were sent to and received by respondent. Nor is there separate evidence, such as a registry receipt of the
notices or a certification from the Bureau of Posts, that such were actually mailed to the petitioner.
However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements
under Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal
assessments were issued to and actually received by respondents in accordance with Section 228 of the National
Internal Revenue Code which was in effect at the time of assessment.
Formal assessment substantive requisite to tax collection containg computation of tax liabilities and a demand
for payment within a said period. Thereby signaling the time when penalties and remedies accrue and determined.
Due process requires for such be served on and received by the taxpayer. (Roxas Securities Inc. v. CIR, GR
157064, August 7, 2006)

ALS2014B
ALS2014B 9 of 162
"#$
07 - CIR v. Metro Star Superama, Inc. (2010)
Doctrines:
Sending of a PAN (pre-assessment notice) as required by Section 228 of NIRC is 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 authorties. Failure to send the PAN makes CIR tax assessment VOID.
Facts:
CIR filed before the Supreme Court a petition for review on certiorari against the CTA-En bancs decision that
the assessment made by CIR is Void due to non-service of PAN. CIR assessed Metro Star Superama, Inc (Metrostar) of
deficiency in value-added tax and withholding tax for 1999. The following are previous events:
On Jan 2001 Regional Director of BIR issued letter of Authority for Revenue Officer to examine Metrostars
book of account. Due to failure of the latter to present the records a subpoena duces tecum was issued by BIR. On Nov
2001, a preliminary 15-day letter was issued to Metrostar wherein BIR stated that a post audit review was held and that it
was found that there was a deficiency in value-added and withholding taxes of around P292,000. On April 11, 2002,
Metrostar received Formal Letter of Demand Assessing from Rev. district assessing them P292,000 for deficiency value-
added and withholding taxes for 1999. With this, Metro star filed a petition for review with CTA wherein the corporation
denied that it received a PAN thus claiming that such assessment made by BIR was not accorded due process.
Issues:
1. W/N Metro Star complied with due process requirement of serving PAN before assessment
2. W/N deficiency assessment issued by respondent are void for failure to send PAN
Held/Ratio:
1. YES. The Court held that the failure of the respondent to prove receipt of the assessment by the Petitioner leads to
the conclusion that no assessment was issued. Based on jurisprudence, if the taxpayer denies ever having received
an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was
indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that
the Petitioner received the assessment in the due course of mail. It is essential to prove the fact of mailing is the
registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the
Petitioner or its authorized representative. In this case, CIR only stated that since FAN (final assessment notice)
was served then the PAN should have also been served. CIR, however, failed to support its claim with substantial
evidence. With this, the Court held that there was no clear showing that Metrostar actually received the alleged
PAN.
2. YES, Section 228 of NIRC clearly requires that taxpayer must first be informed that he is liable for deficiency of
taxes through send of PAN and to proceed heedlessly with tax collection without first establishing a valid
assessment is violative of ones right for due process. The Court held that the sending of PAN to taxpayer to
inform him of the assessment made is but part of the due process requirement in the issuance of deficiency tax
assessment the absence of which renders nugatory any assessment made by the tax authority. It is clearly stated
in sec 228, that failure to send PAN stating the facts and the law on which the assessment was made, renders the
assessment made by CIR void.

ALS2014B
ALS2014B 10 of 162
"#$
08 - Commissioner of Internal Revenue v. Azucena Reyes (2006) (informed of basis v. notified of findings)
Doctrines:
Taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise,
the assessment is void.
An invalid assessment notice amounts to lack of due process.
An invalid assessment cannot be the basis of a tax compromise.
Facts:
In 1993, Tancino died and left a house and lot in Dasmarias Village. In 1997, on the basis of an information, the
Revenue District of Makati conducted an investigation on Tancinos estate. They issued a Letter of Authority for the
regular investigation of the estate tax case. The letter was received by Azucena Reyes, one of Tancinos heirs.
On Feb. 1998, a preliminary assessment notice against the estate amounting to P14,580,618.67 was issued by
the BIR. On May 1998, the heirs received a Final Assessment (dated April 1998) amounting to P14,912,205.47 inclusive
of surcharge and interest. The heirs protested the assessment because the Dasma Property was already sold in 1990 (the
property was to be seized for failure to pay tax liabilities). They also proposed several compromises
1
, pleading
financial incapacity, but the BIR rejected the offers. According to the BIR the financial incapacity of the heirs is
immaterial as the estate had a total value of P32M. Thus, in 2000, they demanded payment of P18,034,382.13 otherwise,
the property will be auctioned off. The heirs failed to pay and the auction was scheduled.
Reyes filed a petition for review in the CTA and applied for the issuance of a writ of preliminary injunction to
enjoin the BIR from proceeding with the auction. She assailed that the assessments and investigations were void ab
initio. The injunction was issued. Meanwhile, during the pendency of the case, the BIR issued a Rev. Regulation offering
delinquent tax payers to compromise liability. The proceedings in the CTA was postponed and Reyes applied for
compromise under the Rev. Reg. Reyes paid P1,062,778.20 to the BIR as compromise, however, the compromise was
yet to be perfected because the National Evaluation Board (NEB) has not yet approved said compromise. Reyes asked the
CTA to declare the compromise perfected but the CTA denied the request, leaving the compromise unapproved.
The CTA resumed hearing the petition for review and decided that Reyes should pay P19,504,909.78 as
deficiency tax. The CTA said that there could be no valid compromise because the NEB did not approve the application.
The CTA also said the assessments were valid because the heirs knew of the findings of the BIR investigation. The
CA partly reversed the decision and held that there was no valid assessment and the question on validity of the
compromise is still premature.
Issues:
1. W/N the assessments were valid.
2. W/N there is a valid compromise under the Revenue Regulation.
Held/Ratio:
1. NO. Sec. 228 requires that taxpayers must be informed in writing of the law and the facts upon which a tax
assessment is based; otherwise, the assessment is void. In the instant case, Reyes was not informed but was
merely notified by the CIR of the findings in the investigation. The requirement of notifying the taxpayers of the
findings of the CIR as provided in the old Sec. 229 is now amended by the Tax Reform Act of 1997. Sec. 228 is
now the procedure to be followed. When the assessments were sent to the heirs, the amendment was already in

1. First compromise: P1,000,000
Second Compromise: 50% of the basic tax liabilities
Third Compromise: 100% of the basic tax liability amounting to P5,313,891.00.

ALS2014B
ALS2014B 11 of 162
"#$
effect. Moreover, the Letter of Authority they sent to Reyes was not even notice of the findings but is a
mere notice for conducting an investigation.
The fact that during this time there was still no regulation issued by the BIR to implement Sec. 228 is of no
moment because the law must still be followed even if the RR then existing pertains to the implementation of the
old law (Sec 229). The subsequent implementation of a new RR in 1999 should retroact to the time Sec. 228 was
promulgated in 1998.
The Court also said that a review of the assessments would show lack of basis and insufficiency of figures and
deductions. They held that the assessments were arbitrary and based on estimates capriciously arrived at.
2. Because the assessments were VOID, the Court could not decide on whether or not the compromise was valid or
not.

ALS2014B
ALS2014B 12 of 162
"#$
09 - CIR v. Enron Subic Powercorporation (2009)
Doctrine:
Due process demands that a taxpayer must be informed of the legal and factual bases of the assessment against it.
Otherwise, the assessment is void.
Facts:
The respondent corporation Enron filed its annual income tax return, for the year 1996 on April 12, 1997,
indicating a net loss of P7,684,948. Subsequently, it was informed by BIR, through a PRELIMINARY 5-DAY LETTER,
of a proposed assessment of an alleged P2,880,817.25 deficiency income tax. Enron disputed this proposed assessment
in its first protest letter. On May 26, 1999, the CIR sent Enron a FORMAL ASSESSMENT NOTICE requiring the latter
to pay the alleged deficiency income tax of P2,880,817.25 for the year 1996. This was again protested by Enron.
Because its protest wasnt resolved within the 180-day period, Enron filed a petition for review in the CTA,
questioning the substantive validity of the assessment and arguing that the deficiency tax assessment did not provide the
legal and factual bases of the assessment, in defiance of Sec. 228 of the NIRC and Sec 3.1.4 of RR No. 12-99.
2
The CTA
ordered the deficiency assessment cancelled for the reason that the assessment notice sent to Enron failed to comply with
the requirements of the mentioned provisions by failing to show the applicability of the cited law to the facts of the
assessment. This CTA ruling was affirmed by the CA. The CIR argues that Enron was informed, through the preliminary
5-day letter and the formal assessment notice, of the legal and factual bases of the deficiency assessment against it.
Issue:
1. Whether the deficiency assessment is void for noncompliance with Sec. 228 and RR No. 12-99
Held/Ratio:
1. Yes, it is void. It is clear that a taxpayer must be informed in writing of the legal and factual bases of the tax
assessment made against him. In this case, the CIR merely issued a formal assessment and indicated therein the
supposed tax, surcharge, interest and compromise penalty due thereon. In issuing the Formal Assessment Notice,
the CIR did not provide Enron with the written bases of the law and facts on which the assessment was based. The
CIR did not bother to explain how it arrived at such an assessment. More so, he failed to mention the specific
provision of the Tax Code or rules and regulations which were not complied with by Enron. The advice of tax
deficiency and the preliminary 5-day letter were not valid substitutes for the mandatory notice in writing provided
for in Sec. 228 of the NIRC and RR No. 12-99.
The Court notes that the old law merely required that the taxpayer be notified of the assessment made by the
BIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the
facts on which the assessment is made. The Court explained that such an amendment is in keeping with the
constitutional principle that no person shall be deprived of property without due process.

2. Section 3.1.4. of RR No. 12-99: ... The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state
the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand
or assessment notice shall be void.

ALS2014B
ALS2014B 13 of 162
"#$
10 - Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, et al. (1999)
Doctrines:
Assessment is laying a tax. The word assessment when used in connection with taxation, may have more than
one meaning. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each
taxpayer is to pay. More commonly, the word assessment means the official valuation of a taxpayers property
for purpose of taxation
An assessment informs the taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must
demand payment of the taxes within a specific period. It is deemed a notice duly sent to the taxpayer. It is
considered made only when the collector of internal revenue releases, mails or sends such notice to the
taxpayer.
Facts:
BIR Commissioner Jose Ong authorized Revenue Officers Thomas Que, Sonia Estorco and Emmanuel Savellano
to examine Pasco Realty and Development Corporation (PRDC) books of accounts and other accounting records. They
examined years 1986, 1987, and 1988. They recommended that an assessment be issued in the amounts of P7,498,434.65
and P3,015,236.35 for the years 1986 and 1987, respectively.
The Commissioner of Internal Revenue filed a criminal complaint in the DOJ against PRDC, its President Rogelio
Dio, and its Treasurer Virgina Dio. The CIR alleged PRDC evaded taxes amounting to P10,513,671.00. The DOJ
subpoenaed PRDC, President Dio and Treasurer Dio.
Contesting the complaint, PRDC filed an Urgent Request for Reconsideration/ Reinvestigation of the tax liability.
However, in a letter, the CIR denied this because the Commissioner has yet to issue a formal assessment.
PRDC filed a petition for review before the Court of Tax Appeals (CTA). CIR filed a Motion to Dismiss claiming
that the CTA lacks jurisdiction over the subject matter of the petition due to the absence of a formal assessment. The CTA
denied the motion to dismiss and ordered the CIR to file an answer.
Instead of filing an answer or moving to reconsider the resolution, the CIR filed a Petition for Review on
Certiorari before the Court of Appeals (CA). It claimed the CTA acted with grave abuse of discretion and without
discretion when it considered the affidavit/ report of the revenue officer and the indorsement of the report to the Secretary
of Justice as assessment. The CA held that the CTA did not commit grave abuse of discretion when it ruled that the
criminal complaint for tax evasion constituted an assessment. The Joint Affidavit of the revenue officers submitted with
the criminal complaint already contains sufficient details needed for an assessment. To constitute as an assessment, the
following details must be present: kind and amount of tax due, and the period covered. Moreover, the CTA acquired
jurisdiction when the CIR denied PRDCs letter concerning the disputing of the assessment.
CIR appealed to the SC.
Issues:
1. W/N the filing of the criminal complaint with the attached Joint Affidavit can be construed as an assessment.
Held/Ratio:
1. NO. There is no specific definition or form of assessment contained in the NIRC and revenue regulations.
However, the NIRC provides the specific functions and effects of an assessment. An assessment informs the
taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must demand payment of the taxes
within a specific period. It is deemed a notice duly sent to the taxpayer. It is considered made only when the
collector of internal revenue releases, mails or sends such notice to the taxpayer. The taxpayer must be certain that
a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within
which to make an assessment or to protest the same, or whether interest and penalty may accrue.

ALS2014B
ALS2014B 14 of 162
"#$
Here, the Joint Affidavit is not an assessment. First, it only contained a computation of PRDCs tax liability.
Second, it did not state a demand or a period for payment. Third, it was addressed to the justice secretary and not
the taxpayers.
Though the Joint Affidavit contains certain details, it continues to remain an assessment because its purpose was
merely to support and substantiate the complaint for tax evasion. It was not meant to be a notice of the tax due and
a demand of payment to PRDC. Moreover, the fact that it was specifically addressed and sent to the DOJ shows
that the CIR intended to file a complaint and not issue an assessment. Although the revenue officers
recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax
evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had
been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. Further, the
CIR received a motion for reconsideration of the tax evasion charges and not an assessment.
- - - - - - - - - - - - - - - - - - - - - - -
Other additional issues:
Assessment is not necessary before a criminal complaint may be filed.
Section 222 of the NIRC provides 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.
Procedure on how assessments are issued:
Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then
given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner
is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly
that an assessment has been made against him or her. The criminal charge need not go through all these.

ALS2014B
ALS2014B 15 of 162
"#$
11 - Republic v. Court of Appeals (1987) [assessment, mail]
Facts:
The Commissioner of Internal Revenue assessed Nielson & Co. to pay the ad valorem tax, occupation fees,
additional residence tax and 25% surcharge for late payment for the years 1949 to 1952. In a demand letter dated July 16,
1955, the CIR assessed the deficiency taxes totaling P14,449. CIR sent 3 more demand letters. Nielson did not contest the
assessment of the Court of Tax Appeals. On the theory that the assessment has become final and executory, the CIR filed
a complaint for collection of the said amount with the CFI of Manila. But since there was a failure to serve summons on
Nielson, the case was dismissed without prejudice. The CFI refiled the case which is now the subject matter of this appeal.
Issues:
1. W/N the letter of assessment dated July 16, 1955 was received by Nielson in the ordinary course of mail
Held/Ratio:
1. No. While the contention of petitioner that service is deemed complete and effective upon the expiration of five
days after mailing, the presumption that arises is merely a disputable presumption, subject to controversion and a
direct denial of Nielson of the receipt thereof shifts the burden upon the party favored by the presumption to prove
that the mailed letter was indeed received by the addressee.
However, the follow-up letter is considered a notice of assessment in itself which was duly received by Nielson in
accordance with its own admission.
Under Section 7 of RA1125, the assessment is appealable to the CTA within 30 days from receipt of the letter, the
taxpayers failure to appeal in due time makes the assessment in question final executory and demandable.
In a suit for collection of internal revenue taxes, where the assessment has already become final and executory,
the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of
the original case or the justness of the judgment relied upon.

ALS2014B
ALS2014B 16 of 162
"#$
12 - Basilan Estates v. CIR (1967) WARNING: SUPER COMPLICATED
Facts:
Basilan filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of P8,028 .On February
26, 1959, the Commissioner of Internal Revenue, per examiners report of February 19, 1959, assessed Basilan Estates,
Inc., a deficiency income tax of P3,912 for 1953 and P86,876.85 as 25% surtax on unreasonably accumulated profits as of
1953. On non-payment of the assessed amount, a warrant of distraint and levy was issued but was not executed because
Basilan got the Deputy Commissioner of Internal Revenue to order the Zamboanga City District Director to hold
execution and maintain constructive embargo instead. Because of its refusal to waive the period of prescription, the
corporations request for reinvestigation was not given due course, and on December 2, 1960, notice was served the
corporation that the warrant of distraint and levy would be executed.
Basilan filed before the CTA a petition for review alleging prescription of the period for assessment and
collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and error in finding the
existence of unreasonably accumulated profits and the imposition of 25% surtax thereon. On October 31, 1963, the Court
of Tax Appeals found that there was no prescription and affirmed the deficiency assessment in toto.
Issues:
1. Has the Commissioners right to collect deficiency income tax prescribed? (NOT PART OF THE TOPIC BUT I
PUT IT HERE JUST IN CASE HE ASKS.)
2. Was the disallowance of items claimed as deductible proper?
3. Have there been unreasonably accumulated profits? If so, should the 25% surtax be imposed on the balance of the
entire surplus from 1947-1953, or only for 1953?
4. Is the petitioner exempt from the penalty tax under Republic Act 1823 amending Section 25 of the Tax?
Held/Ratio:
1. NO, the presence of circumstances that led the court to presume regularity in the performance of official
functions. The notice of assessment shows the assessment to have been made and released by the BIR on
February 26, 1959, well within the five-year period. The Commissioner himself in his letter answering
petitioners request to lift, the warrant of distraint and levy, asserts that notice had been sent to petitioner. In the
letter of the Regional Director forwarding the case to the Chief of the Investigation Division, notice of assessment
was said to have been sent to petitioner. Subsequently, the Chief of the Investigation Division indorsed on March
18, 1959 the case to the Chief of the Law Division. There it was alleged that notice was already sent to petitioner
on February 26, 1959. These circumstances pointing to official performance of duty must necessarily prevail over
petitioners contrary interpretation.
2. YES for depreciation since the income tax law does not authorize the depreciation of an asset beyond its
acquisition cost. For then what the taxpayer would recover will be, not only the acquisition cost, but also some
profit.
But NO, for expenses. These were disallowed on the ground that the nature of these expenses could not be
satisfactorily explained nor could the same be supported by appropriate papers. Under Section 337 of the Tax
Code, receipts and papers supporting such expenses need be kept by the taxpayer for a period of five years from
the last entry. At the time of the investigation, said five years had lapsed. Taxpayers stand on this issue is
therefore sustained.
3. YES, In the unreasonable accumulation of P347,507.01 are included P200,000 for electrification of driers and
mechanization and P50,000 for malaria control which were reserved way back in 1948 (p. 67 of the BIR records)
but reverted to the general fund only in 1953. If there were any plans for these amounts to be used in further
expansion through projects, it did not appear in the records as was properly indicated in 1948 when such amounts
were reserved. Thus, they are improperly accumulated

ALS2014B
ALS2014B 17 of 162
"#$
From 1947 until 1953. The 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
4. NO. We have but to point out that the unreasonable accumulation was in 1953. The exemption was by virtue of
Republic Act 1823 which amended Sec. 25 only on June 22, 1957 more than three years after the period
covered by the assessment.
(NOTE: THE CASE DID NOT EXACTLY ANSWER THE QUESTION WHAT IS AN ASSESSMENT. HOWEVER, I
THINK THAT WHAT THE CASE SHOWS ARE THE PARTS OF AN ASSESMENT WHICH ARE THE
AFOREMENTIONED ISSUES AND ANSWERS EXCEPT FOR PRESCRIPTION.)
13 - Nava v. CIR (1965)
Doctrines:
The release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without
the taxpayers intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise,
the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense
Facts:
On May 15, 1951, Nava filed his income tax return for the year 1950 and was assessed, on the same day, by the
CIR the sum of P4,952 based solely on said return. He paid one half of the tax due and offered his backpay certificate to
pay the balance. The CIR refused to accept the backpay certificate. Subsequently, the CIR sent Nava notices demanding
payment of the balance.
On March 30, 1955, the CIR issued a deficiency income tax assessment notice requiring Nava to pay not later
than April 30, 1955 the sum of P9,124.50, that included the balance mentioned above and a 50% surcharge. Notices of
this revised assessment were purportedly issued to Nava. Nava claims that he learned of this assessment for the first time
only on December 19, 1956, more than five years since the original tax return was filed. Nava asked for a
reinvestigation of this new assessment and was told that it could only be done if he waives the statute of limitations. Nava
refused to do so. Hence, the CIR denied the reconsideration of the assessment. Nava then filed a case with the CTA. The
CTA reduced the assessment to P3,052.00 and cancelled the 50% surcharge.
Issues:
1. W/N the enforcement of the tax assessment has prescribed
Held/Ratio:
1. YES. While the Rules of Court presumes that a letter duly directed and mailed was received in the regular course
of mail, this cannot be applied to the case at bar. The CIR failed to prove that the assessment notice dated March
30, 1955 and other supposed written demand letters or notices were in fact issued or sent to Nava.
The CTA, in deciding the case, relied mainly on the duplicate copy of the deficiency income tax notice found in
the BIR file of Nava. Nava denied having received the original copy of the said notice. The BIR presented Sangil,
a clerk of the BIR, to establish that the original copy was actually issued on March 30, 1955. However, the
witness disclaimed having personal knowledge of its issuance or release on said date and said that there is no
notation in the file copy that stated that the original copy was ever actually issued or sent to Nava. The CTA also
relies on a note sent or delivered by Nava to the BIR where he said that he received the second final notice. The
BIR also presented Fernandez, a BIR employee who sends mail and keeps a record of letters mailed to the
taxpayers. He maintains that there was a notation that a letter dated March 15, 1957 was mailed to Nava but that
he wasnt the one who prepared such entry. At any rate, the 1957 letter was obviously mailed beyond the 5-year
limitation period.

ALS2014B
ALS2014B 18 of 162
"#$
There was no valid and effective issuance or release of said deficiency income tax assessment notice dated March
30, 1955 and of the other demand letters. These dates cannot be reckoned with in computing the period of
prescription within which a court action to collect the same may be brought. The fact that Nava acknowledged
receipt of the second final notice is no proof that he received the first one by mail. There is a difference between
receiving a second final notice and receiving a final notice for the second time.
Since Navas 1950 income tax return was made on May 15, 1951, and no valid and effective notice of the re-
assessment was made after that date, it is evident that the period under Section 331 of the Tax Code within which
to make a re-assessment expired on May 15, 1956. Since the notice of said deficiency income tax was effectively
made on December 19, 1956 at the earliest, the judicial action to collect any deficiency tax on Navas 1950
income tax return has already prescribed under Section 332 (c) of the Tax Code, it having been found by the CTA
that said return was not false or fraudulent.
The release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without
the taxpayers intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise,
the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

ALS2014B
ALS2014B 19 of 162
"#$
14 - Barcelon, Roxas Securities, Inc. v. CIR (2006)
Doctrines:
An assessment is made within the prescriptive period if the notice of assessment is released, mailed or sent by the
CIR to the taxpayer within the said period. Receipt thereof by the taxpayer within the prescriptive period is not
necessary.
Facts:
Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.), a corporation engaged in the trading of
securities, was issued by the CIR an assessment for deficiency income tax for P826,698.31. This arose from the
disallowance of deductions for salaries, bonuses and allowances (P1.2 million) for failing to subject such items to
withholding taxes. The CIR alleges that the Formal Assessment Notice (FAN) was sent through registered mail on
February 6, 1991, while Barcelon denies receiving it and alleges to have only known of the deficiency when it was served
with a Warrant of Distraint or Levy a year later.
Important dates:
April 15, 1988 - last day of filing of return
April 15, 1991 (3 years later) - last day of sending an assessment notice
February 6, 1991 - alleged date of mailing of the assessment notice
Issue:
1. W/N the right to assess Barcelons alleged deficiency income tax is barred by prescription. (Note: Under Sec. 203
of the NIRC, the CIR has 3 years from the last day of filing of the return to send an assessment notice to a
taxpayer.)
Held/Ratio:
1. YES. The right to assess and collect the alleged deficiency income tax has already prescribed.
In CIR v. Bautista, the Court held that an assessment is made within the prescriptive period if notice to this
effect is released, mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the
taxpayer within the prescriptive period is not necessary. However, this does not dispense with the requirement
that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice.
When a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course
of mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed
with postage prepaid; and (b) that it was mailed. However, this is merely a disputable presumption. A direct
denial of the receipt thereof shifts the burden upon the party favored by the presumption (in this case, the CIR) to
prove that the mailed letter was indeed received by the addressee (Barcelon).
Since Barcelon denies receiving the assessment notice, the burden is on the CIR to prove that the assessment was
indeed received by the former. In this case, the CIR was unable to present substantial evidence to prove that the
notice was mailed before the expiration of the period and that the notice was received by Barcelon. The CIR
presented the BIR record book and the BIR records custodian who made the entries therein. However, the
testimony of the custodian is hearsay since it was not stated that she has personal knowledge of the entries nor
was it stated that the facts recorded were acquired by her personally or through official information. Furthermore,
independent evidence, such as the registry receipt, or a certification from the Bureau of Posts, could have been
easily obtained by the CIR yet it failed to present such evidence. The evidence offered by the CIR is therefore
insufficient to give rise to the presumption that the assessment notice was received in the regular course of mail.
Consequently, the right of the government to assess and collect the alleged deficiency is already barred by
prescription.

ALS2014B
ALS2014B 20 of 162
"#$
15 - Collector v. Bautista (1959)
Doctrine:
Sec. 331 of the Tax Code provides that deficiency assessment must be made within 5 years after the return was
filled, and the assessment is deemed made when the notice to this effect is released, mailed or sent by the
Collector to the taxpayer, for the purpose of giving effect to said assessment. Said Section does not require that
notice be received by the taxpayer within the said period of 5 years.
Facts:
Sps. Pedro Bautista and Dativa Tan each filled a separate income tax return (ITR) in 1947. The husband reported
an income of P2300, and paid an income tax of P9, after claiming personal exemptions of P2500 as head of the family and
P500 for a minor child. The wife reported an income of P9999.9 from a sale of a lot and building at Tabora st. Manila,
paying an income tax of P490. She claimed a personal exemption of P2500 as head of the family and P500 for the same
minor child.
The BIR, assessed a deficiency tax against them in the sum of P1564.54, which was mainly based on the under-
declaration of the of the wifes share in the Tabora property and the overvaluation of the cost.
Issue:
1. W/N the right to assess the deficiency income tax has prescribed? (Important)
2. W/N the Sps. deductions should be allowed, for loses sustained as a result of a fire which destroyed their house?
(Not important)
3. W/N the Tabora property was an ordinary asset? (Not important)
Held/Ratio:
1. No. Sec. 331 of the Tax Code provides that deficiency assessment must be made within 5 years after the return
was filled, and the assessment is deemed made when the notice to this effect is released, mailed or sent by the
Collector to the taxpayer, for the purpose of giving effect to said assessment. Said Section does not require that
notice be received by the taxpayer within the said period of 5 years.
The Baustistas filled their ITR as of March 1, 1948. The Collector assessed the deficiency tax on Jan 21, 1953 and
notice to this effect was sent or given due course prior Mar 1, 1953, for it was received in the Office of the City
Treasurer of Quezon City, on Feb 13, 1953, and hence before expiration of said period.
2. No, the question of whether the disallowance was correct or not depends upon the credence of the testimonial
evidence, which the lower court was in a better position to decide.
3. No, the property was primarily held for rent, and they never occupied it as their residence.

ALS2014B
ALS2014B 21 of 162
"#$
16 - Adamson v. CA (2009)
Doctrines:
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 interests 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.
Facts:
This case is a consolidation of G.R. No. 120935 and G.R. No. 124557.
Lucas Adamson and Adamson Management Corporation (AMC) sold 131,897 common shares of stock in
Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were valued P7,789,995. P159,363.21
was paid as capital gains tax for the transaction. On a different date, AMC sold to APAC another 229,870 common shares
of stock in AAI for P17,718,360. AMC paid capital gains tax of P352,242.96. The Commissioner issued a Notice of
Taxpayer to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of
deficiencies on their payment of capital gains tax and Value Added Tax (VAT).
G.R. No. 120935
Private respondents Lucas Adamson, Therese Adamson and Sara delos Reyes (in their capacity as
president, treasurer and secretary of AMC, respectively) were criminally charged before the RTC of Makati for
tax evasion. In a Motion for Reconsideration Lucas, Therese and Sara invoked the grounds that there was yet no final
assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases. The trial court
granted the Motion. The Commissioner filed a Petition for Review with the Court of Appeals assailing the trial courts
dismissal of the criminal cases. She averred that it was not a condition prerequisite that a formal assessment should
first be given to the private respondents before she may file the aforesaid criminal complaints against them. She
argued that the criminal complaints for tax evasion may proceed independently from the assessment cases pending
before the CTA.
The Court of Appeals reversed the trial courts decision and reinstated the criminal complaints. The appellate
court held that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the
offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax.

It ruled that private respondents filed false and fraudulent returns with
intent to evade taxes, and acting thereupon, the Commissioner filed an Affidavit of Complaint with the Department of
Justice, without an accompanying assessment of the tax deficiency of private respondents, in order to commence criminal
action against the latter for tax evasion.
G.R. No. 124557
AMC, Lucas Adamson, Therese Adamson and Sara de los Reyes filed a Petition for Review with the CTA. They
assailed the Commissioners finding of tax evasion against them. The Commissioner moved to dismiss the petition. The
CTA denied the Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ
as an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of
petitioners protest regarding the tax deficiency.
The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave abuse of
discretion. She maintained that she had not yet issued a formal assessment of tax liability, and the tax deficiency
amounts mentioned in her criminal complaint with the DOJ were given only to show the difference between the tax
returns filed and the audit findings of the revenue examiner.
Issues:
1. W/N the Commissioner has already rendered an assessment of the tax liability of AMC, Lucas Adamson, Therese
Adamson and Sara delos Reyes

ALS2014B
ALS2014B 22 of 162
"#$
2. W/N the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a
formal assessment.
Held/Ratio:
1. No. 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 interests 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. A formal assessment is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice
to the taxpayer.
In the present case, the revenue officers Affidavit that was submitted to the DOJ merely contained a
computation of respondents tax liability. It did not state a demand or a period for payment. Worse, it was
addressed to the justice secretary, not to the taxpayers. That the BIR examiners Joint Affidavit attached to the
Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it
an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal
Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the
private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private
respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to
issue an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is
issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through
all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal
case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a
criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax
Code.
Therefore, the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a
cursory perusal of the said letter would reveal three key points:
a. It was not addressed to the taxpayers.
b. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set
therein.
c. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations
2. Yes.
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes. - (a) In the
case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court after the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for collection thereof
The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after
the collection of such tax may be begun without assessment. Here, the private respondents had already filed the
capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon

ALS2014B
ALS2014B 23 of 162
"#$
investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to
APAC Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of
services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the
amounts actually declared by the private respondents constitutes badges of fraud.
The case of Ungab v. Cusi was applied to the case at bar. In this case, the Court ruled that there was no need for
precise computation and formal assessment in order for criminal complaints to be filed against him.
17 - Collector v. Benipayo (1962) (extrapolation of 3:1 child-to-adult ratio)
Doctrines:
Assessment must be based on actual facts.
Facts:
Respondent Alberto Benipayo is the owner and operator of the Lucena Theater located in the municipality of
Lucena, Quezon. In October of 1953 Internal Revenue Agent Romeo de Guias investigated respondents amusement tax
liability in connection with the operation of Benipayos theater.
His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena
Theater was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period the
period from August, 1952 to September, 1953, the proportion is reversed - three children to one adult. From this he
concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the
amusement tax prescribed in Section 260 of the National Internal Revenue Code. Based on the average ratio between
adult and children attendance in the past years, Examiner de Guia recommended a deficiency amusement tax assessment
against respondent in the sum of P11,193.45, inclusive of 25% surcharge, plus a suggested compromise penalty of
P900.00 for violation of section 260 of the National Internal Revenue Code, or a total sum of P12,093.45 covering the
period from August, 1952 to September, 1953 inclusive. In July of 1954, CIR issued a deficiency amusement tax
assessment against Benipayo. In August 1954, Benipayo filed the corresponding protest with the Conference Staff of the
Bureau of Internal Revenue.
After due hearing, the Conference Staff submitted to petitioner Collector of Internal Revenue its finding to the
effect that the meager reports of these fieldmen (Examiner de Guia and the Provincial Revenue Agent of Quezon) are
mere presumptions and conclusions, devoid of findings of the fact of the alleged fraudulent practices of the herein
taxpayer. In view thereof, and as recommended by the Conference Staff, CIR referred the case back to the Provincial
Revenue Agent of Quezon for further investigation. The Provincial Revenue Officer H.I. Bernardo reinforced the findings
of Agent De Guia. His report stated that returns from July 1-11 showed tickets with ratio of 1:3, but from July 14-24,
when agents for his office supervised in the sales of admission tickets, the sales ratio soared to 3:1. His investigation
report read without fear of contradiction that the ratio of 3:1 xxx conveys the true picture of the situation under the law of
averages.
Thereafter, the Conference Staff of the Bureau of Internal Revenue recommended to the Collector of Internal
Revenue the issuance of the deficiency amusement tax assessment in question in this appeal. CTA reversed the decision of
the CIR, relieving Benipayo of the deficiency amusement tax assessed.
Issues:
1. W/N there is sufficient evidence in the record showing that Benipayo sold and issued to his adult customers two
tax-free 20-centavo childrens tickets, instead of one 40-centavo ticket for each adult customer; to cheat or
defraud the Government.
Held/Ratio:
1. NO. The Court quoted the decision of the CTA:

ALS2014B
ALS2014B 24 of 162
"#$
[A]ssessments should not be based on mere presumptions no matter how reasonable or logical
said presumptions may be. Assuming arguendo that the average ratio of adults and children
patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the
inference that the same conditions existed during the years in question (1952 and 1953). The fact
that almost the same ratio existed during the month of July, 1955 does not provide a sufficient
inference on the conditions in 1952 and 1953. ..
In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The
presumption of correctness of assessment being a mere presumption cannot be made to rest on
another presumption that the circumstances in 1952 and 1953 are presumed to be the same as
those existing in 1949 to 1951 and July 1955. In the case under consideration there are no
substantial facts to support the assessment in question. ...
Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the
present case, is lacking.

ALS2014B
ALS2014B 25 of 162
"#$
18 - CIR v. Hantex Trading Co., Inc. (2005)
Doctrine:
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 is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The
standard is not the form of the record but where it might shed light on the accuracy of the taxpayers return.
As a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All
presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such
assessment was based on sufficient evidence.
Facts:
Hantex Trading Co., Inc. is a corporation engaged in the sale of plastic products and importation of synthetic resin
and other chemicals for the manufacture of its products. It is required to file an Import Entry and Internal Revenue
Declaration (Consumption Entry) with the Bureau of Customs.
In October 1989, Lt. Amoto, Acting Chief of the Counter-Intelligence Division of the Economic Intelligence and
Investigation Bureau (EIIB), received confidential information that Hantex had imported synthetic resin amounting to
P115,599,018.00 but only declared P45,538,694.97 for the year 1987. The informer based it on the photocopies of 77
Consumption Entries furnished by another informer. The EIIB failed to secure certified copies since the custodian in the
Bureau of Customs told them that the original copies had been eaten by termites. The Chief of the Collection Division
Merlita Tomas of the Port of Manila could also not authenticate the copies since she did not have the originals. She wrote
a letter, merely indicating the entry numbers and the date of release of the imports made by Hantex. The Bureau of
Customs Chief of Collection Division Augusto Danganan also could not authenticate the import entries since the originals
had also been eaten by termites. He just issued a certification of the entries filed by Hantex.
Thus, the EIIB relied on the photocopies and the certifications of Tomas and Danganan and recommended the
collection of the tax assessment to the BIR. The BIR conducted an investigation and found out that there was a prima
facie case of fraud against Hantex, based on the report of the EIIB. The BIR Commissioner sent a letter dated April 15,
1991 to demand payment of the deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25,
inclusive of surcharge and interest.
Hantex made a protest and stated that since the officers failed to present the original or authenticated copies of the
Consumption and Import Entry Accounts. However, the CIR denied the request. The CTA ruled in favor of the BIR and
Hantex was ordered to pay. However, the CA reversed the decision and ruled that the assessments were unlawful and
baseless since the photocopies were not duly authenticated nor verified under oath by the investigators.
Issue:
1. W/N the BIRs assessment against Hantex for deficiency income tax and sales tax for the was based on actual
facts
Held/Ratio:
1. NO. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and
accounting 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 court stated
that 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 is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The
BIR Commissioner was correct in saying that the best evidence may consist of hearsay evidence. The general rule
is that administrative agencies such as the BIR are not bound by the technical rules of evidence.
However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include
mere photocopies of records/documents. The BIR, in making a preliminary and final tax deficiency assessment

ALS2014B
ALS2014B 26 of 162
"#$
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. The reason for this is that such copies are mere scraps of paper and are of no probative value as
basis for any deficiency income or business taxes against a taxpayer.
The Court in Collector of Internal Revenue v. Benipayo ruled that the assessment must be based on actual
facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished
by the informer of the EIIB were furnished by another informer. The BIR or the EIIB could have gotten hold of
the originals since these are accomplished in several copies.
The BIR acted arbitrarily and capriciously in relying on the machine copies of the Consumption Entries.
Also, it should not have considered the certifications made by Tomas and Danganan because they did not
authenticate the copies of the Consumption Entries. They just indicated in their letters the numbers of the
entries and the dates of release of the imports.

ALS2014B
ALS2014B 27 of 162
"#$
19 - People v. Sandiganbayan (2005) (San Miguel 300M to 10M tax)
Doctrines:
A final assessment is needed as the basis for collection by distraint or levy.
An abatement or cancellation of the taxes due is proper if the assessment is erroneous or excessive.
Facts:
The BIR assessed that San Miguel Corp. (SMC) had a tax deficiency of up to P343M on specific and ad valorem
taxes for the fiscal year 1985-1986. On 13 July 1987, it sent a PAN demanding payment of the assessed deficiency. On
August 10, SMC protested the assessment, arguing that 1) its excess ad valorem payments (because the BIR had a scheme
allowing the pre-payments of taxes) should be applied to its deficiency in payment of specific taxes, and 2) that the BIR
computed its ad valorem tax deficiency wrongly by disallowing the deduction of the price differential (cost of freight from
place of production to warehouse) and the ad valorem tax itself from the tax base. On October 7, the protest was denied,
but the BIR reduced the tax deficiency to around P302M by allowing the excess ad valorem deposits to be credited. CIR
Bienvenido Tan wrote to SMC of the decision on their protest on October 8. SMC received this letter on October 26.
On October 27, SMC representatives met with Tan in order to orally move to have the assessment reinvestigated.
Tan then forwarded the matter to different BIR officials under him to ask for their opinion on how much deficiency tax
should really be paid by SMC. On November 2, SMC filed a request for reinvestigation. The Chief of the Legislative
Ruling and Research Division recommended that SMCs tax liability should be reduced to P22M. On 21 August 1988,
SMC offered to pay P10M to settle the assessment. The Chief of the BIRs Prosecutor Division and the Legal Service
Assistant Commissioner recommended the acceptance of the compromise settlement. In the end, Tan approved the
compromise settlement.
Because of this, Tan was charged with violating Sec. 3(e) of the Anti-Graft and Corrupt Practices Act by
approving a compromise agreement reducing SMCs liability from P302 to P10, which was grossly disadvantageous to
the government. The Sandiganbayan acquitted Tan, but the Ombudsman still raised the case to the SC on certiorari.
According to the Ombudsman, the P302 assessment was already final and executory since SMC did not appeal to the
CTA, so it could not have been the subject of a compromise agreement anymore.
Issues:
1. W/N the assessment was final and executory (impt for IV-A)
2. W/N the compromise was proper (impt for IV-F)
Held/Ratio:
1. NO, the assessment was not yet final and executory. When Tan wrote to SMC on October 8 to say that the BIR
has finally decided on its case, he was pertaining to the decision on SMCs protest and not on the assessment
itself. It did not constitute as a final assessment on SMCs tax liability. First, the phrase finally decided referred
to the reduction of the assessment, not to total amount of deficiency. Assuming arguendo that it was a final
assessment, its finality was suspended because of Tans handwritten note on the bottom left of the 2
nd
page,
extending the period for tender of payment because he was going to refer the assessment to the BIRs Legal
Service.
Thus, while it was reviewing SMCs request for reinvestigation, the BIR did not render a decision about the
disputed assessment, and consequently, it could not yet have given a FAN to SMC. Because the assessment was
clearly not yet final, executory or demandable, and while it is pending with the CIR, it cannot serve as the
basis of collection by distraint or levy or by judicial action. (This is the only mention of distraint/levy in the
case.)
Here are more reasons why the court said that the assessment wasnt final yet:
Second, SMC filed a timely request for reinvestigation on November 2. Since it received the alleged assessment
only on October 26, their administrative protest was done within 30 days of such receipt, as allowed under Sec.

ALS2014B
ALS2014B 28 of 162
"#$
229. Further, SMCs oral protest on their October 27 meeting with Tan was not merely pro formait is
considered as a protest already, and it suspended the period for appeal. Third, after SMCs request for
reinvestigation, there was no other issuance from BIR that could be considered as a decision. Thus, SMC could
not appeal to the CTA, which only had jurisdiction over decisions involving disputed assessments, and not on the
assessments themselves. Fourth, it was also quite obvious that no decision could be rendered yet since the protest
was referred to different BIR officials for further review. Fifth and last, petitioners reliance on Sec. 228 (which
provided that after the BIRs inaction over the protest over 180 days, the taxpayer could appeal to the CTA) was
erroneous since during this time, RA 8424, which amended Sec. 228 to supersede Sec. 229, was not yet in effect.
Thus, even if the review took more than 180 days, SMC had no other recourse but to wait for the BIRs decision.
2. YES. The court said that what really happened was an abatement or cancellation, and not a compromise. An
abatement is the diminution or decrease in the amount of tax imposed, and it refers to the act of eliminating,
nullifying, lessening, or moderating the tax imposed. Cancellation, on the other hand, means to obliterate, cross
out, or invalidate and to strike out, delete, erase, make void or invalid, annul, destroy, revoke or recall the tax
imposed. The BIR may abate or cancel the whole or any unpaid portion of a tax liability, including its
increments, if its assessment is excessive or erroneous, or if the administration costs involved dont justify
the collection of the amount due. There is no need for mutual concessions, because an excessive or
erroneous tax is not compromisedit is abated or canceled. Moreover, there was no finality in the assessment
that could be settled.
Here, the tax deficiency imposed on SMC was erroneous since it was computed wrongly. When the BIR assessors
computed SMCs alleged tax liability, the price that they used as the tax base included the price differential and
the ad valorem tax itself. As proved by Tan, the tax base should be based on the price of the liquor while it is at
the brewery where it was produced, since as per Sec. 110 of the NIRC, as amended by PD 1994 in 1986, the
excise tax of a domestic product should be paid before the removal of such product from the place of production.
Thus, price differential should not be counted in the tax base. And by including the ad valorem tax in the tax base,
essentially, they imposed tax on another tax (tax pyramiding, which has no basis in fact or in law). Moreover, Tan
showed that inclusion of the ad valorem tax in the tax base would only yield to a circuitous manner of
computation that can never end in imposing the proper ad valorem tax on the taxpayer.

ALS2014B
ALS2014B 29 of 162
"#$
20 - Republic v. Lim Tian Teng Sons and Co., Inc (1966) (Copra outturn)
Doctrines:
The Collector of Internal Revenue is authorized to collect delinquent internal revenue tax either by distraint, levy
or by judicial action or both as long as he assesses the same within the time fixed by law and should be timely
appealed to the Court of Tax Appeal as per RA 1125 Sec. 11.
Facts:
Lim Tian Teng & Sons (LTT) was a domestic corporation based in Cebu which was engaged in the export of
copra. The copra was weighed both at the point of departure and the point of destination. The weight at the point of
departure before shipment was called copra outturn. To allow loss of weight due to shrinkage LTT collected only 95% of
the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final
liquidation and adjustment. On March 30, 1953 they filed their income tax return for 1952 based on accrued income and
expenses and it showed a loss of P50K. They took as part of the beginning inventory for 1952 the copra outturn shipped in
1951 in the sum of P95K they already partially collected as part of its outstanding stock as of Dec. 31, 1951. The
Collector of Internal Revenue (CIR) audited and examined their 1952 return and eliminated the P95K outturn from the
beginning inventory of 1952 and considered it as an accrued income for 1951. This increased LTTs income in 1952 by
P95K and raised their taxable income. Subsequently, the CIR in a letter dated Jan. 16, 1957 assessed LTT a deficiency
income tax of P10K and a surcharge of P5K and demanded payment on Feb 15, 1957. On Jan 31, 1957 LTT requested a
reinvestigation. There was no reply from the CIR but instead referred the case to the Solicitor General for collection. On a
letter dated Sept 20, 1957 which must have been received no later than Oct 8, 1957, the SolGen demanded from LTT
payment within 5 days otherwise judicial action would be instituted without notice. LTT in a letter reiterated its request
for reinvestigation and to be allowed to present supporting papers concerning its tax liability. This request was relayed by
the SolGen to the CIR. The Deputy CIR wrote a letter to LTT informing them that a reinvestigation would be granted if
LTT executed a waiver of the statute of limitations within 10 days. This was extended up to Dec 31 1957 and advised
LTT that if no waiver was produced by this date then a judicial action for collection would be instituted without notice.
LTT failed to file a waiver and the CIR instituted an action in the CFI of Cebu for collection of deficiency income tax on
Sept 2, 1958 or 8 months later. The CFI ruled in favor of the CIR but the latter moved for reconsideration on the fact that
the decision did not include a 5% surcharge for late payment of tax.
Issues:
1. W/N the CFI has jurisdiction to entertain the collection case against LTT even if the CIR has not made a decision
on the request of reinvestigation?
2. W/N the assessment was final and executory?
3. W/N the assessment was correct?
Held/Ratio:
1. Yes. The stand of LTT that the CIR has to make a final decision on the assessment before the filing of a collection
case has no merit. The CIR is authorized to collect delinquent taxes either by distraint and levy or by judicial
action or both simultaneously. The only requisite before he can collect the tax is that he must assess the same
within the time fixed by law and in the case of false or fraudulent return with intent to evade the tax or for failure
to file a return, a proceeding in court for collection may be begun without an assessment. The Tax Code does not
require the CIR to rule first on request for reinvestigation before going to court to collect the assessed tax. Infact
Sec 305 of the Tax Code withholds from all courts except the Court of Tax Appeal (CTA) under Sec 11 of
RA1125 the authority to restrain the collection of any national internal revenue tax, fee or charge. Before the
creation of the CTA, the remedy of a taxpayer who contests an assessment was to pay the tax and bring an action
in court for recovery under Sec 306 of the Code. The CTA now allows the taxpayer to dispute the correctness and
legality of an assessment both in a purely administrative level and in the said court but it does not stop the CIR
from collecting tax through any means provided by Sec 316 of the Code unless enjoined by the same CTA.

ALS2014B
ALS2014B 30 of 162
"#$
2. Yes. The Court considered that the decision of the CIR to collect the tax was indicative of its decision against
reinvestigation. This was communicated to LTT by the SolGen in its letter dated Sept 20, 1957 which must have
been received no later than Oct. 8, 1957. They had from this date 30 days to appeal the assessment to the CTA.
Instead they again requested for a reinvestigation. The CIR responded to LTT by saying that the request would be
granted if they would sign a waiver of statute of limitation as per General Circular V-258. The deadline to submit
was Dec 31, 1957. Having failed to file a waiver automatically brought the denial of the request for
reinvestigation. The Court further said that even if the reckoning date to file an appeal to the CTA was moved
from Oct 8 to Dec 31, 1957, the period to file an appeal has long passed when the action for collection was filed
in the CFI in Sept. 1958. Taxpayers failure to file an appeal to the CTA in due time made the assessment final,
executory and demandable. LTT was barred from disputing the correctness of the assessment. No inquiry can be
made on the merit of the original case or the justness of the judgment other than evidence of want of jurisdiction,
of collusion between the parties or fraud in a party offering the record with respect to the proceedings.
3. Yes. From what appeared in the 1952 return the accounting method used by LTT was the accrual method of
accounting. As such the copra outturn in the amount of P95K should have been treated as accrued income of 1951
instead of stock on hand of 1952. There if every indication that the 1952 income was fraudulent. That the
beginning inventory for 1952 considered the copra outturn on hand but as of Dec 31 1951 it was not in its bodega
anymore. It was in transit to a foreign port and they no longer owned the copra as it was already paid for. They
did not follow their own system of accounting. This deviation was made to lessen its tax liability. Therefore the
surcharge of 50% was correct.

ALS2014B
ALS2014B 31 of 162
"#$
21 - Edward San Juan v. Vasquez & CIR (1961)
Doctrines:
Court of Tax Appeals has exclusive appellate jurisdiction to review by appeal decisions of the CIR in cases
involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue.
CIR may not ignore the positive dispute against the assessment by immediately bringing an action to collect, thus
depriving the taxpayer of his right to appeal the disputed assessment.
Facts:
On June 5, 1954, The Collector of Internal Revenue informed San Juan, through his accountant, that he has until
July 16, 1954 to pay deficiency taxes (P19,704.50) without penalty or until July 31, 1954 to submit evidence to refute the
CIRs assessment. San Juans accountant wrote a letter dated July 30, 1954 to the CIR. He explained why the assessments
were not due and owed to CIR, and begged the CIR to reconsider the penalties. He also assured full payment upon receipt
of the adjusted assessment. The CIR did not respond to the letter.
On February 25, 1959, the CIR brought the action seeking to enjoin San Juan before the CFI of Manila. San Juan
contested the assessments in his answer. He alleged that the action has already prescribed as it was filed more than 5 years
from the date of the return. San Juan moved to dismiss the action on the ground that the CTA, not the CFI, had proper
jurisdiction. He also claimed that a case was pending before the CTA. The CFI denied the Motion to Dismiss. An MR was
filed but it was also denied. San Juan filed a Petition for certiorari and prohibition alleging CFIs lack of jurisdiction.
Issues:
1. W/N the CFI lacked jurisdiction over cases involving disputed assessments
Held/Ratio:
a) YES. It is the CTA who has proper jurisdiction.
Under Sec. 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review
by appeal decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal Revenue.
The criminal complaint against San Juan is for the recovery of income taxes and deficiency tax. San Juan
questioned the correctness of the assessment in both his accountants letter and his answer. Despite this, the CIR
refused to correct the assessment and claimed that it was made in accordance with law. However, the CIR may
not overlook the fact that the assessment had been disputed as the objections to the assessment had been made
within the period. He may not ignore the positive dispute against the assessment by immediately bringing an
action to collect, thus depriving the taxpayer of his right to appeal the disputed assessment.

ALS2014B
ALS2014B 32 of 162
"#$
22 - Yabes v. Flojo (1982)
Doctrine:
The CFI of Cagayan (civil courts) can only acquire jurisdiction over a case filed against the heirs of the taxpayer
if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the
contrary is established, then the Court of Tax Appeals has exclusive jurisdiction over the case.
Facts:
Doroteo Yabes was, for sometime, an exclusive dealer of products of the International Harvester Macleod, Inc.
On May 1, 1962, He received a letter from the CIR demanding payment of the amount of P15,976.81 as commercial
brokers fixed and percentage taxes plus surcharges and the sum of P2,530 as compromise penalty allegedly due from
Yabes for the years 1956-1960. Yabes protested the assessment against him on the ground that his agreements with the
International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence he claimed he was not
liable to pay such kind of taxes. The Commissioner informed Yabes that he acted as a commercial broker in accordance
with the ruling of the BIR in the case of Cirilo D. Constantino. Yabes then sent two letters:
1. An appeal, requesting for the reinvestigation, or review of the case by the appellate division of the Bureau of
Internal Revenue.
2. A request that the appeal be held in abeyance pending final decision of the Case of Cirilo D. Constantino (a
case involving similar facts.)
In reply, the COMMISSIONER INFORMED YABES IN A LETTER (DATED SEPTEMBER 18, 1962)
THAT HIS REQUEST FOR REINVESTIGATION WAS DENIED ON THE GROUND THAT HE HAS NOT
SUBMITTED ANY EVIDENCE TO OFFSET THE FINDINGS OF THE BIR as to warrant a reinvestigation thereof.
However, eight days later or on September 26, 1962, the Commissioner wrote a letter advising Yabes that the
administrative appeal will be held in abeyance pending the resolution of the issues in the Constantino case.
To give time for the Commissioner to study the case and several other cases similar thereto, Yabes filed a tax
waiver on October 20, 1962, extending the period of prescription to December 31, 1967. Yabes died on March 13, 1963
and no estate proceedings were instituted for the settlement of his estate. His widow also died during the pendency of the
case; the petitioners in this case are the deceased taxpayers heirs.
On March 14, 1966, the Court of Tax Appeals decided the Constantino case and ruled that agreements
entered into by Constantino with the International Harvester Macleod, Inc. were of purchase and sale, and not of
agency, hence no commercial brokers fixed and percentage fees could be collected from the said taxpayer. However
on appeal, the CA reversed the ruling of the CTA and ruled in favor of the Commissioner of Internal Revenue.
After a lapse of about five years, the heirs of Yabes, through their lawyers, received on August 4, 1967, a
letter from the Commissioner dated July 27, 1967, requesting the heirs to waive anew the Statute of Limitations
and further confirming the previous understanding that the final resolution of the protest of the deceased Doroteo
Yabes was being held in abeyance until the Supreme Court renders its decision in the Constantino case. The heirs
of Doroteo Yabes filed a revised waiver further extending the period of prescription to December 31, 1970.
For 3 years, no word was received by the heirs of Yabes or their lawyers. On January 20, 1971, the heirs of
Yabes received the summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the
Court of First Instance of Cagayan which seeks to collect from the petitioners the sum of P15,976.82, as deficiency
commercial brokers fixed and percentage taxes, including surcharges and interest thereon, due from their predecessor-in-
interest, Doroteo Yabes, by reason of the latters income derived from transactions as dealer of the products of the
International Harvester Macleod, Inc.
Taking the complaint as the final decision of the Commissioner on the disputed assessment against the
deceased taxpayer Doroteo Yabes, petitioners filed on February 12, 1971, a petition for review of said disputed
assessment with the Court of Tax Appeals. On the same day, the heirs of Yabes filed their answer to the complaint
of the Commissioner before the Court of First Instance of Cagayan and alleged therein that the Court of Tax Appeals
has exclusive jurisdiction over the action and that there is another action of the same nature between the parties relating to

ALS2014B
ALS2014B 33 of 162
"#$
the same assessment pending before the Court of Tax Appeals. The Commissioner filed a motion to dismiss with the
Court of Tax Appeals and subsequently filed a memorandum in support of said motion to dismiss, on the ground
that the assessment against Doroteo Yabes had already become final, executory and incontestable (Final na daw
kasi hindi nag-appeal si Yabes within 30 days from the denial of his protest dated September 18, 1962. Yung naka-all
caps na part. Haha.), and the Court of Tax Appeals had no jurisdiction over the case.
The heirs filed a formal motion to dismiss with the Court of First Instance of Cagayan on the grounds that
said Court has no jurisdiction over the case and that there is another action pending between the same parties for the
same cause before a competent court. The CFI of Cagayan denied the heirs motion to dismiss on the ground that the
heirs have already made a previous answer wherein they categorically admitted the jurisdiction of the court over
the subject matter.
Issues:
1. W/N the assessment made by the CIR against Doroteo Yabes has become final, executory and incontestable after
failing to appeal within the 30-day period from the denial (dated September 18, 1962) of the protest against such
assessment.
2. W/N the CFI of Cagayan has jurisdiction over the case.
Held/Ratio:
1. No. The period for appeal should NOT be counted from September 18, 1962. In a letter of July 27, 1967, CIR
informed the heirs that a resolution of their protest was being held in abeyance until the Supreme Court
renders a decision on a similar case involving the same factual and legal issues. (The Constantino case)
As a matter of fact, in an earlier letter dated September 26, 1962, the CIR also informed the heirs counsel that
administrative appeal for and in behalf of their clients win be held in abeyance pending resolution of the issues
on a similar case which was appealed by you to the Court of Tax Appeals. It is clear from the letters that the
CIR reconsidered the finality of its decision regarding the protest and therefore the assessment cannot be
considered final and executory.
2. No. Under the circumstances of the case, what may be considered as final decision or assessment of the
Commissioner is the filing of the complaint for collection in the CFI of Cagayan, the summons of which was
served on the heirs on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals was
filed on time. The CFI of Cagayan can only acquire jurisdiction over this case filed against the heirs of the
taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and
incontestable. If the contrary is established, then the Court of Tax Appeals has exclusive jurisdiction over
this case. The heirs received the summons in the case filed before the CFI of Cagayan on January 20, 1971, and
they filed their appeal with the Court of Tax Appeals on February 12, 1971, well within the thirty-day prescriptive
period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate
jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving
disputed assessments and other matters arising under the National Internal Revenue Code.
Additional: The Court ruled that the dismissal of the complaint is not sufficient. The ends of justice would best be served
by considering the complaint filed in CFI of Cagayan not only as a final notice of assessment but also as a counterclaim in
the CTA case, in order to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy between the
parties. After all, the two cases involve the same parties, the same subject matter, and the same issue, which is the liability
of the heirs of the deceased Doroteo Yabes for commercial brokers fixed and percentage taxes due from the said
deceased.

ALS2014B
ALS2014B 34 of 162
"#$
23 - Emilio E. Lim, Sr. and Antonia Sun Lim v. CA (1990)
Doctrines:
The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the same time
to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to
that effect.
Facts:
Emilio Lim, Sr. and Antonia Sun Lim were engaged in the dealership of various household appliances. They filed
income tax returns for 1958 and 1959. In 1959, a raid was conducted at their business address in Manila by the NBI. The
NBI seized business and accounting records which served as bases for an investigation undertaken by the BIR.
In 1964, the BIR discovered that the ITRs filed by the petitioners were false or fraudulent. In 1965, the BIR
informed the petitioners that they were to pay P922,913.04 as deficiency income taxes. Emilio requested for a
reinvestigation that was denied by the BIR for Lims refusal to accomplish a waiver of prescription.
In 1967, the BIR assessed the petitioners P934,000.54 as deficiency income taxes plus interest and compromise
penalty. The petitioners protested this latest assessment and repeated the request for reinvestigation. The BIR rendered a
final decision, requiring petitioners to pay the deficiency income taxes. A final notice and demand for payment was served
on petitioners in 1968.
The petitioners did not pay the taxes. Hence, 4 separate criminal informations were filed against the petitioners in
the CFI of Manila for violation of Sections 45 and 51 in relation to Section 73 of the NIRC. The CFI ruled in favor of the
BIR and ordered the petitioners to pay a fine and to pay the government pursuant to PD 69 the deficiency taxes. On
appeal, the CA affirmed the CFI decision. 23 days later, Emilio Lim, Sr. died. Antonia moved for a reconsideration of the
CA decision. The CA then decided that by the death of Emilio, his criminal liability is extinguished and his heirs are
substituted as to the civil aspect of the case.
Issues:
1. W/N the criminal charges prescribed in 10 years
2. W/N the prescriptive period commenced to run from the date of the final assessment (1968)
3. W/N the petitioners should pay the deficiency taxes to the government under PD 69, as decided by the CFI
Held/Ratio:
1. NO, FIVE, as provided by the NIRC: All violations of any provision of this Code shall prescribe after five
years.
2. YES. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the CIR. Hence, it
was only in 1968 that the cause of action on the part of the BIR accrued. The offense was committed only after
receipt of the letter-assessment with the willful refusal to pay the taxes due.
3. NO. SC said that the lower court erred in applying PD 69, which provides that the judgment in the criminal case
shall not only impose the penalty but shall order payment of the taxes subject of the criminal case. The decree
took effect on January 1, 1973, while the criminal cases were instituted on June 23, 1970. PD 69 has no
retroactive effect. The SC added that there is no legal sanction for the imposition of payment of the civil
indemnity to the Government in a criminal proceeding for violation of income tax laws. While Section 73
provides for the imposition of the penalty for refusal or neglect to pay income tax or to make a return thereof, by
imprisonment or fine or both, it fails to provide for the collection of said tax in criminal proceedings. The NIRC
provides only civil remedies for the collection of income tax, such as distraint of goods, chattels or by judicial
action. The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the
same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax
Code to that effect. Antonia Sun Lim was ordered to pay the fine. The fine is deemed extinguished in the case of
the deceased Emilio.

ALS2014B
ALS2014B 35 of 162
"#$
24 - Republic of the Philippines v. Pedro Patanao (1967)
Facts:
This is an appeal from an order of the CFI of Agusan in a civil case, dismissing the Republics complaint in so far
as it concerns the collection of deficiency income taxes (taxable year 1951, 1953 and 1954) and residence taxes (1951-
52).
Patanao was engaged in the business of producing logs and lumber for sale during the years 1951-55. It was
alleged that he failed to file income tax returns for 1953 and 1954 and that the return he filed for 1951, 1952 and 1955
were false and fraudulent because he did not report substantial income earned by him from his business.
The Republic through the Deputy Commissioner of Internal Revenue sent a letter of demand with enclosed
income taxes assessment. Notwithstanding repeated demands, the Republic refused, failed and neglected to pay the taxes
and the assessment became final, executory and demandable because it was not contested before the CTA,
Patanao moved to dismiss the complaint on 2 grounds:
1. Action is barred by prior judgment, Patanao having been previously acquitted in criminal cases for failure
to file income tax returns and non-payment of income taxes.
2. Action is prescribed.
After considering the motion to dismiss, the opposition and the rejoinder to the opposition, the lower court held
that the only cause of action left to the Republic is for the collection of income tax due for the year 1955 and the residence
tax for 1953 to 1955. The lower court ruled that the present action was barred by prior judgment, being that the accused
was acquitted in prior criminal cases for not filing and non-payment of his income tax returns for the years 1953 and
1954. Since there was no waiver or reservation as to the filing of a separate civil vase, Patanao was completely exonerated
of any civil action to collect the payment of the said taxes.
Issues:
1. W/N the lower court properly dismissed the case for being barred by prior judgment.
Held/Ratio:
1. NO, the court fell into error in applying the principle underlying the civil liability of an offender under the Penal
Code to a case involving the collection of taxes. The 2 cases are of different factual premises, which are opposed
to each other and founded on entirely different philosophies.
Under the penal law, civil liability is incurred by reason of the offenders criminal act. Meanwhile, under the
income tax law, the civil liability to pay taxes arises from engaging in a taxable activity (i.e. business) and the
criminal liability from the failure to satisfy such civil obligation. The difference in the factual premises and
foundation principles of the 2 cases is one of the reasons for not imposing civil indemnity on the criminal
infractor of the income tax law. Also, while the NIRC provided the imposition of the penalty of imprisonment or
fine for refusal or neglect to pay income taxes or to make a return, it failed to provide for collection of income tax
in criminal proceedings. The only civil remedies provided for the collection of income tax are distraint of goods,
chattels by judicial action, which are remedies generally exclusive in the absence of a contrary intent.
The acquittal in criminal cases cannot operate to discharge Patanao from the duty of paying taxes which the law
requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the
taxpayer to evade payment. The obligation is not a consequence of the felonious acts charged in the criminal
proceedings, nor is it a mere civil liability arising from crime tat could be wiped out by the judicial declaration of
non-exitence of the criminal acts charged.
As to the prescription of the action, the complaint was filed on December 7, 1962 and was not barred by
prescription because what was applicable was the 10-year prescription period from the discovery of the falsity,
fraud or omission. The fraud in the income tax return for 1951 was discovered on February 14, 1958 hence the
1962 filing was well within the 10-year prescription period.

ALS2014B
ALS2014B 36 of 162
"#$
25 - Ungab v. Judge Cusi (1980)
Doctrines:
There is no requirement for the precise computation and assessment of the tax before there can be a
criminal prosecution under the Code. The crime is complete when the violator has knowingly and willfully
filed fraudulent returns with intent to evade and defeat taxes.
Facts:
On July 1974, BIR examiner Garcia examined the income tax returns of Ungab for the calendar year 1973. Garcia
discovered that Ungab failed to report his income from sales of banana saplings. So, the BIR District Revenue Officer
sent a Notice of Taxpayer to Ungab saying that he owes P104,980 (income, business tax and forest charges). They
also invited him and his lawyer to an informal conference where he could present his objections.
Upon receipt of the notice, Ungab protested the assessment claiming that he was only a dealer/agent on
commission basis in the banana sapling business and that his income was correct. BIR Examiner Garcia however was
convinced that Ungab had filed a fraudulent return so he submitted Fraud Referral Report to the Tax Fraud Unit of
the BIR. The Unit found sufficient proof that Ungab is guilty of tax evasion and recommended his prosecution. The
Commissioner of the BIR approved the prosecution on the second indorsement.
State Prosecutor Acebes (designated to assist in all violations of the NIRC) conducted a preliminary
investigation of the case and finding probable cause filed 6 informations against Ungab. Ungab filed a motion to quash to
annul the informations filed against him but Judge Cusi denied this.
Issues:
1. W/N the State Prosecutor has authority to initiate and prosecute the case against him
2. W/N the court has jurisdiction even though there is a pending protest against the assessment made by the BIR
Examiner
Held/Ratio:
1. YES. The State Prosecutor first sought permission from the City Fiscal of Davao before he started the preliminary
investigation of these cases. The Fiscal, designating the State Prosecutor to assist all fiscals in the investigation
and prosecution of all violations of the NIRC, graciously allowed the State Prosecutor to conduct the
investigation. In fact, the investigation was conducted in the office of the City Fiscal.
2. YES. What is involved here is not the collection of taxes but a criminal prosecution for violations of NIRC
which is within the cognizance of the trial court. 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. The
crime is complete when the violator has knowingly and willfully filed fraudulent returns with intent to evade and
defeat taxes.
A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the
protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for
violation of the NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the motion to quash.

ALS2014B
ALS2014B 37 of 162
"#$
26 - CIR v. Cebu Portland Cement Company and CTA (1987)
Doctrine:
Sec. 291 Injunction not available to restrain collection of taxNo court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code.
Facts:
The CTA ordered the CIR to refund Cebu Portland Cement Company (CEPOC) P359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it. After denial of motions for reconsideration filed by
both CIR and CEPOC, the latter moved for a writ of execution to enforce the judgment.
CIR opposed the motion for the writ of execution on the ground that CEPOC had an outstanding sales tax liability
to which the judgment debt had already been credited. In fact, there was still a balance amounting to P4,789, 279. 85 plus
28% surcharge. CTA granted the motion, stating that the liability of CEPOC for the alleged sales tax was still being
questioned and therefore could not be set-off against the refund.
CIR filed a petition for review of the CTA resolution claiming that the refund should be charged against the tax
deficiency of CEPOC on cement sales under Sec. 186 of the Tax Code. According to the CIR, cement is a manufactured
and not a mineral product, therefore not exempt from sales taxes. He adds that he enforced the tax deficiency through his
power of distraint of personal property, as granted to him under the Tax Code, and that the collection of any national
internal revenue tax may not be enjoined under Sec. 305, subject to only to the exception under RA. 1125
3
, which is not
applicable in this case. The CIR also denies that the sales tax assessments have prescribed because the sales tax returns
have not been filed by CEPOC.
On the other hand, CEPOC denied liability for sales taxes alleging that cement as a mineral product is exempted
from sales taxes under Sec. 188 of the Tax Code after the effectivity of RA. 1299
4
and in accordance with the ruling in
CEPOC v. CIR (1968). In addition it claimed that the alleged tax deficiency was unenforceable because the tax
assessment was not yet final, the same being under protest. It also cites prescription as a defense, not having been filed
within the reglementary 5 year period from the filing of tax returns.
Issues:
1. W/N the sales tax was properly imposed
2. W/N the assessment of its sales tax liability has expired
3. W/N the assessment of its sales tax cannot be enforced because it is still being contested (IMPT)
Held/Ratio:
1. YES. Cement has always been considered a manufactured product, therefore liable for sales tax. It has never been
considered a mineral product under the Tax Code because it is a product of a manufacturing process, even if 80%
of its components are minerals.
2. NO. What CEPOC filed on June 30, 1962 was not its sales returns but its ad valorem returns. Hence, the
assessments made for sales taxes on January 14, 1968 and March 4, 1968 were not out of time. In order to avail of
the benefits of the 5-year prescription period, the taxpayer should have filed the required return for the tax
involved that is the sales return.

3. No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs
shall suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law: Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal
Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any
stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a
surety bond for not more than double the amount with the Court.
4. Act Amending CA. 466 Sec, 246, defining minerals and mineral products

ALS2014B
ALS2014B 38 of 162
"#$
3. NO. Taxes are the lifeblood of the government. If payment of taxes could be postponed by simply questioning
their validity, the machinery of the state would grind to a halt and government functions would be paralyzed. The
Tax Code states 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 this Code. This injunction is available not only when the
assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to
the assessment is still-and only-on the administrative level. There is more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still
due from the CEPOC.
27 - Churchill & Tait v. Rafferty (1915)
Doctrine:
That no courts shall have authority to grant an injunction restraining the collection of any taxes imposed, but the
remedy of the taxpayer who claims that he is unjustly assessed or taxed shall be by payment under protest of the
sum claimed from him by the Collector of Internal Revenue and by action to recover back the sum claimed to
have been illegally collected.
Facts:
The judgment appealed from in this case perpetually restrains and prohibits the defendant and his deputies from
collecting and enforcing against the plaintiffs and their property the annual tax mentioned and described in subsection (b)
of section 100 of Act No. 2339, effective July 1, 1914, and from destroying or removing any sign, signboard, or billboard,
the property of the plaintiffs, for the sole reason that such sign, signboard, or billboard is, or may be, offensive to the
sight; and decrees the cancellation of the bond given by the plaintiffs to secure the issuance of the preliminary injunction
granted soon after the commencement of this action.
Issues:
1. W/N the court may restrain by injunction the collection of tax complained of
2. W/N section 100 of Act No. 2339 is valid conferring power upon the Collector of Internal Revenue to remove any
sign, signboard, or billboard upon the ground that the same is offensive to the sight or is otherwise a nuisance.
Held/Ratio:
1. No. Section 3224 of the Revised Statutes of the United States, effective since 1867, provides that: No suit for the
purpose of restraining the assessment or collection of any tax shall be maintained in any court.
Section 139, with which we have been dealing, reads: No court shall have authority to grant an injunction to
restrain the collection of any internal-revenue tax.
A comparison of these two sections show that they are essentially the same. Both expressly prohibit the
restraining of taxes by injunction.
In Pollock v. Farmers Loan & Trust Co. (157 U.S., 429) the court, through Mr. Justice Miller, said: If there
existed in the courts, state or National, any general power of impeding or controlling the collection of taxes, or
relieving the hardship incident to taxation, the very existence of the government might be placed in the power of a
hostile judiciary.
Section 84 of Act No. 82 provides that No court shall entertain any suit assailing the validity of a tax assessed
under this act until the taxpayer shall have paid, under protest, the taxes assessed against him[.]
This inhibition was inserted in section 17 of Act No. 83 and applies to taxes imposed by provincial boards. The
inhibition was not inserted in the Manila Charter until the passage of Act No. 1793, effective October 12, 1907.
Act No. 355 expressly makes the payment of the exactions claimed a condition precedent to a resort to the courts
by dissatisfied importers. Section 52 of Act No. 1189 provides That no courts shall have authority to grant an
injunction restraining the collection of any taxes imposed by virtue of the provisions of this Act, but the remedy
of the taxpayer who claims that he is unjustly assessed or taxed shall be by payment under protest of the sum

ALS2014B
ALS2014B 39 of 162
"#$
claimed from him by the Collector of Internal Revenue and by action to recover back the sum claimed to have
been illegally collected.
2. Yes, by virtue of the states police power. The pertinent provisions of subsection (b) of section 100 of Act No.
2339 read: If after due investigation the Collector of Internal Revenue shall decide that any sign, signboard, or
billboard displayed or exposed to public view is offensive to the sight or is otherwise a nuisance, he may by
summary order direct the removal of such sign, signboard, or billboard, and if same is not removed within ten
days after he has issued such order he my himself cause its removal, and the sign, signboard, or billboard shall
thereupon be forfeited to the Government, and the owner thereof charged with the expenses of the removal so
effected. When the sign, signboard, or billboard ordered to be removed as herein provided shall not comply with
the provisions of the general regulations of the Collector of Internal Revenue, no rebate or refund shall be allowed
for any portion of a year for which the tax may have been paid. Otherwise, the Collector of Internal Revenue may
in his discretion make a proportionate refund of the tax for the portion of the year remaining for which the taxes
were paid. An appeal may be had from the order of the Collector of Internal Revenue to the Secretary of Finance
and Justice whose decision thereon shall be final.
The basic idea of civil polity in the United States is that government should interfere with individual effort only to
the extent necessary to preserve a healthy social and economic condition of the country. State interference with
the use of private property may be exercised in three ways. First, through the power of taxation, second, through
the power of eminent domain, and third, through the police power. Buy the first method it is assumed that the
individual receives the equivalent of the tax in the form of protection and benefit he receives from the government
as such. By the second method he receives the market value of the property taken from him. But under the third
method the benefits he derived are only such as may arise from the maintenance of a healthy economic standard
of society and is often referred to as damnum absque injuria.

ALS2014B
ALS2014B 40 of 162
"#$
28 - CIR v. Reyes and CTA (1957) (distraint & levy after 3 years of filing for return)
Doctrines:
After three years have elapsed from the date to which income tax returns (that have been found to be false,
fraudulent, or erroneous) may have been made, the CIR cant make summary collection through administrative
methods, but must do so through judicial proceedings.
The requirement of the bond as a condition precedent to the issuance of the writ of injunction applies only in
cases where the processes by which the collection sought to be made by means thereof are carried out in
consonance with the law
Facts:
Aurelio Reyes dutifully filed his income tax returns for the years 1946-1950, with the last one filed on 27 April
1951. However, more than three years later, on 13 October 1954, the BIR sent a letter of demand to Reyes for
deficiency income taxes, surcharges, interests, and penalties for those years. According to the letter, Reyes had until
October 31 to pay the taxes either to the BIR or the City Treasurer of Manila. Together with the letter, he received a
warrant of distraint and levy should he fail to settle his account. But on November 4, Reyes received another letter from
the City Treasurer saying that the BIR instructed it to execute the said warrant if the Reyes still hadnt settled the amount
by November 10.
On November 15, Reyes filed a petition to review the CIRs assessment of his alleged deficiency tax liabilities.
He followed it up the next day with an urgent petition to restrain the CIR for executing the warrant of distraint and levy,
alleging that (a) the period to collect via summary proceedings has already prescribed under Sec. 51(d) of the
NIRC, (b) the distraint and levy would work injustice and irreparable injury to him and render any judgment by the Court
in the main case meaningless and ineffectual, (c) that the requirement under Sec. 11 of RA 1125 that a taxpayer must
first file a bond or deposit before the warrant of distraint and levy may be suspended is not applicable in this case,
and (d) theres no possibility that he would abscond w/ his property or remove or conceal them since they consist mostly
of real property in Metro Manila and shares of stock in the Philippine Racing Club.
The CIR opposed the petition, arguing that (a) the CTA had no authority to restrain him from executing the
warrant of distraint and levy, (b) that the proper remedy for Reyes would be to pay first then seek recovery after, and (c)
Sec. 51(d) doesnt preclude distraint and levy. The CTA sided with Reyes, and restrained the CIR from executing the
warrant of distraint and levy, w/o prejudice to any judicial remedies that the CIR may take. The SolGen instituted a notice
of appeal before this Court.
Issues:
1. W/N the CTA could restrain the CIR from executing the warrant of restraint and levy, even w/o requiring the
filing of a bond or make a deposit as prescribed by Sec. 11 of RA 1125
Held/Ratio:
1. YES. In a long line of cases, the SC has consistently held that the three-year prescriptive period under Sec.
51(d) constitutes a limitation on the governments right to enforce the collection of income taxes by
summary proceedings (distraint and levy). The remaining remedy would be to institute a civil action for
collection. Thus, after three years have elapsed from the date to which income tax returns (that have been found to
be false, fraudulent, or erroneous) may have been made, the CIR cant make summary collection through
administrative methods, but must do so through judicial proceedings.
In this case, the bond/deposit required under Sec. 11 of RA 1125 is not applicable since it only applies when
the collection via distraint or levy is proper. In this case, it is illogical to require the taxpayer to pay a bond to
restrain the collection via a warrant of distraint and levy when such warrant was itself incorrectly issued. The
requirement of the bond as a condition precedent to the issuance of the writ of injunction applies only in cases
where the processes by which the collection sought to be made by means thereof are carried out in consonance
with the law. Sec. 11 of RA 1125 is premised on the assumption that the collection by summary proceedings is by
itself in accordance with existing law; and then what is suspended is the act of collecting, whereas, in the case at

ALS2014B
ALS2014B 41 of 162
"#$
bar what the respondent Court suspended was the use of the method employed to verify the collection which was
evidently illegal after the lapse of the three-year limitation period.
29 - CIR v. Avelino (1956)
Doctrine:
The Court may suspend the collection of taxes even without the required bond if it is found that such collection
would be unlawful.
Facts:
Jose Avelino filed his income tax returns for 1946 and 1948 on February 28, 1947 and April 20, 1949. Five years
and thirty-five days after the last of the two returns was filed (May 24, 2954), the Collector of Internal Revenue
demanded from Jose Avelino the payment of the above taxes. Upon his failure to pay them, the Collector issued on
September 23, 1954, a warrant of garnishment. This was followed by another warrant of distraint, and levy. Avelino filed
an urgent petition with the Court of Tax Appeals praying that the Collector of Internal Revenue be enjoined from
proceeding with the sale of his properties and that the assessment made by him be reviewed.
The CTA issued a resolution declaring the warrants of garnishment, as well as of distraint and levy, including the
seizure and notice of sale of the properties of Jose Avelino, null and void, and ordering the Collector of Internal Revenue
to desist from collecting through summary administrative methods the deficiency income taxes.
Issues:
1. Whether the CIR is barred from collecting through summary administrative methods of distraint and levy the
deficiency income taxes in question
2. Whether the CTA erred in restraining the CIR from collecting through summary administrative methods the
deficiency income taxes, and without requiring a bond in accordance with section 11 of Republic Act No. 1125.
Held/Ratio:
1. YES. The government loses its rights to collect the income tax by summary proceedings after three years
have elapsed from the time the income tax return is filed, although it may still collect the tax by judicial
action.
Since, admittedly, the deficiency taxes in question were assessed and the warrants for their collection by distraint
and levy were issued after the period of three years from the filing of the returns, the warrants and the levy were
issued without authority of law and hence, the Court of Tax Appeals acted properly in enjoining their
enforcement.
While a five-year prescriptive period was given in sections 331 and 332 of the NIRC, it applies only to internal
revenue taxes in general and not to income tax which is given a two-year prescription by sec 51(d) of the same
law.
2. NO. This case is not an injunction against the judicial collection for taxes. Instead, what is enjoined is the
enforcement by distraint and levy which was found to be in violation of the law.
XXX The Court, when in its opinion, the collection of the tax by the CIR may jeopardize the interest of the
taxpayer it may, at any stage of the proceeding, suspend the collection and require the taxpayer either to deposit
the amount claimed or file a surety bond for not more than double the amount with the court.
While court did not require the taxpayer to deposit the amount claimed or to file a bond, such action is
justified considering that the court found the action of the Collector to be contrary to law (beyond the
prescriptive period). To require a bond under such a situation would indeed be illogical and improper. (Citing a
similar case involving A.P. Reyes)

ALS2014B
ALS2014B 42 of 162
"#$
29 - PNOC v. CA (2005) (Sorry this is a really long and complicated case, so bear with me.)
Facts:
The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B.
Savellano.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests earned by
its money placements with PNB and which PNB did not withhold. Another letter, dated 14 October 1986, PNOC
reiterated its proposal to settle its tax liability through the set-off of the said tax liability against NAPOCORS pending
claim for tax refund/credit. The BIR replied that the proposal for set-off was premature since NAPOCORs claim was still
under process. Once more, BIR requested PNOC to settle its tax liability in the total amount of P385,961,580.82,
consisting of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November 1986.
On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC
proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax, in accordance
with the provisions of Executive Order (E.O.) No. 44, which BIR Commissioner Bienvenido A. Tan accepted.
Disagreeing with the CIR regarding the reward and the compromise, Savellano filed a Petition for Review ad
cautelam with the CTA, docketed as CTA Case No. 4249. There are numerous motions filed by both parties and in the
end both the CTA and CA ruled that the Compromise is invalid.
Issue:
1. W/N the declaration by the CTA that the compromise agreement was without force and effect is proper.
Held/Ratio:
1. Yes. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent
account or a disputed assessment (which is required by E.O. 44) as of 31 December 1985. PNOCs tax liability
could not be considered a delinquent account since it was not self-assessed (the BIR conducted an
assessment of PNOC and PNB after obtaining information from private respondent Savellano.
Also, such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31
December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an
assessment that could have been disputed or protested on or before 31 December 1985, having been issued
on a later date.
Although PNOC and PNB have extensively argued their entitlement to compromise under E.O. No. 44,
neither of them has presented any evidence to prove that it may compromise its tax liability under Section
246 of the NIRC of 1977, as amended, which is the proper law.
In addition, the tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No.
44. E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather
than a mere agent. 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. The latter is
disqualified from applying for a compromise settlement because he is being made accountable as an agent, who
held funds in trust for the Government.
Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for
compromise was filed beyond the deadline. Although the compromise agreement was executed only on 22 June
1987, PNOC is claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering to
compromise its tax liability, and that the said letter should be considered as PNOCs application for compromise
settlement. A perusal of PNOCs letter, dated 25 September 1986, would reveal, however, that the terms of its

ALS2014B
ALS2014B 43 of 162
"#$
proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay outright
30% of the basic tax assessed against it as required by E.O. No. 44. Instead, PNOCs offer to set-off was
obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44 because
it would not only delay collection, but more importantly, it would not guarantee collection.
The compromise agreement between the BIR and PNOC was contrary to law having been entered into by
BIR Commissioner Tan in excess of his authority. E.O. No. 44 and the NIRC of 1977, as amended, had
identified the situations wherein the BIR Commissioner may compromise tax liabilities, and none of these existed.
The compromise, moreover, was contrary to public policy; they delayed the collection of taxes. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious needs.
30 - Proton Pilipinas v. Republic (2006)
Doctrine:
Civil liability to pay taxes arises from the fact that one has engaged himself in business, and not because of any
criminal act committed by him.
Facts:
Proton Pilipinas Corporation (Proton) is engaged in the business of importing, manufacturing, and selling
vehicles. In 1997, Devmark Textile Industries, Inc. (Devmark), engaged in the business of spinning, knitting, weaving,
dyeing, and finishing all types of textile, yarns, and fabrics, together with Texasia, Inc. (Texasia) purchased various
vehicles distributed and marketed by Proton. In payment thereof, the above named companies offered Proton their
Tax Credit Certificates (TCCs) worth P30,817,191.00. The companies, through their officers, guaranteed Proton that
the TCCs were valid, genuine, and subsisting and that TCCs were a safe and valid mode of payment for import duties and
taxes as they were issued by the Department of Finance (DOF) and duly honored and accepted by the Bureau of Customs
(BOC).
Persuaded by the representations and assurances made by the two companies as to the legality of the transaction,
Paul Y. Rodriguez, in his capacity as Executive Vice-President of Proton, accepted the TCCs and signed a Deed of
Assignment with Eulogio L. Reyes, General Manager of Devmark. The TCCs were submitted to the DOF for evaluation
and approval. The TCCs were cleared by the DOF and were used by Proton for the payment of customs and duties
taxes to the BOC.
Meanwhile, the Office of the Ombudsman (Ombudsman) under Hon. Aniano Desierto began conducting an
investigation on the alleged P60 Billion DOF Tax Credit Scam. The TCCs assigned to Proton were found to be
irregularly and fraudulently issued by several officers of the DOF, including its Department Undersecretary
Belicena, to Devmark. Apparently, all the pertinent documents submitted by Devmark in support of its application for
the TCCs were fake and spurious. As a consequence thereof, the transfers of the subject TCCs to Proton and their
subsequent use of the same was declared invalid and illegal.
The Ombudsman filed with the Sandiganbayan, Criminal Cases charging DOF Undersecretary Belicena
together with Reyes, General Manager of Devmark, Peter Y. Rodriguez and Paul Y. Rodriguez, in their capacity as
Director and Executive Vice-President/Chief Operating Officer of Proton, respectively, for violation of Section 3 (e) and
(j) of The Anti Graft and Corrupt Practices Act. Proton then filed a criminal case for Estafa against the officers of
Devmark. THE BOC ON THE OTHER HAND, FILED A CASE AGAINST PROTON BEFORE THE RTC FOR
THE COLLECTION OF TAXES AND CUSTOMS DUTIES, WHICH REMAIN UNPAID BECAUSE THE
SUBJECT TCCS HAD BEEN CANCELLED BROUGHT ABOUT BY PROTONS USE OF FRAUDULENT
TCCS IN PAYING ITS OBLIGATIONS. Proton argues that the RTC had no jurisdiction since the filing of the criminal
cases was anchored on the alleged conspiracy among accused public officials, including the corporate officers, regarding
the anomalous and illegal transfer of four TCCs from Devmark to Proton and the latters subsequent use of three TCCs in
paying their customs duties and taxes to the detriment of the government, the civil case regarding collection of unpaid
customs duties and taxes was deemed impliedly instituted with the criminal cases before the Sandiganbayan. Proton

ALS2014B
ALS2014B 44 of 162
"#$
then filed a Motion to Dismiss the case filed by BOC against it on the grounds of lack of jurisdiction, prematurity of
action, and litis pendentia. The RTC denied said Motion. Proton sought reconsideration but the same was denied.
Issue:
1. W/N the case filed by the BOC involving collection of unpaid customs duties and taxes of Proton, belongs to the
Sandiganbayan and not to the RTC, as it can be considered the civil aspect of the Criminal Cases filed before the
Sandiganbayan.
Held/Ratio:
1. No. While it is true that according to Section 4, of Republic Act No. 8249, the institution of the criminal action
automatically carries with it the institution of the civil action for the recovery of civil liability, however, in the
case at bar, the civil case for the collection of unpaid customs duties and taxes cannot be simultaneously
instituted and determined in the same proceedings as the criminal cases before the Sandiganbayan, as it
cannot be made the civil aspect of the criminal cases filed before it. It should be borne in mind that the tax and
the obligation to pay the same are all created by statute; so are its collection and payment governed by
statute. The payment of taxes is a duty which the law requires to be paid. Said obligation is not a
consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising
from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts
charged. HENCE, THE PAYMENT AND COLLECTION OF CUSTOMS DUTIES AND TAXES IN
ITSELF CREATES CIVIL LIABILITY ON THE PART OF THE TAXPAYER. SUCH CIVIL
LIABILITY TO PAY TAXES ARISES FROM THE FACT, FOR INSTANCE, THAT ONE HAS
ENGAGED HIMSELF IN BUSINESS, AND NOT BECAUSE OF ANY CRIMINAL ACT COMMITTED
BY HIM.

ALS2014B
ALS2014B 45 of 162
"#$
31 - Philippine Refining Company v. Court of Appeals (1996)
Doctrines:
SEC 248. Civil Penalties. (a) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25%) of the amount due, in the following cases:
...
(3) Failure to pay the tax within the time prescribed for its payment.
SEC. 249. Interest. (a) In general. There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations,
from the date prescribed for payment until the amount is fully paid.
(c) Delinquency interest. In case of failure to pay:
(1) The amount of the tax due on any return required to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and
demand of the Commissioner, there shall be assessed and collected, on the unpaid amount, interest at the
rate prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the
tax.
Facts:
Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue
(Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584.00. The assessment was timely
protested by petitioner on April 26, 1989, on the ground that it was based on the erroneous disallowances of bad debts
and interest expense although the same are both allowable and legal deductions. Respondent Commissioner, however,
issued a warrant of garnishment against the deposits of petitioner which action the latter considered as a denial of its
protest.
Petitioner accordingly filed a petition for review with the CTA on the same assignment of error. In its decision,
the CTA modified the findings of the Commissioner by reducing the deficiency income tax assessment to P237,381.26,
with surcharge and interest incident to delinquency. In said decision, the Tax Court reversed and set aside the
Commissioners disallowance of the supposed interest expense of P2,666,545.19 but maintained the disallowance of the
bad debts of thirteen (13) debtors. Petitioner then elevated the case to respondent CA.
Issue:
1. W/N the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its payment of the tax
assessed is improper and unwarranted, considering that the assessment of the Commissioner was modified by the
CTA and the decision of said court has not yet become final and executory.
Held/Ratio:
1. No. The deficiency tax assessment in this case, which was the subject of the demand letter of respondent
Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason
of petitioners default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from
April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does
not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of
the original assessment of P1,892,584.00.
Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or
neglect of duty in respect thereof. 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. It is mandatory to collect penalty and interest at the stated rate in case of

ALS2014B
ALS2014B 46 of 162
"#$
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.
32 - BPI v. CIR (2006)
Doctrine:
It is only equitable for the government to collect interest from a taxpayer who, by the governments error,
received a refund which was not due him.
The intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense,
the surcharge and interest charged are not penal but compensatory in nature
Facts:
From February to October 1986, BPI sold to the BSP US Dollars for P1,608,541,900.00. BPI telegraphically
coordinates with a bank in New York in order to credit US Dollars to the BSP account. Upon confirmation, BSP credits
the peso to the BPI account. During 1985 to 1987, BSP enjoyed tax exemption privileges. However, in 1985, a law was
passed that taxes any party to which BSP transacts with in respect to these kinds of transactions.
In 1988, the CIR ordered an investigation to be made on BPIs sale of foreign currency. The CIR issued a pre-
assessment notice informing BPI of its liability for documentary stamp tax plus penalties assessed at P3,016,316.06. BPI
disputed this. Nevertheless, the CIR issued an Assessment. BPI formally protested the assessment, but the protest was
denied. In 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary
stamp tax in the amount of P3,016,316.06.
Consequently, a petition for review was filed with the CTA in 1990. On 31 May 1994, the CTA rendered the
Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central
Bank from the period July 1986 to October 1986 only, thus substantially reducing the CIRs original assessment down
to P690,030 inclusive penalties plus 20% annual interest until fully paid.
Motions for Revconsideration were filed in the CA which likewise affirmed the CTAs Decision imposing a 20%
delinquency on the reduced assessment.
BPI filed a Partial Motion for Reconsideration to the SC.
Issue:
1. W/N the delinquency interest of 20% per annum is applicable
Held/Ratio:
1. YES. The SC categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest
should still be imposed from the time demand was made by the CIR. This doctrine is consistent with the earlier
decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by
explaining that the nature of additional charges is compensatory and not a penalty.
The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the
surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed. The
provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is
precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest
charged are not penal but compensatory in nature they are compensation to the State for the delay in payment,
or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the
State.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed
for the taxpayers use of the funds at the time when the State should have control of said funds. Collecting

ALS2014B
ALS2014B 47 of 162
"#$
such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest
over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.
33 - Tambunting Pawnshop v. CIR (2010)
Doctrines:
From RR 12-99:
SECTION 4. Civil Penalties.
4.1 Twenty-Five Percent (25%) Surcharge. There shall be imposed, in addition to the basic tax
required to be paid, a penalty equivalent to twenty-five percent (25%)thereof, in any the following cases:
4.1.1 Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and
regulations on the date prescribed; or
4.1.2 Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than
those with whom the return is required to be filed; or
4.1.3 Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
4.1.4 Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions
of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed,
on or before the date prescribed for its payment.
Facts:
Tambunting Pawnshop (Tambunting) is engaged in the pawnshop business. The BIR sent an assessment notice
dated August 27, 2003 to Tambunting. It demanded the payment of deficiency VAT (P5,212,404.52) and compromise
penalty (P25,000) for the taxable year of 2000.
Tambunting protested the assessment and argued that a pawnshop business is not subject to VAT and the
compromise penalty. The CIR did not do anything about the protest. As a result, Tambunting filed a petition for review
before the CTA (2
nd
division). The CTA (2
nd
division) ordered Tambunting to pay CIR the deficiency VAT plus 25%
surcharge and 20% delinquency interest per annum (The CTA deleted the compromise penalty).
Tambunting filed a motion for partial reconsideration. It submitted a written manifestation, attaching a copy of the
BIR tax payment deposit slip and the corresponding schedule evincing the payment of P828,809.67 pursuant to a
settlement agreement with the BIR. The CTA denied the motion for partial reconsideration. Tambunting appealed by
petition for review to the CTA en banc. The CTA en banc denied the petition for review. It also denied the subsequent
motion for reconsideration.
Hence, Tambunting appealed. Tambunting claims that pawnshops are not within the concept of all services and
similar services as contained in Section 108 of the NIRC. It also claims that the enumeration of services subject to VAT
is exclusive.
Issues:
1. W/N a pawnshop operator is liable for VAT and compromise penalty during the taxable year of 2000.
Held/Ratio:
1. NO. Pawnshops are treated as non-bank financial intermediaries. Various laws (and subsequent amendments)
related to VAT levied upon non-bank financial intermediaries resulted to consecutive deferments.

ALS2014B
ALS2014B 48 of 162
"#$

Sec 3 and 17 of RA 7716 (Expanded VAT Laws)
VAT on non-financial intermediaries was first
levied. The amount is equivalent to 10% of gross
receipts.
Sec. 11 of RA 8421 amended Sec. 17 of RA 7716
Moved the effectivity of VAT on non-bank
financial intermediaries to January 1, 1998
RA 8424 (NIRC)
financial intermediaries to December 31, 1999.
RA 8761
RA 9010
The consecutive deferments of the effectivity date of the application of VAT on non-bank financial intermediaries
resulted in their non-liability for VAT during the affected taxable years (1996-2002). Moreover, the VAT
deficiency assessment and the surcharge served on Tambunting lacked legal basis and must be canceled.
Tambunting is entitled to a refund of the amount it paid under the settlement agreement for the taxable year of
2000 only.

ALS2014B
ALS2014B 49 of 162
"#$
34 - Michel Lhuiller v. CIR (2006)
*NOTE: the main issue in the case is whether pawnshop transactions are subject to Documentary Stamp Tax (DST). With
regard to the topic of civil penalties: the Court merely imposed Lhuiller Pawnshop to pay an additional deficiency
interest of 20% per annum for failure to pay the required DST on Jan 2, 2000.
Doctrine:
For failure to pay the Deficiency DST the Court may, in pursuant to Sec 249 NIRC (now Sec 248), imposed a
delinquency Interest rate of 20% per annum from Jan 2, 2000 (date taxpayer should have paid BIR) until the
deficiency assessment are fully paid.
Facts:
Michel J. Lhuiller Pawnshop, Inc, (Lhuiller) is a corporation engaged in the pawnshop business which issues
pawn ticket to customers. The case started when Lhuiller received 2 Assessment Notices from BIR Cebu City for
deficiency VAT for P 19,961,639 and deficiency DST for P 13, 142,986 for the fiscal year of 1997. Lhuiller filed motion
for reconsideration to CIR but it was denied which prompted the former to file for petition for review with CTA.
CTA decided in favour of Lhuiller and set aside the assessment notice holding that a pawn ticket cant be subject
of a DST.
Then the CA reversed CTA decision and held that Lhuiller should pay the deficiency DST. It clarified that it is
not the actual pawn ticket that is subjected to DST but rather it is the transaction of pledge (as evidenced by the pawn
ticket) which is being taxed.
The dispositive portion stated the amount to be paid by Lhuillier:
(1) P19,961636.09, as deficiency Value-Added Tax, inclusive of surcharge and interest; and
(2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997.
(3) Delinquency Interest at the rate of 20% per annum from January 2, 2000, until the deficiency
assessment are fully paid, pursuant to Section 249 of the National Internal Revenue Code.
* Note that No. 3 was only added after CIR filed a motion for partial reconsideration praying that Lhuiller be ordered to
also pay the said deficiency interest.
Issue:
1. Whether Lhuiller Pawnshop transactions are subject to DST
Held/Ratio:
1. YES. The Court held that the transactions of Lhuiller are subjected to DST. It is expressly stated in Sec 195 of
NIRC that on every mortgage or pledge of land, estate, or property, real or personalthere shall be collected
a documentary stamp tax. As defined in PD 114 (Pawnshop Regulations Act) the business of pawnshop is
basically engaging in lending money on personal property delivered as security for loans (pledge.) In this case,
the Court clarified that it is not the pawn ticket that creates the pawnshops obligation to pay DST but
rather it is the exercise of the privilege to enter into a contract of pledge.
ADDITIONAL: The Court also noted BIR Ruling No. 018-88 which held that DST is a tax on document and since a pawn
ticket is not an evidence of indebtedness, it cant be subject to DST. In the case at hand, the Court held that the
interpretation of the BIR Ruling is inconsistent with Sec 195 of NIRC. The former being merely an admin issuance
cant override or modify the law (NIRC. )

ALS2014B
ALS2014B 50 of 162
"#$
35 - Connel Bros. Co. v. CIR (1963) (sales tax, difference in computation)
Doctrine:
In all cases where the delinquent has delayed the administration of the law or has intentionally violated the
provisions of the law, or has purposely delayed filing the return, the Collector of Internal Revenue will insist on
enforcing the specific penalty for failure to make return within the time prescribed by law.
Facts:
Connel Bros. Co. is engaged in the importation of general merchandise. The case concerned the alleged
deficiency in sales tax paid by Connel for the period of January 18, 1948 to January 31, 1949.
Section 186 of the NIRC imposes a sales tax of 5% of the gross selling price or gross value in money of the
articles so sold, bartered, exchanged or transferred. The following circulars promulgated by the BIR are applicable:
General Circular No. 431 provides that if a manufacturer, producer, or importer, in fixing the gross selling price
of an article sold by him, has included an amount of money intended to cover the sales tax in the gross selling
price of the articles, the sales tax shall be based on the gross selling price less the amount intended to cover the
tax, if the same be billed to the purchaser as separate item.
General Circular No. 440 reiterates the requirement of separate billing: Unless billed to the purchaser as
separate items in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross
selling price of the articles sold, and deductions thereof will not be allowed.
NOTE: [The sales tax of 5% is based on the gross selling price of the articles sold, bartered, exchanged, or transferred.
But the manufacturer, producer, or importer can already include the sales tax in fixing the gross selling price which
means that the burden of paying would be shifted to the customer. The circulars require that the amount corresponding to
the sales tax must be billed to the purchaser as a separate item so that the deduction would be allowed by the BIR when it
computes for the tax.]
Up to January 17, 1948, every sales invoice issued by Connel contained an itemization of the actual selling price
and of the 5% sales tax, which was then added to the selling price and shifted to the customer, in compliance with General
Circulars No. 431 and 440. However, for January 18, 1948 until January 31, 1949, the sales invoice merely showed one
single amount in each instance: the TOTAL actual selling price, with the notation 5% sales tax included.
Due to its failure to itemize the amount allotted for the sales tax, there had been a difference in the computations
made by Connel and the BIR. The BIR based the 5% tax on the single amount since Connel did not make a separate
itemization of the amounts, while Connel computed it on the basis of the actual selling price alone (it deducted the amount
which was shifted to the customer).
The difference between the amounts resulting from the two methods of computation is the alleged deficiency in
sales tax. The BIR assessed that the deficiency in sales tax amounted to P29,365.50 but it was later reduced to P21,716.54.
In 1950, Connel contested the validity of the assessment but it deposited a check with the BIR. It was in 1956 when the
check was converted as payment for the deficiency. Then a formal request for refund was filed but it was denied by the
BIR.
In 1957, Connel filed a petition for review with the CTA. The CTA denied the request for a refund and imposed a
25% surcharge.
Issue:
1. W/N the mere notation of the words 5% sales tax included on the invoices of Connel complies with the
mentioned circulars
2. W/N the imposition of the 25% surcharge was proper
Held/Ratio:
1. NO. The 5% sales tax under Section 186 of the Revenue Code is imposed on such gross selling price, including

ALS2014B
ALS2014B 51 of 162
"#$
the tax itself when it shifted to the customer, for that is the total amount that he pays to receive the goods
purchased by him. The deduction that is allowed by the two circulars constitutes in effect an exception to the
rule established by the statute, and may be availed of only if the amount intended to cover the tax is billed the
purchaser as a separate item. The exception is merely a privilege granted to the taxpayer which, if he is to claim
its benefits, must be complied with by him.
It was clearly emphasized in the Circulars that the amount of tax must be stated as a separate item in the
sales invoice. Certainly a simple indication on the invoice that the 5% tax is already included in the
aggregate sum charged to the customer cannot be a separate billing of the amount of such tax. The intention
is to apprise the customer of the exact amount of the tax that is passed on to him for payment. The deduction is
allowed only when the amount intended to cover the sales tax is billed as a separate item in the invoices.
Connel relied on the case of Fred Wilson and Company, Inc. wherein the Board of Tax Appeals allowed the mere
notation of the words tax included as substantial compliance. However, Connel cannot rely on this ruling which
was decided on 1952, since the sales covered were in 1948-1949.
2. NO. In all cases where the delinquent has delayed the administration of the law or has intentionally violated the
provisions of the law, or has purposely delayed filing the return, the Collector of Internal Revenue will insist on
enforcing the specific penalty for failure to make return within the time prescribed by law. Failure to make this
return and pay the tax during the months in which the said taxes are payable will be considered as purposely
delaying filing the return. The necessity of notifying the taxpayer of his delinquency or the discovery of such a
delinquency by a revenue officer will be treated as delaying the administration the law.
However in this case, the Court did not affirm the CTAs decision of imposing a 25% surcharge. The Court ruled
that Connel, in preparing its sales invoices as it did, was not guilty of an intentional violation of the law. It did not
delay filing the returns for the sales taxes corresponding to the period in question, let alone did so purposely. The
delay was in the payment of the deficiency, which arose from a mistaken understanding of the regulations
laid down by the BIR. The ensuing controversy was, generated in good faith and should furnish no justification
for the imposition of a penalty.

ALS2014B
ALS2014B 52 of 162
"#$
36 - Tuazon, Jr. v. Lingad (1974)
Doctrines:
Payment of surcharge and interest should be eliminated in cases when the taxpayer relied in good faith upon
opinions rendered by no less than the highest officials of the BIR, including the Commissioner himself.
The ruling in the previous case (Connell Bros. Co. v. CIR) applies to this case.
Facts:
This case involved two parcels of land inherited by Tuazon from his mother. When his mother was still alive,
these lots (with an area of 318 and 67,684 sq. m.) were subdivided into 29 lots, 28 of these were leased out with contracts
ending in 1953. The 29
th
lot with an area of 48,000 sq. m. was not leased to any person because it needed filling due to its
very low elevation.
After the petitioner took possession of the mentioned parcels in 1950, he instructed his attorney-in-fact, J. Antonio
Araneta, to sell them. The 28 lots were immediately sold on a 10-year installment basis. Lot 29 could not however be sold
immediately due to its low elevation.
In 1952, the atty-in-fact had Lot 29 filled. This lot was subsequently subdivided into smaller lots. The small lots
were then sold over the years on a uniform 10-year annual amortization basis. The attorney-in-fact did not employ any
broker nor did he put up advertisements in the matter of the sale thereof.
In 1953 and 1954 the petitioner reported his income from the sale of the small lots as long-term capital gains.
In 1957, like the previous years, the petitioner treated his income from the sale of the small lots as capital gains.
He, however, deducted the real estate dealers tax he paid for in 1957 on account of rentals received from the mentioned
28 lots and other properties of the petitioner. The CIR approved the assessment. On Jan. 1963, however, the
Commissioner reversed himself and considered the profits derived as ordinary gains and ordered him to pay the proper
taxes and an additional .5% monthly interest from 1959-1962.
His motion for reconsideration was denied. On appeal, the CTA modified the Commissioners order and required
him to pay an additional 5% surcharge and 1% monthly interest.
Issues:
1. W/N the properties in question which the petitioner had inherited and subsequently sold in small lots to other
persons should be regarded as capital assets
2. W/N he should be maid liable to pay the surcharge and monthly interest (relevant issue)
Held/Ratio:
1. NO. The following circumstances in combination show unequivocally that the petitioner was, at the time material
to this case, engaged in the real estate business: (1) the parcels of land involved have in totality a substantially
large area, nearly seven (7) hectares, big enough to be transformed into a subdivision, and in the case at bar, the
said properties are located in the heart of Metropolitan Manila; (2) they were subdivided into small lots and then
sold on installment basis (this manner of selling residential lots is one of the basic earmarks of a real estate
business); (3) comparatively valuable improvements were introduced in the subdivided lots for the unmistakable
purpose of not simply liquidating the estate but of making the lots more saleable to the general public; (4) the
employment of J. Antonio Araneta, the petitioners attorney-in-fact, for the purpose of developing, managing,
administering and selling the lots in question indicates the existence of owner-realty broker relationship; (5) the
sales were made with frequency and continuity, and from these the petitioner consequently received substantial
income periodically; (6) the annual sales volume of the petitioner from the said lots was considerable, e.g.,
P102,050.79 in 1953; P103,468.56 in 1954; and P119,072.18 in 1957; and (7) the petitioner, by his own tax
returns, was not a person who can be indubitably adjudged as a stranger to the real estate business. Under the
circumstances, this Court finds no error in the holding below that the income of the petitioner from the sales of the
lots in question should be considered as ordinary income.

ALS2014B
ALS2014B 53 of 162
"#$
2. NO. This Court notes, however, that in ordering the petitioner to pay the deficiency income tax, the Tax Court
also required him to pay a 5% surcharge plus 1% monthly interest. In our opinion this additional requirement
should be eliminated because the petitioner relied in good faith upon opinions rendered by no less than the highest
officials of the Bureau of Internal Revenue, including the Commissioner himself. The following ruling in Connell
Bros. Co. (Phil.) v. Collector of Internal Revenue

applies with reason to the case at bar:
We do not think Section 183(a) of the National Internal Revenue Code is applicable. The same
imposes the penalty of 25% when the percentage tax is not paid on time, and contemplates a case
where the liability for the tax is undisputed or indisputable. In the present case the taxes were
paid, the delay being with reference to the deficiency, owing to a controversy as to the proper
interpretation if Circulars Nos. 431 and 440 of the office of respondent-appellee. The controversy
was generated in good faith, since that office itself appears to have formerly taken the view that
the inclusion of the words tax included on invoices issued by the taxpayer was sufficient
compliance with the requirements of said circulars.

ALS2014B
ALS2014B 54 of 162
"#$
37 - CIR v. Republic Cement (1983)
Surcharges for late tax payments apply only when the percentage tax is not paid on time, and contemplates
a case where the liability for the tax is undisputed or indisputable.
Facts:
All of the five (5) respondents in the case are domestic corporations engaged in the business of manufacturing
cement.
Pursuant to the decision of the SC in another case (declaring that cement is a manufactured product), the CIR
issued individual assessments against the respondents for the corresponding sales deficiency tax. The assessments
amounted to a total of P38.5 million. [Note: Apparently, the disputed assessments carried with it a 25% surcharge
pursuant to Section 183 (a) of the Tax Code [now Sec. 193 (a) (3)] prescribing the said surcharge for late tax payment.]
The respondents jointly protested the assessments made against them. The CIR denied the joint protest of the
respondents.
The respondents then appealed the matter to the CTA. The CTA ultimately reversed the ruling of the CIR.
The petitioner then filed the petition before the SC.
Issues:
1. (Main issue but not relevant) Whether or not cement should be considered as a mineral or a manufactured good
for purposes of determining the applicable tax.
2. (Relevant issue to the topic) Whether or not the 25% surcharge for late payment was proper.
Held/Ratio:
1. Cement is a manufactured good.
2. The 25% surcharges was not proper hence, should be deleted.
Citing the case of Connell bros. v CIR, the Court explained that Section 183 (a) of the Tax Code [now Sec. 193
(a) (3)] prescribing surcharges for late tax payments is applicable only when the percentage tax is not paid on
time, and contemplates a case where the liability for the tax is undisputed or indisputable. Further, it said
that where the taxpayer apparently had himself originally adopted an incorrect interpretation of its own
circulars, it would not be just to penalize appellant for falling into the same error.
It found that in the instant case, the assessments are not undisputed or indisputable.
According to the Court, the dispute arose not merely from the respondents good faith divergent interpretation of
the law but more from the stand of the BIR itself that cement is a mineral product. The Court noted that in fact,
the CTA affirmed this stand of the BIR.

ALS2014B
ALS2014B 55 of 162
"#$
38 - Antam Pawnshop Corporation v. CIR (2008)
Facts:
Antam is a duly organized corporation engaged in the pawnshop business. The BIR examined Antams books of
accounts and other accounting records for all internal revenue taxes for the period covering January 1 to December 31,
1998. Antam was assessed with deficient VAT, MCIT, DST, and compromise penalties.
CTA: On the issue of the DST on pawn tickets, they are neither security nor a printed evidence of indebtedness.
Consequently, it cannot be considered as a document subject to DST under Section 195 of the NIRC. However, for failure
to present proof of payment of tax, Antam was held liable for DST on subscribed capital stock in the amount of
P15,000.00.
CA: Pawn tickets are subject to DST. It was ruled that the pawn ticket is the logical document evidencing a
contract of pledge and thus subject to DST pursuant to Section 195 of the NIRC in relation to Section 173.

The CA explained that the DST provided under Section 173 of the NIRC is levied, not on the documents, but in
respect to the transaction so had or accomplished. In general, 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.
Issues:
1. Whether Antam is liable for DST
2. Whether Antam is liable for surcharges and delinquency interest
Held/Ratio:
1. Yes. Antams contention that pawn ticket, being merely a receipt for a pawn as defined in P.D. No. 114, is thus
not subject to DST under Section 195 of the NIRC and that the document to be taxed should be the pledge
agreement, and not the pawn ticket, cannot prosper because what is subject to DST is not the ticket itself but
the privilege of entering into a contract of pledge.
In general, 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. [Cites doctrines from Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue]
2. No. Good faith and honest belief that one is not subject to tax on the previous interpretation of the
government instrumentality tasked to implement the tax law are sufficient justification for petitioner to be
spared of interest and surcharges.
The dispute as to the tax liability of petitioner for DST on pawn tickets arose not simply because of ordinary
divergence of views in the interpretation of the law. Petitioners position was founded on the previous
interpretation of the BIR that a pawn ticket is not a printed evidence of indebtedness, hence, not subject to
DST. Even the CTA, the specialized body handling tax cases, sustained its position and it was only only recently,
in Lhuillier, that the Court made a categorical pronouncement that pawn tickets are subject to DST.

ALS2014B
ALS2014B 56 of 162
"#$
39 - CIR v. Javier, Jr. (1991)
Doctrine:
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances, which, at most, create
only suspicion, and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.
Facts:
About June 3, 1977, Victoria L. Javier (wife of private respondent, Melchor Javier, Jr.) received from the
Prudential Bank and Trust Company the amount of US$999,973.70 remitted by her sister, Mrs. Dolores Ventosa through
some banks in the United States, among which is Mellon Bank, N.A. Later that month, Mellon Bank, N.A. filed a
complaint against private respondent, his wife and other defendants, claiming that its remittance of
US$1,000,000.00 was a clerical error and should have been US$1,000.00 only and prayed that the excess amount be
returned on the ground that the defendants are trustees of an implied trust for the benefit of Mellon Bank with the
duty to return said amount from the moment it was received.
In November 1977, the Fiscal of Pasay City filed an information with the then Circuit Criminal Court charging
Spouses Javier with the crime of estafa, alleging that they misappropriated, misapplied, and converted to their own
personal use and benefit the amount they received as a result of a mistake in remittance.
On March 15, 1978, Javier filed his income tax return for 1977 showing a gross income of P53,053.38 and a net
income of P48,053.88 and stating in the footnotes of the return that Taxpayer was recipient of some money
received from abroad which he presumed to be a gift but turned out to be an error and is now subject of
litigation.
In 1980, Javier received a letter from the acting Commissioner of Internal Revenue, together with income
assessment notices for the years 1976 and 1977, demanding that he pay P1,615.96 and P9,287,297.51 as deficiency
assessments for the years 1976 and 1977 respectively. On December 15, 1980, he wrote to the BIR that he was paying the
deficiency income assessment for the year 1976 but denied that he had any undeclared income for 1977 and requested that
the assessment for the latter year be made to await final court decision on the case filed against him for filing an allegedly
fraudulent return.
He again received from Acting CIR Romulo Villa a letter stating in reply to his December 15, 1980 letter-protest
that the amount of Mellon Banks erroneous remittance which you were able to dispose, is taxable. The Commissioner
also imposed a 50% fraud penalty against him. Disagreeing, Javier filed an appeal with the CTA, which held that the 50%
surcharge imposition should be deleted.
Issue:
1. W/N Javier is liable for the 50% fraud penalty.
Held/Ratio:
1. No. CIR contends that Melchor Javier, Jr. committed fraud by not declaring the mistaken remittance in his
income tax return and by merely making a footnote thereon. However, it is respectfully submitted that the said
return was not fraudulent. The footnote was practically an invitation to the CIR to make an investigation,
and to make the proper assessment.
The rule in fraud cases is that the proof must be clear and convincing, that is, it must be stronger than the mere
preponderance of evidence which could be sufficient to sustain a judgment on the issue of correctness of the
deficiency itself apart from the fraud penalty. When Javier filed the questioned return, he was guided not by
that willful and deliberate intent to prevent the Government from making a proper assessment which
constitute fraud, but by an honest doubt as to whether or not the mistaken remittance was subject to tax.
Under the then Section 72 of the Tax Code, a taxpayer who files a false return is liable to pay the fraud penalty of
50% of the tax due from him or of the delinquency tax in case payment has been made on the basis of the return
filed before the discovery of the falsity or fraud.

ALS2014B
ALS2014B 57 of 162
"#$
In Aznar v. Court of Tax Appeals, it was held that the fraud contemplated by law in relation to the filing of
income tax return is actual and not constructive. It must be intentional fraud, consisting of deception willfully
and deliberately done or resorted to in order to induce another to give up some legal right.
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances, which, at most, create
only suspicion, and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.
A fraudulent return is always an attempt to evade a tax but a merely false return may not be. Herein, there
was no actual and intentional fraud through willful and deliberate misleading of the government agency
concerned, the BIR. Javier did not conceal anything to induce the government to give up some legal right and
place itself at a disadvantage as to prevent its lawful agents from proper assessment of tax liabilities. Error or
mistake of law is not fraud.
As ruled by the CTA, the 50% surcharge imposed as fraud penalty by the BIR in the deficiency assessment should
be deleted.

ALS2014B
ALS2014B 58 of 162
"#$
40 - CIR v. JAL (1991)
Facts:
Since mid-July, 1957, JAL had maintained an office at the Filipinas Hotel, Roxas Boulevard, Manila. Said office
did not sell tickets but was maintained merely for the promotion of the companys public relations and to hand out
brochures, literature and other information playing up the attractions of Japan as a tourist spot and the services enjoyed in
JAL planes.
On July 17, 1957, JAL constituted the Philippine Air Lines (PAL), as its general sales agent in the Philippines. As
an agent, PAL, among other things, sold for and in behalf of JAL, plane tickets and reservations for cargo spaces which
were used by the passengers or customers on the facilities of JAL.
On June 2, 1972, JAL received deficiency income tax assessment notices and a demand letter from petitioner
Commissioner of Internal Revenue (hereinafter referred to as Commissioner for brevity), all dated February 28, 1972, for
a total amount of P2,099,687.52 inclusive of 50% surcharge and interest, for years 1959 through 1963. On June 19, 1972,
JAL protested said assessments alleging that as a non-resident foreign corporation, it was taxable only on income from
Philippine sources as determined under Section 37 of the Tax Code, and there being no such income during the period in
question, it was not liable for the deficiency income tax liabilities assessed.
JAL therefore, elevated the case to the Court of Tax Appeals which, in turn, reversed the decision
Issue:
1. W/N sales of tickets and other activities by PAL in behalf of JAL were taxable.
2. W/N the imposition of a surcharge is proper? (IMPORTANT)
3. W/N the imposition of an interest is proper? (IMPORTANT)
4. W/N the imposition of a compromise penalty is proper? (IMPORTANT)
Held/Ratio:
1. YES. Section 29 of the old Tax Code provides that the words `income from any source whatever disclose a
legislative policy to include all income not expressly exempted within the class of taxable income under our laws.
The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.
2. NO. Nowhere in the records of the case can be found that JAL deliberately failed to file its income tax returns for
the years covered by the assessment. There was not even an attempt by petitioner to prove the same or justify the
imposition of the 50% surcharge. The 50% surcharge or fraud penalty provided in Section 72 of the National
Internal Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the required tax return
within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand,
the same Section provides that if the failure to file the required tax return is not due to willful neglect, a penalty of
25% is to be added to the amount of the tax due from the taxpayer. Thus, 25% is the proper charge.
3. YES. As to the 1/2% interest per month, the same finds basis in Section 51(d) of the Tax Code then in force.
Interest on deficiency. Interest upon the amount determined as a deficiency shall be assessed at the same time as
the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall
be collected as a part of the tax, at the rate of six per centum per annum from the date prescribed for the payment
of the tax x x x; PROVIDED, That the maximum amount that may be collected as interest on deficiency shall in
no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription
to the contrary notwithstanding.
The 6% interest per annum is the same as 1/2% interest per month and petitioner correctly computed such interest
equivalent to three years which is the maximum set by the law.

ALS2014B
ALS2014B 59 of 162
"#$
4. NO. The compromise penalty amounting to P1,500.00 for violation of bookkeeping regulations appears to be
without support. The particular provision in the said regulations allegedly violated was not even specified.
Furthermore, the term compromise penalty itself is not found among the penal provisions of the Bookkeeping
Regulations
41 - Insular Lumber Company v. CIR (1956)
Note: This was lifted directly from e-SCRA. No other text appears except for these two paragraphs.
Appeal from a judgment of the Court of First Instance of Negros Occidental ordering defendant to reimburse
plaintiff the amount of P25,780.64, plus interest thereon from the time the taxes were collected, and to pay the costs. This
is a reconstituted case. The complaint was filed in the Court of First Instance of Negros Occidental on Aug. 1, 1935 by the
Insular Lumber Co., against the Collector of Internal Revenue for the recovery of the total amount of P25,821.07,
representing 1!% sales tax, 25% surcharge for late payment, and an additional surcharge of 100% for allegedly making
fraudulent returns, all of which plaintiff paid under protest. After trial, the Court below rendered judgment absolving
defendant from the complaint, and on appeal to the Court of Appeals, judgment was affirmed. Upon certiorari to this
Court, we ordered the remand to the court a quo f or the reception of certain evidence erroneously excluded at the trial.
Before the second hearing could be had, war broke out and the records of the case were destroyed.
Judgment appealed from is reversed insofar as it orders the appellant CoIlector of Internal Revenue to refund to
plaintiff-appellee the 1!% sales taxes and the 25% surcharge for late payment collected under the first, second, third and
fourth causes of action; and affirmed insofar as it orders the appellant to refund to plaintiff-appellee the 100% surcharge
collected under the first,. second, third, fourth, and sixth, causes of action, but without interest thereon. No costs. Reyes,
J.B. L., J., ponente.

ALS2014B
ALS2014B 60 of 162
"#$
42 - Cagayan Electric v. CIR (1985) (interest)
Doctrine:
Since the assessment is highly controversial (because the CIR was not certain of petitioners liability and that
petitioner has reason to believe that it is not liable to pay income tax), petitioner should only be liable for the tax
proper and not for the surcharge and interest.
Facts:
Cagayan Electric Power & Light Co., Inc. (Cagayan Electric) is the holder of a legislative franchise under RA
3247. By virtue of the franchise, Cagayan Electric is exempted from paying 3% tax on its gross earnings from the sale of
electric current
5
.
RA 5431 (27 June 1968) was passed amending section 24 of the Tax Code, and made liable to income tax all
corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code
notwithstanding the provisions of existing special or general laws to the contrary. Therefore, franchise companies were
subjected to income tax in addition to franchise tax.
Cagayan Electrics franchise was amended by RA 6020 (04 August 1969) [added Villanueva and Jasaan, Misamis
Oriental to its zone]. Under this amendment, the tax exemption in its original charter is re-enacted.
By virtue of RA 5431, the CIR required Cagayan Electric to pay deficiency taxes for 1968-1971. Syempre,
petitioner contested. CIR cancelled the assessments for 1970 and 1971 only.
Cagayan Electric appealed to the Tax Court. Court held that the petitioner is liable for January 1 to August 3,
1969 (dates when RA 5431 was in effect as to Cagayan Electric). Petitioner appealed to SC.
Issue:
1. W/N the assessment was valid
Held/Ratio:
1. NO. A franchise is a mere privilege. The Congress could impair ones legislative franchise when the public
interest so requires.
RA 5431 had the effect of withdrawing petitioners income tax. The Tax Court correctly held that the exemption
was restored by the subsequent enactment of RA 6020 which re-enacted the said tax exemption. Hence, as
correctly held by the Tax Court, petitioner is liable only for income tax for the period from January 1 to August 3,
1969.
It should be noted that franchise companies have been paying income tax in addition to the franchise tax.
However, it cannot be denied that the 1969 assessment is highly controversial since petitioner has reason not to
pay the income tax because of the tax exemption in its franchise.
For this reason, the Court held that it should be liable only for tax proper and should not be held liable for
surcharge and interest.

5. Section 3, RA 3247. In lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly
exempted.

ALS2014B
ALS2014B 61 of 162
"#$
43 - Republic v. Heras (1970) (backpay certificates)
Doctrines:
There being an invalid payment by the taxpayer of his tax liability, which constituted no payment at all, the
collection of surcharges and interests becomes mandatory on the CIR and the courts.
Interest for deficiency tax is not punitive but compensatory in nature. It is the charge for the use of taxpayer of
funds that rightfully should have been in the government coffers and utilized for its needs.
Facts:
Antonio Heras filed his income tax return for 1958, declaring a taxable net income of P62, 444.64. Yet upon audit
and examination of the return by the BIR, he was held accountable for a deficiency of P 13,962.00. He was sent an
Income Tax Assessment Notice on May 14, 1959. On August 17, 1959 Heras paid the tax due to the Municipal
Treasurer of Bacoor Cavite using negotiable certificates of indebtedness in the sum of P13, 934.55 and cash in the
amount of P24.75, making the total P 13, 962.00
However Heras was later notified by the Revenue Office that pursuant to BIR General Circular No. V-289
dated May 8, 1959, payment of income taxes with indorsed negotiable backpay certificates is not allowed. After
another demand for payment was ignored, an action for collection for the alleged deficiency income tax was filed against
Heras for the sum of P13,934.55; P697.00 as 5% surcharge; plus 1% monthly interest in the amount from May 31, 1959 or
for a total of P 19, 637, 04.
As his defense, Heras claimed the following: a) that his payment on August 17, 1959 to the Municipal Treasurer
was valid; b) that upon acceptance of payment, the Republic of the Philippines was estopped from pursuing the complaint;
and c) that the opinion of the Secretary of Justice upon which Circular V-289 was based is not binding on the courts.
Nevertheless, the Republic contended that only original applicants of such certificates had the privilege to use backpay
certificates for payment of taxes and other obligations to the government, while Heras was only an assignee of the
certificate.
The CFI rendered judgment in favor of Heras and held as valid and effective his payment using the indorsed
negotiable backpay certificates. Hence, this appeal.
Issues:
1. W/N negotiable certificates of indebtedness or backpay certificates may be used for payment for tax liabilities by
holders who are not the original applicants therefor
2. W/N Heras is liable for surcharges and interests for late payment of his 1958 income tax (IMPT)
Held/Ratio:
1. NO. It is not denied by Heras that he was only an assignee of the backpay certificates. Under R.A. 304 as
amended by R.A. 800 and 897, and further supported by the case of De Borja v. Gella, the law confined the
privilege of using backpay certificates for payment of taxes by its original applicants. In enumerating the
obligations that may be properly settled with the said certificates, the law referred to them as his taxes, and
government hospital bills of the applicant, making it clear that the intent of the legislators was to limit its use by
the original applicants or original holders thereof. The most an assignee or a subsequent holder like Heras could
do was have it discounted upon maturity or to negotiate it.
2. YES. Heras not being the original applicant of the certificates, the effected payment of his tax obligation
constituted no payment at all. His tax liability not only remained unextinguished, but became subjected to
surcharges and penalties for late payment.
Under Sec. 51-e of the Internal Revenue Code, where the deficiency tax is not paid in full, there shall be collected
upon the unpaid amount, as part of the tax, interest of 1% a month, but not to exceed the amount corresponding to
3 years, plus 5% surcharge, such surcharge to be computed from the notice of the assessment or demand of the
Commissioner.

ALS2014B
ALS2014B 62 of 162
"#$
After being informed of the basis of the demand by the Commissioner (the BIR circular disallowing backpay
certificates for settlement of the tax obligations of assignees or subsequent holders), the refusal of Heras to pay
the demanded income tax cannot be considered in good faith that would relieve payment of surcharges and
interests. There being an invalid payment of his tax liability, which constituted no payment at all, the
collection of surcharges and interests becomes mandatory on the CIR and the courts.
The interest collectible is not punitive, but compensatory in nature. It is compensation to the State for the
delay in the payment of tax. It is the charge for the use by the taxpayer of funds that rightfully should have
been in the government coffers and utilized for its needs.
44 - CIR v. Lianga Bay Logging Co., Inc. & CTA (1991) (Class C sawmill operator)
Doctrines:
The imposition of a compromise penalty w/o the conformity of the taxpayer is illegal and unauthorized
Facts:
Lianga is a forest concessionare. It originally held an ordinary timber license, but in 1958, its license was
converted into a Timber License Agreement. With this, Lianga also operated a sawmill, and it posted a bond of
P25k w/ the CIR to guarantee payment of any forest charges w/c may be due from it. Forest officers were also
permanently assigned to Liangas concession, where they prepared monthly reports about the quantity of logs cut
and removed. Based on these, under the Revised Internal Revenue Forest Products Regulation No. 85, Lianga was
certified as a Class C sawmill operator. Based on the officers reports, Liangas forest charges were computed, and for
the period of April 1956-December 1961, it paid a total of P336k in regular forest charges.
Two years later, the CIR wrote to Lianga demanding that it pay P84k, which represented a 25% surcharge on the
P336k it paid earlier. According to the CIR, Lianga had to pay the surcharge for not complying w/ Sec. 267 of the NIRC
(in relation to Secs. 11 and 13 of Regulations No. 85) which required forest concessionaires to file auxiliary invoices
before it could remove forest products from its cutting area. The CIR also demanded that Lianga pay P300 as compromise
fee if Lianga wished to settle the supposed violation extrajudicially. Lianga asked the CIR to reconsider his assessment,
but the latter refused, so Lianga appealed to the CTA. The CTA decided in favor of Lianga.
Issues:
1. W/N the imposition of the 25% surcharge and additional compromise fee was proper since Lianga failed to file
auxiliary invoices
Held/Ratio:
1. NO. Sec. 11 of Regulations No. 85 only requires the submission of auxiliary invoices for the concessionaire who
holds an ordinary license. It provides for separate requirements in case of forest concessionaires who own/operate
sawmills, like Lianga. Being a Class C sawmill operator, Lianga wasnt required to submit auxiliary
invoices but only a copy of its monthly scale reports (the one made by the forest officers). Thus, by
submitting such report, Lianga could transport the logs it had cut w/o any corresponding auxiliary invoice. The
CTA conclusively found that Lianga is a Class C sawmill operator because a) it posted the bond to guarantee
payment of forest charges and b) forest officers have been permanently assigned to it. The CIR has never
claimed & made no effort to prove that Lianga did not submit the necessary report and other invoices.
Thus, it is presumed that Lianga has complied w/ all its requirements. Plus, the CIRs assessment of the
surcharge was even based on the monthly report that Lianga is required to submit.
Sec. 267 of the NIRC does not specify the nature of the invoice which is required to be submitted before forest
products can be removed from the forest concession. It may refer either to auxiliary invoices or
official/commercial invoices, such as those prepared by Class C sawmill operators. In this case, Lianga prepared
the necessary sawmill and commercial invoices, so no violation of the rule may be imputed to it. Thus, there
is no basis for the compromise penalty, and as the CTA declared, the imposition of the same w/o the
conformity of the taxpayer is illegal & unauthorized.

ALS2014B
ALS2014B 63 of 162
"#$
45 - The Philippines International Fair, Inc. v. CIR (1962)
Doctrines:
The payment of the compromise is really a penalty to avoid prosecution for violation of provisions of the Tax
Code.
Facts:
Philippines International Fair (PIF) is engaged in the business of establishing, operating and managing of
international fairs and expositions. In 1953 and 1954, the PIF held a fair and charged fees for admission to the exposition
and amusement grounds and the auditoriums.
The CIR, in 1954, sent 3 letters demanding the payment of P132,220 as amusement tax on its gross receipts
derived from admission tickets to the exposition and amusement grounds, Aquacade Show, and benefit dances, and those
derived from its gate and auditorium fees. The CIR also demanded the payment of P33,055.12 as 25% surcharge thereon
for late payment and P13,200.00 as compromise penalty. The compromise penalty was allegedly for the extrajudicial
settlement of PIFs violation of some sections of the Tax Code. The PIF requested for reinvestigation. The CIR still
ordered PIF to pay.
PIF appealed to the CTA. The CTA ordered PIF to pay the amusement tax and surcharge on its gross receipts
from admission tickets to the exposition ground, auditorium, and benefit dances. The CTA exempted PIF from paying the
amusement tax and surcharge on its receipts from admission tickets to the Aquacade Show and the compromise penalty.
PIF alleged that it is not subject to the amusement tax because its activities were sponsored by the Philippine
Government and by virtue of RA 722 which exempts exhibitions, except film and radio phonographic records. The CIR
alleged that the CIR erred in exempting PIF from paying the amusement taxes on the Aquacade Show and the
compromise penalty.
Issues:
1. W/N PIF is exempt from paying amusement taxes on the Aquacade Show?
2. W/N PIF is exempt from paying the compromise penalty?
Held/Ratio:
1. YES. It is an art exhibition, covered by the exemption under RA 722.
2. YES. The case at hand is not a criminal action instituted against PIF for having violated some of the provisions of
the Tax Code. Rather, this case deals with a tax assessment or demand made by the CIR upon PIF, from which
PIF appealed to the CTA and ultimately to the SC. It is clear that the PIF resisted the assessment. Consequently,
the result of the proceedings cannot be considered a compromise because the CTA and the SCs decision
constitute an adjudication upon the issue arising from the assessment made by the CIR, on the one hand, and
PIFs refusal to pay the same, on the other.
A compromise is really a penalty for violation of the provisions of the Tax Code. Since this case is not a
criminal case, the payment of the alleged compromise cannot be imposed upon the taxpayer in the present
proceedings (unless the taxpayer gives his consent).

ALS2014B
ALS2014B 64 of 162
"#$
46 - CIR v. Phoenix Assurance Co., Ltd. (1965) (amended return)
Facts:
Phoenix Assurance Co., Ltd. is a foreign insurance corporation based in London which entered into worldwide
reinsurance treaties.
April 1, 1953 - Phoenix filed its Philippine income tax return for 1952.
August 30, 1955 - Phoenix amended its ITRs for 1952 and 1953.
July 24, 1958 - CIR assessed a deficiency tax of P5,667.00 representing disallowed deductions for head office
expenses.
August 1, 1958 - BIR assessed Phoenix deficiency income taxes for the years 1952 and 1954 for P2,847.
Phoenix protested the assessment. The CIR denied the protest. On appeal, the CTA, among other things, declared
that the right of the CIR to assess the deficiency income tax for 1952 has prescribed, the same having been exercised more
than 5 years from the date the original return was filed (April 1, 1953). The CIR insists that the right to issue the
assessment has not prescribed since it was made within 5 years from the date when the amended return was filed (August
30, 1955).
Issues:
1. W/N the right of the CIR to assess deficiency income tax for the year 1952 against Phoenix has prescribed
(Should the running of the prescriptive period commence from the filing of the original or amended return?)
Held/Ratio:
1. NO. The prescriptive period for making the assessment should be counted from the date of filing of the amended
return.
The amended return of Phoenix was substantially different from the original return. The changes made in
the amended ITR consisted of the exclusion of reinsurance premiums from domestic insurance companies by
Phoenixs London head office, exclusion of reinsurance premiums ceded to foreign reinsurers not doing business
in the Philippines, and various items of deduction attributable to such excluded reinsurance premiums, thereby
substantially modifying the original return. (Just remember that the amended return was substantially different
from the original return)
Considering that the deficiency assessment was based on the amended return which is substantially different from
the original return, the period of limitation should be counted from the filing of the amended return. From August
30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less
than five years elapsed. The right of the CIR to assess the deficiency tax on such amended return has not
prescribed.
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 CIR has lost his
authority to assess the proper tax thereunder.

ALS2014B
ALS2014B 65 of 162
"#$
47 - Butuan Sawmill v. CTA (1966)
Doctrine:
An ITR cannot be considered as a return for compensating tax for purposes of computing the period of
prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax
required by law in order to avail himself o the benefits of Section 331; otherwise, if he does not file a return, an
assessment may be made within the time stated in Section 332(a) of the NIRC.
Facts:
Butuan Sawmill sold logs to Japanese firms at prices, including the costs of loading, wharfage stevedoring and
other costs in the PHL. Upon investigation of the BIR, it was found out that no sales tax return was filed by Butuan
Sawmill and neither did it pay the corresponding tax on the sales. Because of this, the CIR amended the assessment it had
previously made. The CTA upheld the amended assessment of the sales tax and surcharge. The CTA also said that the
assessment was made well within the 10 year period prescribed by Section 332(a) of the NIRC since Butuan Sawmill
omitted to file its sales tax returns for 1951, 1952 and 1953. This omission was discovered only in 1957. Butuan Sawmill
claimed that the filing of its ITR, wherein the proceeds of the disputed sales were declared, is substantial compliance with
the requirement of filing a sales tax return. Butuan Sawmill also alleged that if there should be deemed a return filed by
them, the 5 year period within which to make an assessment and collection of the tax from the time the return was filed
under Section 331, and not Section 332(a), should apply. Further, Butuan Sawmill allged that since it had filed its ITRs in
1951,1952 and 1953, and that the assessment was made only in 1957, the CIR should be barred from making its
assessment.
Issue:
1. W/N the assessment was made within the prescriptive period?
Held/Ratio:
1. YES. An ITR cannot be considered as a return for compensating tax for purposes of computing the period of
prescription under Section 331 of the Tax Code (5 years), and that the taxpayer must file a return for the particular
tax required by law in order to avail himself o the benefits of Section 331; otherwise, if he does not file a return,
an assessment may be made within the time stated in Section 332(a) (10 years) of the NIRC.
The 10 year period applies in this case.

ALS2014B
ALS2014B 66 of 162
"#$
48 - CIR v. Primetown Property Group, Inc. (2007) (leap year)
Facts:
On March 11, 1999, Gilbert Yap, vice chair of Primetown, applied for the refund or credit of quarterly corporate
income tax and creditable withholding tax that Primetown paid in 1997, explaining that while business was good during
the first quarter of 1997, the real estate industry slowed down and Primetown suffered losses amounting to P71,879,228
that year. It was required to submit additional documents to support its claim. Primetown complied but its claim was not
acted upon.
On April 14, 2000, it filed a petition for review in the CTA.
The CTA dismissed the petition ruling that it was filed beyond the 2-year prescriptive period for filing a judicial
claim for tax refund or tax credit.
6
It applied Article 13 of the Civil Code stating that years are of 365 days each and the 2-
year prescriptive period was equivalent to 730 days. Since the final adjusted return was filed on April 14, 1998, and
the year 2000 was a leap year, 731 days have elapsed since the filing of the return.
The CA reversed the decision ruling that since Article 13 does not distinguish between a regular year and a leap
year, the period covered by April 14, 1998 to April 14, 2000 (note that in counting dates, first day is excluded) should still
be counted as 365 days each or a total of 730 days.
Issue:
1. W/N the period for filing a judicial claim for tax refund or tax credit has prescribed.
Held/Ratio:
1. NO. The conclusion of the CA that respondent filed its petition for review in the CTA within the 2-year
prescriptive period is correct. Its basis, however, is not.
Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365
days. In a prior case, the SC has ruled that a year is equivalent to 365 days regardless of whether it is a regular
year or a leap year. However, the Administrative Code of 1987 provides that a year should be understood to be 12
calendar months. The Administrative Code of 1987, being the more recent law, should thus govern the
computation of legal periods.
Applying the Administrative Code of 1987 to the case, the 2-year prescriptive period consisted of 24 calendar
months. Thus, the petition filed on April 14, 2000 was filed on the last day of the 24
th
calendar month from the
day it filed its final adjusted return (April 14,1998). Hence, it was filed within the reglementary period.
The case is remanded to the CTA.

6. Sec. 229 of NIRC - In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment

ALS2014B
ALS2014B 67 of 162
"#$
49 - CIR v. Engineering Equipment & Supply Co. (1975)
Facts:
Engineering Equipment and Supply Co., an engineering and machinery firm, is engaged in the design and
installation of central type air conditioning system, pumping plants and steel fabrications.
CIR received an anonymous letter denouncing Engineering for tax evasion by misdeclaring its imported articles
and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. Engineering was
likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. So, NBI and Central
Bank conducted a raid and search on which occasion voluminous records of the firm were seized and confiscated. CIR
also reported about deficiency advance sales tax. CIR assessed against the Company payment of the increased amount and
suggested that P10,000 be paid as compromise in extrajudicial settlement of the Companys penal liability for violation of
the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and
particulars of the Commissioners assessment.Engineering appealed the case to the Court of Tax Appeals. During the
pendency of the case the investigating revenue examiners reduced the Companys deficiency tax. CTA declared that
Engineering is a contractor and is exempt from deficiency manufacturers sales tax. The Commissioner, not satisfied with
the decision of the CTA, appealed to the Supreme Court.
Issue:
1. Is Engineering Equipment a manufacturer or contractor? CONTRACTOR.
2. Corrollarily, is the installation of a centralized air-conditioning system a contact of sale or a contract for piece of
work? CONTRACT FOR PIECE OF WORK.
3. Is Celestino Co v. CIR case applicable in this case? NO.
Held/Ratio:
1. The word contractor has come to be used with special reference to a person who, in the pursuit of the
independent business, undertakes to do a specific job or piece of work for other persons, using his own means and
methods without submitting himself to control as to the petty details. The true test of a contractor is that when he
renders service in the course of an independent occupation, representing the will of his employer only as to the
result of his work, and not as to the means by which it is accomplished.
Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as
refrigeration compressors in complete set, heat exchangers or coils) which were used in executing contracts
entered into by it. Engineering undertook negotiations and execution of individual contracts for the design, supply
and installation of air conditioning units of the central type taking into consideration in the process such factors as
the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises;
the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling
load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan.
Relative to the installation of air conditioning system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each had to be engineered separately.
2. NATURE OF OBJECT TEST:
The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether
the thing transferred is one NOT in existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons
even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes
and keeps on hand for sale to anyone, and no change or modification of it is made at defendants request, it is a
contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.
The air conditioning units installed in a central type of air conditioning system would not have existed but for the
order of the party desiring to acquire it and if it existed without the special order of Engineerings customer, the

ALS2014B
ALS2014B 68 of 162
"#$
said air conditioning units were not intended for sale to the general public. Hence, it is a contract for a piece of
work.
3. Celestino Co compared to Engineering Equipment:
Points of discussion:
a. Advertisement as manufacturer/contractor
b. Ready-made materials
In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and
windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of
doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company
stationery carrying the bold print ORIENTAL SASH FACTORY. As a general rule, sash factories receive
orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from
ready-made doors and windows of standard sizes for the average home, which sales were reflected in their
books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum
difficult to have been derived from its few customers who placed special orders for these items.
In the present case, the company advertised itself as Engineering Equipment and Supply Company, Machinery
Mechanical Supplies, Engineers, Contractors and not as manufacturers. It likewise paid the contractors tax on all
the contracts for the design and construction of central system. Similarly, it did not have ready-made air
conditioning units for sale.

ALS2014B
ALS2014B 69 of 162
"#$
50 - Taligaman Lumber v. CIR (1962) (Prescription, whether 5 years or 10 years)
Doctrines:
Prescription is an affirmative defense which a taxpayer claiming under Section 331 must prove (First of all,
that it filed its return, then, that the time within which the government could issue an assessment has already
prescribed.)
Facts:
Taligaman Lumber Co. is a domestic corporation engaged in the business of cutting and converting logs into
lumber for selling. It has offices in Caloocan and Butuan city.
On December 23, 1953, a BIR agent recommended an assessment of P 134,381 as deficiency sales tax covering
sales made by the Caloocan City branch during the years 1948-1952. Reexaminations of the books of accounts led to
a reduced assessment, issued on May 31, 1955, reducing the deficiency income tax liability to P 83,645 inclusive of
25% surcharge.
A similar deficiency income tax assessment was made covering sales made by the Butuan City branch during the
years 1948-1953. Said assessment for the amount of P 98,145 was issued on June 21, 1954. Like in the other branch, a
reexamination was conducted and a new assessment was issued on November 15, 1954 for a reduced amount of P 39,
527 inclusive of 25% surcharge.
To settle these liabilities, Taligaman Lumber proposed to pay P 39, 527. (As a compromise, perhaps.) CIR refused
to modify either assessment which pushed Taligaman Lumber to bring the matter before the CTA. The CTA reduced the
total liability of Taligaman Lumber to P 85,790 inclusive of 25% surcharge.
Taligaman Lumber now assails the decision of the CTA alleging that 1) the right of the government to collect
deficiency income taxes for the years 1948 and 1949 has already prescribed (remember/s: assessments were issued
in 1955 and 1954) and 2) that the export sales made by the Butuan City branch were consummated abroad and hence, not
taxable.
Issues:
1. W/N the governments right to collect deficiency income taxes for the years 1948 and 1949 has already prescribed
(NO)
2. W/N the export sales made by the Butuan City branch are taxable (YES)
Held/Ratio:
1. NO, the governments right to collect deficiency income taxes for the years 1948 and 1949 has NOT
prescribed.
Taligaman Lumbers bases its contention that the right to collect has already prescribed on Section 331 of the
Revised Internal Revenue Law that states:
Except as provided in the succeeding section, internal revenue taxes shall be assessed within five
years after the return was filed, and no proceeding in court without assessment the collection of
such taxes shall be begun after the expiration of such period. For the purposes of this section a
return filed before the last day prescribed by law for the filling thereof shall be considered as filed
on such last day: Provided, That this limitation shall not apply to cases already investigated prior
to the approval of this Code
On the other hand, the CIR says that the applicable provision is Section 332:
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud, or
omission.

ALS2014B
ALS2014B 70 of 162
"#$
Taligaman Lumber contends that the CIR did not give any affirmative evidence showing that it did not file its tax
returns for the years 1948 and 1949, such that Section 332 could apply. However, the Court stated that
prescription is an affirmative defense which Taligaman Lumber must prove in order that it may avail itself
of the benefits under Section 331. Taligaman must first prove that it filed its returns for 1948 and 1949, and
that the period within which the government could issue an assessment has already prescribed. In this case,
Taligaman failed to prove that it submitted the returns for the years 1948 and 1949. Hence, the conclusion is
that it did not file the said returns. Consequently, Section 332 applies and the government had 10 years within
which to make the corresponding assessments. The BIR issued the assessment in 1954 and 1955, well within 10
years from 1948 and 1949.
2. YES, the export sales made by the Butuan City branch are taxable.
The export sales made by the Butuan City branch to Japanese buyers are taxable. The agreed price was F.O.B.
Agusan. As we learned in Sales, the employment of such terminology shows the intent of the parties to have title
to the goods pass to the buyer upon delivery of the logs in Agusan, on board the vessels that took the foods to
Japan. Hence, the export sales were consummated in the Philippines and are subject to sales tax.

ALS2014B
ALS2014B 71 of 162
"#$
51 - Aznar v. CTA (1974)
Facts:
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of one obviously
wealthy, Matias H. Aznar caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayers true income for said
years. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax
returns for the aforesaid years. Based on the findings, Commissioner, in his letter dated November 28, 1952, notified the
taxpayer of the assessed tax delinquency to the amount of P723,032.66, plus compromise penalty. The taxpayer requested
a reinvestigation which was granted for the purpose of verifying the merits of the various objections of the taxpayer to the
deficiency income tax assessment. After the reinvestigation, another deficiency assessment to the reduced amount of
P381,096.07 was received.
Petitioner firstly avers that according to the NIRC, the right of the CIR to assess deficiency income taxes for the
years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952; there
being a five year limitation upon assessment and collection from the filing of the returns. Meanwhile, respondents believe
that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: (a) In
the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission. Petitioner argues said provision does not apply because the taxpayer did not
file false and fraudulent returns with intent to evade tax.
Secondly, petitioner insists that there might have been false returns by mistake filed as those returns were
prepared by his accountant employees, but there were no proven fraudulent returns with intent to evade taxes that would
justify the imposition of the 50% surcharge authorized by law as fraud penalty.
Issue:
1. W/N the right of the Commissioner of Internal Revenue to assess deficiency income for the years 1946, 1947, and
1948 had already prescribed at the time the assessment was made on November 28, 1952.
2. W/N the imposition of 50% surcharge authorized by law as fraud penalty was proper
Held/Ratio:
1. No. The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the
NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so
as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return
intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a)
NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be
the one enforced. There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years
within which to assess petitioners tax liability had not expired at the time said assessment was made.
2. NO. The lower court based its conclusion on a presumption that fraud can be deduced from the very substantial
disparity of incomes as reported and determined by the inventory method and on the similarity of consecutive
disparities for six years. Such a basis for determining the existence of fraud (intent to evade payment of tax)
suffers from an inherent flaw. We cannot but emphatically reiterate the well-established doctrine that fraud cannot
be presumed but must be proven. 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 predecessor of the petitioner undoubtedly filed
his income tax returns for the years 1946 to 1951 and those tax returns were prepared for him by his accountant
and employees. It also appears that petitioner in his lifetime and during the investigation of his tax liabilities
cooperated readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by
him.
The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was based

ALS2014B
ALS2014B 72 of 162
"#$
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 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. It must amount to intentional wrong-doing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent.
52 - CIR v. B.F. Goodrich Phils., Inc. (now Sime Darby International Tire Co., Inc.) and CA (1999)
Doctrine:
What is involved here is not a first assessment; nor is it one within the 5-year period stated in Section 331. Since
what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based
on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the
very specific terms fraud, irregularity, and mistake. Falsity does not appear to be included in this enumeration.
Falsity suffices for an assessment, which is a first assessment made within the five-year period. When it is a
subsequent assessment made beyond the five-year period, then, it may be validly justified only by fraud,
irregularity and mistake on the part of the taxpayer.
Facts:
BF Goodrich (now SIME DARBY INTERNATIONAL) (BF for brevity) was an American owned and controlled
corp. which sought to operate the manufacturing of rubber tires in the Philippines and in order for its application to be
granted, the Central Bank required it to develop a rubber plantation. In compliance with this, BF purchased from the
government in 1961, under the Public Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of
land located in Tumajubong, Basilan, and there developed a rubber plantation.
In 1973, however, the justice secretary rendered an opinion stating that, upon the expiration of the Parity
Amendment on July 3, 1974, the ownership rights of Americans over public agricultural lands, including the right to
dispose or sell their real estate, would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty
Philippines, Inc. on January 21, 1974, its Basilan landholding forP500,000 payable in installments. In accord with the
terms of the sale, Siltown Realty Philippines, Inc. (Siltown) leased the said parcels of land to private respondent for a
period of 25 years, with an extension of another 25 years at the latters option.
The BIR issued a letter of authority requesting the examination of BFs books and accounts to determine its tax
liability for 1974. The assessment resulted with a deficiency income tax of P6,005.35 which BF duly paid. The BIR next
examined Siltowns business, income and tax liabilities and based on this, the BIR Commissioner issued another
assessment for deficiency in donors tax amounting to P1,020,850 to BF because the BIR claims that it under sold its
Basilan property based on the fair market value of said property. The BIR considered the deficiency between the fair
market value 500,000.
BF contested, on April 9, 1981, it received another assessment dated March 16, 1981, which increased
to P1,092,949 the amount demanded for the alleged deficiency donors tax, surcharge, interest and compromise penalty.
BF appealed before the CTA which modified the decision. Respondent appealed to the CA which reversed the
CTA.
Issues:
1. W/N petitioners right to assess herein deficiency donors tax has indeed prescribed as ruled by public respondent
Court of Appeals
2. W/N the herein deficiency donors tax assessment for 1974 is valid and in accordance with law

ALS2014B
ALS2014B 73 of 162
"#$
Held/Ratio:
1. CA did not commit error in reversing the CTA, because notwithstanding what petitioner claims that the CAs
ruling was based on factual findings that should have been left undisturbed on appeal, in the absence of any
showing that it had been tainted with gross error or grave abuse of discretion, the CTAs application of the law to
the facts of this controversy is an altogether different matter, for it involves a legal question. There is a question of
law when the issue is the application of the law to a given set of facts. On the other hand, a question of fact
involves the truth or falsehood of alleged facts. In the present case, the Court of Appeals ruled not on the truth or
falsity of the facts found by the CTA, but on the latters application of the law on prescription.
Section 331 of the National Internal Revenue Code provides:
SEC. 331. Period of limitation upon assessment and collection. Except as provided in the
succeeding section, internal-revenue taxes shall be assessed within five years after the return was
filed, and no proceeding in court without assessment for the collection of such taxes shall be
begun after expiration of such period. For the purposes of this section, a return filed before the
last day prescribed by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already investigated prior to the
approval of this Code.
Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981
assessments were issued by the BIR beyond the five-year statute of limitations. The Court has thoroughly studied
the records of this case and found no basis to disregard the five-year period of prescription.
The subsequent assessment made by the respondent Commissioner on October 10, 1980, modified by that of
March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the
returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year
1974 were duly filed by the petitioner, and assessment of taxes due for such year including that on the transfer
of properties on June 21, 1974 was made on April 13, 1975 and acknowledged by Letter of Confirmation No.
101155 terminating the examination on this subject. The subsequent assessment of October 10, 1980 modified, by
that of March 16, 1981, was made beyond the period expressly set in Section 331 of the National Internal
Revenue Code xxx.
2. No it was not valid. Petitioner relies on the CTA ruling which uses falsity as the basis for validating its subsequent
assessments which is allowed under Sec. 15 of the 1974 tax code (now sec.16 of NIRC) which grants the BIR the
power to assess the proper tax on the best evidence obtainable when there is reason to believe that a report of a
taxpayer is false, incomplete or erroneous. More, when there is falsity with intent to evade tax. That it is guilty of
falsity when it undervalued its property that it sold to Siltown.
The court finds this misplaced because:
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.
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.
Section 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.

ALS2014B
ALS2014B 74 of 162
"#$
Nor is petitioners claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of
limitations. 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.

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 arms 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. In other words, private respondent was attempting to minimize its losses. At the same time, it was
able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on
the price.
Furthermore, the fact that private respondent sold its real property for a price less than its declared fair market
value did not by itself justify a finding of false return. Indeed, private respondent declared the sale in its 1974
return submitted to the BIR.

Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said property was of public record. This it
did not do, however, during all those five years. Moreover, the BIR failed to prove that respondents 1974 return
had been filed fraudulently. Equally significant was its failure to prove respondents intent to evade the payment
of the correct amount of tax.

ALS2014B
ALS2014B 75 of 162
"#$
54 - Siao Tiao Hong v. CIR (1992)
Doctrine:
In order to avail of the benefits of section 331 [now section 203], one must file a return for the lending investors
fixed tax; otherwise, an assessment made within the period provided for in Section 332 (a) [now section 222 (a)]
which provides for exceptions as to period of limitation of assessment and collection of taxes.
Facts:
[dates are important !]
The petitioner is a real estate developer whose principal income is derived from rentals. He had several deposits
and extended loans to his friends supposedly on accommodation and not for profit. He declared an income of P9,582
from rents and royalties and P5,540 as interest income from bonds, bank deposits, etc. in his ITR for the year 1958. On
May 25, 1960, the BIR ordered an examination of his books in connection with the 1958 return. A month after, June 21,
1060, the Revenue Examiner recommended that the petitioner be assessed for: 1) a deficiency income tax of
P1,068.79, and 2) fixed taxes as a lending investor at P300 each year for the years 1955-1959. The petitioner protested
the accuracy of the assessment and requested a reexamination, which was thereafter granted. On November 3, 1961, after
reexamination, the revenue examiner reported that there was no discrepancy on the said return. Despite such finding, the
Regional Office of the BIR still sent him a letter, on June 2, 1961, demanding payment of P2,400 as lending
investors fixed tax for the years 1953-1960.
Almost a year after, May 30, 1962, the BIR brought a collection suit for the P2,400 fixed tax against the
petitioner. The City Court dismissed the suit for being premature since no assessment was received by the petitioner.
Hence, the case was not one of undisputed assessment within the jurisdiction of the court. The petitioner filed a formal
protest to the assessment in August 1965 but was denied by the BIR Regional Office on March 1966. Such denial
prompted him to file a petition for review with the CTA, which affirmed his liability for the lending investors fixed
taxed. Now, the petitioner argues that such loans were only accommodations for his friends and not extended for profit.
He also argues that, assuming he was liable for the fixed tax, the right to collect the same had already prescribed since no
assessment for lending investors tax was made within the 5 year period from the filing of the petitioners income tax
returns for the years 1953-1959.
Issue:
1. Whether the petitioner is liable for lending investors tax
2. Whether the BIRs right to collect the same had prescribed
Held/Ratio:
1. Yes. The bank deposits were not considered as loans in the sense that such would constitute the conduct of a
lending business, on which the fixed tax is imposed. On the other hand, the loans he extended to several
individuals are subject to lending investors tax. Evidence shows that these were not mere isolated transactions to
his friends; his contention is belied by the fact that he collected interest from the borrowers and that such interests
were reflected in his income tax return.
2. No. The period provided in Section 331 [now Section 203 I think] is inapplicable here since fixed taxes are not
included in an income tax return and neither is it paid together with the income tax. The Code provides a
different date for payment of fixed taxes, for which a separate return must be filed. The Court ruled that for
prescription to have set in, he must have filed a return for the lending investors fixed tax; otherwise, an
assessment may be made within the period provided for in Sec. 332 (a) [now section 222] which provides for
exceptions as to the period of limitation of assessment and collection of taxes:
(a) In case of a false or fraudulent return with intent to evade tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without an assessment, at any time within 10 years after the discovery of the falsity, fraud, or
omission.

ALS2014B
ALS2014B 76 of 162
"#$
His omission to file a return was discovered on June 21, 1960, when the initial examination of books was
conducted. The assessment for lending investors tax was made on June 2, 1961 (well within the 5 year period).
The collection must be made within the 5-year period from the assessment. The running of the period was
suspended on May 27,1963 when the complaint for collection was filed against the petitioner. The period ran
again upon dismissal by the city court on July 14, 1965 and was stopped on October 27, 1966 when the CIR filed
his answer to the petition for review brought by the petitioner before the CTA. All in all, a total of 3 years, 3
months and 8 days had elapsed. Therefore, the right of the CIR to assess and collect the lending investors
fixed tax had not yet prescribed.

ALS2014B
ALS2014B 77 of 162
"#$
55 - CIR v. Tulio (2005)
Doctrines:
Section 223 specifies 3 instances when the running of the 3-year prescriptive period is inapplicable: (1) filing a
false return; (2) filing a fraudulent return with intent to evade tax, or (3) failure to file a return. The period within
which to assess the tax is ten years from the discovery of the fraud, falsification, or omission.
Facts:
Arturo Tulio is in the construction business. On February 28, 1991, the CIR sent him a demand letter with 2 final
assessment notices. He requested the payment of Tulios deficiency percentage taxes of P188,585.76 and P245,669.53 for
taxable years 1986 and 1987. Despite receipt, Tulio did not act on the assessment notices. As a result, it became final and
executory pursuant to Section 229 of the NIRC. On October 15, 1991, CIR issued a warrant of distraint and/or levy
against Tulio. However, Tulio had no properties which can be placed under distraint and/or levy.
On April 3, 1991, October 5, 1993, and May 14, 1997, CIR sent letters to Tulio. These letters provided Tulio with
the last opportunity to settle his deficiency tax liabilities. However, Tulio still refused to settle his deficiency taxes. CIR
filed a civil action for collection of deficiency percentage taxes before the RTC of Baguio. [RTC has jurisdiction because
ordinary courts entertain BIR money claims based on assessments that have become final and executory.] The RTC
directed Tulio to file his answer. Three days later, Tulio filed a motion to dismiss claiming that the complaint was filed
beyond the three-year prescription period. RTC granted the motion to dismiss. CIR filed a motion for reconsideration but
the RTC denied this. Hence, CIR filed a petition for review on certiorari.
Issues:
1. W/N the complaint may be dismissed on the ground of prescription.
Held/Ratio:
1. NO. The RTC misapplied Section 203 of the NIRC. Section 203 provides for the three-year prescriptive period
from the filing of the tax return within which internal revenue taxes shall be assessed. The RTC held that the
prescriptive period should be counted from the day the return was filed. However, Tulio failed to file a tax return.
When a taxpayer fails to file a tax return, Section 223 of the NIRC is the applicable provision.
Under Section 223 (now Section 222) provides that in the event a taxpayer fails to file a return, the tax is assessed
or a proceeding in court for collection may be filed without assessment, at any time within 10 years after the
discovery of the falsity, fraud or omission. Any internal revenue tax may be collected by distraint or levy or by a
proceeding in court within 3 years following the assessment of the tax.
Section 223 specifies 3 instances when the running of the 3-year prescriptive period is inapplicable: (1) filing a
false return; (2) filing a fraudulent return with intent to evade tax, or (3) failure to file a return. The period within
which to assess the tax is ten years from the discovery of the fraud, falsification, or omission.
Here, Tulio failed to file his tax returns for 1986 and 1987. CIR discovered Tulios omission on September 14,
1989. The ten-year prescriptive period commenced on September 14, 1989 and ended on September 14, 1999.
The two final assessment notices were issued on February 28, 1991 well within the three-year prescriptive
period. It became final and executor when Tulio failed to question of protest the deficiency assessments.
Since the tax had become final and unappealable, CIR can enforce its authority to collect Tulios deficiency
percentage taxes.

ALS2014B
ALS2014B 78 of 162
"#$
56 - Republic v. Acebedo (1968) once prescribed, waiver of statute cant revive action.
Doctrine:
SEC. 332. Exemptions as to period of limitation of assessment and collection of taxes.
...
(c) Where the assessment of any internal-revenue tax has been made within the period of limitation above
prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun:
(1) within five years after the assessment of the tax, or
(2) prior to the expiration of any period for collection agreed upon in writing by the Collector of
Internal Revenue and the taxpayer before the expiration of such five-year period.
The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of
the period previously agreed upon.
Facts:
A suit for collection of deficiency tax was filed against Felix Acebedo in the amount of P5,962 for the year 1948.
A notice of assessment was issued on September 1949. The complaint was filed on 1961. Even before filing his answer,
Acebedo filed a motion to dismiss on the ground of prescription. The motion was granted by the lower court and the same
dismissed the case.
Hence, the petitioner Republic filed an appeal with this court, contending that the various requests for
reinvestigation or reconsideration of the tax assessment made by the respondent suspended the 5 year period
prescription period and that the waiver of statute of limitations duly executed in 1959 was sufficient to further
suspend period of prescription.
Issues:
1. W/N a request for a reinvestigation suspends the running of the period for filing an action for collection?
2. W/N the waiver of limitations suspended the period?
Held/Ratio:
1. No. More than five years had elapsed since assessment in question was made, and hence prescription had
already set in.
Details of communication:
The defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof
on October 1949. There is no evidence that this request was considered or acted upon. In fact, on October
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the
assessment, but there was no follow up of this warrant. Consequently, the request for reinvestigation did not
suspend the running of the period for filing an action for collection.
The next communication of record is a letter signed for the defendant by one Troadio Concha and dated October
6, 1951, again requesting a reinvestigation of his tax liability. Nothing came of this request either.
On February 9, 1954, the defendants lawyers wrote the Collector of Internal Revenue informing him that the
books of their client were ready at their office for examination. The Collectors reply was dated more than a
year later (October 4, 1955). By October 4, 1955, more than five years had elapsed since assessment in
question was made, and hence prescription had already set in.
2. No. October 4, 1955, the Commissioner required that the Acebedo specify his objections to the assessment
and execute the enclosed forms for waiver, of the statute of limitations. But at that time, more than five
years had elapsed since the assessment in question was made, and hence prescription had already set in,
making subsequent events in connection with the said assessment entirely immaterial. Even the written

ALS2014B
ALS2014B 79 of 162
"#$
waiver of the statute signed by the defendant on December 17, 1959 could no longer revive the right of
action.
57 - CIR v. CA (1999)
Facts:
On January 15, 1982 Carnation Phils., Inc. filed its Corporation Annual Income Tax Return for taxable year and
its Manufacturers/Producers Percentage Tax Return for the quarter, both ending September 30, 1981. On October 13,
1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Lardizabal, signed three separate
waivers of the Statute of Limitations under the NIRC which were not signed by the BIR Commissioner or any of his
agents. In August 5, 1987, Carnation received BIRs letter of demand dated July 29, 1987 asking the said corporation to
pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales
tax on undeclared sales, all for the year 1981. Carnation immediately disputed the assessments and requested a
reconsideration and reinvestigation thereof, and later that same year a supplemental protest was also filed. The protests
were denied by the BIR Commissioner thus prompting Carnation to appeal with CTA.
Issue:
1. Whether the signing of the waiver tolled the 5 year prescriptive period
Held/Ratio:
1. NO. Sec 319 (b) provides that: Where before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing
to its assessment after such time, the tax may be assessed at anytime prior to the expiration of the period agreed
upon. The period so agreed upon may be extended by subsequent agreement in writing made before the
expiration of the period previously agreed upon. The law is clear and since in this case it was undisputed that the
waivers were not signed by the CIR, the contention of BIR Commissioner on the validity of such waivers (that
when examiners or agents extend the audit and investigation period, BIR gave implied consent to the waivers,
signature of Commissioner is mere formality and that a waiver is not a contract but a unilateral act of renouncing
ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions
set forth in the waiver) must fail. The waivers executed by Carnation were said to be for end in consideration of
the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of
its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all
pending at the time, and so it cannot be said to be unilateral nor the Commissioners signature as mere formality
because the very signatures of both the CIR and the taxpayer which give birth to such a valid agreement.
The assessment of the income and sales tax deficiency of Carnation were issued way beyond the five-year
prescriptive period and were declared by court as null and void.

ALS2014B
ALS2014B 80 of 162
"#$
59 - CIR v. FMF Corp. (2008)
Facts:
On April 15, 1996, FMF filed its Annual ITR for taxable year 1995. On May 8, 1996, however, it filed an
amended. The BIR then sent FMF pre-assessment notices, all dated October 6, 1998, informing it of its alleged tax
liabilities. FMF filed a protest. The RDO informed FMF that the reinvestigation had been referred to a Revenue Officer.
RDO also advised FMF of the informal conference set to allow it to present evidence to dispute the BIR assessments.
On the said informal conference, FMF President Enrique Fernandez executed a waiver of the three-year
prescriptive period for the BIR to assess internal revenue taxes, hence extending the assessment period until October 31,
1999. The waiver was accepted and signed by RDO Zambarrano.
On October 18, 1999, FMF received amended pre-assessment notices dated October 6, 1999 from the BIR. FMF
immediately filed a protest on November 3, 1999 but on the same day, it received BIRs Demand Letter and Assessment
Notice.
On November 24, 1999, FMF filed a letter of protest on the assessment invoking, inter alia, the defense of
prescription by reason of the invalidity of the waiver. In its reply, the BIR insisted that the waiver is valid because it was
signed by the RDO, a duly authorized representative of petitioner.
Issues:
1. W/N the waiver is valid.
2. Did the three year period to assess prescribe?
Held/Ratio:
1. NO. An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC,
which provides:
...
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its assessment after such time,
the tax may be assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.
The above provision authorizes the extension of the original three-year period by the execution of a valid waiver,
where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the taxes due
is extended to an agreed upon date.
Under RMO No. 20-90, which implements Sections 203 and 222 (b), the following procedures should be
followed:
a. The waiver must be in the form identified as Annex A hereof....
b. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated.
Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
c. The following revenue officials are authorized to sign the waiver.

ALS2014B
ALS2014B 81 of 162
"#$
A. In the National Office
...
3. Commissioner For tax cases involving more than P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still pending investigation and the period
to assess is about to prescribe regardless of amount.
...
d. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact
of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.
e. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied
with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with.
Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-
year prescriptive period.
1. It was not proven that respondent was furnished a copy of the BIR-accepted waiver
2. The waiver was signed only by a revenue district officer, when it should have been signed by the
Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an
amount of more than P1 million, and the period to assess is not yet about to prescribe.
3. It did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite
necessary to determine whether the waiver was validly accepted before the expiration of the original
three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the
very signatures of both the Commissioner and the taxpayer to give birth to a valid agreement.
As to the contention that the RMO is merely directory, a waiver of the statute of limitations under the NIRC, to a
certain extent being a derogation of the taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed.
Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon
between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding
effect on respondent because there was no consent by the Commissioner.
2. YES. The Assessment Notice dated October 25, 1999, was issued beyond the three-year prescriptive period. The
waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor extended and
continued to run until April 15, 1999. Even if the three-year period be counted from May 8, 1996, the date of
filing of the amended return, assuming the amended return was substantially different from the original return, a
case which affects the reckoning point of the prescriptive period, still, the subject assessment is definitely
considered time-barred.

ALS2014B
ALS2014B 82 of 162
"#$
60 - CIR v. Kudos Metal Corporation (2010)
Facts:
Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos Metal Corp Notices of
Presentation of Records. Kudos failed to comply with these notices. Hence, the BIR issued a Subpeona Duces Tecum
dated September 21, 2006.
On December 10, 2001, Kudos accountant, executed a Waiver of the Defense of Prescription. This was followed
by a second Waiver of Defense of Prescription on February 18, 2003.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand with Assessment Notices.
CTA Division
Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not the revenue official
authorized to sign the waiver, as the tax case involves more than P1,000,000. The waiver failed to indicate the date of
acceptance. The fact of receipt by the taxpayer of his file copy was not indicated on the original copy.
CTA En Banc
Agreed only to the second and third grounds.
Issue:
1. Whether the right of the government to assess has expired.
Held/Ratio:
1. Yes. An assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222of the NIRC.
The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the
taxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO
05-01issued on August 2, 2001 lay down the procedure for the proper execution of the waiver.
7

The first waiver had the following infirmities:

7. 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___, which indicates
the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be
filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such
delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue
official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer
or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the
agreement.

ALS2014B
ALS2014B 83 of 162
"#$
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the
waivers.
Estoppel does not apply in this case. In another case
8
, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes. There was a finding that the taxpayer made
several requests or positive acts to convince the government to postpone the collection of taxes.
In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent
made any request to persuade the BIR to postpone the issuance of the assessments.
The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO
05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority
was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the
respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot
shift the blame to the taxpayer. To stress, 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.

8. Collector of Internal Revenue v. Suyoc Consolidated Mining Company

ALS2014B
ALS2014B 84 of 162
"#$
61 - RCBC v. CIR (2011) (RCBC is estopped because it already paid)
Facts:
RCBC filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar years
1994 and 1995. On August 15, 1996, RCBC received a Letter of Authority issued from CIR Liwayway Vinzons-Chato,
authorizing a special audit team to examine the books for all internal revenue taxes from January 1, 1994 to December 31,
1995.
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to assess
up to December 31, 2000.
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment
Notices from the BIR. RCBC filed a protest on February 24, 2000 and on November 20, 2000, it filed a petition for
review before the CTA. On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment
Notices dated October 20, 2000, following the reinvestigation it requested, which drastically reduced the original amount
of deficiency taxes and on the same day, RCBC paid the following deficiency taxes as assessed. RCBC, however, refused
to pay the following assessments for deficiency onshore tax and documentary stamp tax which remained to be the subjects
of its petition for review.
Issue:
1. Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is
rendered estopped from questioning the validity of the said waivers with respect to the assessment of deficiency
onshore tax.
Held/Ratio:
1. YES. RCBC, through its partial payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner
truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount of taxes in the revised assessment.
RCBCs subsequent action effectively belies its insistence that the waivers are invalid. The records show that on
December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested
taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party
to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of
equity which this institution holds dear.

ALS2014B
ALS2014B 85 of 162
"#$
62 - Avon Products Manufacturing, Inc. v. CIR (2010) (waiver of prescriptive period)
Doctrines:
Under RMO No. 20-90, the waiver must be executed in 3 copies with the second copy for the taxpayer.
The requirement to furnish the taxpayer with a copy of the waiver 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.
Facts:
Avon Products Manufacturing, Inc. (AVON) filed its VAT Returns and the Monthly Remittance Returns of
Income Tax Withheld for the taxable year 1999 on different dates (dates between Feb 25 1999 and Jan 25 2000). It also
signed two Waivers of the Defense of Prescription under the Statute of Limitations of the NIRC.
CIR sent a Preliminary Assessment Notice (Dec 23, 2002) to Avon covering a deficiency tax of P80,246,459.15.
Avon filed a letter protesting against the PAN. Without ruling on the protest, CIR sent a Final Assessment Notice and
Formal Letter of Demand (April 11, 2003) to Avon. Avon again protested the FAN. CIRs Revenue Officers prepared a
Memorandum recommending the enforcement and collection of the deficiency tax assessments because Avon failed to
submit the necessary documents to support its protest. The Large Taxpayers Collection and Enforcement Division served
the Collection Letter to Avon.
Issues:
1. W/N the waivers are defective
Held/Ratio:
1. YES. The Waivers executed are invalid and ineffective since CIR did not provide Avon a copy of the accepted
Waivers, as required in Revenue Memorandum Order No. 20-90. And the invalidity of the waiver did not extend
the original 3-year prescriptive period.
As it appears from the evidence, no duly BIR-accepted waiver was received by Avon involving the deficiency tax,
deficiency withholding tax and deficiency withholding tax on compensation assessments. (The prescription dates
are between Feb 25, 2002 and Jan 25, 2003). Considering that Avon received the FAN only on April 11, 2003,
way beyond the period allowed by law to assess petitioner over its deficiency VAT, expanded withholding and
withholding tax on compensation, the assessments should have already prescribed
Notably, the law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizen; to the Government because tax officers would be obliged to act promptly in the
making of assessments 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 legal defense, taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by unscrupulous agents. The
law on prescription, being a remedial measure, should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommends the approval of the law.

ALS2014B
ALS2014B 86 of 162
"#$
63 - Afisco Insurance Corp. v. CA (1999) (suspension of prescriptive period)
Doctrines:
The prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.
Facts:
The petitioners are 41 non-life insurance corporations. They issued a Erection, Machinery Breakdown, Boiler
Explosion and Contractors All Risk insurance policies. Thereafter, they entered into a Quota Share Reinsurance Treaty
and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (okay, Munich for short nalang).
The reinsurance treaties required petitioners to form a pool, which was created on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax for the year ending in 1975. The CIR assessed a deficiency corporate
taxes of P1,843,273.60, and withholding taxes of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the
petitioners, respectively (letter of assessment dated March 27, 1981, petitioners were informed only on Nov 11, 1981).
Petitioners protested the assessments. CIR denied the protest and ordered the Pool of Machinery Insurers (Pool) to pay the
deficiencies.
The CA ruled that the Pool was a partnership taxable as a corporation, and that its collection of premiums on
behalf of its members, the ceding companies, was taxable income. It added that prescription did not bar the BIR from
collecting the taxes due, because the taxpayer cannot be located at the address given in the information return filed. (no
other facts about the change of address was given)
Issues:
1. W/N the pool is taxable as a Corporation
2. W/N the Commissioners right to assess the Clearing House had already prescribed (IMP)
Held/Ratio:
1. YES. The term partnership includes a syndicate, group, pool, joint venture, or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on.
2. NO. The CA and the CTA categorically found that the prescriptive period was tolled under then Section 333 of
the NIC, because the taxpayer cannot be located at the address given in the information return filed and for which
reason there was delay in sending the assessment. Indeed, whether the governments right to collect and assess the
tax has prescribed involves facts which have been ruled upon by the lower courts. The law clearly states that the
prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.

ALS2014B
ALS2014B 87 of 162
"#$
64 - CIR v. Hambrecht and Quist Philippines, Inc. (2010)
Doctrine:
! Section 224 of the 1986 NIRC states that two requisites must concur before the period to enforce the collection
may be suspended: a) that the taxpayer requests for reinvestigation and b) that the BIR grants such request.
Facts:
The case is about the alleged deficiency in income and expanded withholding taxes of Hambrecht and Quist. The
deficiency income tax resulted from the disallowance of certain items of expense (professional fees, donations, salaries,
management fees). For the deficiency in expanded withholding tax, Hambrecht failed to withhold the appropriate tax on
the management fees.
January 8, 1993: an assessment notice was sent by the BIR through registered mail
February 15, 1993: Through a letter, Hambrecht & Quist informed the BIR of its change of business address
from Corinthian Plaza, Paseo de Roxas to PCIB Tower in Makati Ave. corner H.V. de la Costa
November 4, 1993: Hambrecht received a follow-up letter or tracer dated October 11, 1993 issued by the BIR,
demanding payment for alleged deficiency income and expanded withholding taxes for taxable year 1989
amounting to P2,936,560.87.
December 3, 1993: Hambrecht made a protest and requested a reinvestigation (letter to the BIR)
November 7, 2001, AFTER 8 YEARS: Hambrecht received a letter from the CIR. It stated that its protest was
denied on the ground that the protest against the disputed tax assessment was filed beyond the 30-day period
prescribed in then Section 229 of the NIRC.
Hambrecht filed a Petition for Review with the CTA. The CTA Original Division ruled that the assessment notice
send to Hambrecht on January 8, 1993 in its old address was valid and binding since it gave a formal notice of its change
of address only on February 18, 1993. Thus, the assessment has become final and unappealable. However, it ruled that the
CIR failed to collect the assessed taxes within the prescriptive period. The CIR filed a Petition for Review with the CTA
en banc but it was denied.
Issues:
1. W/N the CTA has jurisdiction to rule that the governments right to collect the tax has prescribed
2. W/N the period to collect the assessment has prescribed
Held/Ratio:
1. YES. R.A. 1125, Section 7:
Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review
by appeal, as herein provided
1. Decisions of the Commissioner 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 as part of law administered by the Bureau of Internal Revenue.
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters
relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC
or related laws administered by the BIR. The issue of prescription of the BIRs right to collect taxes may be
considered as covered by the term other matters.
2. YES. The CIR contends that its right to collect the tax deficiency it assessed on Hambrecht is not barred by
prescription since the prescriptive period was allegedly suspended by the request for reinvestigation.

ALS2014B
ALS2014B 88 of 162
"#$
Section 224 of the 1986 NIRC states that two requisites must concur before the period to enforce the collection
may be suspended: a) that the taxpayer requests for reinvestigation and b) that the BIR grants such request.
In this case, it is not disputed that Hambrecht filed a request for reinvestigation. However, it was only 8 years later
when the BIR replied that protest was denied. In other words, the request for reinvestigation was NOT
GRANTED so the prescriptive period was not suspended. Therefore, the BIRs right to collect has already
prescribed.
65 - Republic v. Ablaza (1960) (Letter of Investigation)
Facts:
On October 3, 1951 the CIR assessed income taxes for the years 1945 - 1948 on the ITR of Ablaza.
On October 16, 1951, Ablazas accountants requested a reinvestigation of Ablazas tax liability, on the ground
that it is based on third-party information and the taxpayer was not permitted to appear in person. The petition for
reinvestigation was granted.
On March 10, 1954, Ablaza sent a letter to the BIR, which requested for a copy of the re-assesment as soon as the
reinvestigation is over.
9
(see foot note the issue revolves around the interpretation of the letter)
On February 11, 1957, after the reinvestigation, the CIR made a final assessment on the income taxes of Ablaza,
Issue:
1. W/N the March 10 1954, letter be interpreted as a request for reinvestigation therefore the period of prescription
would continue to be suspended?
Held/Ratio:
1. No, If said letter be interpreted as a request for further investigation or a new investigation, different and distinct
from the investigation demanded or prayed for in Ablazas first letter, then the period of prescription would
continue to be suspended thereby. But if the letter does not ask for another investigation, the result would be the
opposite. However, the letter does not ask for another investigation. Its first paragraph shows that the
reinvestigation then being conducted was by virtue of its request of October 16, 1951. All that the letter asks is
that the taxpayer be furnished a copy of the computation. The request may be explained in this manner: As the
reinvestigation was allowed on October 1, 1951 and on October 16, 1951, the taxpayer supposed or expected that
at the time, March, 1954 the reinvestigation was about to be finished and he wanted a copy of the re-assessment in
order to be prepared to admit or contest it. Nowhere does the letter imply a demand or request for a ready
requested and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the
suspension of the period of limitations.
Notes: The first letter was a request for reinvestigation therefore it suspended the prescriptive period.
The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend
the law. The benefit being, that the government will promptly assess taxes and the citizens will have a senses of security
against unscrupulous tax agents.

9. In this connection, we wish to state that this case is presently under reinvestigation as per our request dated October 16, 1951, and
your letter to us dated October 17, 1951, and that said tax liability being only a tentative assessment, we are not as yet advised of
the results of the requested reinvestigation.
In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the detailed computation of
the alleged tax liability as soon as the reinvestigation is terminated to enable us to prove the veracity of the taxpayer's side of the
case, and if it is found out that said assessment is proper and in order, we assure you of our assistance in the speedy disposition of
this case. (Exh. "P")

ALS2014B
ALS2014B 89 of 162
"#$
66 - Republic of the Phil. v. Mambulao Lumber Company (1962)
Doctrine:
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes.
Facts:
Mambulao Lumber (ML) admitted 3 liabilities/causes of action (1) forest charges of P588 covered by a bond by
General Insurance (GI) (2) ML and GI both admitted they were solidarily liable for P296 also covered by a bond (3) ML
and GI admitted that they were solidarily liable for P3,928 also covered by a bond. These 3 liabilites totaled P4,803.
Dates (dont memorize):
(1) ML paid to the Republic P8200 for reforestation charges Dec. 29, 1956
(2) ML paid to the Republic P927 for reforestation charges April 30, 1947 June 24, 1948
* These charges were paid by ML due to R.A. 115 which states that in addition to the regular forest charges provided
under the NIRC, the amount of P0.50 on each cubic meter of timber used for commercial purposes shall be imposed for
reforestation. The total amount paid by ML for reforestation charges is P9,127.
ML is saying that since the Republic has not made use of those reforestation charges collected from it for
reforesting the denuded area, the Republic should refund said amount, or if it cannot be refunded, at least it
should be compensated with what ML owed the Republic.
Issues:
1. W/N the sum of P9,127 paid by ML as reforestation charges may be set-off or applied to the payment of the sum
of P4,803 as forest charges
Held/Ratio:
a. NO. Under Sec. 1 of RA No. 115, the amount collected as reforestation charges from a timber licenses or
concessionaire shall constitute a fund to be known as the Reforestation Fund. The funds shall be expended by the
Director of Forestry with the approval of the Sec. of Agriculture.
There is nothing in the law which requires that the amount collected as reforestation charges should be used
exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not
so used, the same should be refunded to him. Observe too, that the licensees area may or may not be reforested
at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs
reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in
the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether
the area covered by his license is reforested or not.
Also, under the Civil Code, ML and the Republic are not mutually creditors and debtors of each other.
Important: The general rule, based on grounds of public policy is well-settled that no set-off is admissible
against demands for taxes levied for general or local governmental purposes. The reason on which the
general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of
a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent
of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by
the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is
plain that some legitimate and necessary expenditure must be curtailed. If the taxpayers claim is disputed,
the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of
the government will be thrown into great confusion.

ALS2014B
ALS2014B 90 of 162
"#$
RIGHTS AND REMEDIES OF THE TAXPAYER UNDER THE
NATIONAL INTERNAL REVENUE CODE
National Internal Revenue Code
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration
and Enforcement.
(A) Examination of Returns and Determination of Tax Due. ...
Any return, statement, or declaration filed in any office authorized to receive the same shall not be
withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified,
changed, or amended: Provided, further, that no notice for audit or investigation of such return, statement, or
declaration has, in the meantime, been actually served upon the taxpayer.
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may
...
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to
the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for which no actual
payment was made.
SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or

ALS2014B
ALS2014B 91 of 162
"#$
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and demandable.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively
or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit.
(A) Forfeiture of Refund. A refund check or warrant issued in accordance with the pertinent provisions of this
Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was
mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the
general fund.cralaw
(B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provisions of this
Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be
considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the
amount covered by the certificate shall revert to the general fund.
(C) Transitory Provision. For purposes of the preceding Subsection, a tax credit certificate issued by the
Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a
creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly
authorized representative or on before June 30, 1998.
R.A. No. 1125, as Amended by R.A. No. 9282

ALS2014B
ALS2014B 92 of 162
"#$
SEC. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction shall
be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount o taxes and fees, exclusive of charges and penalties, claimed is less
than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by
the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of
Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action
separately from the criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan

ALS2014B
ALS2014B 93 of 162
"#$
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective
jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That collection
cases where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper
Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the Exercise of their appellate jurisdiction over tax collection
cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts, in their respective jurisdiction.
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule
42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or
in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the
CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of
Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by
filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil
Procedure with the CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be
raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a
motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof:
Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and
appeal shall likewise apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of
Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of
Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the
interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount
with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may
directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.
SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil proceeding involving matter arising under the National
Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein

ALS2014B
ALS2014B 94 of 162
"#$
provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the
provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial,
may file a petition for review with the CTA en banc.
SEC. 19. Review by Certiorari. A party adversely affected by a decision or ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Revised Rules of the CTA, A.M. No. 05-11-07-CTA, Nov. 22, 2005
RULE 4: JURISDICTION OF THE COURT
SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:
a. Exclusive original or appellate jurisdiction to review by appeal the following:
...
the National Internal Revenue Code or other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue
within the one hundred eighty day-period under Section 228 of the National Internal revenue Code shall
be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not
necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case;
Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal
Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the
taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and
Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under
Section 229 of the National Internal Revenue Code;
RULE 8: PROCEDURE IN CIVIL CASES
SEC. 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the inaction of
the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the
Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by
petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period
fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the
taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the
taxes. (n)
Revenue Memorandum Circular No. 40-2003
SUBJECT: Effect of the Issuance and Receipt of Letter Notice to the Taxpayers Right to Amend its Tax Returns
as Provided under Section 6 of the National Internal Revenue Code
TO: All Internal Revenue Officers and Others Concerned
For the information and guidance of all internal revenue officers and others concerned, please refer to the attached
copy of the memorandum of Deputy Commissioner Jose Mario C. Buag of the Legal and Inspection Group dated June 9,
2003 clarifying the following issue:

ALS2014B
ALS2014B 95 of 162
"#$
Whether or not the Letter Notice (LN) being served by the Bureau upon taxpayers who were found to have under-
declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or
investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of
such audit or investigation.
The Deputy Commissioner for Legal and Inspection Group opines and I quote:
LN being served by the Bureau upon taxpayers who were found to have underdeclared their sales or purchases through
the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify
the taxpayers concerned from amending any return which is the subject of such audit or investigation.
Please be guided accordingly.
SUBJECT: Amending Answer to Question Number 17 of Revenue Memorandum Circular No. 42-2003 and
Providing Additional Guidelines on Issues Relative to the Processing of Claims for Value-Added Tax (VAT)
Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center, Department of Finance (OSS-DOF) by Direct Exporters
In response to request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to
the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period
prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
1. A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a
claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-
DOF), the administrative agency and the tax court may act on the case separately. While the case is
pending in the tax court and at the same time is still under process by the administrative agency, the
litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head
of the investigating/processing office for the docket containing certified true copies of all the documents
pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on
the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the
administrative agency shall continue processing the refund/TCC case until such time that a final decision
has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter
shall cease from processing the claim. On the other hand, if the administrative agency is able to process
the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the
concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the positive
resolution or approval of the motion must be furnished the administrative agency as a prerequisite to the
release of the tax credit certificate/tax refund processed administratively. However, if the taxpayer is not
agreeable to the findings of the administrative agency or does not respond accordingly to the action of the
agency, the agency shall not release the refund/TCC unless the taxpayer shows proof of withdrawal of the
case filed with the tax court. If, despite the termination of the processing of the refund/TCC at the
administrative level, the taxpayer decides to continue with the case filed at the tax court, the litigation
lawyer of the BIR, upon the initiative of either the Legal Office or the Processing Office of the
Administrative Agency, shall present as evidence against the claim of the taxpayer the result of
investigation of the investigating/processing office.
2. Additional paragraphs are hereto added to the last paragraph of RMC No. 42-2003 to read as follows:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the

ALS2014B
ALS2014B 96 of 162
"#$
supporting documents required by the investigating/processing office? When should the investigating/
processing office officially receive claims for tax credit/refund and what is the period required to process
such claims?
A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the
documentary requirements unless given further extension by the head of the processing unit, but such
extension should not exceed thirty (30) days.
For claims to be filed by claimants with the respective investigating/processing office of the
administrative agency, the same shall be officially received only upon submission of complete
documents.
For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty
(120) days from receipt of the complete documents. If, in the course of the investigation and processing of
the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office, which shall be construed as within the one hundred twenty (120) day
period.
All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.
Revenue Regulations No. 12-99, Sep. 6, 1999
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer who audited the taxpayers records shall, among
others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officers submitted report of
investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special
Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of Division
concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayers payment
of his internal revenue taxes, for the purpose of Informal Conference, in order to afford the taxpayer with an
opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of
receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District
Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of
Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the
Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized
representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if
warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment Division or by
the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at
least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail,
the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see
illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of
the PAN, he shall beconsidered in default, in which case, a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment of the taxpayers deficiency tax liability, inclusive of
the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the preliminary
assessment notice shall not be required in any of the following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayers deficiency tax liability shall be sufficient:

ALS2014B
ALS2014B 97 of 162
"#$
(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
appearing on the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding taxfor a taxable
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice
shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for
payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice
shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail
or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name;
(b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a
person other than the taxpayer himself; and (d) date of receipt thereof.
3.1.5 Disputed Assessment. The taxpayer or his duly authorized representative may protest administratively
against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt
thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer
only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the
deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No
action shall be taken on the taxpayers disputed issues until the taxpayer has paid the deficiency tax or taxes
attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes
attributable to the disputed issues shall be suspended.
The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest
is based, otherwise, his protest shall be considered void and without force and effect. If there are several issues
involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment
is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to
pay the corresponding deficiency tax or taxes attributable thereto.
The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of
filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The phrase
submit the required documents includes submission or presentation of the pertinent documents for scrutiny and
evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report
of investigation. If the taxpayer fails to file a valid protest against the formal letter of demand and assessment
notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and
demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become
final, executory and demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative,
the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said
decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the

ALS2014B
ALS2014B 98 of 162
"#$
taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision
of the Commissioners duly authorized representative, the latters decision shall not be considered final, executory
and demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the taxpayers protest within one hundred
eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest,
the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day
period, otherwise, the assessment shall become final, executory and demandable.
3.1.6 Administrative Decision on a Disputed Assessment. The decision of the Commissioner or his duly
authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence on
which such decision is based, otherwise, the decision shall be void (see illustration inANNEX C hereof), in which
case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final
decision.
3.1.7 Constructive Service. If the notice to the taxpayer herein required is served by registered mail, and no
response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail,
the same shall be considered actually or constructively received by the taxpayer. If the same is personally served
on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the
same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by
leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and
signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The
revenue officer who constructively served the same shall make a written report of this matter which shall form
part of the docket of this case (see illustration in ANNEX D hereof).
CASES
PILIPINAS SHELL PETROLEUM CORP V. CIR -- PSPC paid part of its excise tax liabilities with TCCs which it
validly purchased. BIR sent a collection to PSPC for alleged deficiency excise tax liabilities claiming that the
TCCs that were used were fraudulently acquired thus, may not be used to pay taxes. PSPC now avers that its
statutory and procedural right to due process was violated in the issuance of the assessment because the
procedures delineated in the statutory provisos and RR 12-99 were not followed by respondent. Respondent
ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment
notice, as required. Respondent merely relied on the findings of the Center which did not give PSPC ample
opportunity to air its side. PSPCs motion for reconsideration of the purported Center findings and cancellation of
the subject TCCs and the TDM was not even acted upon. Because of this defect, the assessment of respondent for
deficiency excise taxes against petitioner was canceled and declared without force and effect for lack of legal
basis.
CIR v. MENGUITO (2008) non-receipt of PAN okay as long as taxpayer receives FAN Menguito is engaged in
the cafeteria business. He was given formal assessment notices by the CIR which stated that he had deficiency
income and percentage taxes. Menguito questioned the validity of the formal assessment notices, alleging that
they were issued in violation of the requirement of Revenue Regulations No. 12-85, which requires that the
taxpayer should first be issued a post-reporting notice and pre-assessment notice before the preliminary findings
of deficiency may ripen into a formal assessment.
In the case, Menguito did not receive a pre-assessment notice. Instead, he received various letters informing him
of the findings of the BIR. However, while the lack of a post-reporting notice and pre-assessment notice is a
deviation from the requirements under Revenue Regulation No. 12-85, the same cannot detract from the fact that
formal assessments were issued to and actually received by Menguito. A post-reporting notice and pre-
assessment notice do not bear the gravity of a formal assessment notice. Neither notice contains a declaration of
the tax liability of the taxpayer or a demand for payment. Hence, the lack of such notices inflicts no prejudice on
the taxpayer for as long as the latter is properly served a formal assessment notice. The fact that Menguito did

ALS2014B
ALS2014B 99 of 162
"#$
not receive a pre-assessment notice does not affect his liability for deficiency income and percentage taxes
because he received formal assessment notices anyway.
CIR v. METRO STAR SUPERAMA no proof of delivery / PAN serves due process Metro Star Superama
(Metro Star) was being assessed by the CIR for deficiencies in VAT and Withholding for the year 1999. A
warrant of distraint and levy has already been issued against them. Metro Star alleges that they did not receive
any PAN, thus being denied of due process. The CIR claims that Metro Star in fact received such PAN on Jan
16, 2002 and also states that even though there was no PAN, they sent a FAN which informed Metro Star of the
CIRs claims.
To have the presumption to prove that mailed letter is deemed received by the addressee, the CIR must prove:
1) the letter was properly addressed with postage prepaid, and 2) that it was mailed. CIR failed to present
evidence to prove the presumption.
Metro Star is denied due process by not receiving the PAN. A close study of Sec. 228 of the NIRC says that a
taxpayer must be informed of such deficiency. Receipt of a PAN is not merely a formal requirement but a
substantial one that serves due process.
CIR v. REYES (2006) Dasmarias House/ assessment is not just to notify but rather to inform The heirs of
Maria Tancino received a PAN and FAN (14 M) for proper estate tax on the Dasmarias Village house and lot
left by the decedent. Heirs initially filed for a compromise but after a series of petitions and motions, the CTA
questioned the validity of the assessment notice. CA modified the decision of the CTA and adjudged that the
assessment notices were void for they violated Sec 228 of NIRC and the substantive due process.
In this case, SC affirmed and clarified that based on Section 228 (as amended by RA 8424 in 1998) the old
requirement of merely notifying the taxpayer of CIRs finding no longer suffice for now it is required that
assessment notice must inform the taxpayer of the laws and facts on which it was made. It must contain
gross figures and itemized details for the Court can no longer accept assessments based on mere arbitrary
or capricious estimates. Failure to do so invalidates an assessment and thus it cant be used as basis for the
perfection of a tax compromise in the future.
CIR v. ENRON (2009) Formal Letter of Assessment and Demand must state the facts and the law on which it is
based following Sec 228 of the Tax Code and RR 12-99 Sec 3.1.4. Otherwise it is void. Enron, a corp. registered
with the SBMA, filed its ITR for 1996 in April 1997. BIR sent them a preliminary 5 day letter and informed of
proposed assessment on deficiency income tax which they protested. They were given a formal assessment notice
which Enron protested but was denied. They appealed with the CTA. The appeal was granted by the CTA. The
CA affirmed by saying that the assessment failed to comply with Sec 228 of the NIRC and its implementing
regulation RR 12-99. The CIR in a Petition for Review to the SC claims that Enron was properly informed of the
fact and law on which the assessment was made, during the pre-assessment stage, by the following: advising
representative of Enron of the tax deficiency, informing them of proposed tax deficiency assessment thru
preliminary 5 day letter and furnishing them of a copy of the audit working paper. The Supreme Court held it is
mandatory for the formal letter of demand and assessment state the facts and law in which the assessment was
made following Sec 228 of the NIRC and RR 12-99. In this case the CIR merely issued a formal letter indicating
the supposed tax, surcharge, interest and penalty without explaining how they computed the amount without
providing the provision of law in which it was based. The Court noted that in the old law what was required is the
taxpayer simply is notified of their tax deficiency. This was amended to follow the constitutional principle that no
person shall be deprived of property without due process.
CIR v. BANK OF THE PHILIPPINE ISLANDS (2007) this is not a protest/factual basis not required under
old law In October 1988, the CIR sent two notices of assessment to BPI for deficiency percentage and
documentary stamp taxes for the year 1986. BPI replied, arguing that the deficiency assessments were not
assessments at all because of their failure to disclose the facts and circumstances upon which they were based.
BPI made it clear that its decision to pay or protest the assessment would be communicated to the CIR only upon
receipt a clarificatory letter from the latter. In reply, the CIR claimed that BPIs letter failed to raise any valid
issues and thus, did not qualify as a protest. Be that as it may, the CIR acquiesced and provided BPI with an

ALS2014B
ALS2014B 100 of 162
"#$
explanation of the basis for its assessments. This very same letter, dated May 8, 1991 expressed that it
constituted the CIRs final decision the matter. BPI filed a petition for review before the CTA in 1992. This
was denied on the ground of lack of jurisdiction because the assessments had already become final and
unappealable. The CA reversed, finding that the assessments failure to indicate the factual and legal bases
rendered them void.
The assessments are valid because the old law merely required that the taxpayer be notified of the CIRs
findings, nothing more. The assessments in this case were sent to the taxpayer prior to the passage of the Tax
Reform Act of 1997, which, in addition to notification, now also requires the CIR to cite the law and the facts
upon which assessments are based. Because the initial notices are valid, the running of the period within which
BPI should have protested such notices started from May 8, 1991, when CIR specifically manifested that such
letter constituted its final decision on the matter. Hence, BPI filed its petition for review before the CTA in 1992,
the assessments had already become final, as BPI only had 30 days from May 8 to file an appeal.
CIR v. FIRST EXPRESS PAWNSHOP (2009)
Facts: On December 2001, the CIR assessed several tax deficiencies income tax, VAT, documentary stamp tax and
DST along with surcharges against First Express Pawnshop. First Express received the notices on January 3,
2001. It filed its written protests to the assessments on February 1, 2001 attaching thereto its General Information
Sheet and Balance Sheet. (Relevant fact shown in later part of decision: Apparently, the CIR requested several
other documents loan agreement with lender banks, official receipts of interests received, documentary evidence
of donations made, proof of DST payment on subscriptions from First Express after it filed its protest but the
latter failed to present them.) The CIR not having responded to the written protests with the 180 days as
prescribed by the NIRC, First Express filed petition before the CTA. In its petition, First Express maintained that
it was not a lending investor (subject to VAT), its documents were not among those subject to the DST and the
pawn tickets it issued were pledges which are subject to tax under section 195. The CIR made a general
opposition that its opposition was valid and binding. First Express in the meantime paid the income tax
deficiency. The CTA partially affirmed the assessment of the DST. The CTA en banc affirmed the CTA first
division ruling.
Issue: Has the assessment reached finality when First Express failed to present the documents demanded by the CIR
within 60 days from filing of its protest as prescribed by Section 228 of the NIRC? (The CIR insists that the CTA
should not have entertained the petition of First Express because the latter did not submit relevant supporting
documents as a requisite to remedy of filing of petition before the said court pursuant to section 228.)
Held: First Express complied with the requirement of submitting relevant supporting documents prescribed in section
228 of the NIRC. Hence, the petition was validly entertained by the CTA.
Ratio: The SC said that First Express did not fail to file the necessary relevant supporting documents referred to in
section 228 of the NIRC.
The Court said that First Express attached its GIS and Balance Sheet upon filing of its protest.
Also, It said that the CIR cannot insist on requiring First Express to present proof of payment of the DST because
the said document does not exist pursuant to the latters claims that it was not liable to pay such in the first place.
Finally, the Court said that in referring to relevant supporting documents it must be understood to mean those
necessary to support the legal basis in disputing an assessment. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot specify what particular kind of documents the taxpayer has to present
otherwise, the taxpayer may be required to present documents that /she cannot submit.
First Express having complied with the requirement of section 228 as to submission of relevant supporting
documents, the assessment against it did not become final and executor.
MARCOS II v. CA (1997)
Facts: Following the death of former President Marcos in 1989, investigations were conducted on his and his familys
tax liabilities and it was found that the Marcoses failed to file a written notice of death of the decedent estate tax

ALS2014B
ALS2014B 101 of 162
"#$
return and income tax returns for the years 1982 to 1986. The CIR thereby caused the preparation of the estate tax
return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the
income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate
tax assessments and the corresponding deficiency income tax assessments. The deficiency tax assessments were
not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR
issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned
by Marcoses. These lands were forfeited in favor of the government because there were no bidders during the
auction sale.
Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul the
notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA
dismissed, holding that the deficiency assessments for the estate and income taxes have already become final and
unappealable and may thus be enforced by summary remedy of levying upon the real property.
Issue: Whether or not the proper avenue of assessment and collection was taken by the BIR.
Held: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and
other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into
finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President
Marcos. The deficiency tax assessment, having become final, executory and demandable, the same can now
be collected through the summary remedy of distraint and levy.
DAYRIT v. CRUZ (1988)
Facts: The Teodoro spouses died and the heirs of the deceased filed separate inheritance and estate tax. CIR sent the
heirs a notice of deficiency assessment on their estate and inheritance taxes. The heirs asked for reconsideration
and requested a period of 30 days within which to submit their position paper. (They never submitted a
position paper.)
Meanwhile, PD 23 (Tax Amnesty Subject to Certain Conditions) as amended by PD 67 was passed which states
that voluntary disclosure of previously untaxed income shall be condoned and a tax of 10% of such income shall
be imposed. The heirs applied for tax amnesty under the law and were asked to pay PhP285k. The CIR instituted
an action for collection and contends that the heirs cannot avail of the tax amnesty in view of the prior existing
assessments issued against the estate of the deceased spouses. The heirs claim that they were freed from any
liability imposed by the previous assessments because they availed of the tax amnesty.
Issue: W/N the heirs could avail of the tax amnesty.
Held: NO. In the heirs motion for reconsideration of the assessments, they requested the CIR for a period of 30 days
within which to submit their position paper, but they never did. Such failure to file a position paper may be
construed as abandonment of the heirs request for reconsideration. It took the CIR a period of more than one
year and five months to institute an action for collection. Under the circumstances of the case, the act of the
CIR in filing an action may be considered as an outright denial of the heirs request for reconsideration.
From the date of the receipt of the copy of the CIRs letter for collection of estate and inheritance taxes against the
estate of the late Teodoro spouses, the heirs must contest or dispute the same and upon denial thereof, they have a
period of 30 days within which to appeal the case to the CTA. This they failed to avail of.
OCEANIC WIRELESS INC. v. CIR -- demand letter issued by a subordinate Oceanic received from the BIR
deficiency tax assessments. They protested the assessments and requested a consideration or cancellation of the
same. On January, the Chief of BIR Billing Division denied the request and asked Oceanic to pay their dues
within 10 days from receipt of the letter otherwise the necessary warrants for distraint and levy will be
issued. They failed to pay and the warrants were issued. It was only on November that Oceanic filed a case with
the CTA. Logically, it was denied due to prescription. Oceanic contends that the reply issued by the Chief of
Billing cannot be considered a final demand because a subordinate officer issued it.

ALS2014B
ALS2014B 102 of 162
"#$
A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested
assessment. The determination on whether or not it is final is conditioned upon the language used or tenor of the
letter being sent to the taxpayer. The letter must use clear and equivocal terms whenever his action on an
assessment constitutes his final determination. This is to enable the taxpayer to determine when his right to
appeal to the CTA accrues. The fact that only a subordinate of the CIR issued the demand is of no moment
because demands may be made by the commissioner or his duly authorized representative (see Sec 6, NIRC).
After the denial of the protest/MR, Oceanic had 30 days to file an appeal with the CTA. However, since it
failed to appeal the denial within the reglementary period, the decision of the CIR (via its subordinate) was
considered final, executory and enforceable (see Sec 228, NIRC).
CIR v. ISABELA CULTURAL CORPORATION final decision, last opportunity CIR investigated Isabela
Cultural Corporations 1986 books of account and discovered an income tax deficiency of some 9 million. Isabel
protested. CIR sent an assessment letter and demanded payment of deficiency income tax and withholding tax.
Isabela requested for reconsideration. CIR sent Isabela a Final Notice before Seizure and demanded payment
within 10 days from its receipt. Isabela treated this as CIRs final decision and filed a petition before the CTA. SC
held that the Final Notice Before Seizure is deemed as the CIRs final decision. If the protest is not acted upon
within 180 days from submission of documents, the taxpayer may appeal to the CTA. Here, Isabela filed its
request for reconsideration beyond the 180-day period. Moreover, the letter stated, We are giving you this last
opportunity to settle the adverted assessment. It was tantamount to a rejection of the request for reconsideration.
CIR v. AYALA SECURITIES CORP. Ayala Securities Corporation (Ayala) filed its income tax returns for its fiscal
year which ended on 1955. The CIR assessed Ayala for deficiency taxes on its accumulated surplus. Ayala
protested and eventually received a letter dated February 18, 1963 from the CIR examiner calling its attention to
the unpaid tax and requesting for the payment within five (5) days from receipt of the letter. Believing the letter
to be a denial of its protest, Ayala filed with the CTA a petition for review.
CIR maintains that the CTA erred in holding that the letter dated February 18, 1963 is a denial of Ayalas
protest against the assessment. They contend that the letter is merely an ordinary office letter designed to
remind delinquent taxpayers of their obligations to pay their taxes to and not a decision on a disputed or
protested assessment contemplated under Section 7(1) of R.A. 1125.
The court ruled that the letter of February 18, 1963 is tantamount to a denial of the protest of Ayala on the
assessment made by the CIR considering the firm stand of the CIR against the reconsideration of the disputed
assessment in view of the continued refusal of Ayala to execute the waiver of the period of limitation (the
action has already prescribed). The letter amounts to a decision on a disputed or protested assessment and,
therefore, the CTA did not err in taking cognizance of this case.
ALLIED BANKING v. CIR (2010) appeal on final demand / exception to rule on exhaustive remedies BIR
issued a PAN to Allied Bank for Documentary Stamp Tax and Gross Receipt Tax deficiency. Allied protested, but
BIR wrote a Formal Letter of Demand w/ Assessment Notice denying the protest telling Allied that it was their
final decision based on investigation and that if Allied disagrees, then it may appeal the final decision w/in 30
days from receipt thereof. Allied appealed to the CTA, but the CIR opposed on the ground that what is to be
appealed to the CTA is the CIRs decision on the taxpayers protest of the FAN, and not the FAN itself. CTA
dismissed the petition since Allied failed to exhaust all administrative remedies.
While that is true, this case consists as an exception to the rule on exhaustion of administrative remedies since
the CIR is estopped from the words it used in the FAN. It appears from the FAN that the CIR has already
made a final decision on the matter, and that Allied may appeal the decision w/in 30 days. Taken in its ordinary
context in tax cases and under prevailing tax law, appeal means appeal to the CIR. Thus, taking into
consideration that the FAN contained the words final decision and appeal, the SC reversed the CTA decision,
since it led Allied to believe that the Formal Letter of Demand was the CIRs decision on the protest and that the
formers remedy was to appeal to the CTA.
*Note: Allied Bank offered a compromise and BIR accepted.

ALS2014B
ALS2014B 103 of 162
"#$
CIR v. UNION SHIPPING CORP. CIR assessed against Union Shipping Corporation deficiency income taxes.
Union Shipping protested. The CIR, without ruling on the protest, issued and served a Warrant of Distraint and
Levy. Union Shipping reiterated its request for reinvestigation of the assessment and for the reconsideration of the
summary collection thru distraint and levy. The CIR, again not ruling on such request, instead filed a collection
suit with the CFI of Manila. The CFI issued summons. Union Shipping filed with the CFI a decision it was able to
obtain from the CTA, absolving Union Shipping from paying any deficiency tax. The issue in this case is whether
or not the CTA has jurisdiction over this case. Note that, in this case, the CIR did not rule on the protest, leaving
Union Shipping in the dark as to which action of the CIR is the decision appealable to the CTA.
The SC has held that the CIR should always indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment. It is on the basis of such final determination that a taxpayer would be able to take recourse
to the tax court. In other words, the taxpayer would be able to determine when his right to appeal to the tax
court accrues. 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. The issuance of a warrant of distraint and levy is proof of the finality of
an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment. Applying
such to the case at hand, the period to appeal has not commenced to run because the CIR did not signify his
final action on the matter. Union Shippings protest was in effect considered denied when the CIR filed a civil
suit for collection of deficiency income. Thus, it was only when Union Shipping received the summons on the
civil suit that the period to appeal commenced to run. Hence, the CTA had jurisdiction over the case because
Union Shipping filed its petition for review within the reglementary period.
SAN JUAN v. VASQUEZ jurisdiction of CTA There was a collection suit against San Juan for income taxes for
various years and deficiency tax and surcharges therein. The Collector of Internal Revenue brought the action in
the Court of First Instance of Manila. Petitioner moved to dismiss the action on the ground that the court had no
jurisdiction to take cognizance of the action because the matter involved a disputed assessment, the jurisdiction
of which fell upon the Court of Tax Appeals; and that there is a pending action in the Court of Tax Appeals,
involving the same disputed assessment. Thedetermination of the correctness or incorrectness of a tax assessment
to which the taxpayer is not agreeable falls within the jurisdiction of the Court of Tax Appeals and not of the
Court of First Instance. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any
decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising
under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue (Section 7 RA 1125)
REPUBLIC v. LIM TIAN TENG SONS & CO., INC. (1966) Referral to Solicitor General for Collection
constitutes denial Lim Tian Teng Sons & Co., Inc., with Office in Cebu, is engaged in the exportation of copra.
In the audit and examination of taxpayers 1952 income tax return, the CIR eliminated the P95,500 outturn from
the beginning inventory for 1952 and considered it as accrued income for 1951. (This assessment was later upheld
by the SC to be correct based on accounting standards.) On January 31, 1957 Lim Tian requested
reinvestigation of its 1952 income tax liability. The CIR did not reply; instead, he referred the case to the
Solicitor General for collection by judicial action. Lim Tian assails the jurisdiction of the lower court on the
ground that the assessment in question has not become final and executor. SC: For what is more indicative of
the CIRs decision against reinvestigation than his insistence to collect the tax? This decision was
communicated to defendant in a letter dated September 20, 1957 from the office of the Solicitor General which
must have been received by defendant not later than October 8, 1957 for on said date it acknowledged receipt
thereof. It had thirty days from receipt within which to appeal to the CTA. Instead of appealing to the Tax Court,
however, the defendant herein in a letter dated October 8, 1957 reiterated its request for reinvestigation. Taxpayer
failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and
demandable.
PHIL. PLANTERS INVESTMENT CO. INC v. ACTING CIR (1962) Warrant of Distraint and Levy as Denial of
Reinvestigation Phil. Planters entered into a Management Contract with Binalbagan-Isabela Sugar Company
Inc.(BISCOM) to act as its Manager of its business affairs. CIR assessed Phil. Planters 3 separate times for

ALS2014B
ALS2014B 104 of 162
"#$
percentage tax on gross compensation for allegedly acting as a commercial broker for BISCOM for the years
1951-1961. Phil. Planters sought reinvestigation of the case to enable it to present evidence and at the same
time, requested that collection of the amounts assessed be deferred for which it offered to file the necessary
bond. As no reply was received from the CIR, and having been informed that collection of the amounts
would be enforced by distraint and levy, Phil. Planters filed a petition for review with motion for issuance
of an order suspending the collection of the said tax and enjoining respondent and his representatives
from enforcing the same. After hearing, court granted the motion upon filing and approval of surety bond for
1.3 M to secure the payment of 901K, 384K and 271 K. In resolving the case, the CTA held that managing
corporations are not independent contractors within Sec. 191 of Revenue Code. Such corporations are only
subject to income and residence tax from whatever income it received under the employment contract. Even if
Phil. Planters paid the commercial brokers annual tax from 1953-1961, it cannot be considered a commercial
broker if it had not intervened in any brokerage transaction. Being a nominal amount, Phil Planters was willing to
pay P150/yearly in case a broker would be needed by the planters to intervene in their sales, however this need
never arose.
HILADO v. CIR CTA case regarding Atty. Vicente Hilado filed his return on Feb 26, 1954 for his gross income
in 1953. He claimed deductions and exemptions making his taxable income P61, 774.67. BIR sent 4 letters
requesting the breakdown of his 1953 income and other documents, but remained unanswered. Thus, BIR
assessed him with a deficiency of P5, 085 due to BIRs disallowance of half of his deductions. When Hilado
asked for an explanation, BIR said Hilado was not able to substantiate his deductions. Hilado protested but BIR
did not resolve his protest and just issued a warrant for distraint and levy. The court stated that the issuance of a
warrant for distraint and levy to enforce collection of deficiency assessment was tantamount to an outright
denial of the request for reconsideration.
CENTRAL CEMENT CO. v. CIR The BIR sent letters of proposed assessment to Central Cement, in which the
latter disputed. On September 20, 1988, Central Cement received from the BIR a FAN, for alleged deficiency
income tax and expanded withholding tax. A protest was sent by Central. On December 1, 1988, while awaiting
resolution of the protest, an undated Warrant of Levy and Distraint were served on petitioner.
The issuance of the warrants of distraint and levy and warrants of garnishment was in violation of Section 207 of
the NIRC which only authorizes the issuance of warrants not earlier than three months nor later than six months
from receipt of the demand. The CIR where enjoined from enforcing the warrants.
ADVERTISING ASSOCIATES v. CA and CIR (1984) warrant of distraint to toll prescriptive period The CIR
required Advertising Associates to pay deficiency contractors tax w/ 25% surcharge since the latter was
operating more as a general advertising business than a media office. Advertising contested the assessment in
1974, but the CIR reiterated the same. For 4 years, there was no movement in the case. But in 1978, the CIR
issued 2 warrants of distraint to satisfy the deficiency taxes. He requested Advertising to pay w/in 10 days from
receipt of demand, stating that it constitutes as the final decision on the matter, and the remedy was to appeal to
the CTA w/in 30 days. When advertising did that, the CTA enjoined the enforcement of the warrant of distraint,
but did not decide on the merits of the case.
Advertising now contends that collection of the tax has prescribed. However, the SC pointed out that it received
the demand letters in June 1973 & March 1974, and the warrants were served on April & May 1978, well within
five years of the assessment. Obviously, the warrants were issued to interrupt the five-year prescriptive
period. The CIR relied on the warrants to interrupt the running of the statute of limitations, and not on
instituting any judicial action. It gave Advertising the opportunity to contest the assessments, but at the
same time, safeguarded the Governments interests. So CTA decision is reversed. In case of non-payment of
the deficiency taxes, the warrants should be enforced.
FISHWEALTH CANNING CORP. v. CIR does not toll the 30-day appeal period Fishwealth did not comply
with subpoenas for its records and then submitted a protest for the impropriety of the subpoena.The CIR still
issued a FAN of Income Tax and VAT deficiencies worth P67.6M for the year 1999. Fishwealth received the
denial of the protest on August 4, 2005. The CIR demanded payment prompting Fishwealth to file Petition for
Review on October 20, 2005 but was denied. Petition to SC dismissed. Section 228 of the NIRC provides for 30

ALS2014B
ALS2014B 105 of 162
"#$
days to appeal the denial of the protest. Therefore, Fishwealth receiving the denial on August 4, 2005 had until
September 3, 2005 to file a petition for review before the CTA Division. However, it filed one on October 20,
2005. Hence, filed out of time. An MR of the denial of the administrative protes does not toll the 30-day
period to appeal to the CTA.
CIR v. VILLA (1968) jurisdiction of CTA Spouses Villa filed a joint income tax returns for 1951 to 1956. BIR
issued on February 23, 1961 assessments for deficiency income tax and residence tax. Villa received the
assessment on April 7, 1961. Villa filed a petition for review in the CTA without contesting the assessment.
HELD: The CTA did not acquire jurisdiction over the case. Paragraph 1 of Section 7 of RA 1125 states that CTA
shall exercise exclusive appellare jurisdiction to review by appeal the decisions of the CIR. The word decision
has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself. Jurisdiction over the subject matter is fundamental for
the count to act on a given controversy. It is conferred by law, not by the consent of the parties. It can be
challenged at any stage of the proceedings and for lack of jurisdictions a court can dismiss a case motu proprio.
MERALCO SECURITIES CORP. v. SAVELLANO (1982) CFI Judge no jurisdiction / no reward The late
Juan Maniago submitted to the CIR a confidential denunciation against the Meralco Securities Corp for tax
evasion having paid tax on only 25% of the dividends received from Manila Electric. The CIR filed a motion to
dismiss for finding no basis for deficiency since indeed only 25% is returnable as per Sec. 24(A), NIRC. Maniago
filed for mandamus against the CIR to compel the assessment of the alleged deficiency corporate tax. Judge
Victorino Savellano ordered the assessment and collection of the said taxes All parties filed MRs but were
denied. Hence the CIR filed a separate petition stating that indeed, the CFI judge has no jurisdiction and the CIR
ruling is not reviewable by mandamus. Judge Savellano has no jurisdiction. This matter is now exclusively
within the jurisdiction of the CTA. The CTA having appellate jurisdiction to review by appeal decisions of the
CIR. The law transferred to the CTA jurisdiction over all cases involving such assessments previously cognizable
by the CFI. What Maniago couldve done is to appeal to the CTA within 30 days from receipt of ruling by the
CIR. It is furthermore cleared that mandamus only lies to enforce the performance of a ministerial act or duty not
those which are discretionary. Since no taxes are to be collected, no informers reward is due to private
respondents as the informers heirs.
CIR v. COA / SAVELLANO v. COA (1993) audit jurisdiction / reward valid Tirso Savellano furnished the BIR
with a confidential affidavit denouncing the Natl Coal Authority (NCA) and the Phil. Natl Oil Co. (PNOC) for
non-payment of taxes on interest earnings from PNB. Savellano received reward upon Dep. Of Finance approval.
However, a few years later, the Commission on Audit (COA) disallowed the payment of such reward since the
NCA case reward is based on the actual collection/recovery of revenues wherein none was realized by the
government. CIR claimes the DoF approval was conclusive. COA invokes its audit jurisdiction and questions the
standing of the CIR. The reward should be granted. The informers award was based on section 316 of the
NIRC. PNOC and NCA are subject to tax having personalities distinct from the government. if they evade
payment of their taxes, the amounts corresponding to such liabilities could be utilized for purposes exclusive to
them; contrarily, if they do pay their taxes, the amounts so paid accrue to the General Fund; Section 281
prescribes that for an informer to be entitled to the reward, the information he furnishes should result in the
recovery of revenues; statutes offering reward must be liberally construed in favor of informers; the possibility of
collusion is not sufficient basis for disallowance, since collusion cannot be assumed, while the official acts of
the BIR and the Department of Finance are entitled to a presumption of regularity; mere possibility of collusion
to obtain the informers reward as sufficient ground for disallowance. Collusion cannot be presumed. It must be
proved by clear and convincing evidence. In the case at bar, there is no showing of collusion between petitioner
Savellano as informer and any official or employee of the BIR or the Department of Finance.
PNOC v. CA (2005) Savellano informed the BIR that PNB failed to withhold 15% final tax on interest earnings and/
or yields from money placements of PNOC with the bank. BIR requested PNOC to settle its tax liability. PNOC
made an offer to compromise its tax liability and proposed to set-off its tax liability against a pending claim for
tax refund/ credit of NAPOCOR. BIR replied that the proposal for set-off was premature since NAPOCORs
claim was still under process. BIR requested PNOC to settle its tax liability again. PNOC proposed a compromise,
representing 30% of the basic tax. BIR paid Savellanos informers reward in four installments. However,

ALS2014B
ALS2014B 106 of 162
"#$
Savellano claims he never received the last installment. He filed a Petition for Review ad cautelam with the CTA
and claimed that BIR acted with grave abuse of discretion in entering into a compromise agreement which
diminished his reward. PNB and PNOC filed Motions to Dismiss arguing the CTAs lack of jurisdiction. The
CTA upheld its jurisdiction and declared the compromise agreement without force and effect, and ordered the
CIR to enforce assessment against PNB. PNB and PNOC appealed. The court held that the CTA shall exercise
exclusive appellate jurisdiction to review by appeal the decisions of the CIR 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 NIRC or other relevant laws. Here, Savellano submitted before the CTA
questions of law involving the interpretation and application of EO No. 44, which authorized the CIR to
compromise delinquent accounts and disputed assessments, and Sec. 316, NIRC, which involves informers
reward. These are appealable to the CTA.
SEC. OF FINANCE v. AGANA (1975) Shamrock Well-Drilling Enterprises, Inc. (Shamrock) imports seamless iron
and steel pipes and tubes from Japan at prices less than its fair value, to the injury of the local industry. The
Secretary of Finance then ordered Shamrock to pay a dumping duty in the amount of $63 per metric.
Shamrock refused to pay. The Customs Commissioner refused to release the goods unless the payment of
regular customs duties plus the anti-dumping charges be made. Shamrock brought the matter to the Court of
First Instance (CFI) as if on appeal and sought to annul the orders of the Secretary of Finance, and likewise
to have a writ of preliminary injunction issued. Judge Agana, herein respondent, ruled in favor of Shamrock,
ordering the release of the imported goods upon payment of a bond. The Secretary of Finance questioned the
jurisdiction of Judge Agana, stating that it was the CTA which has jurisdiction over the matter, and not the CFI.
The CTA was created by virtue of a constitutional grant of authority. It is the legislative determination to vest sole
and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized
court. The CTA has jurisdiction over whatever may be incidental to the legality of an assessment, and the
explicit determination of the Secretary of Finance that Shamrock is liable for anti-dumping duties falls
under such category. Therefore, appropriate judicial body to pass upon the validity of the order of the
Secretary of Finance imposing anti-dumping duties is the CTA.
CIR v. JOSEFINA LEAL (2002) pawnshop Josefina Leal, being a pawnshop owner, is assailed the revenue
orders imposing 5% lending investors tax on pawnshops issued by petitioner. The RTC granted the prohibition
sought by Leal- holding that the revenue regulations are in effect new taxes (against pawnshops). The case was
brought to the CA on certiorari. It held that the questioned RMO and RMC are actually rulings or opinions
implementing the liability.
Clearly then, she should have filed her petition with the Court of Tax Appeals, not the RTC. This is because the
jurisdiction to review the rulings of the Commissioner pertains to the Court of Tax Appeals, not to the RTC.
The determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable,
falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the
provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction
to review, on appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments
and other matters arising under the National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue.
ASIA INTL AUCTIONEERS, INC v. PARAYNO, JR. (2007) RMCs and RRs are considered as decisions of
the CIR CIR issued RRs 1-95, 12-97, & 16-99, as well as RMCs 31-2003 & 32-2003 to regulate the VAT
imposed on companies that sell motor vehicles through public auction at exclusive economic zones. Petitioners
Asia Intl and Subic Bay Motors Corp., which are both such companies operating in the Subic Bay EEZ, assailed
the validity of the above-enumerated RRs and RMCs before the RTC of Olongapo City. The RTC granted a TRO
and prelim injunction in their favor, but upon appeal, the CA reversed on the ground that the RTC had no
jurisdiction. CA is right because it is the CTA which has exclusive appellate jurisdiction over decisions of the
CIR, and other laws administered by the BIR. RMCs are considered administrative rulings which are
issued by the CIR from time to time. Plus, there is premature invocation of the courts intervention since
petitioners failed to file a motion for reconsideration of said RMCs.

ALS2014B
ALS2014B 107 of 162
"#$
BRITISH AMERICAN TOBACCO v. CAMACHO (2008) issue on constitutionality not within the jurisdiction of
CTA A petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction was
filed by petitioner to enjoin the implementation of Section 145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and
RMO No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal
protection and uniformity provisions of the Constitution. Lower court upheld the constitutionality and this
prompted the filing of a petition for review to SC. While the petition was pending, RA 9334 took effect which
effectively increased the excise tax of petitioners products. Commissioner assessed petitioners importation of
911,000 packs of Lucky Strike cigarettes liable for taxes in the total sum of P22.775M. Thus petitioner filed a
Supplement to Petition for Review which assailed the constitutionality of RA 9334 insofar as it retained Annex
D (classification of brand of cigarettes based on average net retail price as of Oct 1996) and praying for the
classification of Lucky Strike products at a lower tax bracket. Fortune Tobacco intervened and contended that
petitioner should have brought its petition before the CTA rather than the RTC. Sec 7 of RA 1125 provides for
the jurisdiction of CTA which includes exclusive appellate jurisdiction to review by appeal the decisions or
the inaction deemed as denial of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal
Revenue. While the CTA has 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
quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The petition for injunction
filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as
amended, and the validity of its implementing rules and regulations. Petitioner, therefore, properly filed the
subject case before the RTC.
TAN TIONG BIO v. BIR (1956) Central Syndicate is a corporation organized for a limited period of two years. It
allegedly purchased from Dee Hong Lue stock of surplus properties from the Foreign Liquidation Commission.
Later on, it claimed refund for the excess in the payment of the sales tax due to the adjustment and reduction of
the purchase price. However, an agent of the CIR reported that it was the syndicate who was the actual importer
and original seller of the surplus goods, a scheme adopted for evasion of tax payment. The CTA rendered a
decision holding the incorporators of the syndicate to be severally liable, the syndicates personality having had
expired. Syndicate appealed to the Court of Tax Appeals. Solicitor-General moved for the dismissal of the appeal
on the ground that the Appellant Central Syndicate no longer had the capacity to sue because its term of existence
had expired on August 15, 1948. In a petition for review, the court ruled in favor of Central Syndicate. In any
event, the government cannot insist on making a tax assessment against a corporation that no longer exists
and then turn around and oppose the appeal questioning the legality of the assessment precisely on the
ground that the corporation is non- existent, and has no longer capacity to sue. The government cannot adopt
inconsistent stands and thereby deprive the officers and directors of the defunct corporation of the remedy to
question the validity and correctness of the assessment for which, if sustained, they would be held personally
liable as successors-in-interest to the corporate property.
THE ACTING COLLECTOR OF CUSTOMS v. CTA and COMMISSIONER OF CUSTOMS (1957) The
Philippine Education Co., Inc (intervenor-respondent) imported by copies of an issue of the magazine Pageant
which carried an article entitled Check Your Sex-Life Against the New Kinsey Report. The Bureau of Customs
through the Collector of Customs rendered a decision holding that the said article violated provisions of the
Philippine Tariff Act of 1909 which prohibits entry of obscene and indecent reading materials in the Philippines
and ordered the seizure, forfeiture and burning of the copies of the magazine. The importer appealed the decision
in due time to the Commissioner of Customs in conformity with the procedures established by Section 1380 of the
then Admin Code. The Commissioner rendered a judgment reversing the Collector of Customs view by holding
that the magazine did not contain obscene or indecent article. The Secretary of Finance directed the transmittal of
the records to the CTA for review. The CTA informed the Commissioner that under RA No. 1125 it was not
empowered nor under legal obligation to review motu propio decisions of the Collector of Internal Revenue,

ALS2014B
ALS2014B 108 of 162
"#$
Commissioner of Customs or the provincial or city Board of Assessment Appeals, unlike the defunct Board of
Tax Appeals which was conferred that prerogative.
The issues are (1) whether the jurisdiction of the CTA to take cognizance of appeals from decisions of the
Commissioner of Customs is only limited to cases involving disputed assessments and payment of duties and
charges subject of detention and seizure proceedings in the BOC [YES] and (2) whether the Collector of Customs
in his official capacity can institute an appeal from a decision of the Commissioner of Customs to the CTA even
granting that the Collector was directed by the Secretary of Finance [NO].
(1) Sec 7 of RA No. 1125 provides that the CTA shall have exclusive jurisdiction to review by appeal decisions of
the Commissioner of Customs in cases involving liability of customs duties, fees or other money charges; seizure,
detention or release of property affected; fines, forfeitures, or other penalties in relation thereto or other
matters arising under the Customs Law or other law or part of law administered by the Bureau of
Customs. The last sentence comes after an enumeration of the class of cases cognizable by the CTA and by the
doctrine of ejusdem generis, in order that the other matters arising under Bureau of Customs may come within
the jurisdiction of the Court, they should involve liability for payment of money to the Government. The case at
bar does not involve liability for customs duties, fees or other money charges; therefore the present case does not
come within the appellate jurisdiction of the CTA. The proper remedy in this case, as there is no tax or pecuniary
liability involved is through administrative means rather than in the judiciary, in accordance with the Customs
Law.
(2) Sec 11 of RA No. 1125 provides an enumeration of those who may appeal from a decision or ruling of the
Collector of Internal Revenue, the Commissioner of Customs or Board of Assessment Appeals. The right to
appeal is allowed only to persons, associations or corporations adversely affected by the same, and applying the
doctrine ofinclusion unius est exlusio alterius, the Government is certainly not one of them.
SOUTHERN CROSS CEMENT CORP v. CEMENT MANUFACTURERS ASSOC. OF THE PHILS ET AL.
(2005) Issue in this case is W/N the CA has jurisdiction over the special civil action for certiorari filed by Phil
Cement Corp to appeal the DTI Secretarys Decision disapproving the request to impose a safeguard measure
(tariff) on Portland cement. Sec. 29 of RA.8800 or the Safeguard Measures Act (SMA) provides that: Any
interested party who is adversely affected by the ruling of the Secretary in connection with the imposition
of a safeguard measure may file with the CTA a petition for review Respondents argue that the CTAs
jurisdiction is limited to issues regarding the imposition of a safeguard measure, and not to decisions of the
DTI/Tarriff Commission not to impose a safeguard measure, as in this case. The Court ruled that the key phrase
in connection with is broad enough to cover rulings, which modify, suspend, terminate a safeguard measure
or even a ruling not to impose a safeguard measure. Even the US SC in similar cases has conceded that phrases
such as relate to and in connection with may be extended to the farthest stretch of indeterminacy for,
universally, relations or connections are infinite and stops nowhere. To provide more guidance, the US SC even
resorted to looking at the statute and its objectives as an alternative to an uncritical literalism. It is held that
there seems to be no sense in vesting jurisdiction on the CTA over a decision to impose a safeguard measure
but not one choosing not to impose because in both cases, the common question for resolution is still an
issue definitely fraught with some tax dimension. The determination of the question will call upon the same
kind of expertise that a specialized body such as the CTA presumably possesses. Lastly, respondents claim
that this case calls for a split jurisdiction or split review of the Decision must also fail seeing as there is no explicit
expression of bifurcated (meaning separated/branched) appeals in Sec. 29 of the SMA.
*FYI Sec. 7, RA 1125 as amended or RA 9282 now provides: Decisions of the Secretary of Trade and
Industry involving safeguard measures under RA 8800, where either party may appeal the decision to impose
or not to impose said duties. However, RA 9282 was promulgated in 2004 and cannot be given retroactive effect
so the Court had to decide relying only on Sec. 29 of the SMA or RA 8800, promulgated in 2000.
OLLADA v. CTA (1956) no criminal jurisdiction; unfair competition not appealable to CTA A case for
mandamus was ALREADY pending in the CFI when R.A. 1125 created the CTA. Upon the order of the court, it
issued an order remanding the case to the CTA. Ollada filed a motion before the CTA to return the case to the
CFI because the case involves the issue of unfair competition and NOT a disputed assessment therefore

ALS2014B
ALS2014B 109 of 162
"#$
CTA does not have jurisdiction. Respondents say that the question of unfair competition is but an incident of the
main issue which is the authority of the Collector to approve any simplified set of bookkeeping records and that
the matter arises under the NIRC so CTA has jurisdiction.
The question involved in the mandamus case does not cover any disputed assessment or refund of any
internal revenue tax, fee, charge or penalty imposed in relation thereto. Rather, it involves unfair competition
arising from the use of simplified set of bookkeeping records. It has nothing to do with any assessment or
refund of any tax, fee or penalty. It cannot be pretended that for any violation of the Internal Revenue Law,
Customs Law, or Assessment Law, the case may be appealed to the Court of Tax Appeals, for if such were the
case, then the latter court would also have jurisdiction to review cases involving penal provisions such as those
embodied in Title XI of the National Internal Revenue Code. Undoubtedly, such court does not have criminal
jurisdiction.
Sec. 7 provides that the CTA has jurisdiction over other matters arising under the NIRC or other law or part of
law administered by the Bureau of Internal Revenue. The court also used the principle of ejusdem generis.
Anti-competition is not of the same kind as a disputed assessment or refund of any tax.
LACSONA LAND v. CIR (2000) taxpayer has option to wait for CIRs decision On 20 April 1998, Lacsona
filed a protest against the CIRs assessment of deficiency taxes for 1993. On 12 March 1999 (well beyond the
180-day period given to the CIR to render a decision, and the 30 days thereafter given to the taxpayer to appeal to
the CTA, under Sec. 228), it received a letter from the CIR declaring that such assessment has become final &
executory for failure to file an appeal with the CTA w/in 30 days after the lapse of the 180-day period for the CIR
to render a decision. SC reversed the CA ruling, since taxpayers are given 2 options under Sec. 228 in case of
inaction of the CIR on a protest: they can either a) file a petition for review w/ the CTA w/in 30 days after
the expiration of the 180-day period, OR b) wait for the CIR to render a decision, and appeal to the CTA
w/in 30 days from receipt of such decision. These are mutually exclusive, and resort to one bars application
of the other. Thus, when Lacsona decided to wait for the CIRs decision on its protest, and finally receipt of the
decision on March 12, it filed timely filed the appeal on 12 April 1999.
RCBC v. CIR (2007) 30 days after 180-day prescriptive period is jurisdictional RCBC filed a protest to the CIR
on 20 July 2001. Because the CIR did not act on the protest, it had until 16 April 2002 (w/in 30 days after the
180-day period for the CIR to decide on the case, which commenced on 18 Sept. 2011RCBCs deadline to
file the necessary documents) to file an appeal with the CTA. However, it filed the appeal only on April 30.
Thus, it filed beyond the prescriptive period, and as such, the CTA has no jurisdiction over the case in the
first place. While the right to appeal the CIRs decision to the CTA is merely a statutory remedy, the prescriptive
period requirement is jurisdictional.
Also RCBCs contention that this is excusable due to the negligence of its counsel cannot be given merit since for
negligence to be excusable, it must be one which ordinary diligence & prudence could not have guarded against,
and by reason of which, an aggrieved partys rights have probably been impaired. In this case, counsels excuse
that he failed to forward the necessary documents because his secretary wasnt doing her work since he failed to
renew her employment does not fall under excusable negligence.
CIR v. YUSECO and CTA (1961) CTA has no original jurisdiction to issue writs of prohibition J. C. Yuseco did
not file his income tax return so the BIR made the income tax return and assessed him for income taxes. The BIR
then demanded payment. Yuseco requested for reinvestigation but it was denied. A warrant of distraint and levy
was issued thereafter. So Yuseco, filed a petition for prohibition with the CTA. The CTA declared the warrant
of distraint and levy as void and enjoined the CIR from collecting the taxes from Yuseco. The CIR argued that the
taxpayer cannot bring in the CTA an independent special civil action for prohibition without taking to said Court
an appealed decision or ruling of the CIR in the cases provided for in Sections 7 and 11 of R.A. No. 1125.
The writ of prohibition or injunction that the CTA may issue under the provisions of section 11, Republic
Act No. 1125, to suspend the collection of taxes, is merely ancillary to and in furtherance of its appellate
jurisdiction in the cases mentioned in section 7 of the Act. The power to issue the writ exists only in cases
appealed to it. The intention of Congress was to vest the Court of Tax Appeals with jurisdiction to issue writs of

ALS2014B
ALS2014B 110 of 162
"#$
prohibition and injunction only in aid of its appellate jurisdiction in cases appealed to it and not to clothe it
with original jurisdiction to issue them. Taxes being the chief source of revenue for the Government to keep it
running must be paid immediately and without delay.
COLLECTOR v. BATANGAS TRANS. CO (1958) joint mgmt. of 2 buses/ CIR reassesses even with perfected
CTA appeal After WWII, Batangas Transpo. And Laguna Bus decided to have a joint management and with this
CIR initially assessed them with income tax deficiency of P 54, 143 for the said partnership. The 2 bus
companies appealed before CTA but CIR, instead of filing his answer, set aside the original assessment and
reassessed them to have a tax liability of P 148,890 explaining that the buses were erroneously credited in the last
assessment. The issue now lies as to whether the CIR may still modify his assessment even after the appeal has
been perfected with the CTA. In this case, the Supreme Court laid the ruling and doctrine that even with the
appeal pending before the CTA, the Collector of Internal Revenue may still amend his assessment.
(further explanation) Justice Montemayor in this case presented the two arguments. In the first view, the CIR
should no longer be allowed to change his assessment after perfection of appeal because the jurisdiction and
control was automatically transferred to the CTA. Such allowance may also induce CIR to not exercise due care
in the assessment since they can change it anytime. The Court however, ruled in favour of the second view and
stated that allowing such reassessment is not prejudicial to the taxpayer since the CIR is allowed not only to
increase but also decrease the tax liability. Allowing for changes in the appealed assessment prevents
multiplicity of suit, since the CIR no longer has to file a separate subsequent assessment to collect additional
sums. It held that thegovernment should not be bound by errors committed in the assessment by its agents
especially if this was due to misinterpretation or application of tax laws in good faith.
(effect) Thus the CIR pending appeal in CTA may amend his assessment and include such amendment in his
answer and the CTA may redetermine the assessment based on the evidence to be presented.
COMMISSIONER OF CUSTOMS v. GELMART INDUSTRIES PHIL. (2009) Commissioner of Customs issued
Warrants of Seizure and Detention and decreed the forfeiture of Gelmarts shipments. CTA First Division
reversed and ordered its release. Commissioner appealed to the SC. The SC is without jurisdiction. The CTA en
banc has exclusive appellate jurisdiction relative to review of decisions or resolutions on motion for
reconsideration or new trial of the CTAs two divisions in cases arising from administrative agencies (like
Bureau of Customs). Here, the procedure was not followed by the Commissioner and he offered no adequate
explanation. Commissioners failure to file an MR of the assailed decision of the CTA First Division, or at least a
petition for review with the CTA en banc, invoking the latters exclusive appellate jurisdiction to review decisions
of the CTA divisions, rendered the assailed decision final and executory.
(NOTE: Decisions of administrative agencies are raised on petition for review to a CTA Division. A party can file
an MR or MNT before the same CTA division. The resolution of the CTA division on the MR or MNT is raised
to the CTA en banc.
COMMISSIONER OF CUSTOMS v. MARINA (2010) A motion of reconsideration or new trial must be filed
with the CTA Division concerned before an appeal can be filed with the CTA en Banc. Marina Sales Inc.
(Marina) manufactures Sunquick juice concentrates being the manufacturing arm of CO-RO Food of Denmark.
They import raw materials in the country for this purpose. In the past the Bureau of Customs (BOC) assessed
them a 1% import duty rate. The Valuation and Classification Review Committee of the BOC reclassified their
import to a 7% import duty rate. This was appealed to the Commissioner of Customs which was denied. Marina
filed a petition for review before the CTA second division. CTA ruled in favor of Marina. Consequently, the
Commissioner appealed to the CTA en Banc. CTA en banc denied the appeal of the Commissioner because he
failed to file before the CTA 2
nd
division a motion for reconsideration before elevating to the CTA en banc.
Commissioner appealed to the SC on a petition for review. The SC denied the petition based Rule 8 Sec 1 on the
Revised Rule of the Court of Tax Appeal (Please see provision below). On the procedure, the Court agrees with
the CTA En Banc that the Commissioner failed to comply with the mandatory provisions of Rule 8, Section 1 of
the Revised Rules of the Court of Tax Appeals

requiring that the petition for review of a decision or resolution of
the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the
Division. The rules are clear. Before the CTA En Banc could take cognizance of the petition for review

ALS2014B
ALS2014B 111 of 162
"#$
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.
Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule, to wit:
SECTION 1. Review of Cases in the Court en banc. In cases falling under the exclusive appellate jurisdiction
of the Court en banc, the petition for review of a decision or resolution of the Court in Division must be preceded
by the filing of a timely motion for reconsideration or new trial with the Division.
JUDY ANNE L. SANTOS v. BIR (2008) CIR Parayno sent a letter to the DOJ recommending the criminal
prosecution of Juday for filing a false and fraudulent return. Apparently, Juday only declared 8M as her earnings
for 2002, when her true income is about 16M. This resulted to a tax deficiency of 1M+. State Prosecutor
Torrevillas filed a criminal case against Juday in the CTA. Juday filed a motion to quash based on denial of due
process and lack of authority of the State Prosecutor to file a case. The CTA First Division denied the motion to
quash. Juday then filed a petition for review with the CTA en banc to appeal the denial of her motion to
quash. CTA en banc denied the petition because the denial of the motion is an interlocutory order which, as a
general rule, is not appealable.
The Supreme Court denied Judays petition. According to the SC the filing of a petition for review with the CTA
en banc from a decision, resolution, or order of a CTA Division is a remedy newly made available in proceedings
before the CTA, because prior to the amendment of the law creating the CTA, the CTA is not a collegial body.
However, despite this new addition, the rule on petitions for review under the Rules of Court for other courts
has long been followed by the CTA. And as we know, under the Rules only final orders are appealable. An
interlocutory order is not appealable being merely provisional. However, in ordinary cases, there is a remedy
for the denial of an interlocutory order the filing of a special civil action for certiorari under Rule 65, in
cases of grave abuse of discretion. But since Juday failed to raise the issue of whether the CTA, under its
expanded jurisdiction, is granted jurisdiction over special civil actions for certiorari, the SC was precluded
from making a pronouncement. The SC however may take cognizance of a SCA for Certiorari, so Juday was
not left without recourse. The SC however said that there being no grave abuse of discretion in the denial of
motion to quash, Judays petition must necessarily fail.
(Contention ni Juday sa motion to quash, denied daw siya ng equal protection kasi si REGINE VELASQUEZ di
sinampahan ng kaso ng DOJ. " Sabi ng SC uhm, syempre dapat yung defect nasa face ng information para
iquash.)
ST. STEPHENS ASSOCIATION AND ST. STEPHENS CHINESE GIRLS SCHOOL v. CIR (1958) period
for appeal computed from the receipt of decision of the CIR on the disputed assessment Petitioner St.
Stephens Association turned over the amount of P9,252.48 to the St. Stephens Chinese Girls School, and the
transfer of funds was entered in the ledger and cash book of the School as a donation. An examiner of the BIR
reported the donation to the CIR and thereafter, sent petitioners an assessment notice (received November 12,
1954) demanding the payment for donors and donees gift taxes, surcharges and interests. Petitioners requested
for cancellation and withdrawal of the assessment notice on the ground that the amount was erroneously entered
by the bookkeeper as a donation, when the truth was that said amount was obtained by the Association by means
of small contributions from the public and allocated to the School for its maintenance. CIR denied the request.
Petitioners asked for reconsideration but were again denied on a letter dated July 11, 1955, which
they received onJuly 25, 1955. A petition for review was filed before the CTA on August 13, 1955. The Court
held that the petition was NOT filed within the thirty-day period prescribed in Section 11 of R.A. No. 1125
because 37 days had already elapsed (based on a computation of the running and tolling of the period for appeal).
It further held that the period for petitioners appeal started to run from their receipt of the assessment
notice in question. Hence, the CTA dismissed the case for lack of jurisdiction.
Where a taxpayer questions an assessment and asks the CIR to reconsider or cancel the same because he (the
taxpayer) believes he is not liable therefor, the assessment becomes a disputed assessment that the CIR must
decide, and the taxpayer can appeal to the CTA only upon receipt of the decision of the CIR on the disputed
assessment, in accordance with paragraph (1) of section 7, R.A. No. 1125. The period for appeal must be
computed from the time petitioners received the decision of the respondent CIR on the disputed assessment,

ALS2014B
ALS2014B 112 of 162
"#$
and not from the time they received said assessment. It is evident that respondent CIR considered the July 11,
1955 letter as its final decision in the case, hence the warning in the last paragraph that the same would become
final in thirty days unless petitioners appealed to the CTA within the same period. Petitioners having filed their
appeal on the 19th day from the receipt of this decision, their appeal was filed on time and the CTA erred in
dismissing the same for lack of jurisdiction.
BAGUIO COUNTRY CLUB v. CIR and CA (1959) (This is the exact case, just one paragraph) Petition to review a
resolution of the Court of Tax Appeals dismissing petitioners appeal. The appeal must be sustained. Interpreting
Section 11 of Republic Act No. 1125 in the case of St. Stephens Association, et al. vs. Collector of Internal
Revenue (104 Phil 314), this Court declared that where a taxpayer questions an assessment and asks the
Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the
assessment becomes a disputed assessment that the Collector must decide, and the taxpayer can appeal to the
Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment. In the case
at bar, the assessment became a disputed assessment that the Collector must decide when petitioner questioned
it validity and asked for its reconsideration and that he could appeal to the Court of Tax Appeals only upon receipt
of the decision of the Collector. Petitioner received the decision of the Collector denying its request for
reconsideration on June 21, 1956. It follows that its appeal taken on July 7, 1956 was well within the time
prescribed by the statute. Resolution reversed. Reyes, A. J., ponente.
ROMAN CATHOLIC ARCHBISHOP OF CEBU v. CIR (1962) period to appeal counted from the date of receipt
of the denial of MR by the CIR The Archbishop filed the 1955 and 1956 income tax returns (ITRs) of the
Archdiocese on Feb. 21, 1956 and Feb. 18, 1957, respectively. The CIR disallowed the depreciation expenses;
hence, deficiency income taxes were determined on the ITRs dated July 15, 1956 and March 30, 1957,
respectively. Then, the Archbishop submitted 3 motions of requests for the reconsideration of the 2 Tax
Assessments. The first he submitted to the Regional Director, and it was denied on July 18, 1957; the second was
on August 18, 1957, addressed to the CIR, and was denied on November 5, 1957, in a letter received by the
Archbishop on November 21, 1957; and the third request was made on November 23, 1957, and again denied on
January 20, 1958, modified to the Archbishop on February 1, 1958. All motions for reconsideration by the
Archbishop were premised on the same grounds, allowing the depreciation expenses. The appeal to the Tax Court
was filed only on February 19, 1958. By these successive motions for reconsideration, the Archbishop delayed the
review of his case by the Tax Court for nearly two years. The decision by the CIR dated November 5, 1957,
denying the second request for reconsideration of the assessment, was certainly reviewable by the Court of Tax
Appeals. Hence, the 30-day appeal period should be counted from November 21, 1957, when the taxpayer
received copy of the CIRs ruling. The running of the period was not interrupted by the filing of the third request
for reconsideration, because the latter did not advance new grounds not previously alleged, and was, therefore,
merely pro forma. Therefore, petitioner's petition for review should have been lodged with the Tax Court not later
than December 21, 1957, but it was actually filed only on February 1, 1958.
PANTRANCO v. BLAQUERA (1960) (failure to file request w/n 30days) The Collector assessed Pantranco with a
documentary stamp tax deficiency w/ compromise penalty worth P74k. Pantranco requested for a reinvestigation
but was denied and was afterwards assessed a lower amount (P66k). Because of the change in the amount,
Pantranco requested a clarification. The Collector then wrote him a letter enclosing therewith a letter dated Sept.
1954. This was received on Nov. 20, 1954. Pantranco sought a reconsideration of the modified assessement on
Dec. 2, 1954.
Considering that the ruling or decision of the Collector of September 1954 had been received by Pantranco on
November 20, the Court held that the 30-day period began to run on November 20; that it was interrupted by the
petition for reconsideration filed December 3, 1954; and that such interruption ended on June 11, 1955, when
denial of the reconsideration was received by Pantranco; and finding that the petition had thus been presented
on the 34th day after receipt of the Collectors definite assessment, (November 20 to December 3-13 days;
June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.

ALS2014B
ALS2014B 113 of 162
"#$
The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to contest within
thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals, or to any
other court. The period of thirty days is jurisdictional and non-extensible.
BASA v. REPUBLIC (1985) For failure to report in full his capital gains income for the sale of land, Basa was
assessed a deficiency tax assessment for the year 1957 to 1960. A demand letter was sent in Aug 31, 1967. The
Commissioner sent a letter-decision dated Dec. 6, 1974. Since Basa did not contest the assessment the decision
had become final and executory and a suit was filed in the CFI for collection. CFI ruled against Basa. The trial
court affirmed the assessment. Instead of appealing to the SC, Basa filed an appeal with the CA and failed to file
it within the reglementary period. CFI dismissed the appeal. Basa then filed a special action for certiorari with
the SC.
Issue: 1. W/N trial court acted within its jurisdiction?
2. W/N the action has prescribed?
Held: 1. YES. The trial court acted within its jurisdiction in rendering its decision and dismissing Basas appeal. He
should have appealed the decision with the SC. Since he failed to do so the decision became final and executory
and has no cause of action for certiorari. If he wanted to contest the assessment, he should have done so with the
Court of Tax Appeals. He may not contest the same with the CFI.
2. NO, the issue of prescription is baseless. The assessment was based on the fact his income tax was if not
fraudulent were false because he misdeclared his income. Therefore, a deficiency assessment may be made
within 10 years from discovery of the fraud. Court action should be instituted within 5 years after but this period
was suspended during the time the commissioner is prohibited from instituting court action. As explained in the
Solicitor General's memorandum, Basa's requests for reinvestigation tolled the prescriptive period of five years
within which court action may be instituted. Moreover, the issue of prescription should also have been raised in
the Tax Court.
MAMBULAO LUMBER v. CIR (1984) Power to collect forest charges rests on the BIR, not with the Bureau of
Forestry On August 29, 1958, the Acting CIR assessed petitioner Mambulao for deficiency sales tax, forest
charges and surcharges. Petitioner requested for reinvestigation of its tax liability. The CIR, in its reply, gave
Petitioner a period of 20 days from the receipt thereof to submit the results of its verification of payments with a
warning that failure to comply therewith would be construed as an abandonment of the request for reinvestigation.
Mambulao failed to comply despite repeated demands. CIR filed a complaint for collection on August 25, 1961.
Petitioner appealed to the CA, which affirmed the decision. An MR was filed but was denied. Petitioner argues
that counting from January 15, 1949 when the Bureau of Forestry made an assessment and demand for payment
of forest charges and surcharges in 1949, up to the filing of the complaint for collection, more than 5 years had
elapsed.
Forest charges are internal revenue taxes and the sole power and duty to collect the same is lodged with the
Bureau of Internal Revenue and not with the Bureau of Forestry. The computation and/or assessment of
forest charges made by the Bureau of Forestry may or may not be adopted by the CIR and such computation made
by the Bureau of Forestry is not appealable to the CTA. In the present case, the commencement of the five-
year prescriptive period should be counted from August 29, 1958, the date of the letter of demand of the
CIR to Mambulao. The complaint for collection was filed on August 25, 1961, well within the prescriptive
period. Furthermore, it is not disputed that when Petitioner requested for reinvestigation, it failed to submit the
results of its verification payments which was construed as abandonment of its request. Neither did it appeal to the
CTA within 30 days from receipt of the letter dated July 8, 1959, thus making the assessment final and executory.
REPUBLIC v. CA (1987) In a demand letter dated July 16, 1955, the CIR assessed Nielson & Co. deficiency taxes.
CIR reiterated its demand for payment per letters dated (1) April 29, 1956, (2) Sept. 19, 1956, and (3) February
9, 1960. Nielson did not contest the assessment in the CTA. On the theory that the assessment had become final
and executory, the CIR filed a complaint for collection against Nielson. However, there was a failure to serve
summons so the complaint was dismissed WITHOUT prejudice. The complaint was refilled but the same was

ALS2014B
ALS2014B 114 of 162
"#$
erroneously docketed as the same case previously dismissed. Without correcting this error, another complaint was
filed, the subject matter of this appeal.
Issue: 1. W/N the letter of assessment dated July 16, 1955 was received by Nielson in the ordinary course of mail
2. Assuming that the letter dated July 16, 1955 was not considered an assessment, on the theory that the same had
not been received, W/N the letter dated Sept. 19, 1956 is itself an assessment which was duly received by
Nielson.
Held: 1. NO. While the contention of the CIR is that a mailed letter is deemed received by the addressee in the ordinary
course of mail, still this is merely a disputable presumption, and a direct denial of the receipt thereof shifts the
burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the
addressee.
2. YES. The follow-up letter dated Sept. 19, 1956 reiterating its demand for the payment of taxes as originally
demanded in the CIRs letter dated July 16, 1955 is considered a notice of assessment in itself which was duly
received by Nielson in accordance with its own admission.
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty
(30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the
assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing
the correctness of the assessment or from invoking any defense that would reopen the question of its liability on
the merits.
COLLECTOR v. CTA (1960) October 31, 1955, demand was made by the Collector of Internal Revenue against
Thompson Shirts Factory for the payment of deficiency tax. On March 15, 1956, taxpayer asked for
reinvestigation .This was done, and on March 21, 1957, a revised demand. This demand was received by the
taxpayer on April 9, 1957, and on April 15, 1957, a request for reinvestigation was again made. On April 17,
1957, the CIR denied the request for reinvestigation. This denial was received by the taxpayer on April 21, 1957,
and on May 14, 1957 he instituted the action in the Court of Tax Appeals.
The taxpayers second request for reinvestigation suspended the prescriptive period. The petition for
reinvestigation is not pro-forma even if tested by the Rules of Court, because specific grounds are mentioned in
said petition for reinvestigation, namely, lack of opportunity of taxpayer to be assisted by counsel in the
investigation, and the findings are not in accordance with the facts and the evidence in the case. The rule against
pro-forma motions should be not very strictly applied in tax cases before the Court of Tax Appeals, for the reason
that the Rules of Court is only supplementory in character before said Court. Besides, in actions for certiorari filed
before courts of justice, a motion for reconsideration should first be presented before a writ of certiorari may be
invoked. Lastly, the need of exhausting all administrative remedies before resort to the courts is made, demands
that the motion for reconsideration be filed. The final and definitive assessment was made in the letter of the
Collector on March 21, 1957. After that definite demand, only one motion for reconsideration was made, and that
is made in the letter of the taxpayer dated April 15, 1957. This motion even, if coached in general terms, serves
the purpose of preparing the case for petition for review, as above indicated.
CIR v. ALGUE, INC. (1988) "exception to Warrant of Distraint and Levy as proof of the finality of the assessment
which renders hopeless request for reconsideration" January 14, 1965, Algue received a letter assessing them
P83,183.85 delinquency income taxes for 1958 and 1959. January 18, 1965, Algue filed a letter of protest or
request for reconsideration, stamp received the same day. March 12, 1965, a warrant of distraint and levy was
presented to Algue through its counsel, Atty. Guevara, who refused to receive it due to the pending protest, for
which no positive act was shown to have been made, no copy could even be found in the dockets. Atty. Guevara
gave a photostat of it to the BIR. April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking
any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to
be served. April 23, 1965, Algue filed a petition for review with the CTA. ISSUE is w/n the appeal to the CTA
was filed on time and the Court ruled in the affirmative. Since the protest was not pro-forma, meaning it had
strong legal considerations, it effectively tolled the reglementary period for an appeal to the CTA (30days from
receipt of decision). [Jan. 14 receipt of assessment--(4 days)--Jan. 18 protest --period tolled-- April 7 denial of

ALS2014B
ALS2014B 115 of 162
"#$
protest, thus period started running again to April 23 (appeal to CTA). 4 days + 16 days, = 20 days lang] It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a
request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed
rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine.
CIR v. CENTRAL AZUCARERA DON PEDRO (1973) On May 22, 1963 it filed an application with the Board of
Industries for tax exemption and then informed the CIR of the approval of its application for tax exemption and
claimed a tax credit for the entire amount of P294,705.00 which it had paid. In a letter dated May 12, 1966 the
CIR informed the Central that he was allowing a tax credit of only P246,403.00 and disallowing the sum of
P48,302.00 on the ground that the claim for tax credit with respect thereto was filed only on July 22, 1965, or
more than (2) years after it was paid, and therefore under Sec. 309 of the Tax Code the right to recover the same
had already prescribed. The court held that the granting of a tax exemption to an applicant engaged in a
basic industry retroacts to the date of the filing of application for exemption. If it is the grant of exemption
by the Board of Industries that gives rise to the right to file a claim for tax credit or tax refund with the
Commissioner of Internal Revenue. In fine, when the tax sought to be refunded is illegally or erroneously
collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the
prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the
right of refund. Thus, it had not prescribed yet.
CIR v. PNB (2005) In early April 1991, PNB issued to the BIR a check for P180,000,000.00. The check represented
PNBs advance income tax payment for the banks 1991 operations and was remitted in response to then
President Corazon C. Aquinos call to generate more revenues for national development. By the end of CY 1991,
PNBs annual income tax liability, per its 1992 annual income tax return, amounted to P144,253,229.78, which,
when compared to its claimed total credits and tax payments of P217,552,122.38 [which includes the P180M],
resulted to a credit balance in its favor in the amount of P73,298,892.60.8 This credit balance was carried-over to
cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the banks negative
tax position for the said inclusive years, having incurred losses during the 4-year period. CIR ruled that the claim
in question is time-barred, the bank having filed such claim only in 1997, or more than two (2) years from 1992
when the overpayment of annual income tax for 1991 was realized by the bank and the amount of excess payment
ascertained with the filing of its final 1991 income tax return.
Section 230 [now Section 229] 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.
We therefore hold that the tax credit sought by PNB is not simply a case of excess payment, but rather for the
application of the balance of advance income tax payment for subsequent taxable years after failure or
impossibility to make such application or carry over the preceding four (4)-year period when no tax liability was
incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the two (2)-year
prescriptive period as to legally bar any request for such tax credit certificate considering the special
circumstances under which the advance income tax payment was made and the unexpected event (four years of
business losses) which prevented such application or carry over.
SANTIAGO BERMEJO v. COLLECTOR (1950) file for claim of refund first before resorting to courts Bermejo
was assessed P1,083.75 for the sale of nipa shingles and charcoal. He objected to the assessment, contending that
the products were agricultural, thus free from taxation. Later on he proposed to pay the tax by installments,
without prejudice to whatever action he may take on the matter, which was granted. After paying the first
installment, he sued for recovery of sum of money. CIRs answer maintained the validity of the assessment and
levy, and before the trial, moved for the dismissal of the complaint on the ground that the Bermejo had not
complied with the provisions of section of the Internal Revenue Law 306 (now Sec 229 of NIRC), since he did
not file a claim with the collector for the refund of the amount he had delivered before filing a case in court. The

ALS2014B
ALS2014B 116 of 162
"#$
law clearly stipulates that after paying the tax, the citizen must submit a claim for refund before resorting to
the courts. The reason behind this is first, to afford the collector an opportunity to correct the action of
subordinate officers; and second, to notify the Government that such taxes have been questioned, and the notice
should then be borne in mind in estimating the revenue available for expenditure. Previous objections to the tax
may not take the place of the claim for refund, because it could be said that in paying, the tax payer has
finally come to realize the validity of assessment.
ANDREA VDA. DE AGUINALDO v. CIR (1965) Spouses Aguinaldo received cash dividends (P10,000) from
Aguinaldo Brothers, Inc. They did not declare this in their 1952 joint income tax. Instead, they declared P5,000
in their 1953 income tax. The BIR discovered this and Spouses Aguinaldo readjusted the returns. It resulted to a
deficiency income tax (P3,840) and an overpayment tax (P1,600). However, the CIR assessed the deficiency tax
but did not credit the overpayment. CIR said that the overpayment cannot be credited because the claim for tax
credit was filed beyond the two-year period. The Court held that Spouses Aguinaldo paid income tax for 1953 on
August 14, 1954, even though the adjustment took place on August 29, 1955. The claim for tax credit was filed
on January 13, 1958. It was clearly filed beyond the two-year period. Such period is a condition precedent and
non-compliance precludes the CIR from exercising their authority.
MERALCO v. CIR (2006) (CTA CASE) Claim for refund must be filed within two years from erroneous
payment MERALCO obtained two loans in the amount of $120 Million and $1 Million respectively from
Norddeutsche Landesbank Gironzentrale, Singapore Branch (NLG Bank). MERALCO discovered that NLG was
a foreign government-owned financing institution under the Federal Republic of Germany. Hence, MERALCO
filed a request before the BIR law division to determine whether or not NLG was tax exempt under the NIRC.
Pending determination, MERALCO continued to remit to the BIR the 10% withholding tax on its interest
payments to NLG. BIR thereafter issued a ruling on October 7, 2003, declaring interest payments made in favor
of NLG as tax exempt. This prompted MERALCO to file a claim for refund or issuance of a tax credit certificate
covering the amounts erroneously remitted to the BIR.
The claim was filed beyond the 2-year prescriptive period. Under the NIRC, it is clear that a claim for refund
must be filed within 2 years from the payment of the tax or penalty, regardless of any supervening cause. Non-
compliance with this condition bars recovery. In this case, prescriptive period started to run from the date of
payment, not from the issuance of the BIR ruling cited above as petitioner MERALCO believes. Since the claim
for refund filed by MERALCO covers payments made both within and beyond the coverage of such 2-year
period, its claim for refund must bepartially granted. The claim for refund concerning payments made covering
the period of January 1999 to July 2002 must be denied on the ground of prescription. However, its claim for
refund concerning payments after such period must be granted.

ALS2014B
ALS2014B 117 of 162
"#$
E. Payment Under Protest Not Needed
RAMIE TEXTILES, INC. v. MATHAY (1979) Ramie paid its taxes for machineries from 1959- 1964. On May 19,
1967, Ramie filed a claim for refund since the machineries were exempt from tax, which the Provincial Treaurer
denied. The question at issue, therefore, is whether or not protest is a condition precedent or a sine qua non
requirement for the recover of real estate taxes paid under the erroneous belief that the, claimant was liable
therefor, and if so, what is the prescriptive period. The Court ruled that protest is not a requirement in order
that a taxpayer who paid under a mistaken belief that it is required by law, may claim for a refund. In the
case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of the fact that it
was exempted from payment of the realty tax under Commonwealth Act No. 470. Payment was made through
error or mistake, in the honest belief that petitioner was liable, and therefore could not have been made
under protest, but with complete voluntariness. In any case, a taxpayer should not be held to suffer loss by his
good intention to comply with what he believes is his legal obligation, where such obligation does not really exist.
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti the claim for
refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the
New Civil Code. As already stated the claim for refund must be made within six (6) years from date of payment.
Since petitioner demanded the refund of real estate taxes mistakenly paid only on May 23, 1967, it can recover
only those paid during the period from October 31, 1961 to September 9, 1965 or a total amount of P61,007.33.
Petitioner has, by reason of the six (6) years prescriptive period, lost its right to recover the amount of P17,033.84
paid during the period from July 24, 1959 to March 27,1961.
F. Utilization of Tax Credit Certificate; Meaning of Tax Debit Memo
...
3. ...
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund
be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was
made.
PILIPINAS SHELL PETROLEUM CORP v. CIR -- PSPC paid part of its excise tax liabilities with TCCs which it
validly purchased. BIR sent a collection to PSPC for alleged deficiency excise tax liabilities claiming that the
TCCs that were used were fraudulently acquired thus, may not be used to pay taxes. PSPC now avers that its
statutory and procedural right to due process was violated in the issuance of the assessment because the
procedures delineated in the statutory provisos and RR 12-99 were not followed by respondent. Respondent
ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment
notice, as required. Respondent merely relied on the findings of the Center which did not give PSPC ample
opportunity to air its side. PSPCs motion for reconsideration of the purported Center findings and cancellation of
the subject TCCs and the TDM was not even acted upon. Because of this defect, the assessment of respondent for
deficiency excise taxes against petitioner was canceled and declared without force and effect for lack of legal
basis.
Revenue Memorandum Order No. 86-98
SUBJECT: Payment of National Internal Revenue Taxes in the Form of Tax Credit Certificate (TCC), Under
Certain Conditions, Pursuant to Section 204 of the Tax Code of 1997

ALS2014B
ALS2014B 118 of 162
"#$
SEC. 1. Scope. This Order is issued to ensure a uniform compliance with the pertinent provisions of Section 204 of the
Tax Code of 1997, as follows:
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any
internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request
for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section
230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable
balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided,
further That in no case shall a tax refund be given resulting from availment of incentives granted pursuant
to special laws for which no actual payment was made.
SEC. 2. Coverage. All concerned are hereby enjoined to strictly implement the above provisions of law, as follows:
1. TCC issued prior to January 1, 1998. A TCC duly issued under the provisions of the National Internal Revenue
Code prior to January 1, 1998 shall not be accepted in payment of the taxpayer's internal revenue tax liabilities,
unless the same has been duly revalidated pursuant to the provisions of Section 230 of the said Code, as
implemented by Revenue Regulations No. 7-98, dated July 9, 1998.
2. TCC issued beginning January 1, 1998. A TCC duly issued under the provisions of the National Internal
Revenue Code beginning January 1, 1998 may be used by its grantee in payment of his internal revenue taxes,
except his withholding tax liability.
3. Kinds of internal revenue taxes against which a TCC may be applied in payment; Exception. Subject to the
provisions of the preceding paragraphs, any TCC duly issued by the Commissioner of Internal Revenue, or his
duly authorized representative, under the provisions of the National Internal Revenue Code may be used by its
grantee in payment of his internal revenue taxes, such as income taxes, estate and donor's taxes, value-added tax,
percentage taxes, excise taxes and documentary stamp taxes, except his withholding tax liability.
4. Meaning of a TCC "issued under the provisions of the Code"; Exception. (a) This term is limited only to any
TCC issued under the pertinent provisions of the National Internal Revenue Code, such as, but not limited to, a
TCC duly issued by the Commissioner of Internal Revenue, or his duly authorized representative, for taxes
erroneously paid by or illegally collected from the taxpayer, excess credit for creditable income taxes withheld
from income derived, or a TCC duly issued to a VAT-registered taxpayer on account of his transactions subject to
zero percent (0%) value-added tax. (b) Exception. The term "issued under the provisions of the Code" does not
include any TCC issued pursuant to the provisions of any law, other than the National Internal Revenue Code,
such as a TCC issued pursuant to the provisions of the Omnibus Investments Code, the Tariff and Customs Code,
or other general or special law.
5. TCC issued pursuant to the provisions of any law other than the NIRC . Any TCC duly issued pursuant to the
provisions of any law, other than the National Internal Revenue Code, may only be used, subject to the limitations
of the law and regulations under which the same has been issued.
5.1 TCC issued by the Bureau of Customs. Any TCC issued by the Commissioner of Customs, or his
duly authorized representative, pursuant to Section 106 of the Tariff and Customs Code , as Duty
Drawbacks, may only be used in payment of the grantee's liability to the Bureau of Customs for duties,
charges and taxes on his importation, the provisions of Section 12(a) of the NIRC notwithstanding. It may
not be used in payment of his internal revenue tax liabilities directly payable to the Bureau of Internal
Revenue.
5.2 TCC issued under the Omnibus Investments Code. A TCC issued by the Board of Investments, or
its duly authorized representative, pursuant to the provisions of the Omnibus Investments Code , as
amended, may only be used for the purposes for which the same has been issued to the grantee, in
accordance with the provisions of the Omnibus Investments Code and its implementing rules and
regulations. Any TCC issued jointly by the Board of Investments (BOI) and the Bureau of Internal
Revenue (BIR), pursuant to the provisions of the Omnibus Investments Code and its implementing rules
and regulations, may be used by the grantee or his qualified transferee, in payment of the

ALS2014B
ALS2014B 119 of 162
"#$
grantee/transferee's internal revenue taxes, except his withholding tax liabilities: Provided, however, That
any TCC issued jointly by the Board of Investments (BOI) and the Bureau of Customs (BOC), pursuant
to the provisions of the Omnibus Investments Code and its implementing rules and regulations, shall not
be used in payment of the grantee/transferee's liability for any internal revenue tax directly payable to the
BIR, the provisions of Section 12(a) of the NIRC notwithstanding, hence, the same may only be used in
payment of customs duties, charges and taxes on his importation, directly payable to the Bureau of
Customs.
SEC. 3. Sanction. Strict compliance herewith is enjoined. Any violation of this Order shall be subject to disciplinary
action and shall be dealt with accordingly.
SEC. 4. Effectivity. This Order shall take effect immediately.
Revenue Regulation No. 05-2000
SUBJECT: Prescribing the Regulations Governing the Manner of the Issuance of Tax Credit Certificates, and the
Conditions for their Use, Revalidation and Transfer
Pursuant to Section 244 in relation to Sections 76 , 112 , 130 , 135, 204 and 230 all of the Tax Code of 1997, these
Regulations are hereby promulgated to prescribe the rules governing the issuance of BIR-issued Tax Credit Certificates
(TCCs), and the conditions for their use, conversion, revalidation and transfer.
SEC. 1. Definition of Terms.
A. Tax Credit For purposes of these Regulations, the term "tax credit" shall refer to the amount due to a taxpayer
resulting from an overpayment of a tax liability or erroneous payment of a tax due.
B. Tax Credit Certificate means a certification, duly issued to the taxpayer named therein, by the Commissioner
or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed
formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money
value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those
excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in
accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.
C. Tax Debit Memo means a certification, duly issued by the Commissioner or his duly authorized representative,
reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the
taxpayer named therein has duly paid his internal revenue tax liability in the form of and through the use of a Tax
Credit Certificate, duly issued and existing in accordance with the provisions of these Regulations. The Tax Debit
Memo shall serve as the official receipt from the BIR evidencing a taxpayer's payment or satisfaction of his tax
obligation. The amount shown therein shall be charged against and deducted from the credit balance of the
aforesaid Tax Credit Certificate.
D. Direct Internal Revenue Tax Liability shall refer to taxes for which the taxpayer is made statutorily liable. In
essence, "direct internal revenue tax liability" pertains to the liability of a person mandated by law to file the tax
return and pay the tax due thereon.
SEC. 2. Sources of Tax Credit. A tax credit is being granted for the following:
(a) At the option of the taxpayer, excess quarterly income taxes paid reflected in the final adjustment return.
(b) At the option of the taxpayer, overwithholding at source of income taxes to the extent that the amount of such
overpayment was not deducted or applied against income tax due.
(c) Input taxes as follows:
i. Attributed to zero-rated sales made by VAT-registered taxpayer including export sales by a VAT-registered
exporter;

ALS2014B
ALS2014B 120 of 162
"#$
ii. Attributed to effectively zero-rated sales made by VAT-registered taxpayer; and
iii. On capital goods imported or locally-purchased by a VAT-registered taxable person.
(d) Unused input taxes resulting from cancellation of VAT registration due to retirement from or cessation of
business, or due to changes in or cessation of status as a VAT taxable taxpayer under Section 106(C) of the Tax
Code.
(e) Excise taxes paid on:
i. Petroleum products sold to tax-exempt entities and international carriers;
ii. Goods locally produced or manufactured and actually exported without returning to the Philippines;
(f) Taxes erroneously or illegally paid or penalties imposed without authority.
Any taxpayer who is erroneously registered as a VAT person will not be covered by paragraphs (c) and (d) of this Section.
In no case shall a tax refund or tax credit certificate be given resulting from availment of incentives granted pursuant to
special laws for which no actual tax payment was made.
SEC. 3. Uses of Tax Credit Certificate. Whenever a Tax Credit Certificate (TCC) is issued to a taxpayer to
acknowledge the existence of a valid tax credit, such Tax Credit Certificate may be used by the grantee or his assignee in
the payment of his direct internal revenue tax liability, such as income tax; documentary stamp tax, excise tax, value
added tax, percentage tax and other internal revenue taxes. However, in no case shall the TCC be used in payment of the
following:
(a) Payment or remittance for any kind of withholding tax.
(b) Payment arising from the availment of tax amnesty declared under a legislative enactment.
(c) Payment of deposits on withdrawal of exciseable articles.
(d) Payment of taxes not administered or collected by the Bureau of Internal Revenue.
(e) Payment of compromise penalty.
SEC. 4. Assignment or Transfer.
(a) Transferability of TCC. Taxpayers with TCCs issued by the BIR in their name hold the same in the concept of
an owner. Consequently, BIR-issued TCCs may be transferred in favor of an assignee subject only to the
following conditions:
i. The transfer must be with prior approval of the Commissioner or his duly authorized representative who
shall verify whether or not the TCC sought to be transferred is still valid in the hands of the original holder;
ii. The transfer should be limited to one transfer only.
iii. The transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax
liability and in no case shall the same be available for conversion to cash in his hands.
(b) Assignment Procedures. The transfer or assignment of a TCC from the original holder to his or its assignee
shall be subject to the following procedures:
i. The TCC sought to be assigned or transferred shall be presented before the Commissioner or his duly
authorized representative for verification. If found to be valid and still with creditable balance, the TCC
shall be marked "Valid for Transfer", countersigned by the said officer.
ii. Upon execution of the Deed of Assignment, the transferor shall present the same, together with the original
copy of the TCC.
iii. The original copy of the TCC shall still be cancelled even if only a portion of its face value is transferred or
assigned, in which case, new TCC(s) shall be issued representing the respective portions pertaining to the
transferee(s) and/or the balance remaining for the account of the transferor.

ALS2014B
ALS2014B 121 of 162
"#$
iv. Any TCC issued in favor of the transferee or assignee shall by valid for five (5) years, but subject to the
following conditions which must be annotated therein, as follows:
1. Not valid for further transfer;
2. Not valid for cash conversion.
SEC. 5. Period of Validity, Conversion and Revalidation.
(a) Validity Period. Any Tax Credit Certificate (TCC) issued in accordance with the pertinent provision of the Tax
Code of 1997 which remains unutilized after five (5) years from date of issue shall, unless revalidated before the
end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's
internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the
General Fund of the National Government.
The revalidated TCC shall be valid for a period of five years from the date of issue.
(b) Conversion Period. Any request for conversion into cash refund of unutilized tax credits may be allowed
during the validity period of the TCC. Provided, however, that the original copy of the Tax Credit Certificate
showing a creditable balance is surrendered to the Asst. Commissioner, Collection Service or other duly
authorized Revenue Officer for verification and cancellation. Provided, further, that a refund check or treasury
warrant issued in accordance with the pertinent provisions of the Tax Code of 1997, which shall remain uncashed
or unclaimed within five (5) years from the date of issue, mailing or delivery, whichever comes later, shall be
forfeited in favor of the Government and the amount thereof shall revert to the general fund.
(c) Revalidation Period. In general, a TCC may be revalidated prior to the expiration of its validity period.
Provided, however, that any TCC issued prior to January 1, 1998 in which the grantee's holding period therefor as
of said date is less than five (5) years counted from date of issue, may be submitted for revalidation by the holder
within six (6) months prior to the end of the fifth (5th) year. For example, a TCC issued on December 31, 1997
shall be presented for revalidation within the six-month period prior to expiration, i.e., from July 1 to December
31, 2002.
(d) Procedure for Revalidation. The revalidation of any TCC validly issued and subsisting in accordance with the
provisions of law and Regulations shall be initiated by the filing of an application therefor with the Collection
Service or other duly authorized Office of the Bureau of Internal Revenue.
The revalidation shall be accomplished through the issuance of a new TCC, reflecting its unutilized amount or
creditable balance. Provided, however, that no revalidated TCC shall be issued unless the Commissioner's duly
authorized representative has certified that the applicant taxpayer has no outstanding tax liability. If the holder has
any outstanding tax liability, said liability shall be applied first against the TCC sought to be revalidated through
the issuance of a Tax Debit Memo (TDM). CacISA
For this purpose, the term "outstanding tax liability" shall refer to an assessment that is already final and
executory.
SEC. 6. Repealing Clause. Revenue Regulations No. 7-98 and any other revenue issuance inconsistent with these
Regulations are hereby repealed, amended or modified accordingly.
SEC. 7. Effectivity. These Regulations shall take effect fifteen (15) days from publication in any newspaper of general
circulation.
BIR Ruling No. 164-98, Nov. 23, 1998
E.O. 226-000-00-165-98
Petron Corporation
7901 Makati Avenue
1200 Makati City
Attention: Mr. Fredesuende G. Ong

ALS2014B
ALS2014B 122 of 162
"#$
Vice-President-Finance
Gentlemen:
This refers to your letter dated July 31, 1997 addressed to the Honorable Antonio P. Belicena, Undersecretary,
Department of Finance, Central Bank Bldg., Roxas Blvd., Manila which was referred to this Office for comment and
recommendation, relative to the Tax Credit Certificates (TCC) assigned by some of your customers to you in payment of
their fuel purchases.
It is represented that the assignment of the TCCs is duly approved by the Department of Finance (DOF) through the
issuance of Tax Debit Memos (TDM); that to comply with the requirements for the application of the assigned TCC
against your payment of specific taxes to the Bureau of Internal Revenue (BIR), you still need to request for another TDM
from the Collections Programs Division of the BIR; that on July 23, 1997 when you requested for TDM from the BIR for
some of the assigned TCCs previously approved by the DOF, you were advised by the Assistant Chief of the Collections
Programs Division of the BIR, that it could not approve the application of the assigned TCCs against your tax payment to
the BIR for lack of legal basis; and that you were advised that to qualify for assignment, the product being sold by you to
the assignor/customer must be raw material component of the finished product of the assignor/customer.
In connection therewith, you are requesting clarification of the stand taken by the Assistant Chief of the Collection
Programs Division of the BIR to the effect that they can not approve the application of the assigned TCCs against your
payment to the BIR for lack of legal basis.
In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office held that
In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of
Investments to implement P.D. 1789 and B.P. Blg. 391 stating:
Rule IX Transferability of Tax Credit Certificate
Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital
equipment purchased, withholding tax on interest, raw materials used in the manufactured export
products shall be issued by the Minister of Finance or his representative upon recommendation of
the Board. Said certificate may be transferred only to another registered enterprise in accordance
with the Memorandum of Agreement between the Ministry of Finance and the Board of
Investments dated October 5, 1982.
Tax credit certificates on net local content and on net value earned shall be issued by the
Chairman of the Board or his representative and may be transferred only to domestic producers of
the raw material and/or component suppliers and may require compliance with local content for
such raw material/component.
the tax credit certificates issued by the Board of Investments is limited to one transfer by the grantee to its
domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you
can be the transferee and user of such certificate, you are not allowed to transfer the same to your own
supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor
component of your finished product.
Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit
Certificate and, in effect, to allow Petron to use the same as payment of its tax liability is hereby denied
for lack of legal basis.
Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in
accordance with Executive Order No. 226 otherwise known as the Omnibus Investments Act of 1987 to some of your
customers can not be transferred to you in payment of their fuel purchases and in turn can not be used by you in payment
of your tax liabilities.
Very truly yours,
(SGD.) BEETHOVEN L. RUALO

ALS2014B
ALS2014B 123 of 162
"#$
Commissioner of Internal Revenue
BIR Ruling No. 165-98, Nov. 23, 1998
Pilipinas Shell Petroleum Corporation
Shell House, 156 Valero St.
Salcedo Village, Makati City
Attention: Mr. P.R. Cruz
General Manager
Treasury and Taxation
Gentlemen:
This refers to your letter dated July 31, 1997 to the Honorable Antonio P. Belicena, Undersecretary of Finance,
Department of Finance Central Bank Bldg., Roxas Blvd., Manila, which was referred to this Office for comment and
recommendation relative to the transferability of Tax Credit Certificates (TCC) issued by the One-Stop Shop Tax Credit
and Duty Drawback Center to BOI registered firms pursuant to Executive Order No. 226 otherwise known as Omnibus
Investments Code of 1987.
It is represented that the TCCs transferred to you by some of your customers in payment of their fuel purchases and in
turn being used by you in payment of your tax liabilities is being questioned by Atty. Estrella V. Martinez, Assistant
Chief, Collections Programs Division of the BIR, since it is in violations of BIR Ruling No. 181-94 dated December 14,
1994.
In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office ruled as follows:
In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of
Investments to implement P.D. 1789 and B.P. Blg. 391 stating:
Rule IX Transferability of Tax Credit Certificate
Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital
equipment purchased, withholding tax on interest, raw materials used in the manufactured export
products shall be issued by the Minister of Finance or his representative upon recommendation of
the Board. Said certificate may be transferred only to another registered enterprise in accordance
with the Memorandum of Agreement between the Ministry of Finance and the Board of
Investments dated October 5, 1982.
Tax credit certificates on net local content and on net value earned shall be issued by the
Chairman of the Board or his representative and may be transferred only to domestic producers of
the raw material and/or component suppliers and may require compliance with local content for
such raw material/component.
the tax credit certificate issued by the Board of Investments is limited to one transfer by the grantee to its
domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you
can be the transferee and user of such certificate, you are not allowed to transfer the same to your own
supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor
component of your finished product.
Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit
Certificate and in effect, to allow Petron to use the same as payment of its tax liability is hereby denied
for lack of legal basis.
Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in
accordance with Executive Order No. 226 otherwise known as the Omnibus Investment Act of 1987 to some of your
customers can not be transferred to you in payment of the fuel purchases and in turn can not be used by you in payment of
your tax liabilities.

ALS2014B
ALS2014B 124 of 162
"#$
Very truly yours,
BIR Ruling No. 113-99, July 29, 1999
Luzon Hydro Corporation
6th Floor Legaspi Building
110 Legaspi Street
1229 Makati City
Attention: Mr. Jose Maria Fernandez
Gentlemen:
This refers to your letter dated June 30, 1999 stating that Luzon Hydro Corporation (Luzon Hydro) was granted by this
Office a tax credit based on the unutilized input taxes reflected in its VAT returns; that such unutilized input taxes are
booked as receivables and not as part of the cost of corporate asset; that this grant was by virtue, among others, of BIR
Ruling No. DA-248-A-99 dated April 23, 1999; that since the corporation's hydro electric plant is still in the process of
construction, Luzon Hydro will not be able to utilize the tax credit until may be after two years from completion of
construction of the hydro electric plant; and that since Luzon Hydro needs cash for its construction, it executed four Deeds
of Assignment of the tax credit granted to it in favor of its four (4) affiliates and sister companies which advanced to
Luzon Hydro the value of the tax credit assigned to each of such sister companies and affiliates.
Based on the foregoing, you request for a ruling on the following:
1. Whether the four (4) deeds of assignment are subject to documentary stamp tax and if it is subject, may we know
how much;
2. Whether Luzon is liable to pay income tax as a result of the grant to it of tax credit;
3. Whether the assignees who be the present holders of the tax credit certificates i.e. Davao Light & Power
Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development
Corporation are liable for income tax upon the issuance to them of the tax credit certificates.
In reply, please be informed that assignments of tax credit certificates are not one among those expressly subjected to
documentary stamp tax under Title VII of the Tax Code of 1997. However, the notarial acknowledgment to said deed of
assignment is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997 (BIR
Ruling No. DA-437-98 dated September 25, 1998)
On the other hand, Luzon Hydro is not liable to pay income tax as a result of the grant to it of tax credit since VAT which
is the source of such tax credit is not eligible as a deduction from gross income under Section 34(C) of the Tax Code of
1997 and it has not been actually utilized as a deduction since it partakes the nature of an excess input.
In like manner, the assignees who are the present holders of the tax credit certificates namely: Davao Light & Power
Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development
Corporation are not liable for income tax upon the issuance to them of the tax credit certificates since they have only
accommodated their affiliate or sister company by advancing the value of the tax credit assigned to each of them.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be
disclosed that the facts are different, then this ruling shall be considered null and void.
BIR Ruling No. 192-99, Dec. 6, 1999
Catindig Tiongco & Nibungco
Law Office
4th Floor, JMT Corporate Condominium
ADB Avenue, Ortigas Center
1600 Pasig City

ALS2014B
ALS2014B 125 of 162
"#$
Attention: Atty. Henry S. Rojas
Gentlemen:
This refers to your letter dated September 10, 1999 requesting, in effect, for a ruling on the assignability of BIR-issued
Tax Credit Certificates on behalf of your clients, PHILEX MINING CORPORATION and PHILEX GOLD
PHILIPPINES, INC.
It is represented, among others, that Philex Mining Corporation (Philex) is engaged in the sale of gold and in the export of
mineral products which entitled it to the benefit of "zero-rating" for VAT purposes; that in the course of your business
operations, you have accumulated a number of Tax Credit Certificates representing the amount of input taxes which you
have claimed as a refund from the government; that these TCCs are supposed to represent a valid obligation of the
government and should be available either for the payment of all internal revenue taxes (except withholding tax) or for
cash refund; that however, you find yourselves unable to avail of the benefits of these TCCs on account of the dire
conditions of your business; that you have been continuously posting negative financial results since 1997 such that you
find no situation wherein you can apply your TCCs in the payment of taxes; that to ease your financial burden and support
your operations, you have tried to convert these TCCs into cash refund but this proved unavailing as the government is
always short of funds for cash refunds; that in the meantime, you are being required by law to first shoulder your input tax
liabilities in the process of purchasing goods and services for your operations, leading to further accumulation of tax
credits and perennially causing added burden to your already precarious position.
It is therefore your suggestion that since both options currently available to you, i.e., use of TCCs in payment of taxes
and/or cash refund of TCCs from the BIR, prove unavailing, you now propose a third option, that is, the transfer of these
TCCs to other taxpayers. Finally, you submit that out of the process, an ideal situation could therefore ensue, i.e., there
will be no cash outlay at all from the government and you, in turn, could realize the effective reimbursement in money's
worth of your unutilized TCCs.
In reply, please be advised that insofar as BIR-issued TCCs are concerned, there is no provision under the Tax Code of
1997 expressly prohibiting the transfer or assignment of duly-issued BIR TCCs. Under the Code, a Tax Credit Certificate
may be validly issued for amounts representing erroneously paid taxes; excess quarterly individual or corporate income
taxes paid; illegally collected taxes; VAT on Zero-rated or Effectively Zero-rated Sales; input taxes paid on capital goods
imported or locally purchased; and for unused input taxes due to retirement from or cessation of business or cessation of
status of a Vat-registered person. In all instances, a BIR-issued TCC presupposes the existence of a previously paid tax
arising out of the normal application of the provisions of the Tax Code. In contrast to a BOI-issued Tax Credit Certificate
which is in the nature of a tax incentive granted by special laws to the grantee, such TCC is transferable only under certain
conditions (Article 71, Omnibus Investments Code, as implemented by Rule VII of the Rules and Regulations of E.O
226).
Verily, taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. In BIR Ruling No.
098-95 dated June 27, 1995, this Office had an occasion to state that "(I)n the event of the issuance of tax credit
certificate, the taxpayer as the owner thereof, has the exclusive right to enjoy and dispose of the certificate according to its
wishes. These powers are necessarily an attribute of the taxpayer's ownership of said certificate. The free enjoyment and
disposition of said certificate can only be subject to the limitations imposed by law. (Articles 427 and 428, New Civil
Code of the Philippines)" As previously stated, there are no express, much less implied, limitations imposed by law on the
transfer of TCCs issued under the Tax Code. On the contrary, the law specifically allows the conversion of unutilized tax
credits into cash refund within five (5) years from date of issue (Sections 204 and 230, NIRC). If the taxpayer can
ultimately dispose the cash proceeds of his TCCs in any manner he chooses, we see no cogent reason why the source of
such proceeds should be treated differently. At any rate, the conversion into cash refund or the transfer of the TCC to
another yields the same result, without any revenue loss or prejudice to the government.
In view of the foregoing, this Office is of the opinion, and so holds, that a TCC validly issued pursuant to the Tax Code of
1997 can be transferred or assigned by the owner provided, of course, that the TCC sought to be transferred must not have
expired and remains valid in the hands of the original holder pursuant to the provisions of Section 230 of the Code.

ALS2014B
ALS2014B 126 of 162
"#$
Finding that copies of the TCCs sought to be transferred by your client, PHILEX MINING CORPORATION, i.e., TCC
Nos. 007755, 007994 and 014883 are valid and with creditable balances, this Office interposes no objection to their
assignment.
This ruling is being issued on the basis of the foregoing facts. if upon investigation, it will be disclosed that the facts are
different, then this ruling shall be considered null and void.
G. Forfeiture of Refund or Tax Credit
SEC. 230. Forfeiture of Cash Refund and of Tax Credit.
(A) Forfeiture of Refund. A refund check or warrant issued in accordance with the pertinent provisions of this
Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was
mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the
general fund.cralaw
(B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provisions of this
Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be
considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the
amount covered by the certificate shall revert to the general fund.
(C) Transitory Provision. For purposes of the preceding Subsection, a tax credit certificate issued by the
Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a
creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly
authorized representative or on before June 30, 1998.
H. Offsetting Against Deficiency Tax Assessments
CIR v. CEBU PORTLAND CEMENT COMPANY (1987) offsetting of refund against deficiency tax
assessments The CIR was ordered to refund Cebu Portland the amount of P359,408.98 representing
overpayments of ad valorem taxes on cement produced and sold by it. When Cebu Portland moved for a writ of
execution, the CIR opposed on the ground that the refund should be charged against an outstanding sales tax
liability of Cebu Portland. Cebu Portland claims that the alleged sales tax liability could not as yet be enforced
since the assessment is not yet final, the same still being under protest. Held: Cebu Portlands argument loses
sight of the urgency of the need to collect taxes as the lifeblood of the government. If the payment of taxes
could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed. Sec. 291 of the Tax Code provides: No court shall have authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this
Code. To require the CIR to refund to Cebu Portland the amount of the judgment debt which the former will later
have the right to distrain for payment of the latters sales tax liability is an idle ritual.
BPI SECURITIES CORP v. CIR (2002) The principle that taxes are not subject to set-off or legal compensation
must govern, especially in this case where the taxes and the taxpayer's claim are not fully liquidated, due and
demandable. Petitioner BPI filed their first quarterly income tax return for 1997 before BPI-makati in the amount
of 6,313,761.62. Subsequently, it filed its second quarter return amounting to 6,548,928.21 and since it already
paid 6,313,761.62 it only paid the balance amounting to 235, 166.59. For its third quarter return it declared a net
income loss of 762,555.36 for the quarter. For the first three quarters of the year, petitioner had already earned a
total taxable income of 16,948,668.10, with the tax due thereon amounting to P5,932,033 .84. In its FINAL
income tax return it reflected a taxable income in the amount of 17,569,560.00. Hence, the total tax due for the
year amounted to P6, 149,346.00 only. Thus, it overpaid in the amount of 399,582.21 which petitioner opted to
apply as tax credit for the taxable year of 1998. For its annual tax return for 1998, however petitioner filed a net
income loss with nil tax liability. So petitioner again indicated in the return its intention to carry over the same to
the next taxable year. However for 1999 it again incurred a net income loss with nil tax liability. In 2000,
petitioner filed with the BIR a written claim for refund. In its answer however, BIR stating, among others that

ALS2014B
ALS2014B 127 of 162
"#$
Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption from
taxation and as such, they are looked upon with disfavour. Petitioner provided for documents in the form of its
Corporate Quarterly Income Tax Returns and Bank Deposit slips for the years in question. BIR interposed a
recommendation by its revenue officer denying petitioner's claim for refund and at the same time recommending
the issuance of a preliminary assessment notice in the total sum of P20,758,189.91. The issues presented were w/n
the petitioner made an overpayment and that if so, was it not able to utilize the tax credit for the succeeding year.
The court answered yes in both issues citing Sec.60 of the NIRC. (However, this is not what the subheading in the
case list is about). In discussing further as regards to the claim of the revenue officer for the deficiency
assessment, that due to its deficiency income tax, it cannot be credited the refund, the court held that the said
report "cannot serve as an obstacle to the grant of the instant claim for refund because petitioner's alleged
tax deficiencies for the taxable year 1997 is not the issue presented before Us in this petition for review. It
appears that the memorandum report has not yet ripened into a formal assessment duly approved by the
Regional Director or by the Commissioner of Internal Revenue. Thus, the same can proceed independently of
the claim for refund and its merits or demerits may be determined in separate proceedings as provided for in the
Tax Code. The principle that taxes are not subject to set-off or legal compensation must govern, especially in this
case where the taxes and the taxpayer's claim are not fully liquidated, due and demandable.
A. SORIANO CORP v. CIR (1998) Petitioner filed a judicial action for refund of P 5.7 M representing overpayment
of income tax resulting from an excess payment of creditable withholding tax for 1993&1994. This was
because in 1994, petitioner had a zero income tax liability due to its operation losses but had a refundable of P5M
arising from a prior years excess credit of P1.6 M and the 1993 creditable withholding tax at source of P 3.3 M.
Despite choosing to carry over its 93 creditable withholding tax, it continued to suffer net losses. As a result, its
application of its 1993 overpayment against anticipated income tax liability in 1994 became nugatory. On Dec. 1,
1995 petitioner filed a letter claim for refund with the BIR. Due to the CIRs inaction, petitioner filed a petition
for review on Apr. 12, 1996 to conform to the reglementary period of 2 yrs as prescribed in the Tax Code for
claim of refund. As special and affirmative defenses, respondent alleged that petitioners claim for refund is
pending administrative investigation and not properly documented.
The Court held that the overpayment of income tax should be refunded. The petitioners claim for refund was
filed within 2 yrs from payment of the tax; the income upon which the creditable withholding taxes were paid
were included in its final adjustment returns, and that the creditable withholding taxes were duly supported by
Certificates of Creditable Withholding Tax at source. The objection of the respondent that the claim for refund
should be denied on the basis of a memorandum report submitted by its Revenue Officer which
recommended a proposed deficiency assessment for income tax, VAT, expanded withholding tax, withholding
tax on salaries, among others holds no water. The court cannot tackle such an issue without the actual formal
assessment issued by the respondent. To deny the instant claim for refund on the basis of a proposed
assessment will cause an injustice to the taxpayer because assessments usually pass through specific
administrative processes where the remedy of protest is made available to said taxpayer.
REPUBLIC OF THE PHILIPPINES v. MAMBULAO (1962) The only issue to be resolved in this appeal is
whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges
from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and
owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in
the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation
of said sum of P4,802.37 due from it as forest charges.
Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is applicable,
such that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in
the sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not
mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. On this
point, the trial court correctly observed
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an

ALS2014B
ALS2014B 128 of 162
"#$
action or any indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or
transaction sued on.
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that
taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive
acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not
required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a
claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await
and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion.
FNCB FINANCE v. CIR (1993) Investors Finance Corp filed an amended return to reflect creditable income taxes.
It then filed a claim for tax credit to the BIR. According to the BIR, there was deficiency taxes due which the BIR
automatically set-off against the amount claimed as excess creditable income tax. The result was that Investors
Finance Corp even had deficiency tax due. The CTA held that the BIR cannot be allowed to apply the tax
credit claimed against the alleged deficiency tax when no assessment has been made. It cannot automatically
set-off alleged deficiency tax against a claim for tax credit.
PHILEX MINING CORP. v. CIR (1999) Philex Mining Corp. (Philex) filed a claim for refund with the
Commissioner of Internal Revenue (CIR) for P623,169.30, representing 25% percent of the specific taxes
paid. Pending CIR action, Philex filed a case for tax refund with the CTA. The CTA granted Philexs claim, but
only to the extent of P16,747.36. The Court of Appeals affirmed the decision of the CTA. On appeal to the SC,
Philex contends that tax refund under R.A. 1435 must be computed on the basis of the increased rates
actually paid under the 1977 NIRC and not on the specific tax deemed paid under Section 1 and 2 of the
law. In addition to this, Philex claims they are entitled to 20% interest. The Court ruled that since the partial
refund authorized R.A. 1435 is in the nature of a tax exemption, it must be construed strictissimi juris against the
grantee. There is no expression of a legislative will authorizing a refund based on the higher rates claimed by
Philex. When the law itself does not explicitly provide that a refund under R.A. 1435 may be based on higher
rates which were non-existent at the time of its enactment, the Court cannot presume otherwise. As to the 20%
interest per annum claimed by Philex, the same cannot be granted even if a refund is approved. The rule is
that no interest on refund of tax can be awarded unless authorized by law or the collection of the tax was
attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration
where there is room for two opinions, however much it may be believed that an erroneous conclusion was
reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. None of the
exceptions are present in the case.
BIR Ruling No. 359-93, Aug. 26, 1993
King, Capuchino, Tan & Associates
2nd Floor, Belman II Bldg.
Quezon Ave. corner Cordillera St.
Quezon City
Attention: Atty. Bayani L. Chua
This refers to your letter dated July 6, 1993 requesting that Tax Credit Certificate bearing Serial Numbers 001876 and
001877 in the respective amounts of P602,244.37 and P1,234,526.85 issued by this Office in favor of your client,
Maricalum Mining Corporation (MMC) be applied to the other tax liabilities of MMC specifically its excise tax liability
which will fall due on July 20, 1993 and not to deficiency assessments involving the amounts of P7,756,577.81,
P868,425.77, P3,900,339.77 and P3,692,644.58 under Assessment Notice Nos. FAS-1-88-93-000574, 1-89-93-00575, 1-
88-92-000561 and 1-88-92-000562 on the ground that said deficiency assessments are not yet final since the same are
being contested and/or protested by MMC.

ALS2014B
ALS2014B 129 of 162
"#$
In reply thereto, please be informed that your request is hereby granted. Pursuant to Section 229 of the Tax Code, as
amended. An assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If
the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on
the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the
decision shall become final, executory and demandable. Since your protest on the aforementioned deficiency assessments
was timely filed, i.e., within the thirty (30) day period from your receipt of the assessments, the assessments have not as
yet become final, executory and demandable.
Such being the case, and while the said Tax Credit Certificates bear the notation that the same shall be applied first in
(partial) payment of the deficiency assessments involving the amounts of P7,756,577.81, P868,425.77, P3,900,339.77 and
P3,692,644.58 under Assessment Notice Nos. FAS 1-88-92-000574, 1-89-92-000575, 1-88-92-000561 and 1-88-92-
000562, nevertheless, such assessments have been protested and therefore, not yet final, executory, and demandable.
Accordingly, said Tax Credit Certificates bearing Serial Numbers 001876 and 001877 in the respective amounts of
P602,244.37 and P1,234,526.85 can be applied by MMC to the payment of its other tax liabilities like excise taxes due
from it this July, or subsequent period.
I. Whether Government is Liable for Interest, Attorneys Fees, Etc.
CIR v. SWEENEY (1959) The National Government cannot be required to pay interest in the absence of a
statutory provision clearly or expressly directing or authorizing such payment Petitioners Sweeney, et al.
were past presidents of the International Club of Iloilo, Inc. The Club maintained and operated a clubhouse with a
bar wherein liquor and light refreshments were sold exclusively to members and their guests. The CIR demanded
from the Club payment of fixed and percentage taxes (~Php3,000) for the operation of a bar. The Club paid the
taxes under protest and thereafter filed a written claim for refund. However, the CIR did not act on the claim,
causing petitioners Sweeney, et al. to take the case to the CTA. The CTA ruled in favor of petitioners Sweeney
and the Club, holding that they were not liable for the taxes because they were not operating the bar for profit.
Therefore, the CTA ordered the CIR to refund the taxes paid, with interest. The SC agreed that the CIR must
refund the taxes paid, but disallowed the payment of interest on such refund. The National Government
cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or
authorizing such payment, and no such law has been cited by the petitioners.
VICTORIAS MILLING CO., INC. v. COMMISSIONER (1967) The Court of Tax Appeals declared Victorias
Milling as exempt from payment of advance sales tax on its importations of ready-made cloth sugar bags and
materials for conversion into sugar containers, and ordering the CIR to refund to Victorias the sum of P66,949.79,
without interest. Victorias Milling appealed the CTA's decision arguing that the refund of the protested sales tax
collected by the revenue authorities should have been ordered with payment of interest, for the reason that the
Commissioner of Internal Revenue was guilty of arbitrariness, because of its flip-flopping ruling on the
exemption from sales tax the bags and materials imported by Victorias Milling. The Court ruled that the mere
fact of the reversal of a ruling previously rendered is not per se evidence of arbitrariness, neither is the fact
that the administrative ruling is found by the courts not in accordance with law. Arbitrariness presupposes
inexcusable or obstinate disregard of legal provisions, which, the Court found does not exist.
J. Proper Party to File a Claim for Refund or Tax Credit
CIR v. WANDER PHILIPPINES (1988) withholding agent has the right to file the claim for refund. Wander Phil.
Is a domestic corporation. It is a wholly-owned subsidiary of Glaro, a Swiss Corporation not engaged in trade in
the Phil. Wander remitted some dividends to Glaro and paid a 35% withholding tax. The following year, Wander
filed with BIR a claim for refund and/or tax credit contending it was only liable to pay 15%. CIR maintains and
argues that it is Glaro the tax payer, and not Wander, the remitter or payor of the dividend income and a mere
withholding agent for and in behalf of the Philippine Government, which should be legally entitled to receive the
refund if any. SC ruled that said corporation is first and foremost a wholly owned subsidiary of Glaro. The fact
that it became a withholding agent of the government which was not by choice but by compulsion under Section

ALS2014B
ALS2014B 130 of 162
"#$
53 (b) of the Tax Code, cannot by any stretch of the imagination be considered as an abdication of its
responsibility to its mother company. Thus, this Court construing Section 53 (b) of the Internal Revenue Code
held that "the obligation imposed thereunder upon the withholding agent is compulsory." It is a device to insure
the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by
aliens who are outside the taxing jurisdiction of this Court. In fact, Wander may be assessed for deficiency
withholding tax at source, plus penalties consisting of surcharge and interest (Section 54, NLRC). Therefore, as
the Philippine counterpart, Wander is the proper entity who should for the refund or credit of overpaid
withholding tax on dividends paid or remitted by Glaro.
CIR v. PROCTER & GAMBLE (1988) Procter and Gamble Phils (P&G-Phils) is a wholly owned subsidiary of
Procter and Gamble, U.S.A.(P&G-USA). As such, P&G-U.S.A. is the sole shareholder or stockholder of P&G-
Phil. P&G-Phil also has a legal personality separate and distinct from P&G-U.S.A. For 1974 and 1975, P&G-Phil.
filed its income tax return and also declared dividends in favor of P&G-USA. In 1977, P&G-Phil. invoking the
tax-sparing credit provision in Section 24(b) as the withholding agent of the Philippine government with
respect to the dividend taxes paid by P&G-U.S.A., filed a claim with the CIR for the refund of the
20%portion of the 35% whole tax paid.
The Court ruled that P&G-Phil is not the proper party to claim the refund. The submission of the CIR that
P&G-Phil. is but a withholding agent of the government and therefore cannot claim reimbursement of the
alleged over paid taxes is completely meritorious. The real party in interest being the mother corporation in the
United States, it follows that P&G-USA is the real party in interest, and should have been the claimant in
this case. P&G-USA must prove that it is entitled under the US tax code equivalent to at least 20% waived or
deemed paid by the government.
CIR v. PROCTER & GAMBLE PHIL. (1991) taxpayer/ refund allowed. P&G Phils. filed for a claim of refund
or tax credit for excess taxes withheld for dividends declared to its sole stockholder P&G USA (35% ang
nawithheld niya, dapat 15% lang as per Sec. 24B). No responsive action was taken by the CIR, thus a petition for
review was filed to the CTA. The CTA ordered the CIR to grant the tax credit, but the CIR appealed by alleging
the incapacity to claim of P&G Phils (dapat daw P&G USA). Refund must be granted. The term taxpayer
found in Sec. 309 (3) is applicable to P&G Phils. Sec. 53(c) provides that the withholding agent who is
required to deduct and withhold any tax is made personally liable for such tax. Therefore, P&G is directly
and independently liable for the correct amount of tax, and authorized to file the claim for refund and
recovery. Nothing precludes the BIR from requiring P&G Phils. to provide proof of authority, given by P&G
USA, to collect refund and forward back the proceeds or apply such refunds to Philippine tax duties of P&G
USA, before payment of refund or issuance of a tax credit certificate.
CHINA BANKING CORP. v. CIR (1993) The withholding agent has capacity to file a suit on behalf of the
taxpayer. Petitioner China Bank issued several promissory notes/commercial papers in the primary market as
money market placements. After the issuance, it paid the required 35% transaction tax due on the total interests.
However, before the maturity dates, the money market placements were withdrawn in full and were preterminated
so the total interests paid was reduced. Thus, the transaction tax due should only be based on the reduced amount.
Since petitioner has already paid the tax previously, it argues that there was an overpayment. Hence, the claim for
refund. The issue is whether or not the petitioner bank has personality in bringing the present suit for being
a mere withholding agent and not the taxpayer. The Court ruled that the 35% transaction tax is an income tax
on interest earnings to the lenders or placers. And these lenders or placers the actual taxpayers and not the
petitioner; it is only a withholding agent. In the recent case of CIR v. Procter & Gamble Philippine
Manufacturing Corporation, it was ruled that a withholding agent has capacity to file a suit on behalf of the
taxpayers. Under the NIRC, a taxpayer is any person subject to tax. Section 53c of the NIRC defines a
withholding agent as one who is required to deduct and withhold any tax and is made personally liable for
such tax. A person liable for tax has been held to be a person subject to tax and is properly considered
a taxpayer. Thus, such person should be regarded as a party-in-interest or as a person having sufficient
legal interest to bring a suit for refund of taxes. The withholding agent is constituted as the agent of both the
Government and the taxpayer.

ALS2014B
ALS2014B 131 of 162
"#$
SILKAIR (SINGAPORE) PTE. LTD. v. CIR (2008) jet fuel, true tax payer is the proper party to file a refund
SilkAir, a Singaporean Airline Company, which has a representative office in the Philippines, files for a refund
of excise tax from the BIR. This excise tax arose from their transactions with Petron Corporation for jet fuel.
They claim that the tax paid by them is exempted under Sec 135 of the NIRC and Art. 4(b) of the Air Transport
Agreement between Singapore and the Philippines. These laws give tax exemptions to SilkAir (not necessary for
our topic). The CIR denied the petition for refund on the ground that SilkAir is not the proper party to file
such petition.
It has been held that the proper party to file such refund is Petron Corporation, which is the true taxpayer in
the transaction. The amount of excise tax was only shifted to SilkAir upon the sale, but they do not have the
burden of paying such. Under Sec. 130 of the NIRC, the manufacturer is the one liable for excise tax. The
amount that was passed onto SilkAir is not longer serves as a tax liability, but only an additional cost for their
transaction.
PHILIPPINE GEOTHERMAL, INC. v. CIR (2005) Government has to restore to taxpayer the sums
representing erroneous payment To avoid tax deficiency, Geothermal Inc. remitted VAT of the fees received
from NPC (around Php 39.3 M.) It then filed an administrative claim for refund with BIR alleging that the sale of
steam to NPC is a VAT exempt transaction according to FIRB Reso. 17-87 in pursuant to EO 93. Both the BIR
and CTA confirm the VAT exemption. The CTA however ruled that instead of Php 39.3M, Geothermal Inc.
should only be refunded with Php 9.01 M or the amount not included in the payment or reimbursement made by
NPC to Geothermal. The SC disagreed with CTA and held that the government has to restore Geothermal the
sum it erroneously paid (Php 39.3 M). Thus the amount of refund should have been based on the VAT Returns
filed by the taxpayer (Geothermal Inc.) The issue as to whether this was already reimbursed by NPC is no
longer the concern of the CTA. The latter issue should only be between Geothermal and NPC. The Court held
that for indirect taxes like VAT the proper party to question or seek a refund of the tax is the statutory
taxpayer and who paid the same even when he shifts the burden thereof to another. In this case,
Geothermal has the legal personality to apply for refund since it is the one who made the erroneous VAT
payment and who will suffer financially by paying in good faith what it had believed to be its potential
liability.
K. Taxes Not Subject of Set-Off
FRANCIA v. IAC (1988) Francia owned a piece of land, a part of which was expropriated, and payment of Php4,116
was deposited with PNB. Subsequently, it was discovered that Francia had failed to pay the real estate taxes on
the land since 1963 totaling Php2,400, so his property was sold at public auction. Francia was not present at the
auction, and Fernandez was the highest bidder. When Francia learned of this through the TCT registration of
Fernandez, he filed a complaint to annul the auction sale, one of his contentions being that his deficiency taxes
should have been set-off/compensated from the expropriation payment.
However, the SC ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. Internal revenue taxes cannot be the subject of
compensation because the government and the taxpayer are not mutual creditors and debtors of each other
and the claim for taxes is not a debt, demand, contract, or judgment as is allowed to be set-off.
[There were other reasons for ruling against Francia, such as: the deposit for just compensation was already his
and should have been withdrawn and used to pay the deficiency; real estate tax was for local government, while
expropriation was for national government; etc.]
CALTEX v. COA (1992)
Facts: The Oil Price Stabilization Fund was created for the purpose of minimizing frequent price changes brought about
by exchange rate adjustments. Oil Companies will be reimbursed for cost increase and possible cost
underrecovery incurred due to reduction of domestic prices.

ALS2014B
ALS2014B 132 of 162
"#$
COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an
early release of its reimbursement certificates which the latter denied. Caltex submitted a proposal to COA for the
payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offsetting
remittances and reimbursements for the current and ensuing years.
Caltex questions the decisions of COA for disallowing the offsetting of its claims for reimbursement with its due
OPSF remittance.
Issue: W/N the amounts due from Caltex to the OPSF may be offsetted against Caltex outstanding claims from said
funds.
Held: NO. It is explicitly provided that the source of OPSF is taxation. It is settled that a taxpayer may not offset taxes
due from the claims that he may have against the government. Taxes cannot be 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.
There is no merit in Caltexs contention that the OPSF contributions are not for a public purpose because they go
to a special fund of the government Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the
police power of the state.
The oil industry is greatly imbued with public interest as it vitally affects the general welfare.
MARCOS II v. CA (1997)
Facts: Following the death of former President Marcos in 1989, investigations were conducted on his and his familys
tax liabilities and it was found that the Marcoses failed to file a written notice of death of the decedent estate tax
return and income tax returns for the years 1982 to 1986. The CIR thereby caused the preparation of the estate tax
return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the
income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate
tax assessments and the corresponding deficiency income tax assessments. The deficiency tax assessments were
not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR
issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned
by Marcoses. These lands were forfeited in favor of the government because there were no bidders during the
auction sale.
Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul the
notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA
dismissed, holding that the deficiency assessments for the estate and income taxes have already become final and
unappealable and may thus be enforced by summary remedy of levying upon the real property.
Issue: Whether or not the proper avenue of assessment and collection was taken by the BIR.
Held: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and
other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into
finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President
Marcos. The deficiency tax assessment, having become final, executory and demandable, the same can now
be collected through the summary remedy of distraint and levy.
BPI-FAMILY SAVINGS BANK, INC. v. CA (2000) business losses / no tax liability / tax credit cannot be
applied / refund - BPI indicated in its 1989 ITR that it would apply the total refundable amount (inclusive of
1988 and 1989 tax credit) as tax credit for the succeeding taxable year: 1990. BPI later informed the BIR it would
be claiming the amount stated as the 1989 tax credit as a tax refund, alleging it did not apply the total refundable
amount to its 1990 ITR due to alleged business losses it occurred during that year. CTA and CA said there should
be no refund because BPI failed to show it has not credited to its 1990 ITR the total refundable amount it
previously declared to be applied as a tax credit in 1990.

ALS2014B
ALS2014B 133 of 162
"#$
BPI had excess withholding tax for 1989 and was thus entitled to a refund. The Return clearly showed that BPI
suffered a net loss in 1990. BPI could not have applied the amounts as a tax credit, as it occurred no tax
liability. Rules of procedure should not be ignored to defeat the attainment of justice. If a taxpayer suffered a
net loss in a subsequent year, incurring no tax liability to which a previous years tax credit could be
applied, there is no reason for the BIR to withhold the tax refund which rightfully belongs to the taxpayer.
PHILEX MINING CORP. v. CIR (1998) BIR sent a letter to Philex asking it to settle its tax liabilities. Philex
protested the demand for payment of stating that it has pending claims for VAT input credit/refund. Therefore,
these claims for tax credit/refund should be applied against the tax liabilities. In reply, the BIR, found no merit in
Philexs position. Since these pending claims have not yet been established or determined with certainty, it
follows that no legal compensation can take place.
Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of tax cannot await the results of a lawsuit against the government.
CIR v. CITYTRUST BANKING CORPORATION (2006) Except for a pending issue in another CTA proceeding,
Citytrust considered all its deficiency tax liabilities for 1984 fully settled, hence, it prayed that it be granted
a refund. The CIR interposed his objection, however, alleging that Citytrust still had unpaid deficiency income,
business and withholding taxes for the year 1985. Due to these deficiency assessments, the CIR insisted that
Citytrust was not entitled to any tax refund.
On October 16, 1997, the CTA set aside the CIRs objections and granted the refund.
Before us in this petition for review on certiorari, the CIR contends that respondent is not entitled to the refund of
P13,314,506.14 as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the CA erred in not
holding that payment by Citytrust of its deficiency income tax was an admission of its tax liability and,
therefore, a bar to its entitlement to a refund of income tax for the same taxable year. In resolving this case,
the CTA did not allow a set-off or legal compensation of the taxes involved. The CTA complied with the
Courts order to conduct further proceedings for the reception of the CIRs evidence in CTA Case No. 4099. In
the course thereof, Citytrust paid the assessed deficiencies to remove all administrative impediments to its
claim for refund. But the CIR considered this payment as an admission of a tax liability which was inconsistent
with Citytrusts claim for refund. There is indeed a contradiction between a claim for refund and the
assessment of deficiency tax. The CA pointed out that the case was remanded to the CTA for the reception of
additional evidence precisely to resolve the apparent contradiction.Because of the CTAs recognized expertise in
taxation, its findings are not ordinarily subject to review specially where there is no showing of grave error or
abuse on its part.
BIR Ruling No. 415-93, Oct. 15, 1993
The Honorable
Undersecretary Tomas I. Alcantara
Department of Trade and Industry
385 Sen. Gil Puyat Avenue
Makati, Metro Manila
This refers to your request for confirmation and/or issuance of guidelines for the automatic offsetting of claims for VAT
input tax by mining companies against their excise tax liabilities.
I reply, I regret to inform you that the same cannot be granted for lack of legal basis. Any claim for tax credit or refund of
alleged excess input tax by a VAT registered taxpayer pursuant to Sections 104 and 106 both of the Tax Code, as
amended by E.O. 273, shall be subject to verification by this Office pursuant to existing rules and regulations.
Accordingly, until after the amount claimed as input taxes attributable to goods exported, or on sales which are zero-rated
or effectively zero-rated or input tax paid on capital goods imported or locally purchased, to the extent that such input

ALS2014B
ALS2014B 134 of 162
"#$
taxes have not been applied against output taxes, have been finally determined to be legally due to the taxpayer, and a tax
credit certificate issued therefor, no automatic offsetting of the amount claimed as input tax against the tax liability of the
taxpayer can be allowed.
However, a Tax Credit Certificate duly issued by this Office shall, upon proper application, be allowed to be used in
payment of excise and other tax liabilities of taxpayers, like the mining companies.
L. Solutio Indebiti as Basis of Tax Refund/Credit
CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION (2007) Acesite owns Holiday Inn and leases a
portion of its premises to PAGCOR for casino operations. Acesite incurred VAT from its rental income and sale
of food and beverages to PAGCOR. It tried to shift the taxes to PAGCOR by incorporating it in the amount
assessed to PAGCOR. PAGCOR refused to pay the said taxes on account of its tax exempt status. Hence, Acesite
paid the VAT. Belatedly, Acesite realized that its transaction with PAGCOR was subject to zero rate as it is
considered a tax-exempt entity. Acesite filed an administrative claim for refund with the CIR but the latter failed
to resolve the same. Hence, Acesite filed a petition with the CTA. CTA ordered the CIR to refund the amounts
paid. CA affirmed the CTA decision and further said that PAGCOR was exempt from both direct and indirect
taxes, such as VAT. PAGCORs tax exemption covers the indirect tax of VAT, under PD 1869, the charter
creating PAGCOR. This exemption is also extended to entities or individuals dealing with PAGCOR. It must be
noted that the indirect tax of VAT 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, the law is exempting PAGCOR from being liable for indirect
taxes. PAGCORs exemption also falls within the purview of Section 102(b)(3) of the NIRC (Followings
services performed by VAT-registered persons shall be subject to 0% - Services rendered to persons or
entities whose exemption under special laws). Verily, Acesite has clearly shown that it paid the taxes under a
mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the
time it made the payments. Hence, the CIR should refund the said taxes. An action for a tax refund partakes of the
nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it
is strictly construed against the claimant who must discharge such burden convincingly.
CIR v. TOKYO SHIPPING (1995) Tokyo Shipping prepaid its tax obligations on a freight contract it entered into.
Upon arrival at the port of destination, no cargo was found thus the freight contract never materialized. Tokyo
Shipping now filed a refund to the CIR for no taxable transaction transpired. CTA ruled in favor of Tokyo. SC
likewise ordered CIR to refund Tokyo because there was no taxable event and the prepayment made by Tokyo
was a mistake.
AB LEASING AND FINANCE CORP. v. CIR (2003) Petitioner had an overpayment of its net income tax for the
taxable year (TY) 1993, of which it chose to apply the excess payment as tax credits for the following year, 1994.
By the end of 1994, petitioner incurred net loss exempting it from payment of the 1994 taxes. It was thus unable
to apply the tax credits incurred in 1993. Petitioner filed 2 claims with the CIR then to CTA for refund of
overpaid income taxes for TY 1993 (Case 1) and 1994 (Case 2), respectively. CTA dismissed Case 1 for
insufficiency of evidence but ruled in favour of petitioner in Case 2, ordering CIR to refund the unutilized tax
paid for TY 1994. Court held that although 69 of the old NIRC provides: when a corporation is entitled to a
refund of the excess income taxes paid, the refundable amount on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year (the carrying
forward of any excess income tax for a given TY is limited to the succeeding TY only), the petitioner is entitled
to claim the refund of the taxes it overpaid.
Petitioner had signified its intention to apply the entire amount of excess payment for 1993 and for 1994 to the
year 1995. Even assuming that there was a need for petitioner to present in evidence the 1995 ITR or the
breakdown of excess taxes paid in 1994, the CTA could have taken judicial notice of the records of Case 2,
petitioners claim for refund of overpaid taxes for 1994, which was already pending before it. It is significant to
note that petitioners claim for refund in said case was granted by the CTA, as mentioned earlier. At all events,
while the rules of evidence and jurisprudence do not sanction the grant of evidentiary value to evidence which is

ALS2014B
ALS2014B 135 of 162
"#$
not formally offered, it must be stressed that technical rules of procedure are not ends in themselves but are
primarily designed to help in the administration of justice. Moreover, the law creating the CTA expressly provides
that it shall not be governed strictly by technical rules of evidence. Substantial justice, equity and fair play are
thus on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the
State to keep money not belonging to it. If it expects its taxpayers to observe fairness and honesty in paying
their taxes, it must apply the same standard against itself in refunding excess payments of such taxes. It
should not enrich oneself at the expense of another.
CIR v. MERALCO (2007) The CIR found that Meralco was liable for deficiency income and franchise taxes (around
2M each). On the other hand, Meralco filed a letter-claim for refund or credit in the amount of 107M representing
overpaid income taxes. CIR didnt act on the request so Meralco filed a judicial claim for refund or credit with the
CTA. While the case was pending, Meralco paid the deficiency franchise tax. It also protested the payment of the
alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for
refund or credit but this was refused by the CIR. The CTA ordered the CIR to refund or, in the alternative, issue
a tax credit certificate in favor of Meralco the sum of 107M representing overpaid income taxes. The case was
elevated by the CIR to the CA, but the CA affirmed. Now the CIR alleges in the SC that the claim for tax
refund should be construed strictly against the claimant as it partakes the nature of exemption from taxes.
Sec. 69 of the 1986 NIRC (see Sec. 76 of 1997 NIRC there are differences) provides that if the sum of the
quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable
income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay
the excess tax still due, or (b) be refunded the excess amount paid. A corporate taxpayer's option to avail of
tax credit does not, however, mean that it is ipso facto granted. For the CIR still has to investigate and
ascertain the veracity of the claim. Both the CTA and CA found Meralcos claim for tax refund or credit
meritorious on the basis of testimonial and documentary evidence. The deficiency franchise tax had already been
paid and the deficiency income tax was the subject of a compromise agreement. The issue of w/n Meralco
adduced sufficient evidence to prove its entitlement to refund is a question of fact w/c cant be brought to the SC.
Therefore, the finding of fact by the CTA and CA is upheld. Moreover, a taxpayer may recover from the BIR
excess income tax paid under the provisions of Sec. 86 of the 1986 NIRC w/in 10 years from the date of payment
considering that it is an obligation created by law.
Note: Solutio Indebiti was not mentioned in the case. However, the Civil Code states that if something is received
when theres no right to demand such, and such was unduly delivered through mistake, the obligation to return
arises. I am assuming that since there was overpayment, the CIR has to return the excess.
PHILAM ASSET MANAGEMENT v. CIR (2005) Philam has creditable withholding taxes from 1997. The
following year, Philam wanted to utilize the credit. It applied for a tax refund by filing a written claim before the
Commissioner. The Commissioner refused to grant a refund, holding that for a request for either a refund or a
credit of income tax paid, a corporation must signify its intention by marking the corresponding option box on its
annual corporate final adjustment return (FAR). Parenthetically, Section 76 of the NIRC offers two options to a
taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax
due. These options are (1) filing for a tax refund or (2) availing of a tax credit.
Tax refund is easier as it only requires that a taxpayer properly apply for the refund (through written claim before
the Commissioner). The tax credit option works by applying the refundable amount, as shown on the FAR of a
given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These
two options are alternative in nature; the choice of one precludes the other.
Meanwhile, while a taxpayer is required to mark its choice in the form provided by the BIR (the FAR), this
requirement is only for the purpose of facilitating tax collection. Failure to signify ones intention in the FAR
does not mean outright barring of a valid request for a refund, should one still choose this option later on.
The taxpayers failure to indicate an option in its FAR does not automatically mean that the taxpayer has opted to
carry-over its income tax credit. The taxpayers choice may be ascertained using circumstantial evidence.
Nonetheless, when a choice to carry-over the tax credit in the succeeding year has been made actually or
constructively, this becomes irrevocable already.

ALS2014B
ALS2014B 136 of 162
"#$
Finally, the Commissioner erroneously ruled that the ITR or FAR of the succeeding year be submitted as evidence
to determine whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities. Requiring
that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no
basis in law and jurisprudence.
M. Substantiation Requirements for Refund Claims: Withholding Tax Certificates, etc.
CITIBANK N.A. v. CA and CIR (1997) Citibanks tenants withheld and paid taxes to the BIR for rentals due to
Citibank. The tenants withheld such taxes quarterly for the years 1979 and 1980. It was shown in Citibanks final
adjusted ITRs for said years that they suffered net losses and were entitled to tax credits. In 1981, they
submitted a claim for refund of said taxes and filed a petition for review with the CTA. BIR argued that the claim
was filed out of time. The CTA ruled in favor of Citibank. On appeal, the CA ruled that it was not enough for
Citibank to show its lack of income tax liability. They should have also shown that the withholding tax was
illegally or erroneously collected and remitted by the tenants. SC said that when the taxes were withheld
quarterly by the tenants, the taxes were legally collected. However, when final adjusted returns were filed and it
showed that the taxpayer is entitled to refund, the withheld taxes ceased to be legally collected.
As to the onus probandi, there is no disagreement that a claimant has the burden of proof to establish the factual
basis of the claim for tax credit or refund. Tax refunds are construed strictly against the taxpayer. However, there
is no need for a detailed showing of the truthfulness of each item in the ITR. In the case at bar, the BIRs only
contention is prescription. They only raised the issue of the validity of the losses claimed in 1992. It can thus be
presumed that the BIR held the ITRs valid. The fact that the ITRs showed losses should be enough as basis
for refund of said taxes. To require Citibank to produce their books would constitute an assessment and would
be contrary to the Tax Code especially when more than 10 years have lapsed since 1979 and 1980. The BIR
should refund the tax or else the government is guilty of unjust enrichment.
FAR EAST BANK AND TRUST CO. v. CA (2005) During the period from 1990 to 1991, Cavite Development
Bank [CDB] sold some acquired assets in the course of which it allegedly withheld the creditable tax from the
sales proceeds which amounted to P755,715.00. In said years, CDB filed income tax returns which reflected that
CDB incurred negative taxable income or losses for both years. Since there was no tax against which to credit or
offset the taxes withheld by CDB, the result was that CDB had excess creditable withholding tax. In the early part
of 1992, CDB was merged with FEBTC with the latter as its surviving entity. Petitioner being the surviving
entity, FEBTC acquired all the assets of CDB. Being the surviving entity of the merger, filed this Petition for
Review after its administrative claim for refund was not acted upon. Petitioner contends that the confirmation
receipts presented by it constitute competent and irrefutable proof of the fact that taxes were withheld and
remitted to the BIR. The issue is whether petitioner adduced sufficient evidence to prove its entitlement to a
refund. A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare
the income payments it received as part of its gross income and (b) establish the fact of withholding. On this
score, the relevant revenue regulation provides as follows:
Section 10. Claims for tax credit or refund. Claims for tax credit or refund of income tax deducted and
withheld on income payments shall be given due course only when it is shown on the return that the income
payment received was declared as part of the gross income and the fact of withholding is established by a copy of
the statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the
amount of tax withheld therefrom.
The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income
tax returns are the same taxes withheld from CDBs income payments from the sale of its acquired assets. This is
because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will
show that what are reflected therein are merely the names of the payors and the amount of tax. The nature of the
tax paid, or at the very least, the income payments from which the taxes paid were withheld are not reflected
therein.

ALS2014B
ALS2014B 137 of 162
"#$
BANCO FILIPINO SAVINGS AND MORTGAGE BANK v. CA, CTA and CIR (2007) substantiation
requirements of refund claims Banco Filipino filed with CIR an administrative claim for refund of creditable
taxes withheld for the year 1995. CIR failed to act on the claim, so Banco Filipino filed a Petition for Review
with CTA. Banco Filipino presented the following: (a) Certificate of Income Tax Withheld on Compensation for
the year 1995 (from the sale of acquired assets), and (b) Monthly Remittance Return of Income Taxes Withheld.
CTA granted the claim partially [only the part which was substantiated by evidence (a)]. Banco Filipino filed a
Petition for Review with CA, but was dismissed. The issue was whether the CA erred in affirming the
disallowance of Banco Filipinos claim for tax refund because the evidence lacks probative value. HELD: CA did
not err. There are three conditions for the grant of a claim for refund of creditable withholding tax: 1) the
claim is filed with the CIR within the 2-year period from the date of payment of the tax, 2) it is shown on the
return of the recipient that the income payment received was declared as part of the gross income, and 3) the fact
of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount
paid and the amount of the tax withheld therefrom (basis of #3: Section 10 of RR 6-85).
It was proven that #s 1 and 2 have been complied with; the question now is if #3 was complied just by presenting
evidence (a) and (b). The Court ruled that Banco Filipinos evidence was not sufficient. The document which
may be accepted as evidence of the third condition must emanate from the payor itself, and not merely from the
payee, and must indicate the name of the payor, the income payment basis of the tax withheld, the amount of the
tax withheld and the nature of the tax paid. In the case at bar, though it was issued by the payor, the document
does not state the amount and nature of the income payment. Hence, it cannot be verified from the document if
the tax withheld is correct.
PLDT v. CIR (2008) PLDT terminated employees due to redundancy. In compliance with labor law requirements,
PLDT paid them separation pay and other benefits. It deducted from such separation pay withholding taxes which
were remitted to the BIR. In 1997, it filed a claim for tax refund. The CTA contended that PLDT failed to
show proof of payment of separation pay and remittance of the alleged withheld taxes. CA dismissed the
same. PLDT now asserts that it is not essential to prove that the separation pay benefits were actually received by
the terminated employees. They further contend that for as long as there is no legal basis for the payment of taxes
to the BIR, the taxpayer is entitled to refund.
The SC ruled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally
in favor of the taxing authority, and the taxpayer bears the burden of establishing the factual basis of his
claim for a refund. RR 6-85 must be followed which states that claims for tax credit refund shall be given due
course only when it is shown on the return that the income payment received was declared as part of the gross
income and the fact of withholding is established by a copy f the statement duly issued by the payer to the payee.
PLDT must do two things to be able to successfully make a claim for tax refund: a) declare the income
payments it received as part of its gross income and b) establish the fact of withholding. In this case, the
evidence that PLDT offered does not sufficiently establish its claim for refund. As it failed to comply with RR 6-
85, the refund must be denied.
CIR v. A. SORIANO CORP. (1997) Soriano Corporation filed before the CTA a petition for refund of excess tax
payments made to the BIR. During trial, only Soriano presented evidence to support its refund claim. The BIR
merely submitted the case for decision without presenting any evidence and without objecting to the existence
of statements and certificates offered by Soriano as proof of withholding taxes. After the CTA rendered its
decision ordering the payment of refunds, the BIR sought reconsideration and the admission of a certain BIR
report into evidence. The Court ruled that the said BIR report was forgotten evidence which could no longer be
considered on appeal and was not newly discovered evidence that would merit a new trial. The CIR urged that
Section 8 of the Rules of the Court of Tax Appeals called for liberal application of the rules on new trial
based on newly discovered evidence but the Court held that to do so would give rise to a dangerous
precedent where there would be no end to a hearing because, every time a party is aggrieved by its
decision, he can have it set aside by asking to be allowed to present additional evidence without having to
comply with the requirements of a motion for a new trial based on newly discovered evidence.
FILINVEST DEVELOPMENT CORP v. CIR (2011)

ALS2014B
ALS2014B 138 of 162
"#$
Facts: CTA rendered a decision dismissing Filinvests petition for review of its claim for refund representing excess
creditable withholding taxes for years 1994-1996 for insufficiency of evidence because it failed to present in
evidence its 1997 income tax return.The CTA held that since petitioner indicated in its 1996 Income Tax Return
that it has opted to carry over any excess income tax paid to the following year, there was no way for the court to
determine with particular certainty if petitioner Filinvest indeed applied or credited the refundable amount to its
1997 tax liability, if there were any. In this petition for review, petitioner Filinvest alleges that the CTA erred in
denying its claim for tax refund on the sole ground that it failed to present in evidence its Annual Income Tax
Return for Corporations for 1997 despite holding that it had complied with all the requirements to sustain a claim
for tax refund. The main issue for our resolution is whether petitioner is entitled to the tax refund or tax credit it
seeks.
Issue: W/N FILINVEST is entitled to refund
Held: We rule in the affirmative. In the proceedings before the CTA, petitioner presented in evidence its letter of claim
for refund before the BIR to show that it was made within the two-year reglementary period; its Income Tax
Returns for the years 1995 and 1996 to prove its total creditable withholding tax and the fact that the amounts
were declared as part of its gross income; and several certificates of income tax withheld at source corresponding
to the period of claim to prove the total amount of the taxes erroneously withheld. More importantly, petitioner
attached its 1997 Income Tax Return to its Motion for Reconsideration, making the same part of the records
of the case. The CTA cannot simply ignore this document.
Thus, we hold that petitioner has complied with all the requirements to prove its claim for tax refund.
It is true that herein petitioner has the burden of proving that it is entitled to refund. However, we have
already held that once the claimant has submitted all the required documents, it is the function of the BIR
to assess these documents with purposeful dispatch.
In proving the inclusion of the income payments which formed the basis of the withholding taxes and the fact of
withholding, this Court has held that:
[D]etailed proof of the truthfulness of each and every item in the income tax return is not required. That
function is lodged in the Commissioner of Internal Revenue by the NIRC which requires the Commissioner to
assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return. x x
x The grant of a refund is founded on the assumption that the tax return is valid; that is, the facts stated therein are
true and correct. In fact, even without petitioners tax claim, the Commissioner can proceed to examine the books,
records of the petitioner-bank, or any data which may be relevant or material in accordance with Section 16 of the
present NIRC.
BPI FAMILY SAVINGS BANK v. CA (2000) BPI claimed a tax refund for the year 1989 and declared in its income
tax return for the same year the amount as a tax credit to be applied to the succeeding taxable year. But in 1990,
BPO filed a claim with the CIR stating that it did not apply the same as tax credit for the year 1990 because it
suffered business losses. Without waiting for the CIRs response, BPI filed a petition for review with the CTA
seeking a refund but the CTA dismissed the petition on the ground that BPI failed to present as evidence its
Corporate Annual Income Tax Return for 1990 to establish the fact that it had not yet credited the amount
to its 1990 tax liability. The SC disagreed with the CTA, stating that BPI actually presented evidence to prove its
claim. The manager of BPIs accounting department testified to this fact. BPI also presented its claim for
refund and a certification issued by its VP stating that the said amount will not be automatically credited
against any succeeding income tax liabilities. A copy of the Final Adjustment Return for 1990 was also
attached to the MR filed with the CTA. A final adjustment return shows whether a corporation incurred a loss
or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred a net
loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.
CIR v. MERALCO (2007) The CIR found that Meralco was liable for deficiency income and franchise taxes (around
2M each). On the other hand, Meralco filed a letter-claim for refund or credit in the amount of 107M representing
overpaid income taxes. CIR didnt act on the request so Meralco filed a judicial claim for refund or credit with the
CTA. While the case was pending, Meralco paid the deficiency franchise tax. It also protested the payment of the

ALS2014B
ALS2014B 139 of 162
"#$
alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for
refund or credit but this was refused by the CIR. The CTA ordered the CIR to refund or, in the alternative, issue
a tax credit certificate in favor of Meralco the sum of 107M representing overpaid income taxes. The case was
elevated by the CIR to the CA, but the CA affirmed. Now the CIR alleges in the SC that the claim for tax
refund should be construed strictly against the claimant as it partakes the nature of exemption from taxes.
Sec. 69 of the 1986 NIRC (see Sec. 76 of 1997 NIRC there are differences) provides that if the sum of the
quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable
income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay
the excess tax still due, or (b) be refunded the excess amount paid. A corporate taxpayer's option to avail of
tax credit does not, however, mean that it is ipso facto granted. For the CIR still has to investigate and
ascertain the veracity of the claim. Both the CTA and CA found Meralcos claim for tax refund or credit
meritorious on the basis of testimonial and documentary evidence. The deficiency franchise tax had already been
paid and the deficiency income tax was the subject of a compromise agreement. The issue of w/n Meralco
adduced sufficient evidence to prove its entitlement to refund is a question of fact w/c cant be brought to the SC.
Therefore, the finding of fact by the CTA and CA is upheld. Moreover, a taxpayer may recover from the BIR
excess income tax paid under the provisions of Sec. 86 of the 1986 NIRC w/in 10 years from the date of payment
considering that it is an obligation created by law.
Note: Solutio Indebiti was not mentioned in the case. However, the Civil Code states that if something is received
when theres no right to demand such, and such was unduly delivered through mistake, the obligation to return
arises. I am assuming that since there was overpayment, the CIR has to return the excess.
STATE LAND INVESTMENT CORP. v. CIR (2008) Petitioner filed with the BIR its annual income tax return for
1997. For that year, its tax due was P9.7 M while its credits for the same year was P23.6M. The remaining P13.9
M unutilized was applied as credit for 1998 but still, a balance of P9.8 M from its 1997 excess credit remained.
On April 7, 2000, petitioner filed a claim for refund. Due to the CIRs inaction, it filed a petition for review with
the CTA on April 13, 2000 to toll the 2 yr prescriptive period. On April 4, 2002 CTA denied the claim for
refund ruling that petitioners failure to present its 1999 corporate annual ITR is fatal to its claim for
refund (petitioners 1998 ITR stated that it would carry over its 1997 excess tax credit to 1999 and in failing to
present its 1999 ITR, CTA was unable to determine with certainty that its 1997 tax credit was not charged against
tax liabilities for 1999). The issue is W/N petitioner is entitled to refund of P 9.8 M representing excess creditable
withholding tax for 1997? Yes.
Under Sec 69 (now, sec 76), if the total tax due is less that the quarterly tax payments during the year, a taxpayer
is entitled to a refund or credit for the excess amount paid. Due to business losses, petitioner had no tax liability in
1999 to which the 1997 excess tax credits could be applied. Excess income taxes paid in a year that could not
be applied to taxes due the following year may be refunded the next year, provided that the claim for such
a refund is made within two years after payment of the tax. It was not necessary on the part of petitioner to
file with the BIR its income tax return for 1999. In Philam Asset Management, Inc. v. Commissioner of
Internal Revenue, the Tax Code merely requires the filing of the final adjustment return for the preceding
not the succeeding taxable year. Any refundable amount indicated therein corresponding to the preceding
taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding
taxable year. Requiring that the income tax return or the final adjustment return of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. Under the principle of
solutio indebiti provided in Art. 2154, Civil Code,the BIR received something when there was no right to
demand it, and thus, it has the obligation to return it.
CIR v. FAR AST BANK & TRUST CO. (2010) FEBTC filed a claim for refund with the BIR. Due to the failure of
the CIR to act on the claim for refund, FEBTC brought the matter to the CTA. The CTA denied the refund on the
ground that FEBTC failed to show that the income derived from rentals and sale of real property from which the
taxes were withheld were reflected in its 1994 Annual Income Tax Return. SC affirmed the decision of the CTA,
holding that FEBTC failed to prove its entitlement to the refund. A taxpayer claiming for a tax credit or refund of
creditable withholding tax must comply with the following requisites:

ALS2014B
ALS2014B 140 of 162
"#$
(1) The claim must be filed with the CIR within the 2-year period from the date of payment of the tax; (2) It must
be shown on the return that the income received was declared as part of the gross income; and (3) The fact
of withholding must be established by a copy of a statement duly issued by the payor to the payee showing
the amount paid and the amount of the tax withheld.
Section 10 of Rev. Reg. 6-85 states that claims for tax credit or refund of income tax deducted and withheld
on income payments shall be given due course only when it is shown on the return that the income payment
received was declared as part of the gross income and the fact of withholding is established by a copy of the
statement duly issued by the payer to the payee showing the amount paid and the amount of tax withheld
therefrom.
FEBTC failed to include the income derived from rentals and sales of real property in its ITR. Hence, since no
income was reported, no tax was withheld. It is incumbent upon the taxpayer to reflect in his return the income
upon which any creditable tax is required to be withheld at the source. Further, FEBTC failed to present all the
Certificates of Creditable Tax Withheld at Source. FEBTC failed to present substantial evidence to prove its claim
for refund. [Although the BIR did not present evidence in this case, there is no automatic refund. Entitlement to a
tax refund is for the taxpayer to prove and not for the government to disprove.]
VI. APPEAL IN CASE OF DENIAL OF REFUND/TAX CREDIT CLAIM
A. CTA (Division and En Banc)
SEC. 7. Jurisdiction. The CTA shall exercise:
be deemed a denial;
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule
42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or
in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the
CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of
Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by
filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil
Procedure with the CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be
raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a
motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof:
Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and
appeal shall likewise apply.

ALS2014B
ALS2014B 141 of 162
"#$
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of
Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of
Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the
interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount
with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may
directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.
SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil proceeding involving matter arising under the National
Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the
provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial,
may file a petition for review with the CTA en banc.
CTA Circular No. 1-95
SUBJECT : CTA Rules Governing the Presentation of Voluminous Documents as Evidence Such as Receipts,
Invoices and Vouchers
In accordance with the announced policy of the court and in the interest of speedy administration of justice, the Court
hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such
as receipts, invoices and vouchers, as evidence to establish certain facts, pursuant to Section 3 (c), Rule 130 of the Rules
of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as
Section 8 of Republic Act No. 1125.
1. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary
containing the total amount/s of the tax account or tax paid for the period involved and a chronological or
numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents of the summary after making
an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must
properly be identified by a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt or invoice or other documents for marking,
identification and comparison with the originals thereof need not be done before the Court or the Commissioner
anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and
other documents covering the said accounts or payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and
verify the correctness of the summary and CPA certification. However, the originals of the said receipts, invoices
or documents should be ready for verification and comparison in case doubt on the authenticity of the particular
documents presented is raised during the hearing of the case.
Be guided accordingly.
Quezon City, Metro Manila, January 25, 1995.
CTA Circular No. 10-97 (amends CTA Circular No. 1-95)
SUBJECT : Amending CTA Circular No. 1-95 Rules Governing the Presentation of Voluminous Documents as
Evidence Such as Receipts, Invoices, Vouchers or Long Accounts
In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the
presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to

ALS2014B
ALS2014B 142 of 162
"#$
establish certain facts pursuant to Section 3 (c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania
Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by
the Court, present: (a) a Summary containing, among others, a chronological listing of the numbers, dates and
amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents of the summary after making
an examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to
conduct the audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of
the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking, identification
and comparison with the originals thereof need not be done before the Court or Clerk of Court anymore after the
introduction of the summary and CPA certification. It is enough that the receipts, invoices, vouchers or other
documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and
verify the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in case doubt on the authenticity thereof is
raised during the hearing or resolution of the formal offer of evidence.
Be guided accordingly.
Quezon City, Metro Manila, October 6, 1997.
(SGD.) ERNESTO D. ACOSTA
Presiding Judge
(SGD.) AMANCIO Q. SAGA
Associate Judge
(SGD.) RAMON O. DE VEYRA
Associate Judge
SUBJECT: Amending Answer to Question Number 17 of Revenue Memorandum Circular No. 42-2003 and
Providing Additional Guidelines on Issues Relative to the Processing of Claims for Value-Added Tax (VAT)
Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center, Department of Finance (OSS-DOF) by Direct Exporters
In response to request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the
statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period
prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
1. A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a
claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-
DOF), the administrative agency and the tax court may act on the case separately. While the case is
pending in the tax court and at the same time is still under process by the administrative agency, the
litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head
of the investigating/processing office for the docket containing certified true copies of all the documents
pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on
the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the

ALS2014B
ALS2014B 143 of 162
"#$
administrative agency shall continue processing the refund/TCC case until such time that a final decision
has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter
shall cease from processing the claim. On the other hand, if the administrative agency is able to process
the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the
concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the positive
resolution or approval of the motion must be furnished the administrative agency as a prerequisite to the
release of the tax credit certificate/tax refund processed administratively. However, if the taxpayer is not
agreeable to the findings of the administrative agency or does not respond accordingly to the action of the
agency, the agency shall not release the refund/TCC unless the taxpayer shows proof of withdrawal of the
case filed with the tax court. If, despite the termination of the processing of the refund/TCC at the
administrative level, the taxpayer decides to continue with the case filed at the tax court, the litigation
lawyer of the BIR, upon the initiative of either the Legal Office or the Processing Office of the
Administrative Agency, shall present as evidence against the claim of the taxpayer the result of
investigation of the investigating/processing office.
2. Additional paragraphs are hereto added to the last paragraph of RMC No. 42-2003 to read as follows:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the
supporting documents required by the investigating/processing office? When should the investigating/
processing office officially receive claims for tax credit/refund and what is the period required to process
such claims?
A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the
documentary requirements unless given further extension by the head of the processing unit, but such
extension should not exceed thirty (30) days.
For claims to be filed by claimants with the respective investigating/processing office of the
administrative agency, the same shall be officially received only upon submission of complete
documents.
For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty
(120) days from receipt of the complete documents. If, in the course of the investigation and processing of
the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office, which shall be construed as within the one hundred twenty (120) day
period.
All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.
B. Supreme Court
SEC. 19. Review by Certiorari. A party adversely affected by a decision or ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
VII. STATUTE OF LIMITATIONS
A. Period to File Protest
SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:

ALS2014B
ALS2014B 144 of 162
"#$
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and demandable.
PANTRANCO v. BLAQUERA (1960) (failure to file request w/n 30days) The Collector assessed Pantranco with a
documentary stamp tax deficiency w/ compromise penalty worth P74k. Pantranco requested for a reinvestigation
but was denied and was afterwards assessed a lower amount (P66k). Because of the change in the amount,
Pantranco requested a clarification. The Collector then wrote him a letter enclosing therewith a letter dated Sept.
1954. This was received on Nov. 20, 1954. Pantranco sought a reconsideration of the modified assessement on
Dec. 2, 1954.
Considering that the ruling or decision of the Collector of September 1954 had been received by Pantranco on
November 20, the Court held that the 30-day period began to run on November 20; that it was interrupted by the
petition for reconsideration filed December 3, 1954; and that such interruption ended on June 11, 1955, when
denial of the reconsideration was received by Pantranco; and finding that the petition had thus been presented
on the 34th day after receipt of the Collectors definite assessment, (November 20 to December 3-13 days;
June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.
The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to contest within
thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals, or to any
other court. The period of thirty days is jurisdictional and non-extensible.
DY PAC COMPANY v. CTA (1972) Petitioner DyPac was assessed by CIR of deficiency taxes on March 1967. It
protested the assessment on April 1967. CIR sent a letter dated October 1987, received by petitioner on November
1967 denying the protest and requiring petitioner to pay the assessment within 30 days from receipt of the letter.
On December 1967, petitioner then wrote a letter to the Secretary of Finance requesting him to withdraw the
denial of CIR. Sec. of Finance endorsed the letter to CIR of which CIR again sent a letter to petitioner. The
second letter reiterated the previous demand to pay the deficiency assessment.

ALS2014B
ALS2014B 145 of 162
"#$
Sec. 11 of RA 1125 states that: Any person, association or corporation adversely affected by a decision or ruling
of the Commissioner of Internal Revenue, x x x may file an appeal in the Court of Tax Appeals within thirty days
after receipt of such decision or ruling. Issue was which was the appealable decision of the Commissioner, the
first letter of denial of protest dated October 1967 received by the petitioner on November 1967, as the
respondents contend, OR the second letter sent by CIR dated May 1968, received by petitioner on June 1968, as
the petitioner insists? If the latter, then the petition for review filed with the CTA on July 5, 1968 was timely; if
not, the assessment had become final and executory. SC held that the point from which the period to appeal
should be counted is the receipt by the petitioner of the first letter on November 1967 and not the second letter.
Par.1, Sec.11 of RA 1125 allows appeal from the decision or ruling of the Commissioner of CIR. The word
decision has been interpreted to mean decisions of the Commissioner on protests of taxpayers against
assessments. And, in computing the 30-day period for appeal to the CTA, counting should begin from the date of
receipt of the decision of the Commissioner on the disputed assessment. However, where several requests for
reconsideration have been filed with the Commissioner, it would appear that the communication from the latter
overruling taxpayers request for reconsideration and affirming the disputed assessment in terms clearly indicating
finality of the action taken, constitutes the appealable decision or ruling.
Considering the substance of the first letter of the respondent Commissioner of October 1967, it is evident that the
said letter constitutes his decision; it has the unmistakable tenor of finality that would make it the appealable
decision or ruling. The respondent Commissioner himself considered the said letter as his decision that is final,
hence his request for payment for the last time. It is also quite certain that the petitioner himself must have
believed that the letter of October 1967 was the final decision of respondent Commissioner for otherwise he
would not have turned to the Secretary of Finance immediately thereafter for possible relief. From June 1968, the
date when the petitioner received the respondent Commissioners second letter of May 1968, to July 1968, the
date when the petitioner filed its petition for review with the CTA, an additional 30 days had elapsed. The appeal
was therefore late by 25 days. The period to appeal being jurisdictional and non-extendible, is filed beyond the
30-day period.
COMMISSIONER v. CONCEPCION (1968) Concepcion (ancillary administrator of the estate of Mary H. Mitchell-
Roberts), and Jack F. Mitchell-Roberts (husband of the deceased) sought a refund of estate and inheritance taxes
on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses as joint tenants with full
rights of survivorship and not as tenants in common but was denied. Not being agreeable to the assessment of the
Commissioner of Internal Revenue, respondents appealed the decision to the CTA which was dismissed because
the appeal was filed beyond the reglementary period of 30 days. Thus the decision became final, executory and
demandable. Concepcion and Mitchell-Roberts paid the taxes in question along with delinquency penalties, and at
the same time filed a claim for the refund of said amounts. Without waiting for the decision of CIR on the claim
for refund, another appeal was filed in order to avoid the prescriptive period of two years provided for in Section
306 of the NIRC. CTA in that appeal case ordered the CIR to refund Concepcion and Mitchell-Roberts. SC
overturned and said that once the matter has reached the stage of finality in view of the failure to appeal, it
logically follows that it could no longer be reopened through the expedient of an appeal from the denial of
petitioners request. The procedure set forth in Section 306 of the NIRC is not available to revive the right
to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to
appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken.
Furthermore, having paid the same, Concepcion and Mitchell-Roberts are clearly devoid of any legal right
to sue for recovery.
BASILAN ESTATES, INC. v. CIR (1967) Petitioner Basilan Estates, Inc. filed on March 24, 1954 its income tax
returns for 1953 and paid an income tax of P8,028. On February 26, 1959, the CIR, per examiners report,
assessed petitioner a deficiency income tax and 25% surtax on unreasonably accumulated profits as of 1953
pursuant to Section 25 of the Tax Code. On non-payment of the assessed amount, a warrant of distraint and levy
was issued but the same was not executed because Basilan succeeded in getting the Deputy Commissioner of
Internal Revenue to order the Director of the district in Zamboanga City to hold execution and maintain
constructive embargo instead. Because of its refusal to waive the period of prescription, the corporations request

ALS2014B
ALS2014B 146 of 162
"#$
for reinvestigation was not given due course. Eventually, notice was served the corporation that the warrant of
distraint and levy would be executed.
Petitioner filed before the CTA a petition for review alleging prescription of the period for assessment and
collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and error in finding
the existence of unreasonably accumulated profits and the imposition of 25% surtax thereon. The CTA found that
there was no prescription and affirmed the deficiency assessment in toto.
The notice of assessment shows the assessment to have been made on February 26, 1959, well within the five-
year period. Even granting that notice had been received by the petitioner late, as alleged, under Section 331 of
the (Old) Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed made
when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is not required that
the notice be received by the taxpayer within the aforementioned five-year period. Moreover, the presumption of
regularity of official functions prevails.
REPUBLIC v. CA (1987) Follow-up letter which reiterates demand for payment of taxes considered notice of
assessment. Failure of taxpayer to appeal the assessment to the CTA in due time makes the assessment final
executory and demandable and the taxpayer is barred from disputing the correctness of the assessment. In
a demand letter, dated 16 July 1955, the CIR assessed respondent deficiency taxes for the years 1949 to 1952.
Petitioner reiterated its demand three times - dated 24 April 1956, 19 September 1956 and 9 February 1960.
Private respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the assessment
had become final and executory, petitioner filed a complaint for collection of the said amount against respondent.
ISSUE: W/N the CIRs letter dated 19 Sept. 1956 which was duly received by respondents is an assessment.
HELD: Yes. The follow-up letter is considered a notice of assessment in itself which was duly received by private
respondent in accordance with its own admission. Under Section 7 of Republic Act No. 1125, the assessment is
appealable to the CTA within thirty (30) days from receipt of the letter. The taxpayers failure to appeal in due
time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment or from invoking any defense that
would reopen the question of its liability on the merits. In Mamburao Lumber Co. vs. Republic, this Court further
said: In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become
final and executory, the action to collect is akin to an action to enforce a judgment.
B. Period to File Refund or Tax Credit Claim
...
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to
the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for which no actual
payment was made.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or

ALS2014B
ALS2014B 147 of 162
"#$
collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively
or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
TRANS PHILIPPINES INVESTMENT CORP. v. CIR (1995)
CIR v. SWEENEY (1959) The National Government cannot be required to pay interest in the absence of a
statutory provision clearly or expressly directing or authorizing such payment Petitioners Sweeney, et al.
were past presidents of the International Club of Iloilo, Inc. The Club maintained and operated a clubhouse with a
bar wherein liquor and light refreshments were sold exclusively to members and their guests. The CIR demanded
from the Club payment of fixed and percentage taxes (~Php3,000) for the operation of a bar. The Club paid the
taxes under protest and thereafter filed a written claim for refund. However, the CIR did not act on the claim,
causing petitioners Sweeney, et al. to take the case to the CTA. The CTA ruled in favor of petitioners Sweeney
and the Club, holding that they were not liable for the taxes because they were not operating the bar for profit.
Therefore, the CTA ordered the CIR to refund the taxes paid, with interest. The SC agreed that the CIR must
refund the taxes paid, but disallowed the payment of interest on such refund. The National Government
cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or
authorizing such payment, and no such law has been cited by the petitioners. Taxpayers need not wait for
the CIR to act on the refund claim before going to court within the 2 year prescription period
GIBBS v. CIR (1960) CIR denied Gibbs request for refund by saying I regret to have to inform you that for reasons
stated in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your said request. It was
made on a letter that was received on November 14, 1956, by the petitioners brother who was acting as an
attorney-in-fact. On October 1, 1958, Gibbs filed with the CTA a petition for review and refund of tax paid. The
SC held that the action has prescribed because it was filed beyond the 30-day period from the receipt of the
denial of the refund claim (November 14, 1956) which, by its words, is deemed as a final decision on the
controversy. Also, the petitioners brother was his attorney in law and deemed authorized recipient.
CIR v. CA (1999) Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly
organized and existing under Philippine laws. It acts as the liquidator of Paramount Acceptance Corporation after
its dissolution on March 31, 1986. The question is whether the two-year period of prescription for filing a claim
for refund, as provided in 230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when
the corporate income tax return was actually filed or from April 15, 1986 when, according to 70(b) of the NIRC,
the final adjustment return could still be filed without incurring any penalty. The aforesaid 230 of the NIRC
provides that such period must be counted from the date of payment of the tax. But, given the facts as stated
above, when was the corporate income tax paid in this case?
We agree with the respondent courts ruling that the date of payment of the tax as prescribed under the Tax Code
is the date when the corporate income tax return is required to be filed. Clearly, the prescriptive period of two
years should commence to run only from the time that the refund is ascertained, which can only be determined
after a final adjustment return is accomplished.
In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private
respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition
for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription.
ACCRA INVESTMENTS v. CA (1991) filing of return signifies payment / counting starts from payment On
April 15, 1982 ACCRA Investments Corp (ACCRAIN) filed and paid its annual income tax return for the year
ended December 31, 1981 which reported a loss. On December 29, 1983, ACCRAIN claimed for refund from the
CIR then a petition for review to the CTA, both stating that such claim from refund was filed out of time for the

ALS2014B
ALS2014B 148 of 162
"#$
reckoning date should be on December 31, 1981 when taxes withheld at source were paid. Court decided that the
date of payment referred to in Sec. 230 is that when the tax payer actually files and pays its income tax
return (Sec. 49 NIRC). Such date is April 15, 1982, therefore ACCRAIN has until April 1984 to claim
refund. The lower courts had missaplied jurisprudence in holding that the taxpayer whose income is withheld
at source will be deemed to have paid its tax liability end of the tax year. (Gibbs vs. CIR)
BPI v. CIR (2001) When the corporation is contemplating dissolution, the 2-year prescription period begins 30
days after the SEC approves the plan of dissolution Family Bank and Trust Company (FBTC) merged with
BPI in July 1, 1985. Prior to the merger, FBTC had in its favor, creditable withholding taxes amounting to
~P174k from the 1985 tax year and excess credit of ~P 2M from the previous year. After the merger of BPI and
FBTC, BPI claimed the amount of the creditable withholding taxes (174k) and excess credit(2M) for refund. The
CIR only allowed the refund for the 2M, and disallowed that of the 174k, saying that the claim for refund of the
latter had already prescribed. BPI filed a petition for review in the CTA on December 29, 1987. CTA denied
the claim on the ground of prescription.
The question is, when did the 2 year period begin to run? BPI contends that it started on April 15, 1986 when
FBTC filed its final adjusted return pursuant to Section 46(a) of the Tax Code. On the other hand, the CIR
contends that the 2-year prescription period began to run from July 31, 1985---30 days after the approval by the
SEC of the plan of dissolution pursuant to the merger, as directed by Section 78 of the Tax Code.[See 1] The SC
ruled that the prescription period began to run 30 days after the SEC approved the plan of dissolution
(July 31, 1985) and consequently, the claim for refund had already prescribed. Thus, the rule is, the period of
prescription begins upon filing of the Final Adjustment Return applies only when the corporation remains
subsisting and its business operations are continuing. When the corporation is contemplating dissolution, 78 of
the Tax Code applies and the prescription period begins 30 days after the SEC approves the plan of dissolution.
[1] Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the
dissolution of the corporation render a correct return to the Commissioner of Internal Revenue, verified under
oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall,
by regulations, prescribe. The dissolving corporation prior to the issuance of the Certificate of Dissolution by the
Securities and Exchange Commission shall secure a certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the Securities and Exchange Commission.
CIR v. TMX SALES, INC. (1992) where a tax is paid on installments, the two-year prescriptive period for the
claim of refund should commence to run from the date of the last installment (filing of the Final Return)
On May 15, 1981, TMX filed its quarterly income tax for the first quarter of 1981. During the subsequent
quarters, it suffered losses, so upon filing of its Annual Income Tax Return on April 15, 1982, it declared a net
loss. On March 14, 1984, TMX Sales filed a claim for refund before the CTA, representing overpaid income
tax. The CIR argued that more than 2 years have elapsed from the payment of quarterly income tax and the filing
of the claim, thus the claim of TMX Sales has already prescribed. The CTA ruled that it has not yet prescribed
since the period should be counted from the date of final payment. The issue is whether the 2-year prescriptive
period would commence to run from the date the quarterly income tax was paid or from the date of filing
the Final Return (final payment). The Court held that the most reasonable and logical application of the law
would be to compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the
Annual Income Tax Return, when it can be finally ascertained if the taxpayer still has to pay additional income
tax or if he is entitled to a refund of overpaid income tax. This ruling is reiterated in Commission of Internal
Revenue v. Carlos Palanca, wherein the Court stated that where the tax account was paid on installment, the
computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be
from the date of the last installment. Since the prescriptive period is counted from the filing of the Final
Adjustment Return on April 15, 1982, TMX Sales is not yet barred by prescription.
CIR v. PRIMETOWN PROPERTY GROUP, INC. (2007) Yap, Vice Chair of Primetown Property Group
(Primetown) applied on March 11, 1999 for the refund / credit of income tax Primetown paid in 1997. However,
its claim was not acted upon so Primetown filed a petition for review with the CTA on April 14, 2000. CTA
dismissed the appeal as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax

ALS2014B
ALS2014B 149 of 162
"#$
refund or tax credit in accordance with Sec. 229 NIRC. According to the CTA, the two-year prescriptive period is
730 days pursuant to Art 13 of the Civil Code wherein years are of 365 days each. Since Primetown filed its
final adjusted return on April, 14, 1998 and the year 2000 was a leap year, the petition was filed 731 days after
Primetown filed its final adjusted return, therefore beyond the reglementary period. CA reversed.
The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. But how
should the two-year prescriptive period be computed? Article 13 of the Civil Code provides that when the law
speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of
whether it is a regular year or a leap year.
CIR v. PL MANAGEMENT INTERNATIONAL PHILIPPINES, INC. (2011) unlike the option for tax refund
claims, which prescribes after 2 years of filing, there is no prescriptive period for tax credit On April 13,
1998, PL Management filed 1997 ITR where it expressly stated that its creditable withholding tax of P 1.2
million shall be claimed as tax credit for its 1998 ITR. However, tax credit was not claimed the next year
because PL Mgmt was in net loss. In 2000, PL Mgmt then filed written claim for the tax refund with CIR. CIR
failed to act on the claim, which prompted for case to be elevated to CTA on April 14, 2000. CTA denied the
petition because it was filed beyond the 2-yr prescription but CA reversed this and held that PL Management may
get the refund because prescription period may be suspended for reasons of equity. SC disallowed the refund but
the PL management is permitted to apply unutilized P 1.2 million as tax credit in succeeding taxable years.
The Court held that if total tax payment exceeds tax liability, taxpayers have 2 options: (1) tax refund or (2) tax
credit. The choice of one precludes the other. In this case, PL Management already chose option (2) when it
declared that it will carry-over the unutilized P 1.2 Million to the 1998 ITR. This then bars the company from
claiming a tax refund. Based on jurisprudence, it must be noted that unlike claims for refund (which prescribes
after 2 years of filing ITR), the option of tax credit does not have a prescriptive period and such amount
(1.2 million) may be carried over to succeeding taxable years until fully exhausted.
ORAL AND DENTAL COLLEGE v. CTA (1958) (Prescription runs irrespective of pendency of refund claim
with the CIR; conflict between NIRC 2 yr period and RA 1125) Petitioner is school claiming to be exempt
from taxes and thus sought to recover the taxes it allegedly paid wrongfully. Said taxes were paid on May 15,
1951, September 15, 1951 and May 15, 1952, and that although the claim for the refund of the same was filed
with the CIR on November 14, 1952, the request for the reconsideration of the latters decision was denied only
on April 20, 1955. Meanwhile, no proceeding in court was instituted for that purpose in the intervening
period. In dismissing the petition filed with the Court of Tax Appeals, said tribunal relied on the provisions of
section 306 of the NIRC which provided for the 2 year prescriptive period within which refund claims must be
brought. The Court ruled that under said provisions, the taxpayers failure to comply with the requirement
regarding the institution of the action or proceeding in court within 2 years after the payment of the taxes bars him
from the recovery of the same, irrespective of whether a claim for the refund of such taxes filed with the
Collector of Internal Revenue is still pending action of the latter.
The petitioner argued that its refund claim has not prescribed because of the seeming conflict between the NIRC
2 year prescriptive period (counted from payment, irrespective of the action taken by the CIR) and the and
Section 11 of Republic Act 1125 specifically providing that actions should be brought to the Court of Tax
Appeals within 30 days from receipt of the decision of the Collector of Internal Revenue. The Court deferred
ruling on the matter and notes that although it has the power to interpret laws, the legislature should take notice of
apparent conflicts in statutes and work towards its elimination.
CIR v. PHILIPPINE AMERICAN LIFE INSURANCE CO. (1995) The prescriptive period of two years should
commence to run only from the time that the refund is ascertained, which can only be determined after a
final adjustment return is accomplished On May 30, 1983, Philam life paid its 1983 1st Quarter income tax of
P3,246,141. On August 29, 1983, it paid P396,874 for the 2nd Quarter. The company later on paid P708,464 for
the 3rd Quarter of the same year. In the 4th Quarter, however, it suffered loss and thereby had no income tax
liability. In the 4th quarter return, Philam life declared a refund of P3,991,841 representing the 1st and 2nd
quarterly payments (comprising of the 1st quarter payment of P3,246.141 plus 215,742.00 as withholding taxes on
rental income for 1983 and P133,084.00 representing 1982 income tax refund applied as 1983 tax credit). In 1984,

ALS2014B
ALS2014B 150 of 162
"#$
Philam life suffered loss again and applied for tax credit of its overpaid taxes in 1983 and 1982. On December 16,
1985, it filed another claim for refund with the CIRs appellate division for an amended and increased amount. On
January 2, 1986, it filed petition for review with the CTA.
[note: The simple story of the case is this Philam life remits/pays to the BIR tax withheld on income for the
1983 1st quarter but it would eventually turn out that its business operations actually resulted in a loss by the end
of the year 1983, as reflected in the Corporate Final Adjustment Return subsequently filed with the BIR. Because
of this, Philam life sought to have the payments made on the earlier quarters refunded.]
The issue is the reckoning date of the two-year prescriptive period provided in Section 230 of the NIRC for the
recovery of tax erroneously or illegally collected. CIR claims that the running of the prescriptive period
commences from the remittance/payment at the end of the first quarter of the tax withheld instead of from the
filing of the Final Adjustment Return. In such a case, Philamlife is not entitled for refund. The Supreme Court
held that the CIR was wrong. The prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final adjustment return is
accomplished. Although quarterly taxes due are required to be paid within sixty days from the close of each
quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a
final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due
from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what
should be refunded to the corporation. In the present case, this date is April 16, 1984, and two years from this date
would be April 19, 1986. The record shows that the claim for refund was field on December 16, 1985 and the
petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year
reglamentary period. Even if the two-year prescriptive period had already lapsed, the same is not
jurisdictional and may be suspended for reasons of equity and other special circumstances.
FAR EAST BANK AND TRUST COMPANY v. CIR (2006) FEBTC was a trustee for employee retirement funds,
and in the exercise of its authority, it invested such funds in various placements and securities. The interest
income earned on these investments was subjected to withholding tax. However, a previous ruling by the SC
declared income for retirement funds exempt from income tax, so FEBTC filed for refunds with the BIR, which
were all denied. In order to comply with the 2-year prescriptive period, instead of filing a petition for review,
FEBTC filed a Motion to Admit Supplemental Petition (Supplement) with its ongoing case in the CTA for the
same subject matter but for different time periods. The CTA denied this motion and suggested that FEBTC file a
petition for review instead. FEBTC obliged, but the petition for review was filed more than 2 years after payment
of the withholding taxes.
FEBTCs contention that the prescriptive period should be reckoned from the date of the filing of its Supplement
was denied. The prescriptive period also could not have been deemed suspended upon filing of the Supplement, as
the 2 year period cannot be deemed tolled upon the filing of just any judicial claim with any court, much less a
supplement whose admission is discretionary upon the court. Refund denied. [This was actually just Obiter, as the
real ratio was the failure to submit the proper documentary requirements. Prescription was an even if discussion
of the merits.]
VIII. REQUEST FOR RULING
Revenue Memorandum Order No. 45-99
A. Procedure
B. Appeal Procedure
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.

ALS2014B
ALS2014B 151 of 162
"#$
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
Revenue Administrative Order No. 3-2001, Oct. 22, 2001
SUBJECT: IMPLEMENTING FURTHER DEPARTMENT ORDER NO. 23-01 DATED OCTOBER 5, 2001
THAT PROVIDES FOR THE RULES ON THE FIRST PARAGRAPH OF SECTION 4 OF THE TAX CODE OF
1997
TO: ALL INTERNAL REVENUE OFFICERS AND OTHERS CONCERNED
I. OBJECTIVES
To identify the responsibilities of revenue officers and to provide for the procedure for the proper implementation
of the first paragraph of Section 4 of the Tax Code of 1997, as implemented by Department Order No. 23-01, that
vests in the Secretary of Finance the power to review the interpretation of the Tax Code and other tax laws by the
Commissioner of Internal Revenue.
To provide for the certification fees to be paid to the Bureau of Internal Revenue by the taxpayers seeking review
of rulings that interpret the provisions of the Tax Code and other tax laws.
II. SCOPE
This Revenue Administrative Order (RAO) covers rulings issued by the Commissioner of Internal Revenue
(Commissioner) and by officers (delegatee/s) with duly delegated powers to issue rulings on behalf of the
Commissioner under pertinent issuances such as, but not limited to the Commissioner's Memoranda dated June
21, 2000 and October 26, 2000; Revenue Memorandum Order (RMO) No. 75-99; Revenue Memorandum
Circular (RMC) No. 10-2001, RMC Nos. 3-2001 and 2-2001, as supplemented by RMC No. 14-2001; and, RMC
No. 39-2001.
Particularly, these rulings refer to those issued by the Commissioner, or by his Deputy Commissioner for Legal
and Inspection Group, Assistant Commissioner for Legal Service, or by the Regional Directors, as may be
appropriate.
This RAO does not cover, however, disputed assessments, refunds of internal revenue taxes, fees or other charges,
and penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws or portions
thereof administered by the Bureau of Internal Revenue. In these instances, the Court of Tax Appeals has the
exclusive appellate jurisdiction pursuant to the second paragraph of the same Section 4 of the Tax Code of 1997.
Neither shall this RAO apply to rulings that are deemed void ab initio because they contradict duly issued
Revenue Regulations, Revenue Memorandum Orders, Revenue Memorandum Rulings, and Revenue
Memorandum Circulars.
III. PROCEDURE
1. Within thirty (30) days from the date of receipt of the adverse ruling of the Commissioner, the affected taxpayer
may seek the review of the ruling by the Department of Finance. In all cases, the adverse ruling that can be
brought to the Department of Finance shall only be the final adverse decision of the Commissioner.
In the case of rulings by the Commissioner's delegatees, the taxpayer shall exhaust administrative remedies within
the Bureau of Internal Revenue by filing a letter of reconsideration addressed to the Commissioner, but filed with
the Office of the Assistant Commissioner for Legal Service (ACIR-LS) in the case of adverse rulings decided by
the Revenue Regional Directors or with the Office of the Deputy Commissioner of Internal Revenue for Legal
and Inspection Group (DCIR-LIG) in the case of adverse rulings decided by the ACIR-LS within fifteen (15) days
from receipt of an adverse ruling, before requesting for a review by the Secretary of Finance;

ALS2014B
ALS2014B 152 of 162
"#$
2. File with the Office of the Commissioner, for endorsement to the ACIR-LS, a copy of the request for review of
the Ruling;
3. Request from the ACIR-LS for an authenticated and certified true copy of the complete docket or records on file.
4. Pay the certification fee to the authorized agent bank having jurisdiction over the taxpayer or the place of business
of the taxpayer, using Payment Form 0605;
5. Present to the ACIR-LS the original copy of the official receipt that evidences payment of the certification fee,
and submit a photocopy thereof to form part of the docket or records of the case;
6. Within five (5) days from the date of payment of the certification fee, the ACIR-LS shall instruct the Division
Chief of the Law Division or the International Tax Affairs Division, as the case may be, for each and every page
of the records of the case, sequentially numbered, to be photocopied, including a copy of the subject BIR Ruling,
and for the complete set to be stamped and signed by the concerned Division Chief to be an authentic and true
copy of the original and complete records on file. In the case of rulings made by the Revenue Regional Directors
and finally decided by the Commissioner to be adverse to the taxpayer, the ACIR-LS shall certify and
authenticate the duplicate copy of the records of the case;
7. The appropriate office shall also prepare the endorsement letter of the Commissioner of Internal Revenue (Annex
"A"), which letter shall be signed by the Assistant Commissioner for Legal Service, who is hereby designated as
the Commissioner's duly authorized representative. In this regard, the ACIR-LS shall submit to the
Commissioner, copy furnished the ODCIR-LIG, a monthly report of cases appealed and certifications made;
8. The authenticated and certified true copy of the docket or records of the case, including the endorsement thereof
to the Secretary of Finance, through the Revenue Operations Group, shall be released to the holder of the original
copy of the official receipt evidencing payment of the certification fee.
IV. TAXPAYER'S REQUEST FOR REVIEW BY THE SECRETARY OF FINANCE
A taxpayer who receives an adverse ruling from the Commissioner of Internal Revenue may, within thirty (30)
days from the date of receipt of such ruling, seek its review by the Secretary of Finance, either by himself/itself or
through his/its duly accredited tax agent or representative. The request for review shall be in writing and under
oath, and must:
a) be addressed to the Secretary of Finance and filed with the Revenue Operations Group, Department of
Finance, DOF Building, BSP Complex, Roxas Boulevard corner Pablo Ocampo Street, City of Manila;
b) contain the heading "Request for Review of BIR Ruling No. _____";
c) allege and show that the request was filed within the reglementary period;
d) allege the material facts upon which the ruling was requested;
e) state that exactly the same set of facts were presented to the BIR;
f) define the issues to be resolved;
g) contain the facts and the law relied upon to dispute the ruling of the Commissioner;
h) be signed by or on behalf of the taxpayer filing the request for review, provided that, only those lawyers
engaged by the taxpayer and/or tax agents accredited by the BIR may sign on behalf of the taxpayer;
i) indicate the Taxpayer Identification Number (TIN) of the taxpayer;
j) be accompanied by a copy of the Commissioner's challenged ruling;
k) contain a statement of the Office of the Commissioner of Internal Revenue, indicating that a copy of the
request for review of the ruling was received by the Commissioner's Office and;
l) specifically state that the taxpayer does not have a pending assessment or case in any court of justice
where the same issues are being considered.

ALS2014B
ALS2014B 153 of 162
"#$
Furthermore, the taxpayer must, at the time of filing of the request for review, submit a duplicate copy of the
records on file with the BIR pertaining to his request, which set of records must be authenticated and certified by
the BIR.
V. CERTIFICATION FEE
For this purpose, the requesting taxpayer shall pay a certification fee in the amount of ten pesos (P10.00) for every
page of the complete records on file that shall be reproduced and certified to be a true and authentic copy thereof.
Any and all amounts paid as certification fee are non-refundable and shall be forfeited in case the taxpayer finally
decides not to seek a review by the Secretary of Finance.
VI. EFFECTIVITY CLAUSE
This Order shall take effect immediately.
Revenue Memorandum Circular No. 40-A-2002, May 7, 2002
C. Non-Retroactivity of Revocation of Rulings or Regulations
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to
the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his
return or 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.
COMMISSIONER v. MEGA GEN. MERCH. (1988) specific tax, to 7%, then back to specific tax/paraffin wax
imports Mega General Merchandising Corporation (MGMC) is engaged in the business of importing paraffin
wax. In 1974, MGMC started to import such goods. The importation imposed upon a specific tax under Sec
142(i) of the Tax Code (MGMC would pay a relatively higher amount under this tax provision).
Subsequently, due to Ruling of the CIR in 1977, importation of paraffin wax is only now subject to a 7% tax
rate. Then, a year after, in 1978, the CIR revoked the previous ruling and stated that paraffin imports are subject
to the specific rate under Sec 142(i).
MGMC now claims a refund of the tax paid by them on the year 1977, because they claim to be prejudiced by
the passing of the new Ruling of the CIR in 1978. The CTA ruled in their favor that revocations of rulings
must not prejudice the rights of taxpayers. But the SC reversed the decision of the CTA, although it is true that
they were prejudiced by the revocation, their importation has dated way back before the passing of the first ruling
in 1977.
CIR v. BURROUGHS LTD. AND CTA (1986) In 1979 Burroughs applied with the Central Bank for authority to
remit branch profits to its foreign branch. The total amount of its remittance was 7,647,058.00 and under Sec. 24
(b)(ii) it was obliged to deduct 15% as remittance tax amounting to 1,147,058.70 with the actual amount remitted
amounting to 6,499,999.30. In 1980, the then acting commissioner issued a RR which stated that Sec. 24 (b)(ii)
had been interpreted to mean that the tax base upon which the 15% branch profit remittance tax ... shall be
imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance
is to be made. Thus, in 1981 Burroughs filed before the CTA a written claim for the refund or tax credit of the
amount of P172,058.90 representing alleged overpaid branch profit remittance tax (because 15% of 6,499,999.30
is only 974,999.89). The CTA affirmed the decision. BIR claims that such ruling is no longer applicable to
Burroughs because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR
ruling of January 21, 1980 which stated that considering that the 15% branch profit remittance tax is imposed and
collected at source, necessarily the tax base should be the amount actually applied for by the branch with the
Central Bank of the Philippines as profit to be remitted abroad. The issue was whether or not under such
memorandum circular, Burroughs is no longer entitled to refund. The court ruled in the negative stating that

ALS2014B
ALS2014B 154 of 162
"#$
since Burroughs paid its remittance tax in 1979, RR of 1980 was the correct interpretation to be applied. It cited
Sec. 327 (now Sec. 246) which provides for the non-retroactive application of any revocation, modification, or
reversal of any of the rules and regulations promulgated by the BIR if it will be prejudicial to the taxpayer save
for certain exceptions which the court did not find in the case at bar.
ABS-CBN v. CTA (1981) By virtue of General Circular No. V-334 issued by the CIR, ABS-CBN (petitioner)
dutifully withheld and turned over to the BIR the amount of 30% of ! of the film rentals paid by it to foreign
corporations not engaged in trade or business within the Philippines. The last year that petitioner withheld taxes
pursuant to the foregoing Circular was in 1968. In 1971, the CIR issued Revenue Memorandum Circular No. 4-
71, revoking the abovementioned General Circular, and held that the latter was erroneous for lack of legal basis,
because the tax therein prescribed should be based on gross income without deduction whatever.
On the basis of the new Circular, the CIR issued against ABS-CBN a letter of assessment and demand, requiring
them to pay deficiency withholding income tax on the remitted films for rentals in years 1965 through 1968 and
film royalty as of the end of 1968.
The SC ruled that notwithstanding the well-entrenched principle that the Government is never estopped from
collecting taxes because mistakes or errors on the part of agents, the same admits of exceptions in the interest of
justice and fair play. Thus it has been held that the Commissioner or Collector is precluded from adopting a
position inconsistent with one previously taken where injustice would result therefrom or where there has been
misrepresentation to the taxpayer.
PNOC v. CA (2005) An administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the
acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not
binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given.
It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its
implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led
to Commissioner Ongs revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such
a revocation was only proper considering that the former BIR Commissioners decision to approve the said
compromise agreement was based on the erroneous construction of the law (i.e., E.O. No. 44 and its
implementing rules and regulations) and should not give rise to any vested right on PNOC.
Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his
predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June
1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a
general rule, the Government cannot be estopped from collecting taxes by the mistake, negligence, or omission
of its agents
CIR v. BENGUET CORPORATION (2005) In January of 1988, Benguet Corporation applied for and was granted
by the BIR zero-rated status on its sale of gold to Central Bank. On 28 August 1988, Deputy Commissioner of
Internal Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88, which declared that [t]he sale of gold to
Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as
amended by Executive Order No. 273. The BIR came out with at least six (6) other issuances reiterating the
zero-rating of sale of gold to the Central Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February
1990. Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank during
the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in
relation to the subject sales of gold. It then filed applications for tax refunds/credits corresponding to input VAT.
Respondents applications were either unacted upon or expressly disallowed by petitioner. In addition, petitioner
issued a deficiency assessment against respondent when, after applying respondents creditable input VAT costs
against the retroactive 10% VAT levy, there resulted a balance of excess output VAT.
The express disallowance of respondents application for refunds/credits and the issuance of deficiency
assessments against it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated 23 January 1992-that was
issued subsequent to the consummation of the subject sales of gold to the Central Bank which provides that sales
of gold to the Central Bank shall not be considered as export sales and thus, shall be subject to 10% VAT. In

ALS2014B
ALS2014B 155 of 162
"#$
addition, BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all inconsistent BIR issuances. The
BIR also issued VAT Ruling No. 059-92 dated 28 April 1992 and Revenue Memorandum Order No. 22-92 which
decreed that the revocation of VAT Ruling No. 3788-88 by VAT Ruling No. 008-92 would not unduly prejudice
mining companies and, thus, could be applied retroactively.
Respondent filed three separate petitions for review with the CTA arguing that retroactive application of BIR
VAT Ruling No. 008-92 would violate Sec. 246 of the NIRC, which mandates the non-retroactivity of rulings or
circulars issued by the Commissioner of Internal Revenue that would operate to prejudice the taxpayer. CTA
dismissed all three petitions. CA reversed. Petitioner appealed to the SC with the question of whether respondent
would suffer prejudice from the retroactive application of VAT Ruling No. 008-92.
At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by
respondent ordained that gold sales to the Central Bank were zero-rated. Respondent should not be faulted for
relying on the BIRs interpretation of the said laws and regulations. While it is true, as petitioner alleges, that
government is not estopped from collecting taxes which remain unpaid on account of the errors or mistakes of its
agents and/or officials and there could be no vested right arising from an erroneous interpretation of law, these
principles must give way to exceptions based on and in keeping with the interest of justice and fairplay, as has
been done in the instant matter. For, it is primordial that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Before
respondent was entitled to tax refunds or credits based on petitioners own issuances. Then suddenly, it found
itself instead being made to pay deficiency taxes with petitioners retroactive change in the VAT categorization of
respondents transactions with the Central Bank. This is the sort of unjust treatment of a taxpayer which the law in
Sec. 246 of the NIRC abhors and forbids.
CIR v. BENGUET CORPORATION (2006) Similar facts and the same ruling with the 2005 case. Additional
information: There is no question, therefore, as to the prohibition against the retroactive application of the
revocation, modification or reversal, as the case maybe, of previously established Bureau on Internal Revenue
(BIR) Rulings when the taxpayers interest would be prejudiced thereby. But even if prejudicial to a taxpayer,
retroactive application is still allowed where: (a) a taxpayer deliberately misstates or omits material facts from his
return or any document required by the BIR; (b) where subsequent facts gathered by the BIR are materially
different from which the ruling is based; and (c) where the taxpayer acted in bad faith.
CIR v. BURMEISTER and WAIN SCANDANAVIAN CONTRACTOR MINDANAO, INC. (2007) revocation
of a ruling by the CIR will not be given retroactive application if the revocation will prejudice the
taxpayer BWSCM sought a ruling from the BIR to ascertain the tax implications of transactions involving
foreign currency remittances. BIR Ruling No. 023-95 was issued declaring that if BWSCM chooses to register as
a VAT taxpayer and the consideration for its services is paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, its services shall be subject to 0% VAT. Pursuant to the
ruling, BWSCM registered as a VAT taxpayer. For the year 1996, it filed VAT returns showing zero rated sales.
However, in 1997, it subjected itself to the 10% VAT because it allegedly misinterpreted RR No. 5-96 which is
applicable to its case. In 1999, it was able to secure VAT Ruling No. 003-99 which reconfirmed BIR Ruling No.
023-95 holding that the services of BWSCM is subject to VAT at 0%. Pursuant to this, BWSCM filed a claim for
the issuance of a TCC representing the 10% VAT payments. Held: BWSCMs services do not qualify for 0%
VAT because the recipient is doing business not outside, but within the Philippines. Nevertheless, BWSCMs
reliance on the two rulings holding that it is subject to 0% VAT binds the BIR. When the CIR filed its
Answer in the CTA challenging the claim for refund, such serves as a revocation of the rulings. However, such
revocation cannot be given retroactive effect since it will prejudice BWSCM. Changing BWSCMs status will
deprive it of a refund of a substantial amount representing excess output tax. Nonetheless, from the filing of the
CIRs Answer before the CTA, BWSCMs services shall be subject to the regular 10% VAT as such filing is
deemed a revocation of the rulings.
CIR v. CA, CTA, & ALHAMBRA INDUSTRIES, INC. (1997) Alhambra is engaged in the manufacture and sale of
cigarette products. On April 1991, the CIR assessed them with deficiency Ad Valorem Tax (AVT). Eventually,
Alhambra elevated the case to the CTA. The CTA ordered the CIR to refund to Alhambra erroneously paid AVT.

ALS2014B
ALS2014B 156 of 162
"#$
According to the CTA, Alhambra used BIR Ruling 473-88 (1988), allowing it to exclude VAT in the
determination of gross selling price for purposes of computing AVT. Thereafter, CIR issued BIR Ruling 017-91
(1991), revoking the earlier BIR Ruling 473-88 for being violative of Sec. 142 of the then Tax Code. It included
back the VAT to the gross selling price in determining the tax base for computing the AVT on cigarettes. CIR
sought to apply the revocation retroactively to Alhambras removals of cigarettes for the period starting
November 1990 to January 1991 on the ground that Alhambra allegedly acted in bad faith which is an
exception to the rule on non-retroactivity of BIR Rulings. The CIR also alleged that since the earlier ruling is
contrary to the Tax Code, it does not confer vested rights to Alhambra; that good faith is immaterial in cases of
reliance on a void ruling; that Alhambra acted in good faith; that there is presumption of regularity in the
assessment; and strict construction of claim of tax refunds should be applied.
CIR claims that Alhambra falls under the 3
rd
exception to non-retroactivity, which is bad faith. Bad faith imports
a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of
fraud; a breach of a known duty through some motive of interest or ill will.Alhambra, upon knowledge of
the effectivity of the newer BIR Ruling 017-91, immediately implemented the method of computation
mandated therein. This manifests its good faith. Well-entrenched is the rule that rulings and circulars,
rules and regulations promulgated by the CIR would have no retroactive application if to so apply them
would be prejudicial to the taxpayers, subjects to exceptions (not present in this case). Alhambra would be
prejudiced by the retroactive application.
CIR v. TELEFUNKEN SEMICONDUCTOR PHILIPPINES, INC. (1995) Telefunken is registered with the Board
of Investments (BOI) under Republic Act No. 6135. Telefunken paid contractors tax. Then Telefunken wrote a
letter to the BIR stating that the payment of contractors tax was erroneous and requested its refund or tax credit
thereof. Telefunken contended that under the provisions of Section 7 of Republic Act No. 6135 in relation to
Section 8 (a) of Republic Act No. 5186 (The Investment Act), it was exempted from the payment of all national
internal revenue taxes for the period in question, except for income tax. CIR argues that the NIRC speaks of firms
registered under Republic Act No. 5186 and thus, the privilege of tax exemption cannot be made to apply to firms
registered under Republic Act No. 6135.
Telefunken is entitled to the tax credit. There is no difference between the gross receipts of pioneer
enterprises registered with the BOI under RA No. 6135 and the gross receipts of registered pioneer
enterprises under RA No. 5186. In fact, the CIR himself had ruled in the same on 1974 in a case. CIR now
maintains that this 1974 ruling has been abrogated with the passage of the 1977 Tax Code. However, the wording
of the relevant part(for this case) of the 1974 and 1977 Tax Code are the same. Lastly, under Sec. 246 of the
National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is
prejudicial to the taxpayer.
D. Weight of BIR Rulings
PBCOM v. CIR (1999) Weight of BIR Rulings. PBCom filed its quarterly income tax returns for the first and second
quarters of 1985. Subsequently, however, PBCom suffered net loss thereby showing no income tax liability in its
Annual Income Tax Returns for the year-ended December 31, 1985. For the succeeding year PBCom likewise
reported a net loss and thus declared no tax payable for the year. But during these two years, PBCom earned
rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes in
1986. PBCom then requested CIR for a tax credit for the withholding taxes. Thereafter it filed a claim for refund
of creditable withholding tax. Pending the investigation of CIR, it filed a Petition for Review with CTA. CTA
decided in favor of the BIR on the ground that the Petition was filed out of time as the same was filed beyond the
two-year reglementary period. The issue now is whether RR 7-85, which alters the reglementary period from 2
years to 10 years, is valid, thereby making PBComs petition valid. HELD: it is INVALID. Administrative
issuances are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency,
the law prevails over them. Administrative agencies have no legislative power. When the Acting Commissioner of
Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977

ALS2014B
ALS2014B 157 of 162
"#$
NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute
passed by Congress.
E. Reliance on Ruling Issued to Third Party
SANIWARES v. CIR (1992)
F. Authority of Regional Directors to Issue Certain Rulings
Revenue Memorandum Circular No. 3-2001, Jan. 31, 2001
IX. AMNESTY, ABATEMENT, AND COMPROMISE
CIR v. CA (1999) Tax amnesties like tax exemption are strictly construed against the taxpayer and liberally
construed in favor of the taxing authority.
Don Andres Soriano founded A.Soriano Y Cia which became ANSCOR a corporation wholly owned and
controlled by the family of Don Andres. Over the years the value of ANSCOR increased and stock dividends
were declared and issued to Don Andres. When he died one half of his shares was transferred to his wife as her
conjugal share and the other half remained with his estate. Don Andress wife and his estate exchanged a portion
of their common shares to preferred shares. ANSCOR in a board resolution redeemed a majority of the common
stock of Don Andress estate saying that their redemption of stocks was to partially reduce the companys foreign
exchanges remittance in case dividends are declared.
After examining the books of accounts of ANSCOR, they were assessed for deficiency withholding tax at the
source for the year 1968 and 1969 despite the claim of ANSCOR that it availed of the tax amnesty under PD 23 as
amended by PD 67. ANSCOR protested but was denied. In a petition for review, the CTA reversed the ruling of
the CIR by interpreting Sec 83b of the 1939 Revenue Act. CTA said the redemption of stock of ANSCOR and
their exchange of common with preferred created income. CIR claimed that what ANSCOR did was a
cancellation and in effect the estate of Don Andres increased and ANSCOR had a duty to withhold tax. ANSCOR
denied this and specifically invoked the tax amnesty.
PD 67 condones the collection of internal revenue taxes including penalties for non-payment as well as civil,
criminal or administrative liability from the voluntary disclosure of previously untaxed income and/or wealth
realized here or abroad by any taxpayer. ANSCOR was assessed deficiency withholding tax and as such is held
liable in the capacity of withholding agent and not as a taxpayer. As a withholding agent is no more than an agent
or a collector of tax for the government for payment of the taxpayer. He is not liable for the tax of the taxpayer as
no wealth flowed into him he earned no income. Since as a withholding agent he earned no income and PD 67
applies only to income earned that was not declared and not collected, the amnesty under the aforementioned law
does not apply to him.
(Important) Tax Amnesty, much like tax exemption is never favored nor presumed in law and if granted by
the statute, the term of the amnesty like that if tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority. Furthermore, the claim of amnesty of ANSCOR cannot
prosper because implementing rule of PD 370 Sec 4.2 says that the tax amnesty does not cover tax liabilities with
or without assessment on withholding tax at the source under Sec 53 54 of the NIRC. Thus, by specific
provision of law it is not covered by the amnesty.
PEOPLE v. SANDIGANBAYAN (2005)
SECURITY BANK v. CIR (2006) Security Bank Corp. (SBC) received a PAN for deficiency Documentary Stamp
Tax (DST) on the (1) promissory notes issued and (2) on sale of securities under repurchase agreement. SBC
protested because the promissory notes were NON-NEGOTIABLE and therefore not subject to DST and the sale
of securities were also not subject to DST. The BIR did not answer the letter-protest but it sent an assessment
letter . SBC answered and said that the BIR, through former Commissioner Tan, entered into a general

ALS2014B
ALS2014B 158 of 162
"#$
compromise agreement with the Bankers Association of the Phil. (BAP) concerning the DST assessment relating
to non-negotiable promissory notes. Pursuant to said compromise, SBC signed its own compromise
agreement by paying P650k as full settlement. The court said that the compromise was not valid because it
was not authorized by the BIR commissioner. SBCs contention that the BIR, through its various officials,
accepted its offer to settle its entire DST deficiency assessment. (they paid P650k) ISSUE: W/N the compromise
is valid? HELD: NO. The BIR Commissioner has the sole power and authority to compromise taxes.
Neither was there any showing that the BIR Commissioner specifically authorized those revenue officials, who
purportedly accepted and approved SBCs offer of payment, to compromise the DST on sale of securities, which,
to stress, were not included in the Compromise Agreement of August 15, 1988 by delegating his power to
compromise said DST assessment on securities. This ultra vires act of those revenue officials cannot have any
valid and binding legal effect upon the BIR, so as to proscribe the latter from issuing the assailed reassessment of
unpaid DST on the sales of securities under repurchase agreements for the year 1983.
PHILIPPINE BANKING CORPORATION (now Global Business Bank, Inc.) v. CIR (2009) Surviving or new
corporations may avail of the tax amnesty in behalf of the corporation absorbed or dissolved pursuant to a
merger or consolidation that took effect prior to taxable year 2005 Philippine Banking Corporation (PBC)
offered its Special/Super Savings Deposit Account (SSDA) to its depositors. SSDAs allowed depositors who
maintained a high daily average account balance to earn interest on their deposits at a higher rate, provided that a
minimum deposit of P50,000 is maintained within an agreed time period of 30, 60, or 90 days. BIR sent PBC a
final assessment notice for deficiency Documentary Stamp Tax (DST). The assessment was anchored on the fact
that the law subjects certificates of deposits drawing interest to the payment of DST. BIR argued that while it is
true that SSDA deposits are evidenced by a passbook instead of a certificate of deposit, SSDA deposits were akin
to time deposits evidenced by certificates and therefore, the passbook must be treated as a certificate in itself and
thus, subject to DST.
The CTA 2nd division, CTA en banc and thereafter the SC itself found PBC liable to pay DST. However,
during the pendency of the case, RA 9480
10
granting an amnesty on all unpaid revenue taxes imposed by the

10. The pertinent provisions of RA 9480 are:
Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall cover all national internal revenue
taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as
of December 31, 2005: Provided, however, That the amnesty hereby authorized and granted shall not cover persons or cases
enumerated under Section 8 hereof.
...
Sec. 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section 5 hereof, and have fully
complied with all its conditions shall be entitled to the following immunities and privileges:
1. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the appurtenant civil,
criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.
...
Sec. 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following persons or cases existing as of
the effectivity of this Act:
1. Withholding agents with respect to their withholding tax liabilities;
2. Those with pending cases falling under the jurisdiction of the Presidential Commission on Good Government;
3. Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft and Corrupt Practices
Act;
4. Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;

ALS2014B
ALS2014B 159 of 162
"#$
national government for the taxable year 2005 and prior years lapsed into law. Pursuant to the law, Metrobank,
the surviving entity that absorbed PBC, applied for and complied with all the requirements of the Tax
Amnesty program. By virtue of Metrobanks availment, PBC is now deemed statutorily discharged from
paying the DST, it appearing that the finding of the SC with respect to PBCs liability to pay the tax had
yet to become final and executory when Metrobank qualified for the amnesty program.
BAAS, JR. v. CA (2000) mere filing of tax amnesty return does not shield from prosecution In 1976, Baas
sold a parcel of land located in Muntinlupa to Ayala Investment Corp. for around Php2.3M. Ayala paid around
Php400k, w/ the agreement that the remaining balance would be paid in four equal installments, w/ 12% interest
p.a. This was evidenced by one promissory note. Contrary to regular practice, Baas discounted the promissory
note that same day, and Ayala issued nine checks, each amounting to Php205k. In its 1976 Income Tax Return,
Baas reported as income the original Php400k payment, but upon inspection, it was found out that Baas didnt
include any amounts receivable. Therefore, the BIR concluded that the sale was not really on installment
basis but was paid w/ cash and that having realized the entire income that year, the whole Php2.3M should
have been indicated therein, not just the Php400k. The BIR found that he had deficiency taxes of around
Php900k.
A criminal case for tax evasion was filed against Baas. On July 1981, Baas filed for tax amnesty under P.D.
1740 and paid Php41,729. Later that November, he filed for another amnesty under P.D. 1840 and paid Php1.5k.
In both, he didnt recognize that the sale was on cash basis. He didnt amend his income return, and didnt
pay the additional taxes due him. However, the mere filing of tax amnesty return under P.D.s 1740 & 1840
doesnt ipso facto shield him from prosecution. Tax amnesty is a general pardon to taxpayers who want to start a
clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to
go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be
immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed his previously untaxed
income and must have paid the corresponding tax on such previously untaxed income. In both instances, he
did not meet the twin requirements under both P.D.s of (1) declaring all his untaxed income and (2) full payment
of tax due thereon. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against
the taxpayer and liberally in favor of the taxing authority.
REPUBLIC v. CA and PRECISION PRINTING (2000) assessments made prior to August 21, 1986 are still
covered the E.O. 41 On June 10, 1985, BIR issued an assessment notice and letter against Precision Printing and
demanded payment (P248,406.11). However, Precision Printing did not pay within the prescribed period. The tax
assessment became final and demandable. On October 31, 1986, Precision Printing filed a Tax Amnesty Return
(pursuant to EO 41), Statements of Net Worth, its Amended Tax Return, and other supporting documents. BIR
filed a complaint against Precision Printing for the collection of deficiency income tax. Precision Printing claimed
that it is not liable because of the Tax Amnesty. RTC ruled in favor of Precision Printing. CA upheld. Under R.O.
4-87, a certification of tax amnesty is sufficient basis for the cancellation/withdrawal of assessment notice and
letters of demand, issued after August 21, 1986 for the collection of income, business, estate or donors taxes
during the taxable years. BIR claims Precision Printing was assessed of its tax deficiency before Revenue Order
4-87 was issued to implement E.O. 41. BIR is wrong. On its face, R .O. 4-87 reckoned the applicability of the tax
amnesty from the date E.O. 41 took effect on August 22, 1986. However, EO 41 does not limit its applicability
to assessment made prior to its effectivity. E.O. 41 merely provided for a general statement covering all tax
liabilities incurred from 1981-1985. If it intended to exclude 1981-1985 tax liabilities already assessed, the law

5. Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title X of the National
Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal exactions and transactions, and malversation of
public funds and property under Chapters III and IV of Title VII of the Revised Penal Code; and
6. Tax cases subject of final and executory judgment by the courts. (Emphasis supplied)

ALS2014B
ALS2014B 160 of 162
"#$
could have simply included exclusionary clauses. It did not. E.O. 41 is in the nature of a general grant of tax
amnesty subject only to cases specifically excepted by it.
CIR v. ARIETE (2010)
Facts: Respondent filed her income tax returns for the years 1993, 1994, 1995, and 1996 under Revenue Memorandum
Order (RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise known as the Voluntary
Assessment Program (VAP). Respondent was subsequently assessed with deficiency income taxes for the years
1993 to 1996. CIR issued four assessment notices against respondent. Respondent filed an Assessment Protest
with Prayer for Reinvestigation but was denied. On 16 April 1999, respondent offered a compromise settlement
but the same was denied. It elevated the case to the CTA which canceled the deficiency assessments.
The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the requirements before a person may be
excluded from the coverage of the VAP are:
a. The person(s) must be under investigation by the Tax Fraud Division and/or the regional Special Investigation
Division;
b. The investigation must be as a result of a verified information filed by an informer under Section 281 of the
NIRC, as amended; and
c. The investigation must be duly registered in the Official Registry Book of the Bureau before the date of
availment under the VAP The CTA also stated that the rationale behind the VAP is to give taxpayers a final
opportunity to come up with a clean slate before they will be dealt with strictly for not paying their correct taxes.
The CTA noted that under the RMOs, among the benefits that can be availed by the taxpayer-applicant are:
1) A bona fide rectification of filing errors and assessment of tax liabilities under the VAP shall relieve the
taxpayer-applicant from any criminal or civil liability incident to the misdeclaration of incomes, purchases,
deductions, etc., and non-filing of a return.
2) The taxpayer who shall avail of the VAP shall be liable only for the payment of the basic tax due.
The CTA ruled that even if respondent violated the National Internal Revenue Code (Tax Code), she was given
the chance to rectify her fault and be absolved of criminal and civil liabilities incident to her non-filing of income
tax by virtue of the VAP. The CTA held that respondent is not disqualified to avail of the VAP. Hence,
respondent has no more liabilities after paying the corresponding taxes due.
ARGUMENTS
Petitioner contends that the VAP, being in the nature of a tax amnesty, must be strictly construed against the
taxpayer-applicant such that petitioners failure to record the information in the Official Registry Book of the BIR
does not affect respondents disqualification from availment of the benefits under the VAP. Petitioner argues that
taxpayers who are under investigation for non-filing of income tax returns before their availment of the VAP are
not covered by the program and are not entitiled to its benefits. Petitioner alleges that the underlying reason for
the disqualification is that availment of the VAP by such taxpayer is no longer voluntary. Petitioner asserts that
voluntariness is the very essence of the Voluntary Assessment Program.
Respondent claims that where the terms of a statute are clear and unambiguous, no interpretation is called for, and
the law is applied as written, for application is the first duty of the court, and interpretation, only where literal
application is impossible or inadequate.
SUPREME COURTS RULING
On 27 October 1997, the CIR, in implementing the VAP, issued RMO No. 59-97 to give erring taxpayers a final
opportunity to come up with a clean slate. Any person liable to pay income tax on business and compensation
income, value-added tax and other percentage taxes under Titles II, IV and V, respectively, of the Tax Code for
the taxable years 1993 to 1996, who due to inadvertence or otherwise, has not filed the required tax return may
avail of the benefits under the VAP.

ALS2014B
ALS2014B 161 of 162
"#$
It is evident from these RMOs that the CIR was consistent in using the word and and has even underscored the
word in RMO No. 63-97. This denotes that in addition to the filing of the verified information, the same should
also be duly recorded in the Official Registry Book of the BIR. It is sufficiently clear that for a person to be
excluded from the coverage of the VAP, the verified information must not only be filed under Section 281of the
Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment
under the VAP.
Petitioners failure to effect compliance with the requirement of recording the verified information or
investigation in the Official Registry Book of the BIR means that respondent, even if under investigation, can
avail of the benefits of the VAP. Consequently, respondent is relieved from any criminal or civil liability incident
to the non-filing of a return.
CIR v. PHILEX MINING CORPORATION (2010) Availment of tax amnesty does not mean admission of
validity of assessments made" "Presumption of correctness of SALN submitted to avail of tax amnesty,
applies even against CIR In 2002 The CIR assessed deficiency taxes and sent a Formal Letter of Demand
against PMC for the year 1998 (not under this topic: assessments void, issued beyond prescriptive period of 3 yrs;
Although 2 waivers were signed by PMC, CTA division held these to be invalid for being defective, not strictly
complying with the form the RMO prescribed, therefore did not toll prescriptive period). Furthermore, PMC in
2008 availed of the tax amnesty program RA 9480, which granted amnesty on all unpaid internal revenue taxes
for 2005 and prior years, which was approved. CIR contended its availment of the tax amnesty amounts to
admitting the validity of the assessments made. Section 1 of R.A. No. 9480 provides that the tax amnesty covers
all national internal revenue taxes for taxable year 2005 and prior years, with or without assessments, that have
remained unpaid as of December 31, 2005. It does not necessarily mean that a taxpayer admits the validity of any
prior assessments and waivers, since the tax amnesty covers even those without any assessment. The law does not
impose such conditions, save for the taxpayer to satisfy all the qualification requirements. Said law also requires
applicants to fill up an SALN form, to be given to the Revenue District Officer of the BIR. The BIR is presumed
by law to have sufficiently passed upon taxpayer's compliance, it cannot belatedly question the correctness of
PMC's SALN at this point in time, after it has already failed to even file a timely MR when the CTA resolved
PMC's availment of the tax amnesty. Moreover, there is a presumption created by law of the correctness of the
SALN, and those who can question this are parties OTHER than the BIR or its agents.
X. DECLARATORY RELIEF, CERTIORARI, PROHIBITION, AND MANDAMUS
BRITISH AMERICAN TOBACCO v. CAMACHO (2008) issue on constitutionality not within the jurisdiction of
CTA A petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction was
filed by petitioner to enjoin the implementation of Section 145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and
RMO No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal
protection and uniformity provisions of the Constitution. Lower court upheld the constitutionality and this
prompted the filing of a petition for review to SC. While the petition was pending, RA 9334 took effect which
effectively increased the excise tax of petitioners products. Commissioner assessed petitioners importation of
911,000 packs of Lucky Strike cigarettes liable for taxes in the total sum of P22.775M. Thus petitioner filed a
Supplement to Petition for Review which assailed the constitutionality of RA 9334 insofar as it retained Annex
D (classification of brand of cigarettes based on average net retail price as of Oct 1996) and praying for the
classification of Lucky Strike products at a lower tax bracket. Fortune Tobacco intervened and contended that
petitioner should have brought its petition before the CTA rather than the RTC. Sec 7 of RA 1125 provides for
the jurisdiction of CTA which includes exclusive appellate jurisdiction to review by appeal the decisions or
the inaction deemed as denial of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal
Revenue. While the CTA has 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
quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The petition for injunction

ALS2014B
ALS2014B 162 of 162
"#$
filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as
amended, and the validity of its implementing rules and regulations. Petitioner, therefore, properly filed the
subject case before the RTC.
CJH (Camp John Hay) DEVELOPMENT CORPORATION v. BIR, BOC (2008)
Facts: Proclamation No. 420 was issued by President FVR to create a Special Economic Zone (SEZ) in a portion of
Camp John Hay in Baguio City. Section 3 of the Proclamation granted incentives to the SEZ, such as tax
exemptions for businesses located inside the SEZ, and the operation of the SEZ as a special customs territory
providing for tax and duty free importations of certain goods. In line with the Proclamation, the BIR issued its
Revenue Regulations while the BOC issued its Customs Administrative Order. The two issuances provided the
rules and regulations to be implemented within the Camp John Hay SEZ. Subsequently, however, Section 3 of the
Proclamation was declared unconstitutional by the SC. Thus, the Office of the City Treasurer sent a demand letter
for real property taxes. The BOC followed suit and demanded from CJH unpaid duties and taxes due on all the
importations made by CJH in the previous years. The BIR also sent a letter to CJH stating that CJH will be
considered as an ordinary corporation subject to the regular corporate income tax. CJH then filed before the RTC
a declaratory relief questioning the retroactive application by the BOC of the decision of the Court in voiding Sec.
3 of Proc. No.420. CJH claimed that the assessment was null and void because it violated the non-retroactive
principle under the Tariff and Customs Code.
The RTC rendered its order denying the petition of CJH, ruling that the decision of the Court applies retroactively
because the tax exemption granted by Proclamation No. 420 is null and void from the beginning. (1) The RTC
also ruled that the petition for declaratory relief is not the appropriate remedy. (2) A judgment of the court cannot
be the proper subject of a petition for declaratory relief; (3) Also, the RTC held that Commonwealth Act No. 55
(CA No. 55), which forbids the use of declaratory relief in cases where a taxpayer questions his tax liability, is
still in force and effect.
Held: The SC upheld the decision of the RTC, expounding on the ruling of the RTC, as follows:
(1) There are other remedies available to a party who is not agreeable to a decision by a court. If it involves a
decision of an appellate court, the party may file a motion for reconsideration or new trial in order that the defect
may be corrected. In case of ambiguity of the decision, a party may file a motion for a clarificatory judgment.
CJH is not left without recourse. The Tariff and Customs Code (TCC) provides for the administrative and judicial
remedies available to a taxpayer who is minded to contest an assessment, subject of course to certain
reglementary periods.
(2) The proper subject matter of a declaratory relief is a deed, will, contract, or other written instrument, or the
construction or validity of statute or ordinance. (CJH is claiming that the petition questions the validity of the
demand letter or assessment sent to it by the BOC.) The SC ruled that it is really not the demand letter which is
the subject matter of the petition. The court is asked to determine whether the decision of the SC (declaring Sec. 3
as null and void) has a retroactive effect. A petition for declaratory relief cannot properly have a court decision as
its subject matter.
(3) The SC said that CA No. 55 is still in effect since it was not yet repealed by a subsequent law. (CJH is
claiming that CA No. 55 has been repealed by the Rules on Declaratory Relief in the Rules of Court since the said
provision was not included in the instances where declaratory relief will lie.) The Court cannot repeal, modify or
alter an act of the Legislature.
NOTES: Requisites for a petition for declaratory relief to prosper are: (1) there must be a justiciable controversy;
(2) the controversy must be between persons whose interests are adverse; (3) the party seeking declaratory relief
must have a legal interest in the controversy; and (4) the issue involved must be ripe for judicial determination.

ALS2014B
ALS2014B 163 of 365
"#$
ESTATE TAX
I. INTRODUCTION
A. When Estate Tax Accrues
Revenue Regulation No. 2-2003, Dec. 16, 2002
LORENZO v. POSADAS (1937) Hanley died, leaving a will, which directed that all his real estate not be disposed of
for a period of 10 years after his death, and that the same be managed by the executors, and proceeds given to his
nephew, and after the 10 years the property be given to his nephew.
The inheritance accrues at the time of the death of the decedent. The Admin Code (law applicable at the time),
imposes the tax upon every transmission by virtue of inheritance. The tax therefore is upon transmission or the
transfer or devolution of property of a decedent, made effective by his death. Since according to the Civil Code,
the rights to the succession of a person are transmitted from the moment of his death. Therefore a transmission
by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual
possession of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that
time. (Tax is based on the value of the property at the time of the death of the decedent)
However the accrual of the inheritance tax is distinct from the obligation to pay the same. The corresponding
inheritance tax should have been paid on or before the date trust estate vested in trustee. Because the
delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in
this case.
A trustee is entitled to receive a fair compensation for his services. But this it does not mean that the
compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is
no statute in the Philippines which requires trustees commissions to be deducted in determining the net
value of the estate subject to inheritance tax. Because the compensation of a trustee, earned, not in the
administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses.
B. Non-Resident Alien Decedent
BEAM v. YATCO (1948) The CIR assessed the heirs of Lydia Beam inheritance tax for properties acquired by her
and her husband (shares of stock) during their marriage. The heirs of Lydia paid under protest and are now
seeking a refund, claiming the deceased were citizens of Utah. Under the Utah law, the properties acquired during
the marriage would have been considered separate. The court held that they are not entitled to a refund. They
failed to establish Utah citizenship because there was no sufficient proof that the Sps. Beam intended to return
to/stay there. The Sps. Beam became citizens of California in 1923 when they established permanent residence
there, despite Mr. Beams visits to the Philippines (he even lived here for a year). Lydia Beam was a Californian
citizen at the time she died, thus as regards her personal property in the Philippines, California law is
applicable (Art. 10). In the absence of proof, it is presumed to be the same as Philippine law. The shares are
community property; thus, upon her death her ! share passed to her heirs subject to inheritance tax.
CIR v. MCGRATH (1961) In 1956, the CIR assessed against the estate of Dora Anna Wood, of which Ellen Wood
McGrath is the administratrix, estate tax, inheritance tax, surcharges and interest. On appeal, the CTA declared
the estate of Wood exempt from inheritance tax but subject to estate tax. The CIR appealed insisting that there is
no reciprocity between the California and Philippine laws on the matter of the death tax on intangible personal
property, and as such, the estate is liable to pay inheritance tax. Held: No reciprocity exists in this case since the
law of California does not grant full exemption from the estate and inheritance taxes to Filipino residents in the
said state.

ALS2014B
ALS2014B 164 of 365
"#$
Pertinent provisions:
Section 122 of NIRC provides:
And, provided, further, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time
of his death did not impose a transfer tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in the foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country.
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
SEC. 13851. Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his death was a resident of a Territory or another State
of the United States of a foreign state or country which then imposed a legacy, succession, or death tax in
respect to intangible personal property of its own residents, but either:
(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident resided allows a similar exemption in
respect to intangible personal property of residents of the Territory or State of the United States or foreign
state or country of residence of the decedent.
It is clear from both these provisions that the reciprocity must be total, that is, with respect to transfer or death
taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death tax of any
and every character, in the case of the California law. Therefore, if any of the two states collects or imposes and
does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work.
This is the underlying principle of the reciprocity clauses in both laws.
CIR v. CAMPOS RUEDA (1971) Non-resident alien decedent, a state need not fulfill all the requisites of statehood
to be considered a foreign country Rueda was the administrator of the estate of Vda. de Cerdeira, a Spanish
national who resided in Tangier, Morocco. The CIR assessed deficiency estate and inheritance taxes
(P161,874.95) on the transfer of intangible personal properties situated in the Philippines belonging to Vda. de
Cerdeira. Rueda sought tax exemptions based on Section 122 of the then NIRC, which provides: no tax shall be
collectedin respect of intangible personal propertyif the laws of the foreign country of which the decedent
was a resident at the time of his death allow a similar exemption from transfer taxes or death taxesin respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign country. (Basta, the
foreign country must also grant the same tax exemption to Filipinos.)
The CIR contends that Tangier, Morocco is not a foreign country as contemplated in Section 122 because it was
not independent and thus did not fulfill all the requirements for statehood as prescribed in PIL. Ruling against the
CIR, the SC decided that a state need not fulfill all the requisites of statehood to be considered a foreign
country under Section 122. (In another decision, it recognized the state of California as a foreign country.)
The SC considered Tangier, Morocco as a foreign country, entitling the estate of Vda. de Cerdeira to the tax
exemption.
C. General Definition of Gross Estate
Sec. 85. Gross Estate. The value of the gross estate of the decedent shall be determined by including the value at the
time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the

ALS2014B
ALS2014B 165 of 365
"#$
case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall be included in his taxable estate.
(A) Decedent's Interest. To the extent of the interest therein of the decedent at the time of his death;
(B) Transfer in Contemplation of Death. To the extent of any interest therein of which the decedent has at any time
made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at
or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained
for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the
right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate
the person who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale for
an adequate and full consideration in money or money's worth.
(C) Revocable Transfer.
(1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case
of a bona fide sale for an adequate and full consideration in money or money's worth) by trust or
otherwise, where the enjoyment thereof was subject at the date of his death to any change through the
exercise of a power (in whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the decedent acquired
such power), t o alter, amend, revoke, or terminate, or where any such power is relinquished in
contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the
date of the decedent's death even though the exercise of the power is subject to a precedent giving of
notice or even though the alteration, amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or before the date of the decedent's death
notice has been given or the power has been exercised.
In such cases, proper adjustment shall be made representing the interests which would have been excluded from
the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not
been exercised on or before the date of his death, such notice shall be considered to have been given, or the power
exercised, on the date of his death.
(D) Property Passing Under General Power of Appointment. To the extent of any property passing under a general
power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or
intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has
retained for his life or any period not ascertainable without reference to his death or for any period which does not
in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b)
the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in
money or money's worth.
(E) Proceeds of Life Insurance. To the extent of the amount receivable by the estate of the deceased, his executor,
or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether
or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary
is irrevocable.
(F) Prior Interests. Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section
shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of powers, as severally
enumerated and described therein, whether made, created, arising, existing, exercised or relinquished before or
after the effectivity of this Code.
(G) Transfers of Insufficient Consideration. If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full

ALS2014B
ALS2014B 166 of 365
"#$
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
(H) Capital of the Surviving Spouse. The capital of the surviving spouse of a decedent shall not, for the purpose of
this Chapter, be deemed a part of his or her gross estate.
Sec. 104. Definitions. For purposes of this Title, the terms "gross estate" and "gifts" include real and personal property,
whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but
which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift": Provided,
further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation
or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds
by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs
in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be
considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any
character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or
donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as
the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated,
refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount
by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax.
D. Constitution
1. Property in Which Decedent Had an Interest
Sec. 85. Gross Estate. ...
(A) Decedent's Interest. To the extent of the interest therein of the decedent at the time of his death;
2. Transfers in Contemplation of Death
VIDAL DE ROCES v. POSADAS (1933) donation inter vivos made in consideration or contemplation of death
are advances on inheritance and thus part of inheritance tax Tuazon initially donated in public document a
parcel of land to Vidal de Roces et al. Vidal. A few months after, Tuazon died and left a will where he bequeathed
to Vidal, legacy of 5K each. CIR then demanded Vidal, to pay as inheritance tax (based on: donation + legacy).

ALS2014B
ALS2014B 167 of 365
"#$
Vidal paid under protest and then filed action to recover from CIR. They contested that donations Inter vivos
(during lifetime) should not be included in the inheritance tax. Supreme Court held that the tax collected on
the donation is also part of the inheritance tax because its transmission was made in contemplation of
donors death and this was supported by the fact that same donees were later instituted as legatees in his
will. Under the inheritance tax, all gifts refer to donation inter vivos which were made in contemplation
or consideration of donors death.
Dissenting opinion by Justice Villa-real: The majority decision established a legal presumption that all gifts inter
vivos made to persons (not forced heirs but are later instituted legates in donors will) are presumed to be made in
contemplation of donors death. This should not be so because such presumption is not found in any law or fact
(not inferred from antecedent circumstances.) With this in mind, donation inter vivos made to such person should
not be presumed made mortis causa, thus the burden of proof rests with CIR who contends that donation inter
vivos was made in contemplation of death.
BIR RULING NO. 163-89, AUG. 8, 1989 Sps. Benitez (trustor) executed a Deed of Trust conveying all their
properties in favor of their daughter Sister Scholastica Benitez and/or Faro Benitez (trustees) for the benefit of
their 6 children as beneficiaries. The following were conveyed: A) Rights and interest of 16 memorial lots from
Manila Memorial Park for the sole benefit and enjoyment of Sister Scholastica and/or the Community of
Benedictine Sisters to the exclusion of the other beneficiaries, where a Deed of Assignment was executed on Sept
3, 1976 or after the death of one of the trustors so that legal title of such would be transferred to Sister
Scholastica and her community. B) Certain parcels of land together with all their improvements thereonwhere
the trustees had the power to lease or mortgage said properties and shall hold all the rents, income, and proceeds
from any lease, mortgage or other disposal of said properties for the benefit of the beneficiaries. So far, 4 parcels
of land have been transferred.
The transfer of all properties of the trustor who died within 3 yrs from the date of said transfer come
within the purview of Sec. 88 of the Tax Code. b) Transfer in contemplation of death: To the extent of any
interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of
or intended to take effect in possession or enjoyment, or after his death, or of which he has at any time made a
transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without
reference to his death or for any period which does not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from the property; or (2) the right, either alone or in conjunction with any
person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case
of a bona fide sale for an adequate and full consideration in money or moneys worth. Any transfer of a material
part of his property in the nature of a final disposition or distribution thereof, made by the decedent within
three years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to
have been made in contemplation of death within the meaning of this Chapter.
All properties covered by the Deed of Trust shall be considered as forming part of the decedents gross
estate subject to estate tax. (Sec. 88: Value of the gross estate of the decedent shall be determined by including
the value at the time of his death of all property, real, personal, tangible or intangible, wherever situated, except
real property situated outside the Philippines) The transfer of properties during the lifetime of the trustor does
not preclude the imposition of the estate tax prescribed under Sec. 85 of the Tax Code. In addition, the
contemplated transfers of the real properties by the trustees are subject to the capital gains tax pursuant to Sec 21
(e) of the Tax Code.
DISON v. POSADAS (1932) During his lifetime, Felix Dison executed in favor of his son Luis Dison a Deed of Gift
transferring to the later 22 tracts of land to the latter as donee. The Collector of Internal Revenue (CIR) assessed
Dison an inheritance tax in the amount of P2,808.73 which he paid under protest. Luis Dison filed a suit for the
recovery of the paid inheritance tax, claiming that the tax was illegal because the property he received thru a Deed
of Gift inter vivos, which he duly accepted and registered before the death of his father, was a gift and not an
inheritance and therefore not subject to inheritance tax. The court ruled in favor of the CIR saying that the gift
inter vivos made by Felix Dison was actually an advance of the inheritance of Luis Dison and therefore subject to
inheritance tax.. Sec. 1540 of the Administrative Code (governs inheritance tax at the time) states:

ALS2014B
ALS2014B 168 of 365
"#$
Additions of Gifts and Advances. After the aforementioned deductions have been made, there shall be
added to the resulting amount the value of all gifts or advances made by the predecessor to any of those
who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa.
The Court held that the transfer (Deed of Gift inter vivos) was an advancement upon the inheritance which the
donee as the sole and forced heir of the donor, would be entitled to receive upon the death of the donor. The fact
is that when the father executed the Deed of Gift, he transferred all of his property to his son and only reserved for
himself usufruct for three parcel of land out of the twenty two transferred. In addition, Luis was the only son and
only heir of Felix and these properties would be inherited by Luis upon the death of his father. The applicable
inheritance tax statute at the time (Sec 1540 of the Administrative Code) presumes that such gifts have been
made in anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the
donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to prevent
this that it provides that they shall be added to the resulting amount. Simply stated, the law presumes that when
a gift/donation has executed in favor of the donee who proves to be an heir of the donor, such donation/gift will
be presumed an advance of supposed donors inheritance and will be assessed an inheritance tax.
3. Transfers Taking Effect at Death
GANUELAS v. CAWED (2003) "Donations mortis causa not complying with formalities for validity of wills
void" Ganuelas executed a donation of real property in favor of her niece, Ursulina, stipulated to take effect after
her death and that should donee predecease the donor, the donation is rescinded. Celestina revoked the donation a
month before she died. Ursulina obtained tax declarations for the subject properties of the donation in her name
thereafter refusing to share the proceeds with the other nieces of Celestina. The latter filed a case alleging
donation was void as it was mortis causa which failed to comply with the formalities required of wills. Ursulina
answered it was inter vivos and that the revocation was void (ground for revocation was not valid). The
distinction between a transfer inter vivos and mortis causa is important as the validity or revocation of the
donation depends upon its nature. If inter vivos, it must be executed and accepted with the formalities
prescribed by Articles 748 and 749 of the Civil Code, may be revoked only for the reasons provided in
Articles 760, 764 and 765; except when it is onerous in which case the rules on contracts will apply. If
mortis causa, the donation must be in the form of a will, with all the formalities for the validity of wills,
otherwise it is void and cannot transfer ownership. Court held it was mortis causa, null & void for not
complying with provisions governing wills. Thus, property part of estate of deceased to pass intestate.
BIR RULING NO. 81-98, MAY 28, 1998 A Deed of Donation Mortis Causa was executed by and between Atty.
Amalia Carino as the Donor, and her sister Marijo Carino, as the Donee. The Donation includes a property
covered by a TCT and the 1/3 undivided share in another property. The donation was subject to the following
conditions: a) that the donation shall produce effects only after the donors death and b) the donor may cancel or
amend the donation at any time during her lifetime. The donor requested for exemption from the payment of gift
tax under Section 91 (Section 98 of the Tax Code of 1997). The BIR ruled that the donations/gifts are exempt
from the donors tax. Since the donations are to take effect upon the donors death, they partake of the
nature of testamentary provisions and the same shall remain part of the donors gross estate at the time of
his/her death even if the same have been donated in favor of the donee. The provisions regarding the
imposition of the estate tax on transfers in contemplation of death shall apply in this case.
The said deed can be annotated at the back of the TCTs in order not to prejudice the right of any person that may
be affected by said donation.

ALS2014B
ALS2014B 169 of 365
"#$
BIR RULING NO. 10-03, SEPT. 8, 2003 Joint Depositors Survivorship Agreement-no withdrawal-subject to
estate tax A question was raised regarding a Survivorship Agreement executed by Joint Depositors. What
happens after a joint depositor dies? Does the entire remaining balance of the deposit belong to the surviving co-
depositor, and may withdraw the remaining balance in the account? NO. Section 97 of the NIRC provides that
joint account holders are not allowed to any withdrawal from the account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the
estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner; withdraw an
amount not exceeding Twenty thousand pesos (P20,000).
More importantly, considering that the joint account contemplates a co-ownership relationship therefore a
presumption of equal share (50/50) is applied, in addition to the fact that upon the co-depositors death, a Transfer
in Contemplation of Death [Sec. 85 (b) NIRC] occurs, therefore the 50% transferred out will be included in
computing the value of the gross estate of the deceased co-depositor and thus, subject to the proper estate tax.
4. Transfers with Retained Interest

5. Revocable Transfers
(C) Revocable Transfer.
A. To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case
of a bona fide sale for an adequate and full consideration in money or money's worth) by trust or
otherwise, where the enjoyment thereof was subject at the date of his death to any change through the
exercise of a power (in whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the decedent acquired
such power), t o alter, amend, revoke, or terminate, or where any such power is relinquished in
contemplation of the decedent's death.
(3) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the
date of the decedent's death even though the exercise of the power is subject to a precedent giving of
notice or even though the alteration, amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or before the date of the decedent's death
notice has been given or the power has been exercised.
In such cases, proper adjustment shall be made representing the interests which would have been excluded from
the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not
been exercised on or before the date of his death, such notice shall be considered to have been given, or the power
exercised, on the date of his death.
BIR RULING NO. 013-2005, AUG. 16, 2005 ISSUE: W/N a transfer of real property under a revocable trust
agreement is exempt from estate tax
NO! NOT EXEMPT!
Spouses Antonio and Patricia Salvador own a certain real estate property. They intend to change and register
the Trust Property with the register of Deeds to A. & P. Salvador Living Trust with Antonio being the
trustee and Patricia being the Successor Trustee. In case Antonio should die first, the trustee will be Patricia. In
case Patricia should die first, Antonio shall remain the trustee. Whoever is the eldest will be the Surviving trustee
until he dies, and then the next eldest etc.
Under Sec. 24 (D) (1) of the Tax Code, capital gains presumed to have been realized from the sale, exchange or
other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro
sales and other forms of conditional sales, by individuals, including estates and trusts shall be taxed at the rate

ALS2014B
ALS2014B 170 of 365
"#$
of six percent (6%) based on the gross selling price or current fair market value as determined in
accordance with section 6(e) of the same code, whichever is higher.
Such being the case, and considering there is no actual transfer of ownership over the property, as a result
of the transfer of the property to A&P Salvador Living Trust from Spouses Salvador, the said transfer is
not subject to the 6% capital gains tax. Also, no donors tax shall be imposed because there is no transfer of
ownership.
The deed involving the trust is not subject to documentary stamp tax. However, the notarial acknowledgement is
subject to the documentary stamp tax.
On the other hand, Section 85 (C) of the Tax Code provides that interest in the property of which the decedent
has at any time made a transfer by trust or otherwise is included in decedents gross estate. The value of the
gross estate of the decedent shall be determined by including the value at the time of his death of all properties,
real or personal, tangible or intangible, wherever situated to the extent of any interest therein, of which the
decedent has at any time made a transfer by trust, where the enjoyment thereof was subject at the date of his death
to any change through the exercise of a power by the decedent to alter, amend, revoke, or terminate or where any
such power is relinquished in contemplation of the decedents death.
In a revocable transfer of property, such as in this case, the property continues to be owned by the
transferor during his lifetime notwithstanding the transfer, as he still retains beneficial ownership. The
rationale for taxing such transfer in trust at the time of death of the trustor is to reach transfers which are
really substitutes for testamentary disposition and thus prevent evasion of estate tax. To be exempt for
estate tax, the transfer by inter vivos must be absolute and outright with no strings attached whatsoever by
the transferor, which is not the case here.
IN OTHER WORDS. All properties covered by the Revocable Living Trust shall be considered as forming part
of the decedents gross estate subject to estate tax pursuant to Section 85 upon the death of the owner of the
property.
So, in case of the death of Antonio of his spouse, the proposed transfer of the real property under the Revocable
Trust Agreement shall be subject to estate tax to the extent of either your or your spousess interest therein at the
time of death,
BIR RULING NO. DA-279-2006, APR. 15, 2006 The Revocable Living Trust Agreement and the Irrevocable Living
Trust Agreement cover the Living Trust and Trust Estate, and that the accounts opened through these trust
vehicles are generally and fundamentally built for long-term administration and accumulation for the
eventual transfer to the designated beneficiary/ies of your clients. Whereas, as compared to the Common
Trust Fund (CTF), the beneficiaries are one and the same person which is the trustor or the beneficial ownership
of the trust fund remains with the individual participant of the trust.
In a revocable transfer of funds to the designated beneficiary/ies of your client, such as in this case, the
funds continue to be owned by the trustor during his lifetime notwithstanding the transfer, as he still
retains the beneficial ownership. The rationale for taxing such transfer in trust at the time of death of the trustor
is to reach transfers which are really substitutes for testamentary disposition and thus prevent evasion of estate
tax.
In other words, all trust funds covered by the Revocable Living Trust Agreement of your client shall be
considered as forming part of its gross estate subject to estate tax pursuant to Section 85 of the Tax Code of
1997, upon the death of the trustor.
6. Power of Appointment
(D) Property Passing Under General Power of Appointment. To the extent of any property passing under a general
power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or
intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has

ALS2014B
ALS2014B 171 of 365
"#$
retained for his life or any period not ascertainable without reference to his death or for any period which does not
in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b)
the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in
money or money's worth.
7. Proceeds of Life Insurance
(E) Proceeds of Life Insurance. To the extent of the amount receivable by the estate of the deceased, his executor,
or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether
or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary
is irrevocable.
II. VALUATION OF ESTATE AND AMOUNT TO BE INCLUDED IN CASES COVERED BY SECS. 85(B), (C),
AND (D) OF THE NIRC
(G) Transfers of Insufficient Consideration. If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
Sec. 88. Determination of the Value of the Estate.
(A) Usufruct. To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there
shall be taken into account the probable life of the beneficiary in accordance with the latest Basic Standard
Mortality Table, to be approved by the Secretary of Finance, upon recommendation of the Insurance
Commissioner.
(B) Properties. The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.
DIZON v. COURT OF TAX APPEALS (2008) Atty. Jesus Gonzales signed and filed on behalf of the Estate of Jose
Fernandez the required estate tax return and represented the same in securing a Certificate of Tax Clearance with
the BIR Regional Director of San Pablo City. The BIR Regional Director issued Certifications stating that the
taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be
transferred to his heirs. Petitioner requested the probate courts authority to sell several properties forming part of
the Estate, for the purpose of paying its creditors. However, the Assistant Commissioner for Collection of the BIR
issued an Estate Tax Assessment Notice, demanding the payment of deficiency estate tax. On June 2, 1994,
petitioner filed a petition for review before respondent CTA. In the hearings conducted, petitioner did not present
testimonial evidence but merely documentary evidence. Respondents [BIR] counsel presented Alberto Enriquez,
who was one of the revenue examiners who conducted the investigation on the estate tax case of the late Jose
Fernandez. The CTA denied the petition for review, opining that the pieces of evidence introduced by the BIR
were admissible in evidence. CA affirmed the decision of the CTA, ruling that the petitioners act of filing an
estate tax return with the BIR and the issuance of the BIR Certification did not deprive the BIR Commissioner of
her authority to re-examine or re-assess the said return filed on behalf of the Estate. Hence, the instant Petition.

ALS2014B
ALS2014B 172 of 365
"#$
Issues: (1)Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR
(2) Whether the actual claims of the creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements entered into by
the Estate with its creditors
Held: (1) Under Sec. 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA (Sec. 34, Rule 132 of the Revised Rules on Evidence).In
People v. Napat, the Court relaxed the rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the same must have been
duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of
the case. In this case, the Court finds that these requirements have NOT been satisfied. The assailed pieces of
evidence were presented and marked during the trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony. He was also subjected to cross-examination and re-
cross examination by petitioner. But Albertos account and the exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces of evidence presented by the BIR. Moreover, while Albertos
testimony identifying the BIRs evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case. While the CTA is not governed strictly by technical rules of evidence, the
presentation of the BIRs evidence is not a mere procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and verify the truth of BIRs claims against the Estate.
The BIRs failure to formally offer these pieces of evidence, despite CTAs directives, is fatal to its cause. Such
failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal
omission.
(2) Post-death development should not be considered. There is no law, nor do we discern any legislative intent in
our tax laws, which disregards the date-of-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 the 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. Any doubt on whether a person, article or
activity is taxable generally resolved against taxation. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term claims required to be presented against a decedents 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 allowable.
III. EXEMPT TRANSFERS
Sec 87. Exemption of Certain Acquisitions and Transmissions. The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net
income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent
(30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.
IV. EXCLUSION OF CONJUGAL SHARE OF SURVIVING SPOUSE

ALS2014B
ALS2014B 173 of 365
"#$
Sec. 85. Gross Estate. ...
(H) Capital of the Surviving Spouse. The capital of the surviving spouse of a decedent shall not, for the purpose of
this Chapter, be deemed a part of his or her gross estate.
V. DEDUCTIONS FROM GROSS ESTATE
Sec. 86. Computation of Net Estate. For the purpose of the tax imposed in this Chapter, the value of the net estate shall
be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. In the case of a citizen or resident of the Philippines,
by deducting from the value of the gross estate
(1) Expenses, Losses, Indebtedness, and taxes. Such amounts: (a) For actual funeral expenses or in an
amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed Two
hundred thousand pesos (P200,000); (b) For judicial expenses of the testamentary or intestate
proceedings; (c) For claims against the estate: Provided, That at the time the indebtedness was incurred
the debt instrument was duly notarized and, if the loan was contracted within three (3) years before the
death of the decedent, the administrator or executor shall submit a statement showing the disposition of
the proceeds of the loan; (d) For claims of the deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the gross estate; and (e) For unpaid mortgages upon,
or any indebtedness in respect to, property where the value of decedent's interest therein, undiminished by
such mortgage or indebtedness, is included in the value of the gross estate, but not including any income
tax upon income received after the death of the decedent, or property taxes not accrued before his death,
or any estate tax.
The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any
indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were
contracted bona fide and for an adequate and full consideration in money or money's worth.
There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses are not
compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have
not been claimed as a deduction for the income tax purposes in an income tax return, and provided that
such losses were incurred not later than the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.
(2) Property Previously Taxed. An amount equal to the value specified below of any property forming a
part of the gross estate situated in the Philippines of any person who died within five (5) years prior to the
death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been
acquired in exchange for property so received: One hundred percent (100%) of the value, if the prior
decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; Eighty percent (80%) of the value, if the prior
decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to his death; Sixty percent
(60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years
prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death; Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; Twenty percent (20%) of the value, if the prior
decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to his death; These
deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was finally

ALS2014B
ALS2014B 174 of 365
"#$
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may
be, and only in the amount finally determined as the value of such property in determining the value of
the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is
included in the decedent's gross estate, and only if in determining the value of the estate of the prior
decedent, no deduction was allowable under paragraph (2) in respect of the property or properties given in
exchange therefor.
Where a deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the
deduction allowable under said Subsection shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible
under said paragraph (2) bears to the value of the decedent's estate.
Where the property referred to consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
(3) Transfers for Public Use. The amount of all the bequests, legacies, devises or transfers to or for the use
of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively
public purposes.
(4) The Family Home. An amount equivalent to the current fair market value of the decedent's family
home: Provided, however, That if the said current fair market value exceeds One million pesos
(P1,000,000), the excess shall be subject to estate tax.
As a sine qua non condition for the exemption or deduction, said family home must have been the
decedent's family home as certified by the barangay captain of the locality.
(5) Standard Deduction. An amount equivalent to One million pesos (P1,000,000).
(6) Medical Expenses. Medical Expenses incurred by the decedent within one (1) year prior to his death
which shall be duly substantiated with receipts: Provided, That in no case shall the deductible medical
expenses exceed Five Hundred Thousand Pesos (P500,000).
(7) Amount Received by Heirs Under Republic Act No. 4917. Any amount received by the heirs from the
decedent - employee as a consequence of the death of the decedent-employee in accordance with
Republic Act No. 4917: Provided, That such amount is included in the gross estate of the decedent.
(B) Deductions Allowed to Nonresident Estates. In the case of a nonresident not a citizen of the Philippines, by
deducting from the value of that part of his gross estate which at the time of his death is situated in the
Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. That proportion of the deductions specified in paragraph
(1) of Subsection (A) of this Section which the value of such part bears to the value of his entire gross
estate wherever situated;
(2) Property Previously Taxed. An amount equal to the value specified below of any property forming
part of the gross estate situated in the Philippines of any person who died within five (5) years prior to the
death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been
acquired in exchange for property so received: One hundred percent (100%) of the value if the prior
decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to
him by gift, within the same period prior to his death; Eighty percent (80%) of the value, if the prior
decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to his death; Sixty percent
(60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years

ALS2014B
ALS2014B 175 of 365
"#$
prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death; Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; and Twenty percent (20%) of the value, if the prior
decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to his death.These
deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title is finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may
be, and only in the amount finally determined as the value of such property in determining the value of
the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is
included in that part of the decedent's gross estate which at the time of his death is situated in the
Philippines; and only if, in determining the value of the net estate of the prior decedent, no deduction is
allowable under paragraph (2) of Subsection (B) of this Section, in respect of the property or properties
given in exchange therefore.
Where a deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the
deduction allowable under said paragraph shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible
under paragraph (2) bears to the value of that part of the decedent's gross estate which at the time of his
death is situated in the Philippines.
Where the property referred to consists of two (2) or more items, the aggregate value of such items shall
be used for the purpose of computing the deduction.
(3) Transfers for Public Use. The amount of all bequests, legacies, devises or transfers to or for the use of
the Government of the Republic of the Philippines or any political subdivision thereof, for exclusively
public purposes.
(C) Share in the Conjugal Property. The net share of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property shall, for the purpose of this Section, be
deducted from the net estate of the decedent.
(D) Miscellaneous Provisions. No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return
required to be filed under Section 90 the value at the time of his death of that part of the gross estate of the
nonresident not situated in the Philippines.
(E) Tax Credit for Estate Taxes paid to a Foreign Country.
(1) In General. The tax imposed by this Title shall be credited with the amounts of any estate tax imposed
by the authority of a foreign country.
(2) Limitations on Credit. The amount of the credit taken under this Section shall be subject to each of the
following limitations: (a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate
situated within such country taxable under this Title bears to his entire net estate; and (b) The total
amount of the credit shall not exceed the same proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire
net estate.
A. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
1. Funeral Expenses

ALS2014B
ALS2014B 176 of 365
"#$

2. Expenses for Testamentary or Intestate Proceedings
CIR v. CA (2000) Pedro Pajanar, a member of the Philippine Scout Bataan was part of the infamous Death march by
reason of which he suffered shock and became insane. His sister became the guardian of his person while his
property was placed under the guardianship of PNB. The sole issue in this case is whether the notarial fee paid for
the extrajudicial settlement in the amount of P60,753 and the attorneys fees in the guardianship proceedings in
the amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to arrive at the
value of the net estate. Court answers the question in the affirmative. This Court adopts the view under
American jurisprudence that expenses incurred in the extrajudicial settlement of the estate should be
allowed as a deduction from the gross estate. There is no requirement of formal administration. It is
sufficient that the expense be a necessary contribution toward the settlement of the case.
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonars estate to his lawful heirs. Similarly, the attorneys
fees paid to PNB for acting as the guardian of Pedro Pajonars property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed accounting of decedents property
and gave advice as to the proper settlement of the latters estate, acts which contributed towards the collection of
decedents assets and the subsequent settlement of the estate.
LIZARRAGA HERMANOS v. ABADA (1919) The deceased owed the plaintiffs a certain amount of money and
presented their claim during the estate proceedings. The commissioner set the amount to around 13k. After
several years, they presented a claim on the estate for more than 65k which according to them includes money
used by the administratrix for the property. The lower court approved the plaintiffs request to attach the estates
property. The heirs are now questioning the validity of the claim and the validity of the attachment. The supreme
court ruled that the claim and the mortgage are invalid even they were approved by the lower court. (no res
judicata dahil void in the first place?)
The expenses of administration should be those:
1. necessary for the management of the property
2. for protecting it against destruction or deterioration
3. for the production of fruits
BUT the sum expended by an administrator of an extensive administration of the estates of the decedent can not
be considered expenses of administration
The state grants no power to an administrator to borrow money upon a mortgage of the real estate of the decedent
is not controverted. Indeed, such an act would be contrary to policy and purposes of the administration which
aims to close up, and not to continue an estate.
Although the mortgage was one made by the administrator and approved by the court, still this approval cannot
render valid the void acts of an administrator.
DE GUZMAN v. DE GUZMAN (1978) Administration Expenses Felix de Guzman of Gapan, Nueva Ecija died
testate with eight children to whom he bequeathed their family home there. Victorino de Guzman was appointed
administrator. Three of the eight children questioned the administration expenses for the estate incurred by
Victorino and approved by the probate court.
An executor or administrator is allowed the necessary expenses in the care, management, and settlement of
the estate. He is entitled to possess and manage the decedents real and personal estate as long as it is necessary
for the payment of the debts and the expenses of administration. He is accountable for the whole decedents estate
which has come into his possession, with all the interest, profit, and income thereof.

ALS2014B
ALS2014B 177 of 365
"#$
Expense Supreme
Courts
Decision
Reason
Renovation and Improvement of
the Family Home
Allowed This obviously redounded to the benefit of the 8 heirs as co-
owners. Expense is necessary for the preservation and use of the
family residence, and for the heirs comfort, convenience and
security.
Living expenses of one of the
heirs/children who stayed in the
family home without paying rent
Denied She should use her own income for her living expenses while
occupying the family residence.
Expense for the first death
anniversary celebration of the
decedent
Denied It has no connection with the care, management and settlement of
the decedents estate
Stenographic Notes and
Representation Expenses
Denied They were not explained or accounted for.
Gift for Physician who Tended to
the Decedent
Allowed --
3. Claims Against the Estate
DIZON v. COURT OF TAX APPEALS (2008) Atty. Jesus Gonzales signed and filed on behalf of the Estate of Jose
Fernandez the required estate tax return and represented the same in securing a Certificate of Tax Clearance with
the BIR Regional Director of San Pablo City. The BIR Regional Director issued Certifications stating that the
taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be
transferred to his heirs. Petitioner requested the probate courts authority to sell several properties forming part of
the Estate, for the purpose of paying its creditors. However, the Assistant Commissioner for Collection of the BIR
issued an Estate Tax Assessment Notice, demanding the payment of deficiency estate tax. On June 2, 1994,
petitioner filed a petition for review before respondent CTA. In the hearings conducted, petitioner did not present
testimonial evidence but merely documentary evidence. Respondents [BIR] counsel presented Alberto Enriquez,
who was one of the revenue examiners who conducted the investigation on the estate tax case of the late Jose
Fernandez. The CTA denied the petition for review, opining that the pieces of evidence introduced by the BIR
were admissible in evidence. CA affirmed the decision of the CTA, ruling that the petitioners act of filing an
estate tax return with the BIR and the issuance of the BIR Certification did not deprive the BIR Commissioner of
her authority to re-examine or re-assess the said return filed on behalf of the Estate. Hence, the instant Petition.
Issues: (1)Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR
(2) Whether the actual claims of the creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements entered into by
the Estate with its creditors
Held: (1) Under Sec. 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA (Sec. 34, Rule 132 of the Revised Rules on Evidence).In
People v. Napat, the Court relaxed the rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the same must have been
duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of

ALS2014B
ALS2014B 178 of 365
"#$
the case. In this case, the Court finds that these requirements have NOT been satisfied. The assailed pieces of
evidence were presented and marked during the trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony. He was also subjected to cross-examination and re-
cross examination by petitioner. But Albertos account and the exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces of evidence presented by the BIR. Moreover, while Albertos
testimony identifying the BIRs evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case. While the CTA is not governed strictly by technical rules of evidence, the
presentation of the BIRs evidence is not a mere procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and verify the truth of BIRs claims against the Estate.
The BIRs failure to formally offer these pieces of evidence, despite CTAs directives, is fatal to its cause. Such
failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal
omission.
(2) Post-death development should not be considered. There is no law, nor do we discern any legislative intent in
our tax laws, which disregards the date-of-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 the 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. Any doubt on whether a person, article or
activity is taxable generally resolved against taxation. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term claims required to be presented against a decedents 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 allowable.
COLLECTOR v. HAYGOOD (1938) Discusses the 2 different procedures in collecting a claim for taxes due and
unpaid presented by the CIR in a testate or intestate proceedings depending on whether the:
(1) discovery of erroneous tax returns is made WITHIN three years after the date such returns should have
been filed OR (2) when the discovery of erroneous return take place AFTER three years from the date the
return are filed.
Annie Haygood was appointed as the administratrix of the estate of her deceased husband. The provincial fiscal of
Rizal, in behalf of CIR filed in the testamentary proceedings, a sworn motion claiming merchants sale tax unpaid
by the deceased, plus surcharge on undeclared sales. The tax in question was discovered after 3 years from the
date it should have been declared.
The SC relied on 2 cases previously decided by the SC: Knowles and Pineda cases. Both cases are in accord that :
the assessment made by the CIR, contained in his sworn declaration, constitutes prima facie evidence of the
existence of the unpaid taxes; but they, nevertheless, differ in this respect: that in the case of Knowles this
evidence is said to be destroyed by the mere objection to the allegations contained in the claim and by the general
and specific denial of the alleged facts, the burden of proof falling on the CIR, who must substantiate his claim by
material and competent evidence; and in the case of Pineda it is held the duty of the administrator of the estate of
the deceased to prove that the claim for taxes due the government, made under oath is unjustified. The
discrepancy, if any, is more apparent than real, considering the fact that in the case of Knowles the failure to
declare the income tax was discovered after three years following the expiration of the term within which to file
such declaration; while in the case of Pineda the error in the declaration was discovered within three from the date
the declaration was made.
The fact in the case of Pineda differ from those in the case of Knowles and since the law provides a different
procedure in each case, there is no conflict in the decision rendered in two cases.
First, when the discovery of erroneous tax returns is made within three years after the date such returns
should have been filed, and the declarant dies, the claim for payment of the tax assessed by the CIR must be
made in the testate or intestate proceedings by filing a motion accompanied by a statement of the taxes duly sworn
to by the CIR, and a competent court may summarily order, without previous trial, the judicial administrator to

ALS2014B
ALS2014B 179 of 365
"#$
pay the claim if funds are available, taking into consideration the order of payment established in section 753 of
the Code of Civil Procedure, and the administrator may pay the claim under protest in order to recover in a
separate suit what he may have erroneously paid; and, secondly, when the discovery of erroneous return take
place after three years from the date the return are filed, the CIR shall present the claim by filing a motion
accompanied by a statement under oath of the unpaid taxes, said motion being in the nature of a civil suit should
be prosecuted through the filing of a written answer and the presentation of evidence.
In this case, the discovery of deficiency tax was after the lapse of 3years from the date the erroneous return was
filed, are identical with those in the case of Knowles; therefore, the rule in that case should be followed with
respect to the procedure in collecting a claim for taxes due and unpaid presented by the CIR in a testate or
intestate proceedings.
LORENZO v. POSADAS (1937) Hanley died, leaving a will, which directed that all his real estate not be disposed of
for a period of 10 years after his death, and that the same be managed by the executors, and proceeds given to his
nephew, and after the 10 years the property be given to his nephew.
The inheritance accrues at the time of the death of the decedent. The Admin Code (law applicable at the time),
imposes the tax upon every transmission by virtue of inheritance. The tax therefore is upon transmission or the
transfer or devolution of property of a decedent, made effective by his death. Since according to the Civil Code,
the rights to the succession of a person are transmitted from the moment of his death. Therefore a transmission
by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual
possession of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that
time. (Tax is based on the value of the property at the time of the death of the decedent)
However the accrual of the inheritance tax is distinct from the obligation to pay the same. The corresponding
inheritance tax should have been paid on or before the date trust estate vested in trustee. Because the
delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in
this case.
A trustee is entitled to receive a fair compensation for his services. But this it does not mean that the
compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is
no statute in the Philippines which requires trustees commissions to be deducted in determining the net
value of the estate subject to inheritance tax. Because the compensation of a trustee, earned, not in the
administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses.
4. Claims Against Insolvent Persons

5. Unpaid Debts/Mortgages

6. Losses
B. Vanishing Deduction

C. Transfers For Public Use

D. Family Home
BIR RULING NO. 012-2002, APR. 3, 2002 This is a request for a clarification on the entitlement of the Estate of
SOFRONIO AMPER, SR. (SOFRONIO for brevity) to the a) Deduction of the Family Home and b)
Standard deduction as provided in Section 86(A)(4) and (5), respectively, of the 1997 Tax Code.
Section 86(A)(4) and (5) of the 1997 Tax Code specifically provide that:

ALS2014B
ALS2014B 180 of 365
"#$
SEC. 86. Computation of Net Estate. For the purpose of the tax imposed in this Chapter, the value of
the net estate shall be determined:
(A) Deductions Allowed to the Estate of a Citizen or a Resident. In the case of a citizen or resident of
the Philippines, by deducting from the value of the gross estate
...
(4) The Family Home. An amount equivalent to the current fair market value of the decedents family
home: Provided, however, That if the said current fair market value exceeds One million pesos
(P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or
deduction, said family home must have been the decedents family home as certified by the barangay
captain of the locality.
(5) Standard Deduction. An amount equivalent to One million pesos (P1,000,000).
SOFRONIO is a natural-born Filipino citizen who joined the U.S. Merchant Marine sometime in 1946. They
acquired as husband and wife a real estate property located at Merville Park, Paraaque City and in 1966 built
thereon a residential house. This place became their residence from 1966 up to the time of his death. A
certification issued by the Barangay Chairman of Barangay Merville, Alicia R. Benzon, was attached to the
request to prove that SOFRONIO and LEONILA are bona fide residents and owners of the said home. As a
Merchant Marine, he was assigned to different places, came home to the Philippines to his wife whenever he had
the opportunity. They acquired the subject property with all the intention of residing thereat, and to retire in his
home country. From the time he retired at the age of 65 years old, he went home to the Philippines to reside
therein. In 1998, due to his kidney problems, other ailments, and, old age, the family agreed to bring him to
California, U.S.A. for treatment and hospitalization. All expenses for medicine and hospitalization were free,
being a retired U.S. Merchant Marine. Those were the privileges, among others, granted by the U.S. government
to its retired personnel, aside from the fact that all his children were there. On January 11, 2001, Jose finally
succumbed and died, leaving the subject property as his only estate.
There was an intention on the part of SOFRONIO to reside in the Philippines. The only reason he left the
Philippines was to avail of free medical treatment in the United States, and there was no intention to reside in the
United States permanently.
Although Section 86(A) speaks of a resident of the Philippines, the same should be construed as to
necessarily include resident aliens. Basic and axiomatic is the rule on statutory construction that the Courts, or
in this case this Office, must give effect to the general legislative intent that can be discovered from or is
unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a
particular provision thereof, should be considered. It is noteworthy to state that, the law precisely distinguishes a
citizen or resident (Section 86(A), 1997 Tax Code) from a nonresident not a citizen of the Philippines (Section 86
(B) thereof) in terms of allowable deductions for an estate.
In BIR Ruling No. 009-99 dated January 22, 1999, the above enumerated items are properly authorized by
law to be deducted as independent, separate and distinct items of deduction which may properly be deducted
from the gross estate of a resident decedent, subject to the limitations or conditions that are provided for under
each said item above.
Thus, the estate of SOFRONIO can avail of the deductions afforded to it under Section 86(A)(1) to (7) of the
1997 Tax Code, as implemented by Revenue Regulations No. 17-93 dated August 30, 1993, including the
deduction of the Family Home and the Standard Deduction of P1,000,000.00 each.
E. Standard Deduction
BIR Ruling No. 009-99, Jan. 22, 1999
Mr. Pepito A. Gonzales
Certified Public Accountant

ALS2014B
ALS2014B 181 of 365
"#$
2895 Benita Street
Tondo, Manila
Sir:
This refers to your letter dated November 19, 1998, requesting for a ruling to the effect that all items enumerated in
Section 86(A) of the Tax Code of 1997 are allowable as deductions from the value of the gross estate of a resident
decedent, in computing the net estate upon which the estate tax shall be due.
Section 86(A) of the Tax Code of 1997 enumerates the allowable deductions in computing the net estate of a deceased
resident or citizen, to wit:
1. Expenses, Losses, Indebtedness, and Taxes
2. Property Previously Taxed
3. Transfers for Public Use
4. The Home
5. Standard Deduction
6. Medical Expenses; and
7. Amount Received by Heirs under Republic Act No. 4917.
In reply, please be informed that when the provisions of a law contain an enumeration of things, the enumeration shall be
construed in the sense of mentioned, indicated, referred to, or authorized. (Words and Phrases Permanent Edition,
Vol. 14A, p. 415). The interpretation that must prevail, therefore is, that the above enumerated items are separate and
distinct items, independent of each other. As such, the above enumerated items are properly authorized by law to be
deducted as independent, separate and distinct items of deduction, which may properly be deducted from the gross estate
of a resident decedent, subject to the limitations or conditions that are provided for under each said item above.
Clearly, therefore, it is not a requirement of the law, that the amounts computed, corresponding to the other remaining
items in the enumeration (namely #s 1-4 and 6-7 of Section 86(A) of the Tax Code of 1997), be included in the standard
deduction, in #5 above, which will limit the entire deduction to the amount of the said item, amounting to One Million
Pesos (P1,000,000.00). This interpretation is certainly contrary to the intention of the law.
Very truly yours,
BIR RULING NO. 012-2002, APR. 3, 2002, supra
F. Medical Expenses

G. Death Benefits from Employer Under NIRC 32(B)(6)(a) and (b)
VI. FOREIGN TAX CREDITS
Sec. 86. Computation of Net Estate. ...
(E) Tax Credit for Estate Taxes paid to a Foreign Country.
(1) In General. The tax imposed by this Title shall be credited with the amounts of any estate tax imposed
by the authority of a foreign country.
following limitations: (a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate
situated within such country taxable under this Title bears to his entire net estate; and (b) The total
amount of the credit shall not exceed the same proportion of the tax against which such credit is taken,

ALS2014B
ALS2014B 182 of 365
"#$
which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire
net estate.
VII. SPECIAL RULES FOR NON-RESIDENT ALIENS
A. Meaning of Resident or Non-Resident

B. Inclusions in Gross Estate

C. Deductions from Gross Estate

D. Foreign Tax Credits
See Secs. 85; 86 (B), (D), & (E); and 104, supra
VIII. ADMINISTRATIVE PROVISIONS
A. Tax Rates

B. Notice of Death

C. Estate Tax Return
Sec. 84. Rates of Estate Tax. There shall be levied, assessed, collected and paid upon the transfer of the net estate as
determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a
tax based on the value of such net estate, as computed in accordance with the following schedule:
If the net estate is:
OVER BUT NOT OVER THE TAX SHALL BE PLUS OF THE EXCESS OVER
200,000 Exempt
200,000 550,000 0 5% 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000
Sec. 89. Notice of Death to be Filed. In all cases of transfers subject to tax, or where, though exempt from tax, the
gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs,
as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such
executor or administrator, shall give a written notice thereof to the Commissioner.
Sec. 90. Estate Tax Returns.
(A) Requirements. In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the
gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of the
estate, where the said estate consists of registered or registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as
a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth:

ALS2014B
ALS2014B 183 of 365
"#$
(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen
of the Philippines, of that part of his gross estate situated in the Philippines;(2) The deductions allowed from gross
estate in determining the estate as defined in Section 86; and (3) Such part of such information as may at the time
be ascertainable and such supplemental data as may be necessary to establish the correct taxes. Provided,
however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall be
supported with a statement duly certified to by a Certified Public Accountant containing the following: (a)
Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a
nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; (b) Itemized
deductions from gross estate allowed in Section 86; and (c) The amount of tax due whether paid or still due and
outstanding.
(B) Time for Filing. For the purpose of determining the estate tax provided for in Section 84 of this Code, the
estate tax return required under the preceding Subsection (A) shall be filed within six (6) months from the
decedent's death.
A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the
Commissioner within thirty (30) after the promulgation of such order.
(C) Extension of Time. The Commissioner shall have authority to grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for filing the return.
(D) Place of Filing. Except in cases where the Commissioner otherwise permits, the return required under
Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer, Collection Officer, or
duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death
or if there be no legal residence in the Philippines, with the Office of the Commissioner.
D. Payment of Estate Tax
Sec. 91. Payment of Tax.
(A) Time of Payment. The estate tax imposed by Section 84 shall be paid at the time the return is filed by the
executor, administrator or the heirs.
(B) Extension of Time. When the Commissioner finds that the payment on the due date of the estate tax or of any
part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment
of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two
(2) years in case the estate is settled extrajudicially.
In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the
expiration of the period of the extension, and the running of the Statute of Limitations for assessment as provided
in Section 203 of this Code shall be suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on
the part of the taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the
case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties
as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms
of the extension.
(C) Liability for Payment. The estate tax imposed by Section 84 shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share of the estate.
Such beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment of
such portion of the estate tax as his distributive share bears to the value of the total net estate.

ALS2014B
ALS2014B 184 of 365
"#$
For the purpose of this Chapter, the term "executor" or "administrator" means the executor or administrator of the
decedent, or if there is no executor or administrator appointed, qualified, and acting within the Philippines, then
any person in actual or constructive possession of any property of the decedent.
COMMISSIONER v. GONZALES (1966) prescriptive period for assessment doesnt run if return is
incomplete Matias Yusay died intestate, leaving two heirs, Jose and Lilia. Jose was administrator and filed the
estate and inheritance tax return on 1949. However, in 1957, the CIR found out that there were several other
undeclared properties, for which a new assessment was issued in 1958. In the meantime, Jose died, so the BIR
went after his widow, and sister, Lilia, who was co-administratix of the estate. Lilia argues that the assessment
was filed beyond the five-year prescriptive period.
The 1958 assessment was filed on time. The estate and inheritance tax return must set forth: 1) value of the
gross estate of the decedent at the time of his death; 2) the deductions allowed in order to determine the net
estate; and 3) information and such supplemental data that are ascertainable, and as may be necessary to
establish the correct taxes. A return need not complete in all particulars. It is sufficient if it complies
substantially w/ the law. There is substantial compliance 1) when the return is made in good faith and is not
false/fraudulent; 2) when it covers the entire period involved; and 3) when it contains information as to the
various items of income, deduction, and credit w/ such definiteness as to permit the computation and
assessment of the tax.
The 1949 assessment submitted by Jose was incomplete because: a) it stated no heirno inheritance tax could
be assessed since if there is no heir, the intestate estate is eschewed in favor of the State; and b) it was incomplete
there was significant underdeclaration of properties. The return filed in this case was so deficient that it
prevented the CIR from computing the taxes due on the estate. It was as though no return was made. Thus,
the prescriptive period for making an assessment only started in 1957 when the CIR learned that there
was a huge underdeclaration of the gross estate.
Upon motion for reconsideration, the SC held that Lilia Yusay must pay for the entire estate and inheritance tax
since she is solidarily liable. As co-administratix, she is liable for the whole estate and as heir, she is liable for
her share. When she instituted the present action, she herself argued that one administrator may bring the action
on behalf of the others. It then follows that she must bear the decision solidarily for the others as well. The other
co-administrators cannot be held liable in the present action since they are not a party to it.
VERA v. NAVARRO (1977) advance payment of inheritance/distribution of decedents assets, when not
allowed - Judge Tan, the executor of the estate of a certain Elsie Gaches, on motion filed for the advance
payment of the inheritance and allowances to the heirs pending the probate proceedings. He assured the court
that the balance of the estate after the advance payment is sufficient to cover any liability to the government like
taxes and other charges. CIR Vera opposed such motion of Judge Tan and presented proof that the balance of the
estate is not sufficient to pay such taxes. The court denied Judge Tans motion. Consequently, Judge Tan paid the
taxes due of the estate but there was a discrepancy on the inheritance taxes. Judge Tan again filed a motion for
advance payment of inheritance. This time, the court allowed it. Vera now files this action against the trial
court judge for allowing the inheritance to be advanced.
The SC held that the orders allowing such motion of Judge Tan is in excess of the courts jurisdiction. The court
may only allow a distribution of a decedents assets when the following have been complied with:
1. When the inheritance tax, among others, have been paid
2. When a sufficient bond is given to meet the inheritance tax and other charges
3. When the obligations stated in the Rules of Court (debts, funeral charges, etc.) have been paid
None of these are present in the case.
VERA v. FERNANDEZ (1979) CIR seeks to collect unpaid taxes from the Tongco intestate estate for the years 1946-
1948. The administrator for the estate argued that the collectible of the government from the estate has prescribed
pursuant to Section 2 of Rule 86 of the Rules of Court. The Rules of Court provides that money claims must

ALS2014B
ALS2014B 185 of 365
"#$
be filed not later than 1 year from notice of death but not earlier than 6 months. Since the collection case
was filed by the CIR beyond the period provided by Rule 86, the trial court ruled in favor of the administrator.
CIR now questions the trial court order claiming that Rule 86 does not apply. What should apply is the NIRC, for
which the action was filed within the reglementary period. Court ruled that NIRC should apply. Rule 86 applies
only to private creditors of the estate and not to the government. Taxes are the lifeblood of the government
and NIRC should apply.
GOVERNMENT OF THE PHILIPPINE ISLANDS v. PAMINTUAN (1930) Pamintuan died in 1925 and intestate
proceedings were instituted. A committee on claims and appraisals was created to act upon claims against his
estate. The committee rendered a report on the outstanding obligations of the estate. The estate thereafter settled
all its obligations and the heirs (respondents) were given their respective shares based on a duly approved
partition proposal. The administrator filed the income tax returns of the estate for the years 1925 and 1926 and the
intestate proceedings were finally closed. However, after the termination of the proceedings, the Government
discovered that when Pamintuan was still alive, he sold his house and lot but never paid the corresponding
income tax on such sale. In 1927, the Government demanded payment of this outstanding tax but the heirs
refused payment. The CFI said that the Governments failure to file its claim with the committee on claims and
appraisals barred its claim for the outstanding tax liability. The SC reversed and said that the clear weight of
judicial authority is to the effect that claims for taxes and assessments, whether assessed before or after the
death of the decedent, are not required to be presented to the committee. Administration proceedings of
Pamintuan having been closed, and his estate distributed among his heirs, the latter are responsible for the
payment of the income tax here in question in proportion to the share of each in said estate.
PASTOR, JR. v. COURT OF APPEALS (1983) Pastor, Sr. died on June 5, 1966, survived by his wife, their two
legitimate children Pastor, Jr. and Sofia, and an illegitimate child, not natural, named QUEMADA. QUEMADA
filed a petition for the probate of an alleged holographic will of PASTOR, SR. with the probate court. The will
contained only one testamentary disposition: a legacy in favor of QUEMADA consisting of 30% of PASTOR,
SR.'s 42% share in the operation by Atlas Consolidated Mining (ATLAS). The PROBATE COURT appointed
him special administrator of the entire estate of PASTOR, SR., whether or not covered or affected by the
holographic will. On December 5, 1972, the PROBATE COURT issued an order allowing the will to probate.
Later on, the PROBATE COURT issued an Order of Execution and Garnishment, resolving the question of
ownership of the royalties payable by ATLAS and ruling that the legacy to QUEMADA was not inofficious. The
PROBATE COURT thus directed ATLAS to remit directly to QUEMADA the royalties due decedent's estate, of
which QUEMADA was authorized to retain 75% for himself as legatee and to deposit 25% with a reputable
banking institution for payment of the estate taxes and other obligations of the estate. The order being
"immediately executory", QUEMADA succeeded in obtaining a Writ of Execution and Garnishment, and in
serving the same on ATLAS on the same day. PASTOR JR. filed petition for certiorari before the CA and SC.
The SC ruled that the Probate order did not resolve the questions of ownership and intrinsic validity of the
holographic will because in a special proceeding for the probate of a will, the issue by and large is restricted to the
extrinsic validity of the will. Furthermore, the ordered payment of legacy would be violative of the rule requiring
prior liquidation of the estate of the deceased, i.e., the determination of the assets of the estate and payment of all
debts and expenses, before apportionment and distribution of the residue among the heirs and legatees. Also, the
estate tax has never been paid on the estate of PASTOR, SR. Payment therefore of the legacy to QUEMADA
would collide with the provision of the National Internal Revenue Code requiring payment of estate tax before
delivery to any beneficiary of his distributive share of the estate (Section 107 [c])
BIR RULING NO. 072-2000, DEC. 18, 2000 Mrs. Madonna Rivera sent a letter on behalf of the heirs of the late
Olivia Chiong Olaivar and Pedrito Timbal Olaivar who died due to a car accident, requesting for an extension of
two (2) years within which to pay the corresponding estate tax due pursuant to Section 91 (B) of the Tax Code.
Section 91(B) of the Tax Code provides, viz:
(B) Extension of Time. When the Commissioner finds that the payment on the due date of the estate
tax or any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend
the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is

ALS2014B
ALS2014B 186 of 365
"#$
settled through the courts, or two (2) years in case the estate is settled extrajudically. In such case the
amount in respect of which the extension is granted shall be paid on or before the date of the expiration of
the period of the extension, and the running of the Statute of Limitations for assessment as provided in
Section 203 of this Code shall be suspended for the period of any such extension
Accordingly, since Mrs. Rivera is having difficulty in getting all important documents under the deceased parents
safekeeping, Commissioner Fonacier granted the request.
However, it shall be understood that the estate shall be liable for the corresponding interest that shall have accrued
thereon up to the time of payment of the estate tax.
BIR RULING NO. 210-99, DEC. 20, 1999 Due date for payment of estate taxes may be suspended Mr. Uriel
Balboa sent a request for extension to file the estate tax return of Fernanda S. Balboa and an extension of 24
months within which to pay the tax. Mr. Balboa claimed that the 2 parcels of land were the only assets left by the
deceased and that it would take time for the said lots to be sold. He also claimed that if the heirs are forced to sell
under pressure, it would most likely result to loss. Then Commissioner Rualo granted the request based on the
CIRs authority to grant in meritorious cases, a reasonable extension for the filing of the estate tax return (not
exceeding 30 days for filing the return) as well as extension of time to pay the said taxes (not to exceed 5 years)
when payment would impose undue hardship upon the estate or any of the heirs.
As a result of the extension, the statute of limitation for assessment is suspended. Also, taxpayer is liable to
pay for corresponding interests that have accrued thereon up to the time of filing of the return and payment of
tax due.
E. Consequences of Non-Payment of Estate Tax
Sec. 248. Civil Penalties.
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules
and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other
than those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or
in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the
tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery
of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a
substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations
to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent
return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions,
shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.
Sec. 249. Interest.

ALS2014B
ALS2014B 187 of 365
"#$
(A) In General. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the
interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date
prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand
of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the
tax.
(D) Interest on Extended Payment. If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized
an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.
Sec. 94. Payment Before Delivery by Executor or Administrator. No judge shall authorize the executor or judicial
administrator to deliver a distributive share to any party interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown.
Sec. 95. Duties of Certain Officers and Debtors. Registers of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due
thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non
payment of the tax discovered by them.
Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the
preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa,
legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection of the aforementioned tax.
Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor,
unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the
executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the
deceased.
Sec. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. If after the payment of the estate tax, new
obligations of the decedent shall appear, and the persons interested shall have satisfied them by order of the court, they
shall have a right to the restitution of the proportional part of the tax paid.
Sec. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. There shall not be transferred to any
new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established
in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. If
a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it
shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes

ALS2014B
ALS2014B 188 of 365
"#$
imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the
heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand
pesos (P20,000) without the said certification.
For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said
depositors.
F. Status of Heirs Pending Partition of Estate
REYES v. REGIONAL TRIAL COURT OF MAKATI, BRANCH 142 (2008) This case involves the shares of
stock of Zenith, a domestic company owned by the Reyes family. The shareholdings of the father left upon his
death were partitioned among the children but upon the mothers death, no such partition took place. One of the
children, Rodrigo, is suing his brother Oscar Reyes for allegedly appropriating the mothers stocks for himself.
[this was a highly procedural case regarding the jurisdiction of the rtc for intra-corporate disputes. Relevant to us,
though, is the finding that the court had no jurisdiction because Rodrigo could not be considered a stockholder of
his mothers shares]. Simply stated, the transfer of title by means of succession, though effective and valid
between the parties involved (i.e., between the decedents estate and her heirs), does not bind the corporation
and third parties. The transfer must be registered in the books of the corporation to make the transferee-heir a
stockholder entitled to recognition as such both by the corporation and by third parties. Additionally, Section 97
of the National Internal Revenue Code requires a certification from the Commissioner of Internal Revenue
that the estate taxes have been paid before any shares in a domestic corporation is transferred in the name
of the new owner.
IX. EFFECT OF RENUNCIATION/WAIVER BY SOME HEIRS
A. By or Among Heirs of Different Degree
BIR RULING NO. 455-93, NOv. 19, 1993 Renunciation by wife of properties inherited from husband in favor
of first-born grandchildren Tax Consequences Mrs. Asuncion inherited properties from his deceased
husband. However, she renounced her inheritance of the properties including her conjugal share, in favor of her
first-born grandchildren, through an extrajudicial settlement. The beneficiaries of the properties of their
grandmother would like to transfer and register the properties in their names.
1. Is Mrs. Asuncion liable for any tax for renouncing her share or inheritance in favor of her first born
children? YES
This is legal succession. In legal succession, accretion takes place in case of repudiation among heirs of the
SAME DEGREE. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is
always a right of accretion among them, unlike in testamentary succession. If the renunciation by an heir is made
in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect an act of disposition
inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but by one or more heirs
Accordingly, the renunciation of Mrs. Asuncion of her inheritance, as well as her conjugal shares, in favor
of her first-born grandchildren who are not her co-heirs but are heirs of different degree shall be subject to
the donors tax (because its considered as a donation, not additional inheritance) imposed under Section 91 of
the (old) tax code
2. If she was liable at all, would her availment of the tax amnesty cover up her tax obligations? NO
Such amnesties didnt relieve her donors tax liability. Her claims on tax amnesties under the PDs didnt include
tax liabilities arising from the disposition or transfer of property by reason of death or by donation.
3. Is a BIR clearance necessary for purposes of registering said properties? YES.

ALS2014B
ALS2014B 189 of 365
"#$
For purposes of registering the properties in the name of the first-born grandchildren as consequence of the
donation no registration of any document transferring real property shall be effected by the Registry of Deeds
unless the CIR or his representative has certified that such transfer has been paid.
B. By or Among Heirs of Same Degree
BIR RULING NO. 105-99, JULY 13, 1999 ESTATE TAX; Waiver by Heirs of their Respective Shares - The
gross estate of the late Antigono A. Rosil which consists merely of bank accounts in the total amount of
P153,478.01 which is even lower than the P200,000.00 tax exempt portion of the net estate bracket as imposed
under Section 84 of the same Code is indeed exempt from estate tax. However, the executor, administrator or any
of the legal heirs of the late Antigono A. Rosil shall be required to file the corresponding estate tax return within
six (6) months from the decedents death with the Revenue District Officer (RDO) of the revenue district where
the decedent was previously registered.
On the other hand, the waiver by the three (3) legitimate children of their respective share in the abovementioned
estate in favor of their mother is not subject to donors tax as prescribed under Section 98 of the Tax Code of
1997 because in legal succession, accretion takes place in case of repudiation among heirs of the same degree. In
other words, when the three (3) legitimate children renounced their share in the inheritance, they did not donate
the property/share to their mother, since the said property/share has never become their own.
BIR RULING NO. DA-251-99, APR. 23, 1999 In re to query regarding w/n the repudiation of inheritance in favour
of a co-heir is subject to donors tax. As a rule, when a person renounces/repudiates his part of the
inheritance, the right of accretion takes place and the same is added or incorporated to that of his co-heirs,
co-devisees or co-legatees. Pacita Villa, wife of deceased renounced/waived her share in the estate of her
husband in favour of their son Jesus Villa who became the sole heir. Undoubtedly, when the surviving spouse
renounced her share in the inheritance, she did not donate the property which had never became hers. Such being
the case, the renunciation is not subject to donors tax imposed under Section 98 of the Tax Code.
Consequently, the corresponding estate tax computed in accordance with the schedule provided for under Section
84 of the same Tax Code, shall be imposed upon transfer of the net estate to Jesus S. Villa.
BIR Ruling No. ___, Aug. 25, 1977
August 25, 1977
The Register of Deeds
Office of the Register of Deeds Caloocan City
Sir:
This refers to your letter dated June 16, 1977 requesting a certification to the effect that the waiver made by all of the
legitimate children of the late Felix H. Yoingco of their right to inherit and to participate in a piece of real property located
in Caloocan City in favor of their mother, Mrs. Consolacion B. Yoingco by virtue of a "Deed of Extrajudicial, Partition
with Waiver, and Sale" executed on April 25, 1976 is not subject to donor's (gift) tax.
In reply, I have the honor to inform you that this Office is of the opinion and so holds that the inheritance renounced by
the Yoingco children in favor of their mother, is not a donation but additional inheritance to the latter; hence no donor's
(gift) taxes are due from the Yoingco children. (BIR Ruling No. 65-092 dated August 20, 1965).
Very truly yours,
EFREN I. PLANA
Acting Commissioner of Internal Revenue
TAN-P4519-F2828-A-8

ALS2014B
ALS2014B 190 of 365
"#$
DONORS TAX
I. MEANING OF GIFT
Revenue Regulations No. 2-2003, Dec. 16, 2002
Sec. 104. Definitions. For purposes of this Title, the terms "gross estate" and "gifts" include real and personal property,
whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but
which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift": Provided,
further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation
or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds
by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs
in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be
considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any
character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or
donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as
the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated,
refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount
by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax.
TUZON v. CA (1992) Municipality of Camalaniugan, Cagayan adopted Resolution 9, which required thresher
operators who will apply for a permit to thresh palay within the municipality to donate 1% of all the palay
threshed by them. Jurado paid the license fee for the thresher operators. However, the municipal treasurer refused
to receive this and required Jurado to secure a mayors permit first. The Mayor required Jurado to comply with
Resolution 9 and sign the agreement. Jurado ignored this and sent the license fee to the municipal treasurer by
postal money order. The license fee was returned to him. While it would appear from the wording of the
resolution that the municipal government merely intends to solicit the 1% contribution from the threshers, the
implementing agreement seems to make the donation obligatory and a condition precedent to the issuance
of the mayors permit. This goes against the nature of a donation, which is an act of liberality and never
obligatory. The mayor and municipal treasurer are liable to Jurado for refusing to issue the mayors permit and
license because of his refusal to comply with Resolution 9.
PIROVANO v. CIR (1965) De la Rama Steamship Co. insured the life of Enrico Pirovano, until the time of his death
designating itself as the beneficiary. Pirovano died. The Board of Directors of DLRSC adopted a resolution that
the Company shall pay the proceeds of said life insurance policies to the heirs of Pirovano. Mrs. Pirovano, in
behalf of her children, executed a public document formally accepting the donation and on the same date, the
Company took official notice of this formal acceptance. The CIR assessed donees gift tax against DLRSC, which
the latter paid. DLRSC contested CIRs assessment and imposition of the donees gift taxes and donors gift tax
and also made a claim for refund of the donors gift tax so collected.
The payment of donees gift tax was proper because it was not a remuneratory one but a donation. There is
nothing on record to show that when the late Pirovano rendered services he was not fully compensated for such

ALS2014B
ALS2014B 191 of 365
"#$
services, or that, because they were largely responsible for the rapid and very successful development of the
activities of the company, Pirovano expected or was promised further compensation over and in addition to his
regular emoluments as President and General Manager. The fact that his services contributed in a large measure to
the success of the company did not give rise to a recoverable debt, and the conveyances made by the company to
his heirs remain a gift or donation. This is emphasized by the directors Resolution, that out of gratitude the
company decided to renounce in favor of Pirovanos heirs the proceeds of the life insurance policies in question.
The true consideration for the donation was, therefore, the companys gratitude for his services, and not the
services themselves.
TANG HO v. BOARD OF TAX APPEALS (1955) Li Seng Giap, his wife and 13 children (petitioners) are
stockholders of two close family corporations named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. The CIR
regarded the stock transfers from Li Seng Giap to his children as undeclared gifts and assessed Li Seng Giap and
his children donors and donees taxes. The petitioners requested for a revision of their assessments and submitted
donors and donees gift tax returns and claimed that they were given cash as gift propter nuptias for the married
children, and an equivalent amount as gift inter vivos for the unmarried children, and the cash gifts were used to
purchase the stocks. Petitioners claim that the cash gifts form part of the conjugal property and should be
divided between their parents, and as separate donors, should be taxed separately to each one of them. The
SC held that under the Old Civil Code, to be a donation by both spouses and taxable to both, the wife must
expressly join the husband in making the gift. In this case, the donation of the property belonging to the
conjugal partnership, made during its existence, by the husband alone in favor of the common children, is
taxable to him exclusively as sole donor.
COMMISSIONER v. DUBERSTEIN (1960) Duberstein received a Cadillac from a long-time business acquaintance
for information on possible customers. Duberstein did not include this as his gross income. Taxpayer Stanton
received a large amount of money as a gratuity after he resigned his employment of 10 years with a church. It was
also claimed that this was his separation pay. He also did not include this in his gross income.
What controls is the intention with which payment, however voluntary, has been made. There should be
detached and disinterested generosity out of affection, respect, admiration, charity or like impulses. The
conclusion whether a transfer amounts to a gift is one that must be reached on consideration of all the factors.
Duberstein is liable, Stantons liability cannot be determined.
OLD COLONY TRUST CO. v. COMMISSIONER (1929) William Wood was president of the American Woolen
Company for the years 1918 through 1920. The company established and enforced a policy for the years 1919 and
1920 wherein the company would pay the taxes of the president and other company officers. The company paid
$681,169.88 for 1918 and $351,179.27 for 1919 on behalf of Wood. The Board of Tax Appeals held that these
amounts paid were income of Wood. The Supreme Court of the United States speaking through Justice Taft
affirmed the findings of the lower court and held that the taxes paid were income of Wood. The Court explained
that Wood and the other employees received a direct benefit from the said company policy when their tax
obligation was discharged by the company. Wood received a benefit in exchange for his services to the
company. This was clearly a taxable gain. Hence, the discharge of a taxpayers obligation by a third party is
equivalent to direct receipt by the taxpayer.
BOGARDUS v. CIR (1937) gift & compensation are mutually exclusive / payment to employees by former
stockholders in a new corporation Unopco Corp. bought the assets of Universal Oil Products Corp.
Universals former stockholders and president then became the new stockholders and president of Unopco. In a
stockholder meeting, the president suggested to give gifts or honorariums to Universals past and present
employees who stayed loyal to the corporation. The stockholders agreed. A total of $600k was appropriated for it,
and $10k was given to petitioner Bogardus.
The Court held that such payments were gifts, and not compensation, and are, therefore, tax exempt. The
recipients were employees of the Universal company, which was in no way connected to Unopco or any of its
stockholders at the time the payments were given. There is entirely lacking the constraining force of any
moral or legal duty as well as the incentive of anticipated benefit of any kind beyond the satisfaction which
flows from the performance of a generous act. The intent is shown by the appeal made at the stockholders

ALS2014B
ALS2014B 192 of 365
"#$
meeting to the effect that it would be a nice and generous thing for these former stockholders of the
Universal to show their appreciation of the past loyalty of that companys employees.
Because the Unopco stockholders had benefited by the past services of the recipients, it by no means follows that
the distribution in question was not a gratuity. It nowhere appears in the record that full compensation had not
been made for these services. Also, while the word honorarium generally denotes compensatory payment, such
is negated by its use as an alternative to the word gift. Moreover, it was used during an informal meeting where
the general tenor was to gratuitously give gifts to former employees. Last, even if word bonus was employed, it
is the intent of the stockholders during the meeting that must govern.
Dissenting Opinion:
Jurisprudence holds that gift and compensation are not always mutually exclusive, but can overlap at times. What
controls is the intention with which payment, however voluntary, has been made. If it was made with the intention
that services rendered in the past shall be requited more completely, though full acquittance has been given, then
it is compensation and must be taxed. However, if it is given to show good will, esteem, or kindliness toward
persons who happen to have served, but are thus paid w/o thought to make requital for service, it is a gift and is
tax exempt. This is a question of fact that must be decided by the proper court, not the Supreme Court.
ROBERTSON v. U.S. (1952) Robertson is a musician and composer who submitted his symphony (created from
1936-1939) for the music award offering of Henry Reichhold (philantrophist) for the 3 best symphonic works
written by native-orn composers. In 1947, Robertson won the $25,000 award, which he included in his 1947
income tax return as gross income and claimed benefits of 107(b) of the Internal Revenue Code (computed the
tax as though the $25,000 had been received ratably during the years 1937, 1938, and 1939). Later on he filed for
refund which Commissioner did not allow and even determined a deficiency in the tax he paid. Robertson paid the
deficiency, filed a supplemental claim of refund and filed a suit. District Court held the award as a gift but the
Court of Appeals reversed. The court held that the payment of a prize to a winner of a contest is the discharge
of a contractual obligation. The acceptance by the contestants of the offer tendered by the sponsor of the contest
creates an enforceable contract. The discharge of legal obligations is in no sense a gift. A cash prize received
by the winner of a contest in musical composition is gross income, and it is not a gift excluded from gross
income. The case would be different if an award were made in recognition of past achievements or present
abilities, or if payment was given not for services, but out of affection, respect, admiration, charity or like
impulses.
COMMISSIONER v. LOBUE (1956) LoBue was the manager of the New York sales division of Michigan Chemical
Corporation. He was chosen as one of the recipients of a non-transferable stock option plan, allowing employees
to purchase stocks at $5 per share over a 3-year period. The amount of stocks LoBue and the other recipients
would be able to purchase over such period was made dependent on their performance and conditioned upon their
continued stay in the company. LoBue exercised the option granted him and purchased over $9000 worth of
stocks for the price of less than $2000. While the difference between the market value and the actual price paid by
LoBue was reported as an expense by Michigan, LoBue did not report the corresponding amount as income.
Thus, he was assessed for deficiency income tax by the Commissioner, contending that the difference constituted
as part of the compensation given to LoBue.
The gain must be treated as compensation and thus, must be subjected to income tax. The motive behind the
grant of the stock option, which was to give employees like LoBue proprietary interest in the company does not
change the nature of the benefit from compensation to a mere gift. When assets are transferred to employees to
secure better performance, such assets shall be considered additional compensation. Moreover, the point
when the gain should be considered realized and therefore taxed is at the time when the stock option is
exercised. It is at this point when the taxpayer realizes a gain which is the difference between the market
value and actual price paid. The reckoning point cannot be when the option is granted because in this particular
case, the option was explicitly characterized as non-transferable and thus could not be disposed of in a manner
that would translate to a gain on the part of the employee.

ALS2014B
ALS2014B 193 of 365
"#$
STARKS v. COMMISSIONER (1966) Payment for companionship as gift Greta Starks received certain sums
of money for the years 1954-1958 which were used by her to buy a house, a car, jewelry, and fur coats, and to pay
for her living expenses. The Commissioner assessed her deficiency income tax for such items, as she was not
gainfully employed during the years in question. The money was evidently for services rendered and the
Commissioner subjected her to self-employment tax. The donor in this case, a married man who was 55 years
older than her (and whose name was omitted), stated that he gave her the money to insure her companionship
with him would continue. The court held that companionship cannot be considered as a service performed by
Starks, but rather served as the purpose for the gifts that were given to her. The money and/or property were thus
considered gifts and not part of her taxable income.
LLADOC v. CIR (1965) A gift tax is not a property tax, but an excise tax imposed on the transfer of property
by way of gift inter vivos M.B. Estate, Inc. donated cash to Fr. Lladoc, the parish priest of Victoria, Negros
Occidental, for the construction of a catholic church. The BIR assessed the Parish of Victoria for donees tax.
Lladoc protested the assessment, but the protest was denied. The issue now is whether the imposition of donees
tax is violative of the constitutional provision exempting lands, buildings, or churches etc., used exclusively for
religious purposes from tax. The SC said that the exemption is only from the payment of taxes assessed on the
properties enumerated, as property taxes, as contra distinguished from excise taxes. Here what was assessed was a
gift tax, the assessment was not on the properties themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties.
Hence the Diocese of Bacolod, to which the Parish of Victoria belongs, is liable to pay donee's tax.
II. VALUATION OF GIFTS
Sec. 102. Valuation of Gifts Made in Property. If the gift is made in property, the fair market value thereof at the time
of the gift shall be considered the amount of the gift.
In case of real property, the provisions of Section 88(B) shall apply to the valuation thereof.
III. TRANSFER FOR LESS THAN ADEQUATE CONSIDERATION
Sec. 100. Transfer for Less Than Adequate and Full Consideration. Where property, other than real property referred
to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the
amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year.
CIR v. B.F. GOODRICH PHILS., INC. (1999) Sale for less than FMV allowable for bona fide business
purpose BF Goodrich was an American owned and controlled company which sought to manufacture rubber
tires in the Philippines. The Central Bank required for BFs application the development of a rubber plantation, so
BF bought land from the government for such purpose under the Parity Amendment. The Parity Amendment was
set to expire in 1974, which meant that ownership rights of Americans over public agricultural lands, including
the right to sell or dispose real estate, would be lost. Because of this, BF sold its lands to Siltown Realty
Philippines, and Siltown agreed to lease the lands back as part of the sale.
The CIR assessed BF deficiency donors tax, among others, for purportedly selling the lands way below the fair
market value. However, the Court held that it is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose, in which case, the sale remains an arms length
transaction. In this case, BF was compelled to sell the property 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. BF was attempting to
minimize its losses. Moreover, it was able to lease the property for 25 years, renewable for another 25 years, and
this can be regarded as additional consideration for the price.
IV. EXEMPT GIFTS

ALS2014B
ALS2014B 194 of 365
"#$
Sec. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this
Chapter:
(A) In the Case of Gifts Made by a Resident.
(1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by
parents to each of their legitimate, recognized natural, or adopted children to the extent of the first Ten
thousand pesos (P10,000);
(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of the said Government; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall
be used by such donee for administration purposes.
For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited
nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a
school, college or university and/or charitable corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no
dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees
or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines.
(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic organization or research institution or organization:
Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes.
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country.
(1) In General. The tax imposed by this Title upon a donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
BIR RULING NO. 171-98, Dec. 3, 1998 Lot awarded to National Children's Hospital by virtue of Proclamation
No 439 Lot awarded to National Children's Hospital by virtue of Proclamation No 439 dated December 23, 1953
is exempt from donor's and donee's tax pursuant to Section 112(3) of Commonwealth Act No. 466.
BIR RULING NO. 56-99, Apr. 23, 1999 Exemption of US Embassy on Donation of Vehicle The donation of a
vehicle by the US Embassy in favor of the Central Records Division of the Department of Foreign Affairs is
exempt from the payment of donor's tax pursuant to Section 101(A)(2) of the Tax Code of 1997 considering that

ALS2014B
ALS2014B 195 of 365
"#$
the donee is a political subdivision of the Government. The aforesaid Deed of Donation is also not subject to the
documentary stamp tax of P15.00 imposed under Section 188 of the same Code.
V. FOREIGN TAX CREDIT
Sec. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this
Chapter:
...
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country.
(1) In General. The tax imposed by this Title upon a donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
VI. ON WHOM IMPOSED
Sec. 98. Imposition of Tax.
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section 99.
VII. ADMINISTRATIVE
A. Tax Rates
Sec. 99. Rates of Tax Payable by Donor.
(A) In General. The tax for each calendar year shall be computed on the basis of the total net gifts made during the
calendar year in accordance with the following schedule: If the net gift is:
OVER BUT NOT OVER THE TAX SHALL BE PLUS OF THE EXCESS
OVER
100,000 Exempt
100,000 200,000 0 2% 100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000

ALS2014B
ALS2014B 196 of 365
"#$
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000
(B) Tax Payable by Donor if Donee is a Stranger. When the donee or beneficiary is stranger, the tax payable by
the donor shall be thirty percent (30%) of the net gifts.
For the purpose of this tax, a "stranger", is a person who is not a: (1) Brother, sister (whether by whole or half-
blood), spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral line within the
fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes
shall be governed by the Election Code, as amended.
B. Donors Tax Return
Sec. 103. Filing of Return and Payment of Tax.
(A) Requirements. Any individual who makes any transfer by gift (except those which, under Section 101, are
exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a return under oath
in duplicate.
The return shall se forth:
(1) Each gift made during the calendar year which is to be included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations made pursuant to law.
C. Payment of Donors Tax
(B) Time and Place of Filing and Payment. The return of the donor required in this Section shall be filed within
thirty (30) days after the date the gift is made and the tax due thereon shall be paid at the time of filing.
Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to an
authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of
the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence
in the Philippines, with the Office of the Commissioner.
In the case of gifts made by a nonresident, the return may be filed with the Philippine Embassy or Consulate in
the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner.
D. Consequences of Non-Payment of Donors Tax
Sec. 248. Civil Penalties.
(b) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules
and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other
than those with whom the return is required to be filed; or

ALS2014B
ALS2014B 197 of 365
"#$
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for its payment.
(c) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or
in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the
tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery
of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a
substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations
to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent
return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions,
shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.
Sec. 249. Interest.
(A) In General. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the
interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date
prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand
of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the
tax.
(D) Interest on Extended Payment. If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized
an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.
Sec. 95. Duties of Certain Officers and Debtors. Registers of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due
thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non
payment of the tax discovered by them.
Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the
preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa,
legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection of the aforementioned tax.

ALS2014B
ALS2014B 198 of 365
"#$
Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor,
unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the
executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the
deceased.
Sec. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. There shall not be transferred to any
new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established
in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shownIf a
bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it
shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes
imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the
heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand
pesos (P20,000) without the said certification.
For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said
depositors.

ALS2014B
ALS2014B 199 of 365
"#$
VALUE-ADDED TAX
I. TRANSACTIONS SUBJECT TO REGULAR VAT
A. In General
Sec. 105. Persons Liable. Any person who, in the course of trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of
the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether
or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines
by nonresident foreign persons shall be considered as being course of trade or business.
BIR RUL. 98-97, AUG. 28, 1997 Tax consequences of the pre-termination of the lease and cancellation of option to
purchase affecting your client, Read Rite Philippines, Inc. A domestic corporation engaged in manufacturing and
export, has existing long term Lease Contracts with Option to Purchase over two contiguous parcels of land with
improvements with Philamlife and with PERF Realty Corporation, both domestic corporations engaged in
insurance and real estate business, respectively; that Philamlife and PERF have a prospective buyer who is willing
to buy said properties free from all liens and encumbrances including Read Rite's existing leasehold rights and
option to purchase, the three parties prepared to enter into an agreement wherein Read Rite will consent and agree
to the pre-termination of the Lease Contracts and cancel options to purchase for a certain consideration to be
mutually agreed upon by all parties (pre-termination penalty, price for the cancellation of the option and
indemnity for the resulting disturbance or damage arising from the lease pre-termination) the amount of such
higher than the original cost basis of the Leased Properties:
1. Revenue Regulations No. 6-85 (Revised and Expanded Withholding Tax Regulations) implementing Section
50(b) of the Tax Code: payments to persons enumerated therein are subject to the expanded withholding tax. (The
payment to be received by Read Rite is not among those specified therein, hence such payment not subject to the
expanded withholding tax.)
2. VAT-- Section 99 of the Tax Code provides: Persons Liable those who, in the ordinary course of trade or
business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods
shall be liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code.
Moreover, in BIR Ruling No. 31-83 dated March 1, 198, this Office has ruled that an option to buy, in the hands
of a taxpayer who does not deal in options, is a capital asset and the sale thereof gives rise to a capital gain.
Since Read Rite does not deal in leasehold rights and options in its ordinary course of trade or business, the pre-
termination of the lease and the cancellation of the options to purchase is not subject to VAT is hereby confirmed.
3. Payment received by Read Rite shall form part of its gross income subject to the 35% corporate income tax:
Section 28, Tax Code the term "gross income" is defined to mean all income from whatever source derived.
Income, in a broad sense, means all wealth which flows into the taxpayer other than as a mere return of capital.
4. Payment for pre-termination and cancellation of the options are necessary expenses to prepare the leased
properties for sale and free the same of the leasehold rights and options to purchase, said consideration should

ALS2014B
ALS2014B 200 of 365
"#$
form part of the adjusted cost basis of the properties in the hands of Philamlife and PERF regardless of the
amount of such consideration relative to the original cost basis.
5. Finally, the document on the pre-termination of the lease contracts and the cancellation of the options to
purchase shall be subject to the documentary stamp tax imposed under Section 188 of the Tax Code, as amended.
Nelly Magallanes Lopez vs. CIR: "X x x gain or loss in sales or exchanges of propert x x x The cost ordinarily is
not only the price paid for the property but includes expenses involved in its acquisition, and capital expenses
incurred on the property made thereafter. The purchase price of property includes any indebtedness to which it is
acquired. (Ibid.)
BIR RUL. NO. 18-05, SEPT. 16, 2005 The CIR revoked RRMC 2-2002 on the taxability of condominium
corporations. RRMC 2-2002 issued on June 19, 2002 by Regional Director Antonio I. Ortega of Revenue Region
8, Makati City was declared void for being contrary to existing laws, regulations, rulings, and jurisprudence.
Moreover, Regional Directors do not have the delegated power and jurisdiction to issue RMCs as the same lies
within the exclusive jurisdiction of the Office of the CIR. Nonetheless, CIR clarified the taxability of
condominium corporations as follows: 1. condominium dues and assessments are not taxable income of the
condominium corporations; 2. Condominium corporations are not subject to VAT when they collect association
dues from unit owners pursuant to their corporate purpose as trustees of the fund; 3. Unless the condominium
corporation engages in activities for profit, it is not subject to VAT.
VAT RUL. NO. 444-88 Establishing a company consumer store basic commodities are sold where the projected sales
is approx. 2.5Million. Can these sales be classifies ad zero-rated considering s a seller at cost there will be no
value added to the goods. Cannot qualify as zero-rated. Since they do not meet the conditons set in Sec. 100(a) as
amended by E.O. 273. Thus the transaction, though wanting of profit, must be seen to be undertaken by persons
liale to VAT under Sec. 99. Moreover, the projected sales of 2.5Million is a strong basis for VAT sales
classification.
VAT RUL. NO. 207-90, NOV. 8, 1990
Siguion Reyna, Montecillo & Ongsiako Law Offices
A. Soriano Bldg., Ayala Avenue Makati, Metro Manila
Attention: Atty. Jose Lis C . Leagogo
Sir:
This refers to your letter No. 89-337, dated May 16, 1990, requesting for a reconsideration of our VAT RULING
NO. 087-90, dated April 5, 1990, holding that your client, RCA GLOBAL COMMUNICATIONS, INC. (PHIL.
BRANCH), is subject to 10% value added tax vis-a-vis its sale of technical services to Philippine Global Communication
(PHILCOM).
It is being contended that the value added tax may be levied provided the sale of service is made in the course of
business; that, your client's sale of technical services is made only to one person, i.e., sale to Philcom; that, since the same
is only one and isolated transaction, the same may not be constituted a sale made in the course of business; that, Section
2(j) of the VAT Revenue Regulations No. 5-87 defines "sale of service" as the performance of all kinds of services for
others for a fee, which means, to be taxable as a business act, services must be made to more than one person since the
word "others" pertains to several persons/contractees rather than to only one person.
Please be informed that Section 99, NIRC, provides:
Any person who, in the course of trade or business, sells, barters or exchanges goods, renders services,
or engaged in similar transactions ... shall be subject to value added tax (VAT) imposed in Sections 100
and 102 of this Code.
Whether or not a person is engaged in business is determined by his intent for doing an act or series of acts. An
initial or single act may be constituted done in the course of business if the same is done with the intent of carrying on a
business.

ALS2014B
ALS2014B 201 of 365
"#$
However, there may be a business without any sequence of acts, for if an isolated transaction, which if
repealed would be a transaction in a business, is proved to have been undertaken with the intent that it
should be the first of several transactions, that is, with intent of carrying on a business, then it is a first
transaction in an existing business. For example, where a person makes all necessary preparations to carry
on the business of a wholesale liquor dealer, and holds himself out and solicits trade as such, and makes
one sale without a license, intending to continue the business, he is engaged in, or carrying on, the
business within the meaning of the statute regulating the business. (9 C.J. 1103. See also annotations and
jurisprudence on the NIRC, Jose Aranas, 1983 ed., pp. 135-136)
Your client has been engaged in communications business at the time it contracted with PHILCOM. There is no
necessity to prove your client's intent in selling technical services to PHILCOM. It is more than apparent your client sold
its services while engaging in worldwide communications business. That its transaction with PHILCOM was isolated may
not, however, detract from the fact that the same was entered into because it was, as it is presently, its line of business.
This Office finds no factual and legal basis to reconsider our said VAT RULING NO. 087-90, dated April 5,
1990.
Very truly yours,
JOSE U. ONG
BIR RUL. NO. 10-98, FEB. 5, 1998 A domestic corporation that provided technical, research, and management
assistance to its AFFILIATED companies and received payments on a REIMBURSEMENT-OF-COST basis,
without any intention of realizing profit, remains subject to VAT on services it rendered. In fact, even if such
corporation is organized without any intention of realizing profit, any income or profit generated by the entity in
the conduct of its activities is subject to income tax.
As long as the entity is providing services for a fee, remuneration, or consideration, then the service rendered is
subject to VAT. It is immaterial whether the primary purpose of the corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-of-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered.
CIR v. COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION (COMASECO) (2000)
Services need not be profit oriented to be liable for VAT for services. The CIR is seeking to collect from
COMASECO deficiency VAT (Php ~350k) for services rendered in 1988. COMASECO is an affiliate of
Philamlife, organized by the latter to perform collection, consultative and other technical services. COMASECO
does not obtain profit for its services to Philamlife because it is paid on a "no-profit, reimbursement-of-cost-only"
basis. At issue is whether COMASECO was engaged in the sale of services, and thus liable to pay VAT thereon.
The 1997 NIRC provides that:
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 and 108 of this Code.
"The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a non-stock, nonprofit organization, or government entity.
SEC. 108. The phrase "sale of services" means the "performance of all kinds of services for others for a fee,
remuneration or consideration." The SC held that COMASECO was liable for VAT for services because as
long as the entity provides service for a fee, remuneration or consideration, then the service rendered is
subject to VAT. This is despite payment being on a "no-profit, reimbursement-of-cost-only" basis.
LAPANDAY CORP. v. CIR (2009) if the income from the main business activity is subject to VAT, the
incidental income shall also be subject to VAT, provided that there is no particular provision applicable to
the specific transaction Lapanday Foods Corporation is a domestic corporation engaged in rendering

ALS2014B
ALS2014B 202 of 365
"#$
management services. Lapanday received a Formal Assessment Notice for alleged deficiency value-added tax
(VAT), expanded withholding tax (EWT), final withholding tax (FWT), and documentary stamp tax (DST). The
CIR said that Lapanday is liable to pay the deficiency VAT which resulted from the interest income it
derived from inter-company loans to its affiliates, as a form of financial assistance in the course of trade and
business. The issue is whether the interest on loans extended by Lapanday to its affiliates is subject to VAT.
Lapanday is a domestic corporation engaged in managing, promoting, administering or assisting in any business
or activity of corporations, partnerships, associations, individual or firm. When it extended loans to its affiliates,
it provided assistance to corporations, and thus performed services incidental to its business. Since the
loan assistance provided to its affiliates is incidental to its business, it is deemed a transaction in the course of
trade and business. Considering that Lapandays income from its management services is subject to VAT, it
necessarily follows then, that the interests from loan which is an incidental income, is also subject to VAT. 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. Lapandays income from loans extended to its
affiliates is subject to VAT. Whether it has realized profit or not is insignificant, as long as it has provided
financial assistance or services for a fee, remuneration or consideration, such service rendered is subject to
VAT.
VAT RUL. NO. 26-97, APRIL 1, 1997 In a few of their locations, San Miguel Corporation share the same buildings
with its subsidiaries. The buildings were leased from a third party and San Miguel Corporation was the named
lessee. SMC advances the payment to the lessor as well as the payment for utilities, maintenance and other
expenses. SMC then collects payment from the subsidiaries for their proportionate share, without profit or mark-
up. They ask for confirmation on whether these payments (subsidiaries to SMC), which are in the nature of
reimbursements, are subject to VAT. According to the BIR, under the tax code, a person who in the course of
trade or business, sells, barters, exchanges, leases goods or properties or renders services, and any person who
imports goods shall be subject to the value added tax." Accordingly, since SMC does not sell, barter, exchange,
nor lease any good or property and neither does it render any service to the subsidiaries, the above transactions are
not subject to the value added tax.
TOURIST TRADE AND TRAVEL CORP. v. CIR, CTA CASE NO. 4806, JAN. 19, 1996
BIR RUL. NO. 113-98, JULY 23, 1998 Isolated Sale of Microwave Backbone Transmission network The sale
of a microwave backbone transmission network by Liberty Broadcasting Network, Inc., a domestic corporation
holding a congressional franchise to provide the public with wireless radio communication services and to operate
radio communication stations nationwide, to another wireless communications carrier, being an isolated
transaction, is not in the course of its trade or business of selling communication services. Thus, not subject to
VAT. Moreover, the subject sale shall not result in any input tax credit to the buyer.
CIR v. MAGSAYSAY LINES, INC. (2006) VAT 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 Pursuant to a government program
for privatization, the National Development Company (NDC) decided to sell in one lot its National Marine
Corporation (NMC) shares and 5 of its ships. Magsaysay Lines, offering to buy the shares and vessels for P168
million, won the public bidding. Among the stipulated terms and conditions for the public auction was that the
winning bidder was to pay the 10% VAT on the value of the vessels. A formal request for a ruling on whether or
not the sale of the vessels was subject to VAT was filed. The BIR ruled that the sale of the vessels was subject to
the 10% VAT citing the fact that NCD was a VAT-registered enterprise, and thus its transactions incident to its
normal VAT-registered activity of leasing out personal property including the sale of its own assets are subject to
the 10% VAT. Magsaysay filed an appeal and a petition for refund of the VAT payments with the CTA. Both the
CTA and the CA ruled in favor of Magsaysay. Held: The sale is not subject to VAT. VAT 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. Carrying on business does not mean the performance of a single disconnected act, but means
conducting, prosecuting and continuing business by performing progressively all the acts normally incident
thereof; while doing business conveys the idea of business being done, not from time to time, but all the time.

ALS2014B
ALS2014B 203 of 365
"#$
Course of business or doing business connotes regularity of activity. In this case, the sale was an isolated
transaction. The sale which was involuntary and made pursuant to the declared policy of the Government for
privatization could no longer be repeated or carried on with regularity. The normal VAT-registered activity of
NDC is leasing personal property. As the transaction here was not made in the course of trade or business of
NDC, the sale is not subject to VAT.
CIR v. BENGUET CORPORATION (2005) change in VAT rating prejudicial when imposed after sale
transaction when it can no longer be passed to buyer Under Sec. 99 of the National Internal Revenue Code
(NIRC), as amended by Executive Order (E.O.) No. 273, then in effect, Benguet Corp applied for and was granted
by the BIR zero-rated status on its sale of gold to Central Bank. Relying on its zero-rated status, Benguet Corp
sold gold to the Central bank and then filed applications for tax credits for tax refunds/credits
corresponding to the input VAT but was expressly disallowed by the CIR based on BIR VAT Ruling No.
008-92 dated 23 January 1992 that was issued subsequent to the consummation of the subject sales of gold
to the Central Bank which provides that sales of gold to the Central Bank shall not be considered as export
sales and thus, shall be subject to 10% VAT. The court ruled that the rulings, circular, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them
would be prejudicial to the taxpayers. The determination of the issue of retroactivity hinges on whether
respondent would suffer prejudice from the retroactive application of VAT Ruling No. 008-92. VAT is a
percentage tax imposed at every stage of the distribution process on the sale, barter, exchange or lease of goods or
properties and rendition of services in the course of trade or business, or the importation of goods. It is an indirect
tax, which may be shifted to the buyer, transferee, or lessee of the goods, properties, or services. However, the
party directly liable for the payment of the tax is the seller. In this case, the adverse effect is that Benguet Corp
became the unexpected and unwilling debtor to the BIR of the amount equivalent to the total VAT cost of
its product, a liability it previously could have recovered from the BIR in a zero-rated scenario or at least
passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus, it is clear that
Benguet suffered economic prejudice when its sales of gold to the Central Bank were taken out of the zero-
rated category. The change in the VAT rating of Benguets transactions with the Central Bank resulted in the
twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same
time subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice
in money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.
ABAKADA GURO PARTY LIST v. ERMITA (2005) A new law regarding VAT was passed. Its validity was
assailed by different persons for different reasons. There also has been some confusion as to the implementation
of the law where people thought that it would result to a uniform increase in taxes in all goods.
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by
a VAT-registered person on the importation of goods or local purchase of good and services, including lease or
use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-
added tax due on the sale or lease of taxable goods or properties or services by any person registered or required
to register under the law.
Shell dealers claim that the contested sections impose limitations on the amount of input tax that may be
claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against the output
tax. It states, Provided, that the input tax inclusive of the input VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore,
the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of
the output tax, then 100% of such input tax is still creditable.
Shell dealers argue that the input tax partakes the nature of a property that may not be confiscated, appropriated,
or limited without due process of law. However, the SC said that input tax is not a property or a property right
within the constitutional purview of the due process clause. The right to credit input tax as against the output
tax is clearly a privilege created by law, a privilege that also the law can remove, or in this case, limit.

ALS2014B
ALS2014B 204 of 365
"#$
Shell also contends the validity of the section which imposes a 60-month period within which to amortize the
creditable input tax on purchase or importation of capital goods with acquisition cost of P1 Million pesos,
exclusive of the VAT component. The SC said that this argument is without basis because the taxpayer is not
permanently deprived of his privilege to credit the input tax.
Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan
to the government.76. In the same breath, Congress also justified its move by saying that the provision was
designed to raise an annual revenue of 22.6 billion.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, the SC said that it has not been shown that the class subject to the 5% final withholding tax has been
unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not
the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the
government. The State has the power to make classifications.
DIAZ v. SECRETARY OF FINANCE (2011)
Facts: Diaz and Timbol as the sponsor of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and
Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC and as Assistant Secretary of the
Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration
respectively, assail the validity of the imposition of tax by the BIR on tollways through a declaratory relief. They
hinge their claims primarily on two substantive issues: 1. Whether or not the government is unlawfully expanding
VAT coverage by including tollway operators and tollway operations in the terms franchise grantees and sale
of services under Section 108 of the Code; and 2. Whether or not the imposition of VAT on tollway operators a)
amounts to a tax on tax and not a tax on services; b) will impair the tollway operators right to a reasonable
return of investment under their TOAs; and c) is not administratively feasible and cannot be implemented.
Ruling: The court held that petitioners claim as to the extent of the law makers as to the scope of VAT is misplaced as
what should first be used by the courts in determining what it includes and excludes should be based on the
language used before the intention of the makers may be looked upon. The court cited Section 108 of the NIRC,
as amended which provides that: VAT is levied, assessed, and collected, on the gross receipts derived from the
sale or exchange of services as well as from the use or lease of properties. The third paragraph of Section 108
defines sale or exchange of services as follows:
The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air
and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies;
services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental
faculties.
It held that it is plain from the above that the law imposes VAT on all kinds of services rendered in the
Philippines for a fee, including those specified in the list. The enumeration of affected services is not exclusive.
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 VATs reach

ALS2014B
ALS2014B 205 of 365
"#$
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. In
addition, not only do tollway operators 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.
As for the issue on the tax on tax, Petitioners reliance on the case of MIAA v. CA is misplaced as what is involved
in that case is the selling through public auction of properties of the airport by the BIR to satisfy the unpaid real
estate tax of the airport. The court held in that case that since local governments have no power to tax the national
government, the City could not proceed with the auction sale. MIAA forms part of the national government
although not integrated in the department framework. Thus, its airport lands and buildings are properties of
public dominion beyond the commerce of man under Article 420(1)[of the Civil Code and could not be sold at
public auction. The discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that
tollway fees are users tax, but to make the point that airport lands and buildings are properties of public dominion
and that the collection of terminal fees for their use does not make them private properties. Tollway fees are not
taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the
government. The court furthered, VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. 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 sellers liability but merely the burden of the
VAT. VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under
Section 105 of the 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.
B. Sale of Goods or Properties
1. Transactions Covered
a. Actual Sale
Sec. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods
or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money
of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: Provided,
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
1/2%).
(1) The term 'goods or properties' shall mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan secret formula or
process, goodwill, trademark, trade brand or other like property or right;

ALS2014B
ALS2014B 206 of 365
"#$
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
(d) The right or the privilege to use motion picture films, films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term 'gross selling price' means the total amount of money or its equivalent which the purchaser pays
or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or
properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form
part of the gross selling price.
b. Transactions Deemed Sale
(B) Transactions Deemed Sale. The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for
sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons: or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods,
were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable aoods existing as of such
retirement or cessation.
Revenue Regulation 16-2005, Sep. 1, 2005, as Amended
Sec. 4.106-7. Transactions Deemed Sale.
(a) The following transactions shall be deemed sale pursuant to Sec. 106 (B) of the Tax Code:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended
for sale or for use in the course of business. Transfer of goods or properties not in the course of
business can take place when VAT-registered person withdraws goods from his business for his
personal use;
(2) Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT-registered person;
Property dividends which constitute stocks in trade or properties primarily held for sale or
lease declared out of retained earnings on or after January 1, 1996 and distributed by the
company to its shareholders shall be subject to VAT based on the zonal value or fair market
value at the time of distribution, whichever is applicable.
ii. Creditors in payment of debt or obligation.
(3) Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned. Consigned goods returned by the consignee within the 60-day period are not deemed sold;
(4) Retirement from or cessation of business with respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the
business is continued by the new owner or successor. The following circumstances shall, among
others, give rise to transactions deemed sale for purposes of this Section;

ALS2014B
ALS2014B 207 of 365
"#$
i. Change of ownership of the business. There is a change in the ownership of the business
when a single proprietorship incorporates; or the proprietor of a single proprietorship sells
his entire business.
ii. Dissolution of a partnership and creation of a new partnership which takes over the
business.
(b) The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where a transaction
is deemed a sale, barter or exchange of goods or properties under Sec. 4.106-7 paragraph (a) hereof, or where
the gross selling price is unreasonably lower than the actual market value. The gross selling price is
unreasonably lower than the actual market value if it is lower by more than 30% of the actual market value of
the same goods of the same quantity and quality sold in the immediate locality on or nearest the date of sale.
Nonetheless, if one of the parties in the transaction is the government as defined and contemplated in the
Administrative Code, the output VAT on the transaction shall be based on the actual selling price.
For transactions deemed sale, the output tax shall be based on the market value of the goods deemed sold as
of the time of the occurrence of the transactions enumerated in Sec. 4.106-7(a)(1),(2), and (3) of these
Regulations. However, in the case of retirement or cessation of business, the tax base shall be the acquisition
cost or the current market price of the goods or properties, whichever is lower.
In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual
market value shall be the tax base.
c. Changes in or Cessation of Status of a VAT-Registered Person
Sec. 106. Value-Added Tax on Sale of Goods or Properties. ...
(C) Changes in or Cessation of Status of a VAT-registered Person. The tax imposed in Subsection (A) of this
Section shall also apply to goods disposed of or existing as of a certain date if under circumstances to be
prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner, the status of a person as a VAT-registered person changes or is terminated.
Sec. 4.106-8. Change or Cessation of Status as VAT-registered Person.
(a) Subject to output tax
The VAT provided for in Sec. 106 of the Tax Code shall apply to goods or properties originally intended for sale
or use in business, and capital goods which are existing as of the occurrence of the following:
(1) Change of business activity from VAT taxable status to VAT-exempt status. An example is a VAT-
registered person engaged in a taxable activity like wholesaler or retailer who decides to discontinue such
activity and engages instead in life insurance business or in any other business not subject to VAT;
(2) Approval of a request for cancellation of registration due to reversion to exempt status.
(3) Approval of a request for cancellation of registration due to a desire to revert to exempt status after the
lapse of three (3) consecutive years from the time of registration by a person who voluntarily registered
despite being exempt under Sec. 109 (2) of the Tax Code.
(4) Approval of a request for cancellation of registration of one who commenced business with the
expectation of gross sales or receipts exceeding P1,500,000.00, but who failed to exceed this amount
during the first twelve months of operation.
(b) Not subject to output tax
The VAT shall not apply to goods or properties which are originally intended for sale or for use in the course of
business existing as of the occurrence of the following:

ALS2014B
ALS2014B 208 of 365
"#$
(1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by
another stockholder (individual or corporate) or group of stockholders. The goods or properties used in
business (including those held for lease) or those comprising the stock-in-trade of the corporation, having
a change in corporate control, will not be considered sold, bartered or exchanged despite the change in the
ownership interest in the said corporation.
However, the exchange of goods or properties including the real estate properties used in business or held
for sale or for lease by the transferor, for shares of stocks, whether resulting in corporate control or not, is
subject to VAT.
Illustration: Abel Corporation (transferee) is a merchandising concern and has an inventory of goods for
sale amounting to Php1 million. Nel Corporation (transferor), a real estate developer, exchanged its real
estate properties for the shares of stocks of Abel Corporation resulting to the acquisition of corporate
control. The inventory of goods owned by Abel Corporation (Php1 million worth) is not subject to output
tax despite the change in corporate control because the same corporation still owns them. This is in
recognition of the separate and distinct personality of the corporation from its stockholders. However, the
exchange of real estate properties held for sale or for lease by Nel Corporation, for shares of stocks of
Abel Corporation, whether resulting to corporate control or not, is subject to VAT, subject to exceptions
provided under Section 4.106-3 hereof. On the other hand, if the transferee of the transferred real
property by a real estate dealer is another real estate dealer, in an exchange where the transferor
gains control of the transferee-corporation, no output VAT is imposable on the said transfer. [In
bold and underlined is not in RR 10-2011, but was the amendment made by RR 4-2007.]
(2) Change in the trade or corporate name of the business;
(3) Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of the date
of merger or consolidation, shall be absorbed by the surviving or new corporation.
2. Taxable Base
a. Gross Selling Price
The term 'gross selling price' means the total amount of money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding
the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price.
Sec. 4.106-4. Meaning of the Term Gross Selling Price. The term gross selling price means the total amount of
money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding VAT. The excise tax, if any, on such goods or properties shall form part of
the gross selling price.
In the case of sale, barter or exchange of real property subject to VAT, gross selling price shall mean the
consideration stated in the sales document or the fair market value whichever is higher. If the VAT is not billed separately
in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of VAT. The
term fair market value shall mean whichever is the higher of: 1) the fair market value as determined by the
Commissioner (zonal value), or 2) the fair market value as shown in schedule of values of the Provincial and City
Assessors (real property tax declaration). However, in the absence of zonal value, gross selling price refers to the market
value shown in the latest real property tax declaration or the consideration, whichever is higher. If the gross selling price
is based on the zonal value or market value of the property, the zonal or market value shall be deemed exclusive of VAT.
Thus, the zonal value/market value, net of the output VAT, should still be higher than the consideration in the document
of sale, exclusive of the VAT. [Removed: If the VAT is not billed separately, the selling price stated in the sales document
shall be deemed to be inclusive of VAT.]

ALS2014B
ALS2014B 209 of 365
"#$
If the sale of real property is on installment plan where the zonal value/fair market value is higher than the
consideration/selling price, exclusive of the VAT, the VAT shall be based on the ratio of actual collection of the
consideration, exclusive of the VAT, against the agreed consideration , exclusive of the VAT, appearing in the Contract to
Sell/Contract of Sale applied to the zonal value/fair market value of the property at the time of the execution of the
Contract to Sell/Contract of Sale at the inception of the contract. Thus, since the output VAT is based on the market value
of the property which is higher than the consideration/selling price in the sales document, exclusive of the VAT, the input
VAT that can be claimed by the buyer shall be the separately-billed output VAT in the sales document issued by the
seller. Therefore, the output VAT which is based on the market value must be billed separately by the seller in the sales
document with specific mention that the VAT billed separately is based on the market value of the property.
Illustration:
ABC Corporation sold a parcel of land to XYZ Company on July 2, 2006 for P1,000,000.00, plus the output
VAT, with a monthly installment payment of P10,000.00, plus the output VAT. The zonal value of the subject property at
the time of sale amounted to P1,500,000.00. Compute for the output tax due on the installment payment.
Formula:
Actual collection (exclusive of the VAT) x Zonal value x 12%
Agreed consideration (exclusive of the VAT)
P10,000.00 x P1,500,000.00 = P15,000.00
P1,000,000.00
P15,000.00 x 12% = P1,800.00
Selling price is the amount of consideration in a contract of sale between the buyer and seller or the total price of
the sale which may include cash or property and evidence of indebtedness issued by the buyer, excluding the VAT.
b. Sales Discounts, Returns and Allowances
(D) Sales Returns, Allowances and Sales Discounts. The value of goods or properties sold and subsequently
returned or for which allowances were granted by a VAT-registered person may be deducted from the gross sales
or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount
granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening
of a future event may be excluded from the gross sales within the same quarter it was given.
Revenue Regulation 16-2005, Sep. 1, 2005
Sec. 4.106-9. Allowable Deductions from Gross Selling Price. In computing the taxable base during the month or
quarter, the following shall be allowed as deductions from gross selling price:
(a) Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the amount
thereof forming part of the gross sales duly recorded in the books of accounts.
Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening
of a future event, may be excluded from the gross sales within the same month/quarter it was given.
(b) Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the
buyer for sales previously recorded as taxable sales.
VAT RULING NO. 204-90, OCT. 16, 1990 Discounts granted to Ice Cream Parlors in the form of rebates for
meeting a pre-set monthly quota
- NOT allowed as deduction from gross selling price for VAT purposes

ALS2014B
ALS2014B 210 of 365
"#$
- applying SEC 6 of RR NO. 5-87: "discounts conditioned upon the subsequent happening of an event or
fulfillment of certain conditions, such as prompt payment or attainment of sales goals, shall NOT BE ALLOWED
AS DEDUCTIONS"
- only discounts granted and determined AT THE TIME OF SALE which are indicated in the invoice are allowed
as deductions from gross selling price.
c. Taxable Base for Transactions Deemed Sale and Below Market Gross Selling Price
Sec. 4.106-7. Transactions Deemed Sale.
(b) The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where a transaction is
deemed a sale, barter or exchange of goods or properties under Sec. 4.106-7 paragraph (a) hereof, or where the
gross selling price is unreasonably lower than the actual market value. The gross selling price is unreasonably
lower than the actual market value if it is lower by more than 30% of the actual market value of the same goods of
the same quantity and quality sold in the immediate locality on or nearest the date of sale. Nonetheless, if one of
the parties in the transaction is the government as defined and contemplated under the Administrative Code, the
output VAT on the transaction shall be based on the actual selling price.
For transactions deemed sale, the output tax shall be based on the market value of the goods deemed sold as of the
time of the occurrence of the transactions enumerated in Sec. 4.106-7(a)(1),(2), and (3) of these Regulations.
However, in the case of retirement or cessation of business, the tax base shall be the acquisition cost or the current
market price of the goods or properties, whichever is lower.
In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual
market value shall be the tax base.
C. Sale of Services
1. Meaning of Sale or Exchange of Service
Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties:
Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
1/2%).
The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
motels, rest-houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation
other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air

ALS2014B
ALS2014B 211 of 365
"#$
and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies;
services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental
faculties. The phrase 'sale or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
(2) The lease or the use of, or the right to use of any industrial, commercial or, scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection with the use of property or
rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased
from such nonresident person;
(6) The supply of technicai advice, assistance or services rendered in connection with technical management
or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease
or licensing agreement was executed if the property is leased or used in the Philippines.
The term 'gross receipts' means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services
and deposits and advanced payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.
Sec. 4.108-2. Meaning of Sale or Exchange of Services. The term sale or exchange of services means the
performance of all kind of services in the Philippines for others for a fee, remuneration or consideration, whether in kind
or in cash, including those performed or rendered by the following:
(1) construction and service contractors;
(2) stock, real estate, commercial, customs and immigration brokers;
(3) lessors of property, whether personal or real;
(4) persons engaged in warehousing services;
(5) lessors or distributors of cinematographic films;
(6) persons engaged in milling, processing, manufacturing or repacking goods for others;
(7) proprietors, operators, or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theaters, and
movie houses;
(8) proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers;

ALS2014B
ALS2014B 212 of 365
"#$
(9) dealers in securities;
(10) lending investors;
(11) transportation contractors on their transport of goods or cargoes, including persons who transport goods or
cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes;
(12) common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines;
(13) sales of electricity by generation, transmission, and/or distribution companies;
(14) franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting and all
other franchise grantees, except franchise grantees of radio and/or television broadcasting whose annual
gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and franchise
grantees of gas and water utilities;
(15) non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and
(16) similar services regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties.
The phrase sale or exchange of services shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
(2) The lease or the use of, or the right to use any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right as is mentioned in subparagraph (2) hereof or any
such knowledge or information as is mentioned in subparagraph (3) hereof;
(5) The supply of services by a non-resident person or his employee in connection with the use of property or
rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from
such nonresident person;
(6) The supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes, and discs; and
(8) The lease or the use of, or the right to use, radio, television, satellite transmission and cable television time.
LHUILLIER v. CIR (2003) Petitioner is engaged in the pawnshop business. It was ascertained that he still has
deficiency income and VAT including interest. The issue here is w/n a pawnshop business is that of service or
mere forbearance of money. Petitioner maintains that he should not be held liable to pay 10% VAT since a
pawnshop is not engaged in the sale of services as contemplated under now Section 108(a) of the Tax Code.
The petitioners claim is unmeritorious. Section 108(a) provides for the imposition of VAT on sale of services and
use and lease of properties. To wit: Sec. 108 (a) There shall be levied, assessed, and collected a VAT equivalent
of 10% of gross receipts derived from the SALE OR EXCHANGE OF SERVICES including the use or lease of
properties.
Sale or Exchange of Services means the performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration, including those performed or rendered by construction and service

ALS2014B
ALS2014B 213 of 365
"#$
motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation
other domestic common carriers by land, air and water relative to their transport of goods or cargoes; services of
franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code; services of banks, non-bank financial intermediaries and finance
companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity
and bonding companies; and similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties. From the plain language of the law, the sale or exchange
of services is subject to VAT and the phrase "sale or exchange of services" encompasses the performance of all
kinds of services for others for a fee, remuneration or consideration. The enumeration is not exclusive, which
means that other persons performing services for a fee, remuneration or consideration, who are not expressly
mentioned in the enumeration, are also subject to VAT.
2. Taxable Base: Gross Receipts Actually and Constructively Received
Sec. 108(A), NIRC, as amended by Rep. Act. No. 9337, supra.
SEC. 4.108-4. Definition of Gross Receipts. Gross receipts refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits applied as payments for services rendered and advance payments actually or
constructively received during the taxable period for the services performed or to be performed for another person,
excluding VAT, except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement
for advance payment on behalf of another which do not redound to the benefit of the payor.
A payment is a payment to a third (3rd) party if the same is made to settle an obligation of another person, e.g.,
customer or client, to the said third party, which obligation is evidenced by the sales invoice/official receipt issued by said
third party to the obligor/debtor (e.g., customer or client of the payor of the obligation).
An advance payment is an advance payment on behalf of another if the same is paid to a third (3rd) party for a
present or future obligation of said another party which obligation is evidenced by a sales invoice/official receipt issued
by the obligee/creditor to the obligor/debtor (i.e., the aforementioned another party) for the sale of goods or services by
the former to the latter.
For this purpose unrelated party shall not include taxpayers employees, partners, affiliates (parent, subsidiary
and other related companies), relatives by consanguinity or affinity within the fourth (4th) civil degree, and trust fund
where the taxpayer is the trustor, trustee or beneficiary, even if covered by an agreement to the contrary.
Constructive receipt occurs when the money consideration or its equivalent is placed at the control of the person
who rendered the service without restrictions by the payor. The following are examples of constructive receipts:
(1) deposit in banks which are made available to the seller of services without restrictions;
(2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as
payment for services rendered; and
(3) transfer of the amounts retained by the payor to the account of the contractor.
BIR RUL. NO. 195-89, SEPT. 8, 1989 The term gross receipts means all amounts received by the prime or principal
contractor as the total contract price, undiminished by any amount paid to the subcontractor under the
subcontractor arrangement. Gross Receipts for the purposes of applying 4% contractor's tax shall refer only to
CASH ACTUALLY RECEIVED and shall not include receivables not yet received.

ALS2014B
ALS2014B 214 of 365
"#$
VAT RUL. NO. 111-88, APRIL 25, 1989 The basis of the 10% VAT prescribed in Sec. 102 of the tax code is the
gross receipts of the person rendering service. Hence, the value added tax is computed on the total composition of
billings, i.e., due to employees, due to the government, depreciation of equipment, supplies and admin overhead.
VAT RUL. NO. 205-90, OCT. 16, 1990
Smith, Bell & Company, Inc.
2294 Pasong Tamo Extension 1200 Makati, Metro Manila
Attention: C. S. Quintanilla Corporate Legal Counsel
Sirs:
This refers to your letter dated November 23, 1989 seeking clarification on issues regarding the value-added tax
(VAT). As represented, your company enters into contracts with your affiliates for services such as legal and corporate
secretarial works, accounting, personnel and others. The managed company shoulders the expenses incurred in connection
with the above-mentioned services and pays an agreed management fee out of the profits of the company. Therefore, if the
managed company has no profit, your company does not receive any fee. You are now inquiring if the following
payments for services are subject to VAT:
1. management fee;
2. expenses in connection with the services rendered; and
3. reimbursement by the managed company of the salary and fringe benefits (SSS, Medicare, pension/retirement)
paid to the Chief Operating Officer assigned to the managed company, the latter being an employee of your
company.
In reply, please be informed that Sec. 2(m) of Revenue Regulations No. 5-87 defines "gross receipts" as the total
amount of money or its equivalent representing the contract price, compensation or service fee, including the amount
charged for materials supplied with the service and deposits or advance payments actually or constructively received
during the taxable year. Since this definition includes all the payments mentioned in your query, said payments are subject
to the 10% VAT.
Very truly yours,
JOSE U. ONG
a. Amounts Earmarked for Payment to Third Parties
Sec. 4.108-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as Amended by Rev. Regs. No. 4-2007, Feb. 7, 2007, supra.
CIR v. TOURS SPECIALISTS, INC. (1990) Gross Receipts Actually and Constructively Received; Amounts
Earmarked to Third Parties ! not part of gross receipts
Facts: The Commissioner of Internal Revenue filed a petition to review on certiorari to the CTA decision which ruled
that the money entrusted to private respondent Tours Specialist (TS), earmarked and paid for hotel room charges
of tourists, travellers and/or foreign travel agencies do not form part of its gross receipt subject to 3% independent
contractors tax.
Tours Specialist derived income from its activities and services as a travel agency, which included booking
tourists in local hotels. To supply such service, TS and its counterpart tourist agencies abroad have agreed to offer
a package fee for the tourists (payment of hotel room accommodations, food and other personal expenses). By
arrangement, the foreign tour agency entrusts to TS the fund for hotel room accommodation, which in turn paid
by the latter to the local hotel when billed.
Despite this arrangement, CIR assessed private respondent for deficiency 3% contractors tax as independent
contractor including the entrusted hotel room charges in its gross receipts from services for years 1974-1976 plus
compromise penalty.

ALS2014B
ALS2014B 215 of 365
"#$
During one of the hearings in this case, a witness, Serafina Sazon, Certified Public Accountant and in charge of
the Accounting Department of petitioner, had testified, her credibility not having been destroyed on cross
examination, categorically stated that the amounts entrusted to it by the foreign tourist agencies intended for
payment of hotel room charges, were paid entirely to the hotel concerned, without any portion thereof being
diverted to its own funds. The testimony of Serafina Sazon was corroborated by Gerardo Isada, General Manager
of petitioner, declaring to the effect that payments of hotel accommodation are made through petitioner without
any increase in the room charged X X X.
GM Isada stated that the payment through them is only an act of accommodation on (its) part and the agent
abroad instead of sending several telexes and saving on bank charges they take the option to send the money to
(TS) to be held in trust to be endorsed to the hotel.
Nevertheless, CIR caused the issuance of a warrant of distraint and levy, and had TS bank deposits garnished.
Issue: W/N amounts received by a local tourist and travel agency included in a package fee from tourists or foreign tour
agencies, intended or earmarked for hotel accommodations form part of gross receipts subject to 3% contractors
tax
Held: No. Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayer which do not belong to them and do not redound to the taxpayers benefit; and it is not necessary
that there must be a law or regulation which would exempt such monies or receipts within the meaning of
gross receipts under the Tax Code. Parenthetically, the room charges entrusted by the foreign travel agencies to
the private respondents do not form part of its gross receipts within the definition of the Tax Code. The said
receipts never belonged to the private respondent. The private respondent never benefited from their payment to
the local hotels. This arrangement was only to accommodate the foreign travel agencies.
BIR RUL. NO. DA-069-2006, MARCH 1, 2006 Amounts entrusted to a taxpayer which do not belong to it, do not
redound to its benefit; and intended or earmarked for payment to third parties, do not constitute gross
receipts/income subject to income tax and VAT.
b. Reimbursement of Expenses
Sec. 4.108-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev. Regs. No. 4-2007, Feb. 7, 2007, supra.
VAT RUL. NO. 283-88, JULY 4, 1988 This refers to your letter dated March 4, 1988 stating that your service billing
as a customs broker covers the following
1. Advances for expenses payable to government entities and/or government controlled corporations
2. Advances for trucking, transportation, petty, representations and other miscellaneous expenses related to
shipping
3. Brokerage fee
It is represented that items #1 and #2 above are mere advances that are subject to reimbursement and
therefore not covered by VAT
You now request confirmation of your opinion that amounts advanced for and on behalf of our clients are not
subject to the 10% value-added tax; and that only brokerage fee is subject to VAT.
In reply, we hereby confirm your opinion that in the aforesaid transactions the brokerage fee is subject to VAT;
whereas advances indicated under #1 and #2 are exempt from VAT provided that:
1. You issue a VAT invoice/receipt corresponding to the amount of brokerage fee
2. The advances are billed separately and a non-VAT receipt is issued to your client for the total amount
advanced;

ALS2014B
ALS2014B 216 of 365
"#$
3. Each person or entity who directly renders service to your client for whom you advanced the payment, shall
issue a receipt/invoice in the name of your client.
4. For liquidation purposes, you may attach the original copy of all invoices/receipts issued in the name of your
client to your non-VAT receipt reflecting the total amount being reimbursed to you.
VAT RUL. NO. 87-88, APRIL 14, 1988
MANN (ASIA) Resources Dev't., Corp.
V.V. Soliven Bldg. I EDSA, Greenhills
San Juan, Metro Manila
Sirs:
Attention: Mrs. Estelita Madlansacay Treasurer
This refers to your letter dated March 22, 1988 requesting information on the applicability of the value-added tax
on the following businesses:
1. Review classes for nursing, CGFNS, nutrition and midwifery;
2. Recruitment services; and
3. General merchant.
In reply, please be informed that all of the above-mentioned activities are subject to VAT pursuant to Sections
100 and 102 of the Tax Code, as amended by E. O. No. 273. For tax credit purposes, the input taxes for the purchase of
goods for use as supplies in connection with trade or business or as materials in the sale of services can be claimed against
your output law.
In the computation of the VAT on recruitment services, the basis of the tax is the amount of placement fee which
will not include reimbursement of expenses which shall be limited to fees for passport/visa, medical examination,
clearances and inoculation provided that these expenses are supported by receipts issued by the supplying company or
government agency in the name of the applicant. On the other hand, the agency is required to pay the 10% VAT on the
entire amount of placement fee if the abovementioned reimbursable expenses are supported by receipts issued in the name
of the agency.
Very truly yours,
BIENVENIDO A. TAN, JR.
VAT RUL. NO. 97-88, APRIL 15, 1988
Mr. Antonio T. Tolentino
President
United Human Resources Management, Inc. Room 1107, 11th Floor Pacific Bank Building 6776 Ayala Avenue
Makati, M.M.
Sir:
This refers to your letter dated February 16, 1988 requesting on the proper computation of the value added tax in
the service income of your contractual or temporary staff.
In reply thereto please be informed that inasmuch as your company provides services to different client *(1) gross
salary *(2) fees including the amount *(3) the services and *(4) subject to the 10% value added tax under Sec. 102 of the
NIRC, as amended by E.O. No. 273.
Please be guided accordingly.
Very truly yours,
BIENVENIDO A. TAN, JR.

ALS2014B
ALS2014B 217 of 365
"#$
D. Importation of Goods
Sec. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer
prior to the release of such goods from customs custody: Provided, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: Provided, further, That the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 1/2%).
(B) Transfer of Goods by Tax-exempt Persons. In the case of tax free importation of goods into the Philippines by
persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged
in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered
the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such
importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the
possessor thereof.
II. TRANSACTIONS SUBJECT TO ZERO-RATED VAT
A. Difference Between Zero-Rated and Exempt
Sec. 4.106-5. Zero-Rated Sales of Goods or Properties. A zero-rated sale of goods or properties (by a VAT-registered
person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on
purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in
accordance with these Regulations.
...
Sec. 4.108-5. Zero-Rated Sale of Services.
(a) In general. A zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT
purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or
services related to such zero-rated sale shall be available as tax credit or refund in accordance with these
Regulations.
...
SEC. 4.109-1. VAT-Exempt Transactions.
(A) In general. VAT-exempt transactions refer to the sale of goods or properties and/or services and the use or
lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT
(input tax) on purchases.
The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers
because the said transaction is not subject to VAT.

ALS2014B
ALS2014B 218 of 365
"#$
CIR v. CEBU TOYO CORPORATION (2005) Cebu Toyo, subsidiary of Toyo Lens (Japan-based non-resident
corporation), is engaged in the manufacture of lenses. Its principal office is located at Mactan Export Processing
Zone (MEPZ). MEPZ is registered under the Philippine Economic Zone Authority (PEZA) and its also
registered w/ the BIR as a VAT taxpayer. Cebu sells 80% of its products to Toyo Lens Japan. Cebu filed a
quarterly VAT returns on the belief that such sales are considered export sales subject to VAT at 0% rate under
Section 106(A)(2)(a). So, Cebu Toyo eventually applied for tax credit/refund of VAT. CTA granted the refund
and CA affirmed.
CIRs contention that Cebu Toyo is not entitled to refund for being exempt from VAT is untenable. This
argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Sec. 23 of RA
7916. Note that under said statute, the respondent had 2 options w/ respect to its tax burden. It could avail of an
income tax holiday pursuant to provisions of EO 226, thus exempt it from income taxes for a number of years but
not from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including
VAT under PD 66 and pay only the preferential tax rate of 5% under RA 7916.
Taxable transactions are those transactions which are subject to value-added tax either at the rate of 10% or 0%.
In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and
leases of goods, properties or services. An exemption means that the sale of goods, properties or services and the
use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid
Cebu Toyo is engaged in taxable transactions subject to VAT. Generally, sale of goods and supply of services
performed in the Philippines are taxable at the rate of 10%. However, export sales, or sales outside the
Philippines, shall be subject to value-added tax at 0% if made by a VAT-registered person.
The purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction completely
from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free of
VAT. While the zero rating and the exemption are computationally the same, they actually differ in several
aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is
not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as tax
credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases
despite the issuance of a VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while
registration is optional for VAT-exempt persons.
Cebu Toyo is engaged in the export business and is registered as a VAT taxpayer per Certificate of Registration of
the BIR. Further, the records show that the respondent is subject to VAT as it availed of the income tax holiday
under EO 226. Perforce, respondent is subject to VAT at 0% rate and is entitled to a refund or credit of the
unutilized input taxes.
CIR v. SEAGATE TECHNOLOGY PHILIPPINES (2005) VAT Registration and not Application for Effective
Zero Rating is indispensible to claim VAT refund. Seagate is a resident foreign corp. registered with the SEC
and with the Philippine Export Zone Authority (PEZA) with the primary business of manufacturing of recording
components primarily used in computers for export. It is also a VAT registered entity. It filed its VAT returns and
eventually filed for refund of VAT input taxes. CIR denied and claimed among others that, even if Seagate was a
PEZA registered Ecozone Enterprise its business is not subject to VAT and the capital goods and services it
purchased is not used in a VAT taxable business and as such is not entitled to refund of input taxes on such capital
groups. CTA ruled in favor of Seagate, granting the refund which was affirmed by the CA. The SC ruled that as a
PEZA registered enterprise within a special economic zone, Seagate is entitled to the fiscal incentives and benefits
provided by PD 66 or EO 226 and enjoy all the benefits, advantage or exemptions under RA 7227 and 7844.
Related to this decision is the issue belatedly introduced by the CIR (and most important for our topic): Whether

ALS2014B
ALS2014B 219 of 365
"#$
or not application for Effective Zero Rating is required? The SC said no. BIR regulations additionally requiring an
approved prior for effective zero rating cannot prevail over the clear VAT nature of Seagates transactions. This
regulation is not within the authority given by Congress. A mere administrative issuance like the BIR regulation
cannot amend the law. Other than the general registration of a taxpayer, the VAT law does not require an
additional application to be made for such a taxpayers transaction to be considered effectively zero rated. An
effectively zero rated transaction does not and cannot become exempt simply because the application was not
made or if made was denied. To allow the additional requirement is give unlimited discretion to the BIR officials
or agents who may maliciously deny such application. Also, even is such application is not made all the specials
laws exempt Seagate from internal revenue laws but also from the regulations issued pursuant thereto. A VAT
registered status, as well as compliance with invoicing requirements, is sufficient for the effective zero rating of
the transaction of a taxpayer. It transaction cannot be exempted by its mere failure to apply for their effective zero
rating. Otherwise, their VAT exemption would be determined, not by their nature, but by the taxpayer, or tax
officials negligence.
CIR v. TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. (2005) Sales made to PEZA-Registered
enterprises are considered indirect exports, hence, sales by a VAT-registered seller are subject to 0%VAT,
while sales of non-VAT Registered sellers are VAT-exempt. Toshiba is engaged in the business of
manufacturing and exporting of electrical and mechanical products and goods of all kinds, including, without
limitation, to IT products and other computer related goods (i.e., hardware, CD-ROM, PCBs, etc.). Toshiba is also
registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise. Toshiba
filed its VAT returns for the first and second quarters of taxable year 1996 with an excess input tax credit. It
alleged that the said excess input VAT was from its purchases of capital goods and services which remained
unutilized since there was still no output VAT. Consequently, Toshiba filed with the One-Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center of the Department of Finance (DOF) applications for tax credit/refund of
its unutilized input VAT. Toshiba then filed before the CTA a Petition for Review before the expiration of the 2
year prescriptive period. The CTA ordered the CIR to refund to Toshiba. The CTA denied CIRs MR. The CA
dismissed CIRs Petition for Review.
The SC held that Toshiba is entitled to refund. The CIR argued that Toshiba is actually VAT-exempt, invoking
the Sec. 103(q) of the Tax Code of 1977 which provides that transactions exempted under special laws or
international agreements signed by the Philippines, are VAT-exempt transactions, hence no input VAT can be
claimed. However, the SC ruled that Sec. 103(q) of the Tax Code of 1977, cannot apply to transactions of Toshiba
because although Sec. 103(q) provides that transactions covered by special laws may be exempt from VAT, the
very same section provides that those falling under PD No. 66 are not. PD No. 66, creating the Export Processing
Zone Authority (EPZA), is the predecessor of RA No. 7916, under which the EPZA evolved into the PEZA.
Consequently, the exception of EPZA from Section 103(q) of the Tax Code of 1977, extends likewise to PEZA.
Therefore, transactions with ECOZONE entities are not covered by Sec. 103(q) on exempt transactions.
The SC explained that PEZA-registered enterprises are VAT-exempt entities (see NB) because they are located
within an ECOZONE, and that RA No. 7916 establishes the fiction that ECOZONES are foreign territory. An
ECOZONE is an area in the Philippines specially designated by fiction of law as foreign territory. As a result,
sales made by a person located in the Customs Territory (territory outside the ECOZONE) to a buyer located
inside the ECOZONE shall be treated as an exportation from the Customs Territory. It is as if a seller is exporting
goods to another country, only that the goods do not actually leave the Philippines, but is only transported within
the Philippines in different customs territories.
The Philippine VAT system adheres to the Cross Border Doctrine, which provides that 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.
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 ten percent (10%) VAT.
The BIR issued Revenue Memorandum Circular (RMC) No. 74-99, on 15 October 1999, pertinent provisions are
provided, thus:

ALS2014B
ALS2014B 220 of 365
"#$
(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes,
except real property tax, pursuant to R.A. No. 7916, as amended:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject
to zero percent (0%) VAT.
(b) Sale of service. This shall be treated subject to zero percent (0%) VAT under the cross border
doctrine of the VAT System.
(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime, hence, subject
to taxes under the NIRC, e.g., Service Establishments which are subject to taxes under the NIRC rather than the
5% special tax regime:
(a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject
to zero percent (0%) VAT
(b) Sale of Service. This shall be treated subject to zero percent (0%) VAT under the cross border
doctrine of the VAT System
Therefore, no output VAT may be passed on to an ECOZONE enterprise since it is a VAT-exempt entity. The
VAT treatment of sales to an ECOZONE enterprise, however, varies depending on whether the supplier from the
Customs Territory is VAT-registered or not.
Sales of goods, properties and services by a VAT-registered supplier from the Customs Territory to an
ECOZONE enterprise shall be treated as export sales. If such sales are made by a VAT-registered supplier, they
shall be subject to VAT at zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not
pass on any output VAT to the ECOZONE enterprise, and at the same time, shall be entitled to claim tax
credit/refund of its input VAT attributable to such sales. Zero-rating of export sales primarily intends to benefit
the exporter (i.e., the supplier from the Customs Territory), who is directly and legally liable for the VAT, making
it internationally competitive by allowing it to credit/refund the input VAT attributable to its export sales.
Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered supplier would only be exempt
from VAT and the supplier shall not be able to claim credit/refund of its input VAT.
Note that before the effectivity of the BIR RMC No. 74-99, the Courts follow the rule that if the entity is subject
to 5% GIT, no VAT shall be transferred to it. If the entity is subject to Income Tax Holiday, VAT may be
transferred to the buyer. Thus, since the purchases of Toshiba were made in 1996, prior to the issuance of the
RMC, and that Toshiba was under the Income Tax Holiday, Toshibas purchases included VAT. Therefore it is
proper for Toshiba to claim input tax refund from its purchases because Toshibas purchases should not have
included VAT, as it is now considered a 0% VAT or VAT-exempt sale from the seller.
NB: The SC said that theres a difference between VAT-exempt transactions from VAT-exempt entities. An
exempt transaction involves goods or services which 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.
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 VAT.
CIR v. SEKISUI JUSHI PHILIPPINES, INC. (2006) Respondent registered as VAT taxpayer with the BIR and
filed its quarterly returns reflecting therein input taxes in the amount of P4,631,132.70 paid by it in connection
with its domestic purchase of capital goods and services. Said input taxes remained unutilized since respondent
has not engaged in any business activity or transaction for which it may be liable for output tax and for which said
input taxes may be credited. It then filed two (2) separate applications for tax credit/refund of VAT input taxes
paid with the One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance.
There being no action on its application for tax credit/refund under Section 112 (B) of the 1997 National Internal
Revenue Code (Tax Code), as amended, private respondent filed, within the two (2)-year prescriptive period
under Section 229 of said Code, a petition for review with the Court of Tax Appeals. The issue is whether or not
respondent is entitled to a refund.

ALS2014B
ALS2014B 221 of 365
"#$
The court held that respondent is entitled. An entity registered with the PEZA as an ecozone may be covered by
the VAT system. Section 23 of Republic Act 7916, as amended, gives a PEZA-registered enterprise the option to
choose between two fiscal incentives: a) a five percent preferential tax rate on its gross income under the said law;
or b) an income tax holiday provided under Executive Order No. 226 or the Omnibus Investment Code of 1987,
as amended. If the entity avails itself of the five percent preferential tax rate under the first scheme, it is exempt
from all taxes, including the VAT; under the second, it is exempt from income taxes for a number of years, but
not from other national internal revenue taxes like the VAT.
Respondent availed itself of the fiscal incentive of an income tax holiday and thus became subject to the VAT.
Notably, while an ecozone is geographically within the Philippines, it is deemed a separate customs territory and
is regarded in law as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate
customs territory are deemed as exports and treated as export sales. These sales are zero-rated or subject to a tax
rate of zero percent. It has been shown that respondent has no output tax with which it could offset its paid input
tax. Since the subject input tax it paid for its domestic purchases of capital goods and services remained
unutilized, it can claim a refund for the input VAT previously charged by its suppliers. The amount of
P4,377,102.26 is excess input taxes that justify a refund.
CONTEX CORP. v. CIR (2004) under zero-rating all VAT is removed from covered goods, activity or firm on
the other hand exemption only removes the VAT at the exempted stage Contex Corpoation (Contex) is a
domestic manufacturing SBMA-registered firm and thus exempted from all local and national internal revenue
taxes. It is also registered as a non-VAT taxpayer. In 1998, Contex purchased needed materials and the supplier
shifted the 10% VAT on the item. Since they are exempted from taxes, Contex then filed for tax refund or tax
credit for the VAT it paid. The Supreme Court disallowed the application for refund claiming that VAT refund is
only applicable to zero-rated taxes and VAT-registered entities and NOT to EXEMPTED entities. According to
SC, VAT exemption means that actions or sale of goods or properties is not subject to VAT because it is already
removed at the exempted stage. With this, VAT-exempted entities cant claim for tax refund. Zero-rated sales,
on the other hand, are sales by VAT-registered parties which are subjected to 0% rate. The sale is still a taxable
transaction but zero-rated, thus it shall be available for tax credit or refund. In this case, since Contex
Corporation is a VAT-Exempt entity thus it is not a proper party to claim for refund or tax credit. SC held
that only VAT-registered entities can claim for VAT refund or credit.
B. Automatically Zero-Rated Transactions
1. Sale of Goods and Properties
(A) Rate and Base of Tax. ...
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales. The term 'export sales' means:
1. The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing
or repacking in the Philippines of the said buyer's goods and paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP):

ALS2014B
ALS2014B 222 of 365
"#$
3. Sale of raw materials or packaging materials to export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;
4. Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
5. Those considered export sales under Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws; and
6. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations.
(b) Foreign Currency Denominated Sale. The phrase 'foreign currency denominated sale' means
sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or
manufactured in the Philippines for delivery to a resident in the Philippines, paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).
2. Sale of Services
Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. ...
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines
which goods are subsequently exported, where the services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
...
(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.
CIR v. PLACER DOME TECHNICAL SERVICES (PHILS.), INC. (2007) Mine tailings escaped from the place
Marcopper Mining was mining into the Boac River and surrounding areas, potentially causing environmental
damage. To contain the damage and prevent further leaks, Placer Dome, 40% owner of Marcopper, undertook to
clean up the mess. Placer Dome engaged Placer Dome Technical Services Limited, a Canadian subsidiary, which
in turn hired Placer Dome Philippines, respondent in this case and Filipino VAT-registered entity. Placer Dome
Phil. now claims 0% VAT for its clean up services, as it was paid in foreign currency by Placer Dome Canada.
The CIR refused, citing RR 5-96 and VAT Ruling 40-98 interpreting Sec. 102(b)(2) of the 1986 NIRC [now Sec.
108(b)(2)]. RR 5-96 provided for examples of 0% VAT services, which included project studies, information
services, engineering and architectural designs, and other similar services, while VAT Rul. 40-98 used such RR
and the principle of ejusdem generis to deny the claim of 0% VAT for services rendered by travel agents to
foreign tourists. The VAT Ruling also mentioned that 0% VAT services need to be consumed abroad in order to
be eligible as 0% VAT transactions.
The Supreme Court ruled in favor of Placer Dome Phil., saying 1) the clean up services are subject to 0% VAT, as
it is included in the broad scope of services under the NIRC; 2) RR 5-96 only provided for illustrations and did
not limit the scope of services under the NIRC, because the enumeration given was not of a discernible class

ALS2014B
ALS2014B 223 of 365
"#$
and it unduly limited the broad scope of the law; and 3) VAT Rul. 40-98 was erroneous because ejusdem generis
cannot be used for the enumeration under RR 5-96 [because of #2] and services are necessarily consumed in the
place they are performed. This case relied heavily on CIR v. American Express in saying that services performed
by VAT-registered persons in the Philippines (other than processing, manufacturing, or repacking of goods
for persons doing business outside the Philippines), when paid in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The broad scope of
services under the law is not vague and needs no interpretation as it is very clear, as even clarified by the
Senate deliberations of Senators Herrera and Maceda.
CIR v. AMERICAN EXPRESS INTL, INC. (PHIL. BRANCH) (2005) Respondent is the Phil. Branch of AMEX
USA and a VAT registered taxpayer. It acts as a servicing unit by facilitating the collection and payment of
receivables belonging to AMEX Hongkong (non-resident foreign client) from card members and service
establishments found in the Phils. It filed a letter request to the BIR for refund of its 1997 excess input taxes.
Due to the inaction of the BIR, it filed a petition before the CTA. According to respondent, a) under Sec 102
export sales by a VAT registered person, consideration of which is paid for in acceptable foreign currency
inwardly remitted to the Phil and accounted for in accordance with BSP regulations are subject to VAT at zero
percent and b) under Sec 106, input taxes on domestic purchases of taxable goods and services related to zero-
related revenues are available as tax refund. Both CTA and CA held a refund was due. Issue: W/N respondent is
entitled to a refund of excess input tax for 1997? YES. Section 102B provides for the services or transactions
subject to 0% rate:(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP;(2) Services other than those mentioned
in the preceding subparagraph, e.g. those rendered by hotels and other service establishments, the consideration
for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the BSP. Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other
than the processing, manufacturing or repackaging of goods for persons doing business outside the
Philippines), when paid in acceptable foreign currency and accounted for in accordance with the
Rules&Reg of BSP, are zero-rated. 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. In this case, the facilitation of the
collection of receivables is different from the utilization of consumption of the outcome of such service. While the
facilitation is done in the Philippines, the consumption is not. The services rendered by respondent are performed
upon its sending to its foreign client the drafts and bills it has gathered from service establishments here, and are
therefore, services also consumed in the Philippines. Under the destination principle, such service is subject to
10% VAT. However, the law clearly provides for an EXCEPTION to the destination principle; that is 0%
VAT rate for services that are performed in the Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the R&R of BSP. The respondent meets the following requirements for
exemption, and should be given a refund because the (1) Service be performed in the Philippines (2) The
service fall under any of the categories in Section 102B of the Tax Code and (3)It be paid in acceptable
foreign currency accounted for in accordance with BSP Rules&Reg.
CIR v. BURMEISTER & WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. (2007) Burmeister
Mindanao (Respondent), was a subcontractor for a foreign Consortium (Burmeister Demark et al.) , operates
and maintains NAPOCORs power barges in the Philippines. NAPOCOR pays the Consortium, through its non-
resident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays Burmeister -
Mindanao also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This
payment scheme does not entitle Burmeister - Mindanao to 0% VAT. Since the place of payment is immaterial,
much less is the place where the output of the service is ultimately used. An essential condition for entitlement to
0% VAT under Section 102(b)(1) and (2)[ now Sec. 108 of the tax code] is that the recipient of the services is a
person doing business outside the Philippines. In this case, the recipient of the services is the Consortium, which
is doing business not outside, but within the Philippines because it has a 15-year contract to operate and maintain
NAPOCORs power barges in Mindanao.

ALS2014B
ALS2014B 224 of 365
"#$
Although the VAT system generally follows the "destination principle" (exports are zero-rated whereas imports
are taxed). However, there is an exception to this rule. This exception refers to the 0% VAT on services
enumerated in Section 102 and performed in the Philippines. For services covered by Section 102(b)(1) and (2),
the recipient of the services must be a person doing business outside the Philippines. Thus, to be exempt from the
destination principle under Section 102(b)(1)(2), the services must be (a) performed in the Philippines; (b) for a
person doing business outside the Philippines; and (c) paid in acceptable foreign currency accounted for in
accordance with BSP rules.
EXTRA INFO: In seeking a refund of its excess output tax, B-Mindanao relied on a VAT Ruling and a BIR
Ruling which held that the services being rendered by B- Mindanao is subject to VAT at 0%. Reliance on these
BIR rulings binds the CIR. However, upon the filing of CIRs Answer before the CTA contesting the claim for
refund is deemed a revocation of the rulings. Therefore from the time of revocation the respondent can be liable
but not before, since the revocation in this case is not one of those that could be given retroactive effect under the
tax code. (NOT IMPORTANT)
3. Meaning of Accounted for in Accordance with the Rules and Regulations of the BSP
BIR RUL. NO. 176-94 Export sales, paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP will qualify as zero-rated sales even if the proceeds thereof are not converted into
philippine currency.
VAT RUL. NO. 47-00, OCT. 26, 2000 The term "and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas is implemented by BSP Circular No. 1389 dated April 13, 1993 the pertinent
portion of which provides:
Sec. 20: Disposition of Export Proceeds - Foreign exchange receipts, acquisitions or earnings of residents from
exports may, at the option of said exporter, be sold for pesos to AABS or outside the banking system, retained, or
deposited in foreign currency accounts, whether in the Philippines or abroad and may be used freely for any
purpose ... .
Accordingly, your opinion that export sales paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the proceeds thereof are
not converted to Philippine pesos, is hereby confirmed.
C. Effectively Zero-Rated Transactions
1. Sale of Goods and Properties
(A) Rate and Base of Tax. ...
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales. The term 'export sales' means:
2. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing
or repacking in the Philippines of the said buyer's goods and paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP):
3. Sale of raw materials or packaging materials to export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;
4. ...

ALS2014B
ALS2014B 225 of 365
"#$
5. Those considered export sales under Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws; and
6. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations.
(b) ...
(c) Sales to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such sales to zero rate.
Revenue Regulation No. 16-2005, Sep. 1, 2005
Sec. 4.106-6. Meaning of the Term Effectively Zero-rated Sale of Goods and Properties. The term effectively zero-
rated sale of goods and properties shall refer to the local sale of goods and properties by a VAT-registered person to a
person or entity who was granted indirect tax exemption under special laws or international agreement. Under these
Regulations, transactions which, although not involving actual export, are considered as constructive export shall be
entitled to the benefit of zero-rating, such as local sales of goods and properties to persons or entities covered under pars.
(a) no. (3) - (sale to export-oriented enterprises), (a) no. (6) - (sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport operations), (b) (Foreign Currency Denominated Sale) and
(c) (Sales to Tax-Exempt Persons or Entities) of the preceding section.
Except for Export Sale under Sec. 4.106-5(a) and Foreign Currency Denominated Sale under Sec. 4.106-5(b),
other cases of zero-rated sales shall require prior application with the appropriate BIR office for effective zero-rating.
Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be
considered exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to effectively
implement the processing of applications for effective zero-rating.
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. CIR (2007) Petitioner
corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed
claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in
the taxable quarters of the years 1990 and 1992. The petitioner contends that the 2-year prescriptive period should
be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of
the applicable quarters
Held: it is more practical and reasonable to count the two-year prescriptive period for filing a claim for
refund/credit of input VAT on zero-rated sales from the date of filing of the return and payment of the tax
due which, according to the law then existing, should be made within 20 days from the end of each quarter.
2. Sale of Services
Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate:
...
(3) Services rendered to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects the supply of such services to zero percent
(0%) rate;
(4) Services rendered to persons engaged in international shipping or international air transport operations,
including leases of property for use thereof;
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production;
Revenue Regulation No. 16-2005, Sep. 1, 2005

ALS2014B
ALS2014B 226 of 365
"#$
Sec. 4.108-6. Effectively Zero-Rated Sale of Services. The term effectively zero- rated sales of services shall refer to
the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under
special laws or international agreement. Under these Regulations, effectively zero-rated sale of services shall be limited to
local sales to persons or entities that enjoy exemptions from indirect taxes under subparagraph (b) nos. (3), (4) and (5) of
this Section. The concerned taxpayer must seek prior approval or prior confirmation from the appropriate offices of the
BIR so that a transaction is qualified for effective zero-rating. Without an approved application for effective zero-rating,
the transaction otherwise entitled to zero-rating shall be considered exempt. The foregoing rule notwithstanding, the
Commissioner may prescribe such rules to effectively implement the processing of applications for effective zero-rating.
CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION (2007) transactions involving the rendition of
services to an entity exempt from indirect taxes are effectively zero-rated. Acesite is the owner and
operator of the Holiday Inn Manila Pavilion Hotel along UN Avenue in Manila. It leases a portion of the hotels
premises to PAGCOR for casino operations. It also caters food and beverages to PAGCORs casino patrons
through the hotels restaurant outlets. For the period January 1996 to April 1997, Acesite incurred VAT from its
rental income and sale of food and beverages to PAGCOR . Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax
exempt status. Acesite paid the VAT but subsequently filed for a refund, concluding that its transactions with
PAGCOR were subject to zero rate as it was rendered a tax-exempt entity.
P.D. 1869 grants PAGCOR an exemption from the payment of taxes, direct or indirect. By extending the
exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also
from indirect taxes. Section 102(b)(3) of the 1977 Tax Code (now Sec. 108(b)(3) of R.A. 8424) subjects to 0%
VAT the services rendered to persons or entities whose exemption under special laws subjects the supply of such
services to 0% rate. Hence, the lease of property and sale of food and beverages to PAGCOR is subject to
0% VAT. PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT
and consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-rated"
because they involved the rendition of services to an entity exempt from indirect taxes.
VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is
computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the
option to follow either way in charging its clients and customer. Acesite followed the latter method that is,
charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
CIR v. JOHN GOTAMCO & SONS, INC. (1987) contractors tax is an indirect tax The World Health
Organization (WHO) decided to construct a building to house its own offices as well as the other UN offices
stationed in Manila. It entered into a host agreement with the government that it will be exempt from all direct and
indirect taxes. Bidders were informed that since the building belongs to an organization with a diplomatic status,
it was exempt from payments of all fees, licenses and taxes. The construction contract was awarded to Gotamco
& Sons on Feb 1958. On May 1958, WHO received an opinion from the BIR that the 3% contractors tax is an
indirect tax and therefore covered by the Host Agreement but was reversed on June 1958 when the BIR stated
that the contractors tax is primarily due from the contractor and the same is not covered by the Host
Agreement. The WHO certified that since Gotamco & Sons bid was made with the exemption in mind, that
they should be exempt from paying the contractors tax. The CIR sent a letter of demand to Gotamco
demanding payment representing the 3% contractor's tax plus surcharges on the gross receipts it received from the
WHO in the construction of the latter's building. The court ruled that the Host Agreement, in specifically
exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid
by the Organization directly, form part of the price paid or to be paid by it. The certification issued by the
WHO seeking the exemption of the contractor, Gotamco, from any taxes in connection with the
construction of the WHO office building must be upheld since the 3% contractor's tax would be within this
category and should be viewed as a form of an "indirect tax" on the Organization, as the payment thereof
or its inclusion in the bid price would have meant an increase in the construction cost of the building.

ALS2014B
ALS2014B 227 of 365
"#$
3. Requirement to Obtain Approved Application for Effective Zero-Rating: Deleted by Rev. Regs. No. 4-
2007, Feb. 7, 2007
Revenue Regulation No. 16-2005, Sep. 1, 2005, as Amended
Sec. 4.106-6. Meaning of the Term Effectively Zero-rated Sale of Goods and Properties. The term effectively zero-
rated sale of goods and properties shall refer to the local sale of goods and properties by a VAT-registered person to a
person or entity who was granted indirect tax exemption under special laws or international agreement. [Removed by RR
4-2007: Under these Regulations, transactions which, although not involving actual export, are considered as
constructive export shall be entitled to the benefit of zero-rating, such as local sales of goods and properties to persons
or entities covered under pars. (a) no. (3) - (sale to export-oriented enterprises), (a) no. (6) - (sale of goods, supplies,
equipment and fuel to persons engaged in international shipping or international air transport operations), (b) (Foreign
Currency Denominated Sale) and (c) (Sales to Tax-Exempt Persons or Entities) of the preceding section.
Except for Export Sale under Sec. 4.106-5(a) and Foreign Currency Denominated Sale under Sec. 4.106-5(b),
other cases of zero-rated sales shall require prior application with the appropriate BIR office for effective zero-rating.
Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be
considered exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to effectively
implement the processing of applications for effective zero-rating.]
...
Sec. 4.108-6. Effectively Zero-Rated Sale of Services. The term effectively zero- rated sales of services shall refer to
the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under
special laws or international agreement. [Removed by RR 4-2007: Under these Regulations, effectively zero-rated sale of
services shall be limited to local sales to persons or entities that enjoy exemptions from indirect taxes under
subparagraph (b) nos. (3), (4) and (5) of this Section. The concerned taxpayer must seek prior approval or prior
confirmation from the appropriate offices of the BIR so that a transaction is qualified for effective zero-rating. Without an
approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered
exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to effectively implement the
processing of applications for effective zero-rating.]
CIR v. SEAGATE TECHNOLOGY, PHILIPPINES (2005) Although an entity is exempt, the transactions it
enters into are not necessarily so. SEAGATE is a resident foreign corporation licensed to do business in the
Philippines. It is registered with the Philippine Export Zone Authority (PEZA) to engage in the manufacture of
components to be used in computers for export and is also a VAT registered entity. It filed its VAT returns for
the period covering April 1998 to June 1999. Thereafter, it filed an administrative claim for refund of VAT
input taxes with supporting documents. Since the claim was not acted upon, SEAGATE elevated the case to the
CTA via a Petition for Review. The CTA granted the claim for refund. The CA affirmed the claim but reduced the
amount. The CIR insists that the granting of the refund is not proper.
In arriving at their decision, the SC discussed the following concepts:
Nature of VAT
VAT is a tax imposed on the importation of goods, whether or not in the course of trade or business, or imposed
on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of
trade or business. It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of
such goods, properties or services.
Under the VAT system, output tax is the VAT for which the seller is directly liable; the seller passes it on to the
buyer as part of the selling price. On the other hand, input tax is the VAT for which the buyer becomes
indirectly liable when it is passed on by the seller as part of the cost of goods or services purchased. Thus,
in a completed transaction, the output tax of the seller becomes input tax of the buyer.
The payment of the VAT shall depend on the result of each taxable quarter. If the output tax charged by the seller
is equal to input tax passed on by its own suppliers, no payment is required.

ALS2014B
ALS2014B 228 of 365
"#$
If the output tax charged by the seller exceeds the input tax passed on to it by its own suppliers, the excess must
be paid to the government. Conversely, if the output tax charged by the seller turns out to be less than the input
tax passed on to it by its own suppliers, the seller will be entitled to carry over the difference to the succeeding
quarters.
Difference between Zero-Rated and Effectively Zero-Rated Transactions
Zero-rated transactions refer to the export sale of goods and supply of services. While subject to VAT, the
tax rate is set at zero. The net result is that no VAT shall be chargeable against the purchaser. However,
because only the export sale is zero-rated, the seller is entitled to claim a refund or credit certificate for the input
tax passed on to it by its own suppliers from the non-zero rated purchase of raw materials used for production of
the product which is subject to the zero-rate. Zero-rating is intended to benefit the seller who is directly liable for
the VAT, making such seller internationally competitive.
Effectively zero-rated transactions refer to the sale of goods or supply of services to persons or entities
whose exemption under special law or an international agreement to which the Philippines is a signatory
effectively subjects such transactions to a zero rate. The net result is that no VAT shall be chargeable against
the purchaser. The seller is also entitled to claim a refund or credit certificate for the VAT previously
charged by its own suppliers. Effective zero-rating is intended to benefit the purchaser who will ultimately
bear the burden of paying the tax shifted by the suppliers.
In determining whether a transaction is zero-rated, one must look at the nature of the transaction. In determining
whether a transaction is effectively zero-rated, one must look at the person or entity. However, as discussed, the
net effect is the same.
Difference between Exempt Transaction and Exempt Party
An exempt transaction involves goods or services that are specifically listed in and expressly exempted from the
VAT under the Tax Code, without regard to the tax status of the parties to the transaction. In this case, while the
transaction is not subject to VAT, the seller is not allowed to claim any tax refund or credit for any input taxes
previously paid.
On the other hand, an exempt party 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 VAT. Such party is also not subject to VAT, but may be allowed
a refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
SEAGATE is an exempt entity under the PEZA law. However, while such special law exempts SEAGATE
from direct liability for payment of VAT, it does not relieve it from the indirect burden of VAT it incurs
when such burden is shifted to it as a purchaser. Persons or entities may be exempted from the indirect burden
of VAT when the transaction entered into is itself exempt. However, that is not the case here.
Since SEAGATEs purchases are not themselves VAT exempt, they are either subject to zero-rate or taxed at the
standard rate of 10% (now 12%), depending on the application of the destination principle. This principle
enunciates that if the goods are purchased for use or consumption in the Philippines, the sale shall be subject to
0% VAT. Conversely, if the goods are purchased for use or consumption in the Philippines, the sale shall be
subject to 10% VAT. The ecozone within which SEAGATE operates is considered a special customs territory and
is, by legal fiction, considered foreign territory. Because the purchases made by SEAGATE are deemed exports to
foreign territory, such transactions are subject to a 0% VAT rate.
Applying the above principles to the facts of the case, it appears that SEAGATE is entitled to the refund
sought. 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. In this case, SEAGATE is made liable for input VAT,
but subject to the 0% rate. The VAT payments made in excess of the zero-rate that is imposable may
certainly be refunded or credited, it being apparent that SEAGATE complied with the requirement of
being a VAT-registered entity.

ALS2014B
ALS2014B 229 of 365
"#$
D. Printing of Words Zero-Rated on Invoices/Receipts
MICROSOFT PHILIPPINES, INC. v. CIR (2011) Microsoft Philippines, a VAT taxpayer, renders marketing
services to Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated non-
resident foreign corporations. The services are paid for in acceptable foreign currency and qualify as zero-rated
sales for VAT purposes. Microsoft paid VAT input taxes (P11,449,814.99) on its domestic purchases of taxable
goods and services but eventually filed an administrative claim for tax credit. Microsoft's receipts did not
indicate the word "zero-rated" on its official receipts. Court held Microsoft is not entitled to a claim for a tax
credit or refund of VAT input taxes. The printing of the word "zero-rated" is required to be placed on VAT
invoices or receipts covering zero-rated sales in order to be entitled to claim for tax credit or refund.
PANASONIC COMMUNICATIONS IMAGING CORP. OF THE PHILIPPINES v. CIR (2010)
SILLCON PHILIPPINES, INC. v. CIR (2011) The case mainly centers on the issue of whether or not petitioners
input tax refund should be denied based on its failure to print the words zero-rated and for its failure to show
that it has an ATP from the BIR and to indicate the ATP. The court laid down the requirements for credit or
refund of input VAT on zero-rated sales as provided by Section 112 (A) of the NIRC to wit: 1) the taxpayer must
be VAT-registered; 2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; 3) the
claim must be filed within two years after the close of the taxable quarter when such sales were made; and 4) the
creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output tax.
The court partly upheld the decision of the CTA en bank by stating: Printing the ATP on the invoices or receipts
is not required. It has been settled in Intel Technology Philippines, Inc. v. CIR] that the ATP need not be reflected
or indicated in the invoices or receipts because there is no law or regulation requiring it. Thus, in the absence of
such law or regulation, failure to print the ATP on the invoices or receipts should not result in the outright denial
of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. BUT an ATP must be
secured from the BIR, while there is no law requiring the ATP to be printed on the invoices or receipts, Section
238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing
invoices or receipts. Failure to do so makes the person liable under Section 264 of the NIRC.
The court concluded that a claimant for unutilized input VAT on zero-rated sales is REQUIRED to present
proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts. Under
Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated.
To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since
the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are
duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or
receipts would have no probative value for the purpose of refund. In citing the Intel case the court underscored the
fact that, Indeed, what is important with respect to the BIR authority to print is that it has been secured or
obtained by the taxpayer, and that invoices or receipts are duly registered.
As for the failure to print the word zero-rated on the sales invoice, the court held that failure to print the
word "zero-rated" on the sales invoices or receipts is fatal to a claim for credit/refund of input VAT on zero-rated
sales. In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business
Machine Corporation of the Philippines) v. CIR we upheld the denial of Panasonic's claim for tax credit/refund
due to the absence of the word "zero-rated" in its invoices. We explained that compliance with Section 4.108-1 of
RR 7-95, requiring the printing of the word "zero rated" on the invoice covering zero-rated sales, is essential as
this regulation proceeds from the rule-making authority of the Secretary of Finance under Section 244 of the
NIRC. The non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or
receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in
the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to
print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying
outright petitioner's claim for credit/refund of input VAT attributable to its zero-rated sales.

ALS2014B
ALS2014B 230 of 365
"#$
KEPCO PHILIPPINES CORP. v. CIR (2011) Kepco is a domestic corporation engaged in the independent
production of energy. It sells its electricity to Napocor, who is a VAT exempt entity. In 1999, Kepco incurred
input VAT of 10m on its domestic purchase of goods and services used in the production and sale of electricity to
Napocor. However, the CTA denied the administrative claim for refund on the unutilized input taxes of Kepco for
failure to imprint the words zero-rated on its VAT official receipts. Section 4.108-1 of Revenue Regulations
No. (RR) 7-95 [which required the imprinting of the word zero-rated on the VAT invoice or receipt] proceeds
from the rule-making authority granted to the Secretary of Finance under the National Internal Revenue Code of
1977 for the efficient enforcement of the tax code and its amendments. The requirement is reasonable and is in
accord with the efficient collection of VAT from the covered sales of goods and services. Following said ruling,
section 4.108-1 of RR 7-95 neither expanded nor supplanted the tax code but merely supplemented what the tax
code already defined and discussed. In fact, the necessity of indicating zero-rated into VAT invoices/receipts
became more apparent when the provisions of this revenue regulations was later integrated into Republic Act No.
9337, the amendatory law of the National Internal Revenue Code of 1997. As the taxpayer failed to indicate in
its VAT invoices and receipts that the transactions were zero-rated, it failed to comply with the correct
substantiation requirement for zero-rated transactions. 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
is also strictissimi scrutinized and must be duly proven.
INTEL TECHNOLOGY PHILIPPINES, INC. v. CIR (2007) indication of authority to print not required
Intel as a VAT-registered and PEZA-registered entity is claiming a refund or issuance of a tax credit certificate in
the amount of P11,770,181.70 for VAT input taxes it paid on its domestic purchases of goods and services
covering the period April 1, 1998 to June 30, 1998. In order to prove that it was engaged in export sales during the
second quarter of 1998, Intel offered in evidence copies of summary of export sales, sales invoices, official
receipts, airway bills, export declarations and certification of inward remittances during the said period. After
denial from the CTA and CA, based on RMC No. 42-2003, stated that Intels failure to reflect or indicate in its
invoices the BIR authority print barred the opportunity for refund or credit. These courts reliance on RMC is
misplaced. The court decided that the BIR authority to print is not one of the items required by law to be
reflected or indicated in the invoices or receipts. In any case, the said Circular was issued on July 15, 2003 by
then Commissioner Guillermo L. Parayno, Jr., while petitioners claim was filed on May 18, 1999. Hence, RMC
No. 42-2003 cannot be applied retroactively because to do so would be prejudicial to Intel. Iterating that while
the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged
in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts,
it is not specifically required that the BIR authority to print be reflected or indicated therein. Indeed, what
is important with respect to the BIR authority to print is that it has been secured or obtained by the taxpayer,
and that invoices or receipts are duly registered.
III. TRANSACTIONS EXEMPT FROM VAT
A. Coverage of Exemption
Sec. 109. Exempt Transactions.
(1) Subject to the provisions of subsection (2) hereof, the following transactions shall be exempt from the value-
added tax:
(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry
of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock
and genetic materials therefor.
Products classified under this paragraph shall be considered in their original state even if they have
undergone the simple processes of preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt, and copra shall be considered in their original state;

ALS2014B
ALS2014B 231 of 365
"#$
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished
feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets);
(C) Importation of personal and household effects belonging to the residents of the Philippines returning from
abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are
exempt from customs duties under the Tariff and Customs Code of the Philippines;
(D) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal
household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture
and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory
to the Commissioner, that such persons are actually coming to settle in the Philippines and that the change
of residence is bona fide;
(E) Services subject to percentage tax under Title V;
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and
sugar cane into raw sugar;
(G) Medical, dental, hospital and veterinary services except those rendered by professionals;
(H) Educational services rendered by private educational institutions, duly accredited by the Department of
Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills
Development Authority (TESDA) and those rendered by government educational institutions;
(I) Services rendered by individuals pursuant to an employer-employee relationship;
(J) Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;
(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or
under special laws, except those under Presidential Decree No. 529;
(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their
members as well as sale of their produce, whether in its original state or processed form, to non-members;
their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be
used directly and exclusively in the production and/or processing of their produce;
(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital contribution of each member does not exceed
Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;
(O) Export sales by persons who are not VAT-registered;
(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of
trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act
No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws,
residential lot valued at One million five hundred thousand pesos (P1,500,000) and below, house and lot,
and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and
below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts

ALS2014B
ALS2014B 232 of 365
"#$
herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the
National Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10,000) Provided,
That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index as published by the National Statistics Office
(NSO);
(R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements;
(S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international transport operations;
(T) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations;
(U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-
bank financial intermediaries; and
(V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned
in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One
million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the
Consumer Price Index as published by the National Statistics Office (NSO);
Rev. Regs. No. 16-2011, Oct. 27, 2011
REV. MEM. CIRCULAR NO. 36-2011, AUG. 26, 2011 RMC 36-2011 clarified BIR Rulings on socialized housing
which include a statement on the price ceiling for socialized housing units without provision as to the distinction
of the price ceiling for house and lot packages and lots only.
A socialized housing unit shall not exceed Php150,000.00 (now Php400,000.00 per issuance of HUDCC
Memorandum Circular No. 1, Series of 2008 promulgated on Dec. 11, 2008, as implemented by RMC 30-2009
dated May 14, 2009) for a house and lot package, subject to periodic adjustment or increase as the HLURB may
effect from time to time. In the case of sale of homelots only, the price shall not exceed forty percent (40%) of the
maximum limit prescribed for the house and lot package.
From the foregoing, the Php400,000.00 price ceiling applies to house and lot packages, and that if only lots are
sold, the price ceiling should only be Php160,000.00/lot (40% of Php400,000.00).
Revenue Memorandum Circular No. 34-2011, Aug. 15, 2011
SUBJECT: Circularization of the relevant excerpts from the En Banc Supreme Court Decision in GR No. 193007, on the
imposition of Value Added Tax on Toll Fees
TO: All Internal Revenue Officials and Employees Concerned
For the information and guidance of all internal revenue officials and employees concerned, quoted hereunder is
the relevant portion of the En Banc Supreme Court Decision in GR No. 193007 (July 19, 2011), concerning Value Added
tax on Toll Fees:
In fine, the Commissioner on Internal Revenue did not usurp legislative prerogative or expand the VAT
laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code
clearly states that services of all other franchise grantees are subject to VAT except as may be provided
under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to
franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions
under Section 109 of the Code.

ALS2014B
ALS2014B 233 of 365
"#$
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege,
then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear
statutory grant and based on language in the law too plain to be mistaken. But as the law is written, no
such exemption obtains for tollway operators. The Court is thus duty-bound to simply apply the law as it
is found.
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative
of Congress. The Courts role is to merely uphold this legislative policy, as reflected first and foremost in
the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from
enforcing such policy must be properly referred to Congress. The Court has no discretion on the matter
but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when RA 7716 or the Expanded
Value-Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the
VAT imposition against tollway operators. The executive exercises exclusive discretion in matters
pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly
suited to deal with the immediate and practical consequences of the VAT imposition.
All revenue officials and employees are enjoined to give this Circular as wide a publicity as possible.
Kim S. Jacinto-Henares
1. General Rule
PHILIPPINE ACETYLENE CO., INC. v. CIR (1967) tax due on sales to a tax exempt entity Philippine
Acetylene Co. is a manufacturer of oxygen and acetylene gases. It sold from 1953-1958 such products to
NAPOCOR(a tax exempt entity) and VOICE OF AMERICA(a tax exempt agency from the US, due to
agreements between the Phil. and the US). The CIR assessed a tax deficiency on the sales made, but Phil.
Acetylene opposed on the ground that the buyers were tax exempt.
Philippine Acetylene is liable for the tax due plus additional surcharges and costs. Even though the buyers are
tax-exempt, the burden of paying the tax is upon the manufacturer of the goods. The shift of indirect payment
of the buyers is just an economic scheme to shift the tax burden.
PHIL. NATL POLICE MULTI-PURPOSE COOPERATIVE, INC. v. CIR (1994)
CIR v. PHILIPPINE HEALTH CARE PROVIDERS, INC. (2007) When an entity does not actually provide
medical and/or hospital services, as provided under Section 103 on exempt transactions, but merely arranges
for the same, its services are not VAT-exempt. According to its articles, the primary purpose of PHCPI is "to
establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization In 1987, PHCPI sought a ruling from the Commissioner asking whether the services
it provides to the participants in its health care program are exempt from the payment of the VAT. VAT Ruling
No. 231-88 stating that PHCPI, as a provider of medical services, is exempt from the VAT coverage. This Ruling
was subsequently confirmed by Regional Director. However, in 1999, the BIR assessed PHCPI with deficiency
VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997. At issue is whether PHCPI is VAT-
exempt.
The NIRC provides:
SEC. 103. Exempt Transactions. - The following shall be exempt from the value-added tax:
x x x
(l) Medical, dental, hospital and veterinary services except those rendered by professionals
The SC agreed with the findings of the CA that PHCPI is not VAT exempt because it is 1) not actually
rendering medical service but merely acting as a conduit between the members and their accredited and

ALS2014B
ALS2014B 234 of 365
"#$
recognized hospitals and clinics, 2) it merely "provides and arranges for the provision of pre-need health care
services to its members for a fixed prepaid fee for a specified period of time. 3) It then "contracts the services of
physicians, medical and dental practitioners, clinics and hospitals to perform such services to its enrolled
members;" 4) and enters into contract with clinics, hospitals, medical professionals and then negotiates with
them regarding payment schemes, financing and other procedures in the delivery of health services." Because
PHCPI does not actually provide medical and/or hospital services, as provided under Section 103 on
exempt transactions, but merely arranges for the same, its services are not VAT-exempt.
However, PHCPI was could not be held liable for the deficiency taxes because it relied on a previous VAT Ruling
which confirmed its exempt status. While there was a subsequent ruling clarifying that PHCPI was in fact, not tax
exempt for the above discussed reason, this ruling could not be given retroactive effect because it was prejudicial
to PHCPI.
FIRST PLANTERS PAWNSHOP, INC. v. CIR (2008) Petitioner First Planters received a Pre-Assessment Notice
and subsequently, a Formal Assessment Notice for tax deficiency on its VAT and Documentary Stamp Tax
liabilities for the year 2000. The issue is whether the petitioner is liable to pay the VAT. The determination of its
liability depends on the tax treatment of the pawnshop business.
Revenue Memorandum Order No. 15-91: a pawnshop business was considered as akin to lending investors
business activity and subject to 5% percentage tax beginning January 1, 1991
R.A. 7716 (1994): BIR abandoned its earlier position and maintained that pawnshops should be subject to 10%
VAT imposed on bank and non-bank financial intermediaries
R.A. 8241: effectivity of the VAT on non-bank financial intermediaries was moved to January 1, 1998
R.A. 8424: effectivity was deferred until December 31, 1999
January 1, 2003: the 10% VAT on banks, non-bank financial intermediaries, finance companies, and other non-
bank financial intermediaries were finally made effective
R.A. 9238 (2004): pawnshops were finally classified as Other Non-bank Financial Intermediaries and were
specifically exempted from VAT but subject to percentage tax on gross receipts.
At the time of the disputed assessment, that is, for the year 2000, pawnshops were then subject to 10% VAT under
the category of non-bank financial intermediaries, as provided in Section 108(A). Since petitioner is a non-bank
financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy,
assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law, then
petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on
non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax
year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for
VAT but it is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be.
Summary:
2002: NOT liable to pay VAT since its effectivity was deferred until December 31, 2002
2003: liable to pay VAT
2004: exempt from VAT but liable to pay percentage tax
CIR v. MICHAEL J. LHUILLIER PAWNSHOP, INC. (2003) "Pawnshops cannot be considered lending
investors and are not subject to 5% percentage tax."
Commissioner Jose U. Ong issued RMO No. 15-91 imposing a 5% percentage tax on pawnshops. This RMO
is based on Sec. 116 of the Tax Code which provides that lending investors are liable for 5% percentage tax, and

ALS2014B
ALS2014B 235 of 365
"#$
according to him, because PD 114 recognized that the principal business of pawnshops is lending money at an
interest, pawnshops should be considered lending investors. The BIR assessed a tax against Lhuillier who
protested and subsequently appealed to the CTA. According to him, pawnshops are not lending investors because
neither the Tax Code nor the VAT law classifies them as such. Moreover, they invoke the rule expressio unius est
exclusio alterius - if the legislative intended pawnshops to be subjected to percentage tax, they should have said
so. The CTA and CA declared the RMO (and the RMC which clarifies the order further). The Supreme Court
decided in favor of Lhuiller and said that pawnshops cannot be considered as lending investors subject to
percentage tax. According to the SC, pawnshops and lending investors are treated differently in the Tax Code.
It was clear that the legislative intended to treat both taxes differently. Moreover, Sec 116 made no mention that
pawnshops should be subjected to percentage tax, therefore, the express mention of one thing implies the
exclusion of that not mentioned. Lastly, prior to this RMO, the BIR ruled countless times that pawnshops are not
subject to 5% percentage tax. It should also be noted that under the deliberations for the HB 11197 which
eventually became the VAT Law, there was a proposed amendment to Sec 116 to include pawnshops under the
entities subject to 5% percentage tax. According to the Court, if lending investors and pawnshops were the same,
then the legislative would not have deemed it necessary to expressly include pawnshops in Sec 116. In any case
the proposed amendment was not included in the approved bill which is now the VAT Law.
PAGCOR v. THE BUREAU OF INTERNAL REVENUE, ET. AL. (2011) DOCTRINE: The provision subjecting
PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. It said that nowhere in R.A. No. 9337 is it
provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioners
exemption from the payment of corporate income tax.
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977. From its creation,
PAGCOR has enjoyed exemption from payment of any kind of tax whatsoever save except for a 5% franchise tax
due the Government. This privilege of PAGCOR to be free from taxes was shortly interrupted in June to
September 1984. Upon the creation and effectivity of the NIRC in January 1, 1998, PAGCOR was named as one
of of the 5 GOCCs (eg GSIS,SSS,PHILHEALTH,PCSO) exempted from payment of corporate income taxes. In
May 2005, however, RA9337 excluded PAGCOR from the list of corporate income tax exempted GOCCs. In a
previous case , the SC upheld the constitutionality of RA 9337 in imposing a corporate income tax(take note of
this) . On the very same date of the SC decision, the BIR issued RR 16-2005 (one being assailed now)
which specifically identified PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108
of the National Internal Revenue Code of 1997.
The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the
enactment of R.A. No. 9337. As to the corporate income tax, the SC held in favor of the BIR on authority of its
previous ruling. As to the VAT however,the Court held that the provision subjecting PAGCOR to 10% VAT is
invalid for being contrary to R.A. No. 9337. It said that nowhere in R.A. No. 9337 is it provided that petitioner
can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioners exemption from the
payment of corporate income tax.
As a rule, tax exemptions are construed strongly against the claimant. Taxation is the rule and exemption is the
exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the
exemption so claimed. As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provision. In this case, PAGCOR failed to
prove that it is still exempt from the payment of corporate income tax, considering that Section 1 of R.A. No.
9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the
exemption. 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.
BIR RUL. NO. 155-98, OCT. 21, 1998 Purchase of Crude Oil by an Inventor Purchase of crude oil (raw or in its
natural and unprocessed state) by an inventor and patentholder of various petroleum products invention from
Pilipinas Shell Petroleum Corp. is not subject to any tax, including excise tax. Pilipinas Shell Petroleum Corp. as
seller, is subject to income tax on the gains derived from such transaction. The removal of diesel and gasoline

ALS2014B
ALS2014B 236 of 365
"#$
products from Shell Refinery to be used as raw materials for the inventions are not subject to excise tax under
Section 148 of the Tax Code of 1997 and income tax imposed under Section 24 (A)(1) of the same Code.
However, in case of sale of the yields, diesel and gasoline products by the inventor, an excise tax under Section
148 of the Tax Code of 1997 shall be imposed and the gains therefrom will be subject to income tax under Section
24(A)(1) of the same Code. The sale or exchange of services by Pilipinas Shell Petroleum Corps. Refinery Plant
is subject to VAT under Section 108 of the Tax code of 1997 which may be shifted to the buyer or transferee of
the services. Removal of kerosene and LPG which are not utilized as raw materials in the invention which are
subsequently sold shall be subject to excise tax under Section 148 of the Tax Code of 1997 and gains derived
therefrom shall be subject to income tax under Section 24(A)(c) of the Tax Code of 1997 notwithstanding
inventor's exemption under Section 5 of RA No. 7459.
BIR RUL. NO. 47-99, APRIL 13, 1999 Tax Exemption of ICLARM does not Extend to Indirect Taxes Nissan
Southwoods is requesting for a ruling on whether its sale of car to ICLARM, a private non-stock non-profit
philanthropic corporation, is exempt from VAT pursuant to the Headquarters Agreement between the
Government of the Philippines and ICLARM which provides that The provisions of existing laws or ordinances
to the contrary notwithstanding, ICLARM, or its successors, shall be exempt from all taxes. This exemption shall
extend to goods imported by ICLARM intended for its official use. Held: The tax exemption of ICLARM under
the said provision covers only taxes for which it is directly liable and does not extend to indirect taxes, like VAT.
VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer of goods, properties or
services. The VAT on the sale of car is Nissans direct tax liability. However, when this is passed on to ICLARM,
it is no longer a tax but an additional cost which becomes a part of the amount of the contract price to be paid by
ICLARM.
2. Exception
CIR v. JOHN GOTAMCO & SONS, INC. (1987) [same facts as above, but in relation to the exception on
exemption]
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which,
although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it.
This is made clear in Section 12 of the Host Agreement which provides:
While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise
duties, and from taxes on the sale of movable and immovable property which form part of the price to be paid,
nevertheless, when the Organization is making important purchases for official use of property on which such
duties and taxes have been charged or are chargeable the Government of the Republic of the Philippines shall
make appropriate administrative arrangements for the remission or return of the amount of duty or tax.
MACEDA v. MACARAIG, JR. (1993) This issue in this case is whether NAPOCOR enjoys exemption from indirect
tax. It was contended that exemptions are to be strictly interpreted.
The SC held that it is a recognized principle that the rule on strict interpretation does not apply in the case
of exemptions in favor of a government political subdivision or instrumentality. The reason is that the
practical effect of an exemption is merely to reduce the amount of money that has to be handled by the
government in the course of its operations. If NAPOCOR should accept liability on the tax and duty components
on the oil products, such amount will go into its fuel cost and be passed onto its consumers through corresponding
increase in rates. This tax exemption is intended not only to insure that the NAPOCOR shall continue to generate
electricity for the country but more importantly, to assure cheaper rates to be paid by the consumers.
B. Waiver of VAT Exemption/Election to be Subject to VAT
Sec. 109. Exempt Transactions. ...

ALS2014B
ALS2014B 237 of 365
"#$
(2) A VAT-registered person may elect that Subsection (1) not apply to its sale of goods or properties or services:
Provided, That an election made under this Subsection shall be irrevocable for a period of three (3) years from the
quarter the election was made.
IV. INPUT TAX CREDITS & REFUNDS
A. Input Tax Credit
Sec. 110. Tax Credits.
(A) Creditable Input Tax.
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113
hereof on the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished product for sale including
packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or amortization is allowed
under this Code.
(b) Purchase of services on which a value-added tax has actually been paid.
(2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person
shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from the
custody of the Bureau of Customs.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the
month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such
goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided,
however, That if the estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, finally,
that in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.
(3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be
allowed tax credit as follows:
(a) Total input tax which, can be directly attributed to transactions subject to value-add tax; and
(b) A ratable portion of any input tax which cannot be directly attributed to either activity.
The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in the course
of his trade or business on importation of goods or local purchase of goods or services, including lease or
use of property, from a VAT-registered person. It shall also include the transitional input tax determined
in accordance with Section 111 of this Code.

ALS2014B
ALS2014B 238 of 365
"#$
The term 'output tax' means the value-added tax due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under Section 236 of this Code.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over
to the succeeding quarter or quarters: Provided, however, that any input tax attributable to zero-rated sales by a
VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to
the provisions of Section 112.
(C) Determination of Creditable Input Tax. The sum of the excess input tax carried over from the preceeding
month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall
be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as
purchase returns or allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau
of Internal Revenue but also those filed with other government agencies, such as the Board of Investments and the
Bureau of Customs.
Rev. Regs. No. 16-2005, Sep. 1, 2005
Sec. 4.110-1. Credits For Input Tax. Input tax means the VAT due on or paid by a VAT-registered person on
importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course
of his trade or business. It shall also include the transitional input tax and the presumptive input tax determined in
accordance with Sec. 111 of the Tax Code.
It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of
any input tax which cannot be directly attributed to either the taxable or exempt activity.
Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-
registered person in accordance with Secs. 113 and 237 of the Tax Code shall be creditable against the output tax:
(a) Purchase or importation of goods
(1) For sale; or
(2) For conversion into or intended to form part of a finished product for sale, including packaging materials;
or
(3) For use as supplies in the course of business; or
(4) For use as raw materials supplied in the sale of services; or
(5) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax
Code,
(b) Purchase of real properties for which a VAT has actually been paid;
(c) Purchase of services in which a VAT has actually been paid;
(d) Transactions deemed sale under Sec. 106 (B) of the Tax Code;
(e) Transitional input tax allowed under Sec. 4.111 (a) of these Regulations;
(f) Presumptive input tax allowed under Sec.4.111(b) of these Regulations;
(g) Transitional input tax credits allowed under the transitory and other provisions of these Regulations.
1. Persons Who Can Avail of the Input Tax Credit
Sec. 110(A)(1)(b) and (A)(2), NIRC, as amended by Rep. Act. No. 9337, supra.
Rev. Regs. No. 16-2005, Sep. 1, 2005

ALS2014B
ALS2014B 239 of 365
"#$
Sec. 4.110-2. Persons Who Can Avail of the Input Tax Credit. The input tax credit on importation of goods or local
purchases of goods, properties or services by a VAT- registered person shall be creditable:
(a) To the importer upon payment of VAT prior to the release of goods from customs custody;
(b) To the purchaser of the domestic goods or properties upon consummation of the sale; or
(c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee.
2. Special Rules on Amortization of Input Tax on Depreciable Goods
Sec. 110(A), proviso, NIRC, as amended by Rep. Act. No. 9337, supra.
Rev. Regs. No. 16-2005, Sep. 1, 2005, as Amended
Sec. 4.110-3. Claim for Input Tax on Depreciable Goods. -- Where a VAT- registered person purchases or imports capital
goods, which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT)
in a calendar month exceeds One Million pesos (P1,000,000.00), regardless of the acquisition cost of each capital good,
shall be claimed as credit against output tax in the following manner:
(a) If the estimated useful life of a capital good is five (5) years or more The input tax shall be spread evenly over a
period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the
capital good is acquired. The total input taxes on purchases or importations of this type of capital goods shall be
divided by 60 and the quotient will be the amount to be claimed monthly.
(b) If the estimated useful life of a capital good is less than five (5) years The input tax shall be spread evenly on a
monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of the
capital good. The claim for input tax credit shall commence in the calendar month that the capital goods were
acquired.
Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods
purchased or imported during any calendar month does not exceed One million pesos (P 1,000,000.00), the total input
taxes will be allowable as credit against output tax in the month of acquisition; Provided, however, that the total amount
of input taxes (input tax on depreciable capital goods plus other allowable input taxes) allowed to be claimed against the
output tax in the quarterly VAT Returns shall be subject to the limitation prescribed under Sec. 4.110-7 of these
Regulations.
Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and
which are treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or
sale of taxable goods or services.
The aggregate acquisition cost of depreciable assets in any calendar month refers to the total price, excluding the
VAT, agreed upon for one or more assets acquired and not on the payments actually made during the calendar month.
Thus, an asset acquired on installment for an acquisition cost of more than P1,000,000.00, excluding the VAT, will be
subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed
P1,000,000.00.
Illustration: LBH Corporation sold capital goods on installment on October 1, 2005. It is agreed that the selling
price, including the VAT, shall be payable in five (5) equal monthly installments. The data pertinent to the sold assets are
as follows:
Selling Price - 5,000,000.00 (exclusive of VAT)
Passed-on VAT - 500,000.00
Original Cost of Asset - 3,000,000.00
Accumulated Depreciation at the time of sale - 1,000,000.00
Unutilized Input Tax (Sold Asset) - 100,000.00

ALS2014B
ALS2014B 240 of 365
"#$
Accounting Entries:
SELLER BUYER
Oct. 1, 2005
Cash 1,100,000.00
Installment Receivable 4,400,000.00
Accumulated Depreciation 1,000,000.00
Output Tax 500,000.00
Asset 3,000,000.00
Gain in sale of asset 3,000,000.00
To Record VAT Liability:
Output Tax 500,000.00
Input Tax 100,000.00
VAT Payable 400,000.00
Periodic Receipt Installment:
Cash 1,100,000.00
Installment Receivable 1,100,000.00
Oct. 1, 2005
Asset 5,000,000.00
Input Tax 500,000.00
Cash 1,100,000.00
Installment Payable 4,400,000.00

Periodic Subsequent Payment:
Installment Payable 1,100,000.00
Cash 1,100,000.00
* The input tax of P 500,000.00 on the bought capital goods worth P 5,000,000.00 shall be spread evenly over a period of
60 months starting the month of purchase.
If the depreciable capital good is sold/transferred within a period of five (5) years or prior to the exhaustion of the
amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred can be claimed as
input tax credit during the month/quarter when the sale or transfer was made but subject to the limitation prescribed under
Sec. 4.110-7 of these Regulations.
Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not
depreciated until the asset is placed in service. Normally, upon completion, a CIP item is reclassified and the reclassified
asset is capitalized and depreciated.
CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be
determined based on the progress billings. Until such time the construction has been completed, it will not qualify as
capital goods as herein defined, in which case, input tax credit on such transaction can be recognized in the month the
payment was made; Provided, that an official receipt of payment has been issued based on the progress billings.
In case of contract for the sale of service where only the labor will be supplied by the contractor and the materials
will be purchased by the contractee from other suppliers, input tax credit on the labor contracted shall still be recognized
on the month the payment was made based on a progress billings while input tax on the purchase of materials shall be
recognized at the time the materials were purchased.
Once the input tax has already been claimed while the construction is still in progress, no additional input tax can
be claimed upon completion of the asset when it has been reclassified as a depreciable capital asset and depreciated.
SILLCON PHILIPPINES, INC. v. CIR (2011) The case mainly centers on the issue of whether or not petitioners
input tax refund should be denied based on its failure to print the words zero-rated and for its failure to show
that it has an ATP from the BIR and to indicate the ATP. The court laid down the requirements for credit or
refund of input VAT on zero-rated sales as provided by Section 112 (A) of the NIRC to wit: 1) the taxpayer must
be VAT-registered; 2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; 3) the
claim must be filed within two years after the close of the taxable quarter when such sales were made; and 4) the
creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output tax.

ALS2014B
ALS2014B 241 of 365
"#$
The court partly upheld the decision of the CTA en bank by stating: Printing the ATP on the invoices or receipts
is not required. It has been settled in Intel Technology Philippines, Inc. v. CIR] that the ATP need not be reflected
or indicated in the invoices or receipts because there is no law or regulation requiring it. Thus, in the absence of
such law or regulation, failure to print the ATP on the invoices or receipts should not result in the outright denial
of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund. BUT an ATP must be
secured from the BIR, while there is no law requiring the ATP to be printed on the invoices or receipts, Section
238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing
invoices or receipts. Failure to do so makes the person liable under Section 264 of the NIRC.
The court concluded that a claimant for unutilized input VAT on zero-rated sales is REQUIRED to present
proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts. Under
Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-rated.
To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. However, since
the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are
duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or
receipts would have no probative value for the purpose of refund. In citing the Intel case the court underscored the
fact that, Indeed, what is important with respect to the BIR authority to print is that it has been secured or
obtained by the taxpayer, and that invoices or receipts are duly registered.
As for the failure to print the word zero-rated on the sales invoice, the court held that failure to print the
word "zero-rated" on the sales invoices or receipts is fatal to a claim for credit/refund of input VAT on zero-rated
sales. In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business
Machine Corporation of the Philippines) v. CIR we upheld the denial of Panasonic's claim for tax credit/refund
due to the absence of the word "zero-rated" in its invoices. We explained that compliance with Section 4.108-1 of
RR 7-95, requiring the printing of the word "zero rated" on the invoice covering zero-rated sales, is essential as
this regulation proceeds from the rule-making authority of the Secretary of Finance under Section 244 of the
NIRC. The non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or
receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in
the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to
print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying
outright petitioner's claim for credit/refund of input VAT attributable to its zero-rated sales.
3. Special Rules on Apportionment of Input Tax on Mixed Transactions
Sec. 110(A)(3), NIRC, as amended by Rep. Act. No. 9337, supra.
Sec. 4.110-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev. Regs. No. 4-2007, Feb. 7, 2007
4. Substantiation of Input Tax Credits
Rev. Regs. No. 16-2005, Sep. 1, 2005
Sec. 4.110-8. Substantiation of Input Tax Credits.
(a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the
course of trade or business, whether such input taxes shall be credited against zero-rated sale, non-zero-rated
sales, or subjected to the 5% Final Withholding VAT, must be substantiated and supported by the following
documents, and must be reported in the information returns required to be submitted to the Bureau:
(1) For the importation of goods - import entry or other equivalent document showing actual payment of
VAT on the imported goods.
(2) For the domestic purchase of goods and properties invoice showing the information required under
Secs. 113 and 237 of the Tax Code.

ALS2014B
ALS2014B 242 of 365
"#$
(3) For the purchase of real property public instrument i.e., deed of absolute sale, deed of conditional sale,
contract/agreement to sell, etc., together with VAT invoice issued by the seller.
(4) For the purchase of services official receipt showing the information required under Secs. 113 and 237
of the Tax Code.
A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit
only if it shows the information required under Secs. 113 and 237 of the Tax Code.
(b) Transitional input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to
the BIR.
(c) Input tax on deemed sale transactions shall be substantiated with the invoice required under Sec. 4.113-2 of
these Regulations.
(d) Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a
copy of the Monthly Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by the resident
payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor.
(e) Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT.
BIR RUL. NO. 61-00, NOV. 8, 2000
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. CIR (2007) VAT invoices
or receipts must be submitted as proper substantiation to refund of excess input vat credits. (ATLAS) is
engaged in the business of mining, production, and sale of various mineral products. ATLAS presented to the CIR
its applications for refund or tax credit of excess input taxes for the second, third and fourth quarters of 1992.
ATLAS attributed these claims to its sales of gold to the Central Bank, copper concentrates to Philippine
Associated Smelting and Refining Corporation (PASAR) and pyrite to Philippine Phosphates, Inc. (Philphos) on
the theory that these were zero-rated transactions resulting in refundable or creditable input taxes under Section
106(b) of the Tax Code of 1986. Because of the continuous inaction of the CIR and the imminent expiration of the
two-year period for beginning a court action for tax credit or refund, ATLAS filed a petition for review before the
CTA. The CTA denied ATLAS claims on the grounds of prescription and insufficiency of evidence. Petitioner
appealed to the Court of Appeals (CA). The CA reversed the CTAs ruling on the matter of prescription but
affirmed the latters decision in all other respects. ATLAS motion for reconsideration was denied.
The SC held that ATLAS cannot claim input tax refund because of insufficient evidence to substantiate its VAT
refund claims. The rule is that the claimant should be able to (1) show that its sales qualified for zero-rating under
the laws then in force and (2) present sufficient evidence that those sales resulted in excess input taxes. There is
no dispute on the first requirement since the CIR had already approved ATLAS application for VAT zero-rating
of the said sales transactions. However, it was also required on ATLAS to submit sufficient evidence to justify the
grant of refund or tax credit. ATLAS never submitted any VAT invoices or receipts, only the Summary and
Independent CPA Verification. The SC observed that the CTA and CA both found that ATLAS failed to comply
with the evidentiary requirements for claims for tax credits or refunds set forth in Section 2(c) of Revenue
Regulations 3-88 (which requires that the claimant should submit the photocopy of the invoices or receipts
evidencing the input VAT paid together with the application for VAT refund) and in CTA Circular 1-95, as
amended by CTA Circular 10-97.
11
Such failure to comply with the said requirements was fatal to the refund

11. 1. The claimant must present: (a) a Summary containing a chronological listing of the numbers, dates and amounts covered by the invoices or
receipts and the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the
contents of the summary after making an examination, evaluation and audit of the voluminous receipts and invoices.
2. The method of individual presentation of each and every receipt, invoice or account for marking, identification and comparison with the
originals thereof need not be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is
enough that the receipts, invoices, vouchers or other documents covering the said accounts or payment to be introduced in evidence must
be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check
and verify the correctness of the summary and CPA certification. Likewise the originals of the voluminous receipts, invoices or accounts must

ALS2014B
ALS2014B 243 of 365
"#$
claims. The presentation of the purchase receipts and/or invoices is not [a] mere procedural technicality which
may be disregarded because that it is the only means by which the CTA may ascertain and verify the truth of
ATLAS claims.
N.B.: (1) The documentary requirements imposed by RR 3-88 do not only apply to administrative claims for
refund or tax credit but it also has a bearing in a judicial claim for refund in the CTA because the said judicial
claim for refund is not an original action but rather an appeal of a previous, unsuccessful administrative claim.
Thus, the appellant has to convince the CTA that the CIR did not have any reason to deny its claims, by proving,
among others, that it satisfied all the documentary and evidentiary requirements for an administrative claim for
refund. Also, cases filed in the CTA are litigated de novo. Thus, the appellant should prove every aspect of its
case by presenting, formally offering and submitting its evidence to the CTA. Since it is crucial for the appellant
in a judicial claim for refund to show that its administrative claim should have been granted in the first place, part
of the evidence to be submitted to the CTA must necessarily include whatever is required for the successful
prosecution of an administrative claim. (2) The summary and certification of an independent certified public
accountant required by CTA Circular 1-95(1) is not enough and that it is still required to submit VAT invoices
and receipts. There is nothing in CTA Circular, which either expressly or impliedly suggests that summaries and
schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT
payments. The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-
consuming procedure of presenting, identifying and marking of documents before the Court. It does not relieve
the appellant of its essential task of pre-marking photocopies of sales receipts and invoices and submitting the
same to the court after the independent CPA shall have examined and compared them with the originals. Without
presenting these pre-marked documents as evidence from which the summary and schedules were based, the
court cannot verify the authenticity and veracity of the independent auditors conclusions. There is, moreover, a
need to subject these invoices or receipts to examination by the CTA in order to confirm whether they are VAT
invoices.
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. CIR (2008) Atlas engaged in
the production of copper concentrates for export and is registered as a VAT entity. Atlas filed a VAT return for
the first quarter of 1993 with the BIR on and also filed an amended VAT return. Later on, it applied with the BIR
for the issuance of a tax credit certificate or refund under Section 106(b) of the Tax Code. The certificate would
represent the VAT it paid for the first quarter of 1993 in the amount of ! 7,907,662.53, which corresponded to the
input taxes not applied against any output VAT. Atlas then filed a petition for review with the CTA to prevent the
running of the prescriptive period. CTA denied Atlas claim for tax credit or refund due to its failure to present
sufficient evidence to warrant the grant of tax credit or refund for the alleged input taxes paid by Atlas. Based on
Revenue Regulation No. 3-88 which was issued to implement the then VAT law and list the documents to be
submitted in actions for refunds or tax credits of input taxes in export sales, it found that the documents
submitted by Atlas did not comply with said regulation. Atlas failed to submit photocopies of export
documents, invoices, or receipts evidencing the sale of goods and others. Atlas filed its Motion for
Reconsideration which was rejected by the CTA. On appeal, the CA denied and dismissed Atlas petition on the
ground of insufficiency of evidence to support Atlas action for tax credit or refund. This court upheld the lower
courts decision stating that the summary presented by Atlas does not replace the pertinent invoices, receipts,
and export sales documents as competent evidence to prove the fact of refundable or creditable input VAT.
Indeed, the summary presented with the certification by an independent CPA and the testimony of Atlas
Accounting and Finance Manager are merely corroborative of the actual input VAT it paid and the actual
export sales. Otherwise, the pertinent invoices, receipts, and export sales documents are the best and
competent pieces of evidence required to substantiate Atlas claim for tax credit or refund which is merely
corroborated by the summary duly certified by a CPA and the testimony of Atlas employee on the export sales.
And when these pertinent documents are not presented, these could not be corroborated as is true in the instant

be ready for verification and comparison in case doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of
evidence.

ALS2014B
ALS2014B 244 of 365
"#$
case. Furthermore, compliance with the documentary requirements of RR 3-88 is necessary, and that a revenue
regulation is binding on the courts as long as the procedure fixed for its promulgation is followed.
CIR v. MANILA MINING CORPORATION (2005) "Refund claim must be substantiated by invoices/receipts.
CPA report is not sufficient." In 1991, Manila Mining sold gold to the Central Bank. Because gold sold to the
Central Bank is considered an export sale and is zero-rated if such sale is made by a VAT-registered person,
Manila Mining filed an application for tax refund/credit of the input VAT it paid. CIR denied such application.
Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent
certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof
unless offered and actually verified by this Court. CTA Circular No. 1-95, as amended by CTA Circular No. 10-
97, requires that the photocopies of invoices, receipts and other documents covering said accounts or payments
must be submitted together with the application.
INTEL TECHNOLOGY PHILIPPINES, INC. v. CIR (2007) indication of authority to print not required
Petitioner is a domestic corporation engaged primarily in the manufacturing and exporting of circuit components.
It is registered with the BIR as a VAT entity and is likewise registered with PEZA as an Ecozone export
enterprise. Respondent CIR despite the application for the issuance of tax credit certificate failed to grant the tax
credit applied for.
Issue: W/N Section 237 of the 1997 Tax code should be applied strictly in the use of invoices or receipts for
purposes of substantiating input VAT incurred and whether the same stringent application is called for when the
invoices or receipts are used for purposes of substantiating actual export sales.
To stress, petitioner, as a VAT-registered entity, is engaged in export sales of advanced and large-scale ICs and,
as such, under Section 106 (A)(2)(a)(1) of the Tax Code, its sales or transactions are subject to VAT at 0% rate.
Further, subject to the requirements stated in Section 112(A), it is entitled to claim refund or issuance of a tax
credit certificate for input VAT taxes attributable to its export sales. As the Court had the occasion to explain
since no output VAT was imposed on the zero-rated export sales, what the government reimburses or refunds to
the claimant is the input VAT paid thus, the necessity for the input VAT paid to be substantiated by
purchase invoices or official receipts.
In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely
scrutinized is the documentary substantiation of the input VAT paid, as may be proven by other export
documents, rather than the supporting documents for the zero-rated export sales. And since petitioner has
established by sufficient evidence that it is entitled to a refund or issuance of a tax credit certificate, in accordance
with the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, then its claim should not be
denied, notwithstanding its failure to state on the invoices the BIR authority to print and the TIN-V. Worthy of
mentioning again is the fact that even the CTA and the CA have found petitioner to be legally entitled to a claim
for refund or issuance of a tax credit certificate of its unutilized VAT input taxes on domestic purchases of goods
and services attributable to its zero-rated sales.
What applies to petitioner, as a PEZA-registered export enterprise, is the Courts pronouncement that leniency in
the implementation of the VAT is an imperative, precisely to spur economic growth in the country and attain
global competitiveness as envisioned in our laws.The incentives offered to PEZA enterprises, among which are
tax exemptions and tax credits, ultimately redound to the benefit of the national economy, enticing as they do
more enterprises to invest and do business within the zones, thus creating more employment opportunities and
infusing more dynamism to the vibrant interplay of market forces.
CIR v. PHIL. HEALTH CARE PROVIDERS, INC. (2007) Health Maintenance Organization (HMO) is not
VAT-exempt Phil Health Care Providers is an HMO. It wrote CIR to inquire whether the services it provided
were VAT-exempt. The CIR, through the VAT Review Committee of the BIR, issued VAT Ruling 231-88 stating
that PhilHealth was exempt from the VAT. Meanwhile, EO 273 on VAT was issued and took effect. RA 7716 (E-
VAT law) took effect, amending further the NIRC if 1977. Subsequently, the NIRC of 1997 was passed and took
effect adopting to provisions of EO273 and RA 7716. With the passage of these laws, BIR issued a PAN for
deficiency in its payment of the VAT and DST for taxable years 1996 and 1997. A letter of demand was also sent.

ALS2014B
ALS2014B 245 of 365
"#$
The CA ruled in PhilHealths favor. SC affirmed. "SEC. 103. Exempt Transactions. - The following shall be
exempt from the value-added tax: x x x (l) Medical, dental, hospital and veterinary services except those rendered
by professionals" Philhealth is not actually rendering service but is merely acting as a conduit between the
members of PhilHealth and the the Hospitals and Clinics. Therefore it is not covered by the exemption. But
Section 246 of the NIRC provides that rulings, circulars, and rules and regulations promulgated by the CIR have
no retroactive application if to apply them would prejudice the taxpayer. The case also does not fall under the
exceptions to Section 246. [disclaimer: ang labo talaga nung case as to the retroactivity of VAT Ruling 231-88.
The dates dont really make sense as to make the ruling retroactive.]
B. Transitional Input Tax
Sec. 111(A), NIRC, as amended by Rep. Act. No. 9337
Sec. Sec. 4.111-1(a), Rev. Regs. No. 16-2005, Sept. 1, 2005
FORT BONIFACIO DEVELOPMENT CORPORATION v. CIR (2009) Petitioner Fort Bonifacio Development
Corporation (FBDC) is engaged in the development and sale of real property. It acquired by way of sale from the
national government a parcel of land that used to form part of Fort Bonifacio military reservation. Since the sale
was consummated prior to the enactment of RA 7716, no VAT was paid thereon. Subsequently, FBDC sold two
parcels of land to Metro Pacific Corporation (VAT had already been imposed in the interim). Petitioner claimed
transitional input VAT corresponding to its inventory of land. The BIR disallowed this and assessed petitioner for
deficiency VAT. ISSUES: W/N FBDC is entitled to claim transitional input VAT on its sale of real properties
given its nature as a real estate broker and if so (i) is the transitional input VAT applied only to the improvements
on the real property or is it applied on the value of the real property and (ii) should there have been a previous tax
payment for the transitional input VAT to be creditable.
The Court ruled that the 8% transitional input VAT credit may be claimed on inventory of real property,
including land, regardless of whether or not input VAT was actually paid on the purchase of such
inventory.
Under Section 105 of the Old NIRC, the inventory of goods that forms part of the valuation of the transitional
input tax credit may include real properties provided that these properties are included in the products that the
VAT registered person offers for sale to the public. The law does not distinguish between inventory whose
acquisition cost was subject to VAT and that which was not subjected to VAT. Transitional input VAT is
available once a taxpayer becomes liable to VAT or elects to be VAT-registered.
C. Presumptive Input Tax
Sec. 111(B), NIRC, as amended by Rep. Act. No. 9337
Sec. Sec. 4.111-1(b), Rev. Regs. No. 16-2005, Sept. 1, 2005
D. Final Withholding VAT
Sec. 114(C), NIRC, as amended by Rep. Act. No. 9337
Sec. Sec. 4.114-2(a), Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev. Regs. No. 4-2007, Feb. 7, 2007
See Illustration in Sec. Sec. 4.110-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev. Regs. No. 4-2007, Feb.
7, 2007
E. Claims for Refund or Issuance of Tax Credit Certificates
Sec. 112, NIRC, as amended by Rep. Act. No. 9337
1. Zero-Rated or Effectively Zero-Rated Transactions

ALS2014B
ALS2014B 246 of 365
"#$
Sec. 112(A), NIRC, as amended by Rep. Act. No. 9337
2. Cancellation of VAT Registration
Sec. 112(B), NIRC, as amended by Rep. Act. No. 9337
3. Period within which Refund or Tax Credit of Input Tax shall be Made
Sec. 112(C), NIRC, as amended by Rep. Act. No. 9337
Correlate with Sec. 229, NIRC
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. CIR (2007) Petitioner
corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed
claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in
the taxable quarters of the years 1990 and 1992. The petitioner contends that the 2-year prescriptive period should
be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of
the applicable quarters
Held: it is more practical and reasonable to count the two-year prescriptive period for filing a claim for
refund/credit of input VAT on zero-rated sales from the date of filing of the return and payment of the tax due
which, according to the law then existing, should be made within 20 days from the end of each quarter.
CIR v. MIRANT PAGBILAO CORPORATION (2008) Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales.
Facts: MPC is a domestic firm engaged in the generation of power which it sells to the National Power Corporation
(NPC). For the construction of the electrical equipment portion of its Pagbilao plant MPC secured the services of
Mitsubishi- Japan. NPC's revised charter provides that it is exempt from all taxes - both direct and indirect taxes.
In the light of the NPC's tax exempt status, MPC, on the belief that its sale of power generation services to NPC is
zero-rated for VAT purposes, filed an Application for Effective Zero Rating. The application covered the
construction and operation of its Pagbilao power station. Not getting any response from the BIR district office,
MPC refiled its application in the form of a "request for ruling" with the VAT Review Committee at the BIR
national office. CIR issued ruling that "the supply of electricity by MPC to the NPC, shall be subject to the 0%
VAT."
MPC opted not to pay the VAT component of the progress billings from Mitsubishi. This prompted Mitsubishi to
advance the VAT component as this serves as its output VAT which is essential for the determination of its VAT
payment. Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi the VAT component for the
progress billings from April 1993 to September 1996.
MPC filed on December 20, 1999 an administrative claim for refund of unutilized input VAT in the amount of
PhP148,003,047.62.
Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of the 2-
year prescriptive period, MPC went to the CTA via a petition for review. CTA granted MPC's claim for input
VAT refund or credit.
Issue: Whether the Claim for refund or tax credit was filed out of time therefore MPC is not entitled to refund?
Held: YES. The claim for refund or tax credit for the creditable input VAT payment made by MPC was filed beyond the
period provided by law for such claim. Sec. 112(A) of the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were

ALS2014B
ALS2014B 247 of 365
"#$
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: x x x.
The above proviso clearly provides 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. Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said
taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. 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. Be that as it may, and given that the last creditable input VAT due for
the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30,
1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC's claim for refund or tax credit
filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the
purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim
therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.-- The Commissioner
may
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or
penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim
for credit or refund.
Sec. 229. Recovery of Tax Erroneously or Illegally Collected.-- No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid. (Emphasis ours.)
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or
penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances
of erroneous payment or illegal collection of internal revenue taxes.
CIR v. AICHI FORGING COMPANY OF ASIA, INC. (2010)
Doctrine:
The CIR has 120 days, from the date of the submission of the complete documents within which to grant or deny
the claim for refund/credit of input vat. In case of full or partial denial by the CIR, the taxpayers recourse is to

ALS2014B
ALS2014B 248 of 365
"#$
file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-
day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.
A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or
incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or
illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his
compliance with the procedural due process.
As between the Civil Code and the Administrative Code of 1987, it is the latter that must prevail being the more
recent law, following the legal maxim, Lex posteriori derogat priori.
The phrase within two (2) years x x x apply for the issuance of a tax credit certificate or refund under
Subsection (A) of Section 112 of the NIRC refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA.
Facts:
Petitioner filed a claim of refund/credit of input vat in relation to its zero-rated sales from July 1, 2002 to
September 30, 2002. The CTA 2nd Division partially granted respondents claim for refund/credit.
Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and the judicial claims were
filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He
reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was
beyond the two-year period, which expired on September 29, 2004. He cited as basis Article 13 of the Civil Code, which
provides that when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the
simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC.
According to the petitioner, a prior filing of an administrative claim is a condition precedent before a judicial claim can
be filed.
The CTA denied the MPR thus the case was elevated to the CTA En Banc for review. The decision was affirmed.
Thus the case was elevated to the Supreme Court.
Respondent contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax
refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year
prescriptive period. In support thereof, respondent cited Commissioner of Internal Revenue v. Victorias Milling Co., Inc.
[130 Phil 12 (1968)] where it was ruled that if the CIR takes time in deciding the claim, and the period of two years is
about to end, the suit or proceeding must be started in the CTA before the end of the two-year period without awaiting the
decision of the CIR.
Issues:
1. Whether or not the claim for refund was filed within the prescribed period
2. Whether or not the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of
the NIRC, which requires the prior filing of an administrative claim, and violates the doctrine of exhaustion of
administrative remedies
Held/Ratio:
1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (G.R. No. 172129,
September 12, 2008), the two-year period should be reckoned from the close of the taxable quarter when the sales
were made.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No. 162155, August 28, 2007, 531
SCRA 436), we said that as between the Civil Code, which provides that a year is equivalent to 365 days, and the
Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must
prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.

ALS2014B
ALS2014B 249 of 365
"#$
Thus, applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July
1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondents administrative claim was
timely filed.
2. Yes. We find the filing of the judicial claim with the CTA premature.
Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit], within which to grant or deny the claim.
In case of full or partial denial by the CIR, the taxpayers recourse is to file an appeal before the CTA within 30
days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the
application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30
days.
Subsection (A) of Section 112 of the NIRC states that any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.
The phrase within two (2) years x x x apply for the issuance of a tax credit certificate or refund refers to
applications for refund/credit filed with the CIR and not to appeals made to the CTA.
The case of Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. is inapplicable as the tax provision
involved in that case is Section 306, now Section 229 of the NIRC. Section 229 does not apply to refunds/credits
of input VAT.
The premature filing of respondents claim for refund/credit of input VAT before the CTA warrants a dismissal
inasmuch as no jurisdiction was acquired by the CTA.
V. ADMINISTRATIVE REQUIREMENTS
A. Registration of VAT Taxpayers
Sec. 9.236-1 Sec. 9.236-6, Rev. Regs. No. 16-2005, Sept. 1, 2005
B. Invoicing and Bookkeeping Requirements
C. Filing of VAT Returns and Payment of VAT

ALS2014B
ALS2014B 250 of 365
"#$
OTHER PERCENTAGE TAXES
I. PERSONS/TRANSACTIONS SUBJECT TO PERCENTAGE TAXES
A. Persons Exempt from VAT
Sec. 116, NIRC, as amended by Rep. Act No. 9337
B. Domestic Carriers and Keepers of Garages
C. International Carriers
Sec. 118, NIRC
D. Franchises
E. Overseas Dispatch, Message or Conversation
Sec. 120, NIRC
F. Banks and Non-Bank Financial Intermediaries
CIR v. SOLIDBANK CORP. (2003) The 20% Final Witholding Tax (FWT) on the earnings of banks from
passive income, withheld at source, is part of their Gross Receipts.
Solidbank sought tax refund for alleged overpaid taxes. They contend that the 20% FWT on earnings from their
passive income should have been excluded from their gross receipts which was subjected to 5% tax. The CTA
ruled in favor of Solidbank and ordered the CIR to refund the taxes. The CA affirmed the CTA and ruled that the
20% FWT should not have been included in the gross receipts of Solidbank because this 20% was not actually
received by Solidbank but was instead remitted to the Government.
The Supreme Court reversed the ruling and said that the 20% FWT on passive income forms part of the
Gross Receipt of banks. According to the Court, RR 17-84 includes all income in computing the gross receipts.
The 20% FWT was constructively
12
received by the taxpayer and is therefore considered as part of their
gross income. Solidbank contends that RR 12-80 shoud govern. It states that only items actually received, and
not merely accrued, should be considered as part of gross receipts. The Court refuted this contention and said that
12-80 has already been superseded by 17-84 which makes no distinction between income actually or
constructively received. Moreover, the term accrued means earned but not yet received and refers to the
method of accounting (accrual system) and is irrelevant in this case because payment has already been
constructively received.
The SC also stated that the Manila Jockey ruling that gross receipts exclude amounts received earmarked by law
for some other taxpayer is not applicable in this case because earmarking is not the same as withholding.
Amounts earmarked are not part of the gross receipts because although received, they are reserved by law to a
person other than the taxpayer. Amounts withheld are part of the gross receipts because they are held by the

12. There is constructive possession according to the Civil Code, when among others, a person without any power acquires possession of a thing
and the person (withholding agent in this case) in whose name such possession (bank) was executed ratifies the same

ALS2014B
ALS2014B 251 of 365
"#$
withholding agent as payment by the taxpayer to the Government. (So bale earmark, 3
rd
person ang may ari nung
pera, sa withholding, ang may ari ay si taxpayer tas pinapabayad niya kay agent para kay govt.)
Lastly, the SC said that there is no double taxation because (1) the taxes were on different subject matters: the
FWT is tax on the passive income generated from interest and yield deposits (tax on property) while the 5% Gross
Receipts tax is tax on the privilege of engaging in the business of banking (tax on business); (2) The taxes are
taxed on different periods, the FWT is deducted and withheld as soon as income is earned, and is paid every
calendar quarter, while the 5% gross receipts tax is neither deducted or withheld but is paid every after the
taxable quarter in which it is earned; (3) the taxes are of different characters, FWT is an income tax subject to
withholding while the 5% gross receipts tax is a percentage tax - a national tax measured by a certain
percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross
receipts or earnings derived by any person engaged in the sale of services. Percentage taxes are not subject to
withholding.
Super Summary:
20% FWT is included because:
1. Gross receipts include income which are either constructively or actually received. Withheld taxes are
constructively received by the taxpayer.
2. The amounts cannot be considered as earmarked for another person because withheld taxes are part of the
income of the taxpayer which the withholding agent collects for the government as payment by the taxpayer.
3. There is no double taxation. The FWT is a tax on income as opposed to the 5% Gross Receipts tax which is a
percentage tax on business.
G. Finance Companies
Sec. 122, NIRC
H. Life Insurance Premiums
Sec. 123, NIRC
I. Agents of Foreign Insurance Companies
Sec. 124, NIRC
J. Amusement
Sec. 125, NIRC
K. Winnings
Sec. 126, NIRC
L. Stock Transactions in Philippine Stock Exchange
Sec. 127, NIRC
II. TAX RETURN AND PAYMENT OF PERCENTAGE TAX
Sec. 128, NIRC

ALS2014B
ALS2014B 252 of 365
"#$
EXCISE TAX
I. GOODS SUBJECT TO EXCISE TAX
A. In General
Sec. 129, NIRC
B. Alcohol Products
Secs. 141 143, NIRC, as amended by Rep. Act No. 9334
C. Tobacco Products
Secs. 144 145, NIRC, as amended by Rep. Act No. 9334
Secs. 146 147, NIRC
D. Petroleum Products
E. Miscellaneous Articles
1. Automobiles
Sec. 149, as amended by Rep. Act No. 9224
2. Non-Essential Goods
Sec. 150, NIRC
F. Mineral Products
II. PAYMENT OF EXCISE TAX
Sec. 130, NIRC
Secs. 132 140, NIRC
III. ADMINISTRATIVE REQUIREMENTS
Sec. 130(C), NIRC
Secs. 152 172, NIRC

ALS2014B
ALS2014B 253 of 365
"#$
DOCUMENTARY STAMP TAX
I. IN GENERAL
Sec. 173, NIRC
CIR v. HEALD LUMBER (1964) FACTS: Heald Lumber Company had an outstanding surplus of over P300,000.00.
At a special meeting of its stockholder, it was resolved that out of the existing surplus of the Company available
for dividends the sum of P300,000.00 be transferred from surplus account of the Company to the capital account
thereof be made available for the operations of the Company part of its capital without changing the status or
number of the 1,000 no par value shares now issued and outstanding, and that the proper officers be and hereby
are authorized, empowered and directed to make and effect such transfer. Thereafter, the Regional Director
informed Heald that it was liable to pay an additional document stamp tax of P1.00 for each share of no par value
stock or total sum of P1,000.00 for the reasons that the increase in Heald's capitalization which was brought about
by the transfer of the aforesaid sum of P300,000.00 from its surplus to its capital account resulted in an increase
of P300.00 share; that the Regional Director also required petitioner to pay the sum of P300.00 as extrajudicial
settlement of its alleged violation of Section 212 of the NIRC.
HELD: A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted
but is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business.
It is an excise upon the facilities used in the transaction of the business separate and apart from the business itself.
With respect to stock certificates, it is levied upon the privilege of issuing them; not on the money or property
received by the issuing company of certificates. Neither is it imposed upon the share of stock. As Justice Learned
Hand pointed out in one case, documentary stamp tax is levied on the document and not on the property which it
described. If, therefore, that the tax in question imposed on the privilege of issuing certificates, then the tax may
be collected only once: when the certificates are first or originally issued. The reason is because a certificate is
issued only once. Whatever documentary tax due, is due at that time.
MICHEL J. LHUILLIER PAWNSHOP, INC. v. CIR (2006) Petitioner/corporation engaged in the pawnshop
business received an assessment notice for deficiency VAT and deficiency DST. The CTA ordered Lhuillier
Pawnshop to pay the tax deficiencies. The issue in the case at hand is whether petitioners pawnshop transactions
are subject to DST. The SC that yes, it is subject to DST. It is clear from Sections 173 and 195 of the NIRC that
the subject of a DST is not limited to the document embodying the transactions enumerated therein. A DST is an
excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. A
pledge is among the privileges, the exercise of which is subject to DST. (A pledge may be defined as an
accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to
a third person movable property as security for the performance of the principal obligation, upon the fulfillment of
which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third
person.) The business of pawnshops concerns entering into pledge contracts with its customers. The Rules and
Regulations For Pawnshops specifically require every pawnshop or pawnbroker to issue, at the time of every loan
or pledge, a memorandum or a ticket signed by the pawnbroker. For purposes of taxation, the pawn ticket is proof
of an exercise of a taxable privilege of concluding a contract of pledge. It is not the ticket that creates the
pawnshops obligation to pay DST but the exercise of the privilege to enter into a contract of pledge.
II. TRANSACTIONS/DOCUMENTS SUBJECT TO DST
A. Original Issuance of Shares
B. Transfer of Shares

ALS2014B
ALS2014B 254 of 365
"#$
COMPAGNIE FINANCIERE SUCRES ET DENERES v. CIR (2006) Transfer of deposits for future stock
subscriptions is subject to capital gains tax and documentary stamp tax Compagnie transferred its equity
interest in Makati Shangri-La Hotel and Resort composed of (a) shares of stock and (b) deposits for future stock
subscriptions. Compagnie paid DST and CGT on the said transfer. Later, Compagnie filed a claim for refund on
the ground that the transfer of deposits for future stock subscriptions should not be subject to DST and CGT. Both
the CTA and CA denied the claim for refund. According to the SC, the transfer of deposits for future stock
subscriptions is subject to DST pursuant to Sec. 176 of the Tax Code because sales to secure the future transfer
of certificates of stock are liable for DST. On the other hand, the SC held that the subject transfer of deposits
for future subscriptions is subject to CGT because the taxpayers CGT return clearly shows a net gain.
C. Foreign-Issued Bonds, Debentures, Shares or Certificates of Indebtedness, and Other Instruments
Sec. 176, NIRC
D. Issue and Transfer of Certificate of Interest in Property or Accumulations
Sec. 177, NIRC
E. Bank Checks, Drafts, Certificates of Deposit not Bearing Interest
Sec. 178, NIRC
F. Debt Instruments
COMMISSIONER v. FILINVEST DEVELOPMENT CORP. (2011) instructional letters evidencing advances
are treated like loan agreements subject to documentary stamp tax Filinvest Development Corporation
(FDC) is a holding company, which owned much of the shares of Filinvest Alabang Inc. (FAI) and Filinvest Land
Inc. (FLI). FDC and FAI came into agreement to transfer P4Billion worth of property in exchange with about
403,094,301 worth of shares of FLI. FDC also made cash advances evidenced by instructional letters, journals,
and cash vouchers.
The CIR imposed documentary stamp tax on such cash advances. FDC opposed claiming that they are not loan
agreements and documentary stamp taxes may not be imposed on agreements not evidenced by promissory notes
and other loan agreements.
The SC held that inter-office memos (instructional letters, journals, and cash vouchers) even when not
evidencing a loan agreement per se, but shows cash advances are akin to promissory notes which are subject to
documentary stamp tax. One cannot hide from devices like inter-office memos to avoid the imposition of
documentary stamp tax wherein in truth, a loan agreement is present.
BANCO DE ORO UNIVERSAL BANK v. CIR (2005) A certificate of deposit is a written acknowledgment by
a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer or to
some other person or order. It is a Bank document evidencing the existence of a time deposit.
CIR assessed BDO for deficiency documentary stamp tax of ~ Php 15M on its Investment Savings Account
product. Section 180 of the Tax Code imposes DST on the following: (1) promissory note, whether negotiable or
not; (2) bills of exchange; (3) drafts; (4) certificates of deposit; and (5) debt instrument used for deposit
substitute.
By definition, a certificate of deposit is a written acknowledgment by a bank of the receipt of money on
deposit which the bank promises to pay to the depositor, bearer or to some other person or order. It is a
Bank document evidencing the existence of a time deposit.

ALS2014B
ALS2014B 255 of 365
"#$
The Commissioner asserts that Investment Savings Account (ISA) deposits are considered certificates of
deposit/time deposits and are subject to DST. On the other hand, BDO says that the ISA is not a time deposit
because it is evidenced by a regular savings account passbook and not by a certificate of deposit, which is the case
for time deposits. Further, BDO asserts that in money in an ISA is withdrawable anytime and the interest depends
on how long the money is kept by the depositor with the bank; while in the case of a time deposit, there is a
specific maturity date evidenced by a certificate of deposit.
The SC held that the ISA and Time Deposits are similar in that the bank acknowledges the receipt of a sum of
money on deposit which the bank promises to pay to the depositor, bearer or to the order of a bearer on a specified
period of time. It does not matter that an ISA is evidenced by a regular passbook and a time deposit is covered by
a certificate of deposit. The nature and functions of the accounts are the same.
BELLE CORP. v. CIR (2005) The CIR assessed Belle Corporation deficiency documentary stamp taxes (DST) for
inter-company advances made by the corporation to its subsidiaries and affiliates. The case involves the
interpretation of Section 180, as to what documents vis--vis transactions are covered therein. In BIR Ruling No.
108-99, the CIR interpreted that the inter-office memo is in the nature of a promissory note, subject to Section 180
of the NIRC. However, in an earlier ruling (BIR Ruling 116-98) it was stated that nothing in the Documentary
Stamp Tax Regulations nor in RR No. 9-94 state that the same was subject to DST. The latter states that it was
neither a form of promissory note nor a certificate of indebtedness but rather was prepared for accounting
purposes only to avoid comingling of funds of the corporate affiliates.
The Court ruled that BIR Ruling 116-98 is more in accordance with the law, hence NOT SUBJECT TO DST.
The advances were only evidenced by disbursement vouchers, journal vouchers and inter-office memoranda
issued by the Company. These are not within the meaning of promissory note, which is defined as an
unconditional promise in writing by one person to another, signed by the maker, engaging to pay on demand or at
a fixed or determinable future, a sum certain in money to such other person or to order, free from restrictions as to
registration or transfer and usually without coupons. Section 180 clearly provides that it was seeks to tax are
merely loan agreements, promissory notes, bills of exchange, drafts, instruments and securities or certificate of
deposits.
G. Bills of Exchange or Drafts
H. Acceptance of Foreign-Drawn Bills of Exchange
Sec. 181, NIRC
I. Foreign Bills of Exchange and LCs
Sec. 182, NIRC
J. Life Insurance Policies
BIR RUL. NO. DA-182-2005, APRIL 20, 2005 DST on Premiums should be collected each time a premium is
paid The Philippine Life Insurance Association (PLIA) sought reconsideration of the policy concerning the
collection of DST on life insurance policies every time the insured pays the premium. PLIA claims that only one
DST is due on the entire life insurance policy. The amount should be based on the initial premium collected. BIR
ruled that the law only provides that DST shall be based on the amount of premium collected. Each time a
premium is collected, DST must be paid. The premium may be payable annually or by installment. In the case of
payment by installment, each time a portion of the premium is paid, DST must also be paid.

ALS2014B
ALS2014B 256 of 365
"#$
K. Non-Life Insurance Policies
Sec. 184, NIRC
BIR RUL. NO. DA-288-2005, JUNE 27, 2005 Insurance contracts issued by Pioneer Hong Kong Branch being
in the nature of property insurance covering properties situated outside the Philippines are not subject to
DST The ruling is in response to the inquiry made by Pioneer Insurance & Surety Corporation on its opinion that
no documentary stamp tax (DST) is due on insurance policies issued in Hong Kong by your Hong Kong Branch
Office. Pioneer is a domestic corporation engaged in the business of general insurance, including statutory
insurance and acceptance of reinsurance, authorized by the Insurance Commission to operate a branch office in
Hong Kong; the branch office in Hong Kong is duly registered under the Hong Kong Companies Ordinance and
is duly authorized to write certain categories of the general insurance business in Hong Kong; that pursuant to
such registration, the Hong Kong Branch Office issues insurance policies and earns direct premiums on such
insurance policies issued in Hong Kong to its Hong Kong clients involving properties situated outside the
Philippines.
Relevant are sections 173 and 184 of the NIRC.
Sec. 173. Stamp taxes upon documents, instruments, loan agreements, and papers. Upon documents,
instruments, loan agreements, and papers, and upon acceptances, assignments, sales and transfers of the
obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect
of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the
following sections of this Title, by the person making, signing, issuing, accepting, or transferring the
same wherever the document is made, signed, issued, accepted, or transferred when the obligation or
right arises from Philippine sources or the property is situated in the Philippines, and at the same time
such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys
exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly
liable for the tax." (Emphasis ours)
The clause by the person making, signing, issuing, accepting, or transferring the same wherever the document is
made, signed, issued, accepted, or transferred when the obligation or right arises from Philippine sources or the
property is situated in the Philippines was introduced by way of amendment by R.A. No. 7660. The amendment
was introduced to plug the loophole in the law which enabled the parties to a contract to simply go outside the
Philippines to sign the document and lawfully avoid payment of DST. With the amendment, DST will be payable
regardless of where the document is signed, issued, accepted, or transferred, for as long as the said document
pertains to (a) obligations or rights arising from sources within the Philippines or (b) property situated in the
Philippines. Thus, deeds of conveyance covering real property situated in the Philippines will be liable to DST
regardless of where the deed is executed.
SEC. 184. Stamp Tax on Policies of Insurance Upon Property. On all policies of insurance or other
instruments by whatever name the same may be called, by which insurance shall be made or renewed
upon property of any description, including rents or profits, against peril by sea or on inland waters, or by
fire or lightning, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Four
pesos (P4.00), or fractional part thereof, of the amount of premium charged: Provided, however, That no
documentary stamp tax shall be collected on reinsurance contracts or on any instrument by which cession
or acceptance of insurance risks under any reinsurance agreement is effected or recorded.
Applying the afore-quoted Section 184 in relation to Section 173 of the Tax Code to the case of Pioneer's Hong
Kong Branch, the property insurance policies issued by the said Hong Kong branch will be subject to DST
imposed under Section 184 of the Tax Code, even if such policies are signed or issued abroad, for as long as the
properties which are the object of insurance are situated in the Philippines. Conversely, where the property
insured is situated outside the Philippines, the DST imposed on property insurance under Section 184 will not
apply.

ALS2014B
ALS2014B 257 of 365
"#$
While it may be true that Pioneer's Head Office is considered the same juridical entity as its Hong Kong branch
office under the single-entity concept, such fact is not relevant in determining liability for DST on property
insurance policies which depend solely on the location of the subject property.
In view of the foregoing, this Office therefore hereby confirms your opinion that the insurance contracts issued by
Pioneer Hong Kong Branch, being in the nature of property insurance covering properties situated outside the
Philippines are not subject to DST.
L. Fidelity Bonds and Other Insurance Policies
Sec. 185, NIRC
M. Annuities and Pre-Need Plans
N. Indemnity Bonds
Sec. 187, NIRC
O. Certificates
Sec. 188, NIRC
P. Warehouse Receipts
Sec. 189, NIRC
Q. Jai-Alai, Horse Race, Lotto, etc.
Sec. 190, NIRC
R. Bills of Lading or Receipts
Sec. 191, NIRC
S. Proxies
Sec. 192, NIRC
T. Powers of Attorney
Sec. 193, NIRC
U. Leases of Real Property
Sec. 194, NIRC
V. Mortgages, Pledges and Deeds of Trust
Sec. 195, NIRC
W. Deed of Sale of Real Property

ALS2014B
ALS2014B 258 of 365
"#$
Sec. 196, NIRC
BIR RUL. NO. DA-076-2005 TRANSFER OF ASSETS AND LIABILITIES AT BOOK VALUE PURSUANT
TO RESTRUCTURING PLAN WILL NOT RESULT TO ANY INCOME TAX CONSEQUENCE.
X Co. and Y Co. are both PEZA registered companies. As part of the restructuring of X Co., it proposes to sell
some of its assets and liabilities to Y Co. at book value. The BIR ruled that since the transfer of assets will be
made at book value, no taxable gain will be realized. Consequently, the transfer at book value, assuming the same
to be at arms length shall not result in a taxable gain or loss pursuant to Section 40(A) of the Tax Code.
BIR RUL. NO. DA-084-2005, MARCH 14, 2005 BIR REITERATES TAX TREATMENT OF LIQUIDATING
DIVIDENDS.
Stockholders of a liquidating corporation owning various condominium units shall realize capital gain or loss, as
the case may be, when the latter distributes to the former its remaining assets. Any capital gain, consisting of the
difference between the fair market value of the liquidating dividends and the adjusted cost to the stockholders of
their respective shareholdings in the corporation, shall be subject to ordinary income tax at the rates provided
under Section 24(a)(1)(c) of the Tax Code. On the other hand, the liquidating corporation shall not be subject to
tax either on the transfer of its assets to stockholders or on the receipt of shares surrendered by stockholders. The
conveyance of condominium units in the form of liquidating dividends and without consideration shall not be
subject to DST.
BIR RUL. NO. DA-065-2005, FEB. 23, 2005 The Spouses Estrella transferred real properties in favor of ROSBANK.
The properties were additional consideration in the nature of paid-in surplus for the existing shares of stock issued
to them. By virtue of said transfer of realties, the book value of the shares of stock owned by Spouses Estrella
shall be increased accordingly. Since the transfer of the above properties represents additional infusion of capital
in the nature of paid-in surplus, no shares shall be issued by ROSBANK to Spouses Estrella.
The fair market value of the above realties transferred, as so appraised, being credited to the surplus account of
ROSBANK being a capital investment, is not within the purview of the term "taxable income" as defined in
Section 32 of the Tax Code of 1997. Accordingly, the transfer of the above-listed real properties to ROSBANK
by stockholders Spouses Estrella, as their contribution to its capital, should not be treated as income on the
part of the latter, thus, not subject to income tax.
BIR RUL. NO. DA-640-2004, DEC. 17, 2004 PARTITION OF PROPERTIES NOT SUBJECT TO CAPITAL
GAINS TAX, DST AND VAT.
The BIR ruled that partition of properties among co-owners without any consideration is not subject to capital
gains tax, DST under Section 196 of the Tax Code of 1997 and VAT considering that there is no sale, exchange or
disposition of property. The agreement is subject however to the P15.00 DST as prescribed in Sec. 188 of the Tax
Code of 1997
BIR RUL. NO. DA-648-2004, DEC. 21, 2004 RECONVEYANCE OF PROPERTY WITHOUT MONETARY
CONSIDERATION NOT SUBJECT TO CAPITAL GAINS TAX AND DST.
Facts: In 1964 a deed of sale was executed between Mrs. A and her eldest son over a parcel of land for the
purpose of securing a housing loan from the SSS. The said deed of sale has been executed for convenience and
without monetary consideration. To be fair among all of Mrs. As heirs and to put everything prospectively to
avoid confusion and problems in the future, a deed of sale was executed in 1975 to revert back the property to
Mrs. A, again for convenience and without monetary consideration. Ruling: The BIR ruled that considering that
the transfer of the subject property is without consideration and was executed only as a requirement for the
granting of the SSS loan, the reconveyance of the same in Mrs. As favor is exempt from the payment of capital
gains tax and documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. However, the
notarial acknowledgement is subject to the P15.00 documentary stamp tax under Section 188 of the same Code.
X. Charter Party and Similar Instruments

ALS2014B
ALS2014B 259 of 365
"#$
Sec. 197, NIRC
Y. Assignment, Transfer, and Renewal of Certain Instruments
Sec. 198, NIRC
III. TRANSACTIONS/DOCUMENTS NOT SUBJECT TO DST
BIR RUL. NO. DA-244-2005, JUNE 7, 2005 SUBSEQUENT TRANSFER OF DEBT INSTRUMENT ISSUED
PURSUANT TO A TAX FREE EXCHANGE IS NOT SUBJECT TO DST PROVIDED THERE IS NO
INCREASE IN THE AMOUNT OR CHANGE IN THE MATURITY DATE OF THE DEBT
INSTRUMENT.
A Inc. and B Inc. entered into a tax-deferred exchange transaction under Section 40(C)(2) and (C)(6) of the Tax
Code of 1997, whereby A Inc. transferred Receivables to B Inc. in exchange for shares and debt instruments
issued by B Inc. The BIR ruled that the DST due on the issuance of the debt instruments shall be subject to P1.00
for every P200, or a fractional part thereof, of the issue value. However, the subsequent assignment, transfer or
amendment of such debt instruments by A Inc. shall not be subject to DST provided that there is no increase in
the amount or change in the maturity date from that of the original instrument pursuant to Section 199(F) of the
Tax Code of 1997, as amended by Republic Act No. 9243.
BELLE CORP. v. CIR (2005) The CIR assessed Belle Corporation deficiency documentary stamp taxes (DST) for
inter-company advances made by the corporation to its subsidiaries and affiliates. The case involves the
interpretation of Section 180, as to what documents vis--vis transactions are covered therein. In BIR Ruling No.
108-99, the CIR interpreted that the inter-office memo is in the nature of a promissory note, subject to Section 180
of the NIRC. However, in an earlier ruling (BIR Ruling 116-98) it was stated that nothing in the Documentary
Stamp Tax Regulations nor in RR No. 9-94 state that the same was subject to DST. The latter states that it was
neither a form of promissory note nor a certificate of indebtedness but rather was prepared for accounting
purposes only to avoid comingling of funds of the corporate affiliates.
The Court ruled that BIR Ruling 116-98 is more in accordance with the law, hence NOT SUBJECT TO DST.
The advances were only evidenced by disbursement vouchers, journal vouchers and inter-office memoranda
issued by the Company. These are not within the meaning of promissory note, which is defined as an
unconditional promise in writing by one person to another, signed by the maker, engaging to pay on demand or at
a fixed or determinable future, a sum certain in money to such other person or to order, free from restrictions as to
registration or transfer and usually without coupons. Section 180 clearly provides that it was seeks to tax are
merely loan agreements, promissory notes, bills of exchange, drafts, instruments and securities or certificate of
deposits.
IV. PAYMENT OF DST
Sec. 200, NIRC
V. EFFECT OF NON-PAYMENT OF DST
Sec. 201, NIRC

ALS2014B
ALS2014B 260 of 365
"#$
LOCAL TAXATION
I. GENERAL PRINCIPLES
A. Local Autonomy
Sec. 129. Power to Create Sources of Revenue. Each local government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.
MACTAN CEBU INTL AIRPORT AUTHORITY v. MARCOS (1996) Facts: MIAA filed this case of declaratory
relief in order to finally settle the extent of the local taxing authority granted to local government units. Involved
here is the MIAA, a creation of RA 6958 which was granted therein tax exemptions as regards its real properties.
Subsequent to its creation however, in 1991, the LGC was enacted which effectively repealed the tax exemption
clause under its Sec. 193. Petitioner contends that even with the enactment of the Local Government Code, it is
still exempt as it falls under the exemption provided under Sec.133 of the same code which provides: Sec. 133.
Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following: xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units.
Respondent city on the other hand refused to cancel and set aside petitioners realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of
Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992.
Petitioner relies on the ruling in Basco v. PAGCOR which held that Local governments have no power to tax
instrumentalities of the National Government.
Held: Reliance on the Basco decision is misplaced because such case was decided before the effectivity of the
LGC. Among the taxes enumerated in the LGC is real property tax, which is governed by Section 232. It reads
as follows: SEC. 232 Power to Levy Real Property Tax. A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery,
and other improvements not hereafter specifically exempted. Section 234 of the LGC provides for the exemptions
from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and
juridical persons, including government-owned and controlled corporations, except as provided therein. It
provides: SEC. 234.Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof had been granted, for consideration or otherwise, to a taxable person; xxx..
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in
Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, taxes, fees and
charges of any kind on the National Government, its agencies and instrumentalities, and local government units;
however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person, as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including
government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are
withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless
otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the properties

ALS2014B
ALS2014B 261 of 365
"#$
exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the
exemption insofar as real property taxes are concerned by limiting the retention only to those enumerated therein;
all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to
real property owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of
the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been
granted to a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions
from payment of real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek
refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as
shown above, the said section is qualified by Sections 232 and 234.
The court concluded that petitioner is not exempt from paying realty taxes because: 1. It may be reasonable to
assume that the term lands refer to lands in Cebu City then administered by the Lahug Air Port and includes
the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. A section 15 of
petitioners charter involves a transfer of the lands, among other things, to the petitioner and not just the
transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This
transfer is actually an absolute conveyance of the ownership thereof because the petitioners authorized capital
stock consists of, inter alia, the value of such real estate owned and/or administered by the airports. Hence, the
petitioner is now the owner of the land in question not the government and the exception in Section 234(c) of the
LGC is inapplicable. 2. the petitioner cannot claim that it was never a taxable person under its Charter. It was
only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax.
And even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be conceded to be an agency or instrumentality of
the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234
of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.
MANILA ELECTRIC CO. v. PROV. OF LAGUNA (1999) The Local Government Code of 1991 enjoined LGUs to
create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed
therein, consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, the province of
Laguna enacted an ordinance which imposed a tax on businesses enjoying a franchise at a rate of 50% of 1% of
the gross annual receipts which shall include both cash sales and sales on account realized during the preceding
calendar year within this province, including the territorial limits on any city located in the province. MERALCO,
who was granted a franchise by the Natl Electrification Administration to operate in Laguna, paid P19 M under
protest and filed a claim for refund contending that the franchise tax it was paying to the Natl Govt included the
same pursuant to sec. 1 of PD 551 which stated: Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric
current for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of
electric current and from transactions incident to the generation, distribution and sale of electric current. Such
franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or
before the twentieth day of the month following the end of each calendar quarter or month, as may be provided in
the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any
other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by
any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of
electric current. ISSUE: 1.) W/N the imposition of a franchise tax under the ordinance is violative of the non-
impairment clause of the Constitution and Sec 1 of PD 551? NO 2. )W/N the LGC, has repealed, amended or
modified Presidential Decree No. 551? YES
Under sec. 137 of the LGC, explicitly authorizes provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a franchise. It has also

ALS2014B
ALS2014B 262 of 365
"#$
withdrawn under Sec 193, tax exemptions or incentives theretofore enjoyed by certain entities. Section 193
Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
Lastly, Sec 534 provides a general repealing clause: (f) All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified accordingly.
While the Court has referred to tax exemptions contained in special franchises as being in the nature of contracts
and a part of the inducement for carrying on the franchise, these exemptions, are far from being strictly
contractual in nature. Contractual tax exemptions, where the non-impairment 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.
These contractual tax exemptions, however, are not to be confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause.
Art 12, Sec 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is
explicit that no franchise for the operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so
requires.
FYI: 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. Under Article X of the 1987 Constitution, a general
delegation of that power has been given in favor of the Local Government Units (LGU). Under the 1987
Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist
although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to
safeguard the viability and self-sufficiency of local government units by directly granting them general and broad
tax powers. Nevertheless, 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.
WILLIAM LINES, INC. v. CITY OF OZAMIS (1974) The petitioners in this case assail the constitutionality of
Ordinance No. 604 of the City of Ozamis which imposes a gross sales tax of one and one-half percent (1 !%)
on the gross freight and fares of the cargo and passengers shipped or transported from Ozamis City collectible on
owners, operators or agents of shipping companies with shipping offices or shipping agencies in the city. The
Court ruled that the ordinance is valid. The power to tax granted to the local government units is one of the
exceptions to the principle of non-delegation. The Constitution also states that Each local government unit
shall have the power to create its own sources of revenue and to levy taxes, subject to such limitations as
may be provided by law." With regard to the other argument of the petitioners that the tax imposed is an export
tax which is prohibited by R.A. No. 2264, the Court stated that only where there is a clear showing that what is
being taxed is an export to any foreign country would the prohibition in R.A. No. 2264 come into play.
B. Fundamental Principles
Sec. 130. Fundamental Principles. The following fundamental principles shall govern the exercise of the taxing and
other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;

ALS2014B
ALS2014B 263 of 365
"#$
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in the restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to
the disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise
specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
PEPSI COLA BOTTLING CO. OF THE PHILS., INC. v. MUN. OF TANAUAN (1976) The municipality of
Tanauan issued two ordinances - Ordinance No. 23 levies from soft drink producers and manufacturers a tax of
1/16 of a centavo for every bottle of soft drink corked. Municipal Ordinance No. 27 levies on soft drinks produced
and manufactured within the municipality one centavo for each gallon of volume capacity. The tax imposed in
both ordinances is denominated as 'municipal production tax', where monthly reposts are required to be submitted
for proper computation. Pepsi Cola Bottling Company of the Philippines, Inc. (Pepsi) filed a complaint to declare
Sec 2 of RA 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing authority, as well as
Ordinances Nos. 23 and 27 null and void.
The power of taxation may be delegated to local governments in respect of matters of local concern. There
is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same
purpose, but not in a case where one tax is imposed by the State and the other by the city of municipality.
The tax of one centavo (P0.01) on each gallon of volume capacity on all soft drinks, produced or manufactured, or
an equivalent of 1! centavos per case, cannot be considered unjust and unfair. Municipal corporations are
allowed much discretion in determining the rates of imposable taxes, in line with the constitutional policy of
according the widest possible autonomy to local governments in matters of local taxation.
ORMOC SUGAR CO., INC. v. MUN. BOARD OF ORMOC CITY (1967) A petition for declaratory relief was
filed to test the validity of a Municipal Ordinance which imposes City Tax on centrifugal sugar (0.20php per picul
and 1% on the gross sale of derivatives). The petition must fail. This is a question of power. When the Local
Autonomy Act was enacted, the sphere of autonomy of a chartered city in the enactment of taxing measures has
been considerably enlarged. The grant of the power to tax to chartered cities under Sec. 2 of the Local
Autonomy Act is sufficiently plenary to cover everything, excepting those which are mentioned subject
only to the limitation that the tax so levied is for public purposes, just and uniform. The ordinance doesnt
suffer any constitutional or statutory infirmity. It also doesnt suffer a taint of illegality (not a restraint of trade).
PROCTER & GAMBLE v. MUNICIPALITY OF JAGNA, BOHOL (1979) Procter & Gamble Trading Company
Philippines is engaged in the manufacture of soap, edible oil, margarine and other similar products, and for this
purpose maintains a bodega in defendant Municipality where it stores copra purchased in the municipality and
therefrom ships the same for its manufacturing and other operations. The Municipal Council of Jagna enacted
Municipal Ordinance No. 4, Series of 1957 imposing storage fees of all exportable copra deposited in the bodega
within the jurisdiction of the Municipality. From 1958-1963, plaintiff paid the storage fees under protest. In 1964,
plaintiff filed a suit in the CFI praying for the declaration of inapplicability of Ordinance No. 4 to them or in the
alternative to proclaim it as ultra-vires for being enacted beyond the powers of the Municipality. CFI Upheld the
Municipalitys authority to impose the fees. Upon appeal, the court proclaimed that the Municipality has the
authority to impose and collect the storage fee as this falls under the broad authority conferred by Commonwealth

ALS2014B
ALS2014B 264 of 365
"#$
Act 472 (Sec 1 provides for the authority to impose municipal taxes). A municipality is authorized to impose
three kinds of licenses: (1) a license for regulation of useful occupation or enterprises; (2) license for
restriction or regulation of non-useful occupations or enterprises; and (3) license for revenue. The storage
fee imposed under the question Ordinance is actually a municipal license tax or fee on persons, firms and
corporations, like plaintiff, exercising the privilege of storing copra in a bodega within the Municipality's
territorial jurisdiction. On the issue of the imposition of P0.10 per 100 kilos of copra stored in a bodega within
defendant's territory is beyond the cost of regulation and surveillance, Municipal corporations are allowed wide
discretion in determining the rates of imposable license fees even in cases of purely police power measures.
In the absence of proof as to municipal conditions and the nature of the business being taxed as well as
other factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates, Courts will
go slow in writing off an Ordinance, and in this case, it is not sufficiently shown that the rate imposed by the
questioned Ordinance is oppressive, excessive and prohibitive.
MATALIN COCONUT CO. v. MUN. COUNCIL OF MALABANG (1986) tax despite being given some other
name is a tax measure if purpose is to raise revenue; tax imposed without any public purpose or one that is
unjust or oppressive is null and void
In August 1966, the Municipal Council of Malabang, Lanao del Sur passed Municipal Ordinance No. 45-46,
entitled "AN ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK OF CASSAVA
STARCH PRODUCED AND SHIPPED OUT OF THE MUNICIPALITY OF MALABANG AND IMPOSING
PENALTIES FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any person, company or
group of persons "to ship out of the Municipality of Malabang, cassava starch or flour without paying to the
Municipal Treasurer or his authorized representatives the corresponding fee fixed by (the) ordinance." It imposed
a "police inspection fee" of P.30 per sack of cassava starch or flour, which shall be paid by the shipper before the
same is transported or shipped outside the municipality. Any person or company or group of individuals violating
the ordinance "is liable to a fine of not less than P100.00, but not more than P1,000.00, and to pay Pl.00 for every
sack of flour being illegally shipped outside the municipality, or to suffer imprisonment of 20 days, or both, in the
discretion of the court.
The petitioner assailed the ordinance primarily alleging that it is not only ultra vires, being violative of Republic
Act No. 2264, but also unreasonable, oppressive and confiscatory. The Trial Court declared the ordinance null
and void finding it imposed a tax despite being denominated as police inspection fee. The Supreme Court
affirmed the ruling of the trial court. It held that the ordinance imposed a tax based on its underlying purpose of
raising revenue. The Court noted, however, that such tax was not in the nature of a percentage tax or any other
kind of tax for that matter in relation to sales. It was a fixed tax not based on sales. Finally, the Court said that the
ordinance failed to comply with the requirement of law that taxes must be for public purposes, just and uniform.
PUNSALAN ET. AL. v. MUNICIPAL BOARD OF MANILA (1954) Petitioners, who were professionals in the
City of Manila, sought the annulment of Ordinance No. 3398 (together with section 18 of the Manila Charter
authorizing it) which imposes a municipal occupation tax on persons exercising various professions in the city.
The law authorizing said ordinance empowers the Municipal Board to impose a municipal occupation tax on
persons engaged in various professions. Petitioners, having already paid their occupation tax under section 201 of
the NIRC, paid the additional tax prescribed in the ordinance under protest. The lower court upheld the validity of
the law authorizing the enactment of the ordinance but declared the ordinance itself illegal and void.
Petitioners contend that said ordinance and the law authorizing it constitute class legislation, are unjust and
oppressive, and authorize what amounts to double taxation.
Held: It is not for the courts to judge what particular cities or municipalities should be empowered to
impose occupation taxes in addition to those imposed by the National Govt. The matter is peculiarly within
the domain of the political departments and the courts would do well not to encroach upon it. Likewise, the
argument against double taxation may not be invoked where one tax is imposed by the state and the other
is imposed by the city.

ALS2014B
ALS2014B 265 of 365
"#$
BAGATSING v. RAMIREZ (1976) In 1974, the Municipal Board of Manila enacted Ordinance No. 7522, regulating
the operation of public markets and prescribing fees for the rentals of stalls. Also, the collection of the market
stall rentals had been delegated by the City of Manila to Asiatic Integrated Corporation (private corp.) in a
Management and Operating Contract. The Federation of Manila Market Vendors Inc. assailed the validity of
the ordinance, alleging among others that the fees imposed in the ordinance is diverted to the exclusive private use
of the said private corporation. The SC held that the ordinance is valid and that the fees collected do not go
directly to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the
purpose of raising revenues for the city. The entrusting of the collection of the fees does not destroy the public
purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through
which the money is dispensed is public or private. The right to tax depends upon the ultimate use, purpose
and object for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public
purpose, although it is under the direction of an individual or private corporation. (N.B. The 2004 Taxation
Pre-Bar Reviewer of the UP Sigma Rho @ http://www.scribd.com/doc/100553131/37098957-Taxation-Reviewer-
UP-Sigma-Rho-2 said that this SC decision was overridden by Sec. 130 (3) of the 1991 LGC which provides
that: The collection of local taxes, fees, charges and other impositions shall in no case be let to any private
person)
STANDARD VACUUM OIL CO. v. ANTIGUA, ET. AL. (1955) Standard was engaged in the importation,
distribution and sale of kerosene. They had a plant in Cebu where they store the kerosene and where they
manufacture tin cans where the kerosene products are to be kept. Standard Vacuum sought refund for taxes
collected by the Municipal Treasurer of Opon, Cebu, pursuant to a local ordinance subjecting businesses to
occupation tax. The taxes were assessed against Standards manufacture of tin cans. Standard contends that the
tax is not occupation tax but is actually a percentage tax on specified articles the tin cans. Percentage taxes are
outside the ambit of the Municipal Autonomy Act which gave local governments the power to collect taxes on
occupation or business. Assuming arguendo that these are occupation taxes, Standard contends that it cannot be
imposed upon the manufacture of the tin cans because such is merely incidental to their business, which is
importation of kerosene and petroleum products. The Court said that the tax is occupation tax, therefore the
ordinance is valid. The Court however said that the Municipal Treasurer may not collect tax on the manufacture
of these tin cans because according to them, when an entity is already taxed for its main business, it cannot
anymore be taxed for engaging in activities incidental to the business.
CITY OF MANILA v. FORTUNE ENTERPRISES, INC. (1960) Fortune Enterprises (FE) had engaged in the
business of automobile repairing. For said repair business, the company paid all taxes, liscense fees, and mayor's
permit fees required by the National Government and by the City Government of Manila.
Retailer? (spare parts, battery charging, upholstering)
FE did not carry a stock of automobile spare parts in its establishment for sale to the public. It secured the
necessary spare parts by buying them from different automobile supply stores in the City. And every time FE
installed said automobile spare parts, it was always in connection with a job order. For its auto repair business, the
company paid the corresponding contractor's tax of 3% on its gross receipts including labor and materials. In
connection also with its auto repair shop, FE has a battery charging unit for the exclusive use of its customers, but
the same was not allowed to be used without any repair job to be done. The upholstering, when needed by a
customer, was done by outside constructors. Hence, if a customer wanted a new set of seat covers, FE arranged
the matter with an outside contractor, who is not included in FE's payroll nor regularly employed by it.
Issue: W/N Fortune Enterprises is a retail dealer of automobile spare parts
The foregoing rulings brings out the point that where something is done as a mere incident to, or as a necessary
consequence of, the principal business, it is not ordinarily taxed as an independent business in itself; and that
what is usually taken as essential is the main activity in which the taxpayer is engaged. All the various
transactions tending to better accomplish the principal end in view must be treated as merely incidental to the
principal purpose of the business, in the absence of circumstances evidencing a different intent.

ALS2014B
ALS2014B 266 of 365
"#$
That the materials were itemized as separate charges does not evidence an intent to supply them as a separate
transaction, since the itemization served to allay any suspicion of the customers that they were being over-charged
for the materials thus supplied.
MUNICIPALITY OF OPON v. CALTEX PHIL., INC. (1968) When a person or company is already taxed on
its main business, it may not be further taxed for doing something or engaging in an activity or work which
is merely a part of, incidental to, and is necessary to its main business.
Caltex Philippines is a domestic corporation engaged in the business of importing, distributing, and selling
petroleum products. It owns an establishment called Caltex Opon Terminal situated in the Municipality of
Opon, Cebu. This establishment houses a tin can factory wherein Caltex manufactures 5-gallon tin cans primarily
to serve as containers for its own petroleum products. As a side contract, Caltex entered into a service agreement
with Tidewater Oil Company. Pursuant to this agreement, Caltex agreed to supply Tidewater with cans and drums
for a fee equivalent to 3% of the cost of production on top of the reimbursement cost.
In 1949, Ordinance 90 was passed by the Municipality of Opon, which imposed a license tax on tin factories
on the basis of its maximum annual output. Caltex was made to pay the tax based on its total factory output,
consisting of the tin cans it produced for its own use and those produced for Tidewater, pursuant to the service
agreement. Caltex now claims that it is entitled to recover the amount paid corresponding to the tin cans it
produced for its own use.
Caltex is entitled to recover. In the case Standard Vaccum v. Antigua concerning the exact same Ordinance, the
Court already held that when a person or company is already taxed on its main business, it may not be
further taxed for doing something or engaging in an activity or work which is merely a part of, incidental
to, and is necessary to its main business. By maintaining its factory for tin cans, Caltex merely assures itself of a
continuous supply of cans necessary for the sale and distribution of its own products. The production of such cans
for its own use is evidently incidental to its main business. Thus, Caltex should only be taxed based on the total
output of cans it produces for Tidewater.
CIR v. PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY, INC. (2005) From August 1971 to
September 1972, respondents paid the Bureau of Internal Revenue under protest the 3% tax imposed on
lending investors by Section 195-A of Commonwealth Act No. 466. On 31 January 1973, respondents sent a
letter-claim to petitioner seeking a refund of the taxes paid under protest. When respondents did not receive a
response, each respondent (PHILAM Accident, PHILAM General, and PHILAM Assurance) filed on 26 April
1973 a petition for review with the CTA. These three petitions, which were later consolidated, argued that
respondents were not lending investors and as such were not subject to the 3% lending investors tax under
Section 195-A. Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section
182(A)(3)(dd) provides for the taxation of lending investors in different localities. Section 195-A refers to dealers
in securities and lending investors. The burden is thus on petitioner to show that insurance companies are lending
investors for purposes of taxation. The definition in Section 194(u) of CA 466 is not broad enough to include
the business of insurance companies. The Insurance Code of 1978 is very clear on what constitutes an
insurance company. True, respondents granted mortgage and other kinds of loans. However, this was not done
independently of respondents insurance business. The granting of certain loans is one of several means of
investment allowed to insurance companies. No less than the Insurance Code mandates and regulates this practice.
CIR v. CA AND ATLAS CONSOLIDATED MINING AND DEV. CORP. (1991) Generally, statutes levying
taxes or duties are to be construed strongly against the Government and in favor of the subject or citizens,
because burdens are not to be imposed or presumed to be imposed beyond what statutes expressly and clearly
declare. No person or property is subject to taxation unless they fall within the terms or plain import of a taxing
statute.
ALI NAM v. CITY OF MANILA, ET. AL. (1960) Ah Nam was the owner of two bakeries located in Tondo, Manila,
and paid his income tax to the national government and municipal license fee to conduct such business in the City
of Manila. He regularly buys flour to bake his bread and this flour is packed in bags or sacks. When he empties
the sacks to use the flour, he sets the flour bags aside and he sells the empty bags in one of his bakeries. He never

ALS2014B
ALS2014B 267 of 365
"#$
sold these bags on a regular and consistent basis. The City Treasurer of Manila assessed and imposed on Ah Nam
to pay penalties, interest and fees for conducting the business of being a dealer in second hand flour bags. The
City Treasurer assessed him by virtue of Ordinance 3000 which require that before a person conducts a business
he must first secure a permit from the mayor and license from the City Treasurer and Ordinance 2699 which
subjects a person to a different license for exercising the business of being a dealer in second hand items. The City
Treasurer alleged that Ah Nam was engaged in selling second hand flour bags and did not secure a license and
pay the corresponding fee for it. The trial court ruled in favor of Ah Nam declaring that the sale of the flour bags
was only incidental to the business and no separate license was required.
The Supreme Court agreed with the trial court in the interpretation of Ordinance 2699 that in order to be required
to pay the license fee, one should be a dealer. Ah Nam does not buy the flour bags nor buy the flour to empty the
flour bags in order to sell the flour bags. The selling of the flour bags was only incidental to his business which is
the bakery.
YAMANE v. BA LEPANTO CONDOMINIUM CORP. (2005) BA-Lepanto Condominium Corporation collects
assessments from unit owners, to defray the necessary expenses for the Condominium Project and the common
areas. The Corporation received a Notice of Assessment signed by the City Treasurer, which states that the
Corporation is liable to pay the correct city business taxes, fees and charges. However, it was silent as to the
statutory basis of the business taxes assessed.
In order that the Corporation may be subjected to business taxes, its activities must fall within the definition of
business as provided in the Local Government Code. The word business is defined under Section 131(d) of the
Code as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. And
whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and
real property is limited by its stated corporate purposes, which are by themselves further limited by the
Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law
from transacting its properties for the purpose of gainful profit.
Accordingly, condominium corporations are generally exempt from local business taxation under the Local
Government Code, irrespective of any local ordinance that seeks to declare otherwise. A possible exception to the
rule is when the unit owners of a condominium would band together to engage in activities for profit under the
shelter of the condominium corporation. However this is not present in this case, therefore the Corporation is still
not liable.
EXTRA NOTES: Section 195 of the Local Government Code does not require that the notice of assessment
specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or
charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment.
There may have been prima facie compliance with the requirement under Section 195. However in this case, the
Revenue Code provides multiple provisions on business taxes, and at varying rates. Reference to the local tax
ordinance is vital, for the power of local government units to impose local taxes is exercised through the
appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone. What determines
tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body.
(Obiter since this was not raised as an issue by the Corporation)
C. Common Limitations on Taxing Powers of LGUs
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;

ALS2014B
ALS2014B 268 of 365
"#$
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided
herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs
fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit
concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other
taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of
six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services
except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers
or freight by hire and common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way or reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits
for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered
under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise
known as the "Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units.
PROV. OF BULACAN v. CA (1998) The petitioners are seeking for the reversal of the CA where it declared that
petitioners are without authority to levy taxes on stones, sand, gravel, earth, and other quarry resources extracted
from private lands.
Provincial Ordinance Section 21 states:
Section 21. Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the
locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to
marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of
seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction.
The appellate court, on the basis of Section 134, ruled that a province was empowered to impose taxes only
on sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited by
said provision only to those taxes, fees and charges provided in Article One, Chapter 2, Title One of Book II of
the Local Government Code.
A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue
Code. Unfortunately for petitioners, the National Internal Revenue Code provides:
Section 151. - Mineral Products. -

ALS2014B
ALS2014B 269 of 365
"#$
(A) Rates of Tax. - There shall be levied, assessed and collected on minerals, mineral products and quarry
resources, excise tax as follows:
(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the
actual market value of the gross output thereof at the time of removal, in case of those locally
extracted or produced; or the values used by the Bureau of Customs in determining tariff and
It is clearly apparent from the above provision that the National Internal Revenue Code levies a tax on all quarry
resources, regardless of origin, whether extracted from public or private land. Thus, a province may not
ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already
taxed under the National Internal Revenue Code. The province can, however, impose a tax on stones, sand,
gravel, earth and other quarry resources extracted from public land because it is expressly empowered to
do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources
extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of
the Code in relation to Section 151 of the National Internal Revenue Code.
Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the power
to create their sources of revenue, their assessment of taxes against Republic Cement being ultra vires, traversing
as it does the limitations set by the Local Government Code.
PHIL. PETROLEUM CORP. v. MUN. OF PILILLA (1991) The issue in this case is whether PPC whose oil
products are already subject to specific tax under the NIRC is still liable to pay (1.) Tax on business and (2.)
storage fees based on Municipal Ordinance 1 and Prov. Circular 6-77. In the 1939 NIRC manufactured oils and
other fuels are subjected to specific tax. Then Prov Circular 26-73 directed all provincial treasurers to refrain from
collecting any local tax subject to specific tax under NIRC. The SC held that the power of local government to tax
is ordained by the present Constitution and the prohibition set forth in a Provincial Circular 26-73 would be
tantamount to restricting their power to tax by mere admin. Issuance. Each local government unit shall have the
power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitation as only the Congress may provide.
SAN MIGUEL CORP. v. MUN. COUNCIL OF MANDAUE (1973) The Municipality of Mandaue imposed "a
graduated quarterly fixed tax based on the gross value of money or actual market value at the time of removal of
the manufactured articles from their factories or other manufacture or processing establishments" as a tax on the
privilege of manufacturing beer. San Miguel Corp. contends that the phrase "gross value in money or actual
market value" as used in the ordinance referred to "sales or market price" of the commodities manufactured,
indicating a manifest intent to impose a tax based on sales, and that to impose a tax upon the privilege of
manufacturing beer, when the amount of the tax is measured by the gross receipts from its sales of beer, is
the same as imposing a tax upon the product itself, which is beyond the power of the Municipality. The SC
ruled that the grant of power to tax to chartered cities and municipalities under Section 2 of the Local Autonomy
Act is sufficiently plenary but is, however, subject to exceptions and limitations. An ordinance providing for a
graduated tax based on either "gross output or sales" violates the prohibition on municipalities against
imposing any percentage tax on sales, or other taxes in any form based thereon, as the only standard
provided for measuring the gross output is its peso value, as determined from true copies of receipts and/or
invoices that the taxpayer is required to submit to the municipal treasurer.
PETRON CORPORATION v. TIANGCO (2008) LGU has no power to impose business taxes on sale of
petroleum products Petron maintained a depot in Navotas. Tiongco, as Mayor, wrote them a letter of demand for
payment of business taxes for the sale of petroleum products amounting to 6M. Petron opposed, but it was
dismissed both administratively and by the RTC. According to the SC, the power to tax of LGUs is limited. Under
Sec. 133(h) of the LGC, LGUs cannot impose excise taxes on articles enumerated under the NIRC and any taxes,
fees, or charges on petroleum products.
The business tax cannot be considered as an excise tax because its not directly imposed on the product itself.
However, Tiongco had no power to impose taxes on Petron since the limitation under Sec. 133(h) includes the
imposition of business taxes on petroleum products. When Phil. Petroleum Corp. v. Municipality of Pililla was

ALS2014B
ALS2014B 270 of 365
"#$
decided (case allowed the imposition of business taxes since they werent tax on the product itself but on the
business), there was no limitation under Sec. 133(h) yet, nor were there memos from the Finance Dept. expressly
saying that petroleum products are exempt from LG taxes. Ratio behind this is to regulate the oil prices, since
allowing LGUs to impose additional taxes on petroleum products would lead to increase in oil prices.
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY (1989) Farmers Market The QC
Govt imposed a supervision fee of 5% of gross receipts on rentals or lease of stalls in privately-owned public
markets in QC, like Farmers Market. Progressive Development which owns Farmers Market assails the validity
thereof, claiming that the local government is prohibited from imposing a tax on income. SC affirms QC, saying
this was a license fee. A license fee is a legal concept distinguishable from tax: the former is imposed in the
exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing
power primarily for purposes of raising revenues. Thus, if the generating 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 incidentally revenue is also obtained does not make the imposition a tax.
ARABAY, INC. v. CFI OF ZAMBOANGA (1975) The Municipal Council of Dipolog enacted an Ordinance. This
ordinance stated:
Section 1. There shall be charged for the selling and distribution of refined and manufactured mineral oils, motor
and diesel fuels, and petroleum based on the monthly allocation actually delivered and distributed and intended
for sale, in any manner whatsoever, by the Company or supplier to any person, firm, entity, or corporation,
whether as dealer of such refined and manufactured mineral oils, motor and diesel fuels, and petroleum or as
operator of any station thereof, the following tax payable monthly:
Gasoline P0.01 per liter
Lubricating oils P0.01 per liter
Diesel Fuel oils ! centavo per liter
Petroleum or P0.05 per gallon can
kerosene or
P0.02 per half gallon tin
Provided, however, that retail seller of not more than 5 gallon cans or its equivalent shall be exempted from the
provisions of this ordinance.
Arabay, a distributor of petroleum products, contested the validity of the Ordinance on the ground that the same
imposed a sales tax which is beyond the power of a municipality.
Issues: (1) W/N the municipality can enact a sales tax
Held: (1) NO. It is settled rule in this jurisdiction that for purposes of Section 2 of the Local Autonomy Act, supra, a
municipal tax ordinance which prescribes a set ratio between the amount of the tax and the volume of sales
of the taxpayer imposes a sales tax and is null and void for being beyond the power of a municipality to
enact.
The Ordinance levies a sales tax due to its phraseology of the said provision reveals in clear terms the intention to
impose a tax on the sale of oil, gasoline and other petroleum products. Thus, the ordinance provides: "There shall
be charged for the selling and distribution of refined and manufactured oils ... based on the monthly allocation
actually delivered and distributed and intended for sale ... by the Company or supplier to any person ... whether
as dealer ... or as operator of any station ... the following tax payable monthly: ..." It is quite evident from these
terms that the amount of the tax that may be collected is directly dependent upon or bears a direct relationship to
the volume of sales which the owner or supplier of the itemized products generates every month. The ordinance
in question therefore exacts a tax based on sales; it follows that the Municipality of Dipolog was not
authorized to enact such an ordinance under the local Autonomy Act.

ALS2014B
ALS2014B 271 of 365
"#$
MMIC v. HINABANGAN (1964) The Municipality of Hinabangan, Samar, through its Municipal Council, enacted
Ordinance No. 7. Section 2 thereof states: Republic Act 2264 empowers the Municipal Council of Hinabangan,
Samar, to impose graduated Municipal License Fees on any occupation or business in the municipality to any
Corporation, based on the gross outputs or in accordance with [the] following schedule: (Note: the tax base as
provided in the schedule is yearly gross output or sales). MMIC, operating the only mine within Hinabangan,
filed a case for declaratory relief questioning the validity of the ordinance. The CFI declared the ordinance illegal
as not within the Municipal Councils authority to impose because it falls within the exceptions to the taxing
powers of municipal governments. Held: (1) A mere reading of the ordinance discloses that there are no words
therein imposing a tax. Section 2 declares that the law empowers the Municipal Council of Hinabangan, Samar
to impose graduated Municipal License Fees. The taxpayer is left in doubt as to the true nature of the charge
whether the intention is to levy a tax on revenue or charge a fee for the carrying on of business. Taxes may not be
imposed by implication. (2) Even granting that it does impose a tax, the ordinance is invalid because it infringes
upon the express restrictions on the taxing power delegated to city and municipal councils. The Local Autonomy
Act expressly limited such power by the following proviso: Provided that municipalities and municipal
districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon.
Although the ordinance purports to base the tax on either gross output or sales, the only standard provided for
measuring the gross output is its peso value, as determined from true copies of receipts and/or invoices (which
are precisely evidence of sales) that the taxpayer is required to submit to the municipal treasurer. Directly or
indirectly, the amount of tax payable under this ordinance is determined by the gross sales and violates the
explicit prohibition that the municipality must not levy, or impose, taxes in any form based on sales.
SAN MIGUEL BREWERY v. CITY OF CEBU (1972)
FIRST PHIL. INDUSTRIAL CORP. v. CA, ET. AL. (1998) FPIC is a grantee of a pipeline concession; it applied
for a mayors permit to install oil pipelines. The City Treasurer required payment of a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code before the issuance of the permit. FPIC
protested but was denied, so it paid under protest. It then filed with the RTC a complaint for tax refund because it
is exempt under Sec 133(j) of the LGC (transportation contractors and persons engaged in the transportation by
hire and common carriers by air, land and water). RTC dismissed the complaint, CA affirmed. The issue is
whether FPIC is a common carrier, therefore exempted from payment of the local tax. HELD: YES. A common
carrier has been defined as any person, corporation, firm, or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the
public. Based on this definition, there is no doubt that FPIC is a common carrier and, therefore, exempt from the
business tax as provided in Sec 133(j):
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangay shall not extend to the
levy of the following:
...
j. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers
or freight by hire and common carriers by air, land, or water, except as provided in this Code.
II. SCOPE OF TAXING POWERS OF LGUS
A. Province
Sec. 135. Tax on Transfer of Real Property Ownership.
(a) The province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or
title of real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total
consideration involved in the acquisition of the property or of the fair market value in case the monetary
consideration involved in the transfer is not substantial, whichever is higher. The sale, transfer or other disposition
of real property pursuant to R.A. No. 6657 shall be exempt from this tax.

ALS2014B
ALS2014B 272 of 365
"#$
(b) For this purpose, the Register of Deeds of the province concerned shall, before registering any deed, require the
presentation of the evidence of payment of this tax. The provincial assessor shall likewise make the same
requirement before cancelling an old tax declaration and issuing a new one in place thereof. Notaries public shall
furnish the provincial treasurer with a copy of any deed transferring ownership or title to any real property within
thirty (30) days from the date of notarization.
It shall be the duty of the seller, donor, transferor, executor or administrator to pay the tax herein imposed within
sixty (60) days from the date of the execution of the deed or from the date of the decedent's death.
Sec. 136. Tax on Business of Printing and Publication. The province may impose a tax on the business of persons
engaged in the printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and
others of similar nature, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be
based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.
The receipts from the printing and/or publishing of books or other reading materials prescribed by the Department
of Education, Culture and Sports as school texts or references shall be exempt from the tax herein imposed.
Sec. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may
impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be
based on the gross receipts for the preceding calendar year, or any fraction thereon, as provided herein.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. The province may levy and collect not more than ten
percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry
resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds
of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.
The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial
governor, pursuant to the ordinance of the sangguniang panlalawigan.
The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as follows:
(1) Province - Thirty percent (30%);
(2) Component City or Municipality where the sand, gravel, and other quarry resources are extracted - Thirty percent
(30%); and
(3) Barangay where the sand, gravel, and other quarry resources are extracted - Forty percent (40%).
Sec. 139. Professional Tax.
(a) The province may levy an annual professional tax on each person engaged in the exercise or practice of his
profession requiring government examination at such amount and reasonable classification as the sangguniang
panlalawigan may determine but shall in no case exceed Three hundred pesos (P300.00).
(b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he
practices his profession or where he maintains his principal office in case he practices his profession in several
places: Provided, however, That such person who has paid the corresponding professional tax shall be entitled to
practice his profession in any part of the Philippines without being subjected to any other national or local tax,
license, or fee for the practice of such profession.

ALS2014B
ALS2014B 273 of 365
"#$
(c) Any individual or corporation employing a person subject to professional tax shall require payment by that person
of the tax on his profession before employment and annually thereafter.
(d) The professional tax shall be payable annually, on or before the thirty-first (31st) day of January. Any person first
beginning to practice a profession after the month of January must, however, pay the full tax before engaging
therein. A line of profession does not become exempt even if conducted with some other profession for which the
tax has been paid. Professionals exclusively employed in the government shall be exempt from the payment of
this tax.
(e) Any person subject to the professional tax shall write in deeds, receipts, prescriptions, reports, books of account,
plans and designs, surveys and maps, as the case may be, the number of the official receipt issued to him.
Sec. 140. Amusement Tax.
(a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or
operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors,
lessees, or operators and the distributors of the cinematographic films.
(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs,
literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the
tax hereon imposed.
(d) The sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In
case of fraud or failure to pay the tax, the sangguniang panlalawigan may impose such surcharges, interest and
penalties as it may deem appropriate.
(e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where such
amusement places are located.
Sec. 141. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of,
Dealers, or Retailers in, Certain Products.
(a) The province may levy an annual fixed tax for every truck, van or any vehicle used by manufacturers, producers,
wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks,
cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan, to sales outlets,
or consumers, whether directly or indirectly, within the province in an amount not exceeding Five hundred pesos
(P500.00).
(b) The manufacturers, producers, wholesalers, dealers and retailers referred to in the immediately foregoing
paragraph shall be exempt from the tax on peddlers prescribed elsewhere in this Code.
PBA v. CA, ET. AL. (2000) The PBA received an assessment letter from the CIR for the payment of deficiency
amusement tax on admission tickets to PBA games. The CTA ordered PBA to pay the tax. The case at hand
answers the question who between the national government and local government should the PBA pay
amusement taxes. The SC held that such amusement tax is a national tax, payable to the national government.
Section 13 of the Local Tax Code indicates that the province, or local government, can only impose a tax on
admission from the proprietors, lessees, or operators of theaters, cinematograph, concert halls, circuses, and other
places of amusement. While the Local Tax Code mentions other places of amusement, professional basketball
games are definitely not within its scope, under the principle of ejusdem generis. The authority to tax professional
basketball games is not therein included. PD 1959, on the other hand, provides that the proprietor, lessee or
operator of professional basketball games is required to pay an amusement tax to the BIR, which payment is a
national tax. (Even up to the present, the category of amusement taxes on professional basketball games as a
national tax remains the same, as provided under Section 125 of the NIRC. Section 140 of the Local Government
Code of 1992, meanwhile, retained the areas [theaters, cinematographs, concert halls, circuses and other places of

ALS2014B
ALS2014B 274 of 365
"#$
amusement] where the province may levy an amusement tax without including therein professional basketball
games.)
B. Municipality
Sec. 142. Scope of Taxing Powers. Except as otherwise provided in this Code, municipalities may levy taxes, fees, and
charges not otherwise levied by provinces.
Sec. 143. Tax on Business. The municipality may impose taxes on the following businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors,
distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance
with the following schedule:
With gross sales or receipts for the preceding
calendar year in the amount of:
Amount of Tax Per
Annum
Less than 10,000.00 165.00
P 10,000.00 or more but less than 15,000.00 220.00
15,000.00 or more but less than 20,000.00 202.00
50,000.00 or more but less than 75,000.00 1,320.00
750,000.00 or more but less than 1,000,000.00 10,000.00
1,000,000.00 or more but less than 2,000,000.00 13,750.00

ALS2014B
ALS2014B 275 of 365
"#$
6,000,000.00 or more at a rate not exceeding thirty-seven and a half
percent (37!%) of one percent (1%)
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with
the following schedule:
Amount of Tax Per
Annum
Less than 1,000.00 18.00
P 1,000.00 or more but less than 2,000.00 33.00

ALS2014B
ALS2014B 276 of 365
"#$
2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one
percent (1%).
(c) On exporters, and on manufacturers , millers, producers, wholesalers, distributors, dealers or retailers of essential
commodities enumerated hereunder at a rate not exceeding one-half (!) of the rates prescribed under subsection
(a), (b) and (d) of this Section:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar,
salt and other agricultural, marine, and fresh water products, whether in their original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements. equipment and post-harvest facilities, fertilizers, pesticides, insecticides,
herbicides and other farm inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
(d) On retailers.
Rate of Tax Per
Annum
P400,000.00 or less 2%
more than P400,000.00 1%
Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section 152
hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in
the case of cities, and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities.
(e) On contractors and other independent contractors, in accordance with the following schedule:
Amount of Tax Per
Annum
Less than 5,000.00 27.50
P 5,000.00 or more but less than P 10,000.00 61.60

ALS2014B
ALS2014B 277 of 365
"#$
2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one
percent (1%)
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on the
gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending
activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of
property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty pesos
(P50.00) per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem
proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the
National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year.
The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates
prescribed herein.
C. City
Sec. 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city, may levy the taxes, fees, and
charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with
the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality
by not more than fifty percent (50%) except the rates of professional and amusement taxes.
Implementing Rules and Regulations of the Local Government Code
Art. 237. Scope of Taxing and Other Revenue-Raising Powers of Cities. The city may:
(a) Levy and collect any of the taxes, fees, charges and other impositions that the province and the municipality may
impose. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes; and

ALS2014B
ALS2014B 278 of 365
"#$
(b) Levy and collect a percentage tax on any business not otherwise specified under paragraphs (a) to (g), Article 233
of this Rule, at rates not exceeding three percent (3%) of the gross sales or receipts of the preceding calendar year.
MOBIL PHILIPPINES, INC. v. THE CITY TREASURER OF MAKATI (2005) An intermediate trader that
buys petroleum products and re-sells these products to international carriers is not a proper party to claim
the refund of excise taxes paid on its purchases Section 135(b) of the 1997 Tax Code is not applicable. The
intermediate trader neither paid nor remitted excise taxes to the Govt. when it purchased the tax-paid petroleum
products from the oil manufacturers, the excise taxes paid and remitted by the manufacturers became part of the
purchase price.
[DISSENT of Acosta: Section 135 of the Tax Code, which provides for the exemption from excise tax of
petroleum products sold to foreign international carriers and exempt entities, does not distinguish between the
manufacturer or dealer of the petroleum products as regards the right to claim for refund. In the absence of any
distinction, the logical presumption is that the contracting parties in the treaties intended to exempt from excise
taxes petroleum products sold in one contracting state to international carriers registered in the other contracting
state, without regard to who the actual seller is. A contrary interpretation will unnecessarily restrict the scope of
the exemption of the international carriers to petroleum products purchased only from manufacturers.]
SAN JUAN v. CASTRO (2007) City treasurer cannot be compelled by mandamus to accept payment of taxes,
if in his reasoning and assessment, the payment is incorrect or deficient San Juan acquired 254,434 shares of
Saint and Angels Realty Corporation in exchange of real properties in Rancho I, Marikina City. The City
Treasurer Castro claims that the tax paid for the transfer should be based on the actual consideration of the
exchange and not on the fair market value as claimed by San Juan.
San Juan filed an action of mandamus to compel Castro to accept the payment of the tax since it is ministerial in
his part to accept the same.
The court held that the City Treasurer cannot be compelled by mandamus to accept payment if in his
reasoning and assessment, the payment is deficient and incorrect. Although, the City Treasurers duty to
accept payment is ministerial in nature, this cannot be applied in this case. It is said that it was not the City
Treasurer who did not accept payment, it is San Juan who refuses to pay the correct amount of tax.
DOJ OPINION NO. 56, S. 2005, DEC. 13, 2005 As a general rule, the DOJ cannot interpret provisions of the
LGC because it does not have jurisdiction to review the action of the City Treasurer.
This DOJ Opinion involves a query regarding the proper application of Section 135 of the Local Government
Code regarding tax on transfer of real property ownership. Trade and Investment Development Corporation of the
Philippines (TIDCORP) acquired condominium units in Makati for ~Php 75M. The Makati Treasurers Office
assessed TIDCORP for transfer taxes based on 0.5% of the zonal value of the properties, the zonal value being
~Php85M. TIDCORP contends that the transfer taxes should be based on the actual consideration for the
transfer, the abovementioned ~Php 75M, and not on the zonal value.
The DOJ said that it cannot rule upon the query because it would involve an interpretation and/or
examination of the provisions of the LGC. The DOJ stated that this is properly the function of the Oversight
Committee and the DILG. The DOJ stated that it would not rule on the question unless the Oversight Committee
or the DILG themselves bring the query. Here, it was the Secretary of the Department of Finance that brought the
query.
Further, the DOJ stated that interpreting the LGC would be tantamount to a review of the action of the
Makati City Treasurer, which it does not have jurisdiction to do. Instead, Section 195 of the LGC says that
when a protest is denied by the City Treasurer, the taxpayer may appeal before the court of competent jurisdiction
within 30 days from the receipt of the denial or after the lapse of 60 days within which the City Treasurer must
decide.
YAMANE v. BA LEPANTO CONDOMINIUM CORP. (2005) BA-Lepanto Condominium Corporation collects
assessments from unit owners, to defray the necessary expenses for the Condominium Project and the common
areas. The Corporation received a Notice of Assessment signed by the City Treasurer, which states that the

ALS2014B
ALS2014B 279 of 365
"#$
Corporation is liable to pay the correct city business taxes, fees and charges. However, it was silent as to the
statutory basis of the business taxes assessed.
In order that the Corporation may be subjected to business taxes, its activities must fall within the definition of
business as provided in the Local Government Code. The word business is defined under Section 131(d) of the
Code as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. And
whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and
real property is limited by its stated corporate purposes, which are by themselves further limited by the
Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law
from transacting its properties for the purpose of gainful profit.
Accordingly, condominium corporations are generally exempt from local business taxation under the Local
Government Code, irrespective of any local ordinance that seeks to declare otherwise. A possible exception
to the rule is when the unit owners of a condominium would band together to engage in activities for profit
under the shelter of the condominium corporation. However this is not present in this case, therefore the
Corporation is still not liable.
EXTRA NOTES: Section 195 of the Local Government Code does not require that the notice of assessment
specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or
charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment.
There may have been prima facie compliance with the requirement under Section 195. However in this case, the
Revenue Code provides multiple provisions on business taxes, and at varying rates. Reference to the local tax
ordinance is vital, for the power of local government units to impose local taxes is exercised through the
appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone. What determines
tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body.
(Obiter since this was not raised as an issue by the Corporation)
D. Barangay
Sec. 152. Scope of Taxing Powers. The barangays may levy taxes, fees, and charges, as provided in this Article, which
shall exclusively accrue to them:
(a) Taxes On stores or retailers with fixed business establishments with gross sales of receipts of the preceding
calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos
(P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or
receipts.
(b) Service Fees or Charges. Barangays may collect reasonable fees or charges for services rendered in connection
with the regulations or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco
dryers.
(c) Barangay Clearance. No city or municipality may issue any license or permit for any business or activity
unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For
such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall be
acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued
within the said period, the city or municipality may issue the said license or permit.
(d) Other fees and Charges. The barangay may levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks, cockfights and cockpits;
(2) On places of recreation which charge admission fees; and
(3) On billboards, signboards, neon signs, and outdoor advertisements.
III. COMMUNITY TAX CERTIFICATE (CTC)

ALS2014B
ALS2014B 280 of 365
"#$
A. Who are liable
Sec. 157. Individuals Liable to Community Tax. Every inhabitant of the Philippines eighteen (18) years of age or over
who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any
calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value
of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual
additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos
(P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall
exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned
by them and the total gross receipts or earnings derived by them.
Sec. 158. Juridical Persons Liable to Community Tax. Every corporation no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax
of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos
(P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the
preceding year based on the valuation used for the payment of real property tax under existing laws, found in the
assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the
Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the purpose of the additional
tax, be considered as part of the gross receipts or earnings of said corporation.
Art. 246. Levy or Imposition. The levy or imposition of community tax by a city or municipality shall be governed by
the following rules and guidelines:
(a) Individuals liable to the payment of community tax
(1) Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed
on a wage or salary basis for at least thirty (30) consecutive working days during any calendar years;
(2) An individual who is engaged in business or occupation;
(3) An individual who owns real property with an aggregate assessed value of One Thousand Pesos
(P1,000.00) or more;
(4) An individual who is required by law to file an income tax return.
(b) Rate of community tax payable by individuals
(1) The rate of community tax that may be levied and collected from said individuals shall be Five Pesos
(P5.00) plus an additional tax of One Peso (P1.00) for every One Thousand Pesos (P1,000.00) of income
regardless of whether from business, exercise of profession, or from property but which in no case shall
exceed Five Thousand Pesos (P5,000.00).
(2) In case of husband and wife, each of them shall be liable to pay the basic tax of Five Pesos (P5.00), but
the additional tax imposable on the husband and wife shall be One Peso (P1.00) for every One Thousand
Pesos (P1,000.00) of income from the total property owned by them and/or the total gross receipts or
earnings derived by them.
(c) Juridical persons liable to the payment of community tax Every corporation, no matter how created or
organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay

ALS2014B
ALS2014B 281 of 365
"#$
community tax of Five Hundred Pesos (P500.00) and an additional tax, which, in no case, shall exceed Ten
Thousand Pesos (P10,000.00) in accordance with the following schedule:
(1) For every Five Thousand Pesos (P5,000.00) worth of real property in the Philippines owned by the
juridical entity during the preceding year, based on the assessed value used for the payment of the real
property tax under existing laws Two pesos (P2.00); and
(2) For every Five Thousand Pesos (P5,000.00) of gross receipts or earnings derived from the business in the
Philippines during the preceding year Two pesos (P2.00).
The dividends received by a corporation from another corporation shall, for the purpose of the additional tax, be
considered as part of the gross receipts or earnings of said corporation.
(d) Exemptions The following are exempt from the payment of community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
(e) Place of Payment
(1) Community tax shall be paid in the city or municipality where the residence of the individual is located,
or in the city or municipality where the principal office of the juridical entity is located.
(2) It shall be unlawful for any city or municipal treasurer to collect community tax outside the territorial
jurisdiction of the city or the municipality.
(3) In case of branch, sales office or warehouse where sales are made and recorded, corresponding
community tax shall be paid to the LGU where such branch, sales office or warehouse is located.
(4) Any person, natural or juridical, who pays community tax to a city or municipality other than the city or
municipality where his residence, or principal office in the case of juridical persons, is located shall
remain liable to pay such tax to the city or municipality concerned.
(f) Time for Payment
(1) Community tax shall accrue on the first (1st) day of January of each year and shall be paid not later than
the last day of February of each year.
(2) If a person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before
the last day of June, he shall be liable for the payment of community tax on the day he reaches such age
or upon the day the exemption on or before the last day of March, he shall have twenty (20) days within
which to pay the community tax without becoming delinquent.
(3) Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first
(1st) day of July of any year, or who cease to belong to an exempt class on or after the same date, shall
not be subject to community tax for that year.
(4) Corporations established and organized on or before the last day of June shall be liable for the payment of
community tax for that year. Corporations established and organized on or before the last day of March
shall have twenty (20) days within which to pay the community tax without becoming delinquent.
Corporations established and organized on or after the first day of July shall not be subject to community
tax for that year.
(g) Penalties for the payment If the tax is not paid within the prescribed period, there shall be added to the unpaid
amount an interest of twenty-four percent (24%) per annum from the due date until it is paid.
B. Exemptions
Sec. 159. Exemptions. The following are exempt from the community tax:

ALS2014B
ALS2014B 282 of 365
"#$
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
C. Place and time of payment of tax
Sec. 160. Place of Payment. The community tax shall be paid in the place of residence of the individual, or in the place
where the principal office of the juridical entity is located.
Sec. 161. Time for Payment; Penalties for Delinquency.
(a) The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the
last day of February of each year. If a person reaches the age of eighteen (18) years or otherwise loses the benefit
of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such
age or upon the day the exemption ends. However, if a person reaches the age of eighteen (18) years or loses the
benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax
without becoming delinquent.
Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day
of July of any year, or who cease to belong to an exempt class or after the same date, shall not be subject to the
community tax for that year.
(b) Corporations established and organized on or before the last day of June shall be liable for the community tax for
that year. But corporations established and organized on or before the last day of March shall have twenty (20)
days within which to pay the community tax without becoming delinquent. Corporations established and
organized on or after the first day of July shall not be subject to the community tax for that year.
If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of
twenty-four percent (24%) per annum from the due date until it is paid.
IV. TIME, MANNER AND PLACE OF PAYMENT OF LOCAL BUSINESS TAX
A. Time of payment
1. General rule
Sec. 165. Tax Period and Manner of Payment. Unless otherwise provided in this Code, the tax period of all local
taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly installments.
Sec. 166. Accrual of Tax. Unless otherwise provided in this Code, all local taxes, fees, and charges shall accrue on the
first (1st) day of January of each year. However, new taxes, fees or charges, or changes in the rates thereof, shall accrue
on the first (1st) day of the quarter next following the effectivity of the ordinance imposing such new levies or rates.
Sec. 167. Time of Payment. Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid
within the first twenty (20) days of January or of each subsequent quarter, as the case may be. The sanggunian concerned
may, for a justifiable reason or cause, extend the time for payment of such taxes, fees, or charges without surcharges or
penalties, but only for a period not exceeding six (6) months.
2. In case of new ordinance levying new tax or increasing rates
Sec. 166. Accrual of Tax. Unless otherwise provided in this Code, all local taxes, fees, and charges shall accrue on the
first (1st) day of January of each year. However, new taxes, fees or charges, or changes in the rates thereof, shall accrue
on the first (1st) day of the quarter next following the effectivity of the ordinance imposing such new levies or rates.
3. In case of retirement of business

ALS2014B
ALS2014B 283 of 365
"#$
Sec. 145. Retirement of Business. A business subject to tax pursuant to the preceding sections shall, upon termination
thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less
than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is
considered officially retired.
Art. 241. Retirement of Business.
(a) Any person natural or juridical, subject to the tax on businesses under Article 233 of this Rule shall, upon
termination of the business, submit a sworn statement of the gross sales or receipts for the calendar year. cdtai
For purposes hereof, termination shall mean that business operations are stopped completely. Any change in
ownership, management and/or name of the business shall not constitute termination as contemplated in this
Article. Unless stated otherwise, assumption of the business by any new owner or manager or registration of the
same business under a new name will only be considered by the LGU concerned for record purposes in the course
of the renewal of the permit or license to operate the business.
The local treasurer concerned shall see to it that the payment of taxes of a business is not avoided by simulating
the termination or retirement thereof. For this purpose, the following procedural guidelines shall be strictly
observed:
(1) The local treasurer shall assign every application for the termination or retirement of business to an
inspector in his office who shall go to the address of the business on record to verify if it is really no
longer operating. If the inspector finds that the business is simply placed under a new name, manager
and/or new owner, the local treasurer shall recommend to the mayor the disapproval of the application for
the termination or retirement of said business. Accordingly, the business continues to become liable for
the payment of all taxes, fees, and charges imposed thereon under existing local tax ordinances; and
(2) In the case of a new owner to whom the business was transferred by sale or other form of conveyance,
said new owner shall be liable to pay the tax or fee for the transfer of the business to him if there is an
existing ordinance prescribing such transfer tax.
(b) If it is found that the retirement or termination of the business is legitimate, and the tax due therefrom be less than
the tax due for the current year based on the gross sales or receipts, the difference in the amount of the tax shall be
paid before the business is considered officially retired or terminated.
(c) The permit issued to a business retiring or terminating its operations shall be surrendered to the local treasurer
who shall forthwith cancel the same and record such cancellation in his books.
B. Manner of payment
Sec. 146. Payment of Business Taxes.
(a) The taxes imposed under Section 143 shall be payable for every separate or distinct establishment or place where
business subject to the tax is conducted and one line of business does not become exempt by being conducted
with some other business for which such tax has been paid. The tax on a business must be paid by the person
conducting the same.
(b) In cases where a person conducts or operates two (2) or more of the businesses mentioned in Section 143 of this
Code which are subject to the same rate of tax, the tax shall be computed on the combined total gross sales or
receipts of the said two (2) or more related businesses.
(c) In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 of this Code
which are subject to different rates of tax, the gross sales or receipts of each business shall be separately reported
for the purpose of computing the tax due from each business.

ALS2014B
ALS2014B 284 of 365
"#$
Art. 242. Related or Combined Businesses.
(a) The conduct or operation of two or more related businesses provided in Article 233 of this Rule by any one
person, natural or juridical, shall require the issuance of a separate permit or license to each business.
(b) If a person conducts or operates two (2) or more related businesses which are subject to the same rate of
imposition, the tax shall be computed on the basis of the combined total gross sales or receipts of the said two (2)
or more related businesses.
(c) If, however, the businesses operated by one person are governed by separate tax schedules or the rates of the taxes
are different, the taxable gross sales or receipts of each business shall be reported independently and the tax
thereon shall be computed on the basis of the appropriate schedule.
PAJARO v. SANDIGANBAYAN (1988) City of Dagupan filed an action against the McAdore International Palace,
for collecting amusement taxes for the month of November 1978, and from August 1979 up to May 1981 with
surcharges and interest. McAdore did not answer the complaint. Archbishop Federico Limon, offered to pay in
monthly installments over a period of five (15) years all its tax delinquencies up to December 1981 with
surcharges and interests in the amount, of P515,392.18. Juanito Pajaro, OIC of the Office of the City Treasurer,
accepted the promissory note. McAdore was declared in default and a decision was rendered ordering it to pay the
City P253,079.29 as unpaid amusement taxes, P125,945.92 as surcharges and P29,490.69 as interests or a total of
P408,515.90. McAdore did not appeal. Victor Llamas Jr. accused Pajaro with violating Section 3 of RA 3019,
otherwise known as the Anti-Graft and Corrupt Practices Act, for having given undue advantage and benefits to a
delinquent taxpayer, McAdore, by allowing it to pay its unpaid amusement taxes in monthly installments, instead
of collecting said taxes within the period fixed in the Local Tax Code, thus causing damage and prejudice to the
City Government. Court held that Pajaro did not violate Sec. 13 of the Local Tax Code, which requires the
taxpayer to pay the amusement tax within 20 days of the month next following that for which it is due. The
taxpayer's delay in paying the tax makes him liable to pay a 50% surcharge and 14% interest on the unpaid tax.
He incurred no liability for the taxpayees default. He did not violate any law by allowing the taxpayer to pay his
tax arrears, surcharges and interests in monthly installments. There is no law which prohibits, for in fact
common sense and practice allows the local government treasurer to accept tax payments by installments
subject to payment too of the surcharges and interests due under the law.
ERICSSON TELECOMMUNICATIONS, INC. v. CITY OF PASIG (2007) [It does not pertain here.] [The case
really deals with whether the local business tax should be computed on the basis of gross receipts and not gross
revenue as argued by the City of Pasig. The Supreme Court answered in the affirmative, citing Section 143 in
relation to Section 151 of the Local Government Code.]
C. Place of payment
1. Location of branch or sales outlet
Sec. 150. Situs of the Tax.
(a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers,
brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses,
maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making
the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or
sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the
sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue
and shall be paid to such city or municipality.
Art. 243. Situs of the Tax.

ALS2014B
ALS2014B 285 of 365
"#$
(a) Definition of Terms
(1) Principal Office the head or main office of the business appearing in the pertinent documents
submitted to the Securities and Exchange Commission, or the Department of Trade and Industry, or other
appropriate agencies, as the case may be.
The city or municipality specifically mentioned in the articles of incorporation of official registration
papers as being the official address of said principal office shall be considered as the situs thereof.
In case there is a transfer or relocation of the principal office to another city or municipality, it shall be the
duty of the owner, operator or manager of the business to give due notice of such transfer or relocation to
the local chief executives of the cities or municipalities concerned within fifteen (15) days after such
transfer or relocation is effected.
(2) Branch or Sales Office a fixed place in a locality which conducts operations of the business as an
extension of the principal office. Offices used only as display areas of the products where no stocks or
items are stored for sale, although orders for the products may be received thereat, are not branch or sales
offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices
independent of a branch with sales office shall be considered as a sales office.
(3) Warehouse a building utilized for the storage of products for sale and from which goods or
merchandise are withdrawn for delivery to customers or dealers, or by persons acting in behalf of the
business. A warehouse that does not accept orders and/or issue sales invoices as aforementioned shall not
be considered a branch or sales office.
(4) Plantation a tract of agricultural land planted to trees or seedlings whether fruit bearing or not,
uniformly spaced or seeded by broadcast methods or normally arranged to allow highest production. For
purposes of this Article, inland fishing ground shall be considered as plantation.
(5) Experimental Farms agricultural land utilized by a business or corporation to conduct studies, tests,
researches or experiments involving agricultural, agribusiness, marine, or aquatic, livestock, poultry,
dairy and other similar products for the purpose of improving the quality and quantity of goods or
products.
On-site sales of commercial quantity made in experimental farms shall be similarly imposed the corresponding
tax under Article 233 and allocated in paragraph (b) of this Article.
(b) Sales Allocation
(1) All sales made in a locality where there is a branch or sales office or warehouse shall be recorded in said
branch or sales office or warehouse and the tax shall be payable to the city or municipality where the
same is located.
(2) In cases where there is no such branch, sales office, or warehouse in the locality where the sale is made,
the sale shall be recorded in the principal office along with the sales made by said principal office and the
tax shall accrue to the city or municipality where said principal office is located.
(3) In cases where there is a factory, project office, plant or plantation in pursuit of business, thirty percent
(30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the
principal office is located and seventy percent (70%) of all sales recorded in the principal office shall be
taxable by the city or municipality where the factory, project office, plant or plantation is located. LGUs
where only experimental farms are located shall not entitled to the sales allocation provided in this
subparagraph.
(4) In case of a plantation located in a locality other than that where the factory is located, the seventy percent
(70%) sales allocation shall be divided as follows:
i. Sixty percent (60%) to the city or municipality where the factory is located; and

ALS2014B
ALS2014B 286 of 365
"#$
ii. Forty percent (40%) to the city or municipality where the plantation is located.
(5) In cases where there are two (2) or more factories, project offices, plants or plantations located in
different localities, the seventy percent (70%) sales allocation shall be prorated among the localities
where such factories, project offices, plants, and plantations are located in proportion to their respective
volumes of production during the period for which the tax is due. In the case of project offices of service
and other independent contractors, the term production shall refer to the cost of projects actually
undertaken during the tax period.
(6) The sales allocation in paragraph (b) hereof shall be applied irrespective of whether or not sales are made
in the locality where the factory, project office, plant or plantation is located. In case of sales made by the
factory, project office, plant or plantation, the sale shall be covered by subparagraphs (1) or (2) above.
(7) In case of manufacturers or producers which engage the services of an independent contractor to produce
or manufacture some of their products, these rules on situs of taxation shall apply except that the factory
or plant and warehouse of the contractor utilized for the production and storage of the manufacturers'
products shall be considered as the factory or plant and warehouse of the manufacturer.
(c) Port of Loading The city or municipality where the port of loading is located shall not levy and collect the tax
imposable in Article 233 of this Rule unless the exporter maintains in said city or municipality its principal office,
a branch, sales office or warehouse, factory, plant, or plantation in which case, the rule on the matter shall apply
accordingly.
(d) Sales made by route trucks, vans, or vehicles
(1) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has a
branch or sales office or warehouse, the sale are recorded in the branch, sales office or warehouse and the
tax due thereon is paid to the LGU where such branch, sales office or warehouse is located.
(2) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has no
branch, sales office or warehouse the sales are recorded in the branch, sales office or warehouse from
where the route trucks withdraw their products for sale, and the tax due on such sales is paid to the LGU
where such branch, sales office or warehouse is located.
(3) Based on subparagraphs (1) and (2) above, LGUs where route trucks deliver merchandise cannot impose
any tax on said trucks except the annual fixed tax authorized to be imposed by the province in Article 231
of this Rule on every delivery truck or van or any motor vehicle used by manufacturers, producers,
wholesalers, dealers, or retailers, in the delivery or distribution of distilled spirits, fermented liquors, soft
drinks, cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan,
and by the city, pursuant to Article 223 of this Rule.
(4) In addition to this annual fixed tax, cities may also collect from same manufacturers, producers,
wholesalers, retailers, and dealers using route trucks a mayor's permit fee which shall be imposed in a
local tax ordinance pursuant to Article 234 in relation to Article 223 of this Rule.
ALLIED THREAD CO., INC. AND KER & CO., INC. v. MANILA (1984) Local Tax Code provides two (2)
modes of apprising the public:
1. Publication in a newspaper of general circulation;
2. Posting of copies thereof in the local legislative hall or its premises and two other conspicuous places
within the territorial jurisdiction of the local government.
Taxability attaches upon the place where the sale is perfected and consummated.
The City of Manila passed Ordinance No. 7516 as amended which imposes a business tax on manufacturers,
importers or producers doing business in the City of Manila. Allied Thread operates it manufacturing in Rizal.
The City of Manila however seeks to collect from Allied taxes on the strength of 7516. Allied filed a declaratory
relief arguing that is is not liable to pay tax on three (3) grounds:

ALS2014B
ALS2014B 287 of 365
"#$
A. (irrelevant);
B. 7516 cannot be enforced due to lack of publication in a newspaper of general circulation; and
C. Allied is not engaged in business in the City of Manila.
The Court ruled that the ordinance was enforceable, it was posted in the City of Manila as (2) required above and
Allied was engaged in business in Manila thru its broker Ker. Sales was made in Manila therefore Allied is liable.
Place of business is not the subject of the tax but the privilege to do business in Manila.
PHILIPPINE MATCH CO., LTD. V. CITY OF CEBU (1978) goods delivered outside of city is not a sale
outside the citys taxing power if goods are stored in the city and sale was consummated in the city
Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of matches. It ships
cases or cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within
the territories and districts under its Cebu branch or the whole Visayas-Mindanao region. Ordinance No. 279 of
Cebu City imposed a sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold,
bartered, exchanged or manufactured in the city in excess of P2,000 a quarter which covers all deliveries of goods
or commodities stored in the City of Cebu, or if not stored are sold in that city, shall be considered as sales in the
city and shall be taxable. Philippine Match Co. assails the legality of the tax which the city treasurer collected on
out-of- town deliveries of matches. The issue is whether the City of Cebu can tax sales of matches which were
perfected and paid for in Cebu City but the matches were delivered to customers outside of the City. The court
ruled that the sales in the instant case were in the city and the matches sold were stored in the city. The fact that
the matches were delivered to customers, whose places of business were outside of the city, would not place those
sales beyond the city's taxing power. Those sales formed part of the merchandising business being assigned on by
the company in the city. In essence, they are the same as sales of matches fully consummated in the city.
Furthermore, because the sellers place of business is in Cebu City, it cannot be sensibly argued that such sales
should be considered as transactions subject to the taxing power of the political subdivisions where the customers
resided and accepted delivery of the matches sold.
2. Allocation to 2 or more LGUs
Sec. 150. Situs of the Tax.
(a) ...
(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters
with factories, project offices, plants, and plantations in the pursuit of their business:
(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or
municipality where the principal office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or
municipality where the factory, project office, plant, or plantation is located.
(c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent
(70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:
(1) Sixty percent (60%) to the city or municipality where the factory is located; and
(2) Forty percent (40%) to the city or municipality where the plantation is located.
(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project
offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned
in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project
offices, plants, and plantations are located in proportion to their respective volumes of production during the
period for which the tax is due.

ALS2014B
ALS2014B 288 of 365
"#$
(e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where
the factory, project office, plant, or plantation is located.
3. Sales by route trucks or vans
Art. 243. Situs of the Tax.
...
(d) Sales made by route trucks, vans, or vehicles
(1) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has a
branch or sales office or warehouse, the sale are recorded in the branch, sales office or warehouse and the
tax due thereon is paid to the LGU where such branch, sales office or warehouse is located.
(2) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has no
branch, sales office or warehouse the sales are recorded in the branch, sales office or warehouse from
where the route trucks withdraw their products for sale, and the tax due on such sales is paid to the LGU
where such branch, sales office or warehouse is located.
(3) Based on subparagraphs (1) and (2) above, LGUs where route trucks deliver merchandise cannot impose
any tax on said trucks except the annual fixed tax authorized to be imposed by the province in Article 231
of this Rule on every delivery truck or van or any motor vehicle used by manufacturers, producers,
wholesalers, dealers, or retailers, in the delivery or distribution of distilled spirits, fermented liquors, soft
drinks, cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan,
and by the city, pursuant to Article 223 of this Rule.
(4) In addition to this annual fixed tax, cities may also collect from same manufacturers, producers,
wholesalers, retailers, and dealers using route trucks a mayor's permit fee which shall be imposed in a
local tax ordinance pursuant to Article 234 in relation to Article 223 of this Rule.
ILOILO BOTTLERS, INC. v. CITY OF ILOILO (1988) The fundamental issue in this appeal is whether the Iloilo
Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under
Iloilo City tax Ordinance No. 5, which imposes a municipal license tax on distributors of soft-drinks.
Yes, it is liable. The company distributed its softdrinks by means of a fleet of delivery trucks which went directly
to customers in the different places in lloilo province. Sales transactions with customers were entered into and
sales were perfected and consummated by route salesmen. Truck sales were made independently of
transactions in the main office. The delivery trucks were not used solely for the purpose of delivering
softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently,
"rolling stores". Thus, the corporation was engaged in the separate business of selling or distributing soft-drinks,
independently of its business of bottling them. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax
on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the
taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said
authority Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city
limits, before an entity engaged in any of the activities may be taxed in Iloilo City.
V. ENACTMENT OF TAX ORDINANCES AND OTHER REVENUE MEASURES
A. Public hearing
Sec. 186. Power To Levy Other Taxes, Fees or Charges. Local government units may exercise the power to levy
taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of
the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall

ALS2014B
ALS2014B 289 of 365
"#$
not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the
purpose.
Sec. 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public
Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof:
Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect
of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of
competent jurisdiction.
Art. 275. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures. The procedure for
approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Rule provided
that public hearings shall be conducted for the purpose prior to the enactment thereof provided further that any question
on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days
from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of
receipt of the appeal provided furthermore that such appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee, or charge levied therein and provided finally that within thirty (30)
days after receipt of the decision or the lapse of the sixty- day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.
All tax ordinances or revenue measures shall be numbered consecutively throughout the calendar year and
continuously from year to year, using the last two (2) digits of the calendar year in which it is enacted, followed by
denominated number. For example, an ordinance is passed in January, 1992, and it is the first ordinance for that year. The
ordinance shall be denominated and numbered as Tax Ordinance No. 92-001. The next shall be Tax Ordinance No. 92-
002, Tax Ordinance No. 92-003, and so forth.
FIGUERAS v. CA (1999) Public Hearing is required prior to enactment of an ordinance Figueras owned
property in Mandaluyong. She received from the local government an assessment for the real property tax due for
year 1993 based on several newly enacted ordinances. She assails the validity of the ordinances on the ground that
the ordinances were invalid for having been adopted allegedly without public hearings and prior publication or
posting and without complying with the IRR yet to be issued by the DOF. ISSUE: W/N the ordinance is invalid
for failure to conduct a public hearing. HELD: Petitioner is right in contending that public hearings are required to
be conducted prior to the enactment of an ordinance imposing real property taxes. R.A. No. 7160, 186 provides
that an ordinance levying taxes, fees, or charges "shall not be enacted without any prior public hearing conducted
for the purpose."
However, it is noteworthy that apart from her bare assertions, petitioner Figuerres has not presented any evidence
to show that no public hearings were conducted prior to the enactment of the ordinances in question. On the other
hand, the Municipality of Mandaluyong claims that public hearings were indeed conducted before the subject
ordinances were adopted, 10 although it likewise failed to submit any evidence to establish this allegation.
However, in accordance with the presumption of validity in favor of an ordinance, their constitutionality or
legality should be upheld in the absence of evidence showing that the procedure prescribed by law was not
observed in their enactment. In an analogous case, United States v. Cristobal, it was alleged that the ordinance
making it a crime for anyone to obstruct waterways had not been submitted by the provincial board as required by
2232-2233 of the Administrative Code. In rejecting this contention, the Court held:
From the judgment of the Court of First Instance the defendant appealed to this court upon the theory that
the ordinance in question was adopted without authority on the part of the municipality and was therefore

ALS2014B
ALS2014B 290 of 365
"#$
unconstitutional. The appellant argues that there was no proof adduced during the trial of the cause
showing that said ordinance had been approved by the provincial board. Considering the provisions of
law that it is the duty of the provincial board to approve or disapprove ordinances adopted by the
municipal councils of the different municipalities, we will assume, in the absence of proof to the contrary,
that the law has been complied with. We have a right to assume that officials have done that which the
law requires them to do, in the absence of positive proof to the contrary.
Furthermore, the lack of a public hearing is a negative allegation essential to petitioner's cause of action in the
present case. Hence, as petitioner is the party asserting it, she has the burden of proof. Since petitioner failed to
rebut the presumption of validity in favor of the subject ordinances and to discharge the burden of proving that no
public hearings were conducted prior to the enactment thereof, we are constrained to uphold their constitutionality
or legality.
TUZON v. CA (1992) The Sangguniang Bayan of Camalaniugan, Cagayan adopted Resolution No. 9 which solicits a
1% donation from thresher operators who apply for a permit to thresh within the municipalitys jurisdiction to
help finance the construction of the municipalitys Sports and Nutrition Center. Such 1% shall come from the
value of the palay threshed by them in the area. To implement the resolution, Municipal Treasurer Mapagu
prepared an agreement to donate for signature of all thresher/owner/operators applying for a mayors permit.
Jurado sent his agent to the Treasurers office to pay the license fee for thresher operators. Mapagu refused to
accept payment and required Jurado to first secure a mayors permit. Mayor Tuzon said that Jurado should first
comply with Res 9 and sign the agreement before the permit could be issued. Jurado ignored the requirement and
sent his license fee payment through postal money order. His payment was returned on the ground that he failed
to comply with Res 9. Jurado filed a special civil action for mandamus w/ damages to compel the issuance of the
mayors permit and license and a petition for declaratory judgment against Res 9 and the implementing agreement
for being illegal either as a donation/tax measure. RTC: Upheld Res 9 and implementing agreement, and
dismissed claims for damages CA: Affirmed validity of Res 9 and implementing agreement, but found Mayor
Tuzon and Treasurer Mapagu to have acted maliciously and in bad faith when they denied Jurados application.
Issue: WON the tax measure contravenes the limitations on the taxing powers of LGUs under Sec 5 of the LGC.
Held: SC will not rule on validity of Res 9 and the implementing agreement because the issue has not been raised
as an assigned error. If Res. 9 is claimed to be a solicitation: Implementing agreement makes the donation
obligatory and a condition precedent to the issuance of a mayors permit. Therefore, it goes against the nature of a
donation. If it is to be considered as a tax ordinance, it must be shown to have been enacted in accordance with
the requirements of the Local Tax Code. It would include the holding of a public hearing on the measure, its
subsequent approval by the Secretary of Finance, in addition to the requisites for publication of ordinances in
general.
B. Publication
Sec. 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10) days after their approval, certified
true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3)
consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities
where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly
accessible places.
Art. 276. Publication of Tax Ordinances and Revenue Measures.
(a) Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances
or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation
provided that in provinces, cities, and municipalities where there are no newspapers of local circulation, the same
may be posted in at least two (2) conspicuous and publicly accessible places.

ALS2014B
ALS2014B 291 of 365
"#$
If the tax ordinance or revenue measure contains penal provisions as authorized in Article 280 of this Rule, the
gist of such tax ordinance or revenue measure shall be published in a newspaper of general circulation within the
province where the sanggunian concerned belongs. In the absence of any newspaper of general circulation within
the province, posting of such ordinance or measure shall be made in accessible and conspicuous public places in
all municipalities and cities of the province to which the sanggunian enacting the ordinance or revenue measure
belongs.
In case the effectivity of any tax ordinance or revenue measure falls on any date other than the beginning of the
quarter, the same shall be considered as falling at the beginning of the next ensuing quarter and the taxes, fees, or
charges due shall begin to accrue therefrom.
(b) The conduct of public hearings shall be governed by the following procedure:
(1) Within ten (10) days from filing of any proposed tax ordinance or revenue measure, the same shall first be
published for three (3) consecutive days in a newspaper of local circulation or shall be posted
simultaneously in at least four (4) conspicuous public places within the territorial jurisdiction of the LGU
concerned.
(2) In addition to the requirement for publication or posting, the sanggunian concerned shall cause the
sending of written notices of the proposed ordinance, enclosing a copy thereof, to the interested or
affected parties operating or doing business within the territorial jurisdiction of the LGU concerned.
(3) The notice or notices shall specify the date or dates and venue of the public hearing or hearing. The initial
public hearing shall be held not earlier than ten (10) days from the sending out of notice or notices, or the
last day of publication, or date of posting thereof, whichever is later.
(4) At the public hearing or hearings, all affected or interested parties shall be accorded an opportunity to
appear and present or express their views, comments and recommendations, and such public hearing or
hearings shall continue until all issues have been presented and fully deliberated upon and/or consensus is
obtained, whether for or against the enactment of the proposed tax ordinance or revenue measure.
(5) The secretary of the sanggunian concerned shall prepare the minutes of such public hearing and shall
attach to the minutes the position papers, memoranda, and other documents submitted by those who
participated.
(c) No tax ordinance or revenue measure shall be enacted or approved in the absence of a public hearing duly
conducted in the manner provided in this Article.
FIGUERAS v. CA, ET. AL., supra
BERDIN v. MASCARIAS (2007) "While lack of publication does not render a tax ordinance null and void, said
requirement must still be complied with in order "to obviate abuses in the exercise of the taxing powers and
preclude protests from the people adversely affected"
The issue in this case is whether or not Tax Ordinance No. 88-11-36 was validly enacted for failure to hold public
hearings and to have the same published pursuant to Sec. 43 of the Local Tax Code. Provincial Circular No. 22-73
states that all taxes, fees and charges to be imposed by local governments may only be collected by the treasurer
concerned if duly enacted by the local board or council and approved in accordance with the provisions of the
Code.
Section 43 of the Code provides that within ten (10) days after their approval, ordinances shall be published for
three (3) consecutive days in a newspaper or publication widely circulated within the jurisdiction or posted in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local
government. While non-compliance will not render the tax or revenue ordinances null and void, still there must be
publication and dissemination as provided in the Code to obviate abuses in the exercise of the taxing powers and
preclude protests from the people adversely affected.

ALS2014B
ALS2014B 292 of 365
"#$
Publication is thus a condition precedent to the effectivity and enforceability of an ordinance to inform the public
of its contents before rights are affected by the same.
There was no indication that evidence was presented to prove there was no publication, neither was there a
positive declaration that there was publication or posting. Consequently, an uncertainty exists on whether the
ordinances were indeed published or not. This uncertainty was ruled in favor of petitioners and accordingly, the
questioned tax ordinances must be published before the new tax rates imposed therein are to be collected from the
affected taxpayers.
COCA-COLA BOTTLERS PHILIPPINES, INC. v. CITY OF MANILA (2006) if an order or law sought to be
amended is invalid, then it does not legally exist, there should be no occasion or need to amend it. The Case
is an appeal from an injunction sought by Coca-Cola against the imposition of a tax ordinance by the City of
Manila. Coca-Cola assailed the validity of a tax ordinance (Ordinance 7988) imposed by the City of Manila which
amended a previous ordinance by deleting a part thereof which read: "PROVIDED, that all registered businesses
in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof"
which in effect increased the tax rates applicable to certain establishments operating within the territorial
jurisdiction of the City of Manila and impose additional business tax on businesses, including herein petitioner,
that are already subject to business tax under the other sections, specifically Sec. 14, of the New Revenue Code of
the City of Manila, which imposition, petitioner claims, "is beyond or exceeds the limitation on the taxing power
of the City of Manila under Sec. 143 (h) of the LGC of 1991; and that deletion is a palpable and manifest
violation of the Local Government Code of 1991, and the clear mandate of Article X, Sec. 5 of the 1987
Constitution, hence Section 21 is "illegal and unconstitutional." On August 2000, the then DOJ secretary issued a
resolution declaring ordinance 7988 as NULL and VOID for not complying with the publication requirements of
an ordinance under Sec.188 of the LGC and Sec. 277 of its IRR. The City of Manila failed to file an MR nor
lodge an appeal of said Resolution, thus, said Resolution of the DOJ Secretary declaring Tax Ordinance No. 7988
null and void lapsed into finality. Thereafter, the lawyer of Singer Sewing Machine Company wrote the Bureau of
Local Government Finance (BLGF) as regards the City of Manilas authority to enforce tax ordinance 7988
despite the DOJ Secs resolution, the BLGF in its reply ordered the City Treasurer of Manila to Cease and Desist
from enforcing said ordinance. The injunction prayed for by petitioner was declared permanent and the City of
Manila was enjoined from enforcing said ordinance. During the pendency of the case, the Mayor of Manila
approved tax Ordinance No. 8011 which amended sections of 7988. Said tax ordinance was again challenged by
petitioner before the DOJ through a Petition questioning the legality of the aforementioned tax ordinance on the
grounds that (1) said tax ordinance amends a tax ordinance previously declared null and void and without legal
effect by the DOJ; and (2) said tax ordinance was likewise not published upon its approval in accordance with
Section 188 of the Local Government Code of 1991.
DOJ Sec. Perez again declared such amending ordinance null and void it being a mere amendatory ordinance of
Ordinance No. 7988 which, as earlier stated, had been nullified. Where a statute which has been amended is
invalid, nothing, in effect, has been amended. Said Secretary also held that Instead of amending Ordinance No.
7988, herein respondent should have enacted another tax measure which strictly complies with the requirements
of law, both procedural and substantive.
The City of Manila appealed, and appealed and appealed until it reached the SC which denied the same holding
that Sec. 188 of the LGC and Sec. 277 of its IRR makes publication of tax ordinances mandatory for the validity
of said tax ordinance and the passage of the assailed amendatory ordinance did not have the effect of curing the
defects of Ordinance No. 7988 which, anyway, does not legally exist." Said Resolution of the DOJ Secretary had
attained finality by virtue of the dismissal with finality by this Court of respondents Petition for Review on
Certiorari in assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction.
THE CITY OF MANILA ET. AL. v. COCA-COLA BOTTLERS PHILIPPINES, INC. (2009) Tax Ordinance
No. 7988 was declared by the Secretary of the Department of Justice (DOJ) as null and void and without
legal effect due to the failure of City of Manila to satisfy the requirement under the law that said ordinance
be published for three consecutive days. Petitioner never appealed said declaration of the DOJ Secretary; thus,

ALS2014B
ALS2014B 293 of 365
"#$
it attained finality after the lapse of the period for appeal of the same. The passage of Tax Ordinance No. 8011,
amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did not legally exist.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void
and without any legal effect. Therefore, Coca cola cannot be taxed and assessed under the amendatory
lawsTax Ordinance No. 7988 and Tax Ordinance No. 8011.
Prior to the passage of Tax Ordinance No. 7988 and 8011 by petitioner City of Manila, petitioners subjected and
assessed respondent only for the local business tax under Sec 14 (tax on manufacturers, assemblers and other
processors) of Tax Ordinance No. 7794, but never under Sec 21 (tax on businesses subject to excise, VAT and
other percentage taxes) of the same. This was due to the clear proviso in Sec 21 of Tax Ordinance No. 7794,
which stated that all registered business in the City of Manila that are already paying the aforementioned tax
shall be exempted from payment thereof. The aforementioned tax referred to in said proviso refers to local
business tax. In short, Sec 21 exempts from the payment of the local business tax imposed by said section,
businesses that are already paying such tax under other sections of the same tax ordinance.
Issue: With the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, could Coca Cola
still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they
were originally read, without the amendment by the null and void tax ordinances? NO, with the pronouncement
by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null
and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously
worded, with its exempting proviso, is back in effect. Accordingly, respondent should not have been subjected
to the local business tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000,
given its exemption therefrom since it was already paying the local business tax under Section 14 of the same
ordinance. Otherwise, there would be double taxation. 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. 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 the taxes must be of the same kind or character. Using the aforementioned test, the Court finds that
there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21, since these
are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for
the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3)
by the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within the
territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the
same kind or character a local business tax imposed on gross sales or receipts of the business
C. Appeal to Secretary of Justice
Sec. 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public
Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof:
Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect
of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of
competent jurisdiction.
REYES, ET. AL. v. CA (1999) The Sangguniang Bayan of San Juan, Metro Manila implemented several tax
ordinances (municipal tax of ! of 1% of the gross receipt on business of printing and publication, transfer tax of
! of 1% on the sale or transfer of ownership of real property situated in San Juan, social housing tax, annual ad
valorem tax on real property, etc.). The petitioners filed an appeal with the DOJ, assailing the
constitutionality of these ordinances as these were promulgated without conducting public hearings. The

ALS2014B
ALS2014B 294 of 365
"#$
DOJ dismissed the appeal because the appeal was filed beyond 30 days from the effectivity dates of the
ordinances.
Issues:
1. W/N the appeal was filed out of time
2. W/N public hearing is required for the ordinances to be valid
Held/Ratio:
1. YES. Section 187 of the LGC provides that a dissatisfied taxpayer who questions the validity of a tax
ordinance must file his appeal to the DOJ Secretary within 30 days from its effectivity. The power to tax is
the most effective instrument to raise needed revenues to finance and support the myriad activities of local
government units for the delivery of basic services essential to the promotion of the general welfare and
enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax
measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required
to be done within certain time frames. It is clear that the petitioners failed to appeal within 30 days.
2. NO. The burden of proving that the Sangguniang Bayan of San Juan failed to conduct the required public
hearings falls on the petitioners shoulders. In this case, they failed to discharge this burden. In accordance with
the presumption of validity in favor of an ordinance, their constitutionality or legality should be upheld in
the absence of evidences showing that procedure prescribed by law was not observed in their enactment.
DRILON v. LIM (1994) Pursuant to Sec. 187 of the Local Government Cod, the Secretary of Justice, on appeal,
declared Ordinance No. 7794 (Manila Revenue Code) null and void for non-compliance with the procedure for
the enactment of tax ordinances and for containing provisions contrary to law and public policy. Th RTC revoked
the Secretary's resolution and sustained the ordinance. It further declared Sec. 187 of the Local Government Code
as unconstitutional because it vests in the Secretary of Justice power of control over local governments in
violation of the policy of local autonomy (also, only the President has the power of supervision over local
governments under the Constitution). The SC held that, although the procedural requirements int he enactment of
the Manile Revenue Code were observed, Sec. 187 of the LGC is not unconstitutional. Section 187 authorizes
the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if
warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax
ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that
enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his
own version of what the Code should be. He did not pronounce the ordinance unwise or unreasonable as a basis
for its annulment. He did not say that in his judgment it was a bad law. What he found only was that it was illegal.
All he did in reviewing the said measure was determine if the petitioners were performing their functions in
accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of
powers to the city government under the Local Government Code. As we see it, that was an act not of control but
of mere supervision.
HAGONOY MARKET VENDOR ASSOC. v. MUN. OF HAGONOY, BULACAN (2002) The Sangguniang
Bayan of Hagonoy enacted an Ordinance (Kautusan Blg. 28) which increased the stall rentals of the market
vendors in Hagonoy. The petitioner filed an appeal with the Justice Secretary assailing its constitutionality around
a year after its effectivity Respondent alleged prescription (filed beyond 30days from effectivity of ordinance).
After the Justice Secretary denied the appeal on the ground of prescription, the petitioners appealed to the CA,
where however, they didnt assail the finding of the Secretary that their appeal was filed beyond the period.
Instead, they alleged that the technicality should have been overlooked.
The SC didnt favor the Association. Under Section 187 of the 1991 LGC, the appeal with the Justice Secretary is
already time-barred. Any question on the constitutionality or the legality of tax ordinances or revenue
measures may be raised on appeal within 30days from the effectivity to the Justice Secretary who shall
render a decision w/in 60 days from receipt. Such appeal shall not suspend the effectivity of the ordinance and

ALS2014B
ALS2014B 295 of 365
"#$
accrual and payment of tax, fee or charge levied. Within 30 days from receipt of the decision or the lapse of the
60day period without the Justice Secretary acting on the appeal, the aggrieved may file appropriate proceedings.
D. Appeal to court of competent jurisdiction
Id.
MERALCO SECURITIES CORPORATION v. CBAA (1982) This case is about the imposition of the realty tax
on 2 oil storage tanks installed by Meralco which it leased from Caltex. The tanks are within the Caltex
refinery compound. They are used for storing fuel oil for Meralcos power plants. Meralco is saying that its
storage tanks are NOT taxable real property. CBAA, in a decision, contends that the tanks together with
the foundation, walls, dikes constitute taxable improvements.
Meralco filed a special civil action of certiorari to annul the Boards decision and resolution. It contends
that the Board acted without jurisdiction and committed a grave error of law in holding that its storage
tanks are taxable real property.
Issue: W/N the tanks are taxable as real property
Held: YES. The Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its condition, amounting
to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its
value, beauty or utility or to adapt it for new or further purposes.
While the two storage tanks are not embedded in the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable
that the two tanks have been installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by Meralco for its operations. The Board's questioned decision and resolution are
affirmed.
CALTEX v. CBAA (1982) The equipment and machinery as appurtenances to the gas station building or shed
owned by Caltex and which fixtures are necessary to the operation of the gas station, for without them the
gas station would be useless, and which have been attached and fixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery within the meaning of the Assessment
Law and the Real Property Tax Code.
The City Assessor characterized the items in gas stations of petitioner as taxable realty. These items included
underground tanks, elevate tank, elevated water tanks, water tanks, gasoline pumps, computing pumps etc.
These items are not owned by the lessor of the land wherein the equipment are installed. Upon expiration
of the lease agreement, the equipment should be returned in good condition.
SAN MIGUEL CORPORATION v. HON. CELSO AVELINO AND THE CITY OF MANDAUE (1979)
Respondent City, in accordance with PD No. 231, enacted the challenged ordinance, otherwise known as the
Mandaue City Tax Code. The City Treasurer demanded from petitioner San Miguel Corporation payment of
specific tax on the total volume of beer it produced in the city. Petitioner contested on the ground that Mandaue
City Ordinance No. 7 was illegal and void because it imposed a specific tax beyond its territorial jurisdiction. The
matter was then referred by respondent City to its City Fiscal, who sustained its validity. Then came the appeal to
the Secretary of Justice, with the then Acting Secretary of Justice Macaraig, rendering an opinion that the
ordinance was of doubtful validity. A suit for collection was filed by the City, where it squarely put in issue
the validity of the said ordinance, thus contesting the opinion of the Acting Secretary of Justice. It is
petitioners argument that a suit for collection is not the appeal provided for in the last sentence of Section 47:
"The decision of the Secretary of Justice shall be final and executory unless, within thirty days upon receipt
thereof, the aggrieved party contents the same in a court of competent jurisdiction."

ALS2014B
ALS2014B 296 of 365
"#$
Issue: W/N the filing of such action after such opinion was rendered may be considered an appeal under the PD.
Held: Yes. The suit for collection cannot be viewed other than as an appeal. The aggrieved party, here respondent City,
in the suit for collection, did definitely contest the correctness of the decision of the Secretary of Justice in a court
of competent jurisdiction this, even on the assumption that there was a finding a invalidity. The statutory
purpose is thus satisfied. Such an action is in accordance with the traditional and appropriate procedure to test the
legality of a statute, decree, or ordinance.
To so construe Section 47 would be to raise a serious constitutional question for it would in effect bar what
otherwise would be a proper case cognizable by a court precisely in the exercise of the conceded power of judicial
review just because the procedure contended for which is that of an "appeal" under the circumstances a term
vague and ambiguous, was not followed. Petitioner may not be sufficiently aware of the implications of such a
proposition. It would run counter to the well-settled doctrine that between two possible modes of constructions,
the one which would not be in conflict with what is ordained by the Constitution is to be preferred. Every
intendment of the law should lean towards its validity, not its invalidity.
E. Effect of appeal
Id.
VI. REMEDIES OF LOCAL GOVERNMENT AND TAXPAYER
A. Remedies of local government
1. Examination of taxpayers books of accounts
Sec. 171. Examination of Books of Accounts and Pertinent Records of Businessmen by Local Treasurer. The
provincial, city, municipal or barangay treasurer may, by himself or through any of his deputies duly authorized in
writing, examine the books, accounts, and other pertinent records of any person, partnership, corporation, or association
subject to local taxes, fees and charges in order to ascertain. assess, and collect the correct amount of the tax, fee, or
charge. Such examination shall be made during regular business hours, only once for every tax period, and shall be
certified to by the examining official. Such certificate shall be made of record in the books of accounts of the taxpayer
examined.
In case the examination herein authorized is made by a duly authorized deputy of the local treasurer, the written
authority of the deputy concerned shall specifically state the name, address, and business of the taxpayer whose books,
accounts, and pertinent records are to be examined, the date and place of such examination and the procedure to be
followed in conducting the same.
For this purpose, the records of the revenue district office of the Bureau of Internal Revenue shall be made
available to the local treasurer, his deputy or duly authorized representative.
2. Issuance of deficiency assessment
Sec. 194. Periods of Assessment and Collection.
(a) Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. No action for
the collection of such taxes, fees, or charges, whether administrative or judicial, shall be instituted after the
expiration of such period: Provided, That. taxes, fees or charges which have accrued before the effectivity of this
Code may be assessed within a period of three (3) years from the date they became due.
(b) In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be assessed within ten (10)
years from discovery of the fraud or intent to evade payment.
(c) Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by administrative
or judicial action. No such action shall be instituted after the expiration of said period: Provided, however, That,

ALS2014B
ALS2014B 297 of 365
"#$
taxes, fees or charges assessed before the effectivity of this Code may be collected within a period of three (3)
years from the date of assessment.
(d) The running of the periods of prescription provided in the preceding paragraphs shall be suspended for the time
during which:
(1) The treasurer is legally prevented from making the assessment of collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the
period within which to assess or collect; and
(3) The taxpayer is out of the country or otherwise cannot be located.
Sec. 195. Protest of Assessment. When the local treasurer or his duly authorized representative finds that correct taxes,
fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the
amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the
time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice
cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly
correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days
from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to
appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.
3. Imposition of surcharge and interest
Sec. 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. The sanggunian may impose a surcharge not
exceeding twenty-five (25%) of the amount of taxes, fees or charges not paid on time and an interest at the rate not
exceeding two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is
fully paid but in no case shall the total thirty-six (36%) months.
Sec. 169. Interests on Other Unpaid Revenues. Where the amount of any other revenue due a local government unit,
except voluntary contributions or donations, is not paid on the date fixed in the ordinance, or in the contract, expressed or
implied, or upon the occurrence of the event which has given rise to its collection, there shall be collected as part of that
amount an interest thereon at the rate not exceeding two percent (2%) per month from the date it is due until it is paid, but
in no case shall the total interest on the unpaid amount or a portion thereof exceed thirty-six (36) months.
4. Summary remedies
a. Distraint of personal property
Sec. 175. Distraint of Personal Property. The remedy by distraint shall proceed as follows:
(a) Seizure Upon failure of the person owing any local tax, fee, or charge to pay the same at the time required, the
local treasurer or his deputy may, upon written notice, seize or confiscate any personal property belonging to that
person or any personal property subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in
question, together with any increment thereto incident to delinquency and the expenses of seizure. In such case,
the local treasurer or his deputy shall issue a duly authenticated certificate based upon the records of his office
showing the fact of delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate shall
serve as sufficient warrant for the distraint of personal property aforementioned, subject to the taxpayer's right to
claim exemption under the provisions of existing laws. Distrained personal property shall be sold at public auction
in the manner hereon provided for.
(b) Accounting of distrained goods. The officer executing the distraint shall make or cause to be made an account
of the goods, chattels or effects distrained, a copy of which signed by himself shall be left either with the owner or
person from whose possession the goods, chattels or effects are taken, or at the dwelling or place or business of

ALS2014B
ALS2014B 298 of 365
"#$
that person and with someone of suitable age and discretion, to which list shall be added a statement of the sum
demanded and a note of the time and place of sale.
(c) Publication The officer shall forthwith cause a notification to be exhibited in not less than three (3) public and
conspicuous places in the territory of the local government unit where the distraint is made, specifying the time
and place of sale, and the articles distrained. The time of sale shall not be less than twenty (20) days after the
notice to the owner or possessor of the property as above specified and the publication or posting of the notice.
One place for the posting of the notice shall be at the office of the chief executive of the local government unit in
which the property is distrained.
(d) Release of distrained property upon payment prior to sale If at any time prior to the consummation of the sale,
all the proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored
to the owner.
(e) Procedure of sale At the time and place fixed in the notice, the officer conducting the sale shall sell the goods
or effects so distrained at public auction to the highest bidder for cash. Within five (5) days after the sale, the local
treasurer shall make a report of the proceedings in writing to the local chief executive concerned.
Should the property distrained be not disposed of within one hundred and twenty (120) days from the date of
distraint, the same shall be considered as sold to the local government unit concerned for the amount of the
assessment made thereon by the Committee on Appraisal and to the extent of the same amount, the tax
delinquencies shall be cancelled.
Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman, with a
representative of the Commission on Audit and the city or municipal assessor as members.
(f) Disposition of proceeds The proceeds of the sale shall be applied to satisfy the tax, including the surcharges,
interest, and other penalties incident to delinquency, and the expenses of the distraint and sale. The balance over
and above what is required to pay the entire claim shall be returned to the owner of the property sold. The
expenses chargeable upon the seizure and sale shall embrace only the actual expenses of seizure and preservation
of the property pending the sale, and no charge shall be imposed for the services of the local officer or his deputy.
Where the proceeds of the sale are insufficient to satisfy the claim, other property may, in like manner, be
distrained until the full amount due, including all expenses, is collected.
b. Levy on real property
Sec. 176. Levy on Real Property. After the expiration of the time required to pay the delinquent tax, fee, or charge, real
property may be levied on before, simultaneously, or after the distraint of personal property belonging to the delinquent
taxpayer. To this end, the provincial, city or municipal treasurer, as the case may be, shall prepare a duly authenticated
certificate showing the name of the taxpayer and the amount of the tax, fee, or charge, and penalty due from him. Said
certificate shall operate with the force of a legal execution throughout the Philippines. Levy shall be effected by writing
upon said certificate the description of the property upon which levy is made. At the same time, written notice of the levy
shall be mailed to or served upon the assessor and the Register of Deeds of the province or city where the property is
located who shall annotate the levy on the tax declaration and certificate of title of the property, respectively, and the
delinquent taxpayer or, if he be absent from the Philippines, to his agent or the manager of the business in respect to
which the liability arose, or if there be none, to the occupant of the property in question.
In case the levy on real property is not issued before or simultaneously with the warrant of distraint on personal
property, and the personal property of the taxpayer is not sufficient to satisfy his delinquency, the provincial, city or
municipal treasurer, as the case may be, shall within thirty (30) days after execution of the distraint, proceed with the levy
on the taxpayer's real property.
A report on any levy shall, within ten (10) days after receipt of the warrant, be submitted by the levying officer to
the sanggunian concerned.

ALS2014B
ALS2014B 299 of 365
"#$
Sec. 178. Advertisement and Sale. Within thirty (30) days after the levy, the local treasurer shall proceed to publicly
advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the claim and cost of
sale; and such advertisement shall cover a period of at least thirty (30) days. It shall be effected by posting a notice at the
main entrance of the municipal building or city hall, and in a public and conspicuous place in the barangay where the real
property is located, and by publication once a week for three (3) weeks in a newspaper of general circulation in the
province, city or municipality where the property is located. The advertisement shall contain the amount of taxes, fees or
charges, and penalties due thereon, and the time and place of sale, the name of the taxpayer against whom the taxes, fees,
or charges are levied, and a short description of the property to be sold. At any time before the date fixed for the sale, the
taxpayer may stay they proceedings by paying the taxes, fees, charges, penalties and interests. If he fails to do so, the sale
shall proceed and shall be held either at the main entrance of the provincial, city or municipal building, or on the property
to be sold, or at any other place as determined by the local treasurer conducting the sale and specified in the notice of sale.
Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the
sanggunian concerned, and which shall form part of his records. After consultation with the sanggunian, the local
treasurer shall make and deliver to the purchaser a certificate of sale, showing the proceeding of the sale, describing the
property sold, stating the name of the purchaser and setting out the exact amount of all taxes, fees, charges, and related
surcharges, interests, or penalties: Provided, however, That any excess in the proceeds of the sale over the claim and cost
of sales shall be turned over to the owner of the property.
The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of
collection by means of the remedies provided for in this Title, including the preservation or transportation in case of
personal property, and the advertisement and subsequent sale, in cases of personal and real property including
improvements thereon.
Sec. 179. Redemption of Property Sold. Within one (1) year from the date of sale, the delinquent taxpayer or his
representative shall have the right to redeem the property upon payment to the local treasurer of the total amount of taxes,
fees, or charges, and related surcharges, interests or penalties from the date of delinquency to the date of sale, plus interest
of not more than two percent (2%) per month on the purchase price from the date of purchase to the date of redemption.
Such payment shall invalidate the certificate of sale issued to the purchaser and the owner shall be entitled to a certificate
of redemption from the provincial, city or municipal treasurer or his deputy.
The provincial, city or municipal treasurer or his deputy, upon surrender by the purchaser of the certificate of sale
previously issued to him, shall forthwith return to the latter the entire purchase price paid by him plus the interest of not
more than two percent (2%) per month herein provided for, the portion of the cost of sale and other legitimate expenses
incurred by him, and said property thereafter shall be free from the lien of such taxes, fees, or charges, related surcharges,
interests, and penalties.
The owner shall not, however, be deprived of the possession of said property and shall be entitled to the rentals
and other income thereof until the expiration of the time allowed for its redemption.
Sec. 180. Final Deed to Purchaser. In case the taxpayer fails to redeem the property as provided herein, the local
treasurer shall execute a deed conveying to the purchaser so much of the property as has been sold, free from liens of any
taxes, fees, charges, related surcharges, interests, and penalties. The deed shall succinctly recite all the proceedings upon
which the validity of the sale depends.
Sec. 181. Purchase of Property By the Local Government Units for Want of Bidder. In case there is no bidder for the
real property advertised for sale as provided herein, or if the highest bid is for an amount insufficient to pay the taxes,
fees, or charges, related surcharges, interests, penalties and costs, the local treasurer conducting the sale shall purchase the
property in behalf of the local government unit concerned to satisfy the claim and within two (2) days thereafter shall
make a report of his proceedings which shall be reflected upon the records of his office. It shall be the duty of the
Registrar of Deeds concerned upon registration with his office of any such declaration of forfeiture to transfer the title of
the forfeited property to the local government unit concerned without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the
property by paying to the local treasurer the full amount of the taxes, fees, charges, and related surcharges, interests, or

ALS2014B
ALS2014B 300 of 365
"#$
penalties, and the costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be fully
vested on the local government unit concerned.
Sec. 182. Resale of Real Estate Taken for Taxes, Fees, or Charges. The sanggunian concerned may, by ordinance
duly approved, and upon notice of not less than twenty (20) days, sell and dispose of the real property acquired under the
preceding section at public auction. The proceeds of the sale shall accrue to the general fund of the local government unit
concerned.
c. Further distraint and levy
Sec. 184. Further Distraint or Levy. The remedies by distraint and levy may be repeated if necessary until the full
amount due, including all expenses, is collected.
5. Judicial remedy (Collection)
Sec. 183. Collection of Delinquent Taxes, Fees, Charges or other Revenues through Judicial Action. The local
government unit concerned may enforce the collection of delinquent taxes, fees, charges or other revenues by civil action
in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the period prescribed in
Section 194 of this Code.
B. Remedies of taxpayer
1. Protest of assessment
Sec. 195. Protest of Assessment. When the local treasurer or his duly authorized representative finds that correct taxes,
fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the
amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of
cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly
correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days
from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to
appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.
Art. 285. Protest on Assessment. When the local treasurer or his duly authorized representative finds that correct
taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge
the amount of deficiency, the surcharges, interests, and penalties. Within sixty (60) days from receipt of the notice of
cancelling wholly or partially the assessment. If the local treasurer finds the assessment to be wholly or partly correct, he
shall deny the protest wholly or partly with notice to the taxpayer.
The taxpayer shall have thirty (30) days from receipt of the denial of the protest or from the lapse of the sixty-day
period prescribed in this Article within which to appeal with the court of competent jurisdiction; otherwise, the assessment
becomes conclusive and unappealable.
CALIFORNIA MFG. CO., INC. v. CITY OF LAS PIAS (2005) Timeline of events/letters:
Letter dated June 9, 2003, the City Treasurer informed California Mfg. that it had local business tax deficiency on
non-essential commodities. Upon receipt of the notice of assessment on June 10, 2003, the California Mfg.
attended a conference, through its accountant, with the City Treasurer and City examiners.

ALS2014B
ALS2014B 301 of 365
"#$
California personally served a letter dated June 23, 2003 to the City Treasurer requesting ample time to consider
the validity of the assessment and asking for any specific ordinances and rulings in support for the claim.
The City Treasurer replied through a letter, also dated June 23, 2003, informing California that its request was
granted and was given up to July 15, 2003 to settle the tax deficiency.
Letter dated August 27, 2003, the City Treasurer noted that California havent settled its tax liability, thus was
given 5 days from receipt of the letter to settle its tax obligation.
On September 1, 2003, California filed what it called supplemental protest against the local business tax
deficiency assessment.
On September 12, 2003, California received a letter dated September 10, 2003 from the City Treasurer denying
the protest.
On October 16, 2003, California filed before the RTC a protest of the assessment for deficiency local business
tax.
Issue: Whether California failed to file a timely protest before the City Treasurer, thus the assessment became final and
executory.
Held: The protest of California was not timely filed; hence the assessment has become final and executory.
California argued that the letter dated June 9, 2003 cannot be considered as a notice of assessment since it did not
state the nature of the tax, etc. The CTA ruled that the said letter fully satisfied the requirement of stating the
nature of the tax, etc. because of the attachments.
California further argued that the letter dated August 27, 2003 should be the one considered as the assessment
notice. The CTA ruled that the letter dated August 27, 2003 was a mere demand letter, as it plainly appeared from
the said letter that it mentioned a notice of assessment dated June 9, 2003. Thus, the 60 days to file a protest must
be counted from June 10, 2003, when California received the assessment notice. The last day of filing fell on
August 9, 2003, but California filed its protest only on September 1, 2003, 83 days from the date of receipt of the
assessment notice.
California argued that the June 23, 2003 letter was a preliminary protest that can toll the running of the period to
question the assessment due to absence of facts and law. The CTA ruled that specific ordinances and rulings are
not required to make an assessment valid. Furthermore, the CTA cited an SC decision which provides that a mere
letter requesting for reconsideration without any substantiation of facts or laws as basis for reconsideration cannot
be considered as one that validly protests an assessment.
2. Claim for refund or tax credit
Sec. 196. Claim for Refund of Tax Credit. No case or proceeding shall be maintained in any court for the recovery of
any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the
local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date
of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.
Art. 286. Claim for Refund or Tax Credit. All taxpayers entitled to a refund or tax credit provided in this Rule shall
file with the local treasurer a claim in writing duly supported by evidence of payment (e.g., official receipts, tax clearance,
and such other proof evidencing overpayment within two (2) years from payment of the tax, fee, or charge. No case or
proceeding shall be entertained in any court without this claim in writing, and after the expiration of two (2) years from
the date of payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or tax credit.
The tax credit granted a taxpayer shall not be refundable in cash but shall only be applied to future tax obligations
of the same taxpayer for the same business. If a taxpayer has paid in full the tax due for the entire year and he shall have
no other tax obligation payable to the LGU concerned during the year, his tax credits, if any, shall be applied in full during

ALS2014B
ALS2014B 302 of 365
"#$
the first quarter of the next calendar year on the tax due from him for the same business of said calendar year.
Any unapplied balance of the tax credit shall be refunded in cash in the event that he terminates operation of the
business involved within the locality.
3. Appeal to Court of Competent Jurisdiction?
SAN JUAN v. CASTRO (2007) San Juan conveyed several properties via a deed of assignment to Saints and Angels
Realty Corp. in exchange for shares of stock. He went to the City Treasurer of Marikina to pay the corresponding
taxes for the transfer but the treasurer refused to receive said tax payments because they were based on the actual
consideration received and not on the fair market value of the properties. San Juan filed a written protest but the
same was denied. San Juan then filed with the RTC a petition for mandamus to compel the treasurer to accept the
tax payments. The RTC dismissed because one of the requisites of mandamus was not complied with: that there
be no other plain, speedy, adequate remedy available to the plaintiff. The SC affirmed the RTC decision and
stated that according to Sec. 195 of the Local Government Code, the remedy for denial of protest is to (1) appeal
to a court of competent jurisdiction within 30 days after receipt of denial or from the lapse of 60 days given to the
treasurer to decide upon a protest, or (2) to pay the taxes and ask for a refund. Petitioner did none of these
remedies.
YAMANE v. BA LEPANTO CONDOMINIUM CORP. (2005) Facts: Lepanto Condominium was assessed by
Yaman (City Treasurer of Makati City) for P1.6 Million as payment for city business taxes, fees and charges. The
Notice of Assessment was silent as to the statutory basis of the business taxes assess. Lepanto protested the
assessment. Lepanto contends that the assessment has no basis as the Corporation is not liable for business taxes
and surcharges and interest thereon, under the Makati Revenue Code or even under the Local Government Code.
Section 3A.02(m) of the Makati Revenue Code provides for imposition of business tax on owners or operators of
any business not specified in the said code is not applicable since the corporation, as a condominium corporation
was organized not for profit, but to hold title over the common shares of the condominium, to manage the
condominium for the unit owners and to hold title to the parcel of land on which the Condominium was located.
Neither was it authorized, under its articles of incorporation or by-laws to engage in profit-making activities.
Yamane as City Treasurer, denied the protest. CA held that Lepanto is not liable to pay business taxes to the City
of Makati because it is not a juridical entity intended to make profit, as its sole purpose was to hold title to the
common areas in the condominium and to maintain the condominium.
Issue: W/N Lepanto is liable for LOCAL TAX
Held: NO. Lepanto does not fall within the definition of business in the LGC and is thus exempt from local business
taxation (trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit). As
to the Condominium Act, a condominium corporation, while enjoying such powers of ownership is prohibited by
law from transacting its properties for the purpose of gainful profit.
The City Treasurer cannot determine as to what exactly is the precise staturoy basis under the Makati
Revenue Code for the levying of the business tax on petitoner.
The power of the local government units to impose taxes within its territorial jurisdiction derives from the
Constitution itself, which recognizes the power of these units to create its own sources of revenue and to
levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy.
VII. AUTHORITY OF LGUS TO GRANT TAX EXEMPTION PRIVILEGES, AND EXEMPTIONS UNDER SPECIAL
LAWS
Sec. 192. Authority to Grant Tax Exemption Privileges. Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.

ALS2014B
ALS2014B 303 of 365
"#$
Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
Art. 282. Authority to Grant Tax Exemption Privileges or Incentives.
(a) While sanggunians may grant tax exemption, tax incentive, or tax relief, such grant shall not apply to regulatory
fees which are levied under the police power of LGUs. Tax exemptions shall be conferred through the issuance of
a tax exemption certificate, which shall be non-transferable.
(b) The sanggunians granting tax exemptions, tax incentives and tax reliefs may be guided by the following:
(1) On the grant of tax exemptions or tax reliefs:
i. Tax exemption or tax relief may be granted in cases of natural calamities, civil disturbance, general
failure of crops, or adverse economic conditions such as substantial decrease in the prices of
agricultural or agri-based products;
ii. The grant of exemption or relief shall be through an ordinance.
iii. Any exemption or relief granted to a type or kind of business shall apply to all business similarly
situated; and
iv. Any exemption or relief granted shall take effect only during the next calendar year for a period not
exceeding twelve (12) months as may be provided in the ordinance. In the case of shared revenues,
the exemption or relief shall only extend to the LGU granting such exemption or relief.
(2) On the grant of tax incentives:
i. The tax incentive shall be granted only to new investments in the locality and the ordinance shall
prescribe the terms and conditions therefor;
ii. The grant of the tax incentive shall be for a definite period not exceeding one (1) calendar year;
iii. The grant of tax incentives shall be by ordinance passed prior to the first (1st) day of January of any
year; and
iv. Any tax incentive granted to a type or kind of business shall apply to all businesses similarly situated.
Art. 283. Withdrawal of Tax Exemption Privileges or Incentives. Unless otherwise provided in this Rule, beginning
January 1, 1992, all local tax exemption privileges or incentives granted to and presently enjoyed by any person, whether
natural or juridical, including GOCCs, are considered withdrawn, except the following:
(a) Local water districts;
(b) Cooperatives duly registered under RA 6938, otherwise known as the Cooperative Code of the Philippines;
(c) Non-stock and non-profit hospitals and educational institutions;
(d) Business enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively, from the date of registration;
(e) Business entity, association, or cooperatives registered under RA 6810; and
(f) Printer and/or publisher of books or other reading materials prescribed by DECS as school texts or references,
insofar as receipts from the printing and/or publishing thereof are concerned.
Unless otherwise repealed by law, business and economic enterprises operating within export processing zones
administered by the Export Processing Zone Authority shall continue to enjoy the tax exemption privileges and tax
incentives granted in PD 66, as amended.

ALS2014B
ALS2014B 304 of 365
"#$
QUEZON CITY v. ABS-CBN BROADCASTING CORPORATION (2008) The Quezon City Revenue Code of
1993 imposes a local franchise tax on businesses operating within its jurisdiction. In 1995, ABS-CBN was
granted a radio and television franchise under a RA 7966. This special law imposes upon ABS-CBN the liability
to pay 3% franchise tax on its gross receipts in lieu of all taxes on the franchise or earnings thereof. ABS
paid the local tax on protest, claiming that RA 7966 effectively exempts it from the payment of such local tax.
Thereafter, ABS filed a claim for refund of the local franchise tax paid to Quezon City for 1996 and the first
quarter of 1997. Quezon City argued that the in lieu of all taxes provision in RA 7966 could not have been
intended to prevail over a constitutional mandate ensuring the viability and self-sufficiency of LGUs. RTC
granted the refund. CA refused to rule on the matter on the ground that the issues raised were purely legal
questions cognizable only by the SC.
The in lieu of all taxes provision in its franchise does not exempt ABS-CBN from payment of local
franchise tax. LGUs are granted the power to impose franchise tax on businesses operating within their
respective jurisdictions. However, this delegated power to levy tax is limited by Congress inherent power
to grant tax exemptions. After all, the power to tax primarily remains in the legislature.
ABS-CBNs refund claim must fail on two grounds. First, the in lieu of all taxes provision in the franchise of
ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear whether the
exemption would include local, municipal, city or provincial, and national tax. This ambiguity must be construed
against ABS since it has the burden to prove that it is in fact covered by the exemption claimed. ABS failed to
overcome this burden. Second, the E-VAT law was passed during the pendency of the case, abolishing the
franchise tax levied on broadcasting companies with yearly gross receipts exceeding 10M. Because of the passage
of the E-VAT law, ABS had no choice but to pay VAT, since its yearly gross receipts exceeded 10M. The
exemption clause ABS was banking on had become functus officio, leaving it liable to pay both the VAT and
Quezon Citys local franchise tax.
CITY OF ILOILO v. SMART (2009) SMART received a letter of assessment dated February 12, 2002 from
petitioner requiring it to pay deficiency local franchise and business taxes (in the amount of P764,545.29, plus
interests and surcharges) which it incurred for the years 1997 to 2001. SMART protested the assessment by
sending a letter dated February 15, 2002 to the City Treasurer. It claimed exemption from payment of local
franchise and business taxes based on Section 9 of its legislative franchise under Republic Act (R.A.) No. 7294
(SMARTs franchise). Under SMARTs franchise, it was required to pay a franchise tax equivalent to 3% of all
gross receipts, which amount shall be in lieu of all taxes. SMART contends that the "in lieu of all taxes" clause
covers local franchise and business taxes. Through a letter dated April 4, 2002, petitioner denied SMARTs
protest. The court held that SMART relies on two provisions of law to support its claim for tax exemption:
Section 9 of SMARTs franchise and Section 23 of the Public Telecoms Act. R.A. No 7294 does not expressly
provide what kind of taxes SMART is exempted from. What is clear is that SMART shall pay franchise tax
equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. But whether
the franchise tax exemption would include exemption from exactions by both the local and the national
government is not unequivocal. The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether
SMART is exempted from both local and national franchise tax must be construed strictly against SMART which
claims the exemption. Nonetheless, even if Section 9 of SMARTs franchise can be construed as covering local
taxes as well, reliance thereon would now be unavailing. The "in lieu of all taxes" clause basically exempts
SMART from paying all other kinds of taxes for as long as it pays the 3% franchise tax; it is the franchise tax that
shall be in lieu of all taxes, and not any other form of tax. Franchise taxes on telecommunications companies,
however, have been abolished by R.A. No. 7716 or the Expanded Value-Added Tax Law (E-VAT Law), which
was enacted by Congress on January 1, 1996. To replace the franchise tax, the E-VAT Law imposed a 10% value-
added tax on telecommunications companies under Section 108 of the National Internal Revenue Code. More so,
The language of Section 23 of the Public Telecoms Act and the proceedings of both Houses of Congress are
bereft of anything that would signify the grant of tax exemptions to all telecommunications entities. Intent to grant
tax exemption cannot therefore be discerned from the law; the term "exemption" is too general to include tax
exemption and runs counter to the requirement that the grant of tax exemption should be stated in clear and
unequivocal language too plain to be beyond doubt or mistake.

ALS2014B
ALS2014B 305 of 365
"#$
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. v. CITY GOVERNMENT OF BATANGAS (2008)
RA 7678 granted Digital a 25-year franchise. There is controversy as to its tax provision which states The
grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive of this
franchise as other persons or corporations are now or hereafter may be required by law to pay.
Digital Claims that the provision limits the real properties that are subject to realty tax only to properties that are
not used in petitioners telecommunications business. However, the SC interpreted the provision to mean to
exclude the legislative franchise from the properties subject to taxes under the first sentence. In effect, Digitals
franchise, which is a personal property, is not subject to the taxes imposed on properties under the first sentence
of Section 5. Moreover, the phrases exemption from real estate tax, free from real estate tax or not subject to
real estate tax do not appear in the law. To claim tax exemption, there must be an express exemption from
tax in another provision of law.
DAVAO ORIENTAL ELECTRIC COOPERATIVE, INC. v. PROVINCE OF DAVAO ORIENTAL (2009)
Davao Oriental Electric Cooperative (DOEC) was organized under PD 269 which granted tax and duty
exemptions to electric cooperatives. In 1984 PD 1955 withdrew such exemptions. Since DOEC did not declare
the value the value of its properties the Provincial Assessor assessed such properties in 1985. The same year, the
Fiscal Incentive Review Board (FIRB) issued a regulation confirming the withdrawal of tax privilege. In 1986
Pres. Marcos issued PD 2008 which restored the tax exemptions. This was reversed by Pres. Aquino in EO 93 but
suspended its affectivity until 1987. In 1987 FIRB restored the tax exemption to electric cooperatives. In 1990
the Provincial Assessor filed a complaint for collection of delinquent real estate tax payment for the period of
1984 to 1989. DOEC claimed that it was except from payment of such assessment because the restoration of the
tax exemption by the FIRB retroacted to 1984 and they questioned the classification made. The RTC ruled in
favor of DOEC. This was reversed by the CA.
1. W/N DOEC should pay the real estate tax assessment?
2. W/N properties were assessed with proper classification?
Held:
1. YES, DOEC should pay the real estate tax. The SC agreed with the CA that FIRB Resolution 24-87 that the
tax exemption was effective 1987 and did not indicate anywhere that it would have any retroactive effect. It was
clearly worded and showed that restoration of tax exemption was effective 1987. The SC also said that since tax
is the lifeblood of the nation, the doctrine of strict interpretation of tax exception should be made.
2. Yes. DOEC claimed that it its properties was assessed without consultation. However, it was sent two Notice
of Assessments in 1985 and they did not file any protest to question such assessment with the Board of
Assessment Appeals. Having failed to make an appeal DOEC cannot assail the validity of the tax assessment.
(Not important for the topic, this is for Real Estate Tax section of our syllabus)
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) v. MARCON (1996) MIAA is a
GOCC, which was created before the LGC, in its charter it was exempt from paying real property taxes. After the
enactment of the LGC, Cebu City demanded from MIAA payment of real property taxes.
The last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and MIAA is, a government-owned corporation, it necessarily
follows that MIAAs exemption from such tax granted it in its charter, has been withdrawn. Any claim to the
contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section
234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections
232 and 234.
MIAAs theory that as a instrumentality of the Government, it could be exempt under 234 (a)
(a) real property owned by the Republic of the Philippines, or any of its political subdivisions..

ALS2014B
ALS2014B 306 of 365
"#$
This view does not persuade. In the first place, the MIAA claim that it is an instrumentality of the Government is
based on Section 133(o), which expressly mentions the word instrumentalities; and, in the second place, it fails
to consider the fact that the legislature used the phrase National Government, its agencies and instrumentalities
in Section 133(o), but only the phrase Republic of the Philippines or any of its political subdivisions in Section
234(a).
If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of
real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National
Government mentioned in Section 133(o), then it should have restated the wording of the latter.
NPC v. CITY OF CABANATUAN (2003) Petitioner NPC is a GOCC created under CA120, whose capital stock was
subscribed and paid wholly by the Philippine Government. It refused to pay the tax assessment and argued that
the respondent has no authority to impose tax on government entities, and that as a non-profit organization it is
exempted from the payment of all forms of taxes, charges, duties, or fees.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government
unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the
preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative
purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the
existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more unequivocal language could have been
used.
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to
grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance No. 165-92 which imposes an
annual franchise tax notwithstanding any exemption granted by law or other special law, the respondent city
government clearly did not intend to exempt the petitioner from the coverage thereof.
PROVINCE OF MISAMIS ORIENTAL v. CAGAYAN ELECTRIC POWER AND LIGHT CO., INC. (1990)
franchise tax provided in local tax code may only be imposed on companies with franchises that do not
contain the exempting clause. The issue in this case is whether CEPALCO whose franchise expressly provides
through RA 3247 that the payment of the franchise tax of 3% of the gross earnings shall be in lieu of all taxes
and assessments is exempt from paying provincial franchise tax. Despite the exempting provision, the
Provincial Treasurer of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO
based on the Provincial Rev. Ordinance no 19 in pursuant to local tax code. In this case, SC held that as seen in
past jurisprudence, franchise tax imposed under local tax ordinance shall be imposed only in businesses whose
franchise does not contain the in-lieu-of-all-taxes- proviso. The law which created CEPALCO is a special law
which is an exemption to the general tax law: Local Tax Code.
PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., ET. AL. v. SECRETARY, DILG,
ET. AL. (2003) A class suit was filed by PHILRECA, an association of 119 electric cooperatives throughout
the country. Pursuant to the provisions of P.D. No. 269, they are exempt from payment of local taxes, including
payment of real property tax. They contend that with the passage of the Local Government Code, however, their
tax exemptions have been invalidly withdrawn. The SC ruled that local governments have the authority to
grant and withdraw tax exemptions. The limited and restrictive nature of the tax exemption privileges under the
Local Government Code is consistent with the State policy to ensure autonomy of local governments and the
objective of the Local Government Code to grant genuine and meaningful autonomy to enable local
government units to attain their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals. The obvious intention of the law is to broaden the tax base of
local government units to assure them of substantial sources of revenue.
SMART COMMUNICATIONS, INC. v. THE CITY OF DAVAO (2009) franchise-holders still subject to local
govt franchise tax Smart filed a petition for declaratory relief to ascertain its rights under the Tax Code of the

ALS2014B
ALS2014B 307 of 365
"#$
City of Davao, w/c imposed a local franchise tax on franchise-holders doing business w/in the territorial
jurisdiction of Davao. According to Smart, it should be exempt from payment of such tax because under RA
7294, w/c granted Smarts franchise, it was to pay a national franchise tax of 3% in lieu of all other taxes,
charges, and fees. The RTC denied Smarts petition, so it appealed to the SC.
According to the SC, absent any showing that such in lieu of all other taxes clause expressly includes both
national and local taxes, then the exemption should be strictly construed against the taxpayer and in favor
of the taxing authority. Thus, the exemption only applies to national taxes, but not to local taxes. The E-
VAT law did not abolish the payment of local franchise tax; it merely replaced the national franchise tax w/ the
10% VAT. VAT replaced the national franchise tax, but it did not prohibit nor abolish the imposition of local
franchise tax by cities or municipalities.

ALS2014B
ALS2014B 308 of 365
"#$
REAL PROPERTY TAXATION
I. GENERAL PRINCIPLES AND DEFINITIONS
Sec. 198. Fundamental Principles. The appraisal, assessment, levy and collection of real property tax shall be guided
by the following fundamental principles:
(a) Real property shall be appraised at its current and fair market value;
(b) Real property shall be classified for assessment purposes on the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be equitable.
Sec. 199. Definitions. When used in this Title:
(a) "Acquisition Cost" for newly-acquired machinery not yet depreciated and appraised within the year of its
purchase, refers to the actual cost of the machinery to its present owner, plus the cost of transportation, handling,
and installation at the present site;
(b) "Actual Use" refers to the purpose for which the property is principally or predominantly utilized by the person in
possession thereof;
(c) "Ad Valorem Tax" is a levy on real property determined on the basis of a fixed proportion of the value of the
property;
(d) "Agricultural Land" is land devoted principally to the planting of trees, raising of crops, livestock and poultry,
dairying, salt making, inland fishing and similar aquacultural activities, and other agricultural activities, and is not
classified as mineral, timber, residential, commercial or industrial land;
(e) "Appraisal" is the act or process of determining the value of property as of a specified date for a specific purpose;
(f) "Assessment" is the act or process of determining the value of a property, or proportion thereof subject to tax,
including the discovery, listing, classification, and appraisal of properties;
(g) "Assessment Level" is the percentage applied to the fair market value to determine the taxable value of the
property;
(h) "Assessed Value" is the fair market value of the real property multiplied by the assessment level. It is
synonymous to taxable value;
(i) "Commercial Land" is land devoted principally for the object of profit and is not classified as agricultural,
industrial, mineral, timber, or residential land;
(j) "Depreciated Value" is the value remaining after deducting depreciation from the acquisition cost;
(k) "Economic Life" is the estimated period over which it is anticipated that a machinery or equipment may be
profitably utilized;
(l) "Fair Market Value" is the price at which a property may be sold by a seller who is not compelled to sell and
bought by a buyer who is not compelled to buy;
(m) "Improvement" is a valuable addition made to a property or an amelioration in its condition, amounting to more
than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance
its value, beauty or utility or to adapt it for new or further purposes;
(n) "Industrial Land" is land devoted principally to industrial activity as capital investment and is not classified as
agricultural, commercial, timber, mineral or residential land;

ALS2014B
ALS2014B 309 of 365
"#$
(o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus
which may or may not be attached, permanently or temporarily, to the real property. It includes the physical
facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered
or self-propelled, and those not permanently attached to the real property which are actually, directly, and
exclusively used to meet the needs of the particular industry, business or activity and which by their very nature
and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or
agricultural purposes;
(p) "Mineral Lands" are lands in which minerals, metallic or non-metallic, exist in sufficient quantity or grade to
justify the necessary expenditures to extract and utilize such materials;
(q) "Reassessment" is the assigning of new assessed values to property, particularly real estate, as the result of a
general, partial, or individual reappraisal of the property;
(r) "Remaining Economic Life" is the period of time expressed in years from the date of appraisal to the date when
the machinery becomes valueless;
(s) "Remaining Value" is the value corresponding to the remaining useful life of the machinery;
(t) "Replacement or Reproduction Cost" is the cost that would be incurred on the basis of current prices, in acquiring
an equally desirable substitute property, or the cost of reproducing a new replica of the property on the basis of
current prices with the same or closely similar material; and
(u) "Residential Land" is land principally devoted to habitation.
REYES v. ALMANZOR (1991) JBL Reyes complains A Rent Freeze Law was enacted, prohibiting the increase of
rent for certain properties for two years. At that time, the real estate tax was assessed using the Comparable
Sales Approach while JBL Reyes which was renting out a property covered by the law argued that the Income
Approach should be used. The latter approach would have been realistic as it considers the effect of the Rent
Freeze Law. Otherwise, owners-lessors of real property might be paying real estate taxes not proportionate to the
amount of income they are receiving from this property because of the rent ceilings. The Income Approach is
appropriate, says the SC. Indeed, the first fundamental principle to guide the appraisal and assessment of real
property for taxation purposes is that the property must be "appraised at its current and fair market value."
However, by no strength of the imagination can the market value of properties covered by the Rent Freeze Law be
equated with the market value of properties not so covered. The former has naturally a much lesser market value
in view of the rental restrictions.
MERALCO v. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA) (1982) Facts: This case is about the
imposition of the realty tax on 2 oil storage tanks installed by Meralco which it leased from Caltex. The tanks
are within the Caltex refinery compound. They are used for storing fuel oil for Meralcos power plants.
Meralco is saying that its storage tanks are NOT taxable real property. CBAA, in a decision, contends that
the tanks together with the foundation, walls, dikes constitute taxable improvements.
Meralco filed a special civil action of certiorari to annul the Boards decision and resolution. It contends
that the Board acted without jurisdiction and committed a grave error of law in holding that its storage
tanks are taxable real property.
Issue: W/n the tanks are taxable as real property
HELD : YES. The Assessment Law provides that the realty tax is due "on real property, including land, buildings,
machinery, and other improvements" not specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its condition, amounting to more
than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or
utility or to adapt it for new or further purposes.

ALS2014B
ALS2014B 310 of 365
"#$
While the two storage tanks are not embedded in the land, they may, nevertheless, be considered as
improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable
that the two tanks have been installed with some degree of permanence as receptacles for the considerable
quantities of oil needed by Meralco for its operations. The Board's questioned decision and resolution are
affirmed.
BOARD OF ASSESSMENT APPEALS v. MERALCO (1964) Steel towers carrying electric transmission wires
are not real properties subject to real property tax In 1955, the City Assessor of Quezon City declared for real
property tax the steel towers of Meralco located in its jurisdiction. When the petition to cancel the declarations
were denied, Meralco paid the amounts under protest. The tax exemption privilege contained in Meralcos
franchise exempts its poles, wires, transformers, and insulators from taxes and assessments. Held: (1) The word
poles, as used in Meralcos franchise, should not be given a restrictive and narrow interpretation, as to defeat
the very object for which the franchise was granted. Poles should be understood and taken as a part of the
electric power system of Meralco, for the conveyance of electric current to its consumers. If Meralco would be
required to employ wooden poles or rounded poles as it used to do 50 years back, then one should admit that
the Philippines is one century behind the age of space. Steel towers can better effectuate the purpose for which
Meralcos franchise was granted. Several courts of last resort in the United States have called these steel supports
steel towers, and they denominated these supports or towers, as electric poles. In their decisions, the words
towers and poles were used interchangeably. It is well understood in that jurisdiction that a transmission tower
or pole means the same thing. (2) Even granting that the steel supports or towers are not embraced within the term
poles, they are not real properties as defined in Article 415 of the Civil Code. They are not constructions
adhered to the soil. They are removable and merely attached to a square metal frame by means of bolts, which
when unscrewed could easily be dismantled and moved from place to place.
MINDANAO BUS CO. v. CITY ASSESSOR (1962)
BENGUET CORP. v. CBAA (1993) Whether a structure constitutes an improvement so as to partake of the
status of realty would depend upon the degree of permanence intended in its construction and
use. Benguet Corporations tailings dam and the land thereunder were assessed as taxable
improvements. CBAA affirmed that the tailings dam and the lands submerged thereunder were subject to realty
tax. This is because the said properties are considered immovable improvement under paragraphs (a) and (b) of
Art 415 of the NCC. Benguet Corp. did not dispute that the tailings dam may be considered realty within the
meaning of Art 415. It insists, however, that the dam cannot be subjected to realty tax as separate and
independent property because it does not constitute an assessable improvement. The issue now is whether the
tailings dam is subject to realty tax. HELD: Yes. The Real Property Tax Code does not define what real
property is. Therefore, in the absence of such definition, Art 415 of the NCC will apply (the following are
immovable property: x x x Everything attached to an immovable in a fixed manner, in such a way that it cannot
be separated therefrom without breaking the material or deterioration of the object).
The Assessment Law then provides that the realty tax is due on real property, including land, buildings and other
improvements not specifically exempted (tailings dam not included in the exemptions).
Now the question is whether the tailings dam is an improvement. Improvement has been defined as artificial
alterations of the physical condition of the ground that are reasonably permanent in character. In the case at bar,
even without the tailings dam, Benguet Corps mining operation can still be carried out because the primary
function of the dam is merely to receive and retain the wastes and water coming from the mine. The tailings dam
can exist independently of the mine.
Whether a structure constitutes an improvement so as to partake of the status of realty would depend upon the
degree of permanence intended in its construction and use. SC was convinced that the tailings dam falls within
the definition of an improvement because it is permanent in character and it enhances both the value and utility
of Benguet Corps mine.
CALTEX PHILS. INC. v. CBAA (1982) Caltex loans machines and equipment to gas station operators under an
appropriate lease agreement or receipt. In the lease contract, it is expressly stipulated that the operators, upon

ALS2014B
ALS2014B 311 of 365
"#$
demand, shall return to Caltex the machines and equipment in good condition, as when received, ordinary wear
and tear excepted. Also, the lessor of the land, where the gas station is located, does not become the owner of the
machines and equipment installed therein. Caltex retains the ownership during the term of the lease. The issue in
this case is whether the pieces of gas station equipment and machinery are subject to realty tax. The SC held that
yes, it is subject to realty tax as per Section 38 of the Real Property Tax Code (There shall be levied, assessed and
collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land,
buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically
exempted). Further, the SC said that thee equipment and machinery, as appurtenances to the gas station building
or shed owned by Caltex and which fixtures are necessary to the operation of the gas station, for without them the
gas station would be useless, and which have been attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery.
MINDANAO BUS CO. v. CITY ASSESSOR AND TREASURER (1962) The CTA held Mindanao Bus Co liable to
pay the realty tax on its maintenance and repair equipment (welder machines, hydraulic press, grinders, battery
chargers, etc). Mindanao contests that these equipment are not taxable realties, by reason of their being intended
or destined for use in industry. The Court ruled that the tools and equipment in this case are, by their nature, not
essential and principal municipal elements of the petitioners business of transporting passengers and cargoes by
motor trucks. They are mere incidentals- acquired as movables and used only for expediency and facilitation
of service. Because such equipment were not essential for Minadanao Bus transport service, and said
business is not carried on in a building or specified land, said equipment cannot be considered real estate,
much less taxable as such.
PROV. OF NUEVA ECIJA v. IMPERIAL MINING CO., INC. (1982) PD 464: actual use as basis for real
property tax, mining company subject to real property tax - Imperial Mining Corporation (IMC) is a mining
corporation which leased a mineral land from the government. Under the lease contract, it was stipulated that
IMC will be liable to pay for real estate taxes only on the buildings and improvements therein. It was silent
on the payment of real property tax on the mineral land itself.
PD 464 was then implemented in 1974 in which it adopted the policy of taxing real property on the basis of actual
use, even if the user is not the owner. Thus, making IMC liable to pay for real property tax, since the law does not
seek who's the owner (which is the government) to be the basis of the real property tax, but the entity engaged in
its actual use. Therefore, IMC cannot claim exemption from paying real property tax on the mineral land
itself, even if it is considered as public domain and owned by the government.
TY v. TRAMPE (1995) In making the schedule of market values, the Municipal Assessor, acting alone, first
makes a schedule for real properties within his territory. Secondly, this schedule shall be decided on jointly
by the Municipal Assessors of a given district
Ty is an owner of real estate in the Municipality (now city) of Pasig. The Municipal Assessor assessed Ty for real
property taxes, the value of which was based on the schedule of market values prepared solely by the Assessor.
According to the Local Government Code of 1991, there shall be prepared a schedule of fair market values by the
provincial, city and the municipal assessors of the municipalities. Pursuant to the LGC, the municipal assessors
alone, without consultation with others, may set the schedule of market values within their territories. However,
prior to the LGC, there was PD 921 which stated that the schedule of market values should be prepared
jointly by the City/Municipal Assessors of the different districts. The Municipal Assessor asserts that the LGC
has impliedly repealed PD 921 such that he is allowed to prepare the schedule of market values alone. The
question was whether the LGC impliedly repealed PD 921 thereby allowing the schedule of market values to be
prepared solely by the Municipal Assessor. The SC held that there was no implied repeal because the two laws
could be harmonized. The SC stated that in making the schedule of market values, the Municipal Assessor,
acting alone, first makes a schedule for real properties within his territory pursuant to the LGC. Secondly,
this schedule shall be decided on jointly by the Municipal Assessors of a given district as mandated by PD
921. Therefore, the schedule of values prepared solely by the respondent municipal assessor is illegal and
void. Consequently, the assessment against Ty, which was based on said schedule, was also void.

ALS2014B
ALS2014B 312 of 365
"#$
JARDINE DAVIES INSURANCE BROKERS, INC. v. ALIPOSA, ET. AL. (2002) Makati enacted the Makati
Revenue Code (MRC), providing for a schedule of real estate, business and franchise taxes in the municipality at
rates higher than those in the Metro Manila Revenue Code. Pending a motion for reconsideration brought about
by the municipality in a different case, [the DOJ declared the nullity of the MRC on the basis of lack of prior
hearing] the municipality continued to implement the MRC. Jardine Corporation was assessed and billed pursuant
to the MRC, and the corporation paid the same, without any protest. However, they later wrote the municipal
treasurer, seeking be assessed in accordance with the Metro Manila Revenue Code rather than the MRC,
considering that the ordinance was declared null and void by the DOJ. As such, the corporation requested that
they be granted tax credit/refund on the difference. They later filed a case before the RTC seeking to nullify the
MRC, as well as to grant tax refund/credit. The case was dismissed due to prescription of cause of action.
The Supreme Court affirmed the RTCs decision. The corporation failed to file an appeal to the Secretary of
Justice, within 30 days from effectivity of the ordinance to assail its validity, as mandated by Section 187 of the
LGC. The municipal tax ordinance empowers the local government unit to impose taxes. Any delay in
implementing tax measures would be to the detriment of the public. It is for this reason that protest over tax
ordinances are required to be done within certain time frames.
LOPEZ v. CITY OF MANILA (1999) LGC required provincial, city, and municipal assessors to undertake a general
revision of real property assessments within 2 years after the January 1, 1992 and every 3 years
thereafter. However, the basis for collecting real estate taxes used in Manila was the old 1979 real estate market
values. Laderas, the newly-appointed City Assessor of Manila, began the process of general revision based on the
updated fair market values of the real properties. In the 1995, the increase in valuation of real properties
compared to the 1979 market values ranges from 600% to 3,330%, but the City Assessor's office initially fixed
the general average of increase to 1,700%. Laderas felt that the increase may have adverse reactions from the
public, hence, she ended up reducing the increase in the valuation of real properties to 1,020%. With the
implementation of Manila Ordinance No. 7894, the tax on the land owned by the petitioner was increased by five
hundred eighty percent (580%). With respect to the improvement on petitioner's property, the tax increased by
two hundred fifty percent (250%). Lopez filed a petition for preliminary injunction and prayer for TRO against
the ordinance for being unjust, excessive, oppressive, or confiscatory. Another ordinance, Manila Ordinance No.
7905, took effect, amending the previous ordinance by reducing by fifty percent (50%) the assessment levels
(depending on the use of property, e.g., residential, commercial) for the computation of tax due. As a result, it
reduced the tax increase of petitioner's residential land to one hundred fifty-five percent (155%), while the tax
increase for residential improvement was eighty-two percent (82%). Nonetheless, RTC directed the issuance of a
writ of injunction. City of Manila filed a motion to dismiss, which RTC granted. SC upheld RTC decision -
Manila Ordinance No. 7905 is favorable to the taxpayers when it specifically states that the reduced
assessment levels shall be applied retroactively to January 1, 1996. The reduced assessment levels multiplied
by the schedule of fair market values of real properties, provided by Manila Ordinance No. 7894, resulted to
decrease in taxes. To that extent, the ordinance is likewise, a social legislation intended to soften the impact of
the tremendous increase in the value of the real properties subject to tax. The lower taxes will ease, in part,
the economic predicament of the low and middle-income groups of taxpayers. In enacting this ordinance, the
due process of law was considered by the City of Manila so that the increase in realty tax will not amount to
the confiscation of the property.
TESTATE ESTATE OF CONCORDIA T. LIM v. CITY OF MANILA (1990) Concordia Lim obtained a real
estate loan from the defendant-appellee Government Service Insurance System (GSIS), secured by a mortgage
constituted on two (2) parcels of land. When Lim failed to pay the loan, the mortgage was extrajudicially
foreclosed and the subject properties sold at public auction. The GSIS, being the highest bidder, bought the
properties. Upon Lim's failure to exercise her right of redemption, the titles to the properties were consolidated in
favor of the GSIS in 1977. The defendant City Treasurer of Manila required the Lim to pay the real estate taxes
due on the properties for the years 1977, 1978 and the first quarter of 1979. Lim paid under protest.
The issues that can be summed up into the following: (1) whether or not the trial court has jurisdiction over the
action for refund of real estate taxes paid under protest; (2) whether or not plaintiff-appellant has the right to
recover;

ALS2014B
ALS2014B 313 of 365
"#$
Held: (1) The Court rules that the Lim correctly filed the action for refund/reimbursement with the lower court
[and not the Local Board of Assessment Appeals] as it is the courts which have jurisdiction to try cases involving
the right to recover sums of money. Section 30 of the Real Property Tax Code [note: now Section 226 of the
LGC] is not applicable because what is questioned is the imposition of the tax assessed and who should shoulder
the burden of the tax. There is no dispute over the amount assessed on the properties for tax purposes. Section 30
pertains to the administrative act of listing and valuation of the property for purposes of real estate taxation.
(2) In real estate taxation, the unpaid tax attaches to the property and is chargeable against the taxable
person who had actual or beneficial use and possession of it regardless of whether or not he is the owner.
To impose the real property tax on the estate which was neither the owner nor the beneficial user of the property
during the designated periods would not only be contrary to law but also unjust. In fact, if there is anyone liable
the law and applicable jurisprudence point to the lessees of land owned by GSIS. In this case, the Court can only
declare no right to a refund. We cannot rule on the liability of the lessees whose identities are not even clear
because they were never impleaded.
FELS ENERGY, INC. v. PROVINCE OF BATANGAS (2007) NAPOCOR entered into a lease contract with Polar
Energy over the diesel engine power barges moored at Calaca, Batangas. Their agreement provided that
NAPOCOR shall be responsible for the payment of all taxes, duties, fees, and levies to which Polar may be
subject to. Polar then assigned its rights to FELS Energy. FELS received an assessment of real property taxes
on the power barges from the Provincial Assessor. NAPOCOR asserts that the power barges are not considered
as real properties and therefore, not subject to the real property tax. The Court held that the assessment should be
respected. The Court recognized that factual findings of administrative bodies, which have acquired expertise in
their field, are generally binding and conclusive upon the court. Moreover, Article 415 (9) of the New Civil Code
provides that "docks and structures which, though floating, are intended by their nature and object to remain at a
fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of machinery and other implements intended by
the owner for an industry or work which may be carried on in a building or on a piece of land and which
tend directly to meet the needs of said industry or work. Also, the contention that the power barges are exempt
from real estate tax since it is actually used by NAPOCOR, has no merit. It is not disputed that Section 234 of the
LGC provides that all machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power are exempt from real property tax. However, the privilege granted
to NAPOCOR as a government corporation cannot be extended to FELS since FELS is the real owner of the
property and FELS is the entity which is being taxed by the local government.
REPUBLIC v. CITY OF KIDAPAWAN (2005) The LGC exempts from real property taxation properties of
the government, provided the beneficial use of the property was not transferred to a taxable person || the
law does not look with favor on tax exemptions and that he who would seek to be thus privileged must
justify it by words too plain to be mistaken and too categorical to be misinterpreted
The Office of Energy Affairs (now Department of Energy (DOE)) entered into a service contract with PNOC-
EDC to exclusively conduct geothermal operation with MAGRA. Under the contract, the PNOC-EDC would
furnish the necessary services, technology and financing for the geothermal operations subject to the direct
supervision of the DOE. Subsequently, the City Treasurer of Kidapawan notified PNOC-EDC of its tax
delinquency after which, he issued a warrant of levy on the 701-hectare MAGRA9 for failure to pay real property
taxes, covering the tax period from 1993-2002. The issue was whether or not PNOC was the beneficial user of
MAGRA and whether the Local Govt Code withdrew the exemption from real property taxes of PNOC-EDC. The
court ruled that according to Sec 234 of the tax code, PNOC-EDC is the beneficial user of the MAGRA and is
thus liable to pay the real property tax assessments. PNOC-EDC exclusively conducts geothermal operations
in the area for commercial utilization. It retains a profit in the amount of 40% of the net value of the amount
realized from the sale of geothermal resources. It is even allowed to charge its operating expenses from the gross
value of the sales. The provisions of the service contract also show that it is the PNOC-EDC which actually
utilizes the MAGRA. Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. In fact, under the provisions of the service

ALS2014B
ALS2014B 314 of 365
"#$
contract, PNOC-EDC must surrender possession of 25% of the MAGRA to the government after the 3rd year and
another 25% on the 5th year, if the contract is extended. Moreover, the Local Government Code specifically
enumerates the entities exempt from real property taxation and PNOC-EDC is not one of them. However,
since respondents cannot avail of the administrative remedy through levy, they can only enforce the
collection of real property tax through civil action.
RCPI v. PROVINCIAL ASSESSOR OF SOUTH COTABATO (2005) The appellate court modified the ruling of
CBAA and exempted RCPI from paying real property tax assessed on its machinery and radio equipment
mounted on its relay station tower as accessories. However, the appellate court held RCPI liable for real property
tax on its radio station building, machinery shed, and relay station tower. RCPI filed its petition for review before
this Court stating that the appellate court erred when it excluded RCPIs tower, relay station building and
machinery shed from tax exemption
It is an elementary rule in taxation that exemptions are strictly construed against the taxpayer and liberally in
favor of the taxing authority. The existing legislative policy is that after the imposition of the VAT on
telecommunications companies, Congress refused to grant any tax exemption to telecommunications companies
that sought new franchises from Congress, except the exemption from specific tax. More importantly, the uniform
tax provision in these new franchises expressly states that the franchisee shall pay not only all taxes, except
specific tax, under the NIRC, but also all taxes under other applicable laws. One of the other applicable laws
is the Local Government Code of 1991, which empowers local governments to impose a franchise tax on
telecommunications companies.
* I Think its important to know also that under the Real Property Tax Code depreciation allowance applies only to
machinery and not to real property.
II. REAL PROPERTY TAX AND ADDITIONAL OR SPECIAL LEVIES
A. Basic real property tax
Sec. 233. Rates of Levy. A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform
rate of basic real property tax applicable to their respective localities as follows:
(a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real property; and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two percent
(2%) of the assessed value of real property.
LOPEZ v. CITY OF MANILA, supra
B. Special Education Fund (SEF)
Sec. 235. Additional Levy on Real Property for the Special Education Fund. A province or city, or a municipality
within the Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%) on the assessed value of real
property which shall be in addition to the basic real property tax. The proceeds thereof shall exclusively accrue to the
Special Education Fund (SEF).
C. Tax on idle lands
Sec. 236. Additional Ad Valorem Tax on Idle Lands. A province or city, or a municipality within the Metropolitan
Manila Area, may levy an annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value of the
property which shall be in addition to the basic real property tax.
Sec. 237. Idle Lands, Coverage. For purposes of real property taxation, idle lands shall include the following:
(a) Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery, and other
agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by the owner of the property or

ALS2014B
ALS2014B 315 of 365
"#$
person having legal interest therein. Agricultural lands planted to permanent or perennial crops with at least fifty
(50) trees to a hectare shall not be considered idle lands. Lands actually used for grazing purposes shall likewise
not be considered idle lands.
(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000) square meters in
area one-half (1/2) of which remain unutilized or unimproved by the owner of the property or person having legal
interest therein.
Regardless of land area, this Section shall likewise apply to residential lots in subdivisions duly approved by
proper authorities, the ownership of which has been transferred to individual owners, who shall be liable for the additional
tax: Provided, however, That individual lots of such subdivisions, the ownership of which has not been transferred to the
buyer shall be considered as part of the subdivision, and shall be subject to the additional tax payable by subdivision
owner or operator.
D. Special levy due to improvements
Sec. 240. Special Levy by Local Government Units. A province, city or municipality may impose a special levy on the
lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by
the local government unit concerned: Provided, however, That the special levy shall not exceed sixty percent (60%) of the
actual cost of such projects and improvements, including the costs of acquiring land and such other real property in
connection therewith: Provided, further, That the special levy shall not apply to lands exempt from basic real property tax
and the remainder of the land portions of which have been donated to the local government unit concerned for the
construction of such projects or improvements.
Sec. 241. Ordinance Imposing a Special Levy. A tax ordinance imposing a special levy shall describe with reasonable
accuracy the nature, extent, and location of the public works projects or improvements to be undertaken, state the
estimated cost thereof, specify the metes and bounds by monuments and lines and the number of annual installments for
the payment of the special levy which in no case shall be less than five (5) nor more than ten (10) years. The sanggunian
concerned shall not be obliged, in the apportionment and computation of the special levy, to establish a uniform
percentage of all lands subject to the payment of the tax for the entire district, but it may fix different rates for different
parts or sections thereof, depending on whether such land is more or less benefited by proposed work.
Sec. 242. Publication of Proposed Ordinance Imposing a Special Levy. Before the enactment of an ordinance
imposing a special levy, the sanggunian concerned shall conduct a public hearing thereon; notify in writing the owners of
the real property to be affected or the persons having legal interest therein as to the date and place thereof and afford the
latter the opportunity to express their positions or objections relative to the proposed ordinance.
III. EXEMPTIONS FROM REAL PROPERTY TAX
Sec. 243. Fixing the Amount of Special Levy. The special levy authorized herein shall be apportioned, computed, and
assessed according to the assessed valuation of the lands affected as shown by the books of the assessor concerned, or its
current assessed value as fixed by said assessor if the property does not appear of record in his books. Upon the effectivity
of the ordinance imposing special levy, the assessor concerned shall forthwith proceed to determine the annual amount of
special levy assessed against each parcel of land comprised within the area especially benefited and shall send to each
landowner a written notice thereof by mail, personal service or publication in appropriate cases.
CITY GOVERNMENT OF SAN PABLO, LAGUNA v. REYES, ET. AL. (1999) A legislative franchise to
maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities was
granted to an Electric Company. This franchise was transferred to MERALCO.
Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof provides the following:
Section 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax
payable by all grantees of franchise to generate, distribute and sell electric current for light, heat and

ALS2014B
ALS2014B 316 of 365
"#$
power shall be two percent (2%) of their gross receipts received from the sale of electric current and from
transactions incident to the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or
month as may be provided in the respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes
and assessments of whatever nature imposed by any national or local authority on earnings, receipts,
income and privilege of generation, distribution and sale of electric current.\
LGC took effect in January 1, 1992 which authorizes the province/city to impose a tax on business enjoying a
franchise at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year realized within its jurisdiction.
On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted an Ordinance which imposes a rate
of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and
sales on account realized during the preceding calendar year within the city.
MERALCO paid under protest and subsequently filed this action before the RTC to declare the said ordinance
null and void insofar as it imposes the franchise tax upon private respondent MERALCO and to claim for a refund
of the taxes paid.
ISSUE: Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar as the latter
impose a 2% tax in lieu of all taxes and assessments of whatever nature?
HELD: Yes. We are mindful of the established rule that repeals by implication are not favored as laws are
presumed to be passed with deliberation and full knowledge of all laws existing on the subject. A general law
cannot be construed to have repealed a special law by mere implication unless the intent to repeal or alter is
manifest and it must be convincingly demonstrated that the two laws are so clearly repugnant and patently
inconsistent that they cannot co-exist.
It is our view that petitioners correctly rely on the provisions of Section 137 and 193 of the LGC to support their
position that MERALCOs tax exemption has been withdrawn. The explicit language of Section 137 which
authorizes the province to impose franchise tax notwithstanding any exemption granted by any law or other
special laws" is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under
special laws.
Accordingly in Mactan Cebu International Airport Authority vs. Marcos, this Court held that Section 193 of the
LGC prescribes the general rule, viz., the tax exemptions or incentives granted to or presently enjoyed by natural
or juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities expressly
enumerated. In the same vein We must hold that the express withdrawal upon effectivity of the LGC of all
exemptions only as provided therein, can no longer be invoked by Meralco to disclaim liability for the local tax.
LIGHT RAIL TRANSIT AUTHORITY v. CBAA (2000) FACTS: Executive Order 603 created LRTA and by
virtue of this, LRTA acquired real properties, constructed structural improvements, and installed various kinds of
machinery and equipment and facilities for the purpose of its operations. Meralco Transit Organization managed
the LRTs, including payment or real property taxes. City Assessor of Manila assessed the real properties of
petitioner, consisting of lands, buildings, carriageways and passenger terminal stations, machinery and equipment
which he considered real property under the Real Property Tax Code. Petitioner paid its real property taxes on all
its real property holdings, except the carriageways and passenger terminal stations including the land where it is
constructed on the ground that the same are not real properties under the Real Property Tax Code, and if the same
are real property, these are for public use/purpose, therefore, exempt from realty taxation, which claim was denied
by the City Assessor of Manila. ISSUE: Whether or not petitioner is exempt from payment of real property taxes?
RULING: Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax exemption
in its favor. Its exemption is limited to direct and indirect taxes, duties or fees in connection with the importation
of equipment not locally available. Even granting that the national government indeed owns the carriageways and

ALS2014B
ALS2014B 317 of 365
"#$
terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a
taxable entity. Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly
construed against the claimant. LRTA has not shown its eligibility for exemption; hence, it is subject to the tax.
MANILA INTERNATIONAL AIRPORT AUTHORITY v. COURT OF APPEALS (2006)
MANILA INTERNATIONAL AIRPORT AUTHORITY v. CITY OF PASAY (2009) Properties of public
dominion are owned by the State which are exempt from real property tax under Section 234 (a) of the
LGC, except those leased to taxable private entities.
MIAA operates and administers NAIA, owning approx. 600 hectares, including the runways, airport tower, other
airport buildings along the border of Paranaque and Pasay. The City of Pasay sent Final Notices of Real Property
Tax Delinquency for 1992-2001, and thereafter issued notices of levy and threatened to sell its properties at a
public auction. The CA denied MIAA's petition for prohibition and injunction saying MIAA's tax exemption has
been withdrawn upon effectivity of the LGC. SUPREME COURT ruled the airport's properties are all exempt
from real estate taxes since these are of public dominion, owned by the government, devoted to public use. Such
properties will only be subject to tax if its beneficial use is given to a taxable entity, i.e., private parties.
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY v. COURT OF APPEALS (2007) PD 977 was
issued by the Pres. Marcos which created the Philippine Fisheries Development Authority (Authority) placing it
under the direct control and supervision of the Sec. of Natural Resources. PD 977 was however later amended by
EO 772 which attached it to the Ministry of Natural Resources. Finally, it was again amended by EO 292 which
made it an attached agency of the Department of Agriculture. In 1981, the DPWH reclaimed an area of the sea in
Ilo-Ilo and constructed thereon the Ilo-Ilo Fishing port Complex (IFPC) consisting of a breakwater, a landing
quay, a refrigeration building, a market hall, a municipal shed, an administration building, a water and fuel oil
supply system and other port related facilities and machineries. Upon its completion, the Ministry of Public
Works and Highways turned over IFPC to the Authority, pursuant to Section 11 of PD 977, which placed fishing
port complexes and related facilities under the governance and operation of the Authority. Notwithstanding said
turn over, title to the land and buildings of the IFPC remained with the Republic. The Authority thereafter leased
portions of IFPC to private firms and individuals engaged in fishing related businesses. In 1988, IFPC was
assessed by the municipality of Ilo-Ilo for deficiency in real property tax. Despite the assessment, IFPC failed to
pay. The total deficiency for 1988 and 1989 amounted to 5,057,349.67, inclusive of penalties and interests. To
satisfy the claim, the city of Ilo-Ilo scheduled the auction of the IFPC. IFPC filed an injunction before the RTC of
Ilo-Ilo , at the pre-trial, the parties agreed to avail of administrative proceedings, i.e., for the Authority to file a
claim for tax exemption with the Iloilo City Assessors Office. The latter, however, denied the claim for
exemption, hence, the Authority elevated the case to the Department of Finance (DOF). DOF dismissed the
appeal and ruled that the Authority is liable to pay real property taxes to the City of Iloilo because it enjoys the
beneficial use of the IFPC. The DOF added, however, that in satisfying the amount of the unpaid real property
taxes, the property that is owned by the Authority shall be auctioned, and not the IFPC, which is a property of the
Republic. The Authority appealed to the president but it was denied. It filed an MR which was also denied. On
petition with the Court of Appeals, the latter affirmed the decision of the Office of the President. It opined,
however, that the IFPC may be sold at public auction to satisfy the tax delinquency of the Authority. ISSUES: 1.
whether the Authority is a government owned or controlled corporation (GOCC) or an instrumentality of the
national government; and (2) whether the IFPC is a property of public dominion. HELD: the Authority 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. With respect to these properties, the Authority is liable to pay real property tax. Nonetheless, the
IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency.
The court then discussed the decision in the MIAA case which distinguished between a GOCC and an
instrumentality, highlighting the fact that in that decision, the court specifically stated that examples of
government instrumentalities with judicial juridical personalities are: Bangko Sentral ng Pilipinas, Philippine Rice
Research Institute, Laguna Lake Development Authority,Fisheries Development Authority, Bases Conversion

ALS2014B
ALS2014B 318 of 365
"#$
Development Authority, Philippine Ports Authority, Cagayan de Oro Port Authority, San Fernando Port
Authority, Cebu Port Authority, and Philippine National Railways.
It then justified its ruling by reiterating the decision in the MIAA case stating that unlike GOCCs,
instrumentalities of the national government, like MIAA, are exempt from local taxes pursuant to Section
133(o) of the Local Government Code. This exemption, however, admits of an exception with respect to real
property taxes. Applying Section 234(a) of the Local Government Code, the Court ruled that when an
instrumentality of the national government grants to a taxable person the beneficial use of a real property owned
by the Republic, said instrumentality becomes liable to pay real property tax. Thus, while MIAA was held to be
an instrumentality of the national government which is generally exempt from local taxes, it was at the same time
declared liable to pay real property taxes on the airport lands and buildings which it leased to private persons. It
was held that the real property tax assessments and notices of delinquencies issued by the City of Pasay to MIAA
are void except those pertaining to portions of the airport which are leased to private parties.
However, it further stated that the real property tax assessments issued by the City of Iloilo should be upheld only
with respect to the portions leased to private persons. In case the Authority fails to pay the real property taxes due
thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. In Chavez v. Public Estates
Authority it was held that reclaimed lands are lands of the public domain and cannot, without Congressional
fiat, be subject of a sale, public or private, thus:
The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the public
domain, are as follows:
Sec. 59. The lands disposable under this title shall be classified as follows:
(a) Lands reclaimed by the Government by dredging, filling, or other means;
(b) Foreshore;
Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine shall be disposed of to
private parties by lease only and not otherwise, as soon as the President, upon recommendation by the
Secretary of Agriculture, shall declare that the same are not necessary for the public service and are
open to disposition under this chapter. The lands included in class (d) may be disposed of by sale or
lease under the provisions of this Act.
In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to
pay real property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are
leased to private entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or
any part thereof, being a property of public domain, cannot be sold at public auction. This means that the City of
Iloilo has to satisfy the tax delinquency through means other than the sale at public auction of the IFPC.
NATIONAL POWER CORPORATION v. CBAA (2009) Napocor, a GOCC, entered into a Build Operate Transfer
(BOT) agreement with First Private Power Corporation (FPPC), a private corporation, for the construction of a
diesel power plant in La Union. Under the agreement, Bauang Private Power Corporation (BPPC) will own,
manage and operate the powerplant and perform FPPCs obligations under the BOT. For a fee, BPPC would
convert Napocors supplied diesel fuel into electricity and deliver the product to Napocor. Now, Napocor claims
that the machineries and equipment used in the project should be accorded the tax exempt status it enjoys.
Issues: 1.) W/N Napocor can be deemed the actual, direct, and exclusive user of machineries and equipment for
tax exemption purposes? NO
2.) W/N Napocor can pass its tax exempt status to its BOT partner, a private corporation, through the BOT
agreement? NO
Napocors basis for its claimed exemption Section 234(c) of the LGC is clear and not at all ambiguous in its
terms. Exempt from real property taxation are: (a) all machineries and equipment; (b) actually, directly, and
exclusively used by; (c) [local water districts and] government-owned or controlled corporations engaged in the
[supply and distribution of water and/or] generation and transmission of electric power.

ALS2014B
ALS2014B 319 of 365
"#$
Napocor admits BPPCs ownership of the machineries and equipment in the power plant. Nevertheless, it basis its
claims of exemption on its actual, direct and exclusive use. To support this claim, NAPOCOR characterizes the
BOT Agreement as a mere financing agreement where BPPC is the financier, while it (NAPOCOR) is the actual
user of the properties. Blacks law dictionary defines the terms: Actually is opposed to seemingly, pretendedly,
or feignedly, as actually engaged in farming means really, truly in fact. Directly. In a direct way without
anything intervening; not by secondary, but by direct means. Exclusively. Apart from all others; without
admission of others to participation; in a manner to exclude. Consistent with the BOT concept and as
implemented, BPPC the owner-manager-operator of the project is the actual user of its machineries and
equipment. BPPCs ownership and use of the machineries and equipment are actual, direct, and immediate, while
Napocors is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax
exemption. Under the BOT Agreement, Napocor shall have a right over the machineries and equipments only
after their transfer at the end of the 15-year co-operation period. By the nature of the agreement and work of
BPPC, the [machineries] are actually, directly, and exclusively used by it in the conversion of bunker fuel to
electricity for [NAPOCOR] for a fee, Section 234(c) of the LGC, according to the CTA, is clear. The exemption
under the law does not apply because BPPC is not a GOCC it is an independent power corporation currently
operating and maintaining the power plant pursuant to the BOT Agreement. The BOT agreement cannot
likewise be the basis for the claimed exemption; tax exemption cannot be agreed upon by mere contract
between the parties (BPPC and NAPOCOR), as it must be expressly granted by the Constitution, statute,
or franchise. A tax exemption, if and when granted, is also not transferrable, as it is a personal privilege
and it must be strictly construed.
FELS ENERGY, INC. v. THE PROVINCE OF BATANGAS (2007) NAPOCOR entered into a lease contract with
Polar Energy over the diesel engine power barges moored at Calaca, Batangas. Their agreement provided that
NAPOCOR shall be responsible for the payment of all taxes, duties, fees, and levies to which Polar may be
subject to. Polar then assigned its rights to FELS Energy. FELS received an assessment of real property taxes
on the power barges from the Provincial Assessor. NAPOCOR asserts that the power barges are not considered
as real properties and therefore, not subject to the real property tax. The Court held that the assessment should be
respected. The Court recognized that factual findings of administrative bodies, which have acquired expertise in
their field, are generally binding and conclusive upon the court. Moreover, Article 415 (9) of the New Civil Code
provides that "docks and structures which, though floating, are intended by their nature and object to remain at a
fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of machinery and other implements intended by
the owner for an industry or work which may be carried on in a building or on a piece of land and which
tend directly to meet the needs of said industry or work. Also, the contention that the power barges are exempt
from real estate tax since it is actually used by NAPOCOR, has no merit. It is not disputed that Section 234 of the
LGC provides that all machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power are exempt from real property tax. However, the privilege granted
to NAPOCOR as a government corporation cannot be extended to FELS since FELS is the real owner of the
property and FELS is the entity which is being taxed by the local government.
PHILIPPINE PORTS AUTHORITY v. CITY OF ILOILO (2003) Philippine Ports Authority (PPA) is engaged in
the business of arrastre and stevedoring and leasing of real estate. It also owns a warehouse for its operation. The
PPA was created under PD 857 and was exempted from paying real property tax under its charter. PD 1931
subsequently withdrew all tax exemptions privileges granted to GOCCs. The City of Iloilo sought to collect from
PPA, among others, real property tax from the last quarter of 1984 until 1986. PPA claims they cannot be made to
pay real property taxes because the warehouse is part of the port. Under Sec. 420 of the Civil Code, ports are part
of public dominion. HELD: PPA, in an earlier pleading, claimed to be a GOCC and therefore exempt from paying
real property tax. It is bound by its admission of ownership of the warehouse. PPA also failed to prove that its port
was constructed by the state in order to conclude that it is part of the public dominion. Granting that its port is
public dominion, the warehouse constructed is considered to be an improvement. Improvements made by the
occupant are not exempted from payment of (real property) tax.

ALS2014B
ALS2014B 320 of 365
"#$
CITY OF PASIG v. REPUBLIC OF THE PHILIPPINES (2011) Mid-Pasig Land Development Corporation
(MPLDC) owned 2 parcels of land, portions of which are leased to different businesses. In 1986, Marcos crony
Campos, MPLDCs registered owner, surrendered MPLDC to the RP. In 2002, Pasig City Assessors sent 2
notices of tax delinquency for failure to pay real property taxes from 1979-2001. Independent Realty Corp. (IRC
di ko alam saan galing si IRC) alleged that they paid taxes from 1979-1986 and that the properties were exempt
since 1987. The assessors argued that both IRC and MPLDC are not tax exempt so they sent a notice of final
demand for 1987 to 2005. MPLDC paid partially and under protest. The properties were then levied and
subsequently sold in a public auction. After a series of events, Pasig raised the issue that the lower courts may
have erred in granting PCGGs petition for certiorari, prohibition and mandamus and in ordering Pasig to assess
and collect real property tax from the lessees.
Section 234(a) of RA 7160 states that properties owned by the RP are exempt from real property tax except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
Thus, the portions of the properties not leased to taxable entities are exempt from real estate tax while the
portions of the properties leased to taxable entities are subject to real estate tax. The law imposes the
liability to pay real estate tax on the RP for the portions of the properties leased to taxable entities. It is, of
course, assumed that the RP passes on the real estate tax as part of the rent to the lessees.
GSIS v. CITY TREASURER OF THE CITY OF MANILA (2009) (GSIS is exempt from all forms of
taxes) GSIS owns or used to own 2 parcels of land, the Katigbak property (leased) and Concepcion-Arroceros
property (occupied by GSIS and MeTC). City Treasurer of Manila addressed a letter to GSIS President and
General Manager Winston F. Garcia informing him of the unpaid real property taxes due on the aforementioned
properties for years 1992 to 2002. The letter warned of the inclusion of the subject properties in the scheduled
public auction of all delinquent properties in Manila should the unpaid taxes remain unsettled before that date.
City Treasurer of Manila issued separate Notices of Realty Tax Delinquency for the subject properties, with the
usual warning of seizure and/or sale. GSIS, through its legal counsel, wrote back emphasizing the GSIS
exemption from all kinds of taxes, including realty taxes, under RA 8291. The Court finds that GSIS enjoys under
its charter full tax exemption. Moreover, as an instrumentality of the national government, it is itself not liable to
pay real estate taxes assessed by the City of Manila against its Katigbak and Concepcion-Arroceros properties.
Under PD 1146 GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from
all taxes, assessments, fees, charges or duties of all kinds. However, with the enactment in 1991 of the LGC, Sec.
193 is a general provision on withdrawal of tax exemption privileges, and the special provision on withdrawal of
exemption from payment of real property taxes in the last paragraph of the succeeding Sec. 234. But with the
passage of RA 8291 in 1997, Sec 39 of the said law restored full tax exemption privilege of GSIS. It must also be
noted that prominently added in GSIS present charter is a paragraph precluding any implied repeal of the tax-
exempt clause so as to protect the solvency of GSIS funds. Moreover, an express repeal by a subsequent law
would not suffice to affect the full exemption benefits granted the GSIS, unless the following conditionalities are
met: (1) The repealing clause must expressly, specifically, and categorically revoke or repeal Sec. 39; and (2) a
provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or
protect the solvency of the fund. These restrictions for a future express repeal, notwithstanding, do not make the
proviso an irrepealable law, for such restrictions do not impinge or limit the carte blanche legislative authority of
the legislature to so amend it. The restrictions merely enhance other provisos in the law ensuring the solvency of
the GSIS fund.
GSIS v. CITY ASSESSOR OF ILOILO CITY (2006)
SOCIAL SECURITY SYSTEM v. CITY OF BACOLOD (1982) Petitioner SSS, in pursuance of its operations,
maintains a number of regional offices, one of which is the 5-storey building in Bacolod City, occupying 4 parcels
of land. These were assessed for taxation. For failure to pay realty taxes from 1968-1970, respondent City
levied upon said lands and building and declared them forfeited in its favor. Petitioner sought reconsideration
of the forfeiture proceedings on the ground that being a GOCC, it is exempt from paying real estate tax. After due
hearing, the lower court rendered a decision declaring the properties of the SSS not exempt from payment of real
property tax inasmuch as the SSS does not fall under the provisions of Sec. 29 of the Charter of the City of

ALS2014B
ALS2014B 321 of 365
"#$
Bacolod, and considering that no law provides for its exemption. ISSUE: W/N SSS should be exempt from
paying real property tax.
The Court held that the subject of inquiry in the case at bar is not whether a government corporation exercising
ministrant or propriety function, such as petitioner, is exempt from the payment of legal fees, but whether the
properties in question, which are concededly owned by the government, are exempt from realty tax. As
provided for under Sec. 29 of the Charter of the City of Bacolod, it is exempt. Said section does not contain any
qualification whatsoever in providing for the exemption from real estate taxes of "lands and buildings owned by
the Commonwealth or Republic of Philippines." Hence, when the legislature exempted lands and buildings owned
by the government from payment of said taxes, what it intended was a broad and comprehensive application
of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose.
Further, P.D. 24 has amended the Social Security Act of 1954, which expressly exempts the SSS from payment of
any tax thereby removing all doubts as to its exemption.
NDC v. CEBU CITY (1992) NDC, a GOCC existing by virtue of C.A. 182 and E.O. 399, is authorized to engage in
commercial, industrial, mining, agricultural and other enterprises necessary or contributory to economic
development or important to public interest. It also operates subsidiary corporations one of which is the now
defucnt National Warehousing Corporation (NWC). In 1939, the President issued Proclamation No. 430
reserving Block no. 4, Reclamation Area No. 4, of Cebu City for warehousing purposes under the administration
of NWC. Subsequently, in 1940, a warehouse was constructed thereon. In 1947, E.O. 93 dissolved NWC with
NDC taking over its assets and functions. Commencing 1948, Cebu City assessed and collected from NDC real
estate taxes on the land and the warehouse thereon. NDC paid the Cebu City under protest and demanded
refund. The Court held that the land is tax exempt while the warehouse constructed therein is subject to real
estate tax. The Court said that "ownership" of the property and not "use" is the test of tax liability. The Court
said that what appears to have been ceded to NWC (later transferred to NDC) is merely the administration of the
property while the government retains ownership of what has been declared reserved for warehousing purposes
under Proclamation No. 430. The Court said that the Presidents proclamation was one of reservation (A reserved
land is defined as a public land that has been withheld or kept back from sale or disposition. The land remains
absolute property of the government.) and not concession (Concession as a technical term under the Public Land
Act is synonymous with "alienation" and "disposition", and is defined in Sec. 10 as "any of the methods
authorized by this Act for the acquisition, lease, use, or benefit of the lands of the public domain other than timber
or mineral lands.") of the subject land. Thus, the government still retained the ownership over it, hence, exempt
from real property tax. However, the warehouse is subject to real property tax because the exemption of public
property from taxation does not extend to improvements on the public lands made by pre-emptioners,
homesteaders and other claimants, or occupants, at their own expense, and these are taxable by the state.
Consequently, the warehouse constructed on the reserved land by NWC (now under administration by NDC),
indeed, should properly be assessed real estate tax as such improvement does not appear to belong to the
Republic.
BAA, PROVINCE OF LAGUNA v. CTA AND NWSA (1963) BAA assessed NWSA, a public corporation owned
by the Government, real property taxes for its resrvoirs, pipelines, and buildings used for operations. NWSA
protested and said that it is exempted from payment of real property taxes. The BAA argued that inasmuch as
NWSA is held by the government in its proprietary function, NWSA is not included in the exemption from tax
given in CA 470 of "Property owned by the Republic of the Philippines, any province, city, municipality or
municipal district". SC ruled that because CA 470 did not distinguish between property held in proprietary and
governmental functions, then the BAA should not distinguish. Note however that the exemption is only on
property tax and does not include exemption from business or transaction taxes.
CITY OF BAGUIO V BUSUEGO (1980) Tax-exempting provisions of law are to be construed in strictissimi
juris Paragraph 2 of the contract entered into by the GSIS and the defendant-appellant manifests the latter's
willingness at the signing thereof to pay and shoulder all taxes and assessments on the subject property and
insurance thereon during the term of the said contract. However, appellants purchaser after having voluntarily
paid taxes due on the property in the amount of P287.00 for the year 1963 backed out of his undertaking upon
discovering that section 28(c) of Commonwealth Act 186 exempts the GSIS from the payment of taxes. His

ALS2014B
ALS2014B 322 of 365
"#$
theory is that while title to the property has not passed to him, per paragraph 4 of the contract, and ownership
remains with the seller, there could not be any obligation to pay taxes on the property that should be assumed by
him as purchaser, since the owner-seller, in whom title remains, is exempt from taxes.
While the GSIS may be exempt from real estate tax the exemption does not cover property belonging to it
"where the beneficial use thereof has been granted for consideration or otherwise to a taxable person."
There can be no doubt that under the provisions of the contract in question, the purchaser to whose possession the
property had been transferred was granted beneficial use thereof. It follows on the strength of the provision sec.
40(a) of PD 464 that the said property is not exempt from the real property tax.
Sec. 40. Exemptions from Real Property Tax. The exemptions shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any
government-owned corporation so exempt by its charter; Provided, however, That this exemption shall
not apply to real property of the above-named entitles the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person.
While this decree just cited was still inexistent at the time the taxes at issue were assessed on the herein
appellant, indeed its above quoted provision sheds light upon the legislative intent behind the provision of
Commonwealth Act 186, pertaining to exemption of the GSIS from taxes.
The end result is but in consonance with the established rule in taxation that exemptions are held strictly
against the taxpayer and liberally in favor of the taxing authority.
ROMAN CATHOLIC CHURCH v. HASTINGS (1906) The Roman Catholic Church filed an action for the return
of residence taxes it paid under protest. Such taxes were paid by the Church upon demand made by the assessor
and collector of the city of Manila. These taxes were levied on the residence of the archbishop of Manila, situated
80-100 meters away from the Cathedral Church.
The Roman Catholic Church anchors its claim on Sec. 48 of Act No. 183 of the Philippine Commission which
grants an exemption in favor of churches and their adjacent parsonages and conventos, among others.
The collector argues that the exemption must be strictly construed, and thus, the word "adjacent" should be
interpreted to mean "close" or "near". Such interpretation, in the collector's belief, takes the residence of the
archbishop out of the coverage of the exemption above-cited as it is too far away from the Cathedral.
The residence is exempt from payment of residence tax. The presumption in favor of the tax should not work a
strained or unnatural interpretation of the law. Statutes exempting charitable and religious property from taxation
should be construed fairly though strictly and in such manner as to give effect to the main intent of the
lawmakers. The residence of an archbishop is exempt from taxation as the parsonage adjacent to the cathedral,
with which it communicates by an open street, although separated from it by an intervening block, the ownership
of which is not shown, and although a parsonage appurtenant to the church of the parish is already exempt.
Dissent: "Adjacent" should be understood in its ordinary sense. The residence of the archbishop, being over 80
meters from the Cathedral, is not adjacent thereto. Hence, it is not exempt from residence tax.
BISHOP OF NUEVA SEGOVIA v. PROV. BOARD OF ILOCOS NORTE (1927)
IV. PAYMENT OF REAL PROPERTY TAX AND SPECIAL LEVIES
A. Date of accrual
Sec. 246. Date of Accrual of Tax. The real property tax for any year shall accrue on the first day of January and from
that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of
any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax.
Sec. 245. Accrual of Special Levy. The special levy shall accrue on the first day of the quarter next following the
effectivity of the ordinance imposing such levy.lawphil.net

ALS2014B
ALS2014B 323 of 365
"#$
B. Payment on installment
Sec. 250. Payment of Real Property Taxes in Installments. The owner of the real property or the person having legal
interest therein may pay the basic real property tax and the additional tax for Special Education Fund (SEF) due thereon
without interest in four (4) equal installments; the first installment to be due and payable on or before March Thirty-first
(31st); the second installment, on or before June Thirty (30); the third installment, on or before September Thirty (30); and
the last installment on or before December Thirty-first (31st), except the special levy the payment of which shall be
governed by ordinance of the sanggunian concerned.
The date for the payment of any other tax imposed under this Title without interest shall be prescribed by the
sanggunian concerned.
Payments of real property taxes shall first be applied to prior years delinquencies, interests, and penalties, if any,
and only after said delinquencies are settled may tax payments be credited for the current period.
C. Discount for Advance Payment
Sec. 251. Tax Discount for Advanced Prompt Payment. If the basic real property tax and the additional tax accruing
to the Special Education Fund (SEF) are paid in advance in accordance with the prescribed schedule of payment as
provided under Section 250, the sanggunian concerned may grant a discount not exceeding twenty percent (20%) of the
annual tax due.
V. PROPERTY
A. Appraisal
Sec. 201. Appraisal of Real Property. All real property, whether taxable or exempt, shall be appraised at the current
and fair market value prevailing in the locality where the property is situated. The Department of Finance shall
promulgate the necessary rules and regulations for the classification, appraisal, and assessment of real property pursuant
to the provisions of this Code.
Sec. 224. Appraisal and Assessment of Machinery.
(a) The fair market value of a brand-new machinery shall be the acquisition cost. In all other cases, the fair market
value shall be determined by dividing the remaining economic life of the machinery by its estimated economic
life and multiplied by the replacement or reproduction cost.
(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges, brokerage,
arrastre and handling, duties and taxes, plus charges at the present site. The cost in foreign currency of imported
machinery shall be converted to peso cost on the basis of foreign currency exchange rates as fixed by the Central
Bank.
Sec. 225. Depreciation Allowance for Machinery. For purposes of assessment, a depreciation allowance shall be made
for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction cost, as the
case may be, for each year of use: Provided, however, That the remaining value for all kinds of machinery shall be fixed
at not less than twenty percent (20%) of such original, replacement, or reproduction cost for so long as the machinery is
useful and in operation.
1. Voluntary
Sec. 202. Declaration of real Property by the Owner or Administrator. It shall be the duty of all persons, natural or
juridical, owning or administering real property, including the improvements therein, within a city or municipality, or
their duly authorized representative, to prepare, or cause to be prepared, and file with the provincial, city or municipal
assessor, a sworn statement declaring the true value of their property, whether previously declared or undeclared, taxable
or exempt, which shall be the current and fair market value of the property, as determined by the declarant. Such

ALS2014B
ALS2014B 324 of 365
"#$
declaration shall contain a description of the property sufficient in detail to enable the assessor or his deputy to identify
the same for assessment purposes. The sworn declaration of real property herein referred to shall be filed with the assessor
concerned once every three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with
the calendar year 1992.
Sec. 203. Duty of Person Acquiring Real Property or Making Improvement Thereon. It shall also be the duty of any
person, or his authorized representative, acquiring at any time real property in any municipality or city or making any
improvement on real property, to prepare, or cause to be prepared, and file with the provincial, city or municipal assessor,
a sworn statement declaring the true value of subject property, within sixty (60) days after the acquisition of such property
or upon completion or occupancy of the improvement, whichever comes earlier.
Sec. 208. Notification of Transfer of Real Property Ownership. Any person who shall transfer real property
ownership to another shall notify the provincial, city or municipal assessor concerned within sixty (60) days from the date
of such transfer. The notification shall include the mode of transfer, the description of the property alienated, the name
and address of the transferee.
CENIDO v. APACIONADO, ET. AL. (1999)
2. Involuntary
Sec. 204. Declaration of Real Property by the Assessor. When any person, natural or juridical, by whom real property
is required to be declared under Section 202 hereof, refuses or fails for any reason to make such declaration within the
time prescribed, the provincial, city or municipal assessor shall himself declare the property in the name of the defaulting
owner, if known, or against an unknown owner, as the case may be, and shall assess the property for taxation in
accordance with the provision of this Title. No oath shall be required of a declaration thus made by the provincial, city or
municipal assessor.
Sec. 213. Authority of Assessor to Take Evidence. For the purpose of obtaining information on which to base the
market value of any real property, the assessor of the province, city or municipality or his deputy may summon the owners
of the properties to be affected or persons having legal interest therein and witnesses, administer oaths, and take
deposition concerning the property, its ownership, amount, nature, and value.
ALLIED BANKING CORP. v. QUEZON CITY GOVT (2005)
HEIRS OF MARIANO TAJONERA v. COURT OF APPEALS (1981)
B. Assessment
1. Classifying real property
Sec. 217. Actual Use of Real Property as Basis for Assessment. Real property shall be classified, valued and assessed
on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.
Sec. 215. Classes of Real Property for Assessment Purposes. For purposes of assessment, real property shall be
classified as residential, agricultural, commercial, industrial, mineral, timberland or special.
The city or municipality within the Metropolitan Manila Area, through their respective sanggunian, shall have the
power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in accordance
with their zoning ordinances.
Sec. 216. Special Classes of Real Property. All lands, buildings, and other improvements thereon actually, directly and
exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and
government-owned or controlled corporations rendering essential public services in the supply and distribution of water
and/or generation and transmission of electric power shall be classified as special.
2. Assessment levels

ALS2014B
ALS2014B 325 of 365
"#$
Sec. 218. Assessment Levels. The assessment levels to be applied to the fair market value of real property to determine
its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod or sangguniang
bayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding the following:
(a) On Lands:
CLASS ASSESSMENT LEVELS
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
(b) On Buildings and Other Structures:

(1) Residential
Fair market Value
Over Not Over Assessment Levels
P175,000.00 0%
P175,000.00 300,000.00 10%
300,000.00 500,000.00 20%
500,000.00 750,000.00 25%
750,000.00 1,000,000.00 30%
1,000,000.00 2,000,000.00 35%
2,000,000.00 5,000,000.00 40%
5,000,000.00 10,000,000.00 50%
10,000,000.00 60%
(2) Agricultural
Fair Market Value
P300,000.00 25%
P300,000.00 500,000.00 30%

ALS2014B
ALS2014B 326 of 365
"#$
500,000.00 750,000.00 35%
750,000.00 1,000,000.00 40%
1,000,000.00 2,000,000.00 45%
2,000,000.00 50%
(3) Commercial / Industrial
Fair Market Value
P300,000.00 30%
P300,000.00 500,000.00 35%
500,000.00 750,000.00 40%
750,000.00 1,000,000.00 50%
1,000,000.00 2,000,000.00 60%
2,000,000.00 5,000,000.00 70%
5,000,000.00 10,000,000.00 75%
10,000,000.00 80%
(4) Timberland
Fair Market Value
P300,000.00 45%
P300,000.00 500,000.00 50%
500,000.00 750,000.00 55%
750,000.00 1,000,000.00 60%
5,000,000.00 2,000,000.00 65%
2,000,000.00 70%
(c) On Machineries
Class Assessment Levels
Agricultural 40%
Residential 50%

ALS2014B
ALS2014B 327 of 365
"#$
Commercial 80%
Industrial 80%
(d) On Special Classes: The assessment levels for all lands buildings, machineries and other improvements;
Actual Use Assessment Level
Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned or controlled
corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power

CITY ASSESSOR OF CEBU CITY v. ASSOCIATION OF BENEVOLA DE CEBU, INC. (2007)
HERRERA v. QUEZON CITY BOARD OF ASSESSMENT APPEALS (1961) the fact that a charitable hospital
institution admits pay-patients does not bar it from claiming that it is devoted exclusively to benevolent
purposes St. Catherines Hospital was established for charitable and humanitarian purposes. It admits paying
and non-paying patients. Within the premises, there is also the St. Catherines School of Midwifery. The
Quezon City assessor reclassified the hospital from being exempt to taxable and thus subjected to real
property taxes. The issue in this case is whether the lot and bldg. occupied by Hospital exempted from real
property tax when there are paying patients as well as non-paying patients. The SC held that St Catherine should
still be exempted from real property tax because even though it admits paying patient, the income derived from
there is devoted to improvement of charity wards. Presence of profit does not automatically bar one from real
property exemption for charitable institutions. Court stated that Congress may impose taxes upon such profit but
lands, buildings are beyond its taxing power.
ABRA VALLEY COLLEGE, INC. v. AQUINO (1988)
3. General revision
Sec. 219. General Revision of Assessment and Property Classification. The provincial, city or municipal assessor
shall undertake a general revision of real property assessments within two (2) years after the effectivity of this Code and
every three (3) years thereafter.
Art. 310. General Revision of Assessments and Property Classification.
(a) The provincial, city, or municipal assessor shall undertake a general revision of real property assessment within
two (2) years after the effectivity of the Code and every three (3) years thereafter.
(b) For this purpose, the provincial assessors, the city assessors, and the municipal assessors of MMA shall prepare
the schedule of fair market values for the different kinds and classes of real property located within their
respective territorial jurisdictions within one (1) year from the effectivity of the Code in accordance with such
rules and regulations issued by DOF.
(c) The general revision of assessments and property classification shall commence upon the enactment of an
ordinance by the sanggunian concerned adopting the schedule of fair market values but not later than two (2)
years from the effectivity of the Code. Thereafter, the provincial, city, or municipal assessor shall undertake the

ALS2014B
ALS2014B 328 of 365
"#$
general revision of real property assessment and property classification once every three (3) years.
LOPEZ v. CITY OF MANILA, supra
4. Reassessment
Sec. 220. Valuation of Real Property. In cases where (a) real property is declared and listed for taxation purposes for
the first time; (b) there is an ongoing general revision of property classification and assessment; or (c) a request is made
by the person in whose name the property is declared, the provincial, city or municipal assessor or his duly authorized
deputy shall, in accordance with the provisions of this Chapter, make a classification, appraisal and assessment or
taxpayer's valuation thereon: Provided, however, That the assessment of real property shall not be increased oftener than
once every three (3) years except in case of new improvements substantially increasing the value of said property or of
any change in its actual use.
Sec. 221. Date of Effectivity of Assessment or Reassessment. All assessments or reassessments made after the first
(1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year: Provided,
however, That the reassessment of real property due to its partial or total destruction, or to a major change in its actual
use, or to any great and sudden inflation or deflation of real property values, or to the gross illegality of the assessment
when made or to any other abnormal cause, shall be made within ninety (90) days from the date any such cause or causes
occurred, and shall take effect at the beginning of the quarter next following the reassessment.
CALLANTA v. OFFICE OF THE OMBUDSMAN (1998) The law gives no such authority to the city assessor or
his subalterns to initially set unreasonably high reassessment values only to eventually change them to
unreasonably lower values upon requests of property owners.
It is alleged that a general revision of assessment was conducted by the Office of the City Assessor in 1988 and
sometime thereafter. Notices of assessment together with the new tax declarations were subsequently sent to the
property owners. Thereafter the office of the city assessor, without the authority of the Local Board of
Assessment Appeals (LBAA), reassessed the values of certain properties, in contravention of Sec. 30 of P.D. 464.
The said assessment resulted in the reduction of assessed values of the properties. The City of Cebu
simultaneously filed criminal and administrative charges against the officers and staff of the City Assessors
Office. The court ruled that Sec. 22 clearly provides three (3) occasions when assessments of real properties may
be made by the local assessor. In the case at bar, the second instance gave rise to the revised assessed values for
which the property owners subsequently sought reconsideration. Sec. 30 of the same Code is equally clear that
the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to
this effect contained in their respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure would
indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation
where values of real property may be initially set unreasonably high, and then subsequently reduced upon the
request of a property owner. With respect to real property taxes, the obligation to pay arises on the first day of
January of the year following the assessment. Corollary, on the same date, the right of the local government to
collect said taxes also arises. And where the taxpayer fails to question such assessment within the reglementary
period provided by law, the local governments right becomes absolute upon the expiration of such period with
respect to that taxpayers property. Thus, the City Assessors unauthorized reduction of the assessed values
ineluctably resulted in the local governments deprivation of the corresponding revenues.
MERALCO v. BARLIS (2002) Notice of Assessment The Municipal Treasurer of Muntinlupa garnished
Meralcos bank deposits because of its unpaid real estate taxes. It also did not question the notice of assessment
before the Local Board of Assessment Appeals, as the law provides.
The following is the notice given to Meralco:
G/Gng. MANILA ELECTRIC COMPANY
Ortigas Avenue, Pasig

ALS2014B
ALS2014B 329 of 365
"#$
Metro Manila
Mahal na G./Gng.
Ipinababatid po namin sa inyo na ayon sa talaan ng aming tanggapan, ang buwis sa mga ari-arian ng
nakatala sa inyong pangalan ay hindi pa nakakabayad tulad ngnasasaad sa ibaba:
Tax Decl. Loca- Assessment Year Tax Due Penalty Total
No. tion
B-009-05501 Sucat P86,874,490 1976-78 6,515,586.75 -
+1,563,740.82 P 8,079,327.57
B-009-05502 Sucat P81,082,860 1977-78 4,054,143.00 -
+972,994.32 P5,027,137.32
B-009- 05503 Sucat P75,291,220 1978 1,882,280.50 -

+451,747.32 P2,334,027.82

TOTAL P15,440,492.71
Inaasahan po namin na di ninyo ipagwawalang bahala ang patalastas na ito at ang pagbabayad na
nabanggit na buwis sa lalong madaling panahon. Ipinaaalaala polamang ang sino mang magpabaya o
magkautang ng buwis ng maluwat ay isusubasta (Auction Sale) ng Pamahalaan ang inyong ari-
arian ng sangayon sa batas.
Subalit kung kayo po naman ay bayad na, ipakita po lamang ang katibayan ng pagbabayad (Official
Receipt) at ipagwalang bahala ang patalastas na ito.
It is apparent why the foregoing cannot qualify as a notice of tax assessment. A notice of assessment as provided
for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property,
or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of
properties. The notice here does not contain the essential information that a notice of assessment must specify.
In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes; thus, the reminder to the taxpayer
that the failure to pay the taxes shall authorize the government to auction off the properties subject to taxes. The
last paragraph of the said notice that informs the taxpayer that in case payment has already been made, the notices
may be disregarded, is an indication that it is in fact a notice of collection.
VI. REMEDIES OF LOCAL GOVERNMENT
A. Posting of notice of delinquency
Sec. 254. Notice of Delinquency in the Payment of the Real Property Tax.
(a) When the real property tax or any other tax imposed under this Title becomes delinquent, the provincial, city or
municipal treasurer shall immediately cause a notice of the delinquency to be posted at the main hall and in a
publicly accessible and conspicuous place in each barangay of the local government unit concerned. The notice of
delinquency shall also be published once a week for two (2) consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality.
(b) Such notice shall specify the date upon which the tax became delinquent and shall state that personal property
may be distrained to effect payment. It shall likewise state that any time before the distraint of personal property,
payment of the tax with surcharges, interests and penalties may be made in accordance with the next following
Section, and unless the tax, surcharges and penalties are paid before the expiration of the year for which the tax is

ALS2014B
ALS2014B 330 of 365
"#$
due except when the notice of assessment or special levy is contested administratively or judicially pursuant to the
provisions of Chapter 3, Title II, Book II of this Code, the delinquent real property will be sold at public auction,
and the title to the property will be vested in the purchaser, subject, however, to the right of the delinquent owner
of the property or any person having legal interest therein to redeem the property within one (1) year from the date
of sale.
DE KNECHT v. CA (1998) Facts: A land in EDSA was owned by the De Knechts and they constructed houses on it.
The government initiated a case for expropriation because they wanted to use the land for the completion of the
Manila Flood project and extension of EDSA. Basically their land was sold in public auction and they were never
able to redeem the said property.
(THE ISSUE IN THIS CASE) The Knechts claim that they were deprived of their property without due process
of law. They allege that they did not receive notice of their tax delinquency and that the Register of Deeds
did not order them to surrender their owner's duplicate for annotation of the tax lien prior to the sale.
Neither did they receive notice of the auction sale. After the sale, the certificate of sale was not annotated
in their title nor in the title with the Register of Deeds. In short, they did not know of the tax delinquency and
the subsequent proceedings until 1983 when they received the orders of the land registration courts.
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.
TALUSAN v. TAYAG (2001) For purposes of real property taxation, the registered owner of a property is
deemed the taxpayer and, hence, the only one entitled to a notice of tax delinquency and the resultant
proceedings relative to an auction sale. Antonio and Celia Talusan filed a complaint seeking the annulment of
the auction sale of a condominium unit in Baguio City in favor of Herminigildo Tayag. The Talusans had
acquired the unit from Elias Imperial, the original registered owner, which was evidenced by an unregistered
Deed of Sale. They alleged that the auction sale is null and void for non-publication of the notice of delinquency
for the payment of property tax and their lack of personal notice of the sale or public auction as such notice was
delivered to the previous owner of the property. Held: Cases involving an auction sale for the collection of
delinquent taxes are in personam. Thus, mere publication of the notice of delinquency would not suffice. It is still
incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer to protect the
interests of the latter. In this case, the notice of delinquency was sent by registered mail to the permanent address
of the registered owner. For purposes of real property taxation, the registered owner of the property is
deemed the taxpayer. Only the registered owner is entitled to a notice of tax delinquency and other
proceedings relative to the tax sale. Not being registered owners of the property, the Talusans cannot claim to
have been deprived of such notice. In fact, they were not entitled to it. Furthermore, the city treasurer has the
discretion to send the notice of public auction either (i) at the address as shown in the tax roll or property tax
record cards of the municipality or city where the property is located or (ii) at the taxpayers residence, if known
to the city treasurer. Here, the city treasurer deemed it best to send the notice to the residence of the taxpayer since
the address was known to him and the taxpayer was using the condominium unit merely as a vacation house and
not as a residence.
AQUINO v. QUEZON CITY (2006)
PUZON v. ABELLERA (1989) Notice to the delinquent owner is required as a prerequisite to a valid tax
sale. Certain real properties of Abellera were auctioned off because of the non-payment of real property taxes
for the years 1971-1977. Puzon was informed of the scheduled auction sale and was interested in joining the
bidding. Puzon was declared the winner, being the sole bidder. Domondon (for Abellera), contested the said
auction sale because allegedly it was premature. IAC ruled in favor of Domondon, declaring the auction sale
void, and the assessment made illegal (this is because the properties in question were still part of the public
domain from 1971-1977, it was only transferred to them after 1977 so they should be liable for taxes only after
1977). The issue is whether the auction sale is valid. HELD: No, because as stated, no tax is still due to them
since they were not the owners during the years assessed. Assuming that the sale was seasonably held, this should
still be declared void because Abellera was not properly notified of the auction sale. Under the NIRC, notice to

ALS2014B
ALS2014B 331 of 365
"#$
the delinquent owner is required as a prerequisite to a valid tax sale. Failure to notify the registered owner shall
vitiate the sale.
DE ASIS v. IAC (1989) De Asis bought land from Aragon. De Asis failed to secure a new tax declaration in her own
name. Hence, the records in the QC office continued to show that Aragon was the declared owner. De Asis paid
the real estate taxes due on the land, which payments were duly covered by receipts issued for the account of
Aragon. Later, the city treasurer sent a Notice of Sale of Delinquent Property to Aragon. The said notice was
also announced at the public market. It was also posted in some of the streets in QC, QC city hall and published in
a newspaper of general circulation. Thereafter, an auction sale was held and Soriano was the highest bidder. But
the Court held that De Asis is still the owner of the land because there was a failure to serve notice to her
regarding the sale. In the case at hand, the Notice of Sale of Delinquent Property was sent to Aragon, not to De
Asis, even though the City Treasure had information, in the form of a sworn statement, that De Asis was already
the owner of the said parcel of land.
B. Imposition of interest
Sec. 255. Interests on Unpaid Real Property Tax. In case of failure to pay the basic real property tax or any other tax
levied under this Title upon the expiration of the periods as provided in Section 250, or when due, as the case may be,
shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a
fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, That in no case shall the total
interest on the unpaid tax or portion thereof exceed thirty-six (36) months.
C. Administrative remedies
Sec. 256. Remedies For The Collection Of Real Property Tax. For the collection of the basic real property tax and any
other tax levied under this Title, the local government unit concerned may avail of the remedies by administrative action
thru levy on real property or by judicial action.
Sec. 257. Local Governments Lien. The basic real property tax and any other tax levied under this Title constitutes a
lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the
owner or possessor thereof, enforceable by administrative or judicial action, and may only be extinguished upon payment
of the tax and the related interests and expenses.
Sec. 258. Levy on Real Property. After the expiration of the time required to pay the basic real property tax or any
other tax levied under this Title, real property subject to such tax may be levied upon through the issuance of a warrant on
or before, or simultaneously with, the institution of the civil action for the collection of the delinquent tax. The provincial
or city treasurer, or a treasurer of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a
warrant of levy shall prepare a duly authenticated certificate showing the name of the delinquent owner of the property or
person having legal interest therein, the description of the property, the amount of the tax due and the interest thereon. The
warrant shall operate with the force of a legal execution throughout the province, city or a municipality, within the
Metropolitan Manila Area. The warrant shall be mailed to or served upon the delinquent owner of the real property or
person having legal interest therein, or in case he is out of the country or cannot be located, the administrator or occupant
of the property. At the same time, written notice of the levy with the attached warrant shall be mailed to or served upon
the assessor and the Registrar of Deeds of the province, city or municipality within the Metropolitan Manila Area where
the property is located, who shall annotate the levy on the tax declaration and certificate of title of the property,
respectively.
The levying officer shall submit a report on the levy to the sanggunian concerned within ten (10) days after
receipt of the warrant by the owner of the property or person having legal interest therein.
Section 259. Penalty for Failure to Issue and Execute Warrant. Without prejudice to criminal prosecution under the
Revised Penal Code and other applicable laws, any local treasurer or his deputy who fails to issue or execute the warrant
of levy within one (1) year from the time the tax becomes delinquent or within thirty (30) days from the date of the

ALS2014B
ALS2014B 332 of 365
"#$
issuance thereof, or who is found guilty of abusing the exercise thereof in an administrative or judicial proceeding shall be
dismissed from the service.
Sec. 260. Advertisement and Sale. Within thirty (30) days after service of the warrant of levy, the local treasurer shall
proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the
tax delinquency and expenses of sale. The advertisement shall be effected by posting a notice at the main entrance of the
provincial, city or municipal building, and in a publicly accessible and conspicuous place in the barangay where the real
property is located, and by publication once a week for two (2) weeks in a newspaper of general circulation in the
province, city or municipality where the property is located. The advertisement shall specify the amount of the delinquent
tax, the interest due thereon and expenses of sale, the date and place of sale, the name of the owner of the real property or
person having legal interest therein, and a description of the property to be sold. At any time before the date fixed for the
sale, the owner of the real property or person having legal interest therein may stay the proceedings by paying the
delinquent tax, the interest due thereon and the expenses of sale. The sale shall be held either at the main entrance of the
provincial, city or municipal building, or on the property to be sold, or at any other place as specified in the notice of the
sale.
Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the
sanggunian concerned, and which shall form part of his records. The local treasurer shall likewise prepare and deliver to
the purchaser a certificate of sale which shall contain the name of the purchaser, a description of the property sold, the
amount of the delinquent tax, the interest due thereon, the expenses of sale and a brief description of the proceedings:
Provided, however, That proceeds of the sale in excess of the delinquent tax, the interest due thereon, and the expenses of
sale shall be remitted to the owner of the real property or person having legal interest therein.
The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of
collection thru the remedies provided for in this Title, including the expenses of advertisement and sale.
Sec. 261. Redemption of Property Sold. Within one (1) year from the date of sale, the owner of the delinquent real
property or person having legal interest therein, or his representative, shall have the right to redeem the property upon
payment to the local treasurer of the amount of the delinquent tax, including the interest due thereon, and the expenses of
sale from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the
purchase price from the date of sale to the date of redemption. Such payment shall invalidate the certificate of sale issued
to the purchaser and the owner of the delinquent real property or person having legal interest therein shall be entitled to a
certificate of redemption which shall be issued by the local treasurer or his deputy.
From the date of sale until the expiration of the period of redemption, the delinquent real property shall remain in
possession of the owner or person having legal interest therein who shall be entitled to the income and other fruits thereof.
The local treasurer or his deputy, upon receipt from the purchaser of the certificate of sale, shall forthwith return
to the latter the entire amount paid by him plus interest of not more than two percent (2%) per month. Thereafter, the
property shall be free from lien of such delinquent tax, interest due thereon and expenses of sale.
Sec. 262. Final Deed to Purchaser. In case the owner or person having legal interest fails to redeem the delinquent
property as provided herein, the local treasurer shall execute a deed conveying to the purchaser said property, free from
lien of the delinquent tax, interest due thereon and expenses of sale. The deed shall briefly state the proceedings upon
which the validity of the sale rests.
Sec. 263. Purchase of Property By the Local Government Units for Want of Bidder. In case there is no bidder for the
real property advertised for sale as provided herein, the real property tax and the related interest and costs of sale the local
treasurer conducting the sale shall purchase the property in behalf of the local government unit concerned to satisfy the
claim and within two (2) days thereafter shall make a report of his proceedings which shall be reflected upon the records
of his office. It shall be the duty of the Registrar of Deeds concerned upon registration with his office of any such
declaration of forfeiture to transfer the title of the forfeited property to the local government unit concerned without the
necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the
property by paying to the local treasurer the full amount of the real property tax and the related interest and the costs of

ALS2014B
ALS2014B 333 of 365
"#$
sale. If the property is not redeemed as provided herein, the ownership thereof shall be vested on the local government
unit concerned.
Sec. 264. Resale of Real Estate Taken for Taxes, Fees, or Charges. The sanggunian concerned may, by ordinance
duly approved, and upon notice of not less than twenty (20) days, sell and dispose of the real property acquired under the
preceding section at public auction. The proceeds of the sale shall accrue to the general fund of the local government unit
concerned.
Sec. 265. Further Distraint or Levy. Levy may be repeated if necessary until the full amount due, including all
expenses, is collected.
D. Judicial action (collection)
Sec. 256. Remedies For The Collection Of Real Property Tax. For the collection of the basic real property tax and any
other tax levied under this Title, the local government unit concerned may avail of the remedies by administrative action
thru levy on real property or by judicial action.
Sec. 266. Collection of Real Property Tax Through the Courts. The local government unit concerned may enforce the
collection of the basic real property tax or any other tax levied under this Title by civil action in any court of competent
jurisdiction. The civil action shall be filed by the local treasurer within the period prescribed in Section 270 of this Code.
Sec. 270. Periods Within Which To Collect Real Property Taxes. The basic real property tax and any other tax levied
under this Title shall be collected within five (5) years from the date they become due. No action for the collection of the
tax, whether administrative or judicial, shall be instituted after the expiration of such period. In case of fraud or intent to
evade payment of the tax, such action may be instituted for the collection of the same within ten (10) years from the
discovery of such fraud or intent to evade payment.
The period of prescription within which to collect shall be suspended for the time during which:
(1) The local treasurer is legally prevented from collecting the tax;
(2) The owner of the property or the person having legal interest therein requests for reinvestigation and executes a
waiver in writing before the expiration of the period within which to collect; and
(3) The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be
located.
E. Unpaid tax constitutes a lien
Sec. 257. Local Governments Lien. The basic real property tax and any other tax levied under this Title constitutes a
lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the
owner or possessor thereof, enforceable by administrative or judicial action, and may only be extinguished upon payment
of the tax and the related interests and expenses.
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY v. COURT OF APPEALS (2007) Applying Sec
234 (a) of the LCG, when an instrumentality of a national government grants to a taxable person the
beneficial use of real property owned by the Republic, said instrumentality becomes liable to pay real
property tax. The PFDA operated on and leased land and buildings of the Iloilo Fishing Port Complex, which
were owned by the Republic of the Philippines. The CA held that PFDA was liable to pay real property taxes on
the said land and buildings because it enjoyed the beneficial use of the IFPC. The issue is whether PFDA is
exempt from payment of real property tax. The Court ruled that PFDA is not a GOCC but an instrumentality of
the national government which is generally exempt from the payment of real property tax. However, said
exemption does not apply to the portions of IFPC which the PFDA leased to private entities. With respect to these
properties, the PDFA is liable to pay real property tax.
CHAVEZ v. PUBLIC ESTATES AUTHORITY (2002) Public lands may not be alienated by private entities
The Public Estates Authority (PEA) and Amari Coastal Bay and Development Corporation (Amari) executed a

ALS2014B
ALS2014B 334 of 365
"#$
Joint Venture Agreement regarding the newly reclaimed lands found along Manila Bay. In this agreement, there is
a stipulation that the PEA shall transfer the said lands to Amari, a privately owned entity. Chavez, a taxpayer,
filed an petition for mandamus with prayer for the issuance of a writ of preliminary injunction seeking to stop the
implementation of the said JVA. He claims that this is in violation of the Constitutional mandate that lands of
public domain shall not be alienated by private entities such as Amari.
Though the issue is already considered moot since the JVA did not push thru, the Supreme Court still pushed thru
with the case and decided to permanently enjoin PEA and Amari from implementing the said JVA since it is
against the Constitution. (A really long case, in which i did not see anything regarding real property tax nor
anything related to taxation, other than petitioner being a taxpayer and has standing to file the suit.)
TAN v. BANTEGUI (2005) In tax delinquency sales, publication of the notice of delinquency is not enough,
such notice must also be given to the taxpayer himself. Tax delinquency sales are in personam, not in rem.
Bantegui owned land in Quezon City. When she left for the US in 1970, the property was rented out to Spouses
Caedo. Real property taxes on the subject lot were paid from 1970 to 1977. However, no payment was made for
years 1978 to 1983. For failure to pay taxes, the city treasurer of QC sold the property at public auction. It was
sold to the spouses Capistranos. A series of sales took place until the property was eventually sold to Tan, the
appellant in this case. Tan filed a case against the Caedos (who were still under the assumption that they were
renting the property from Bantegui) to vacate the property. Only at this point did Banteguibecome aware that her
property was sold for failure to pay taxes. The validity of the auction sale was put at issue. The SC held that the
auction sale was invalid because if did not conform to the requirements prescribed by the Real Property Tax
Code. The RPTC requires that upon delinquency, a notice of such delinquency be posted in conspicuous
places and published one a week for three consecutive weeks.However, publication of the notice by itself is
insufficient because the procedure in tax sales is in personam and not in rem. Therefore, it is mandatory that
a notice must be sent directly to the taxpayer to protect his interests. Even if there was proper advertisement
and publication, an auction sale is void if there was no notice to the delinquent taxpayer. In the present case, the
taxpayer was not given a notice of delinquency. She was not even given a notice of sale after the property was
sold at public auction. The sale at public auction was invalid.
VIZARRA v. RODRIGUEZ (2006)
TIONGCO v. PVB (1992) Alicia Arnaldo mortgaged 3 lots to Philippine Veternas Bank (PVB) as a security for a
loan of P290,000.00. She failed to pay real estate taxes. City Treasurer sold the lots at a public auction to
satisfy the delinquent taxes. Tiongco was the highest bidder. The lost were bought for a scandalously low
price. Tiongco filed a petition before the RTC requiring PVB to deliver the owners duplicate copy of the TCT,
and Arnaldo to surrender the TCTs they possessed. RTC ruled in favor of Tiongco. PVB appealed to the CA. CA
ruled for PVB. Tiongco appealed to the SC. SC held it is the duty of the Registrar of Deeds to carry over the
mortgage encumbrance over to the new title. PVB's right as mortgagee suffered no injury or impairment. Further,
only the owner-mortgagor may question the alleged scandalously low amount paid by the purchaser at the tax
sale. Clearly, neither Arnaldo nor her successor-in-interest had raised any complaint.
CITY MAYOR, ET. AL. v. RCBC (2010) Quezon City (qc) revenue code of 1993, which provides counting of
one-year redemption period for tax delinquent properties from date of registration of certificate of sale,
prevails over the local government code of 1991 (lgc), which provides counting said period from date of
sale Facts: R Bank foreclosed a mortgaged property and won the public auction as highest bidder per Certificate
of Sale dated August 4, 2004. R Bank registered the sale only on February 10, 2004. In the meantime, an auction
sale was held by the QC Government on May 30, 2003 for tax delinquent properties, which included R Banks
foreclosed property. Mr. Y won as the highest bidder for the same R Bank property. Upon payment of all
delinquent taxes, Mr. Y was issued a Certificate of Sale of Delinquent Property, which he registered on February
10, 2004. On June 10, 2004, R Bank tendered payment to the QC Government but it was refused. Hence,
respondent filed a petition for mandamus which was granted by the Regional Trial Court (RTC).
Held: RTC Decision is affirmed. While Presidential Decree No. 464, which provided for reckoning of one-year
redemption period for tax delinquent properties from registration of sale, was already superseded by the LGC,

ALS2014B
ALS2014B 335 of 365
"#$
which provided for reckoning of the redemption period from the date of sale, it is explicit from the QC Revenue
Code that the redemption period is reckoned from the date of the annotation of the sale of the property at the
proper registry. To reconcile the above provisions, the Court held that the QC Revenue Code, being a special law,
prevails over the LGC of 1991, which is a general law.
NHA v. ILOILO CITY, ET. AL. (2008)
VII. REMEDIES OF TAXPAYER
A. Dispute assessment
1. Appeal to local Board of Assessment Appeals
Sec. 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not
satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty
(60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the
provincial or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax
declarations and such affidavits or documents submitted in support of the appeal.
CALLANTA, ET. AL. v. OFFICE OF THE OMBUDSMAN, supra
FELS ENERGY, INC. v. PROVINCE OF BATANGAS, supra NPC entered into a lease contract with Polar
Energy, Inc. over diesel engine power barges moored at Batangas. FELS received an assessment of real property
taxes from Provincial Assessor Lauro C. Andaya. FELS referred the matter to NPC, reminding it of its obligation
under the Agreement to pay all real estate taxes. NPC sought reconsideration of the Provincial Assessors decision
to assess real property taxes. However, the motion was denied and the Provincial Assessor advised NPC to pay
the assessment. This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for
the setting aside of the assessment. The appellate court dismissed the petition. It held that the right to question the
assessment of the Provincial Assessor had already prescribed upon the failure of FELS to appeal the disputed
assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the
assessment, the right of the Provincial Government to collect the tax was already absolute.
The notice of assessment which the Provincial Assessor sent to FELS, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the
form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or
documents submitted in support of the appeal.
Instead of appealing to the Board of Assessment Appeals, NPC opted to file a motion for reconsideration of the
Provincial Assessors decision, a remedy not sanctioned by law. If the taxpayer fails to appeal in due course, the
right of the local government to collect the taxes due with respect to the taxpayers property becomes absolute
upon the expiration of the period to appeal. It also bears stressing that the taxpayers failure to question the
assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus,
precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that
would reopen the question of its liability on the merits.
CITY GOVERNMENT OF QUEZON CITY v. BAYAN TELECOMMUNICATIONS, INC. (2006) One of the
recognized exceptions to the exhaustion-of-administrative remedies rule is when only legal issues are to be
resolved. Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for
under the LGC, adding that the trial court erred in giving due course to Bayantels petition for prohibition. To
petitioners, the appeal mechanics under the LGC constitute Bayantels plain and speedy remedy in this case. The
Court does not agree. With the reality that Bayantels real properties were already levied upon on account of its
nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA is not a
speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65. This is not to mention of

ALS2014B
ALS2014B 336 of 365
"#$
the auction sale of said properties already scheduled on July 30, 2002. Moreover, one of the recognized
exceptions to the exhaustion-of-administrative remedies rule is when, as here, only legal issues are to be resolved.
In fact, the Court, cognizant of the nature of the questions presently involved, gave due course to the instant
petition. As the Court has said in Ty vs. Trampe, 250 SCRA 500 (1995): x x x. Although as a rule, administrative
remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in
cases where the controversy does not involve questions of fact but only of law. x x x.
REPUBLIC v. CITY OF KIDAPAWAN (2005) PNOC-EDC also claims that the real property tax assessment is not
yet final and executory. It avers that prior resort to administrative remedies before seeking judicial remedies is not
necessary considering that the issue raised is purely a question of law. Consequently, it need not appeal the
assessment to the Local Board of Assessment Appeals or to the Central Board of Assessment Appeals as provided
under Sections 226 and 229 of the LGC. We disagree. The petitioner cannot bypass the authority of the concerned
administrative agencies and directly seek redress from the courts even on the pretext of raising a supposedly pure
question of law without violating the doctrine of exhaustion of administrative remedies. If PNOC-EDC was not
satisfied with the assessment of its property, it should have appealed to the Local Board of Assessment Appeals
within 60 days from receipt of the written notice of assessment. Instead, it waited until the issuance of a warrant
of levy before it filed a petition for injunction in the regional trial court, which was not in accordance with the
remedies provided in the LGC.
SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN CITY v. LOCAL GOVERNMENT OF
CALOOCAN CITY (2003)
TALENTO v. ESCALADA, JR. (2008)
RAMIE TEXTILES, INC. v. HON. MATHAY (1979) Ramie paid its real estate taxes on its plant machinery and
equipment used by its general mill during its first 5 years of operation. However under CA 470 or the Assessment
Law, such machineries were made exempt from realty tax. Ramie filed a claim for refund with the Provincial
Treasurer for the taxes it paid for the last 5 yrs amounting to 78K. The provincial treasurer denied the same stating
that claims for refunds from erroneously paid or illegally collected or assessed taxes should be presented within 2
yrs from date of payment. Upon indorsement of the claim to the Auditor General, he held that the claim for refund
having been voluntarily made without protest may not be allowed under Sec 54, CA 470.
Issue: W/N protest is a condition precedent or a sine qua non requirement for the recovery of real estate taxes paid
under the erroneous belief that the, claimant was liable therefor, and if so, what is the prescriptive period.
Held: NO. Protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is
required by law, may claim for a refund. Section 54 of CA No. 470 does not apply to petitioner which could
conceivably not have been expected to protest a payment it honestly believed to be due. The same refers only to
the case where the taxpayer, despite his knowledge of the erroneous or illegal assessment, still pays and fails to
make the proper protest, for in such case, he should manifest an unwillingness to pay, and failing so, the taxpayer
is deemed to have waived his right to claim a refund. Petitioner had no knowledge of the fact that it was exempted
from payment of the realty tax. Payment was made through error or mistake, in the honest belief that
petitioner was liable, and therefore could not have been made under protest, but with complete
voluntariness. The fact that petitioner paid thru error or mistake, and the government accepted the payment, save
rise to the application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which
provides that "if something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises." Also not applicable is Sec 17 of CA 470 in relation to the
right of a property owner to contest the validity of assessment which provides: Appeal by owner to the Board of
Tax Appeals (Now Board of Assessment Appeals, R. A. No. 1125). Any owner who is not satisfied with the
action of a provincial assessor in the assessment of his property may, within sixty (60) days from the date of
receipt by him of the written notice of assessment as provided in Section 16 hereof, appeal to the Board of Tax
Appeals, which is created in each province, by filing with it or with the municipal Treasurer of the municipality
where the property assessed is situated who is duty bound to transmit it to the Board of Tax Appeals, a petitioner
to that effect stating the grounds of his appeal. Petitioner is not unsatisfied in the assessment of its property.
Assessment having been made, it paid the real estate taxes without knowing that it is exempt. Petitioner

ALS2014B
ALS2014B 337 of 365
"#$
mistakenly paid from 1959-1963. Claim for refund must be made within six (6) years from date of payment.
Since petitioner demanded the refund of real estate taxes mistakenly paid only on May 23, 1967, it can recover
only those paid during the period from October 31, 1961 to September 9, 1965 or a total amount of P61,007.33.
VICTORIAS MILLING CO., INC. v. COURT OF TAX APPEALS (1968) The Provincial Assessor assessed real
property taxes on the machineries belonging to Victorias Milling Co (VMC). VMC paid the tax under protest.
However, it did not appeal the assessments to the Provincial Board of Assessment Appeals. Instead, it filed a
complaint with the Court of First Instance of Negros Occidental and alleged that the assessor did not follow
the straight line method in determining the depreciation of its machineries as provided for by the Provincial
Circular of the Department of Finance. The issue is whether or not the CFI has jurisdiction to entertain the
complaint. The Court ruled that it is the Provincial Board of Assessment Appeals which has jurisdiction and not
the CFI. It is settled in our jurisdiction that where an assessment is illegal and void, the remedy of a taxpayer,
who already paid the realty tax under protest, is to court of first instance. On the other hand, where the
assessment is merely erroneous, his recourse is to file an appeal in the Provincial Board of Assessment
Appeals within 60 days from receipt of the assessment. VMC maintains that the assessments in question are
illegal and void because they contravene mandatory provisions of Provincial Circular. An assessment is illegal
and void when the assessor has no power to act at all. It is erroneous when the assessor has the power but
errs in the exercise of that power. In this case, the Provincial Assessor of Negros Occidental had the power to
make the assessments in question under Section 7 of the Assessment Law. Since the Provincial Assessor had the
power to make the assessments, but in the exercise of such power he deviated from the procedure set down by
law, in that he employed the "fixed percentage of diminishing book value method" instead of the "straight line
method" in depreciating the machineries, logically, the assessment should be considered as erroneous. By the
doctrine of the primacy of administrative remedy, the Provincial Board of Assessment Appeals had jurisdiction
over the dispute to the exclusion of the Court of First Instance.
NATIONAL POWER CORP. v. PROV. OF QUEZON AND MUN. OF PAGBILAO (2009) NPC is a GOCC that
entered into an Energy Conversion Agreement (ECA) under a build-operate-transfer (BOT) arrangement with
Mirant Pagbilao Corp. Under the agreement, Mirant will build and finance a thermal power plant in Quezon, and
operate and maintain the same for 25 years, after which, Mirant will transfer the power plant to the Respondent
without compensation. NPC also undertook to pay all taxes that the government may impose on Mirant.
Quezon then assessed Mirant real property taxes on the power plant and its machineries.
NPC cannot file a protest against the real property assessment. The two entities vested with personality to
contest an assessment are (a) the owner or (b) the person with legal interest in the property. NPC is not the owner
of the machineries. Neither is it a "person having legal interest in the property" by virtue of its assumption of
Mirant's tax liability. The person from whom payment is sought must have also acquired the beneficial use of the
property taxed. In other words, NPC must have the use and possession of the property.
The Province of Quezon is a third party to the BOT Agreement and could thus not exact payment from Napocor
without violating the principle of relativity of contracts. Corollarily, the local government units cannot be
compelled to recognize the protest of a tax assessment from Napocor, an entity against whom it cannot enforce
the tax liability.
If a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to "first
pay the tax" under protest. Napocor, by claiming exemption from realty taxation, is simply raising a question of
the correctness of the assessment. A claim for tax exemption, whether full or partial, does not question the
authority of local assessors to assess real property tax.
2. If denied, appeal to Central Board of Assessment Appeals
Sec. 229. Action by the Local Board of Assessment Appeals.
...

ALS2014B
ALS2014B 338 of 365
"#$
(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein and
the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the person
having legal interest therein of such fact using the form prescribed for the purpose. The owner of the property or
the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may,
within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment
Appeals, as herein provided. The decision of the Central Board shall be final and executory.
MATHAY v. MACALINCAG & JAVIER v. MACALINCAG (1993) Congressman Mathay (QC) and Cong. Javier
(Pasig) (and eventually by Puyat, who lives in Makati) are residents and landowners in their respective districts.
They filed a special civil action of prohibition where they sought the perpetual enjoinment, as unconstitutional
and void of the schedule of market values prepared by the Respondents City Assessors for all classes of real
property in QC/Pasig. They also alleged that the increased assessment of properties, prepared by the respective
city assessors, was based on an illegal schedule of market values; and that the increases were oppressive. Lastly,
Mathay and Javier alleged that a City Assessor in their respective cities prepared the schedule alone,
independently of the other assessors. According to the petitioners, they werent accorded adequate opportunity to
ventilate their objections to the procedure followed in the establishment of the new assessment levels. The court
then referred the case to the Central Board of Assessment Appeals. Subsequently, the court clarified in a
resolution that the authority of the CBAA to take cognizance of the factual issues raised by the court in its
extraordinary or certiorari jurisdiction should not be confused with its appellate jurisdiction over appealed
assessment cases under the Real Property Tax Code. The board is not acting in its appellate jurisdiction in
the instant cases, but rather, it is acting as a Court-appointed fact-finding commission to assist the court.
The CBAA decided in favor of the petitioners saying that the preparation of the increased assessments alone by
the respective city assessors, is contrary to the statutory requirements of the law.
PUYAT-REYES v. SECRETARY OF FINANCE (1993) - Schedule of market values prepared by the a City
Assessor alone, independently of the other City Assessors within the Metropolitan Manila Area, comes in
patent violation of the explicit requirement of Section 9 of Presidential decree No. 921.
Former Congressman Ismael Mathay assail the schedule of market values of properties in the Quezon City, Pasig
City and Makati City areas each prepared solely by their respective City Assessors. Mathay said that the
schedules were prepared in violation of Section 9 of Presidential Decree No. 921 which says that:
Sec. 9. Preparation of Schedule of Values for Real Property within the Metropolitan Area. The
Schedule of Values that will serve as the basis for the appraisal and assessment for taxation purposes of
real properties located within the Metropolitan Area shall be prepared jointly by the City Assessors of the
Districts created under Section one hereof, with the City Assessor of Manila acting as Chairman, in
accordance with the pertinent provisions of Presidential Decree No. 464, as amended, otherwise known
as the Real Property Tax Code, and the implementing rules and regulations thereby issued by the
Secretary of Finance.
The Central Board of Assessment Appeals ruled to declare the schedules of the three cities as null and void for
violating PD 921. The Supreme Court held that the Schedules of Market Values for real properties located in
Quezon City, the Municipality of Pasig and the Municipality of Makati, respectively prepared solely by the City
Assessor of Quezon City, and the Municipal Assessors of Pasig and Makati, failed to comply with the explicit
requirements of Presidential Decree No. 921 in relation to the corresponding Administrative Regulations
promulgated by the Department of Finance (No. 7-77) on July 25, 1977, and are on that account illegal and void.
3. If denied, appeal to Court of Tax Appeals
Rep. Act No. 1125, as amended by Rep. Act No. 9282
Sec. 7. Jurisdiction. The CTA shall exercise:

ALS2014B
ALS2014B 339 of 365
"#$
be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is
less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried
by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the
Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with,
and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed
to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil
action separately from the criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected territorial jurisdiction.
the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective
jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:

ALS2014B
ALS2014B 340 of 365
"#$
1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes,
fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes
and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall
be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
collection cases originally decided by them, in their respective territorial jurisdiction.
the Exercise of their appellate jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction.
4. Effect of appeal
Sec. 231. Effect of Appeal on the Payment of Real Property Tax. Appeal on assessments of real property made under
the provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the property
involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending upon the
final outcome of the appeal.
B. Payment under protest
Sec. 252. Payment Under Protest.
(a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts
the words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the
tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan
Manila Area, who shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested
shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a), the
taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code.
Art. 343. Payment Under Protest.
(a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts
the words paid under protest. The protest in writing must be filed within thirty (30) days from payment of the tax
to the provincial or city treasurer, or municipal treasurer, in the case of a municipality within MMA, who shall
decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest shall be held in trust by the local treasurer concerned. Fifty percent
(50%) of the tax paid under protest shall, however, be distributed in accordance with the provisions of this Rule
on the distribution of proceeds.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested
shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in paragraph (a) hereof,
the taxpayer may avail of the remedies provided in Articles 317 and 320 of this Rule.

ALS2014B
ALS2014B 341 of 365
"#$
CAMP JOHN HAY DEVT CORP. v. CBAA (2005) AN APPEAL FROM A REAL PROPERTY TAX
ASSESSMENT DOES NOT SUSPEND THE COLLECTION OF TAXES. Pursuant to Section 252 of the
Local Government Code of 1991, before a protest to a real property tax assessment may be entertained, the real
property tax should have been first paid without prejudice to its subsequent adjustment depending upon the final
outcome of the appeal and that the tax or a portion thereof paid under protest shall be held in trust by the local
treasurer concerned.
NATIONAL POWER CORP. v. PROV. OF QUEZON AND MUN. OF PAGBILAO (2010) This is a resolution of
an MR. The Province of Quezon assessed Mirant for unpaid real property taxes for the machineries located in its
power plant in Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT) Agreement
(entitled Energy Conversion Agreement) with Mirant, was furnished a copy of the tax assessment. Napocor (nota
bene, not Mirant) protested the assessment before the Local Board of Assessment Appeals (LBAA), claiming
entitlement to the tax exemptions provided under Section 234 of the Local Government Code (LGC), which
states that the machineries that are actually, directly, and exclusively used by local water districts and GOCCs
engaged in water or electric power utilities are exempt from real property tax. In the Courts Decision, the SC
ruled that Napocor did not file a valid protest against the realty tax assessment because it did not possess the
requisite legal standing. When a taxpayer fails to question the assessment before the LBAA, the assessment
becomes final, executory, and demandable, precluding the taxpayer from questioning the correctness of the
assessment or from invoking any defense that would reopen the question of its liability on the merits. In this
resolution of MR, the SC further held that since Napocor was not able to pay the tax upon protest, the said protest
was deemed not made. The protest contemplated under Section 252 is required where there is a question as to the
reasonableness or correctness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an
increase in a real property tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or
municipal treasurer will not act on his protest. Napocor is simply raising a question of the correctness of the
assessment. A claim for tax exemption, whether full or partial, does not question the authority of local
assessor to assess real property tax. Since Napocor was simply questioning the correctness of the assessment, it
should have first complied with Section 252, particularly the requirement of payment under protest. Napocors
failure to prove that this requirement has been complied with thus renders its administrative protest under Section
226 of the LGC without any effect. No protest shall be entertained unless the taxpayer first pays the tax.
It was an ill-advised move for Napocor to directly file an appeal with the LBAA under Section 226 without first
paying the tax as required under Section 252. Sections 252 and 226 provide successive administrative remedies to
a taxpayer who questions the correctness of an assessment. Section 226, in declaring that any owner or person
having legal interest in the property who is not satisfied with the action of the provincial, city, or municipal
assessor in the assessment of his property may x x x appeal to the Board of Assessment Appeals x x x, should be
read in conjunction with Section 252 (d), which states that in the event that the protest is denied x x x, the
taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of the LGC [Chapter 3 refers to
Assessment Appeals, which includes Sections 226 to 231]. The action referred to in Section 226 (in relation to
a protest of real property tax assessment) thus refers to the local assessors act of denying the protest filed
pursuant to Section 252. Without the action of the local assessor, the appellate authority of the LBAA cannot be
invoked. Napocors action before the LBAA was thus prematurely filed.
TALENTO v. ESCALADA, JR., supra
QUIMPO v. MENDOZA (1981) Petitioner Angel Quimpo is the owner of a building located in Cagayan de Oro City
assessed at P20,000. Mendoza is the treasurer of City of Cagayan de Oro. Tax would be paid in 4 installments.
Petitioner paid on time the first three installments. There was a conflict with the computation of Quimpo (P124)
and Mendoza (P196) on the computation of payment. Mendoza refused to accept payment. Quimpo deposited by
way of consignation and instituted action of mandamus.
The lower court further held that it was without authority to entertain the suit for failure of petitioner to comply
with the provisions of the Charter of Cagayan de Oro (Republic Act No. 521) on payment of tax under protest.
There were 3 assignment of errors:

ALS2014B
ALS2014B 342 of 365
"#$
1. under Section 4, R.A. 5447, the installments for the basic and additional real property tax have only
one due date but are payable in four equal installments
2. on the question of the imposition of the tax penalty, said penalty must first be paid under protest
before the suit can prosper; [OUR TOPIC]
3. the error of respondent City Treasurer, if any, arose from an honest interpretation of the law or their
meaning, and therefore no damages can be awarded.
The court did not agree with the respondent court that failure of the petitioner to comply with Section 42 and
Section 58 (b) of R.A. 521 requiring payment of taxes under protest, rendered the court without authority
to entertain the suit. Section 58(b) provides that no court shall entertain any suit assailing the validity of a
tax assessed under this Chapter until the taxpayer shall have paid, under protest, the taxed assessed against
him ... ." (emphasis supplied.) The phrase "tax assessed" clearly refers to the annual real estate tax imposable on
the taxable real property.
May the phrase "tax assessed" be interpreted to include not only the tax itself but also all penalties accruing
thereto'? The legislative intent is not clear on this point, reading Section 42 to Section 58 of the Act. A surcharge
is not a "tax" in itself. A surcharge is in the nature of a penalty
Furthermore, the particular circumstances herein cast doubt as to the applicability of Section 58(b), R.A.
521, which must be resolved in favor of the petitioner. We must take into consideration his apparent good
faith in relying on the amendatory provisions of R.A. 5447, and the admitted fact that he tendered payment of the
last installment of his 1969 realty tax to respondent City Treasurer, together with the tax penalty in accordance
with his computation, though erroneous, before filing this case in court. We likewise take into account the fact
that even said respondent Treasurer erred in interpreting the law. It may be added that it could have been more
expedient for the latter to have accepted the amount tendered by petitioner in August, 1970, for after all, the tax
itself was not in question.
MERALCO v. BARLIS (2002) The Municipal Treasurer of Muntinlupa sent Manila Electric Company (MERALCO)
two assessments, demanding payment of real estate taxes. MERALCO failed to pay. Thus, the Municipal
Treasurer ordered that garnishment of Manila Electrics bank deposits to the extent of the unpaid real estate taxes.
MERALCO countered with a Petition for Prohibition to enjoin the Treasurer from garnishing its deposits. The
petition was granted by the RTC. The CA affirmed. When the matter was elevated to the SC, it ruled that the
RTC had no jurisdiction to grant the Petition for Prohibition due to MERALCOs failure to pay the tax
under protest. Moreover, since MERALCO failed to question the assessment before the Local Board of
Assessment Appeals (LBAA), it effectively had no cause of action due to its failure to exhaust administrative
remedies.
MERALCO now urges the SC to reconsider its decision, claiming that the documents sent to it were not actually
assessments, but mere collection notices that could not be properly questioned before the LBAA.
The documents sent to MERALCO were mere collection notices. A notice of assessment as provided for in
the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property, or
proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. The
documents sent to MERALCO failed to do so.
Whether or not a tax assessment had been made and sent to the petitioner prior to the collection of back taxes by
respondent Municipal Treasurer is of vital importance in determining the applicability of Section 64 of the Real
Property Tax Code inasmuch as payment under protest is required only when there has in fact been a tax
assessment, the validity of which is being questioned. Concomitantly, the doctrine of exhaustion of
administrative remedies finds no application where no tax assessment has been made.
C. Claim for refund or credit

ALS2014B
ALS2014B 343 of 365
"#$
Sec. 253. Repayment of Excessive Collections. When an assessment of basic real property tax, or any other tax levied
under this Title, is found to be illegal or erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a
written claim for refund or credit for taxes and interests with the provincial or city treasurer within two (2) years from the
date the taxpayer is entitled to such reduction or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt
thereof. In case the claim for tax refund or credit is denied, the taxpayer may avail of the remedies as provided in Chapter
3, Title II, Book II of this Code.
CHINA BANKING CORP. v. CITY TREASURER OF KALOOKAN (2005)
ALLIED BANKING CORPORATION v. QUEZON CITY GOVERNMENT (2006) Allied Banking contends that
the return of the real property tax is a necessary consequence of the nullification of the QC ordinance regarding
the manner of assessment. The SC ruled that Allied Banking and others similarly situated are entitled to a tax
refund/credit corresponding to the difference between the assessed value based on the proviso and the assessed
value based on the then prevailing schedule of fair market values prepared by the City Assessor.
However, that entitlement to a tax refund does not necessarily call for the automatic payment of the sum claimed.
The amount of the claim being a factual matter, it must still be proven in the normal course and in accordance
with the administrative procedure for obtaining a refund of real property taxes, as provided under the Local
Government Code.
Under Section 253 of the Local Government Code, the claim for refund or credit for taxes must be filed before the
city treasurer who shall decide the claim based on the tax declarations, affidavits, documents and other
documentary evidence to be presented by petitioner.
RAMIE TEXTILES, INC. v. HON. MATHAY, supra
VIII. ROLE OF THE BUREAU OF LOCAL GOVERNMENT FINANCE (BLGF)
PLDT v. PROVINCE OF LAGUNA (2005)
PLDT v. CITY OF DAVAO (2001)
PLDT v. CITY OF BACOLOD, ET. AL. (2005) The Bureau of Local Government Finance (BLGF) is not an
administrative agency whose findings on questions of facts are given weight and deference in the
courts. The BLGF was created merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property assessment and other related matters. The
BLGF ruling which exempted PLDT from local franchise tax should not be given more weight to a decision of the
CTA, for the latter is a highly specialized court which performs judicial functions of reviewing tax cases.
PLDT V. CITY OF DAVAO (2003)
CITY OF ILOILO v. SMART COMMUNICATIONS, INC. (2009)
DIGITEL TELECOMMUNICATIONS PHILIPPINES, INC. v. CITY GOVERNMENT OF BATANGAS (2008)
BLGF has no authority The Bureau of Local Government Finance of the Department of Finance has NO
authority to rule on claims for exemption from the real estate tax, based on its functions listed in EO 292.
The legislative franchise granted to Digitel clearly intended Digitel to pay all taxes, except only the tax on the
franchise itself.

ALS2014B
ALS2014B 344 of 365
"#$
TARIFF AND CUSTOMS CODE
I. INTRODUCTION
A. General rules for the interpretation of the Asean Harmonized Tariff Nomenclature (AHTN)
Sec. 103, TCCP
B. Rates of import duty
Sec. 104, TCCP
Sec. 204, TCCP
C. Rate of exchange
Sec. 203, TCCP
D. Imported articles subject to duty
Sec. 100, TCCP
E. Conditionally-free importations
Sec. 105, TCCP
F. Prohibited Importations
Sec. 101, TCCP
AUYONG HIAN v. COURT OF TAX APPEALS, ET. AL. (1981) On November 8, 1962, the Collector of Customs
instituted seizure proceedings against the 600 hogsheads of tobacco imported by Hian, and issued a warrant of
seizure and detention. On April 23, 1960 the Collector of Customs rendered a decision declaring the tobacco
forfeited to the government, and ordering the sale thereof at public auction on June 10, 1963. The points raised in
the assignment of errors boil down to the question of whether or not the seizure, forfeiture and the sale of the 600
hogsheads of Virginia leaf tobacco that were imported into the country at the instance of petitioner Auyong Hian
was valid. There is no question, as this Court has declared, that the importation made in December, 1961, of
tobacco leaf in question was illegal. The same was made in clear violation of the policy enunciated in Republic
Act No. 698, approved May 9, 1952 limiting the importation of foreign leaf tobacco, and also of its amendatory
Act, Republic Act No. 1194, approved August 25, 1954. These' statutes not only limit the importation of Virginia
leaf tobacco but also provide that these shall be allocated and distributed by the Monetary Board of the Central
Bank among legitimate manufacturers of Virginia-type cigarettes. Although the illegally imported subject tobacco
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.
Petitioner Auyong Hian would, accordingly, not even be entitled to redeem, even if he wanted to, the forfeited
tobacco, for the surrender to him of said tobacco would be contrary to law, because petitioner could not really be
legally entitled to import it inasmuch as he was not a legitimate manufacturer of Virginia-type cigarettes, among
whom alone shall be allocated and distributed by the Monetary Board of the Central Bank the Virginia-type leaf
tobacco authorized to be imported.
GEOTINA v. COURT OF TAX APPEALS (1971) A vessel arrived at the Port of Manila carrying cartons of fresh
apples consigned to herein petitioner Unitrade, Inc. After payment of the taxes and duties on the portion of the
shipment covered by the bills of lading, the necessary transfer permits were issued by the Collector of Customs of

ALS2014B
ALS2014B 345 of 365
"#$
Manila. While this portion of the importation was being unloaded from the carrying vessel and transported to the
designated cold storage house, the Collector issued warrants of seizure and ordering the seizure of a portion
of the goods already unloaded and their detention for allegedly having been imported in violation of
Central Bank Circulars Nos. 289, 294 and 295. Before the entire shipment could be unloaded, the Collector
apparently changed his mind and ordered that the goods already unloaded be returned to the vessel. Petitioner,
through its broker, requested the discharge of said articles from the carrying vessel and their delivery to it under
bond, but was denied. As per the Collectors decision, The subject shipment, undoubtedly, belongs to a
commodity classification of merchandise the importation of which is prohibited under Central Bank Circular Nos.
289, 294 and 295. Since CB circulars form part of the Tariff and Customs Law (Sec. 3514, R.A. 1937, as
amended), the aforementioned importation may be considered prohibited under Section 102(k) of the Tariff and
Customs Code. Upon appeal, the Customs Commissioner and the CTA affirmed the Collectors ruling in denying
the request.
An urgent motion was filed by Unitrade alleging malfunctioning of the reefer machinery of the carrying vessel,
however, the tax court per its order, allowed the immediate discharge upon payment of bond, of the fruits and
their deposit in a customs bonded warehouse "under conditions as to prevent or arrest spoilage or deterioration
pending final determination of the case on the merits."
Issue: Whether or not the fresh apples in question are "articles of prohibited importation."
Held: YES. The tax court failed to take note that articles of prohibited importation under section 102 of the code are of
two categories, viz, those which are absolutely prohibited or more commonly known as contraband, such as
explosives or prohibited drugs, and other articles which are considered qualifiedly prohibited referring to
those which may be imported subject to certain restrictions or limitations. But as has been observed, the legal
effects of an authorized importation of qualifiedly prohibited articles are the same as those of an importation
of contraband: "an article imported or attempted to be imported in violation of regulations of the Central Bank is
considered an article of prohibited importation and is subject to forfeiture in like manner as an article the
importation of which is absolutely prohibited under Section 102 of the Tariff & Customs Code."
None of the above-cited pertinent provisions of the tariff and customs code requires that the questioned
importation be of articles of absolutely prohibited importation for the customs authorities to prevent their entry or
importation or enforce their seizure and forfeiture.
UTE PATEROK v. BUREAU OF CUSTOMS (1991) Petitioner shipped from Germany to the Philippines two
containers, one with used household goods and the other two used automobiles (one Bourgetti and one Mercedes
Benz). The first container and the Bourgetti car were released by the BOC, but not the Mercedes Benz, which
remained in custody of the Bureau. Petitioner then received a notice of hearing, informing him that seizure
proceedings were being initiated against the said Mercedes Benz. While this case was pending, petitioner received
a letter from the District Collector of Customs, informing her that a decision ordering the forfeiture of her
Mercedes Benz had been rendered. Petitioner did not know that the same Mercedes Benz was subject to two
different forfeiture proceedings. He only found out later that the Notice of Hearing for the forfeiture proceedings
before the District Collector was posted on the bulletin board of the BOC, at Port Area, Manila.
Issue: Whether or not seizure and forfeiture was proper in the instant case.
Held: Yes. (though there was no sufficient compliance with requirement of notice and hearing under the due process
clause) The seizure and forfeiture proceedings was based on a violation of B.P. 73, specifically a law that
promotes energy conservation and prohibits the importation, manufacture or assembling of gasoline-powered
passenger motor cars with engine displacement of over 2,800 cubic centimeters. The Mercedes Benz subject of
this case has an engine displacement of over 2,800 cubic centimeters, which clearly falls within the prohibited
importation and as such, is liable for seizure and forfeiture by the public respondents.
G. Articles entitled to duty drawback
Sec. 106, TCCP

ALS2014B
ALS2014B 346 of 365
"#$
II. BASIS OF ASSESSMENT OF DUTY
A. Basis of dutiable value
Sec. 201, TCCP
COMMISSIONER v. PROCTER & GAMBLE (1989) For the purpose of computing the ad valorem rate of
duty of an imported article, the consular commercial invoice is not conclusive on the government, in case of
reasonable doubt, the correct dutiable value of the article may be ascertained by the reports of the Revenue or
Commercial Attache. Procter and Gamble imported bags of soda ash from Japan, and such were valued at
$37,606 on the Consular Invoice of Merchandize. These goods were reappraised by the Bureau of Customs at a
higher rate of $61,400 using the Bureau of Customs Request for Value Importation Classification. The issue is
whether duties should be based on the home consumption value (based on the invoice) or based on reports of the
Attache. The Court ruled that although the general rule is that duties are to be based on the home consumption
value as reflected in the invoice, an exception exists where there is reasonable doubt as to the value or price
declared. In such a case, duties may be determined on the basis of reports of the Revenue or Commercial Attache
(called the established or information value). In addition, the established or information value need not be
published before the same may be used as the basis for computing the correct dutiable value.
COMMISSIONER v. COURT OF TAX APPEALS (1988) In 2 separate instances, the Collector of Customs
increased the dutiable value of refrigerating machinery parts and other spare parts imported by Lovsted & Co.,
Inc. based on an alleged alert notice rather than on the values declared in consular invoices resulting in the
payment of additional duties and taxes. Held: The appraisals made by the Bureau of Customs of the dutiable
values of the imported shipments were not in accordance with Sec. 201 of the Tarriff and Customs Code but were
made arbitrarily without the requisite publications. The dutiable value of an imported article subject to an ad
valorem rate of duty is based on its home consumption value or price as freely offered for sale in wholesale
quantities in the ordinary course of trade in the principal markets of the country from where exported on the date
of exportation to the Philippines. That home consumption value or price is the value or price declared in the
consular, commercial, trade or sales invoice. Lovsted quoted the prices of the imported merchandise in the
corresponding Import Entries as declared in the consular invoices. Reasonable doubt regarding the declarations
was not established to have existed such that recourse to other information was not necessary. The requirement of
publication of the lists of dutiable values of imported articles from time to time was neither complied with. The
Bureau of Customs made reappraisals based on Alert Notices received from Foreign Trade Promotion Attachs
abroad which were not disclosed to Lovsted nor exhibited to the Court. Such appraisals were against the
provisions of Sec. 201.
COMMISSIONER v. CTA AND NCR CORPORATION (PHILS.) (1991) The dutiable value of imported article
shall be based on the home consumption value or price in the Customs Valuation Circular of the Bureau of
Customs. In this case NCR corporation (Phil) paid customs duty and advanced sales tax from 10 adding machines
it imported from NCR Japan. The customs duty was based on the declared value shown in consular and
commercial invoice. Customs Appraiser, however reassessed and required NCR to pay additional sums of money
for customs duty. The issue now lies as to what should be the basis for determining the dutiable vale of imported
commodities. The SC held that dutiable of an imported article shall be based on home consumption value of
same, like or similar article. As a general rule: Home consumption value shall be the value declared in the
consular commercial , trade or sales invoice. In case theres reasonable doubt as to the true vale of the imported
article, the value shall be based on the reports of the Foreign Trade Promotion attach. In this case, the veracity
of the figure contained had been questioned in the re-assessment. Because NCR failed to prove that such figure
truthfully reflect the value of imported goods, the value affirmed by Bureau of Customs must be followed.
COCA-COLA EXPORT CORP. v. THE COMMISSIONER OF INTERNAL REVENUE (1974) Coca-Cola
Export Corporation is a New York-based subsidiary ("Coke NY") of The Coca-Cola Company engaged in the
manufacture and sale of Coca-Cola concentrate in Delaware ("Coke-Delaware"). San Miguel Brewery (SMB) was
the exclusive bottler of Coca-Cola in the Philippines. The Agreement: Coke-Delaware would sell and deliver to
Coke-NY at $1.634/kilo (import invoice value) the concentrate required by SMB; then Coke-NY would ship,

ALS2014B
ALS2014B 347 of 365
"#$
invoice, and sell the concentrate to SMB at the price stipulated in their "Bottlers Agreement". From 1951 to 1957,
respondents would collect the advance sales tax on the concentrate received from Coke-NY on the basis of its
import invoice value ($1.634/kilo) as certified by the Philippine Consul at the port of origin. Beginning
February 1957, Collector of Customs (as agent of CIR) started assessing the advance sales tax on the basis of the
SELLING PRICE at which petitioner sold the concentrate to SMB, as he determined in an administrative
investigation (it came up to $6.70/kilo). Coke-NY paid the assessed deficiency under protest and asked for a
refund from the CIR, who did not act on said demand; thus, the case was brought up to the CTA. The law
provides that the advance sales tax on an imported article which is taxable under Sec. 186 of the Revenue
Code is the IMPORT INVOICE VALUE thereof plus expenses (freight, postage, insurance, commission,
customs duty, and similar charges) and 25% of such total value. Coke-NY says the "import invoice value" is
$1.634/kilo as shown in the bill of lading. The CIR says the "import invoice value" is $6.70.
Since Coca-Cola-NY's office sent and invoiced the Coca-Cola concentrate to its Philippine branch at the same
price for which it was procured from the Coca-Cola-Delaware as manufacturer, the invoiced price was merely
an intracompany transfer price being the same price of procurement. Where the face value of the importation
as stated in the invoices is manifestly underdeclared, customs authorities are duty-bound to ascertain the correct
price. Said import invoice value as attested by the consular certification can in no way be deemed conclusive
upon the government. If that were the case, importers could defraud the government by simply reducing the face
value of such invoices and certifications. The rule is that the value of merchandise fixed by the appraiser and
affirmed by the Collector of Customs is conclusive in the absence of an affirmative showing that the
appraiser, in assessing the value, proceeded upon a wrong principle and contrary to law.
B. Basis of dutiable weight
Sec. 202, TCCP
COMMISSIONER v. DELGADO SHIPPING (1990) Delgado Shipping, agent of SS Eurygenes, was held liable by
the Commissioner of Customs, for violating Sec. 2523 of the Tariff and Customs Code. The gross weight of the
shipment as declared in the Bill of Lading was less than the actual weight. If the gross weight of any article or
package described in the manifest exceed by more than 20%, the gross weight as declared in the manifest or bill
of lading thereof, and the Collector shall be of the opinion that such discrepancy was due to the carelessness or
incompetency of the master or pilot in command, owner or employee of the vessel or aircraft, a fine of not more
than 15% of the value of the package or article in respect to which the discrepancy exists, may be imposed upon
the importing vessel or aircraft. The evident purpose of the codal provision requiring vessels to declare the correct
weight of their cargo is to curb smuggling due to under declarations. Hence, imposing the maximum fine on
vessels which grossly fail to comply with the obligation to declare the correct weight of their cargo truly promotes
the spirit and purpose of the law, since imposing a minimum fine would only embolden would-be smugglers and
foster gross negligence on the part of the master of the vessel in checking the true weight of the cargo.
III. SPECIAL DUTIES
A. Anti-Dumping Duty
Sec. 301, TCCP
B. Countervailing Duty
Sec. 302, TCCP
C. Marking Duty
Sec. 303, TCCP

ALS2014B
ALS2014B 348 of 365
"#$
D. Discriminating Duty
Sec. 304, TCCP
IV. ASCERTAINMENT AND COLLECTION OF IMPORT DUTY
PSPC v. REPUBLIC (2008) The present controversy sprang from the cancellation of tax debit memos (TDMs) and
the corresponding tax credit certificates (TCCs) assigned to petitioner Pilipinas Shell Petroleum Corporation
(Shell) by various entities. Some of these TCCs were subsequently accepted as payment by the Bureau of
Customs (BOC) for petitioner's taxes and import duties in 1997 and 1998.
Secretary Edgardo B. Espiritu of the Department of Finance (DOF) informed petitioner that its TDMs and TCCs
were fraudulently issued and transferred. Petitioner assailed the action of the DOF. Thus, petitioner filed a formal
protest. However, the BOC did not act on this protest. Consequently, petitioner filed a petition for review
questioning the legality of the cancellation of the TCCs in the Court of Tax Appeals Meanwhile, respondent filed
a complaint for collection 16 in the Regional Trial Court (RTC) of Manila. Petitioner essentially contends that the
RTC had no jurisdiction over the collection case inasmuch as the CTA had not yet decided the petition for review.
34 Therefore, the RTC should have dismissed the collection case and transferred it to the CTA where it should be
treated as a counterclaim (in the petition for review). Is it proper for the BOC to file the collection case in the
RTC? Yes. Import duties constitute a personal debt of the importer that must be paid in full. The importer's
liability therefore constitutes a lien on the article which the government may choose to enforce while the imported
articles are either in its custody or under its control. When respondent released petitioner's goods, its
(respondent's) lien over the imported goods was extinguished.Consequently could only enforce the payment of
petitioner's import duties in full by filing a case for collection against the petitioner
CHEVRON PHILIPPINES, INC. v. COMMISSIONER OF THE BUREAU OF CUSTOMS (2008) Filing of the
IEDs alone does not constitute the entry required by the TCC. The IEIRD must be filed in order to
constitute entry because the IED is merely provisional.
Chevron Philippines imported petroleum products into the Philippines. Upon unloading of the products, the
import entry declarations (IEDs) were immediately filed. On a later date. more than 30 days after unloading of the
cargo, the import entry and internal revenue declarations (IEIRDs) were filed. According to the Tariffs and
Customs Code (TCC), imported articles must be entered within a non-extendible period of 30 days from
the date of discharge of the last package from the vessel. Otherwise, the imported goods would be deemed
abandoned and forfeited in favor of the government. The issue in the case was whether filing of the IEDs already
constituted the entry required by the TCC. (The IED serves as basis for the payment of advance duties on
importations, and are merely provisional. Whereas, the IEIRD evidences the final payment of duties and taxes.)
The SC held that filing of the IEDs alone does not constitute the entry. The IEIRD must be filed in order
to constitute entry because the IED is merely provisional. In this case, the IEIRDs were filed beyond the 30
day period allowed by the TCC. Consequently, the imports were impliedly abandoned and forfeited in favor of the
government. When Chevron withdrew the products from the customshouse after this implied abandonment, it
became liable for the dutiable value of the shipments amounting to ~Php900M.
A. When importation begins and deemed terminated
Sec. 1202, TCCP
VIDUYA v. BERDIAGO (1987) Rolls Royce, importation terminates upon payment in full of all duties, fees,
etc., jurisdiction over the goods Collector Customs of the Port of Manila Viduya filed this case because the
search warrant he applied for was quashed by the Judge Reyes. This search warrant is to seize a Rolls Royce car
which imported by Berdiago from Hong Kong which has been kept in his residence. It was discovered that the car
evaded the customs duties due upon it by changing the year model of the car upon arrival in the port of Manila,
making Berdiago pay for much less than what he should have been charged.

ALS2014B
ALS2014B 349 of 365
"#$
Though the power of the Bureau of Customs to search and seize such articles which are in violation of the Tariff
and Customs Code, does not need any search warrant, seizing such car located in the residence of Berdiago is
needed for it may violate Berdiago's constitutional right to be free from unreasonable searches.
The case also mentioned that the seizure is well within the bureau's powers because as long as the importation
has not been terminated, the imported goods remain under the jurisdiction of the Bureau of Customs.
Importation is deemed terminated only upon payment of the duties, taxes, and other charges had not been paid in
full. The payment of the duties, taxes, and fees must be in full. In this case, Berdiago is deemed to have not
paid the taxes upon his Rolls Royce in full, meaning, jurisdiction of the Bureau of Customs is still over the said
car and may seize the same. The Supreme Court granted Viduya's claim to avail of the said search warrant.
B. Who is deemed owner of imported articles
Sec. 1203, TCCP
C. Liability of importer for duties
Sec. 1204 ,TCCP
MENDOZA v. DAVID (1961) Customs may order seizure of goods due to violation of customs laws - An
importation of 1,000 crates of onions arrived at the port of Manila. Since the importer did not file any entry,
Collector of Customs advertised the merchandise for sale at a public auction. Mendoza wrote a letter to the
Collector of Customs reclaiming the merchandise. Request denied. Mendoza filed for mandamus with
preliminary injunction seeking to restrain the Collector of Customs from selling the onion at a public auction and
to make him deliver the goods to Mendoza. Collector ordered the seizure of the shipment due to Mendozas
violation of customs laws. The action was changed from a sale (in a public auction) to a forfeiture. A
seizure case was instituted at the customs court. Trial court ordered the dismissal of the case because Mendoza
abandoned the merchandise having discovered that 96 crates had greatly deteriorated. Collector was left free to
continue with the seizure proceeding with regard to the final disposition of the merchandise.
REPUBLIC v. HON. PERALTA, ET. AL. (1987) Under Section 1204 of the Tariff and Customs Code, 12 the
liability of an importer for duties, taxes and fees and other charges attaching on importation constitute a personal
debt due from the importer to the government which can be discharged only by payment in full of all duties,
taxes, fees and other charges legally accruing. It also constitutes a lien upon the articles imported which may be
enforced while such articles are in the custody or subject to the control of the government.
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of a specially
preferred credit under Article 2241, No. 1, of the Civil Code. Only in respect of the articles importation of which
by the Insolvent resulted in the assessment of the unpaid taxes and duties, and which are still in the custody or
subject to the control of the Bureau of Customs. The goods imported on one occasion are not subject to a lien for
customs duties and taxes assessed upon other importations though also effected by the Insolvent. Customs duties
and taxes which remain unsatisfied after levy upon the imported articles on which such duties and taxes are due,
would have to be paid out of the Insolvent's "free property" in accordance with the order of preference embodied
in Article 2244 of the Civil Code. Such unsatisfied customs duties and taxes would fall within Article 2244, No.
9, of the Civil Code and hence would be ninth in priority.
INTRA-STRATA ASSURANCE CORPORATION, ET. AL. v. REPUBLIC OF THE PHILIPPINES (2008)
Intra-Strata Assurance Corp and Philippine Home Assurance Corp were sureties of Grand Textile, a
manufacturing corporation who exported goods that were held in the Customs Bonded Warehouse. Both Surety
companies filed the necessary bond in favour of the Bureau of Customs with a provision which stated, that the
goods held were to be released only on payment of the legal customs duties, internal revenue, and other charges
to which they shall then be subject. Grand Textile thereafter withdrew the goods without paying the legal duties
and other internal revenue charges. The Bureau of Customs then demanded payment from all three parties. The
lower court, CA and the SC all ruled in favour of the Bureau. The legal issue presented was whether the

ALS2014B
ALS2014B 350 of 365
"#$
withdrawal of the stored goods, wares, and merchandise - without notice to them as sureties - released them from
any liability for the duties, taxes, and charges they committed to pay under the bonds they issued. In relation to
this they further argue that they cannot be held liable for the unpaid customs duties, taxes, and other charges
because it is the Bureau of Customs' duty to ensure that the duties and taxes are paid before the imported goods
are released from its custody and they cannot be made to pay for the error or negligence of the Bureau's
employees in authorizing the unlawful and irregular withdrawal of the goods. HELD: The nature of a surety
agreement is precisely to pay for the default of the principal, hence they cannot argue that they could not be held
liable. The court explained that Demand on the surety is not necessary before bringing the suit against them.
On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given
notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the
interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal
cannot have the effect of discharging the surety. The surety is bound to take notice of the principal's default and to
perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special
agreement to that effect in the contract of suretyship. On the matter of the Bureaus negligence, the court held that
the government cannot be held in estoppel especially when it comes to the collection of taxes. It is axiomatic that
the government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which the State
effects its functions for the welfare of its constituents. Thus, it should be collected without unnecessary
hindrance or delay.
V. REMEDIES OF GOVERNMENT
A. Search, seizure and arrest
Secs. 2202-2212, TCCP
Secs. 2301-2306, TCCP
ASIAN TERMINALS, INC. v. BAUTISTA-RICAFORT (2006) RA 8506 provides that it shall be unlawful for any
person to import, cause the importation of, register, cause the registration of, use or operate any vehicle with its
steering wheel right hand side thereof in any highway, street or road, whether private or public, or at the national
or local.
The private respondents, as duly licensed vehicle importers, imported 72 secondhand right-hand drive buses from
Japan. When the shipment arrived in Manila, the District Collector of Customs impounded the vehicles, storing
them at a customs-bonded warehouse owned by Asian Terminals Inc. (ATI). The vehicles were to be sold at a
public auction.
Thereafter, the Secretary of Justice rendered an opinion, stating that shipments of right-hand drive vehicles loaded
at the port of origin before the effectivity of RA 8506 should not be covered by the law. Pursuant to this, the
importers filed a petition for replevin before the RTC, claiming that the vehicles seized by the District Collector
are not covered by the prohibition. The importers further claim that the vehicles were imported with conversion
kits necessary to convert the right-hand vehicles to left-hand vehicles. The petition was granted. Initially, the
Chief of Customs police prevented the Sheriff from taking custody of the vehicles. However, upon order of the
court, the District Collector allowed the sheriff to to take custody of the vehicles upon the condition that taxes,
dues and charges be paid. Thus, upon payment, the importers were able to take custody of the vehicles over the
objection of ATI.
ATI thereafter filed a motion before the OSG, seeking reconsideration. The OSG ruled that the Bureau of
Customs through ATI, had exclusive jurisdiction over the vehicles. ATI then filed a third-party claim over the
shipment, claiming that it had a lien over the vehicles for unpaid storage, arrastre and wharfage charges. A series
of motions were filed and the matter was brought to the RTC, which dismissed the original complaint, the CA
which affirmed the dismissal, and thereafter, the SC.
Issue: W/N the RTC had jurisdiction to issue the writ of replevin

ALS2014B
ALS2014B 351 of 365
"#$
Held: No. Section 602 of the TCC provides that the Bureau of Customs shall exercise exclusive jurisdiction over
seized and forfeited cars. Under Section 2301 of the TCC, the Collector of Customs is empowered to make a
seizure of cargoes and issue a receipt for the detention thereof. Thus, the Regional Trial Courts are devoid of
any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by
the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. It is the Collector of
Customs, sitting in seizure and forfeiture proceedings, who has exclusive jurisdiction to hear and determine all
questions touching on the seizure and forfeiture of dutiable goods. The writ of replevin issued by the RTC
was void.
The forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the
owner. It 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.
COMMISSIONER OF CUSTOMS v. CA (2006) The whole controversy revolves around a vessel and its cargo. On
January 7, 1989, the vessel M/V "StarAce," coming from Singapore laden with cargo, entered the Port of San
Fernando, La Union (SFLU) for needed repairs. The vessel and the cargo had an appraised value, at that time, of
more or less P200,000,000. When the Bureau of Customs later became suspicious that the vessels real purpose in
docking was to smuggle its cargo into the country, seizure proceedings were instituted under S.I. Nos. 02-89 and
03-89 and, subsequently, two Warrants of Seizure and Detention were issued for the vessel and its cargo.
Respondent Cesar S. Urbino, Sr., does not own the vessel or any of its cargo but claimed a preferred maritime lien
under a Salvage Agreement dated June 8, 1989. To protect his claim, Urbino initially filed two motions in the
seizure and detention cases: a Motion to Dismiss and a Motion to Lift Warrant of Seizure and Detention.
Apparently not content with his administrative remedies, Urbino sought relief with the regular courts by filing a
case for Prohibition, Mandamus and Damages before the RTC of SFLU, seeking to restrain the District Collector
of Customs from interfering with his salvage operation. The RTC of SFLU dismissed the case for lack of
jurisdiction because of the pending seizure and detention cases. Urbino then elevated the matter to the CA. The
Commissioner of Customs, in response, filed a Motion to Suspend Proceedings, advising the CA that it intends to
question the jurisdiction of the CA before this Court. The motion was denied. Hence, in this petition the
Commissioner of Customs assails the Resolution "F" recited above and seeks to prohibit the CA from continuing
to hear the case.
Issue: Whether Urbino's claim is a preferred lien in this case.
Held: No. x x x First of all, the Court finds the decision of the RTC of Manila, insofar as it relates to the vessel
M/V"Star Ace," to be void as jurisdiction was never acquired over the vessel. In filing the case, Urbino had
impleaded the vessel as a defendant to enforce his alleged maritime lien. This meant that he brought an action in
rem under the Code of Commerce under which the vessel may be attached and sold.
However, the basic operative fact for the institution and perfection of proceedings in rem is the actual or
constructive possession of the res by the tribunal empowered by law to conduct the proceedings. This means that
to acquire jurisdiction over the vessel, as a defendant, the trial court must have obtained either actual or
constructive possession over it. Neither was accomplished by the RTC of Manila. In his comment to the petition,
Urbino plainly stated that "petitioner has actual [sic] physical custody not only of the goods and/or cargo but the
subject vessel, M/V Star Ace, as well." This is clearly an admission that the RTC of Manila did not have
jurisdiction over the res. While Urbino contends that the Commissioner of Customs custody was illegal, such
fact, even if true, does not deprive the Commissioner of Customs of jurisdiction thereon. This is a question that
ought to be resolved in the seizure and forfeiture cases, which are now pending with the CTA, and not by the
regular courts as a collateral matter to enforce his lien. By simply filing a case in rem against the vessel, despite
its being in the custody of customs officials, Urbino has circumvented the rule that regular trial courts are devoid
of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted in the
Bureau of Customs, on his mere assertion that the administrative proceedings were anullity. On the other hand,
the Bureau of Customs had acquired jurisdiction over the res ahead and to the exclusion of the RTC of Manila.

ALS2014B
ALS2014B 352 of 365
"#$
The forfeiture proceedings conducted by the Bureau of Customs are in the nature of proceedings in rem and
jurisdiction was obtained from the moment the vessel entered the SFLU port. Moreover, there is no question that
forfeiture proceedings were instituted and the vessel was seized even before the filing of the RTC of Manila case.
The Court is aware that Urbino seeks to enforce a maritime lien and, because of its nature, it is equivalent to an
attachment from the time of its existence. Nevertheless, despite his liens constructive attachment, Urbino still
cannot claim an advantage as his lien only came about after the warrant of seizure and detention was
issued and implemented. The Salvage Agreement, upon which Urbino based his lien, was entered into on June 8,
1989. The warrants of seizure and detention, on theother hand, were issued on January 19 and 20, 1989. And to
remove further doubts that the forfeiture case takes precedence over the RTC of Manila case, it should be noted
that forfeiture retroacts to the date of the commission of the offense, in this case the day the vessel entered
the country. A maritime lien, in contrast, relates back to the period when it first attached, in this case the earliest
retroactive date can only be the date of the Salvage Agreement. Thus, when the vessel and its cargo are ordered
forfeited, the effect will retroact to the moment the vessel entered Philippine waters. Accordingly, the RTC of
Manila decision never attained finality as to the defendant vessel, inasmuch as no jurisdiction was acquired over
it, and the decision cannot be binding and the writ of execution issued in connection therewith is null and void.
UY KHEYTIN v. VILLAREAL (1920) A search warrant was issued to search an alleged Opium Den. The warrant
specified search for Opium at the specified place. However, Uy Kheytin's books and documents had been seize to
conduct an investigation and later use all or some of the articles in question as evidence against him in the
criminal cases that may be filed against him. The seizure of books and documents by means of a search warrant,
for the purpose of using them as evidence in a criminal case against the person in whose possession they were
found, is unconstitutional because it makes the warrant unreasonable, and it is equivalent to a violation of the
constitutional provision prohibiting the compulsion of an accused to testify against himself
VIDUYA v. COLLECTOR (1976) Fraudulent documents were used by respondent Berdiago in securing the release
from the Bureau of Customs of a Rolls Royce car, which arrived in the Port of Manila on board the vessel, Jose
Abad Santos, it being made to appear that such car was a 1961 model instead of a 1966 one, thus enabling
respondent to pay a much lower customs duty. The issue here now is whether or not the Bureau of Customs still
has jurisdiction over the goods given that a much lower customs duty was paid for.
Yes. The goods in question were imported from Hongkong, as shown in the "Statement and Receipts of Duties
Collected on Informal Entry." As long as the importation has not been terminated the imported goods remain
under the jurisdiction of the Bureau of Customs. Importation is deemed terminated only upon payment of the
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. The payment of the duties, taxes, fees and other charges must be in full. The
record shows that the duties, taxes and other charges had not been paid in full.
CHIA v. COLLECTOR (1989) Tomas Chia is the owner of 2 establishments that were raided based on a verified
report of a confidential informant that assorted electronic and electrical equipment and articles illegally imported
were being sold therein. The Collector of Customs issued Warrants of Seizure and Detention directing the Anti-
Smuggling Action Center to seize the goods mentioned therein. Assorted electronic equipment and other articles
listed (in the Annex of the warrant) were recovered from the stores and turned over to the Customs Action and
Cargo Disposal Unit.
Chia questions the validity of the warrants of seizure and detention, alleging that they are general warrants and are
therefore violate the Rules of Court (on search warrants) and the Bill of Rights of the 1973 Constitution (on
unreasonable searches and seizures).
The Court did not find merit in the petition. Goods may be seized without a search and seizure warrant under
Sec. 2536 of the Customs and Tariff Code (TCC) when they are openly offered for sale or kept in storage in a
store, as in this case. Furthermore, the TCC provides that a search may be made without a warrant if the place
searched is not a dwelling house. However, the stores in this case were searched upon warrants of search and
detention validly issued by the Commissioner of Customs, who was a responsible officer authorized by law to
issue them. Moreover, the warrants issued in this case were not general warrants for they identified the stores to

ALS2014B
ALS2014B 353 of 365
"#$
be searched, described the articles to be seized and specified the provisions of the Tariff and Customs Code
violated.
ACTING COMMISSIONER OF CUSTOMS v. CTA AND CHARLES ANDRULIS (1984) Absconding
businessman. Burden of proof in seizure/forfeiture proceedings Andrulis represented himself as an American
businessman engaged in Joint Ventures with his Filipino Counterparts arrived in manila and checked in at
Century park Sheraton hotel but later on left the hotel surreptitiously without paying his bills. The Chief Security
Officer of the hotel timely discovered Andrulis scheduled departure. Customs authorities searched for him
among the passenger of PAL bound for Singapore. Andrulis locked himself in the cr and in the end slipped $300
through an opening. Later on he yielded to authorities and surrendered the luggage he was carrying which
contained various currencies (US$, Indonesian Rupiah, Sing$) Proceedings for the seizure of the foreign
currencies were also commenced at the Customs Office of the MIA. The core issue is who has the burden of proof
in seizure or forfeiture proceedings. Section 2535 of the Tariff and Customs Code states In all proceedings taken
for the seizure and/or forfeiture of any vehicle, vessel, aircraft, beast or articles under the provisions of the tariff
and customs laws, the burden of proof shall lie upon the claimant: Provided, That probable cause shall be first
shown for the institution of such proceedings and that seizure and/or forfeiture was made under the circumstances
and in the manner described in the preceding sections of this Code. Upon the facts of the case, the requirement of
the law that the existence of probable cause should first be shown before firing of the forfeiture proceedings, had
been fully met. When Andrulis was apprehended at the MIA and was found to have in his possession the various
foreign currencies, he could not produce the required Central Bank authorization allowing him to bring them out
of the country. This constituted prima facie evidence of infringement of the provisions of CB Circular No. 534
and provided sufficient basis for the seizure 'of the said foreign exchange. Probable cause having been shown, the
burden of proof was upon Andrulis to establish that he fell within the purview of the exception prescribed in the
second paragraph of the aforequoted Section 3 of CB Circular No. 534 in that he actually brought into the country
the foreign currencies and was just taking them out.7 This burden, Andrulis had failed to satisfactorily discharge.
JULIO LLAMADO v. COMMISSIONER OF CUSTOMS (1983) Planes landed at the Alabat airstrip, Quezon
Province, which unloaded cargo purported to be contrabands (de gaza lamps, kerosene, and blue seal fortune
cigs), and loaded on board other planes to be brought elsewhere. All landings and takeoffs were not recorded. A
warrant of seizure and detention of one of the planes (Cessna) was issued by the Collector of Customs of the Port
of Siain, Quezon Province, for violation of Section 2530 of the Tariff and Customs Code. After hearing, a
decision was rendered by the Collector of Customs declaring the forfeiture, later affirmed by the Commissioner
Of Customs, thereafter released upon giving of bond. CTA affirmed commissioner's ruling of forfeiture. Petitioner
owner contends said plane was not used to smuggle in goods since it was used to bring the de gaza lamps only
used to light the runway upon takeoff of the other planes.
The pertinent provision provides "Any vessel or aircraft, including cargo, which shall be used unlawfully in the
importation or exportation of articles into or from any Philippine ports or place except a port of entry x x x ", from
the foregoing, it can be gleaned that it is not necessary that the vessel or aircraft must itself carry the contraband.
There is nothing in the law that so requires. The use of the Cessna for smuggling operation is sufficient for it to be
deemed to have been used unlawfully in the importation or smuggling of blue seal cigarettes.
C.F. SHARP & CO. v. COMMISSIONER OF CUSTOMS (1968) A water patrol of the Bureau of Customs
apprehended a M/L Cheton, owned by C.F. Sharp, while it was passing through the breakwater of Manila loaded
with untaxed cigarettes. The vessel was seized and was immediately subjected to forfeiture proceedings. The
Law Division of the BOC recommended a fine of P1,000 instead of forfeiture. After formal hearing, the Collector
of Customs of the Port of Manila imposed a fine of P10,000. The decision was appealed to the Commissioner of
Customs and the Commissioner held that the vessel must be forfeited. This was appealed to the CTA and the
petition was denied. The Court held that the vessel be forfeited. There is no question that M/L Cheton was
apprehended carrying untaxed cigarettes of foreign origin without the necessary papers showing that they were
entered lawfully through a port of entry. There is no question also that said cigarettes were liable for forfeiture
pursuant to the Customs and Tariff Code. On the basis of the aforestated facts, the conclusion is inevitable that the
M/L Cheton was used in connection with unlawful importation of said cigarettes. The burden was therefore
shifted to the boat's owner to show that the carriage by M/L Cheton of the smuggled cigarettes was lawful. No

ALS2014B
ALS2014B 354 of 365
"#$
such showing was made. It would be absurd to require the Government to prove that a vessel was engaged in
smuggling, after it has already been caught red-handed, that is, loaded with smuggled goods.
LEUTERIO v. COMMISSIONER (1968) he Collector of Customs seized and declared the 100 crates of onions
consigned to Letuerio forfeited in favor of the Republic of the Philippines because the consignee had declared the
price of the onion sto be $1.20 per crate of 45 kilos, instead of $3.20. As such, the Collector of Customs said that
Letuerio had the intent to evade the internal revenue tax collectible by customs officers, making the importation in
violation of the Internal Revenue Law enforced by the Bureau of Customs. The SC declared that the seizure and
forfeiture was justified under Section 1363 (M), which states: SEC. 1363. Property subject to forfeiture under
custom laws. Vessels, cargo, merchandise, and other objects and things shall, under the conditions hereinbelow
specified, be subject to forfeiture:
(M) Any merchandise the importation or exportation of which is effected or attempted in any of the ways
or under any of the conditions hereinbelow described -
3. Upon the wrongful making by the owner, importer, exporter, or consignee of any merchandise, or by
the agent of either, of any declaration or affidavit, touching such merchandise and in connection with the
importation or exportation of the same.
4. Upon the wrongful making or delivery by the same person or persons, of any false invoice, letter or
paper touching such merchandise and in connection with the importation or exportation of the same.
5. Upon the causing or procurance, by the same person or persons, any merchandise to be entered or
passed at any customhouse by any other fraudulent practice, device, or omission or by means whereof the
government is or might be deprived of its lawful duties on such merchandise.
BASTIDA v. ACTING COMMISSIONER (1970) Bastida consigned a cargo with KLM bound for Italy. The cargo
however was blocked by customs authorities because there were undeclared checks and money orders payable in
USD hidden under Minifons (recorders). The Minifons were the only items declared in the export license. The
checks were forfeited. Bastida contends that the checks may not be forfeited because they are not considered
"merchandise" under the Revised Admin Code. SC held that the checks are considered merchandise within the
purview of the admin code which defined merchandise as "in general anything that may be made the subject of
importation or exportation". Moreover, checks are more like money and because the checks are payable in USD
(which is not considered legal tender in the Philippines), the checks are considered merchandise insofar as US
dollar bills are considered "merchandise" in the Philippines. Under the Admin Code, forfeiture is warranted when
there is an attempt to export merchandise by using false declarations In connection with the exportation of the
same. The record conclusively shows that Bastida made a false declaration in his application for export license. In
the said document, he mentioned only the Minifons but omitted to declare the checks, money orders and dollar
bills. As regards this point, the Tax Court especially noted the "total silence of petitioner or respondent's charge of
false declaration under Section 1363(m) 3 and 4 of the Revised Administrative Code."
MENDOZA v. DAVID (1961) Customs may order seizure of goods due to violation of customs laws - An
importation of 1,000 crates of onions arrived at the port of Manila. Since the importer did not file any entry,
Collector of Customs advertised the merchandise for sale at a public auction. Mendoza wrote a letter to the
Collector of Customs reclaiming the merchandise. Request denied. Mendoza filed for mandamus with
preliminary injunction seeking to restrain the Collector of Customs from selling the onion at a public auction and
to make him deliver the goods to Mendoza. Collector ordered the seizure of the shipment due to Mendozas
violation of customs laws. The action was changed from a sale (in a public auction) to a forfeiture. A
seizure case was instituted at the customs court. Trial court ordered the dismissal of the case because Mendoza
abandoned the merchandise having discovered that 96 crates had greatly deteriorated. Collector was left free to
continue with the seizure proceeding with regard to the final disposition of the merchandise.
REPUBLIC v. BOCAR (1969) Notwithstanding the institution of seizure and forfeiture proceedings resulting in
the Commissioner of Customs forfeiting the goods in question, the lower court headed by Judge Bocar
assumed jurisdiction in a replevin suit.

ALS2014B
ALS2014B 355 of 365
"#$
Issue: W/N the judge has jurisdiction
Held: NO. Where the matter involved is a seizure and forfeiture proceeding, a court of first instance is devoid of
power to act. The customs authorities possess such competence with an appeal to the Court of Tax Appeals. In
appropriate cases, there may be further judicial review by the Supreme Court in the exercise of its certiorari
jurisdiction. The jurisdictional limits thus defined and apportioned, according to the Constitution, must be
respected. Judge Bocar clearly did not do so. No deference was paid to a host of cases that left no doubt as to their
lack of authority to assume jurisdiction.
FAROLAN v. CTA AND BAGONG BUHAY TRADING (1993)
FARM IMPLEMENT AND MACHINERY CO. v. COMMISSIONER OF CUSTOMS (1968)
UTE PATEROK v. BUREAU OF CUSTOMS (1991) Petitioner shipped from Germany to the Philippines two
containers, one with used household goods and the other two used automobiles (one Bourgetti and one Mercedes
Benz). The first container and the Bourgetti car were released by the BOC, but not the Mercedes Benz, which
remained in custody of the Bureau. Petitioner then received a notice of hearing, informing him that seizure
proceedings were being initiated against the said Mercedes Benz. While this case was pending, petitioner received
a letter from the District Collector of Customs, informing her that a decision ordering the forfeiture of her
Mercedes Benz had been rendered. Petitioner did not know that the same Mercedes Benz was subject to two
different forfeiture proceedings. He only found out later that the Notice of Hearing for the forfeiture proceedings
before the District Collector was posted on the bulletin board of the BOC, at Port Area, Manila.
Issue: Whether or not seizure and forfeiture was proper in the instant case.
Held: Yes. (though there was no sufficient compliance with requirement of notice and hearing under the due process
clause) The seizure and forfeiture proceedings was based on a violation of B.P. 73, specifically a law that
promotes energy conservation and prohibits the importation, manufacture or assembling of gasoline-powered
passenger motor cars with engine displacement of over 2,800 cubic centimeters. The Mercedes Benz subject of
this case has an engine displacement of over 2,800 cubic centimeters, which clearly falls within the prohibited
importation and as such, is liable for seizure and forfeiture by the public respondents.
REPUBLIC v. CFI OF MANILA, BRANCH XXII (1992) This is a petition on jurisdiction issues. It seeks to nullify
the ruling in Mayer Steel Pipe Corporation v. Acting Collector of Customs, Port of Manila. Ashipment of one
standard basic spiral pipe mill, contained in eleven (11) packages arrived at the Port of Manila on board "Puerto
Princessa. Upon representation of the Anti-Smuggling Action Center (ASAC) to the effect that the shipment was
grossly misdeclared, misclassified and undervalued, the Collector of Customs issued a warrant of seizure and
detention against the subject machinery. The petitioner contends that respondent court erred in arbitrarily taking
cognizance of the petition in the civil case "Mayer Steel Pipe Corporation, petitioner vs. Alfredo Francisco, in his
capacity as Acting Collector of Customs for the Port of Manila, respondent," despite the fact that jurisdiction
belongs to another forum.
Held: Clearly then, the question of seizure and forfeiture is for the Collector of Customs to determine in the first
instance and then the Commissioner of Customs. This is a field where the doctrine of primary jurisdiction
controls. Thereafter an appeal may betaken to the Court of Tax Appeals. A court of first instance is thus devoid
of competence to act on the matter.
A long line of cases, which goes as far back as 1913

have adopted the doctrine that the Collector of Customs when
sitting in forfeiture proceedings, constitutes a tribunal upon which the law confers jurisdiction to hear and
determine all questions touching the forfeiture and further disposition of the subject matter.
The prevailing doctrine is that the exclusive jurisdiction in seizure and forfeiture cases vested in the Collector of
Customs precludes a court of first instance from assuming cognizance over such a matter. The Bureau of Customs
acquires exclusive jurisdiction over imported goods, for the purposes of enforcement of the customs laws, from
the moment the goods are actually in its possession or control, even if no warrant of seizure or detention had
previously been issued by the Collector of Customs in connection with seizure and forfeiture proceedings.

ALS2014B
ALS2014B 356 of 365
"#$
GOVERNMENT v. GALE (1913) In a criminal proceeding, lottery tickets were held as illegally imported and the
judge ordered their destruction however, the Insular Collector of Customs who had custody of them objected
and applied for a writ of prohibition. He claimed that at the time the tickets were introduced as evidence in the
criminal action, they were already subject to confiscation proceedings and that the Insular Collector had already
assumed jurisdiction over them.
Under ordinary circumstances, the CFI has authority to order the confiscation and destruction of lottery
tickets upon conviction of the one found with such tickets unlawfully. This is because by their very nature
such instruments and articles cannot be used by their owner for any lawful purpose, and that their continued
existence may prove detrimental to the public welfare. However under special circumstances the destruction
of counterfeit money, weapons, gambling devices and the like found on the person or in the possession of a
convict, would not be justified where it is made to appear that these articles may prove to be of vital
importance as exhibits in the prosecution of other charges against the convict, or against other persons, in the
same or some other court
The Collector of Customs when sitting in forfeiture proceedings constitutes a tribunal upon which the law
expressly confers jurisdiction to hear and determine all questions touching the forfeiture and further disposition of
the subject matter of such proceedings, and since he had assumed jurisdiction over the lottery tickets in question it
was clearly the duty of the Judge of the Court of First Instance to abstain from any attempt to invade that
jurisdiction by ordering their destruction.
It was found that the real reason why the Judge refused to respect the jurisdiction of the Collector feared the
Collector would not comply with the law (destroy upon confiscation)if the tickets were returned to his possession.
Nevertheless, the fear that he may misconstrue or misapply the law in no wise justified the respondent
judge in invading his jurisdiction and ordering the destruction of the subject matter of the proceedings
pending before him.
COMMISSIONER v. CLORIBEL (1967) Teves entered into an agreement with NARIC for the importation of
collateral goods and exportation of rice. Teves acted as the agent of NARIC. Shortly after the execution of the
contract, the President suspended all rice exportations. But Teves, representing that he already had contractual
commitments here to supply third parties with the goods he intended to import, and likewise abroad for the barter
of local rice with foreign products, sought authority from the President to import ahead of the exportation. The
President granted his request. Teves then imported 22 shipments of merchandise. But the Customs Commissioner
withheld these shipments because there was no clearance from NARIC. Teves posted surety bonds for the release
of the shipments and these were accepted by the Customs Commissioner. The goods were released thereafter.
Teves then filed a suit in the Court of First Instance of Manila and prayed to the court to issue a writ of
preliminary mandatory injunction to cancel the bonds covering the shipments. The judge granted the injunction
prayed for. The issue is whether the CFI had jurisdiction over the petition. The court ruled that the CFI had no
jurisdiction since Section 7 of RA 1125 had taken away the power of courts of first instance to review the
actuations of the customs authorities in a case involving seizure, detention or release of property or other matters
arising under the Customs Law or other law administered by the Bureau of Customs. Section 7 gave the Court of
Tax Appeals exclusive appellate jurisdiction to review on appeal, decisions of the Commissioner of
Customs, involving "seizure, detention or release of property affected ... or other matters arising under the
Customs Law or other law administered by the Bureau of Customs". It matters not that no seizure proceedings
were had. Section 7 of the charter of the Court of Tax Appeals does not limit the appellate jurisdiction of said
court to seizure proceedings. The law employs the term "seizure, detention or release." The petition of Teves
cannot be divorced from the main issue which involves the legality of the importation. Resolution of this
issue necessarily determines the merits of the propositions advanced by Teves in his petition. The authority to
rule on the legality of the importation still rests with the Customs authorities; appeal from the decision of
the Commissioner is to the Court of Tax Appeals. But since the Commissioner had not yet ruled on the legality
of the importation, Teves may appeal to the CTA only after an adverse decision is rendered by the Commissioner.
AUYONG HIAN v. CA (1967) & (1974) Auyong Hian applied with the Import Control Commission, and was
granted, 4 no-dollar remittance licenses to import Virginia leaf tobacco with an aggregate value of $2M. He filed

ALS2014B
ALS2014B 357 of 365
"#$
his application on June 29, 1953 and was advised of the approval of his application the following day, which is
incidentally the day the Import Control Law or RA 650 expired. While negotiations for the importation of
Virginia leaf tobacco pursuant to said licenses were undertaken by the licensee, it was not until 1961 that 600
hogsheads of Virginia leaf tobacco arrived in the Philippines aboard the "SS Fernstate". The Collector of Customs
of Manila refused to release the said shipment of Virginia leaf tobacco to petitioner, apparently in view of his
doubt as to the legality of the importation. Thus, petitioner instituted an action for mandamus in the CFI of
Manila, to compel the respondents Collector of Customs and Commissioner of Customs to release and deliver to
petitioner the tobacco in question. In 1962, Judge Barcelona of CFI issued an order directing the Collector of
Customs and the Commissioner of Customs to release the tobacco to the petitioner upon the latter's filing a bond
of P300,000. The Commissioner of Customs and the Collector of Customs filed a petition for certiorari in the
Supreme Court questioning the jurisdiction of the CFI to order the release of the tobacco shipment and praying for
the annulment of the order of said court directing the release of the tobacco. The Court, CFI had no jurisdiction to
issue the order directing the Commissioner of Customs and the Collector of Customs to release the 600 hogsheads
of Virginia leaf tobacco in question to the petitioner, and incidentally declared that the importation of the tobacco
was illegal upon the ground that the importation was made long after the Import Control Law had expired and that
the importation was in contravention of the policy of the government. Subsequently, Collector of Customs in
instituted seizure proceedings, (Seizure Identification No. 6669), against the 600 hogsheads of Virginia leaf
tobacco consigned to the petitioner. In 1963, the Collector of Customs rendered his decision declaring said 600
heads of tobacco forfeited to the Government and ordered the sale thereof at public auction. The sale at public
auction was set for June 10, 1963. The petitioner received a copy of said decision on May 7, 1963, and on May
21, 1963, the petitioner filed with the Collector of Customs his notice of appeal, in due form, from the above-
mentioned decision of the Collector of Customs. It was alleged in this case that the act of seizure and the
scheduled auction sale of petitioner's tobacco were all illegal, arbitrary and with grave abuse of power, and the
decision appealed from of respondent Commissioner of Customs affirmed all these illegalities. The court held that
the tobacco importation in question was subject to seizure and forfeiture in accordance with Section 2530 of the
Tariff and Customs Code and the Collector of Customs had the power to order the seizure in accordance with the
provisions of Section 2205 of the Tariff and Customs Code. Furthermore, the act of selling the seized tobacco is
also a matter that is governed by the Tariff and Customs Code, the enforcement of which law is under the
administration of the Bureau of Customs. Under Sec. 2301 of the Tariff and Customs Code, upon making any
seizure, the Collector of Customs shall issue a warrant for the detention of property; and if the owner or importer
desires to secure the release of the property for legitimate use, the Collector may surrender it upon the filing of a
sufficient bond, in an amount to be fixed by him, conditioned for the payment of the appraised value of the article
and/or any fine, expenses and costs which may be adjudged in the case, provided, the articles the importation of
which is prohibited by law shall not be released under bond. Pursuant, thereto, the importer of the subject tobacco,
the importation of which is prohibited by law, has no right that the tobacco be released to him even if he puts up a
bond to be determined by the Collector of Customs. And although Sec. 2307 of the Tariff and Customs Code,
authorizes in a seizure case the settlement of the case by payment of fine or the redemption of forfeited property,
also provides that redemption of forfeited property shall not be allowed in any case where the importation is
absolutely prohibited or where the surrender of the property to the persons offering to redeem the same would be
contrary to law.
Auyong Hian, therefore, had lost all his rights to the shipment, not only because the court declared the licenses
void and the shipment illegal (as pronounced in earlier case), but also because the seizure proceedings have been
found to be regular and had deprived Auyong Hian of his rights to the shipment as importer; at least while the
order of seizure has not been set aside.
PONCE ENRILE v. VINUYA (1971) The crucial question presented in this certiorari and prohibition proceeding , is
whether Judge Walfrido de los Angeles RTC is vested with jurisdiction to entertain a complaint for replevin filed
by the other respondent, Andres M. Vinuya, for the recovery of a Cadillac car, subject of a seizure and forfeiture
proceeding. The matter of seizure and forfeiture is the exclusive concern of the Collector of Customs, a
court of first instance lacking power in the premises. Nonetheless, the plea that in this particular case
respondent Judge acted within the limits of his authority is predicated on the alleged illegality of the seizure
which, in the opinion of respondents, did not confer jurisdiction on the Collector of Customs. Such a contention

ALS2014B
ALS2014B 358 of 365
"#$
which loses sight of the vital distinction between the existence of authority and the mode of its exercise does not
suffice to call for a different ruling. We reiterate the principle of the exclusive jurisdiction of the Collector of
Customs in seizure and forfeiture proceedings.
PAPA v. MAGO (1968) For the purpose of enforcing the Tariff and Customs Code, the Bureau of Customs
acquires exclusive jurisdiction over imported goods, for the purposes of enforcement of the customs laws,
from the moment the goods are actually in its possession or control, even if no warrant of seizure or
detention had previously been issued by the Collector of Customs in connection with seizure and forfeiture
proceedings, to the exclusion of the regular courts.
Persons duly deputized under the Tariff and Customs Code can conduct search and seizure even without a
search warrant for the purpose of enforcing the customs law.
Alagao the head of the counter-intelligence unit of the Manila Police Department on order of the Chief of Police
Papa, who was a duly deputized officer of the Bureau of Customs, acted on the information received that a certain
shipment of personal effect were misdeclared and undervalued, were about to be released from the customs zones
of the Bureau of Customs, conducted surveillance at the gate of the customs zone. Two trucks left the gate and
they were pursued by elements of the counter-intelligence unit. They were stopped in Ermita, Manila and the two
trucks and goods were seized without the benefit of a search warrant. A person claiming ownership showed an
Statement and Receipt of Duties Collected which showed that the duties on the goods were already paid. Mago
and Lanopa filed an petition with the CFI of Manila for mandamus and preliminary injuction to have the items
returned and to prevent the opening of the goods. This was granted by the court, however, when the order was
made the goods were already open and found that the items as compared with the statement was misdeclared and
undervalued. Mago then filed an ex parte motion to have the items returned upon payment of a bond. This was
opposed by the petitioner on the grounds that the court does not have jurisdiction on the subject
matter. Nevertheless the court granted the motion and released the item upon payment of bond. Petitioner then
filed petition for certiorari on grave abuse of discretion claiming again that the CFI does not have jurisdiction.
Issue: 1. W/N the regular court have jurisdiction?
2. W/N the trucks can be searched and the items seized without a search warrant?
Held: 1. No, the Bureau of Customs and not the courts have jurisdiction. The Bureau of Customs has the duties,
powers and jurisdiction, among others, (1) to assess and collect all lawful revenues from imported articles, and all
other dues, fees, charges, fines and penalties, accruing under the tariff and customs laws; (2) to prevent and
suppress smuggling and other frauds upon the customs; and (3) to enforce tariff and customs laws. The goods in
question were imported from Hongkong, as shown in the "Statement and Receipts of Duties Collected on
Informal Entry". As long as the importation has not been terminated the imported goods remain under the
jurisdiction of the Bureau of customs. Importation is deemed terminated only upon the payment of the 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. The payment of the duties, taxes, fees and other charges must be in full. The
items were opened and inspected before the court issued its order granting mandamus and injuction from opening
the items and found that the goods were undervalued and misdeclared so the Bureau of Customs still has
jurisdiction as the duties were not paid in full. Even if it be granted that after the goods in question had been
brought out of the customs area the Bureau of Customs had lost jurisdiction over the same, nevertheless, when
said goods were intercepted at the Ermita by members of the Manila Police Department, acting under directions
and orders of their Chief, Ricardo C. Papa, who had been formally deputized by the Commissioner of
Customs, the Bureau of Customs had regained jurisdiction and custody of the goods. Section 1206 of the Tariff
and Customs Code imposes upon the Collector of Customs the duty to hold possession of all imported articles
upon which duties, taxes, and other charges have not been paid or secured to be paid, and to dispose of the same
according to law. The goods in question, therefore, were under the custody and at the disposal of the Bureau of
Customs at the time the petition for mandamus was filed. The Court, therefore, could not exercise jurisdiction
over said goods even if the warrant of seizure and detention of the goods for the purposes of the seizure and
forfeiture proceedings had not yet been issued by the Collector of Customs.

ALS2014B
ALS2014B 359 of 365
"#$
2. Yes. A search and seizure for the purpose of enforcing the Tariff and Customs Code can be conducted even
without a Search Warrant issued by a judge. The Chief of the Manila Police Department, Papa, having been
deputized in writing by the Commissioner of Customs, could, for the purposes of the enforcement of the customs
and tariff laws, effect searches, seizures, and arrests, and it was his duty to make seizure, among others, of any
cargo, articles or other movable property when the same may be subject to forfeiture or liable for any fine
imposed under customs and tariff laws. He could lawfully open and examine any box, trunk, envelope or other
container wherever found when he had reasonable cause to suspect the presence therein of dutiable articles
introduced into the Philippines contrary to law; and likewise to stop, search and examine any vehicle, beast or
person reasonably suspected of holding or conveying such article as aforesaid. It cannot be doubted, therefore,
that petitioner Ricardo G. Papa, Chief of Police of Manila, could lawfully effect the search and seizure of the
goods in question. The Tariff and Customs Code authorizes him to demand assistance of any police officer to
effect said search and seizure, and the latter has the legal duty to render said assistance. This was what happened
precisely in the case of Lt. Alagao who, with his unit, made the search and seizure of the two trucks loaded with
the nine bales of goods in question at the Agrifina Circle. He was given authority by the Chief of Police to make
the interception of the cargo. Alagao and his companion policemen had authority to effect the seizure without any
search warrant issued by a competent court. The Tariff and Customs Code does not require said warrant in the
instant case. The Code authorizes persons having police authority under Section 2203 of the Tariff and Customs
Code to enter, pass through or search any land, inclosure, warehouse, store or building, not being a dwelling
house; and also to inspect, search and examine any vessel or aircraft and any trunk, package, or envelope or any
person on board, or to stop and search and examine any vehicle, beast or person suspected of holding or
conveying any dutiable or prohibited article introduced into the Philippines contrary to law, without mentioning
the need of a search warrant in said cases. But in the search of a dwelling house, the Code provides that said
"dwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace. . . ." It
is our considered view, therefore, that except in the case of the search of a dwelling house, persons exercising
police authority under the customs law may effect search and seizure without a search warrant in the enforcement
of customs laws.
MISON v. NATIVIDAD (1992) Butch Martinez informed the Commissioner of Customs that there were knocked
down vehicles at the compound of CVC Trading, which is owned by a certain Mr. Castro in Pampanga. National
Customs Team immediately took possession and control of the motor vehicles. Thereafter, two members of the
team were designated to secure a warrant of seizure and detention from the Collector of Customs in Clark.
When the team was about to haul the motor vehicles away, 2 RTC sheriffs arrived with a TRO issued by the RTC
of San Fernando. The plaintiff in the said case is the private respondent in this petition. The order restrained the
Bureau of Customs and/or Customs Police from seizing or confiscating the vehicles until further ordered. Private
respondent alleges that he is the owner of several vehicles which are legally registered in his name and that he has
paid all the taxes and "corresponding licenses".
A warrant of seizure and detention having already been issued, presumably in the regular course of official duty,
the Regional Trial Court of Pampanga was indisputably precluded from interfering in the said proceedings. That
in his complaint in Civil Case No. 8109 private respondent alleges ownership over several vehicles which are
legally registered in his name, having paid all the taxes and corresponding licenses incident thereto, neither
divests the Collector of Customs of such jurisdiction nor confers upon the said trial court regular jurisdiction over
the case. Ownership of goods or the legality of its acquisition can be raised as defenses in a seizure proceeding; if
this were not so, the procedure carefully delineated by law for seizure and forfeiture cases may easily be thwarted
and set to naught by scheming parties. Even the illegality of the warrant of seizure and detention cannot justify the
trial court's interference with the Collector's jurisdiction. In the first place, there is a distinction between the
existence of the Collector's power to issue it and the regularity of the proceeding taken under such power. In the
second place, even if there be such an irregularity in the latter, the Regional Trial Court does not have the
competence to review, modify or reverse whatever conclusions may result therefrom. In Ponce Enrile vs. Vinuya,
this Court had the occasion to state:
Respondents, however, notwithstanding the compelling force of the above doctrines, would assert that respondent
Judge could entertain the replevin suit as the seizure is illegal, allegedly because the warrant issued is invalid and

ALS2014B
ALS2014B 360 of 365
"#$
the seizing officer likewise was devoid of authority. This is to lose sight of the distinction, as earlier made
mention of, between the existence of the power and the regularity of the proceeding taken under it. The
governmental agency concerned, the Bureau of Customs, is vested with exclusive authority. Even if it be assumed
that in the exercise of such exclusive competence a taint of illegality may be correctly imputed, the most that can
be said is that under certain circumstances the grave abuse of discretion conferred may oust it of such jurisdiction.
It does not mean however that correspondingly a court of first instance is vested with competence when clearly in
the light of the above decisions the law has not seen fit to do so. The proceeding before the Collector of Customs
is not final. An appeal lies to the Commissioner of Customs and thereafter to the Court of Tax Appeals. It may
even reach this Court through the appropriate petition for review. The proper ventilation of the legal issues raised
is thus indicated. Certainly a court of first instance is not therein included. It is devoid of jurisdiction."
B. Impose surcharges, fines and forfeitures
Sec. 2307, TCCP
Secs. 2501-2536, TCCP
CARREON TONG TEK v. COMMISSIONER (1959) Venancio Carreon Tong Tek, Juanito Tong, and George
Tong, duly equipped with passes to visit American President Lines' vessels "S.S. President Cleveland", was
allowed by the pier guard to get in. Later, Venancio Carreon Tong Tek and Juanito Tong returned intending to get
out of the premises. Allegedly due to their unnatural gait and stride, the suspicion of guard was aroused. The two
were taken to the Port Patrol Headquarters where a search on their persons yielded 4 canvass belts, found tied
around their waists, containing 138 gold bars. As a consequence thereof, seizure proceedings were instituted in
the Bureau of Customs simultaneous with the filing of a criminal action with the CFI against Venancio Carreon
Tong Tek and Juanito Tong for alleged attempted violation of Central Bank Circular Nos. 21 and 42. They were
held guilty of attempted exportation of gold without the corresponding license from the Central Bank and ordered
the forfeiture of the articles involved therein in favor of the government. Petitioners now contend that the gold
bars are not subject to forfeiture under Section 1363 of the Revised Administrative Code.
It must be remembered that the Revised Administrative Code is a general legislation. As such, it must have been
intended to meet not only the peculiar conditions obtaining at the time of its enactment but also designed to
comprehend those that may normally arise after its approval. The term "merchandise of prohibited exportation"
used in the code is broad enough to embrace not only those already declared prohibited at the time of its adoption
but also goods, commodities or articles that may be the subject of activities undertaken in violation of subsequent
laws. Considering that the Central Bank circulars, issued for the implementation of the law authorizing their
issuance although by themselves are not statutes, have the force and effect of law, the carrying out of transactions
or undertakings without complying with the requirements of Circular Nos. 20. 21, and 42 (re gold bars) makes
these undertakings illegal. And as a natural consequence thereof, the articles involved in such unauthorized
ventures become prohibited and, therefore, subject to forfeiture under Section 1363-(f) of the Revised
Administrative Code. (Also, case said acquittal in a criminal action does not constitute a bar to forfeiture
proceedings under the Revised Administrative Code.)
C. File civil or criminal action
Sec. 2401, TCCP
PSPC v. REPUBLIC (2008) when duties deemed liquidated and assessed PSPC bought about 10k worth of
TCCs from Filipinas Way and used these to pay its customs duties in 1997. In 1999, the Dept. of Finance/the
one-stop tax Center cancelled the TCCs for being fraudulently issued and transferred. Bureau of Customs then
filed a collection case w/ the RTC. PSPC argued that the RTC had no jurisdiction given that it has a pending
petition for review (w/ regard to the cancellation of the TCCs) w/ the CTA. It also argued that collection wasnt
proper since the duties werent liquidated yet.

ALS2014B
ALS2014B 361 of 365
"#$
Collection case to the RTC was proper. Under the TCCP, assessment is in the form of a liquidation made on the
face of the import entry return and approved by the Collector of Customs. Liquidation is the final computation
and ascertainment by the CoC of the duties due on the imported merchandise based on official reports as to
the quantity, character, and value thereof, and the CoCs own finding as to the applicable rate of duty. A
liquidation is considered to have been made when the entry is officially stamped liquidated. An
assessment/liquidation by the BoC becomes final and conclusive 1 year from the date of the final payment of
duties except when there was: 1) fraud; 2) a pending protest; or 3) the liquidation of import entry was merely
tentative. None of these were present in this case.
BUREAU OF CUSTOMS v. PETER SHERMAN, ET. AL. (2011) BOC files criminal action before the DOJ
Mark Sensing Philippines, with Peter Sherman as Chairman, imported into the Philippines from 2005 to 2007,
through the ports of Clark Special Economic Zone, countless rolls of thermal paper used as lotto receipts by the
PCSO amounting to some USD1M, and removed the goods from the port without paying the appropriate customs
duties. The BOC filed a criminal complaint for unlawful importation (Sec 3601 of Tariff and Customs Code)
against the responsible officers of Mark Sensing BEFORE the DEPARTMENT OF JUSTICE, under the
BOCs Run After The Smugglers (RATS) Program. The State Prosecutor under the DOJ initially found probable
cause and filed the case before the CTA. Later, the State Prosecutor/DOJ withdrew the Information. The CTA
consequently dismissed the case. BOC opposed and filed a motion for reconsideration, but the CTA and later, the
Supreme Court, ignored the BOC. In a criminal case, it is the public prosecutor who has full control of, and
supervision over the prosecution of the case. Without the DOJs authority, the Bureau of Customs could not do
anything.
PHIL. BRITISH ASSURANCE CO., INC. v. REPUBLIC OF THE PHIL. (2010) Phil. Brit is an insurance
company. They issue customs bonds to its clients in favour of the BOC. These bonds secure the release of
imported goods in order that the goods may be released from the BOC without prior payment of the
corresponding customs duties and taxes. Under these bonds, Phil. Brit and its clients jointly and severally
bind themselves to pay the BOC the face value of the bonds, in the event that the bonds expire without
either the imported goods being re-exported or the proper duties and taxes being paid. BOC filed a
complaint for Collection of money with damages before the RTC saying that Phil. Brit had outstanding
unliquidated customs bonds with the BOC. The RTC ordered Phil. Brit to pay BOC. However, the CA dismissed
the case saying that they had no jurisdiction and that the CTA should have jurisdiction.
Issue: W/N the CA has jurisdiction
Held: YES! In the instant case, the original complaint filed with the trial court was in the nature of a collection
case, purportedly to collect on the obligation of Phil. Brit by virtue of the bonds executed by it in favor of BOC,
essentially a contractual obligation. An action to collect on a bond used to secure the payment of taxes is not a
tax collection case, but rather a simple case for enforcement of a contractual liability.
The present actions by the government are for the forfeiture of the bonds in question. Although the subject
matter of said bonds are internal revenue taxes, it cannot be denied that upon the execution of said bonds,
the tax-payer, as principal and the bondsman, as surety, assumed a new and entirely distinct obligation and
became subject to an entirely different kind of liability.
Verily, the instant case is not a tax collection case; hence, the CA has jurisdiction over the case and not CTA.
D. Impose fine and imprisonment
Secs. 3601-3612, TCCP
E. Compulsory Acquisition
Sec. 2317, TCCP
F. Automatic review by Secretary of Finance of adverse ruling

ALS2014B
ALS2014B 362 of 365
"#$
Sec. 2313, TCCP
YAO KASIN v. COMMISSIONER (1989) The case involves 2 decisions of the Collector of Customs of Tacloban
City on a seizure case. The first decision was rendered on June 7, 1988, ordering the release of 9,000 bags of
sugar belonging to Yaokasin which were seized by the Philippine Coast Guard and turned over to the custody of
customs authorities. The second, rendered on July 15, 1988 reverses the first decision and orders the forfeiture of
the sugar on the ground that they are of foreign origin and smuggled into the country. Yaokasin did not appeal the
June 7 decision and the Collector rendered the July 15 decision predicated on the automatic review powers of the
Commissioner in decisions adverse to the government. Held: The July 15 decision must be upheld. The provision
on automatic review is intended to protect the interest of the Government in the collection of taxes and customs
duties in those seizure and protest cases which, without the automatic review, neither the Commissioner nor the
Secretary of Finance could probably ever know about. Without the automatic review by the Commissioner and
the Secretary, a collector in any of our countrys far-flung ports, would have absolute and unbridled discretion to
determine whether goods seized by him are locally produced or of foreign origin. His decision, unless appealed by
the owner of the goods, would become final. A decision that is favorable to the taxpayer would correspondingly
be unfavorable to the Government, but who will appeal the collectors decision in that case, certainly not the
collector. It was to cure this anomalous situation that the provision for automatic review by the Commissioner and
the Secretary of unappealed seizure and protest cases was conceived to protect the Government against corrupt
and conniving customs collectors.
VI. REMEDIES OF IMPORTER
A. Payment under protest
Secs. 2308-2312, TCCP
SILVER SWAN v. COMMISSIONER, 8 SCRA 400
LUZON STEVEDORING v. CTA (1988) Petitioner, a domestic corporation in the lighterage business, hauled
bunker fuel, gasoline and other petroleum products for the Caltex Refinery in Bauan, Batangas. For this purpose,
it used tugboats and barges which moored at the privately owned Caltex pier in Bauan. Received by the customs
collector for the port of Batangas on August 4, 1959 was petitioner's written protest against the collection of
P9,506.92. By Section 2308 of the Tariff and Customs Code, such "written protest" must be filed within thirty
days after payment. Otherwise, by the next succeeding provision, Section 2309, "the action of the Collector shall
be final and conclusive against him." The verbal protest urged upon us was supposedly made with the local
customs collector at the port of Batangas as early as August, 1957. That official, according to petitioner,
entertained the protest in the sense that he agreed to take up the matter with the Commissioner of Customs. But
this allegation of verbal protest was denied in paragraph 3 of the answer to the petition for review. Adverting to
the terms of the law, it is quite apparent that the government's right to collect berthing charges is not planted upon
the condition that the pier be publicly owned. The statute employs the word pier without more. Nothing there
said speaks of private or public pier. Where the law does not exact the nature of ownership as a condition, that
condition should not be read into the law. At all events, the requirement that protest be in writing must be for
some purpose. One is that verbal protest breeds uncertainty. For, human memory suffers from frailty. Verbal
protest therefore will be unavailing to petitioner. The net result is that the protest insofar as it refers to
payments of berthing charges (for tugboats and barges) prior to July 5, 1959 cannot be considered. As
aforestated written protest was only lodged on August 4, 1959. And these made from July 5, 1959 to July
20, 1959 (for tugboats alone) are not refundable either. Because the law enjoins collection thereof.
COMMISSIONER v. CAMPOS RUEDA, 152 SCRA 641
B. Appeal to Commissioner of Customs
Sec. 2313, TCCP

ALS2014B
ALS2014B 363 of 365
"#$
NESTLE PHILS., INC. v. COMMISSIONER OF CUSTOMS (2002) Facts: This is a Petition for Review filed by
petitioner Nestle Philippines, Inc. to compel respondent Commissioner of Customs to grant petitioner's claims for
refund of allegedly overpaid import duties on various importations of milk powder totalling P5,008,029.00.
It appears from the Petition for Review filed that neither the Collector of Customs nor respondent Commissioner
of Customs acted upon petitioner's various claims for refund.
Issue: Whether this Court has jurisdiction over this case there being no resolution or decision yet on the protests.
Held: No. This Court indeed has no jurisdiction over this case since there was no decision rendered yet by the Collector
of Customs as well as the Commissioner of Customs for which this Court could take cognizance of contrary to
Section 2402. Review by Court of Tax Appeals. The party aggrieved by a ruling of the Commissioner
in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal
to the Court of Tax Appeals, in the manner and within the period prescribed by law and regulations.
Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by
laws and regulations, the action or ruling of the Commissioner shall be final and conclusive.
and under Section 7 of Republic Act No. 1125 which provides:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to
review by appeal, as herein provided.
xxx
(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges; seizure, detention or release of property affected fines, forfeitures or other penalties
imposed in relation thereto; or other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs; and
xxx
Hence, "in a petition for review seeking refund paid on various dates of customs duties, special import tax, sales
tax or compensating tax, said petition must state that a decision of the Collector of Customs as well as the
Commissioner of Customs has been rendered which was the occasion for its appeal before the Court and failure to
so state is fatal to said petition
In the case at bar, there was no allegation that there was a decision of the Collector of Customs.
We, however, unaware of a more recent decision promulgated by the Court of Appeals that under "peculiar
circumstances" this Court may take cognizance of a Customs case even without the decision of the
Commissioner of Customs provided procedurahave been complied.
We thus agree with the Court of Appeals if only to give justice to hapless taxpayers who would be practically at
the mercy of the Collector of Customs or the Commissioner of Customs who would interminably delay resolution
of matters pending before them and prevent said taxpayer from filing an appeal to this Court. Otherwise, this
Court would cease to be the refuge of victims of injustice because of administrative omission or inaction. We
cannot allow that.
The ruling enunciated in the above cited case should have been applied to the present case but unfortunately,
we cannot, because of procedural infirmity which proved fatal to the cause of the petitioner. Petitioner in its failed
to attach the required customs documentary stamps which "is in the nature of a docket fee and failure to pay the
docket fee for appeals on time is fatal." Hence, such notice of appeal can only be considered a mere "scrap of
paper" since it was not perfected for the failure of Petitioner to affix to the notice of appeal the required customs
stamps pursuant to Sections 2308 and 3301 of the Tariff and Customs Code.
RIGOR v. ROSALES (1982) Decisions of the Collector of Customs appealable only to the Commissioner of
Customs, whose decisions may be reviewed only by the CTA, not the CFI [regular courts]. Collector Rigor
issued a Warrant of Seizure and Detention against the vessel LCT-759 and its cargo of 103 logs for failure to

ALS2014B
ALS2014B 364 of 365
"#$
present a manifest within the period required by law. The logs were ordered forfeited in favor of the government
and a fine was imposed. Instead of appealing the Collectors decision with the Commissioner of Customs, the
Sps. Rosales filed for certiorari before the CFI to annul the orders for having been issued without or in excess of
jurisdiction or with grave abuse of discretion. The issue is whether the CFI had jurisdiction, given that the Sps.
Contend that this case was a special civil action under the rules of court and not an appeal of the Collectors
decision. The SC ruled that the Collector had the authority under the law to act as he had in this case, and such
acts or decisions are reviewable only in the manner provided by the Customs Code, and are thus
appealable to the Commissioner of Customs, whose decisions, in cases involving seizure, detention or
release of property, may in turn be reviewed only by the CTA. The Court even quoted a prior ruling that the
original jurisdiction of the CFI in cases involving recovery of property subject to forfeiture tends to encroach
upon, and should thus yield to the jurisdiction, of the Collector of Customs.
C. Compromise
Sec. 2316, TCCP
D. Judicial Relief/Appeal to Court of Tax Appeals
Sec. ___, Republic Act No. 1125, as amended by Rep. Act No. 9282
DAVID v. COLLECTOR, 28 SCRA 157
SEERES v. FRIAS (1971) The customs authorities acquire exclusive jurisdiction over goods sought to be imported
into the Philippines. The jurisdiction stays from the moment goods are actually under the customs possession
and control. With this, the collectors decision may then be appealed to the Commissioner of Custom. His/her
decision (seizure or release of property) may then be reviewd by the CTA under exclusive appellate jurisdiction.
COLLECTOR v. VILLALUZ, 71 SCRA 356 The Collector of Customs filed against Cesar Makapugay a letter
complaint with Judge Villaluz for, among others, bringing into the country with malicious intent to defraud the
government 40 cartons of Salem cigarettes, 5 bottles of Johny Walker Scotch Whiskey (untaxed and without
proper permits), and Php 2,280 hidden somewhere in his luggage without permit from the Central Bank (in
violation of CB Circular 265). His Baggage Declaration Entry did not declare said articles. Judge Villaluz
conducted a preliminary investigation and issued an Order dismissing the case and ordering the return of the
confiscated belongings to Makapugay. The Collector of Customs refused to obey the order due to prior institution
of seizure proceedings. A petition for certiorari with preliminary injunction was filed against the Judge selling to
annul the order on the ground that, among others, the judge was without authority to order the return of articles
subject of seizure proceedings before Customs authorities. The Court held that the Judge ignored the established
principle that from the moment imported goods are actually in the possession or control of the customs
authorities, even if no warrant of seizure had previously been issued by the Collector of Customs in connection
with seizure and forfeiture proceedings, the Bureau of Customs acquires exclusive jurisdiction over such
imported goods for the purpose of enforcing the customs laws, subject to an appeal only to the Court of Tax
Appeals and to final review by the Supreme Court. Such exclusive jurisdiction precludes the Court of First
Instance as well as the Circuit Criminal Court from assuming cognizance of the subject matter and divests such
courts of the prerogative to replevin properties subject to seizure and forfeiture proceedings for violation of the
Tariff and Customs Code; because proceedings for the forfeiture of goods illegally imported are not criminal in
nature. A judge should first ascertain whether Collector of Customs intended to institute or had instituted
seizure proceedings before ordering return of imported articles after dismissal of criminal complaint.
COMMISSIONER v. NAVARRO, 77 SCRA 264
PILIPINAS SHELL PETROLEUM CORPORATION v. COMMISSIONER OF CUSTOMS (2009)
VII. AUTHORITY OF THE PRESIDENT TO REVISE OR REMOVE TARIFF RATES

ALS2014B
ALS2014B 365 of 365
"#$
Secs. 104 and 401, TCCP
1987 Philippine Constitution
Art. VI, Sec. 28. ...
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the Government.
GARCIA v. EXECUTIVE SECRETARY (1992) The President has the power to impose additional duties on
imports subject to the limitations and requirements prescribed by law In 1990, the President issued an EO
which imposed, an across the board additional duty ad valorem, including crude oil and other oil products. Some
time after, the President issued another EO which levied a special duty of P0.95 per liter of imported crude oil
and P1.00 per liter of imported oil products. The issue in the case is whether the President may issue such EO.
It is contended that such EO is akin to a revenue-generating measure which, according to petitioner Garcia, only
the legislature may enact. The SC ruled that although the enactment of appropriation, revenue and tariff bills is
within the province of the Legislative, it does not mean that such is prohibited to the President. Section 28 of
Article VI of the 1987 Constitution provides: The Congress may, by law authorize the President to fix tariff
rates and other duties or imposts Further, the Tariff and Customs Code provides that : all tariff sections,
chapters, headings and subheadings and the rates of import duty under Section 104 of Presidential Decree No. 34
and all subsequent amendments issued under Executive Orders and Presidential Decrees are hereby adopted
and form part of this Code. Another provision in the same law provides that: in the interest of national economy,
general welfare and/or national security, and subject to the limitations herein prescribed, the President, upon
recommendation of the NEDA, is hereby empowered: ( 1 ) to increase, reduce or remove existing protective
rates of import duty(3) to impose an additional duty on all imports not exceeding ten (10) per cent ad
valorem whenever necessary. From these provisions, it is clear that the President has the power to impose
additional duties on imports subject to the limitations and requirements prescribed by law.

Taxation II Digests

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Taxation II Digests

Transféré par

Droits d'auteur :

Formats disponibles

TAXATION II DIGESTS ATTY.

Vous aimerez peut-être aussi