Vous êtes sur la page 1sur 77

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 1 of 77

UPDATES IN TAXATION
(For 2014 Bar Examinations)
ATTY. RIZALINA V. LUMBERA

PART I: JURISPRUDENCE (2007-2013)
A. 2013 CASES:
1. Documentary Stamp Tax (DST): Philacor Credit Corporation vs. Commissioner of Internal
Revenue, G.R. No. 169899. February 6, 2013.
The persons primarily liable for the payment of DST are the persons (1) making; (2) signing; (3) issuing;
(4) accepting; or (5) transferring the taxable documents, instruments or papers. Should these parties be
exempted from paying tax, the other party who is not exempt would then be liable. A person using a
promissory note can be made liable for the DST if the person is: (a) among those persons enumerated
under the law i.e., the person who makes, issues, signs, accepts or transfers the document or instrument;
or (2) if these persons are exempt, a non-exempt party to the transaction.
Anyone who uses the document, regardless of whether such person is a party to the transaction, should
not be liable. Thus, a mere transferee/assignee of a promissory note cannot be held liable for DST.
Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, G.R. Nos.
164155 & 175543. February 25, 2013:
DST is by nature an excise tax levied on the exercise by persons of privileges conferred by law
covering the creation, modification or termination of contractual relationships by executing specific
documents like deeds of sale, mortgages, pledges, trust and issuance of shares of stock. The sale of Fort
Bonifacio land was not a privilege but an obligation imposed by law which was to sell lands to
fulfill a public purpose. To charge DST on a transaction which was basically a compliance with
a legislative mandate would go against its very nature as an excise tax..
2. VAT: 120 DAY PERIOD FOR CLAIM FOR REFUND/CREDIT OF EXCESS INPUT VAT:
Commissioner of Internal Revenue vs. San Roque Power Corporation/Taganito Mining
Corporation vs. Commissioner of Internal Revenue/Philex Mining Corporation vs.
Commissioner of Internal Revenue, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156.
February 12, 2013.
Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue/Mindanao I
Geothermal Partnership vs. Commissioner of Internal Revenue. G.R. No. 193301 & G.R. No.
194637. March 11, 2013.
Nippon Express (Philippines) Corporation vs. Commissioner of Internal Revenue. G.R. No.
196907. March 13, 2013
Republic of the Philippines represented by the Commissioner of Internal Revenue v. GST
Philippines, Inc., G.R. No. 190872. October 17, 2013
Commissioner of Internal Revenue v. Visayas Geothermal Power Company, Inc.,G.R. No.
181276. November 11, 2013.
Applied Food Ingredients Co., Inc. v. Commissioner of Internal Revenue,G.R. No. 184266.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 2 of 77

November 11, 2013
Step 1: File refund/credit within two years from close of quarter when the zero-rated or effectively
zero-rated sales were made or the excess input VAT occurred;
Step 2: Wait for BIR to decide within 120 days from date of filing; Failure to comply with the 120-day
waiting period violates a mandatory provision of law. The 120-day period may extend beyond the two-year
period from the filing of the administrative claim if the claim is filed in the later part of the two-year period.
If the 120-day period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.
It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and
thus without a cause of action, with the effect that the Court of Tax Appeals (CTA) does not acquire
jurisdiction over the taxpayers petition. It is the CIRs decision or inaction deemed a denial, that the
taxpayer can take to the CTA for review. Without a decision or an inaction xxx deemed a denial of the
CIR, the CTA has no jurisdiction over a petition for review.
Exceptions to 120 day requirement:
a. If the CIR, through a specific ruling, misleads a particular taxpayer to prematurely file a judicial
claim with the CTA. Such specific ruling is applicable only to such particular taxpayer.
b. The second exception is where the CIR, through a general interpretative rule issued under section 4
of the NIRC, misleads all taxpayers into filing prematurely judicial claims with the CTA.

In these cases, the CIR cannot be allowed to later on question the CTAs assumption of jurisdiction
over such claim since equitable estoppel has set in as expressly authorized under section 246 of
the NIRC. A general interpretative rule issued by the CIR may be relied upon by taxpayers from the
time the rule is issued up to its reversal by the CIR or the Court. Taxpayers should not be prejudiced
by an erroneous interpretation by the CIR, particularly on a difficult question of law
Step 3: a. If BIR grants, end of process;
b. If BIR does not act within the 120 day period, then TX can go to CTA within 30 days from
expiration of 120 days to file a judicial claim for refund. This is a mandatory requirement;
c. If BIR denies (partially or wholly) the refund/credit, TX has 30 days from receipt of such BIR
decision to appeal to CTA Division, then to CTA En Banc (15 days), then to the Supreme Court (15 days).
NOTES:
1. THE 120 DAY PERIOD FOR BIR TO DECIDE APPLIES ONLY IN CASES OF INPUT VAT
REFUND/CREDIT. THE 30 DAY PERIOD TO APPEAL TO CTA IS NOT WITHIN THE
PRESCRIBED TWO YEAR PERIOD. IN REFUND OF OTHER NIRC TAXES, THE 120 DAY
PERIOD OR THE INACTION OF THE BIR FOR 180 DAYS DO NOT APPLY.


2. IN REFUND OF OTHER NIRC TAXES WHICH ARE ILLEGALLY OR EXCESSIVELY
ASSESSED/COLLECTED (SECTION 229 OF THE NIRC), THE CLAIM MUST BE FILED
WITHIN TWO YEARS FROM DATE OF PAYMENT OF TAX AND AT THE SAME TIME, THE
APPEAL TO THE CTA WITHIN 30 DAYS FROM RECEIPT OF DECISION DENYING THE
REFUND MUST BE FILED WITHIN THE SAME TWO YEAR PERIOD. RULE THAT INACTION
BY THE BIR FOR 120 DAYS/180 DAYS DOES NOT APPLY.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 3 of 77

REQUISITES FOR REFUND/CREDIT OF INPUT VAT: Luzon Hydro Corporation v.
Commissioner of Internal Revenue, G.R. No. 188260. November 13, 2013
1. TX is VAT-registered;
2. TX is engaged in zero-rated or effectively zero-rated sales;
3. The input taxes are due or paid;
4. The input taxes are not transitional input taxes;
5. The input taxes have not been applied against output taxes during and in the succeeding quarters;
6. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1) and (2), 106(B), and 108(B)(1) and (2) of the
National Internal Revenue Code, the acceptable foreign currency exchange proceeds have been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas;
8. Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the
input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales volume; and
9. The claim is filed within two years after the close of the taxable quarter when such sales were made..

4. VAT; ISOLATED/INCIDENTAL TRANSACTIONS FOR VAT PURPOSES: Mindanao II Geothermal
Partnership vs. Commissioner of Internal Revenue/Mindanao I Geothermal Partnership vs.
Commissioner of Internal Revenue. G.R. No. 193301 & G.R. No. 194637. March 11, 2013.
PNOC-EDCs business is to convert the steam supplied to it by PNOC-EDC into electricity and to
deliver the electricity to National Power Corporation. In the course of its business, taxpayer bought and
eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of taxpayers property, plant,
and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of
taxpayers business which should be liable for VAT. The sale of the Nissan Patrol is an isolated transaction.
However, it does not follow that an isolated transaction cannot be an incidental transaction for purposes of
value-added tax (VAT) liability. Section 105 of the National Internal Revenue Code of 1997 would show that
a transaction in the course of trade or business includes transactions incidental thereto.
5. INCOME TAX; WITHOLDING TAXES ON BOARD OF DIRECTORS OF CORPORATIONS; First
Lepanto Taisho Insurance Corporation vs. Commissioner of Internal Revenue, G.R. No.
197117. April 10, 2013
For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulations
No. 12-86. An individual performing services for a corporation, whether as an officer and director or merely
as a director whose duties are confined to attendance at and participation in the meetings of the Board of
Directors, is an employee. The non-inclusion of the names of some of petitioners directors in the
companys Alpha List does not ipso facto create a presumption that they are not employees of the
corporation, because the imposition of withholding tax on compensation hinges upon the nature of work
performed by such individuals in the company.
6. LOCAL TAXATION; PERCENTAGE TAX Pelizloy Realty Corporation vs. The Province of
Benguet, G.R. No. 183137. April 10, 2013.
The power to tax is an attribute of sovereignty, and as such, inheres in the State. Such, however, is not
true for provinces, cities, municipalities and barangays as they are not the sovereign; rather, they are mere
territorial and political subdivisions of the Republic of the Philippines. The power of a province to tax is
limited to the extent that such power is delegated to it either by the Constitution or by statute. Book II of
the Local Government Code establishes the parameters of the taxing powers of local government units.
Section 133 (i) of the Local Government Code (LGC) prohibits the levy by local government units (LGUs) of
percentage tax except as otherwise provided by the LGC. Percentage Tax is a 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
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 4 of 77

gross receipts or earnings derived by any person engaged in the sale of services. Since amusement taxes
are fixed at a certain percentage of the gross receipts incurred by certain specified establishments, they are
actually percentage taxes. However, provinces are not barred from levying amusement taxes even if
amusement taxes are a form of percentage taxes. Section 140 of the LGC carves a clear exception to the
general rule in Section 133 (i).
Section 140 of the Local Government Code (LGC) expressly allows for the imposition by provinces of
amusement taxes on the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses,
boxing stadia, and other places of amusement. Theaters, cinemas, concert halls, circuses, and boxing
stadia are bound by a common typifying characteristic in that they are all venues primarily for the staging
of spectacles or the holding of public shows, exhibitions, performances, and other events meant to be
viewed by an audience. Accordingly, other places of amusement must be interpreted in light of the
typifying characteristic of being venues where one seeks admission to entertain oneself by seeing or
viewing the show or performances or being venues primarily used to stage spectacles or hold public
shows, exhibitions, performances, and other events meant to be viewed by an audience. Considering that
resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or
class as theaters, cinemas, concert halls, circuses, and boxing stadia, it follows that they cannot be
considered as among the other places of amusement contemplated by Section 140 of the LGC and which
may properly be subject to amusement taxes.
7. TAX CLEARANCE NOT A PREREQUISITE FOR THE APPROVAL OF DISTRIBUTION OF ASSETS
OF BANK UNDER LIQUIDATION BY PDIC; Philippine Deposit Insurance Corporation v. Bureau
of Internal Revenue, G.R. No. 172892, June 13, 2013.
A tax clearance is not a prerequisite to the approval of the project of distribution of the assets of a bank
under liquidation by the Philippine Deposit Insurance Corporation (PDIC) for the following reasons:
a. Requirement applies only if bank or corporations are contemplating dissolution or reorganization;
b. Only a final tax return is required to satisfy the interest of the BIR in the liquidation of a closed
bank, which is the determination of the tax liabilities of a bank under liquidation by the PDIC. In
view of the timeline of the liquidation proceedings under Section 30 of the New Central Bank Act, it
is unreasonable for the liquidation court to require that a tax clearance be first secured as a
condition for the approval of project of distribution of a bank under liquidation.
c. It is not for the courts to fill in any gap in current statutes and regulations as to the relations among
the BIR, the Bangko Sentral ng Pilipinas and the PDIC. It is up to the legislature to address the
matter through appropriate legislation, and to the executive to provide the regulations for its
implementation.
d. Section 30 of the New Central Bank Act expressly provides that debts and liabilities of the bank
under liquidation are to be paid in accordance with the rules on concurrence and preference of
credit under the Civil Code. Duties, taxes, and fees due the Government enjoy priority only when
they are with reference to a specific movable property, under Article 2241(1) of the Civil Code, or
immovable property, under Article 2242(1) of the same Code. However, with reference to the other
real and personal property of the debtor, sometimes referred to as free property, the taxes and
assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of the
Civil Code, such as the corporate income tax, will come only in ninth place in the order of
preference. If a tax clearance shall be required before the project of distribution of the assets of a
bank under liquidation may be approved, then its tax liabilities will be given absolute preference in
all instances, including those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code.
8. Local Taxation; Claims for Tax Refund or Credit. Metro Manila Shopping Mecca Corp., et al.
v. Ms. Liberty M. Toledo, in her official capacity as the City Treasurer of Manila, and the City of
Manila, G.R. No. 190818, June 5, 2013.
Section 196 of the Local Government Code provides that in order to be entitled to a refund or credit of
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 5 of 77

local taxes, the following procedural requirements must concur: first, the taxpayer concerned must file a
written claim for refund/credit with the local treasurer; and second, the case or proceeding for refund has
to be filed within two (2) years from the date of the payment of the tax, fee, or charge or from the date the
taxpayer is entitled to a refund or credit. A claim for a tax refund/credit is in the nature of a claim for an
exemption and the law is construed in strictissimi juris against the one claiming it and in favor of the taxing
authority.
Extension to file petition for review with the CTA: Revised Rules of the CTA does not explicitly
sanction extensions to file a petition for review with the Court of Tax Appeals (CTA). Rules of Court apply in
a suppletory manner. Section 1 of Rule 42 states that the period for filing a petition for review may be
extended upon motion of the concerned party. In other words, the reglementary period to file petition for
review with the CTA is extendible.
9. VAT; CLAIM FOR REFUND/CREDIT; CAPITAL GOODS OR PROPERTIES DEFINED; Bonifacio
Water Corporation (formerly Bonifacio Vivendi Water Corporation) v. The Commissioner of
Internal Revenue, G.R. No. 175142, July 22, 2013.
Before an administrative claim for refund or tax credit can be granted, there must be a showing that all
documentary and evidentiary requirements are satisfied. The taxpayer claiming the refund must comply
with the invoicing and accounting requirements mandated by the National Internal Revenue Tax Code, as
well as the revenue regulations implementing them. Change of taxpayers name to Bonifacio GDE Water
Corporation, being unauthorized and without approval of the Securities and Exchange Commission, and
the issuance of official receipts under that name which were presented to support taxpayers claim for tax
refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in taxpayers
favor. The absence of official receipts issued in its name is tantamount to noncompliance with the
substantiation requirements provided by law.
Capital goods or properties refer to goods or properties with estimated useful life greater than
one year and which are treated as depreciable assets under Section 29(f) of the National Internal Revenue
Code, used directly or indirectly in the production or sale of taxable goods or services. Thus, payment for
services relating to the construction of the capital assets were not considered capital assets considering,
especially, that the same were not recorded in the taxpayers property, plant and equipment account.
10. Tariff and Customs Code; Prohibited goods v. regulated goods. Secretary of the
Department of Finance v. Court of Tax Appeals and Kutangbato Conventional Trading Multi-
Purpose Cooperative, G.R. No. 168137, August 7, 2013
Central Bank Circular No. 1389 dated April 13, 1993 classified imports into three (3) categories, namely: (a)
freely importable commodities or those commodities which are neither regulated nor prohibited and
the importation of which may be effected without any prior approval of or clearance from any government
agency; (b) regulated commodities or those commodities the importation of which require
clearances/permits from appropriate government agencies; and (c) prohibited commodities or those
commodities the importation of which are not allowed by law.
11. REFUND OF TAXES; Commissioner of Internal Revenue v. Fortune Tobacco Corporation,
Fortune Tobacco Corporation v. Commissioner of Internal Revenue, G.R. Nos. 167274-75/G.R.
No. 192576, September 11, 2013.
If the Bureau of Internal Revenue, or other government taxing agencies for that matter, expects
taxpayers to observe fairness, honesty, transparency and accountability in paying their taxes, it must hold
itself against the same standard in refunding excess payments or illegal exactions. As a necessary corollary,
when the taxpayers entitlement to a refund stands undisputed, the State should not misuse technicalities
and legalisms, however exalted, to keep money not belonging to it. The government is not exempt from the
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 6 of 77

application of solutio indebiti, a basic postulate proscribing one, including the State, from enriching himself
or herself at the expense of another.
12. MCIT; INCOME TAXATION; Commissioner of Internal Revenue v. Philippine Airlines, Inc.
(PAL),G.R. No. 179259, September 25, 2013
As a general rule, a domestic corporation must pay whichever is higher of (1) the income tax under Section
27(A) of the National Internal Revenue Code (NIRC), computed by applying the tax rate to the taxable
income of the corporation, or (2) the minimum corporate income tax under Section 27(E) of the NIRC
equivalent to 2% of the gross income of the corporation.
Under Philippine Air Lines, Inc.s (PAL) charter, Presidential Decree No. 1590, however, PAL cannot be
subjected to MCIT as finally settled and categorically enunciated in Commissioner of Internal Revenue v.
Philippine Airlines, Inc.. PALs charter further provides that the basic corporate income tax of PAL shall be
based on its annual net taxable income.
13. REQUISITES FOR CLAIMING TAX REFUND OF CREDITABLE WITHHOLDING TAXES: TAX
REFUND OF CREDITABLE WITHHOLDING TAXES; Commissioner of Internal Revenue v. Team
[Philippines] Operations Corporation (formerly Mirant [Philippines] Operations
Corporation), G.R. No. 185728. October 16, 2013.
(1) The claim must be filed with the Commissioner of Internal Revenue within the two-year period from the
date of payment of the tax;
(2) It must be shown on the return of the recipient that the income 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 tax withheld.
14. DOCTRINE OF OPERATIVE FACT; Commissioner of Internal Revenue v. San Roque Power
Corporation, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. October 8, 2013
Taxpayers may rely upon a rule or ruling issued by the Commissioner of Internal Revenue from the time the
rule or ruling is issued up to its reversal by the Commissioner or the Court. The reversal is not given
retroactive effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or
ruling issued by the Commissioner that is relied upon by the taxpayer in good faith. A mere administrative
practice, not formalized into a rule or rulings, will not suffice because such a mere administrative practice
may not be uniformly and consistently applied. An administrative practice, if not formalized as a rule or
ruling, will not be known to the general public and can be availed of only by those with informal contacts
with the government agency.
15. REAL PROPERTY TAX; LBAA; CBAA; Camp John Hay Development Corporation v. Central
Board of Assessment Appeals, G.R. No. 169234. October 2, 2013.
Step 1: TX/real property owner questioning the assessment should first pay the tax due before his protest
can be entertained;
Step 2: Within the period prescribed by law, any owner or person having legal interest in the property not
satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may
file an appeal with the Local Board of Assessment Appeals (LBAA) of the province or city concerned;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 7 of 77

Step 3: Thereafter, within thirty days from receipt, he may elevate, by filing a notice of appeal, the
adverse decision of the LBAA with the Central Board of Assessment Appeals.
NOTES: A claim for exemption from payment of real property taxes does not actually question the
assessors authority to assess and collect such taxes, but pertains to the reasonableness or correctness of
the assessment by the local assessor, a question of fact which should be resolved, at the very first instance,
by the Local Board of Assessment Appeals. This may be inferred from section 206 (Proof of Exemption of
Real Property from Taxation) of the Local Government Code. By providing that real property not declared
and proved as tax-exempt shall be included in the assessment roll, section 206 implies that the local
assessor has the authority to assess the property for realty taxes, and any subsequent claim for exemption
shall be allowed only when sufficient proof has been adduced supporting the claim. Therefore, if the
property being taxed has not been dripped from the assessment roll, taxes must be paid under protest if
the exemption from taxation is insisted upon.

16. MERGER/CONSOLIDATION; Commissioner of Internal Revenue v. Bank of Commerce, G.R.
No. 180529. November 13, 2013.
The term merger or consolidation, when used shall be understood to mean: (i) the ordinary merger or
consolidation, or (ii) the acquisition by one corporation of all or substantially all the properties of another
corporation solely for stock: Provided, [t]hat for a transaction to be regarded as a merger or consolidation,
it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the
burden of taxation. In case of a merger, two previously separate entities are treated as one entity and the
remaining entity may be held liable for both of their tax deficiencies. In the agreement between Traders
Royal Bank and Bank of Commerce, it was explicitly provided that they shall continue to exist as separate
entities. Since the purchase and sale of identified assets between the two companies does not constitute a
merger under the foregoing definition, the Bank of Commerce is considered an entity separate from
petitioner. Thus, it cannot be held liable for the payment of the deficiency documentary stamp tax assessed
against petitioner.
17. NEWLY DISCOVERED EVIDENCE; Luzon Hydro Corporation v. Commissioner of Internal
Revenue, G.R. No. 188260. November 13, 2013.
In order that newly discovered evidence may be a ground for allowing a new trial, it must be fairly shown
that: (a) the evidence is discovered after the trial; (b) such evidence could not have been discovered and
produced at the trial even with the exercise of reasonable diligence; (c) such evidence is material, not
merely cumulative, corroborative, or impeaching; and (d) such evidence is of such weight that it would
probably change the judgment if admitted.
B. 2012 CASES:
1. Accenture, Inc. vs. Commissioner of Internal Revenue, G.R. No. 190102, July 11, 2012. Value
Added Tax; zero-rated transaction; recipient of services.
The recipient of services must be doing business outside the Philippines for the transaction to qualify it as
zero-rated under Section 108 (B) of the National Internal Revenue Code of 1997 (1997 Tax Code). It is not
enough that the recipient of the services be proven to be a foreign corporation; it must be specifically proven to
be a non-resident foreign corporation. The term doing business in the Philippines implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for
the purpose and object of the business organization.

2. Team Pacific Corporation vs. Daza as Municipal Treasurer of Taguig, G.R. No. 167732, July 11,
2012. Local Government Code; local business tax; appeal under Section 195; Rule 65 petition for certiorari.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 8 of 77

A taxpayer dissatisfied with a local treasurers denial of or inaction on his protest over an assessment has
30 days within which to appeal to the court of competent jurisdiction. The said period is to be reckoned from the
taxpayers receipt of the denial of his protest or the lapse of the 60-day period within which the local treasurer is
required to decide the protest, from the moment of its filing. Section 195 of the Local Government Code does not
elaborate on how an appeal is to be made from the denial by a local treasurer of a protest on assessment made
by a taxpayer. However, taxpayer erroneously availed of the wrong remedy in filing a Rule 65 petition for
certiorari to question the treasurers inaction on its letter-protest. As a special civil action, certiorari is available
only if the following essential requisites concur: (i) it must be directed against a tribunal, board, or officer
exercising judicial or quasi-judicial functions; (2) the tribunal, board, or officer must have acted without or in
excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction; and, (3) there is no appeal nor any plain, speedy,
and adequate remedy in the ordinary course of law.

3. Team Pacific Corporation vs. Daza as Municipal Treasurer of Taguig, G.R. No. 167732, July 11,
2012.Republic Act No. 1125; Court of Tax Appeals; exclusive appellate jurisdiction.
By going directly to the Supreme Court on a Rule 45 petition for review on certiorari, taxpayer lost sight of
the fact that Court of Tax Appeals has the exclusive appellate jurisdiction over, among others, appeals from
judgments, resolutions or orders of the regional trial courts in tax collection cases originally decided by them in
their respective territorial jurisdictions Appeals to the Court of Tax Appeals must be perfected within 30 days from
receipt of the decision and 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. The perfection of an appeal in the manner and
within the period fixed by law is not only mandatory but jurisdictional and non-compliance with these legal
requirements is fatal to a partys cause.
5. Republic of the Philippines represented by the Philippine Reclamation Authority vs. City of
Paranaque, G.R. No. 191109, July 18, 2012. Local Government Code; real property tax; tax exemption of the
Republic; Property of public domain; Foreclosure.
Section 234 of the LGC exempts from real property tax, 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. The Philippine Reclamation Authority (PRA) is not a GOCC
because it is neither a stock nor non-stock corporation as required by the Administrative Code, which is the
governing law defining the legal relationship and status of government entities. PRA is a government
instrumentality vested with corporate powers and performing an essential public service. Being an incorporated
government instrumentality, it is exempt from payment of real property tax. Moreover, real property owned by the
Republic of the Philippines is exempt from real property tax unless the beneficial use thereof has been granted to
a taxable person.
The subject reclaimed lands are still part of the public domain, owned by the State and, therefore exempt
from real property tax. They are portions of the foreshore and offshore areas of Manila Bay. As such, they remain
public lands and form part of the public domain under the Constitution and the Civil Code. As held by the Court in
the case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation, foreshore and
submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified as
alienable lands open to disposition and further declared no longer needed for public service. The fact that
alienable lands of the public domain were transferred to the Public Estates Authority (now PRA) and issued land
patents or certificates of title in PEAs name did not automatically make such lands private. The Court in the said
case also held that reclaimed lands retained their inherent potential as areas for public use or public service.
Reclaimed lands are reserved lands for public use. They are properties of public dominion. The ownership of such
land remains with the State unless they are withdrawn by law or presidential proclamation from public use.
Properties of public dominion are not subject to execution or foreclosure sale.
6. Western Mindanao Power Corporation vs. Commissioner of Internal Revenue, G.R. No. 181136,
June 13, 2012. National Internal Revenue Code; Revenue Regulations No. 7-95; refund of input VAT; printing of
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 9 of 77

zero-rated on official receipt.
The Court has consistently held as fatal the failure to print the word zero-rated on the VAT invoices or
official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made
prior to the effectivity of R.A. 9337.
7. Angeles University Foundation vs. City of Angeles, et al., G.R. No. 189999, June 27, 2012. Republic
Act No. 6055; Presidential Decree No. 1096 (National Building Code of the Philippines); Republic Act No. 7160
(Local Government Code of 1991); exemption of non-stock non-profit foundations; building permit fee.
Republic Act (R.A.) No. 6055 granted the following tax exemptions to educational institutions like
petitioner which converted to non-stock, non-profit educational foundations: exemption from the payment of all
taxes, import duties, assessments, and other charges imposed by the Government on all income derived from or
property, real or personal, used exclusively for the educational activities of the Foundation. On the other hand,
under the National Building Code, only public buildings and traditional indigenous family dwellings are exempted
from the payment of building permit fees. Hence, not being expressly included in the enumeration of structures to
which the building permit fees does not apply, petitioners claim for exemption rests solely on its interpretation of
the term other charges imposed by the National Government in the tax exemption clause of R.A. No. 6055. A
charge is broadly defined as the price of, or rate for, something, while the word fee pertains to a charge
fixed by law for services of public officers or for use of a privilege under control of government. As used in the
Local Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary liability, as rents or fees against
persons or property, while fee means a charge fixed by law or ordinance for the regulation or inspection of a
business or activity. That charges in its ordinary meaning appears to be a general term which could cover a
specific fee does not support petitioners position that building permit fees are among those other charges
from which it was expressly exempted. Note that the other charges mentioned in R.A. No. 6055 is qualified by
the words imposed by the Government on all property used exclusively for the educational activities of the
foundation. Building permit fees are not impositions on property but on the activity subject of government
regulation. While it may be argued that the fees relate to particular properties, i.e., buildings and structures, they
are actually imposed on certain activities the owner may conduct either to build such structures or to repair, alter,
renovate or demolish the same. Since building permit fees are regulatory impositions and not charges on property,
they are not impositions from which the petitioner is exempt.
8. Union Cement Corporation vs. Commissioner of Internal Revenue: Court of Tax Appeals (Second
Division) Case No. 6842 promulgated January 18, 2012: Validity of Waiver; Can it be raised for the
first time on appeal to CTA?;
Taxpayer can question the validity of the waiver for the first time on appeal at the CTA. The CTA may resolve the
issue of prescription even if the issue was not raised in the administrative protest filed by taxpayer. The CTA cited
rulings of the Supreme Court which held that the Court is authorized to entertain issues or matters not raised in
the lower courts in the interest of substantial justice. Moreover, the CTA is a court of record that is required to
conduct a formal trial where the parties must present their evidence for consideration. The CIR had the
opportunity to present evidence to prove validity of the waiver.
The waiver is defective and therefore did not toll the 3-year prescriptive period for the BIR to issue an
assessment. The waiver failed to comply with the requisites prescribed for its validity as the following defects were
noted in its execution:
a. The waiver was signed by Ms. Flor Mercado for then Assistant Commissioner of the BIR Large Taxpayers
Service, Atty. Edwin R. Abella;
b. The original copy of the waiver does not indicate the fact of receipt by the taxpayer; and
c. The waiver failed to indicate the specific kind of tax and the amount of tax due. Revenue Delegation Authority
Order (RDAO) No. 05-01 authorizes certain officials to sign and accept a waiver. The CIR, however, failed to
prove that Ms. Mercado was authorized to sign the waiver executed by UCC. RMO No. 20-90 specifically
provides that receipt by the taxpayer of his file copy must be indicated in the original copy of the waiver. The
CIR did not present evidence to show UCCs receipt of the signed waiver. The purpose of this requirement is
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 10 of 77

to notify taxpayers of the existence of the document, the acceptance by the BIR, as well as the perfection of
the agreement.
d. The waiver also failed to state the specific kind of tax and the amount of the tax due. The purpose of stating
the specific kind of tax and the amount of tax due is for the taxpayer to pinpoint which among the proposed
tax assessments may subsequently be issued without him invoking the defense of prescription. RMO No. 20-
90 requires specific information which cannot be substituted with general statements.
e. Lastly, the BIR cannot hide behind the Doctrine of Estoppel to cover its failure to comply with RMO No. 20-90
and RDAO No. 05-01. Having caused the defects in the waiver, the BIR must bear the consequences.
9. Laurence Lee V. Luang vs. Commissioner of Internal Revenue; Court of Tax Appeals (Second Division)
Case No. 7967 promulgated January 5, 2012; Absence of a PAN invalidates the assessment;
The receipt by the taxpayer of a PAN is part of the due process requirement in the issuance of a deficiency tax
assessment, the absence of which nullifies any assessment made by tax authorities.
Section 228 of the Tax Code requires that the taxpayer must first be informed that he is liable for deficiency taxes
through the sending of a PAN. Revenue Memorandum Order No. 42-2003, which prescribes the guidelines for
assessments covered by Letter Notice, also provides that a PAN and FAN shall be issued following the procedure
under RR No. 12- 99. Under RR No. 12-99, if after review and evaluation, it is determined that there exists
sufficient basis to assess deficiency taxes, a PAN shall be issued to the taxpayer showing in detail, the facts and
the law, rules and regulations, or jurisprudence on which the proposed assessments are based. Failure to strictly
comply with notice requirements prescribed under Section 228 of the Tax Code and RR No. 12-99 is tantamount to
a denial of due process.
10. Commissioner of Internal Revenue vs. United Parcel Service Co. (Philippine Branch)Court of Tax
Appeals (En Banc) EB No. 721 promulgated May 16, 2012
Where a taxpayer failed to file a return, the prescriptive period for the BIR to issue an assessment is 10 years
from discovery of the omission.
If a taxpayer denies receipt of an assessment, the BIR must prove by competent evidence that such assessment
was received by the taxpayer.
Before the 15% branch profits remittance tax (BPRT) is levied upon a resident foreign corporation, there should
first be a remittance of profits by the branch to its head office. The mere existence of income does not in any way
justify the imposition of the BPRT.
11. Spouses Hordon H. Evono and Maribel C. Evono vs. Department of Finance, Commissioner of
Internal Revenue and the Republic of the Philippines, et al. Court of Tax Appeals (En Banc) EB No. 705
promulgated June 4, 2012
Where the Commissioner of Internal Revenue (CIR) fails to act on a disputed assessment within the prescribed
180- day period, a taxpayer has the option to either (a) file a Petition for Review with the CTA within 30 days after
the expiration of the 180-day period, or (b) await the final decision of the CIR on the disputed assessment and
appeal the same to the CTA within 30 days from receipt of such decision. However, these options are mutually
exclusive, and resort to one bars the application of the other. In acquisitions of property, the inclusion in the
CERTIFICATE OF AUTHORIZATION TO REGISTER (CAR) and TCT of minor children who have no sources of
income shall be deemed a donation or gift from their parents that is subject to donors tax.
12. Smart Communications, Inc. vs. Municipality of Malvar, Batangas; Court of Tax Appeals (En Banc) EB
No. 767 promulgated June 26, 2012
While the CTA has jurisdiction to resolve tax disputes in general, the CTA has no authority to decide cases where
the constitutionality of a law or rule is challenged; that authority lies within the jurisdiction of the regular courts.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 11 of 77

13. Republic Cement Corporation vs. Commissioner of Internal Revenue; CTA (En Banc) Case No. 821
promulgated July 18, 2012
Deficiency interest on any deficiency tax is computed from the date prescribed for payment of the tax until
full payment thereof. Delinquency interest may also be imposed and is computed from the due date appearing in
the assessment notice until full payment thereof. Sections 249(B) and (C)(3) of the Tax Code allow the
simultaneous imposition of these two kinds of interest.
14. Team Pacific Corporation vs. Josephine Daza, in her capacity as Municipal Treasurer of
TaguigSecond Division, G.R. No. 167732, promulgated July 11, 2012
After receiving a notice of assessment from the LGU, a taxpayer may file within 60 days a written protest with the
local treasurer, which shall decide on it within 60 days. The taxpayer can make an appeal to the Regional Time
Court (RTC) within 30 days from receiving the denial of the protest, or from the lapse of the 60-day period to
decide on the protest. Thereafter, the taxpayer can appeal the decision of the RTC to the Court of Tax Appeals
(CTA) within 30 days after receiving the decision.
15. Commissioner of Internal Revenue vs. St. Lukes Medical Center, Inc. Supreme Court (Second
Division) G.R. Nos. 195909 & 195960 promulgated on September 26, 2012
The BIR assessed Respondent St. Lukes Medical Center, Inc. (SLMC), a hospital organized as a non-stock and
non-profit corporation, deficiency income tax for the year 1998. For failure to act on its protest, SLMC filed a
Petition for Review with the CTA.
The BIR claimed that SLMC was actually operating for profit and that its charitable services amount to only 13% of
its total revenue. Hence, SLMC is liable for the 10% income tax on proprietary hospitals under Section 27(B) of the
Tax Code, which provides that Proprietary educational institutions and hospitals which are non-profit shall pay a
tax of 10% on their taxable income except for passive income, which shall be subject to final taxes.
On the other hand, SLMC argued that it is exempt from income tax as an institution for charitable and social
welfare purposes under Sections 30 (E) and (G) of the Tax Code.
CTA RULING: The CTA ruled that SLMC is exempt from income tax as it is covered by Section 30(E) and (G) of
the Tax Code, as evidenced by the primary purposes stated in its Articles of Incorporation and various documents
identifying SLMC as a charitable institution. The CTA ruled that the generation of income does not per se destroy
the charitable nature of SLMC.
SUPREME COURT RULING:
1. SLMC is not exempt from income tax under Section 30(E) and (G) of the Tax Code. Instead, it is subject to the
10% income tax on proprietary hospitals. To be tax exempt under Section 30 (E) of the Tax Code, a charitable
institution must meet the following requirements: 1) it must be a non-stock corporation or association; 2) it must
be organized exclusively for charitable purposes; 3) it must be operated exclusively for charitable purposes; and 4)
no part of its net income or asset shall belong or inure to the benefit of any member, organizer, officer or any
specific person. Section 30(G) of the Tax Code requires that, in order to be exempt from income tax, an institution
must be operated exclusively for social welfare.
Although SLMC is organized as a non-stock and non-profit charitable institution as shown by its Articles of
Incorporation, by-laws and other constitutive documents, it does not operate exclusively for charitable purposes.
Hence, SLMC is liable for income tax at the rate of 10%, pursuant to Section 27 (B) of the Tax Code. However, it
is not liable for surcharge and interest on such deficiency income tax since it had good reasons to rely on the 1990
letter of the BIR, which opined that SLMC is a corporation for purely charitable and social welfare purposes.
Notwithstanding the income tax exemption of charitable and social welfare institutions in Section 30(E) and (G) of
the Tax Code on their operations (i.e., their regular activities), the last paragraph of Section 30 provides that their
income of whatever kind and character from any of their properties, real or personal, or from any of their activities
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 12 of 77

conducted for profit regardless of the disposition made of such income, shall be subject to income tax. Rather
than the 30% regular corporate income tax, however, the 10% preferential rate under Section 27(B) shall apply.
2. In claims for refund of excess input taxes attributable to zero-rated sales, a taxpayer may file a Petition for
Review with the CTA within 30 days from receipt of the adverse decision of the CIR, or from the lapse of the 120-
day period for the CIR to act on the claim.
16. Pilipinas Total Gas, Inc. vs. Commissioner of Internal Revenue: CTA (En Banc) EB No. 776
promulgated October 11, 2012
RULES ON TAX REFUND FOR VAT PURPOSES:
1. Section 112 of the Tax Code prescribes that a taxpayer 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 unutilized input
tax attributable to zero-rated sales. The CIR has 120 days from filing of the application within which to act based
on the supporting documents submitted. Within 30 days from receipt of the CIRs adverse decision or from the
lapse of the 120-day period, the taxpayer may file a Petition for Review with the CTA.
Since PTGI filed the claim with the CIR on May 15, 2008, the CIR had until September 12, 2008 to decide on the
claim. Since the CIR failed to act on the claim, PTGI had until October 12, 2008 to file a Petition for Review with
the CTA. However, PTGI filed the judicial claim only on January 23, 2009. Thus, the CTA has no jurisdiction to
entertain the judicial claim.
PTGIs contention that the 120-day period should commence on August 28, 2008 or the date when it filed its last
supporting document, has no basis. Section 112 of the Tax Code is clear without any provision for suspension or
extension of the 120-day period. To allow such interpretation would give any taxpayer the unlimited discretion to
indefinitely extend the 120-day period by simply filing additional supporting documents.
2. A taxpayer must first submit the complete supporting documents before the 120-day period commences. The
CIR cannot decide the claim without the complete supporting documents. Since PTGI failed to submit to the CIR
the required complete supporting documents, the filing of the Petition for Review with the CTA is premature. Well-
settled is the rule that exhaustion of available administrative remedies is a condition precedent before taking
judicial action.
17. Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan De Oro; Supreme Court (Second
Division) G.R. No. 191761 promulgated November 14, 2012
Any question on the legality or constitutionality of a tax ordinance or other revenue measure must be filed with
the Secretary of Justice within 30 days from its effectivity.
A local business tax levied on businesses subject to excise, percentage, or VAT under the Tax Code must not
exceed 2% of the gross sales or receipts of the business for the previous calendar year.
18. Joel C. Mendez vs. People of the Philippines; Court of Tax Appeals (En Banc) EB Crim. No. 014
promulgated December 11, 2012
Issuance of an assessment is not necessary before criminal prosecution. A subpoena duces tecum is not a
condition precedent for the BIR to resort to the best evidence obtainable.
B. 2011 CASES
(1). Belle Corporation vs Commissioner of Internal Revenue, G.R. No. 181298, January 10, 2011.
Belle Corporation vs. Commissioner of Internal Revenue, G.R. No. 181298, March 2, 2011.
Commissioner of Internal Revenue vs. Mirant (Philippines) Operations, Corporation, G.R. No.
171742; Mirant (Philippines) Operations, Corporation vs. Commissioner of Internal Revenue, G.R.
No. 176165; June 15, 2011.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 13 of 77



(a). Under section 76 of the National Internal Revenue Code (Tax Code) in case of overpayment of income taxes,
a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year
and the availment of one remedy precludes the other. However, unlike section 69 of the previous Tax Code, the
carry-over of excess income tax payments is no longer limited to the succeeding taxable year but is carried over to
the succeeding taxable years until fully utilized. Moreover, the option to carry-over excess income tax payments is
not irrevocable. Hence; unutilized excess income tax payments may no longer be refunded. Failure to carry over
excess income tax payment NOT CONVERTED into claim for refund but taxpayer may still carry over as tax credit
for the succeeding taxable years until fully utilized;

(b). The requisites for claiming a tax credit or a refund of creditable withholding tax are as follows: (1) the claim
must be filed with the Commissioner of Internal Revenue within the two-year period from the date of the 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.

(2). Silicon Philippines, Inc. (formerly Intel Philippines Manufacturing, Inc.) vs Commissioner of
Internal Revenue, G.R. No. 172378, January 17, 2011;

(a). Requirements of credit or refund of input tax for VAT zero rated sales under Section 112:
(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;
(4) the creditable input VAT due or paid must be attributable to such sales, except the transitional input VAT,
to the extent that such input VAT has not been applied against the output VAT.

(b). The authority to print (ATP) need not be reflected or indicated in the invoices or receipts because there is no
law or regulation requiring it. 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, thus, BIR will
require taxpayer to present its ATP. Without this proof, the invoices or receipts would have no probative value for
the purpose of refund.

. Failure to print the word zero-rated on the sales invoices or receipts is fatal to a claim for refund of input
value-added tax on zero-rated sales.


(3). Atlas Consolidated Mining and Development Corporation vs Commissioner of Internal Revenue,
G.R. No. 159471, January 26, 2011.

When claiming tax refund or credit, the value-added taxpayer must be able to establish that it does have
refundable or creditable input value-added tax (VAT), and the same has not been applied against its output VAT
liabilities- information which are supposed to be reflected in the taxpayers VAT returns. Thus, an application for
tax refund or credit must be accompanied by copies of the taxpayers VAT return or returns for taxable quarter or
quarters concerned.

(4). Republic of the Philippines (Department of Transportation and Communications) vs City of
Mandaluyong, G.R. No. 184879, February 23, 2011.

A writ of possession pursuant to tax delinquency sale is a mere incident in the transfer of title. Pending
determination of whether the auction sale should be enjoined by the Court of Appeals, it is premature for the city
to have conducted the auction sale and caused the transfer of title over the real properties to its name. The denial
by the Regional Trial Court (RTC) to issue an injunction or a TRO does not automatically give the city the liberty to
proceed with auction sale of the subject property. All the more it is premature for the RTC to issue a writ of
possession where the ownership of the subject properties is derived from an auction sale, the validity of which is
still being threshed out in the CA. The RTC should have held in abeyance the issuance of a writ of possession.

(5). Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez vs BPI Family Savings Bank,
Inc., G.R. No. 165617, February 25, 2011; BPI Family Savings Bank, Inc. vs Supreme Transliner, Inc.,
Moises C. Alvarez and Paulita S. Alvarez, G.R. No. 165837, February 25, 2011.

(a). For purposes of CGT, the term sale includes pacto de retro and other forms of conditional sale to include
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 14 of 77

mortgage foreclosure sales (judicial and extrajudicial foreclosure sales).;

(b). CGT on foreclosed assets if redemption is not exercised: For real property foreclosed by a bank on or after
September 3, 1986, the capital gains tax and documentary stamp tax must be paid before title to the property can
be consolidated in favor of the bank. If no right of redemption exists, the certificate of title of the mortgagor shall
be cancelled, and a new certificate issued in the name of the purchaser. But where the right of redemption exists,
the certificate of title of the mortgagor shall not be cancelled, but the certificate of sale and the order confirming
the sale shall be registered by brief memorandum thereof made by the Register of Deeds on the certificate of title.

. In foreclosure sale, there is no actual transfer of the mortgaged real property until after the expiration of the
one-year redemption period as provided in Act No. 3135 and title thereto is consolidated in the name of the
mortgagee in case of non-redemption. In the interim, the mortgagor is given the option whether or not to redeem
the real property. The issuance of the Certificate of Sale does not by itself transfer ownership.

(d). CGT on foreclosed assets if redemption is exercised: In case the mortgagor exercises his right of redemption
within one year from the issuance of the certificate of sale, no capital gains tax shall be imposed because no
capital gain has been derived by the mortgagor and no sale or transfer of real property was realized. Moreover,
the transaction will be subject to documentary stamp tax of only Php15 because no land or realty was sold or
transferred for a consideration.

(e). Non-retroactivity of BIR Regulations: The retroactive application of Revenue Regulations No. 4-99 [to the
transaction which took place before its effectivity] is more consistent with the policy of aiding the exercise of the
right of redemption. while revenue regulations as a general rule have no retroactive effect, if the revocation is due
to the fact that the regulation is erroneous or contrary to law, such revocation shall have retroactive operation as
to affect past transactions, because a wrong construction cannot give rise to a vested right that can be invoked by
a taxpayer.

(6). Central Luzon Drug Corporation vs. Commissioner of Internal Revenue, G.R. No. 181371, March
2, 2011

A case is deemed submitted for decision or resolution upon the filing of the last pleading, brief or memorandum
that the Court or its Rules require. When taxpayer opted to file a motion to withdraw instead of the Courts
required reply and the court granted such withdrawal, taxpayer is deemed to have accepted the decision of the
Court of Tax Appeals (CTA). And since the CTA had already denied taxpayers request for the issuance of a tax
credit certificate for insufficiency of evidence, it may no longer be included in taxpayers future claims. Taxpayer
cannot be allowed to circumvent the denial of its request for a tax credit by abandoning its appeal and filing a new
claim. An appellant who withdraws his appeal must face the consequences of his withdrawal, such as the decision
of the court a quo becoming final and executory.

(7). Philippine Amusement and Gaming Corporation (PAGCOR) vs The Bureau of Internal Revenue,
G.R. No. 172087, March 15, 2011.

(a). PAGCORs taxability for Corporate Income Tax is not violative of equal protection clause. Legislative records
would show that the exemption of PAGCOR from the payment of corporate income tax was due to the
acquiescence of Committee on Ways and Means to the request of PAGCOR that it be exempt from such tax. Thus,
the previous exemption of PAGCOR from paying corporate income tax was not based on a classification showing
substantial distinctions required by the equal protection clause which make for real differences but was granted
upon PAGCORs request;

(b). PAGCORs Taxability for Corporation Income Tax is not violative of non-impairment clause: PAGCOR argues
that the withdrawal of its exemption from corporate income tax is violative of the non-impairment clause. The
non-impairment clause does not apply to franchise (Section 11, Art. 12 of Constituiton) which partakes the nature
of a grant and is beyond the purview of the non-impairment clause of the Constitution. In this case, PAGCOR was
granted a franchise to operate and maintain gambling casinos, clubs and other recreation or amusement places,
sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on land or sea, within the territorial
jurisdiction of the Republic of the Philippines;

. PAGCOR is NOT subject to VAT. RR No. 16-2005 subjecting PAGCOR to VAT is invalid for being contrary to
Republic Act (RA) No. 9337. Nowhere in RA No. 9337 is it provided that PAGCOR can be subjected to VAT. RA No.
9337 is clear only as to the removal of PAGCORs exemption from the payment of corporate income tax. RA No.
9337 itself exempts PAGCOR from VAT pursuant to Section 7 (k) thereof which provides among the transaction
exempt from VAT, transactions which are exempt under special laws.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 15 of 77


(8). Commissioner of Customs vs AGHFA Incorporated, G.R. No. 187425, March 28, 2011.

(a). The owner of lost shipment is entitled to recover the value of its lost shipment based on the acquisition cost
(providing for foreign currency) at the time of payment. The rate of exchange for the conversion in
the peso equivalent should be the prevailing rate at the time of payment. Republic Act No. 529, as
amended by RA No. 4100, provides that stipulations on the satisfaction of obligations in foreign currency are void.
Thus payments of monetary obligations, subject to certain exceptions, must be discharged in the currency which is
the legal tender in the Philippines. However, since RA No. 529 does not provide for the rate of exchange for the
payment of foreign currency obligations incurred after its enactment, the Court held in a number of cases that the
rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment;

(b). Regarding the state immunity doctrine, the Commissioner of Customs cannot escape liability for the lost
shipment for goods. As discussed in the case of Republic of the Philippines represented by the Bureau of Customs
vs UNIMEX Micro-Electronics GmBH, the Court cannot turn a blind eye to BOCs ineptitude and gross negligence
in the safekeeping of respondents goods. It is also aware of its lackadaisical attitude in failing to provide a cogent
explanation on the goods disappearance, considering that they were in its custody and that they were in fact the
subject of litigation. The situation does not allow the Court to reject respondents claim on the mere invocation of
the doctrine of state immunity. The doctrine must be fairly observed and the State should not avail itself of this
prerogative to take undue advantage of parties that may have legitimate claims against it.

(9). Microsoft Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 180173, April 6,
2011.

The word zero-rated should be imprinted on the invoice covering zero-rated sales. It also provided that only
VAT-registered persons are required to print their tax identification number followed by the word VAT in their
invoices or receipts and this shall be considered as a VAT invoice. 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. A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be
able to file a claim for input taxes on domestic purchases for goods or services attributed to zero-rated sales.
Taxpayers invoice, lacking the word zero-rated, is not a VAT invoice, and this cannot give rise to any input
tax.

(10). PCSO v. CIR and Assistant Commissioner of Internal Revenue, Large Taxpayers Service, CTA
Case No. 8036, April 15, 2011

The sale of lotto tickets is subject to DST based on the cost of the ticket, pursuant to Section 190 of the Tax Code,
as amended. They are not covered by the exemption granted to horse races and sale of tickets in the horse race
sweepstakes from all taxes under the PCSO charter (RA 1169). Under Section 4 of RA 1169, horse races and sale
of tickets in the said sweepstakes are exempt from all taxes, except that each ticket shall bear a twelve-centavo
internal revenue stamp. According to the CTA, the express inclusion of horse races and sale of horse race
sweepstakes tickets is a clear exclusion of anything unmentioned as exempt from all taxes. The basis of the 10%
DST is the cost of the lotto tickets or gross sales, and not the net receipts. The cost of each lotto ticket is P10,
which is also equivalent to gross sales of P10 per lotto ticket. Hence, the PCSO liability for DST on sale of lotto
tickets should be based on gross sales.

(11). People of the Philippines v. Divino A. Lota c/o AML Marine Industrial Corporation, CTA Criminal
Case No. 0-105, April 19, 2011

(a). If a taxpayer denies receipt of assessment from the BIR, it is incumbent upon BIR to prove by competent
evidence that the notice of assessment was indeed received by the addressee. The best evidence to prove receipt
of an assessment is the registry return card or a certification from the post office. Presentation by the BIR of the
internal documentation made by its personnel, such as logbook and transmittal slip, which contains the name of
the taxpayer, kind of tax assessed, the registry receipt number and the date of mailing, as well as the testimony of
its document custodian, is not sufficient proof of receipt by the taxpayer of the assessment.

(b). Absent such proof of receipt of assessment, demand letters from the BIR, proceeding with tax collection
without first establishing a valid assessment violates the cardinal principle in administrative investigations that
taxpayers should be able to present their case and adduce supporting evidence in support of their defense and
without such knowledge or information of assessment as evidenced by valid receipt of formal notice and demand
for payment, the alleged failure to pay the assessed tax deficiencies cannot be considered willful as to constitute
voluntary and intentional infraction of law. The taxpayer , therefore was acquitted of its alleged crime of non-
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 16 of 77

payment of deficiency taxes;

(12). Sta. Lucia Realty & Development, Inc. vs. City of Pasig, G.R. No. 166838, June 15, 2011.

(a). Under Real Property Tax Code, the authority to collect real property taxes is vested in the locality where the
property is situated. it is imperative to first show that these properties are unquestionably within its geographical
boundaries. The importance of drawing with precise strokes the territorial boundaries of a local unit of government
cannot be overemphasized. The boundaries must be clear for they define the limits of the territorial jurisdiction of
a local government unit. It can legitimately exercise powers of government only within the limits of its territorial
jurisdiction. Beyond these limits, its acts are ultra vires. Clearly therefore, the local government unit entitled to
collect real property taxes from Sta. Lucia must undoubtedly show that the subject properties are situated within
its territorial jurisdiction; otherwise, it would be acting beyond the powers vested to it by law.

(b). While a certificate of title is conclusive as to its ownership and location, this does not preclude the filing of an
action for the very purpose of attacking the statements therein. While TCTs are indefeasible, unassailable and
binding against the whole world, including the government itself, they do not create or vest title. They merely
confirm or record title already existing and vested. Although it is true that Pasig is the locality stated in the
transfer certificates of title of the subject properties, both taxpayer and the Municipality of Cainta aver that the
metes and bounds of the subject properties, as they are described in the certificates, reveal that they are within
Caintas boundaries. This only means that there may be a conflict between the location as stated and the location
as technically described in the certificates. Mere reliance therefore on the face of the certificates will not suffice as
they can only be conclusive evidence of the subject properties locations if both the stated and described locations
point to the same area.

. The Antipolo Regional Trial Court, wherein the boundary dispute case between Pasig and Cainta is pending,
would be able to best determine once and for all the precise metes and bounds of both Pasigs and Caintas
respective territorial jurisdictions. The resolution of this dispute would necessarily ascertain the extent and reach
of each local governments authority, a prerequisite in the proper exercise of their powers, one of which is the
power of taxation.

(13). Commissioner of Internal Revenue vs. Filinvest Development Corporation, G.R. No. 163653,
July 19, 2011; Commissioner of Internal Revenue vs. Filinvest Development Corporation, G.R. No.
167689, July 19, 2011.

(a). Any revocation, modification or reversal of a Bureau of Internal Revenue (BIR) ruling shall not be applied
retroactively if to so apply it would be prejudicial to the taxpayer. This rule does not apply:

(1) where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the BIR;
(2) where the facts subsequently gathered by the BIR are materially different from the facts on which the
ruling is based; or
(3) where the taxpayer acted in bad faith. The foregoing principle of non-retroactivity of BIR may be invoked
by the taxpayer who, in the first place, sought the ruling from the Commissioner of Internal Revenue.

(b). The requisites for the non-recognition of gain or loss under section 34 of the NIRC are the following:

(1) the transferee is a corporation;
(2) the transferee exchanges its shares of stock for property/ies of the transferor;
(3) the transfer is made by a person, acting alone or together with others, not exceeding four persons; and
(4) as a result of the exchange the transferor, alone or together with others, not exceeding four, gains control
of the transferee.

. No deficiency tax can be assessed on the gain on the supposed dilution and/or increase in the value of
taxpayers shareholdings in the transferee which the Commissioner of Internal Revenue (CIR), at any rate, failed
to establish. Bearing in mind the meaning of gross income, it cannot be gainsaid that a mere increase or
appreciation in the value of the shares cannot be considered income for taxation purposes. Since a mere advance
in the value of the property of a person or corporation in no sense constitute the income specified in the revenue
law, it has been held in the early case of Fisher vs. Trinidad that it constitutes and can be treated merely as an
increase of capital. Hence, the CIR has no factual and legal basis in assessing income tax on the increase in the
value of the taxpayers shareholdings in the transferee until the same is actually sold.

(14). Renato V. Diaz and Aurora Ma. F. Timbol vs. the Secretary of Finance and the Commissioner of
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 17 of 77

Internal Revenue, G.R. No. 193007; July 19, 2011

(a). Section 108 of the National Internal Revenue Code (NIRC) imposes value added tax on all kinds of service
rendered in the Philippines for a fee, including those specified in the list. The enumeration of affected services is
not exclusive. 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. When a tollway operator takes a toll fee from
a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private
proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from
those enumerated under Section 108 of the NIRC who allow others to use their properties or facilities for a fee.

(b). Section 108 of the National Internal Revenue Code (NIRC) also imposes value added tax (VAT) on all other
franchise grantees other than those under Section 109 of the NIRC. Tollway operators are franchise grantees and
they do not belong to the exceptions. Tollway operators are, owning to the nature and object of their business,
franchise grantees. The construction, operation, and maintenance of toll facilities on public improvements are
activities of public consequence that necessarily require a special grant of authority from the state. Apart from
Congress, tollway franchise may also be granted by the Toll Regulatory Board, pursuant to the exercise of its
delegated powers under Presidential Decree No. 1112. The franchise in this case is evidence by a Toll Operation
Certificate.
. Toll fee is not a users tax. Petitioners argue that toll fee is a users tax and to impose value-added tax on toll
fees is tantamount to taxing a tax. Fees paid by the public to tollway operators for use of the tollways, are not
taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation
of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, they are not government exactions that can be properly treated as tax. Taxes may be
imposed only by the government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.

(d). VAT is assessed against the tollway operators gross receipts and not necessarily on the toll fees. Although the
tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the
VAT. The shifted VAT simply becomes part of the toll fees that one has to pay in order to use the tollways.

(e). Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private
investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution of
return of investments that may result from the value-added tax imposition. She has no interest at all in the profits
to be earned under the toll operating agreements. The interest in and right to recover investments solely belongs
to private investors.

(f). Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system
should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer.
Non-observance of the canon, however, will not render a tax imposition invalid except to the extent that specific
constitutional or statutory limitations are impaired. Thus, even if the imposition of value-added tax on tollway
operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to
violate any law or the Constitution.

(15). Senior Citizens Discount. Mercury Drug Corporation vs. Commissioner of Internal Revenue,
G.R. No. 164050; July 20, 2011.

Prior to its amendment, Section 4 of Republic Act No. 7432, allows the 20% senior citizens discount to be claimed
by the private establishment as a tax credit and not merely as a tax deduction from gross sales or gross income.
Currently the law treats the discount as a tax deduction instead of as a tax credit. The law is however is silent as
to how the cost of discount as a tax credit should be construed. Following other cases on this issue, the term
cost is the amount of the 20% discount extended by a private establishment to senior citizens

(16). Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 170257,
September 7, 2011.

Taxpayer, through its partial payment of the revised assessments issued within the extended period as provided
for in the questioned waivers, impliedly admitted the validity of those waivers. Had taxpayer 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. Its subsequent action effectively believes its
insistence that its waivers are invalid. The records show that taxpayer immediately made payment on the
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 18 of 77

uncontested taxes immediately upon receipt of the revised assessment. It is thus estopped from questioning the
validity of the waivers. To hold otherwise and allow a party to gainsay its own act of deny rights which it had
previously recognized would run counter to the principle of equity which the Court holds dear.

C. 2010 CASES
(1). FISHWEALTH CANNING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE (G.R.
No.179343, January 21, 2010);
The filing of a motion for reconsideration of the denial of administrative protest DOES NOT stall the running of
the 30 day period to appeal to CTA. A motion for reconsideration of the denial of the administrative protest does
not toll the 30-day period to appeal to the CTA. Failure to file an appeal within 30 days from receipt of denial of
protest renders the assessment final and executory.
(2). ALLIED BANKING CORPORATION VS. CIR, G.R. No. 175097, February 5, 2010;
(a). A Formal Letter of Demand issued by the BIR IS NOT treated as a final decision of the CIR appealable to the
CTA under RA 9282. Decisions under RA 9282 which is appealable to the CTA has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments. The Formal Letter of Demand is not
the decision contemplated by law. We cannot blame the taxpayer for not filing a protest before the CIR and
instead filed an appeal to the CTA. The language used and the tenor of the demand letter indicate that it is the
final decision of the CIR on the matter. The CIR is reminded always to indicate, in a clear and unequivocal
language, whether his action on a disputed assessment constitutes his final determination thereon in order for
the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. The CIR is now
estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final
decision.
(b). The proper remedy of the taxpayer in case a formal letter of demand is issued by the CIR is to dispute the
assessment. Pursuant to Section 228 of the NIRC, the proper recourse of taxpayer is to dispute the assessment
by filing an administrative protest within 30 days from receipt thereof instead of filing directly with the CTA a
petition for review.
(c). The following are the indicators that the Formal Letter of Demand with Assessment Notices is the decision
of the CIR appealable to the CTA.
(1). CIR used the word appeal instead of protest, reinvestigation, or reconsideration;
(2). The word appeal under prevailing tax laws refers to the filing of a Petition for Review with the CTA;
(d). Taxpayer in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue
from respondent. Any doubt in the interpretation or use of the word appeal in the Formal Letter of Demand
with Assessment Notices should be resolved in favor of taxpayer and not the CIR who caused the confusion.
(e). This is NOT a deviation from the rule that only final decisions of the CIR on protest cases are appealable to
CTA considering that the Formal Letter of Demand with Assessment Notices which was not administratively
protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the
words used, specifically the words final decision and appeal, taken together led petitioner to believe that the
same was in fact the final decision of the CIR on the letter-protest it filed and that the available remedy was to
appeal the same to the CTA.
(3). PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILS. VS. CIR, G.R. No.
178090, February 8, 2010;
The appearance of the word zero-rated on the face of invoices covering zero-rated sales prevents buyers from
falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a
successful claim for input VAT is made, the government would be refunding money it did not collect.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 19 of 77

(4). SOUTH AFRICAN AIRWAYS vs. CIR; G.R. NO. 180356, FEBRUARY 16, 2010
(a). Rule when to impose GPB and net income tax on off-line international airline carrier (without landing rights in
the Phils.) selling passage documents through an independent sales agent in the Philippines: General rule is that
resident foreign corporations (RFC) shall be liable for a 32% income tax on their income from within the
Philippines, except for RFCs that are international carriers that derive income from carriage of persons, excess
baggage, cargo and mail originating from the Philippines which shall be taxed at 2.5% of their GPB.
(b).The correct interpretation is that, if an international air carrier maintains flights to and from the Philippines, it
shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have
flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed
at the rate of 32% of such income.
. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.
(5). CIR VS. SM PRIME HOLDINGS, INC. AND FIRST ASIA RELATY DEVELOPMENT CORPORATION;
G.R. No. 183505, February 26, 2010;
(a). Only lessors or distributors of cinematographic films are subject to VAT, while persons subject to amusement
tax are not subjected to VAT. It was never the legislative intent to impose VAT on persons already covered by
the amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991
precisely because the VAT law was intended to replace the percentage tax on certain services.
(b). The imposition of VAT on theater houses/cinemas IS NOT reasonable. To hold otherwise would impose an
unreasonable burden on cinema/theater houses operators or proprietors, who would be paying an additional
10% VAT (old law) on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991, or a total of
40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a
better position than those taxed under the LGC of 1991.
(6). COMMISSIONER OF INTERNAL REVENUE vs. SMART COMMUNICATION, INC.; G.R. NO. 179045-
46, AUGUST 25, 2010;
(a). The person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does not file a claim
for refund, the withholding agent may file the claim. In Commissioner of Internal Revenue vs. Procter & Gamble
Philippine Manufacturing Corporation, a withholding agent was considered a proper party to file a claim for refund
of the withheld taxes of its foreign parent company
(b). While the withholding agent has the right to recover the taxes erroneously or illegally collected, he has the
obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what
he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from
whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund.
(7). COMMISSIONER OF INTERNAL REVENUE vs. FORT BONIFACIO DEVELOPMENT CORPORATION;
G.R.No.167606; AUGUST 11, 2010;

It has been ruled that perfection of an appeal in the manner and within the period laid down by law is not only
mandatory but also jurisdictional. The failure to perfect an appeal as required by the rules has the effect of
defeating the right to appeal of a party and precluding the appellate court from acquiring jurisdiction over the
case. At the risk of being repetitious, We declare that the right to appeal is not a natural right nor a part of due
process. It is merely a statutory privilege, and may be exercised only in the manner and in accordance with the
provisions of the law.

(8). COMMISSIONER OF INTERNAL REVENUE vs. THE PHILIPPINE AMERICAN LIFE AND GENERAL
INSURANCE COMPANY; SEPTEMBER 29, 2010
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 20 of 77

When the taxpayer indicated in its 1997 ITR its option to carry-over as tax credit for the next year its tax
overpayment, he has clearly chosen to carry-over and apply the overpaid tax against the income tax due in the
succeeding taxable years. Under Section 76 of the NIRC of 1997, such option is irrevocable. Thus, taxpayer can
no longer claim a refund of its excess income tax credit in the taxable year 1997 because it has already opted to
carry-over the excess income tax credit against the tax due in the succeeding taxable years.
(9). CIR vs. AICHI FORGING COMPANY; GR NO. 184823; October 6, 2010
(a). 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 non-observance of the prescriptive periods within which to file the administrative
and the judicial claims would result in the denial of his claim
(b).Prescriptive period for claiming refund of input VAT on zero rated transactions: Section 112(A) of the NIRC -
]

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, file claim for refund. Sections 204(C) and 229 of the
NIRC providing for two (2) year period from the date of payment of the tax or penalty are inapplicable as both
provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
. How do we count the 2 year prescriptive period for claim of refund of excess input tax?
(a). Civil Code: 1 yr = 365 days
2 yrs = 730 days
(b). Section 31, Chapter VIII, Book I of the Administrative Code of 1987:
last day of the 24
th
calendar month
Administrative Code being the later law prevails.
(d). 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 same. If denied, taxpayer can file an appeal to CTA within
30 days from receipt of the decision of the CIR. If after the 120-day period the CIR fails to act, the taxpayer
may appeal the inaction of the CIR to CTA within 30 days. In this case, the administrative and the judicial claims
were simultaneously filed on September 30, 2004. Claimant did not wait for the decision of the CIR or the lapse
of the 120-day period. For this reason, the judicial claim with the CTA is premature.
(10). HITACHI GLOBAL STORAGE TECHNOLOGIES PHILIPPINES CORP vs. COMMISSIONER OF
INTERNAL REVENUE; G.R. No. 174212; OCTOBER 20, 2010;
(a). Failure of Hitachi to indicate its TIN and the words zero-rated in the invoice is non-compliance with the
invoicing requirements of the BIR Regulation, thus, the claim for refund is denied. In addition, the invoices are
not BIR registered
(b). Being a specialized court, the CTA has necessarily developed an expertise in the subject of taxation that this
Court has recognized time and again. For this reason, the findings of fact of the CTA are generally conclusive on
this Court absent grave abuse of discretion or palpable error, which are not present in this case;
. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. The claimants have the burden
of proof to establish the factual basis of their claim for refund or tax credit. In this case, Hitachi failed to establish
the factual basis of its claim for refund or tax credit.
( D). 2009 Cases:
(1). NATIONAL POWER CORPORATION, Petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS
(CBAA), LOCAL BOARD OF ASSESSMENT APPEALS (LBAA) OF LA UNION, PROVINCIAL TREASURER,
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 21 of 77

LA UNION and MUNICIPAL ASSESSOR OF BAUANG, LA UNION, Respondents. ( G.R. No. 171470/ 30
January 2009)
Real property tax implication of a Build-Operate-Transfer (BOT) agreement between a government-owned and
controlled corporation (GOCC) (NAPOCOR) that enjoys tax exemption and a private corporation: The owner-
manager-operator of the project is the actual user of its machineries and equipment. Its 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.
(2). LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES, in their
capacities as President, Treasurer and Secretary of Adamson Management Corporation, Petitioners,
vs. COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her capacity as Commissioner of the
Bureau of Internal Revenue, Respondents.(G.R. No. 120935/May 21, 2009); INTERNAL REVENUE,
Petitioner, vs. COMMISSIONER OF COURT OF APPEALS, COURT OF TAX APPEALS, ADAMSON
MANAGEMENT CORPORATION, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE
LOS REYES, Respondents. (G.R. No. 124557/May 21, 2009)
(a). An affidavit complaint executed by the CIR providing for the computation of tax considered as a valid
assessment is NOT A VALID ASSESSMENT. 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 taxpayers for payment thereof.
(b). A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and
giving him an opportunity to contest or disprove the BIR examiners findings is not an assessment since it is yet
indefinite. The recommendation letter of the Commissioner cannot be considered a formal assessment. The
recommendation letter served merely as the prima facie basis for filing criminal information for tax evasion.
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.
(E). 2008 cases:
(1). COMMISSIONER OF INTERNAL REVENUE, vs. ROSEMARIE ACOSTA, as represented by Virgilio A.
Abogado, (G.R. No. 154068 / August 3, 2007)
The taxpayer cannot immediately file a complaint in court claiming refund without filing the written claim for
refund before the CIR. A claimant must first file a written claim for refund, categorically demanding recovery of
overpaid taxes with the CIR, before resorting to an action in court. This is intended to afford the CIR an
opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes
have been questioned, and the notice should then be borne in mind in estimating the revenue available for
expenditure.
(2). M.E. Holding Corporation versus The Hon. Court of Appeals, Court of Tax Appeals, and the
Commissioner of Internal Revenue ( GR 160193/ 03 March 2008) ; Commissioner of Internal
Revenue versus Central Luzon Drug Corporation (LUZON)( GR No. 159610/ 12 June 2008)
Under RA 7432 (old law), the 20% sales discount to senior citizens may be claimed by an establishment owner as
tax credit. Under RA 9257 (new law) The Expanded Senior Citizens Act of 2003, the 20% sales discount granted
by establishments to qualified senior citizens is to be treated as tax deduction, no longer as tax credit.
(2). Bank of Philippine Islands (formerly Far East Bank and Trust Company) versus The
Commissioner of Internal Revenue ( GR 174942/ 07 March 2008);
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 22 of 77

The running of the statute of limitations on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended, among others, when the
taxpayer requests for a re-investigation which is granted by the Commissioner.
The law is plainly worded. In order to suspend the running of the prescriptive periods for assessment and
collection, the request for reinvestigation must be granted by the CIR. The delay of the CIR in acting upon and
resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter,
resulted in the prescription of the governments right to collect the deficiency.
(3). COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. FMF DEVELOPMENT CORPORATION,
respondent. ( G.R. No. 167765/ 30 June 2008)
(a). Requisites of a valid waiver executed by a taxpayer in order to extend the BIRs 3 yr period to assess:
1. It must be in the prescribed form ;
2. The waiver shall be signed by the taxpayer, accepted by the BIR, 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.
3. The waiver should be signed by the designated BIR officers.
4. 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.
5. The prescribed procedures shall be strictly followed.
(b). In this case: Not a valid waiver, period to assess prescribed and BIR cannot assess anymore considering that:
(1). No proof that respondent was furnished a copy of the BIR-accepted waiver;
(2). Waiver was signed only by a revenue district officer, when it should have been signed by the
Commissioner as it involves an amount of more than P1 million;
(3). It did not contain the date of acceptance by the Commissioner of Internal Revenue,
(F). 2007 Cases:
(1). COMMISSIONER OF INTERNAL REVENUE versus ISABELA CULTURAL CORPORATION (ICC) (G.R.
172231 12 February 2007)
Requisites for deductibility of business expenses such as auditing expenses, legal expenses, and security services:
(a) the expense must be ordinary and necessary;
(b) it must have been paid or incurred during the taxable year;
(c) it must have been paid or incurred in carrying on the trade or business of the taxpayer;
(d) it must be supported by receipts, records or other pertinent papers.

Expenses not claimed as deductions in the current year cannot be claimed as deduction from income for the
succeeding year. A taxpayer who is authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year.

(2). FELS ENERGY INC. VS. PROVINCE OF BATANGAS (G.R. 168557 / 2-16-2007)
NAPOCOR VS. LBAA OF BATANGAS (G.R. 170628 16 February 2007)
(a). Over diesel engine power barges moored in Batangas owned by a private entity and leased to NAPOCOR
with agreement that NAPOCOR is liable for taxes are treated as real properties based on Art. 415 of the Civil
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 23 of 77

Code. "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.
(b). The power barges are not actually, directly and exclusively used by NAPOCOR in the generation and
transmission of electric power, thus, subject to real estate tax. For the exemption to apply, the machinery must
be actually, directly and exclusively used by the government owned or controlled corporation . The mere
undertaking of NPC in the lease contract that it shall be responsible for the payment of all real estate taxes and
assessments, does not justify the exemption.
. The remedy of the taxpayer on assessment of real estate tax is to file an Appeal to LBAA within sixty (60) days
from the date of receipt of the written notice of assessment, 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. Filing a motion for reconsideration of the assessment is not the proper remedy of the
taxpayer but an appeal to the LBAA. Failure to file an appeal to LBAA renders the assessment final and the LGUs
right to collect becomes absolute upon the expiration of the period to appeal.
(3). REPUBLIC OF THE PHILIPPINES represented by the Commissioner of Customs vs UNIMEX
MICROELECTRONIC (G.R. Nos. 166309-10/ 09 March 2007)
(a). CTA later on can modify its earlier issued final decision ordering release by BOC of goods illegally seized by
BOC. Where facts or events transpire after a decision has become executory, which facts constitute a supervening
cause rendering the final judgment unenforceable. A final judgment may be altered when its execution becomes
impossible or unjust.
At the time CTA decision is executory, the goods subject matter of seizure by the BOC were inexplicably lost while
under the BOCs custody. Thus, the modification to order BOC to pay the equivalent amount of the goods is a valid
modification of decision.
(b). BOC is NOT liable for payment of interest due to delay in payment of equivalent value of goods. The case
does not involve a monetary obligation to be covered by Article 2209 of the Civil Code . Government was never a
debtor to the petitioner in order that Article 2209 could apply. Nor was it in default for there was no monetary
obligation to pay in the first place. Interest is not chargeable against government except when it has expressly
stipulated to pay it or when interest is allowed by the legislature or in eminent domain cases where damages
sustained by the owner take the form of interest at the legal rate.
. BOC liable for actual damages (value of the goods). BOCs ineptitude and gross negligence in the safekeeping
of respondents goods cannot be countenanced by the doctrine of state immunity from suit. The doctrine of state
immunity must be fairly observed and the State should not avail itself of this prerogative to take undue advantage
of parties that may have legitimate claims against it.
(d). Upon payment of the necessary customs duties by respondent, payment for the value of the goods lost shall
be taken from the sale or sales of goods or properties seized or forfeited by the Bureau of Customs.
(4). ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs COMMISSIONER OF
INTERNAL REVENUE (G.R. No. 145526/ March 16, 2007)
(a). Those seeking tax refunds or credits bear the burden of proving the factual bases of their claims and of
showing, by words too plain to be mistaken, that the legislature intended to entitle them to such claims. The rule,
in this case, required petitioner to (1) show that its sales qualified for zero-rating; and (2) present sufficient
evidence that those sales resulted in excess input taxes. It complied with the first requirement but failed in the
second requirement.
(5). BANCO FILIPINO SAVINGS & MORTGAGE BANK VS. COURT OF APPEALS ET AL.
(G.R.No.155682 / March 27, 2007)
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 24 of 77

Requisites for refund of creditable withholding tax:
(a). The claim is filed with the CIR within the two-year period from the date of payment of the tax;
(b). It is shown on the return of the recipient that the income payment received was declared as part of the gross
income; and
(c). 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. The third condition is specifically imposed under
Section 10 of Revenue Regulation No. 6-85 (as amended)
Failure of the bank to comply with the form (BIR Form No. 1743.1) as prescribed by Revenue Regulations results
to denial of the refund.
(6). COMMISSIONER OF INTERNAL REVENUE VS. BANK OF THE PHILIPPINE ISLANDS ( G.R. No.
134062/ April 17, 2007) Note: Case was based on the old law;
(a). The basis for the assessment is not required to be stated in the notice of assessment issued by the BIR.
Nothing in the old law requires a written statement to the taxpayer of the law and facts on which the assessments
were based. Jurisprudence, on the other hand, simply requires that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed period.
(b). The letter of the taxpayer requesting BIR for the basis of the assessment is NOT considered as a protest of
the assessment. It does not qualify as a protest since the letter itself stated that "as soon as this is explained and
clarified in a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay or
protest the assessment." By its own declaration, BPI did not regard this letter as a protest against the
assessments.
(7). COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PHILIPPINE HEALTH CARE
PROVIDERS, INC., Respondent. (G.R. No. 168129/ 24 April 2007)
(a). The services of a prepaid group practice health care delivery system or a health maintenance organization
(HMO) are NOT exempt from VAT. IE, SUBEJCT TO VAT. In an HMO agreement, enrollees are entitled to
preventive, diagnostic, and corrective medical services to be dispensed by Health Care's duly licensed physicians,
specialists, and other professional technical staff participating in said group practice health care delivery system
established and operated by Health Care. Such medical services will be dispensed in a hospital or clinic owned,
operated, or accredited by Health Care. To be entitled to receive such medical services from Health Care, an
individual must enroll in Health Care's health care program and pay an annual fee. They do not fall within exempt
transactions ( Section 103 NIRC), Medical, dental, hospital and veterinary services
(8). RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, Respondent. (G.R. No. 168498/ 24 April 2007)
(a). The remedies of the taxpayer in case the CIR does not act on the protest within 180 day period, are: (1) file a
petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; OR (2)
await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the
Court of Tax Appeals within 30 days after receipt of a copy of such decision. These options are mutually exclusive,
and resort to one bars the application of the other. After availing of the first option, i.e., filing a petition for review
which was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the
final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there
is yet no final decision on the disputed assessment because of the Commissioners inaction;
(9). PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner, vs. COURT OF APPEALS, OFFICE
OF THE PRESIDENT, DEPARTMENT OF FINANCE and the CITY OF ILOILO, respondents. (G.R. No.
169836/ 31 July 2007) PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY vs. THE HONORABLE
COURT OF APPEALS (G.R. No. 150301/ 02 October 2007
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 25 of 77

(a). Reclaimed lands wherein Iloilo Fishing Port Complex (IFPC) was constructed, later on turned over to Philippine
Fisheries Development Authority (PFDA) for its operation, and with portions leased to private firms and individuals
engaged in fishing related businesses, are subject to real estate tax. PFDA is not a GOCC but an instrumentality of
the national government which is generally exempt from payment of real property tax. However, said exemption
does not apply to the portions of the IFPC which the PFDA leased to private entities.
The exemption does not apply when the beneficial use of the government property has been granted to a taxable
person. Section 234 (a) of the Code states that real property owned by the Republic of the Philippines or any of its
political subdivisions is exempted from payment of the real property tax "except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person;
(b). If real estate tax is not paid, LGU CANNOT sell the reclaimed lands in a public auction to satisfy the tax due.
The land cannot be sold at public auction to satisfy the tax delinquency. Reclaimed lands are lands of the public
domain and cannot, without Congressional fiat, be subject of a sale, public or private. CA No. 141, on government
reclaimed, foreshore and marshy lands of the public domain, provides, that the only way the government can sell
to private parties government reclaimed and marshy disposable lands of the public domain is for the legislature to
pass a law authorizing such sale. In order to satisfy the tax, the City of Iloilo has to resort to other means of
satisfying such delinquency
___________________________________________________________________
PART 2
(Republic Acts, BIR Issuances)

A. 2013-2014 BIR ISSUANCES
1. CGT/DST for sale thru public auction
For sales of real property through public auction, the basis for computingthe capital gains taX. (CGT) and
documentary stamp tax (DST) shall be the consideration (bid price of the highest bidder) or the fair market
value (FMV) or the zonal value, whichever is higher. However, when one of the contracting parties is the
Government, the DST is computed based on the actual consideration.
Being a disposition of real property, a sale effected through public auction is subject to CGT and DST. In case
of a foreclosure sale, there will only be one taxable transfer, i.e., from the owner to the highest bidder in a
public auction.
2. Sale of properties under CMP
Sale of properties under the Community Mortgage Program (CMP) of RA No. 7279 or the Urban Development
and Housing Act are exempt from CGT, but are subject to DST.
3. IAET
For purposes of the tax on improperly accumulated earnings (IAET), in determining whether a domestic
corporation is a closely-held or a publicly-held corporation, the ownership thereof is ultimately traced to the
individual stockholders of the parent company.
4. Gifts in favor of educational/charitable/religious, etc. institutions
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 are exempt
from donors tax, subject to the condition that not more than 30% of the gifts shall be used by the donee for
administrative purposes. Conveyances of realty not in connection with a sale to trustees or other persons
without consideration are not subject to DST under Section 196 of the Tax Code, but only to the DST of P15
imposed under Section 188 of the same Code. Donations by a VAT-registered person of ordinary assets are
subject to VAT, the same being considered a transaction deemed sale. If the same property acquired by
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 26 of 77

donation is subsequently conveyed by way of sale or exchange, the sale will be subject to corporate income
tax, and consequently, to withholding tax. On the other hand, if the same property is subsequently donated to
a non-exempt donee, the donation shall be subject to donors tax.
5. Reconveyance of land titles
Reconveyance of land titles by virtue of the rescission of a contract of sale is not subject to capital gains
tax (CGT) and DST. The DST previously paid upon execution of a Deed of Absolute Sale cannot be refunded
by reason of the rescission of the contract of sale.
6. Accounting Records/Documents (RR 17-2013)
a. General Rule: Intact accounting records/documents/ books of accounts including subsidiary
books: within three (3) years from last entry in each book;

b. If taxpayer is under investigation due to fraud, falsity of return, non-filing: intact accounting
records/documents more than three (3) years from last entry;

c. If there is agreement between taxpayer and BIR to assess beyond three (3) year period: more
than three years and within the agreed period
7. ELECTION CANDIDATES (MC 15-2013)
Duties of Election Candidates:
1. Issue and keep receipts for each contribution;
2. Keep detailed record of contributions/expenditures;
3. Preserve records three years after election for presentation to COMELEC;
4. Secure registration and TIN from BIR including as withholding agent;
5. All candidates are required to update BIR registration;
6. Registration of candidates ends thirty (30) days from election; Political parties registration
subsists;
8. May 13, 2013 Midterm Elections (MC 48-2013)
INCOME TAX:
1.Campaign contributions: excluded from GI of candidate; given not for personal
expenditure/enrichment but for campaign purposes; Exempt from IT provided utilized to
cover a candidate's expenditures for campaign;
2. Unutilized/excess campaign funds: subject to income tax, included in the taxable income
as stated in his/her ITR filed for the subject taxable year.
3. Failure of candidate (winning or losing) to file with COMELEC the appropriate Statement of
Expenditures: precluded from claiming expenditures as deductions from his/her campaign
contributions and entire amount of contributions directly subject to income tax.
CWT
1. 5% withholding tax on income payments made by political parties and candidates for
purchase of goods and services as campaign expenditures intended as campaign
contributions;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 27 of 77

2. Withholding agent files, on or before March 1, 2014:
a. Annual Information Return of Creditable Taxes Withheld (Expanded)/Income
Payments Exempt from Withholding Tax (BIR Form No. 1604E);
b. Statement of Contributions and Expenditures duly stamped Received by the
Commission on Elections (COMELEC);
c. For those withholding agents for a limited time during the election period only, due
date: August 12, 2013.
d. Expenses from which 5% CWT was not deducted, remitted or reported: subject to
income tax;

9.TENTATIVE ITRs (MC 50-2013)
1. ITR with the word Tentative written on face;
2. TX does not file final returns to reflect their supposedly correct tax liabilities;
3. TX implies incompleteness/non-finality of data considered in arriving at tax base and i.e. correct
tax due cannot possibly be computed;
4. TX declares that the return is made in good faith, true and correct, and in accordance with
NIRC/regulations;
5. A Tentative Tax Return is a final return, unless a final amended return is filed by the TX; It may
be subjected to examination by the BIR

10. Guidelines for BIR Rulings (RMO 9-2014)
No tax planning advice;
No approval for tax planning arrangements;
Law and Legislative Division will not entertain requests for ruling:
(a). If another request is filed with another BIR Office;
(b). If similar case involving same issue, similar or related TX is in litigation or pending;
.If similar issue is pending investigation, audit, protest , refund, tax credit, collection
proceeding;
11. Sale of Jewelry/ Gold/Metallic Minerals to NRANETB/NRFC (RR5-2013)
Advance payment of business/income taxes and actual payment of excise tax by those who sell
jewelry, gold and other metallic minerals to NRANETB/NRFC who come to PHILS for short period
of time (e.g., advertised in newspapers);

Advance payment to be credited for Sale of Gold:
- Income Tax: 5% on gross payment;
- VAT (12% on GSP)/% Tax (3% on gross sales)
- ExciseTax-2%

Advance Payment for Sale of Jewelry:
-Income Tax
- VAT/% Tax

NRANETB/NRFC to maintain records of transactions;
Hotels to report to BIR of buying event;

12. Real Estate Service Practitioners and Other Professionals (RR 10-2013)
CWT: 15% if the gross income for the current year exceeds P720,000; and 10%, if otherwise, on:

Professional fees, talent fees, etc., for services rendered by individuals engaged in the practice
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 28 of 77

of profession or callings;
Designers;
Real estate service practitioners (i. e. real estate consultants, real estate appraisers and real
estate brokers) requiring government licensure examination given by the Real Estate Service
pursuant to Republic Act No. 9646;
All other profession requiring government licensure examination regulated by the Professional
Regulations Commission, Supreme Court, etc. xxx ( i.e. lawyers, doctors, dentists, )

CWT: 10% on gross commissions of
customs;
insurance;
stock;
immigration,
commercial brokers;
agents of professional entertainers;

CWT: 10% on fees of real estate service practitioners (i. e. real estate consultants, real estate
appraisers and real estate brokers) who failed or did not take up the licensure examination given by and
not registered with the Real Estate Service under PRC;

13. TIANGGES or Privilege Stores (RR 16-2013)
a. Privilege Store:
stall not permanently fixed to the ground;
normally set up in places like shopping malls, hospitals, office buildings, hotels, villages or
subdivisions, churches, parks, streets and other public places;
Purpose is selling a variety of goods/services for short durations of time or during special events
(including festivals, fiestas, etc.);
If any business activity is for a cumulative period of more than fifteen (15) days: NOT
CONSIDERED AS PRIVILEGE STORE and treated as an individual habitually engaged in t/b
should be registered as regular TXs with invoices/receipts;

b. Exhibitor or Organizer: primary lessee of the entire space where the operations of privilege
stores are held by virtue of a lease contract and who subsequently sub-leases the same to the privilege
store operators;

Obligations:
1. 5% expanded WT on rentals; remitted 10
th
day of ff month;
2. Keep Books of Accounts and Issue Receipts ( if sales do not exceed P 50,000.00 simplified
bookkeeping)
(3). Submit List of Sales within Five (5) Days after the privilege store operation


c. Privilege Store Operator: individual leasing from the lessor/owner or subleasing from the
exhibitor or organizer a space upon which privilege stores are erected;

Obligations:
(1) Deduct EWT (5%) on rental payments;
(2) File ITR (15 April);
(3) Submit Information Statement on Privilege Store Activities.
(4) Keep Books of Accounts and Issue Receipts/Sales or Commercial Invoices. If less than P
50,000.00 simplified bookkeeping;
(5) Submit List of Sales on Privilege Store Activities to the Exhibitor/Organizer ( within 5 days from
operations);

d. Obligations of Lessees/Tenants Not Classified as Privilege Stores Operators (Regular
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 29 of 77

Taxpayers):

(1). EWT on Rental Payments to Exhibitor/Organizer for Sub-Leased Spaces or Lessor/Owner of
Leased Property.
(2) Keep Books of Accounts and Issue Receipts/Sales or Commercial Invoices
(3) File Income, Withholding, Business (Percentage or Value Added) and Other Tax Returns, and
Pay the Correct Amount of Taxes.
(4) File Other Information Returns and include CWT on rentals
14. Association Dues/Homeowners Association (HOAs) (Villages and Subds) (MC 9-2013)
Rule: Income and dues of HOAs are exempt from income tax, VAT, and % tax, provided:
(1). HOA is duly constituted as defined under RA 9904;
(2). LGU issues a certificate stating the basic community services and facilities supplied by HOA and
that LGUs lack of resources to provide, such as:
Basic services redound to the benefit of all HOA members, such as security, street and
vicinity lights , maintenance, repairs and cleaning of streets, garbage collection/disposal,
(3). HOA shows proof that income and dues are used for basic services;

15.Donations to HOAs (Villages and Subds) (MC 53-2013)
Gratuitous Donations:
SUBJECT to Donors Tax;
NOT SUBJECT to Income Tax;
Onerous Donations in Exchange for Goods, Services or Use or Lease of Properties:
TREATMENT: charges from activity in exchange for the performance of a service, use of
properties or delivery of an object are SUBJECT to INCOME TAX and VAT or % TAX;
16. On-line Stores (MC 55-2013)
Kinds (as to their participating parties):
1. Business to Consumer (B2C): selling goods and services to final consumers;
2. Consumer to Consumer (C2C); and
3. Business to Business (B2B):
job recruitment, online advertising, credit, sales, market research, technical support,
procurement and different types of training.

Common Types:
1. Online shopping or online retailing sale directly to consumers over the internet without an
intermediary service;
2. Online intermediary service 3
rd
party that offers intermediation services between two trading
parties receiving commission;

Intermediary service provider (ISP) is a merchandiser/retailer if:
ISP controls such collection of buyers payments, and receives commission from the
merchant/retailer;
ISP markets multiple products for its own account;

3. Online advertisement/classified ads uses internet to deliver marketing messages to attract
customers;
4. Online auction conducted through the internet via an online service provider; the seller sells the
product or service to the person who bids the highest price.

Requirements:
Register the business at the Revenue District Office (RDO);
Secure ATP;
Register books of accounts;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 30 of 77

Issue ORs and invoices;
17. REQUIREMENTS FOR Self-Employed Professionals (RR 4-2014)
Register and pay the annual registration fee (ARF) with the RDO/LTDO;
Submit an affidavit (rates, manner of billings, and the factors considered in determining service
fees upon registration and every year thereafter on or before January 31);
Register books of accounts and official appointment books ( names of clients/date/time) of their
practice of profession /occupation/calling;
Register sales invoices and official receipts (VAT or non-VAT) before using them in any
transactions;
For pro-bono cases, issue a BIR registered receipt, duly acknowledged by client showing a
discount of 100% as substantiation of the pro-bono service;
April, 2014: TRO for lawyers;
June 3, 2014: TRO for doctors;
June, 2014: TRO for accountants;
July, 2014: TRO for dentists;

Supreme Court ruling for the TRO: BIR was enjoined from implementing the RR requiring self-
employed professionals to furnish BIR with their appointment books and to post and publish their
professional rates;
18.Marginal Income Earner (MC 7-2014)
Marginal Income Earner (MIE) : individual (self-employed without any compensation income)
whose business does not realize gross sales or receipts exceeding P100,000in any I2-month period;
Activities are principally for subsistence or livelihood, such as but not limited to:
Agricultural
Growers/produce(farmers/fishermen selling directly to consumers);
Small sari-sari stores;
Carinderias;
Drivers/operators of single unit tri-cyle;
Excluding licensed professionals, consultants, artists, sales agents, brokers;

Requirements:
Registration with BIR (Form 1901);
Sworn Statement of Income for the year;
NSO Certified or local civil registry BC;
Exempt from Annual Registration Fee;
Registration of books of account ( simplified);
Issuance of principal registered receipts;
Filing of ITR and Payment of annual income tax;
Exemption from business taxes;

19. CGT on sale/barter of Shares of Stocks (Capital Asset) (RR 6-2013)
VALUE of SoS: Use Adjusted Net Asset Method whereby all assets and liabilities of corp are
adjusted to fair market values. The net of adjusted asset minus the liability values is the indicated
value of the equity;
VALUE of real property is the HIGHEST OF:
FMV (BIR Commissioner); OR
FMV (Tax Declaration); OR
FMV ( Independent Appraiser).
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 31 of 77


Determination of value of shares:
Step 1: FMV of RP is HIGHEST OF:
MV per Tax Declaration
Zonal Valuation
Independent Appraiser
Step 2: Difference between Book Value and FMV = Adjustment;
Step 3: Adjusted net value of shares = (value of assets per AFS + adjustment) less liabilities

20. Payouts of Employee Pension Plans ( RMC 39-2014)
Income of pension plans: all dividends received by employee are subject to income tax;
21. Deductions from Gross Income (RR 12-2013)
Deductions from gross income to be deductible: the corresponding WT were withheld and paid to
BIR;
If investigation/reinvestigation/reconsideration of tax due is pending with the BIR, deductions shall
not be allowed despite payment where no withholding tax was paid;
22. Depreciation cost of vehicles and Input VAT( MC 2-2013)
RR 12-2012: Deductibility of depreciation for vehicles, if:
(a). Document showing details of vehicle, total price, and direct connection with trade/business;
(b). One vehicle per employee with value not more than P 2.4 million;
(c). Depreciation allowed even if more than P 2.4 M per vehicle, if engage in transportation
business or lease of transportation;
(d). Maintenance expenses are disallowed;
(e). All input taxes for the purchase of vehicles and maintenance expenses are disallowed;
Other expenses not allowed as deduction: Repairs and maintenance; oil lubricants;
gasoline, spare parts, tires, accessories, premium on insurance, registration fees;
Input VAT on such expenses not credited against Output VAT;
23. WT for Medical Practitioners ( RR 4-2013)

Paid by Hospitals/HMOs: 15% if the income payments for current year exceeds P720,000; 10%,
if otherwise;
Duty of Hospitals/Clinics/HMOs: withhold all the taxes due;
Hospitals/Clinics/HMOs should not allow practitioners to accept payments from patients who
were confined to hospitals;
Exception:
- If there is proof that no fee was charged and paid by patient;
- Joint sworn declaration by practitioner and patient (forming part of records of hospital);

- Administrator of hospital informs RDO that practitioner refuses to execute sworn
statement;

Hospitals are required to submit list of practitioners:
-who did not charge any fee from patients; and
- Whose charges are paid by patients directly to hospitals;
- Submit to RDO, sworn statement executed by the president/managing partner of the
corporation/company/hospital/clinic as to the complete and updated list of medical
practitioners accredited with them.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 32 of 77

24. Exemption of Non-Profit ORGs/Hospitals( MC 4-2014)
Revalidated tax exemption certificates for hospitals and non-stock non-profit organizations
operating hospitals to secure the revalidated tax exemption certificate;
All rulings issued prior to Nov 1, 2012 providing for tax exemption of hospitals are no longer
valid;
Off shoot of case CIR vs. St. Lukes Hospital, 12 Sept 2012;
Proprietary non-profit hospitals and non-stock non profit organizations operating hospitals;
Procedure:
1. Submit request for re-validation of exemption;
2. Submit ff documents:
- Application letter stating basis under Section 30, NIRC;
- Copies of latest AI and By-Laws;
2. Submit ff documents:
- BIR Registration;
- Tax Clearance;
- ITRs for the last 3 yrs;
- Statement about operations of company;
Exemption and/or Revalidation of Tax Exemption Certificates:
Section 30 NIRC ( RMO 20-2013)

Documentary Requirements for application for revalidation:
1. Original copy of application letter citing particular paragraph of S 2. Certified true copy of
the latest AI and BL issued by SEC;
2. Original copy of Certification under Oath by an executive officer of corp. as to: (i).
previous amendments/changes in the AI and BL; (ii) manner of
activities, and (iii) the sources and disposition of income, if any, of the subject
corporation or association.
3. Certified true copy BIR Registration;
4. Original copy of the Certification under Oath by the Treasurer as to the amount of
income, compensation, salaries or any emoluments paid by the corporation or association
to its trustees, officers and other executive officers;
5. Original copy of the RDO Certification that the corporation is not the subject of any
pending investigation, on-going audit, pending tax assessment, administrative protest,
claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial
appeal;
6. If thereby be any, the Original copy of the Certification issued by the RDO on the status
thereof;
7. Certified true copies of ITRs/AIR and Financial Statements for the last three (3) years;
and
8. Original copy of a statement under Oath by an executive officer of the corporation or
association as to its modus operandi

Additional Requirements for Educational Institutions:
1. Certified true copy of government recognition/permit/accreditation to operate as an
educational institution issued by the CHED, DepEd, or TESDA;
2. If more than 5 yrs, certificate of good standing;
3. Original copy of Certificate of utilization of annual revenues and assets by the Treasurer or his
equivalent of the non-stock and non-profit educational institution
4. Original copy of Certificate of utilization of annual revenues and assets by the Treasurer or his
equivalent of the non-stock and non-profit educational institution.


REQUIREMENTS FOR EXEMPTION under Section 30 (e):
1. It must be a non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 33 of 77

2. It should meet the ff tests:
Organizational Test-corporations documents exclusively limit its purposes to par e of Section
30;
Operational Test- regular activities of the corporation be exclusively devoted to the
accomplishment of the purposes in par (e), Section 30;
3. All the net income or assets of the corporation or association must be devoted to its
purpose/s and no part of its net income or asset accrues to or benefits any member or specific
person;
4. It must not be a branch of a foreign non-stock non-profit corporation.

Validity of Tax Exemption/Revalidated Exemption:
3 years from date of effectivity specified in the certificate/ruling;
Renewable in nature subject to submission of documents and approval of BIR;
Failure to file ITR results to cancellation of tax exemption certificate beginning the taxable
year when ITR was not filed;

25. NON-STOCK NON-PROFIT/INUREMENT under Section 30 NIRC ( MC 51-2014)
Non-stock: no part of income is distributed as dividends and any profit as incident of
operations, shall be used for furtherance of its purpose;
Non- profit: no net income or asset accrues to or benefits any member, with all net income
or asset devoted to purpose and all its activities conducted not for profit;
NOTE: For exemption to apply as NSNP corporation under Section 30, NIRC, its earnings/assets
shall not INURE to the benefit of any trustee, officer, member, or specific person

Considered as INUREMENT
1. Payment of compensation, salaries, honorarium to trustees or organizers;
2. Payment of exorbitant or unreasonable compensation to employees;
3. Provision of welfare aid/financial assistance to members;
4. Donation to any person/entity;
5. Purchase of goods/services in excess of FMV from an entity where trustee, officer has an
interest;
6. Upon dissolution, assets are distributed to trustees, organizers, officers, members;

26. Presentation of Tax Exemption Certificate (MC 8-2014)

Withholding agents shall require all TXs who are exempt from taxes to present valid, subsisting tax
exemption certificate for withholding taxes and compensation income by income exempt entities;

27. Foster Parents (MC 41-2013)
Foster Care Act of 2012 (RA 10165)
Foster Care refers to the provision of planned temporary substitute parental care to a child by
a Foster Parent or a Foster Family.
Foster Child refers to a child placed under Foster Care.
Foster Family refers to a Foster Parent(s) and his/her immediate family
members.
Foster Family Care License refers to the document issued by the DSWD authorizing the
Foster Parent(s) to provide Foster Care.
Foster Parent refers to a person duly licensed by the DSWD to provide Foster Care.

Guidelines:
1. P 25,000.00 for foster child as dependent;
2. Including the foster child must not exceed four (4) dependents;
3. Allowed only if period of foster care is at least continuous period of one taxable year;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 34 of 77

4. One foster parent can claim for a foster child to the exclusion of other foster parent or
natural parents;

Incentives to Agencies operating as Foster Care Homes:
Exemption from Income Tax;
Qualified as exempt Donee Institution.

Incentives to Donors:
Amount of donation allowed as deduction from gross income;
Exemption from Donors Tax, provided, that not more than 30% of the amount of
donations shall be spent for administrative expenses.

28. VAT (MC 37-2013)
Unutilized creditable input taxes attributable to 0% rated sales: recovery through refund or
tax credit;
NIRC does not allow unapplied input taxes to be treated outright as deductible expense for
income tax purposes;
After the expiration of the 2 yr period to claim excess input VAT, cannot be expensed or
deducted from GI;
Administrative claim for refund of Input VAT on zero rated transactions: 2 years from close
of taxable quarter when sale is made;
BIR Decides within 120 days from receipt of claim for refund; If not acted upon by BIR,
deemed DENIED;
Without a decision or an inaction xxx deemed a denial of the CIR within the 120 day
period, the CTA has no jurisdiction over a petition for review.
The 30-day period provided for under section 112 (C) of the National Internal Revenue Code
(NIRC) within which to appeal the decision of the Commissioner of Internal Revenue (CIR)
to the Court of Tax Appeals (CTA) need not necessarily fall within the two-year prescriptive
period; (ibid)
29. ASSESSMENTS (SECTIONS 203, 222, 223 & 228, NIRC) RR 18-2013
Due Process in Issuance of Assessments:
Step 1: BIR issues PAN (detailed facts, laws, rules) unless not required in Sec 228, NIRC;
Step 2:TX answers within 15 days PAN;
Step 3: If TX fails to respond, BIR issues FLD/FAN for payment of tax due; If TX responds,
BIR issues FLD/FAN within 15 days from receipt of response;
FLD/FAN contains detailed facts, laws, rules, regulations, penalty, interest, tax due;
Step 4: TX files protest on the FAN ( 30 days from receipt thereof; Motion for
Reconsideration (based on existing evidence), OR Motion for Reinvestigation (new
discovered evidence):
TX submits supporting documents within 60 days;
If TX fails to file protest, FAN is final;
Step 5: If protest is denied, TX may go to CTA or file reconsideration with BIR, within 30
days from receipt of decision;

If protest is not acted upon by BIR within 180 days from filing of protest or from
submission of supporting documents, TX may go to CTA Division on appeal within 30
days from expiration of 180 day period OR wait for actual BIR decision;
If actual decision is rendered by BIR, TX may appeal to CTA Division within 30 days
from receipt of decision denying protest;
TX may file an MR within 30 days but will not extend/toll the 30 day period to appeal
to CTA;
If deficiency assessment tax is not paid by TX within the period provided in the
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 35 of 77

FLD/FAN, a delinquency interest of 20% based on the total amount due is imposed,
computed from the due date stated in the FLD/Fan until fully paid

30. Legal Petition Notices (LPN) MC 38-2013
LPNs assailing e-letters of authority to investigate do not suspend audit/investigation by BIR;
LPNs filed against PAN/FLD/FAN before the Commissioner or the National Office without
awaiting the decision of the RDO which issued the PAN/FLD/FAN, IS PREMATURE;
31. Guidelines on Protest (MC 39-2013)
All protest, requests for reinvestigation/reconsideration and similar correspondences shall only
be filed by TX with the Office of the concerned RD, Assistant Commissioner-Large Taxpayers
Service (ACIR- LTS), and Assistant Commissioner-Enforcement Service (ACIR-ES);
Concerned BIR Official shall prepare weekly reports for submission by e-mail to Commissioner;
Office of Commissioner creates a database of all protests

32. Compromise Settlement (RR 9-2013)

APPROVAL OF OFFER OF COMPROMISE: majority of all the members of the NEB composed of
the Commissioner and the four (4) Deputy Commissioners. All decisions of the NEB, granting the
request of the taxpayer or favorable to the taxpayer, shall have the concurrence of the
Commissioner
The compromise offer shall be paid by the TX upon filing of the application for compromise
settlement;
No application for compromise settlement shall be processed without the full settlement of
the offered amount;
In case of disapproval of the application for compromise settlement, the amount paid upon
filing of the aforesaid application shall be deducted from the total outstanding tax liabilities.

33. Compromise Settlement (RMC 34-2014)
Grounds for Compromise:
Financial incapacity of TX;
Doubtful validity of assessment:
a. If resulting from jeopardy assessment;
b. Arbitrary in nature;
c. Assessment based on best evidence obtainable; ( not automatically a doubtful
assessment)

34. Subpoena Duces Tecum ( RMO 10-2013/RMO 8-2014)
Failure to obey SDT, BIR files complaint-affidavit before the Prosecutors Office for violation of
Section 266, NIRC;
Non-withdrawal of complaint despite submission of documents by the taxpayer;

35. BIR Rulings ( MC 49-2013)
Non-Retroactivity of Rulings:
Exception: when prejudicial to TX;
Exceptions to Exception:
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
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 36 of 77

c. Where the taxpayer acted in bad faith;

B. 2012 BIR ISSUANCES
1. DE MINIMIS BENEFIT OR FRINGE BENEFIT( UNIFORM AND CLOTHING ALLOWANCE) RR No. 8-2012
Uniform and Clothing allowance not exceeding P5,000 per annum NOT SUBJECT TO WT ON COMPENSATION AND
FBT
2. CGT IN CASE OF NON-REDEMPTION IN INVOLUNATRY SALES RR 9-2012
a. In cases of non-redemption of properties sold during involuntary sales, regardless of the type of proceedings
and personality of mortgagees/selling persons or entities, the following taxes shall become due: Capital Gains Tax
(CGT) if the property sold is a capital asset; Creditable Withholding Tax (CWT) if the property sold is an ordinary
asset; Value-added tax (VAT); and Documentary Stamp Tax (DST)
b. The buyer shall file the returns and remit the taxes withheld within the following periods:
CGT within 30 days from the expiration of the applicable statutory redemption period;
CWT within 10 days following the end of the month after the expiration of the applicable statutory
redemption period, provided that for taxes withheld in December, the return shall be filed and the taxes
remitted to the BIR on or before January 15 of the following year;
VAT on or before the 20
th
day or the 25
th
day, whichever is applicable, of the month following the month
when the right of redemption prescribes;
DST within 5 days after the close of the month after the lapse of the applicable statutory redemption period.
3. Non-taxable joint venture or consortium RR 10-2-12
A joint venture or consortium shall not be taxable as a corporation if the following requisites are present:
a. The joint venture is undertaken for a construction project;
b. It involves joining or pooling of resources by licensed local contractors that are licensed as general contractors
by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI);
c. The local contractors mentioned above are engaged in construction business; and
d. The joint venture itself must be duly licensed as such by the PCAB.
e. Joint ventures involving foreign contractors may also be treated as non-taxable corporations only if the
following conditions are met:
f. The member foreign contractors must be covered by a special license as contractor by the PCAB; and
g. The construction project must be certified by the appropriate Tendering Agency (government office) that the
project is a foreign financed/ internationally-funded project and that international bidding is allowed under the
Bilateral Agreement entered into by and between the Philippine Government and the foreign/international
financing institution, pursuant to the implementing rules and regulations of RA No. 4566 or the Contractors
License Law.

In the absence of any of the above requirements, the joint venture or consortium formed for the purpose of
undertaking construction projects shall be considered a taxable corporation. Each member of a tax-exempt
joint venture shall be responsible for the reporting and payment of the appropriate income taxes on their
respective shares. A tax-exempt joint venture or consortium subject of this regulation shall not include
suppliers of goods, services or capital to a construction project. All licensed local contractors are mandated to
enroll in the BIRs EFPS at the Revenue District Office where they are registered as taxpayers.
4. Tax free exchange of property; BIR Ruling No. 515-2012 dated August 3, 2012;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 37 of 77

In a transaction where two persons exchanged shares of stock in two companies for shares of stock in a third
corporation in separate Deeds of Assignment, as a result of which the first person gains control of 58.15%, and
the second person gains control of 24.33%, of the voting stock of the transferee-corporation, only the transfer of
the first person will be considered a tax-free exchange under Section 40(C)(2) of the Tax Code.
5. Revenue Memorandum Circular No. 35-2012 dated August 3, 2012 (exclusive club membership fees,
dues, rentals, and service fees subject to both income tax and VAT);
Income from whatever source, including but not limited to membership fees, assessment dues, rental income
and service fees, of clubs organized and operated exclusively for pleasure, recreation, and other non-profit
purposes, are subject to income tax.
Gross receipts of recreational clubs, including but not limited to membership fees, assessment dues, rental
income and service fees, are subject to VAT.
Section 105 of the Tax Code provides that 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
VAT. 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 the person
engaged therein is a non-stock, non-profit private organization. Thus, even a non-stock, non-profit organization or
government entity is liable to pay VAT on the sale of goods or services.
6. Revenue Memorandum Circular No. 38-2012 dated August 3, 2012; LATEST RULES ON SENIOR
CITIZENS DISCOUNT
In computing the 20% discount and the exemption from VAT, the formula is:
(Total Billing Amount less 12% VAT x 20%) / No. of Customers = Senior Citizen Discount
The above formula will apply if no individualized food item can be ordered or if the transaction with the senior
citizen is not processed separately. The total billing amount used in the computation of the 20% discount is the
amount exclusive of the VAT.
For restaurants, the discount shall be for the sale of food, drinks, dessert and other consumable items served by
the establishments, including value meals and promotional meals, offered for the consumption of the general
public. Condiments and side products fall within the ambit of other consumable items served by the
establishments.
In no case shall the discount granted to senior citizens be less than 20%. There should be no fixed, maximum
amount or cap which will limit the discount below the 20% rate. The 20% discount shall be given to goods
purchased by senior citizens based on the selling price exclusive of VAT.
The 20% discount and VAT exemption shall also apply to set meals purchased by senior citizens, provided,
however, that the meal shall be limited to a single-serving meal with beverage for an individual senior citizen.
The 20% discount shall apply to dine-in, take-out and take-home orders (excluding bulk orders) as long as it is
the senior citizen himself/herself who is present and personally orders and can show a valid senior citizen
identification (ID) card. If the senior citizen merely takes home the unfinished or unconsumed dine-in order,
he/she shall still be entitled to the 20% discount, provided the leftover is not part of bulk orders.
If the group of diners is composed of senior citizens who ordered group meals or food items for sharing in
restaurants, each senior citizen with a valid senior citizens ID card shall be entitled to the 20% discount and VAT
exemption. If not all the senior citizens have their valid senior citizens ID cards, the value of the food purchased
attributable to senior citizens with senior citizens cards may be computed using the formula above.
Bulk orders are not entitled to the 20% discount and VAT exemption since they are within the
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 38 of 77

context of pre-contracted or pre-arranged group meals or packages.
Meals primarily prepared and intentionally marketed for children and not for senior citizens personal
consumption are not entitled to the 20% discount.
The Most Expensive Meal Combination (MEMC) is an amount corresponding to the combination of the most
expensive and biggest single-serving meal with beverage served in a quick service restaurant. The MEMC is
deemed flexible and is adjusted accordingly by food establishments to estimate a single food purchase of an
individual senior citizen. MEMC is applied only to take-out, take-home, drive-thru and delivery orders.
Pasalubong food items which are single-serving/solo meals for the personal and exclusive consumption of the
senior citizen are entitled to the 20% discount and VAT exemption. Other pasalubong food items (e.g., box of
biscocho, bottles of ginamos, several packets of mango preserves) which are not for the personal and
exclusive consumption of the senior citizen are not entitled to the 20% discount and VAT exemption. This
limitation extends to novelty items or non-consumables sold in restaurants.
Called-in or phoned-in orders are entitled to 20% discount and VAT exemption. They are, likewise, subject to
certain conditions, i.e., senior citizen ID card number must be given while making the order over the telephone;
the senior citizen ID card must also be presented upon delivery to verify the identity of the senior citizen entitled
to the 20% discount and VAT exemption.
In case of called-in or phoned-in orders of group meals, the food establishments must determine the number of
senior citizens comprising the group, and the 20% discount shall be computed based on the value of the food
attributable to the qualified senior citizens. The senior citizen ID card number/s must be given while making the
called-in or phoned-in order and the ID card/s must be presented upon delivery.
A purchase of a whole cake or pizza may be considered as a purchase of a group meal or meal for sharing. If
the whole cake or pizza purchased is good for 5 persons and the group is composed of 5 senior citizens, each with
a valid senior citizen ID card, they shall be entitled to the 20% discount or the entire food purchase shall be
entitled to the 20% discount. If the group is composed of senior citizens, but not all have their valid senior citizen
ID card/s, or composed of senior citizens and non-senior citizens, the value of the cake or pizza attributable to the
qualified senior citizen/s shall be computed using the formula above. If the senior citizen purchases a slice of cake
or personal serving of cake, he shall be entitled to the 20% discount.
The purchase by a senior citizen of alcoholic beverages if served as a single serving drink is entitled to the 20%
discount and VAT exemption. The discount and exemption shall not be given to purchases in bulk, in buckets,
or in cases. However, alcoholic beverages purchased in a bar, club or cabaret are exempt from VAT but subject
to amusement tax of 18% under Section 125 of the Tax Code. The senior citizen may still be entitled to the 20%
discount on the purchase of the alcoholic drink, but shall only be limited to a single serving of alcoholic drink.
Cigarettes/cigars are not food or essential items deemed entitled to the 20% discount.
The 20% discount and VAT exemption privilege shall also apply to medicines purchased from drug stores,
hospital pharmacies, medical and optical clinics, and similar establishments, including non-traditional outlets
dispensing medicines.
A delivery fee/charge not billed separately is subject to the 20% discount. If the delivery fee/charge is billed
separately, it is not entitled to the 20% discount and is subject to VAT.
Toll fees are not subject to the 20% discount.
Taxi fares are subject to the 20% discount.
In the purchase of goods and services which are on promotional discount, the senior citizen shall avail of either
the promotional discount or the 20% discount, whichever is higher. However, the discount given to the senior
citizen shall in no case be less than 20%. The sale of goods on promotional discount is still VAT-exempt.
The 20% discount given by the business establishments is deductible from their gross income during the same
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 39 of 77

taxable year when the said discounts are given, and the input tax attributable to the VAT-exempt sale is
considered as cost or an expense account of the business establishments. Both the discount and input VAT
that are treated as cost or expense accounts are absorbed by the State.
In case of business establishments which are not subject to VAT but to percentage tax because their gross annual
sales/receipts do not reach the P1,919,500.00 threshold amount under RR No. 16-2005 as amended byRR No.
16-2011, senior citizens are not exempt from the payment of the percentage tax. RA No. 9994 does not
include exemption from the payment of percentage tax. The exemption does not cover other indirect taxes
that may be passed-on by the seller to the senior citizen buyer, such as percentage tax. In such case, the
discount must be on the total cost of the goods or services charged by the seller, exclusive of the tax.
The amount of sales that must be reported for tax purposes is the undiscounted selling price and not the
amount of sales net of discount. The gross selling price and the sales discount must be separately indicated in the
official receipt or sales invoice issued by the establishment for the sale of goods or services to the senior citizen.
If the seller uses a Point of Sale Machine or Cash Register Machine, the machine tape should be able to segregate
the exempt sale from the taxable sale. If the machines are incapable of segregation, they should be re-
programmed to comply with the requirement. In the meantime, a manual invoice/receipt shall be issued by
the seller.
The seller may opt to issue a separate invoice/receipt on its sale to senior citizens. The separate invoice/receipt
will reflect the amount of the discount and the total amount payable. The word VAT-Exempt Sale must be
written or printed prominently on the face of the invoice/receipt.
The seller may issue one invoice/receipt for the entire transaction if the merchandise/service was sold under a
single transaction comprised of a sale to a senior citizen and a sale to a non-senior citizen, providing for a proper
breakdown of the exempt sale and taxable sale. The invoice must properly reflect the discount on the exempt
sale. The VAT due on the taxable sale must be separately billed in the invoice/receipt.
The income statement of the seller must reflect the discount, not as a reduction of sales to arrive at net sales,
but as a deduction from its gross income (sales less cost of sales). Thus, the 20% discount shall be treated as a
necessary and ordinary expense duly deductible from the gross income, provided that the seller does not opt for
the Optional Standard Deduction during the taxable quarter/year.
The input tax attributable to the exempt sale shall not be allowed as an input tax credit but must be treated as a
cost or an expense account by the seller.
Business establishments giving sales discounts to qualified senior citizens are required to keep a separate and
accurate record of sales, which shall include the name of the senior citizen-purchaser, Office for Senior Citizens
Affairs- ID, gross sales/receipts, sales discounts granted, dates of transactions and invoice/OR number for every
sale or transaction to senior citizen. The invoicing requirements in Section 4.113-1 of RR No. 16-2005 must also be
complied with.
A special discount of 5% of the regular retail price of basic necessities and prime commodities as defined under
the Joint Department of Agriculture (DA) and Department of Trade and Industry (DTI) Administrative Order No.
10-02, Series of 2010, shall be granted to senior citizens on their purchases, taking into account that said
purchases shall be for the personal and exclusive consumption and/or enjoyment of the Senior Citizen.
Purchases of basic necessities and prime commodities by senior citizens as defined under Section 2 of Joint DTI-
DA Administrative Order No. 10-02, Series of 2010, are not exempt from VAT.
Toiletries, such as toothpaste, bath soap and tissue paper are not entitled to the 5% special discount. Only the
items listed under RA No. 7581 or the Price Act are identified as basic necessities and prime commodities subject
to the 5% special discount. However, powdered, liquid, bar laundry and detergent soap are considered basic
necessities subject to the 5% special discount.
Maximum purchase per week means that senior citizens shall enjoy a special discount of 5% of the regular
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 40 of 77

retail price, without exception from VAT, of basic necessities and prime commodities provided under the Joint DTI-
DA Administrative Order No. 10-02, provided that the total amount of said purchases shall not exceed the
maximum amount per calendar week. The maximum amount is P1,300.00 per calendar week, after combining set
limits under prime commodities and basic necessities, without carryover of the unused amount.
7. Revenue Memorandum Circular No. 39-2012 dated August 3, 2012: Rule on withholding taxes from
garnished accounts of employers used as payment for employee benefits;
Backwages, allowances, and benefits awarded in a labor dispute constitute remuneration for services that the
employee would have performed in the year when actually received, or during the period of his dismissal from the
service which was subsequently ruled as illegal. The employee should report as income and pay the corresponding
income taxes by allocating or spreading his backwages, allowances and benefits through the years from his
separation up to the final decision of the court awarding the backwages. The backwages, allowances and benefits
are subject to withholding tax on wages (WTW).
If the judgment awarded in a labor dispute is enforced through garnishment of debts due to the employer or other
credits to which the employer is entitled, the person owing such debts or having possession or control of such
credits (e.g., banks or other financial institutions) would normally release and pay the entire garnished amount to
the employee. As a result, employers who are mandated to withhold taxes on wages cannot withhold the
appropriate tax due thereon.
Under Section 78(D)(1) of the Tax Code and Section 2.78.4(A) of RR No. 2-98, as amended, the term employer
includes persons having control of the payment of wages or salaries. In this case, the garnishees are the persons
owing debts due to the employer or in possession or control of credits to which the employer is entitled.
Accordingly, they are in control of the payment of backwages, allowances and benefits, and they are authorized to
deduct and withhold the income tax due from the backwages, allowances, and benefits to be paid to the
employees, and are, therefore, liable for such deductions.
Garnishees of a judgment award in a labor dispute are constituted as withholding agents with the duty of
deducting the corresponding WTW due thereon equivalent to 5% of the portion of the judgment award
representing the taxable wages, allowances, and benefits.
8. BIR Ruling No. 561-2012 dated September 6, 2012; requirement for non-stock non-profit
foundations;
A non-stock, non-profit foundation has to operate for at least three years to prove that it is really a corporation/
association exempt from income tax under Section 30(E) of the Tax Code before it may be granted a certificate of
tax exemption by the BIR.
9. Revenue Regulations No. 12-2012 dated October 12, 2012; Depreciation expense fro motor vehicles;
* No deduction for depreciation shall be allowed unless the purchase of the vehicle is substantiated by sufficient
evidence, such as official receipts and other adequate records, which contain, among others, the following:

Specific Motor Vehicle Identification Number, Chassis Number, or other registrable identification number of
the vehicle;
Total price of specific vehicle subject to depreciation; and
Direct connection or relation of the vehicle to the development, management, operation, and/or conduct of
the trade of business or profession of the taxpayer.
* Only one vehicle for land transport is allowed for the use of an official or employee, the value of which should not
exceed P2,400,000.
* No depreciation shall be allowed for yachts, helicopters, airplanes and/or aircrafts, and land vehicles, which
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 41 of 77

exceed the amount of P2,400,000, unless the main line of business of the taxpayer is transport operations or
leaseof transportation equipment, and the vehicles purchased are used in said operations.
*All maintenance expenses on account of non-depreciable vehicles shall be disallowed.
*Input taxes on the purchase of non-depreciable vehicles and all input taxes on maintenance expenses incurred
thereon shall also be disallowed.
10. Revenue Regulations No. 13-2012 dated October 12, 2012; threshold for VAT for two adjacent
lots/residential house and lots and residential dwellings;
a. This includes sale, transfer or disposal within a 12-month period of two or more adjacent residential lots, house
and lots or other residential dwellings in favor of one buyer from the same seller, for the purpose of utilizing the
lots, house and lots or other residential dwellings as one residential area wherein the aggregate value of the
adjacent properties exceeds P1,919,500.00 for residential lots, and P3,199,200.00 for residential house and lots or
other residential dwellings. Adjacent residential lots, houses and lots or other residential dwellings, although
covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer,
whether covered by one or separate Deed/s of Conveyance, shall be presumed as a sale of one residential lot,
house and lot or residential dwelling.
This however, does not include the sale of parking lot which may or may not be included in the sale of
condominium units. The sale of parking lots in a condominium is a separate and distinct transaction and is not
covered by the rules on threshold amount not being a residential lot, house & lot or a residential dwelling, thus,
should be subject to VAT regardless of amount of selling price.
b. The following sales of real properties are exempt from VAT, namely:
If two or more adjacent residential lots, house and lots or other residential dwellings are sold or disposed of in
favor of one buyer from the same seller, for the purpose of utilizing the lots, house and lots or other residential
dwellings as one residential area, the sale shall be exempt from VAT only if the aggregate value of the said
properties do not exceed P1,919,500.00 for residential lots and P3,199,200.00 for residential house and lots or
other residential dwellings. Adjacent residential lots, house and lots or other residential dwellings although covered
by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer, whether
covered by one or separate Deed/s of Conveyance, shall be presumed as a sale of one residential lot, house and
lot or other residential dwelling.
This however, does not include the sale of parking lot which may or may not be included in the sale of
condominium units. The sale of parking lots in a condominium is a separate and distinct transaction and is not
covered by the rules on threshold amount not being a residential lot, house & lot or a residential dwelling, thus,
should be subject to VAT regardless of amount of selling price.
11. Revenue Memorandum Circular No. 64-2012 dated October 31, 2012 ;
A. Professional, classified as self-employed, refers to an individual or a group, practicing his or their profession or
calling, with or without license under a regulatory board or body.
B. Apart from the applicable income and withholding taxes, professionals are subject to the following business
taxes:
a. Value-added tax (VAT):
A professional is liable for 12% VAT if his gross receipts/professional fees for the past 12 months is more
than P1,919,500.00.
A professional is likewise liable to register as a VAT taxpayer if there are reasonable grounds to believe that
his gross receipts/professional fees for the next 12 months will exceed P1,919,500.00.
A professional whose gross receipts/professional fees is more than the threshold amount of P1,919,500.00
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 42 of 77

shall be liable for VAT, regardless of whether or not he registers as a VAT person. If he fails to
register, he shall be liable to pay the 12% output tax as if he were a VAT-registered person, but
without the benefit of input tax credits for the period in which he was not properly registered.
For purposes of the threshold amount of P1,919,500.00, the husband and the wife shall be considered
separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a
In case a professional, aside from the practice of his profession, also derives revenue from other lines of business
which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the
threshold has been exceeded.
b. Percentage tax
A professional is liable for the 3% percentage tax if his gross receipts/ professional fees for the past 12
months is equal to or is below P1,919,500.00 and he is not a VAT-registered person.
c. If the professional registers as a VAT-person, he shall be liable for VAT (not for percentage tax) upon
registration as VAT taxpayer, irrespective of the amount of his gross receipts/professional fees.
d. A professional who is not required to register for VAT may elect to be VAT-registered, but he shall not be
allowed to cancel such registration for the next three years counted from the quarter when the election was made.
12. Revenue Memorandum Circular No. 65-2012 dated October 31, 2012: Monthly dues of Condominium
Corporations;
Income Tax:
The previous interpretation that the assessment dues collected by condominium corporations are funds which
are merely held in trust by a condominium corporation lacks legal basis and is hereby abandoned.
Dues or fees paid by members and tenants of a condominium corporation form part of gross income subject to
income tax. This is because a condominium corporation furnishes its members and tenants with benefits,
advantages and privileges in return for such payments.
For tax purposes, the association dues, membership fees and other assessments/ charges collected by a
condominium corporation constitute income payments or compensation for beneficial services it provides to its
members and tenants.
Since a condominium corporation is subject to income tax, income payments made to it are subject to applicable
withholding taxes under existing regulations.
VAT:
Association dues, membership fees and other assessments/charges collected by a condominium corporation are
subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its
members and tenants.
As provided under Section 105 of the Tax Code and as affirmed by the Supreme Court in the case of
Commissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management Services Corporation,
G.R. No. 125355, March 30, 2000: (E)ven a non-stock, non-profit organization or government entity, is liable to
pay VAT on the sale of goods and services. VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the performance of services, even in the
absence of profit attributable thereto. The term in the course of trade of business requires the regular conduct
or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented.
Hence, it is immaterial whether the primary purpose of a 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. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 43 of 77

Thus, the gross receipts of condominium corporations, including association dues, membership fees and other
assessments/charges are subject toVAT, income tax and income payments made to it are subject to applicable
withholding taxes under existing regulations.
13. Revenue Memorandum Circular No. 67-2012 dated October 31, 2012; Clarifying the Supreme Court
Ruling re St. Lukes Medical Center
In the case of Commissioner of Internal Revenue vs. St. Lukes Medical Center Inc. (G.R. Nos. 195909 and 195960
dated September 26, 2012), the Supreme Court ruled on the income tax treatment of proprietary nonprofit
hospitals under Section 27(B) vis--vis Sections 30(E) and (G) of the Tax Code.
On the meaning of proprietary and non-profit as applied to (i) proprietary non-profit educational institutions
and (ii) proprietary non-profit hospitals under Section 27(B):
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary nonprofit
educational institutions and (2) proprietary nonprofit hospitals. The only qualifications for hospitals are that they
must be proprietary and nonprofit. Proprietary means private, following the definition of a proprietary educational
institution as any private school maintained and administered by private individuals or groups with a government
permit. Nonprofit means no net income or asset accrues to or benefits any member or specific person, with all the
net income or asset devoted to the institutions purpose and all its activities conducted not for profit.
Private nonprofit hospitals and educational institutions whose gross income from unrelated trade, business or
other activity does not exceed 50% of their total gross income derived from all sources, shall pay a tax of 10% on
their taxable income, except those covered by Section 27(D) of the Tax Code. However, the following shall be
subject to the regular income tax rate of 30% on their taxable income, except those covered by Section 27(D) of
the Tax Code:
Private nonprofit hospitals and educational institutions whose gross income from unrelated trade, business or
other activity exceeds 50% of their total gross income derived from all sources, or
Hospitals and educational institutions claiming to be within the coverage of Section 27(B) of the Tax Code that fail
to meet the above definition of proprietary and nonprofit.
In all cases, whether their income tax rates fall under Section 27(A) or 27(B) of the Tax Code, the above
mentioned institutions are also subject to other applicable taxes, if warranted.
1. On the definition of charitable institutions for purpose of enjoying income tax exemption under Section 30(E)
of the Tax Code: The Court defined charity in Lung Center of the Philippines vs. Quezon City as a gift, to
be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by assisting them to establish
themselves in life or by otherwise lessening the burden of government. However, despite its being a tax
exempt institution, any income such institution earns from activities conducted for profit is taxable, as
expressly provided in the last paragraph of Section 30. To be a charitable institution, an organization must
meet the substantive test of charity. Charity is essentially a gift to an indefinite number of persons which
lessens the burden of government. In other words, charitable institutions provide for free goods and services
to the public which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the
government forgoes taxes which should have been spent to address public needs, because certain private
entities already assume part of the burden. This is the rationale for the tax exemption of charitable
institutions. The loss of taxes by the government is compensated by its relief from doing public works which
would have been funded by appropriations from the Treasury.

2. Hence, non-stock, non-profit corporations or associations which claim to be charitable institutions yet fail to
meet the definition of charitable institutions are not entitled to income tax exemption under Section 30(E) of
the Tax Code, and their taxable income shall be subject to other applicable taxes, if warranted.

3. On the requirements to qualify as charitable or social welfare nonstock, nonprofit corporations and
associations under Sections 30(E) and (G): Section 30(E) of the NIRC provides that a charitable institution
must be: A nonstock corporation or association; Organized exclusively for charitable purposes; Operated
exclusively for charitable purposes; No part of its net income or asset shall belong to or inure to the benefit of
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 44 of 77

any member, organizer, officer, or any specific person.

4. Both the organization and operations of the charitable institution must be devoted exclusively for charitable
purposes. The organization of the institution refers to its corporate form, as shown by its articles of
incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC specifically requires that
the corporation or association be non-stock, which is defined by the Corporation Codeas one where no part of
its income is distributable as dividends to its members, trustees, or officers and that any profit obtain[ed] as
an incident to its operations shall, whenever necessary or proper, be usedfor the furtherance of the purpose
or purposes for which the corporation was organized. However, under Lung Center, any profit by a charitable
institution must not only be plowed back whenever necessary or proper, but must be devoted or used
altogether to the charitable object which it is intended to achieve.

5. The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC
requires that these operations be exclusive to charity. There is also a specific requirement that nopart of [the]
net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific
person. The use of lands, buildings and improvements of the institution is but a part of its operations. There
is no dispute that St. Lukes is organized as a nonstock and non-profit charitable institution. However, this
does not automatically exempt St. Lukes from paying taxes. This only refers to the organization of St. Lukes.
Even if St. Lukes meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt
from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution use
the property actually, directly and exclusively for charitable purposes. To be exempt from income taxes,
Section 30(E) of the NIRC requires that a charitable institution must be organized and operated exclusively
for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that
the institution be operated exclusively for social welfare.

6. Hence, non-stock, non-profit corporations or associations which claim to be charitable or social welfare but do
not organize and operate exclusively for charitable or social welfare purposes as above-defined are not
entitled to the income tax-exemption under Sections 30[E] and [G], and their taxable income shall be subject
to ordinary 30% corporate rate under Section 27(A) of the Tax Code, as amended. They are likewise subject
to other applicable taxes, if warranted.

7. On the taxability pursuant to Section 27[B] of revenues derived by proprietary nonprofit hospitals from
services to paying patients and by proprietary nonprofit educational institutions from the same or similar
services: In 1998, St. Lukes had total revenues of P1,730,367,965 from services to paying patients. It cannot
be disputed that a hospital which receives approximately P1.73 billion from paying patients is not an institution
operated exclusively for charitable purposes. Clearly, revenues from paying patients are income received
from activities conducted for profit. xxx The Court cannot expand the meaning of the words operated
exclusively without violating the NIRC. Services to paying patients are activities conducted for profit. They
cannot be considered any other way. There is a purpose to make profit over and above the cost of services.
The P1.73 billion total revenues from paying patients is not even incidental to St. Lukes charity expenditure of
P218, 187,498 for non-paying patients. xxx St. Lukes claims that its charity expenditure of P218,187,498 is
65.20% of its operating income in 1998. However, if a part of the remaining 34.80% of the operating income
is reinvested in property, equipment or facilities used for services to paying and non-paying patients, then it
cannot be said that the income is devoted or used altogether to the charitable object which it is intended to
achieve. The income is plowed back to the corporation not entirely for charitable purposes, but for profit as
well. In any case, the last paragraph of Section 30 of the NIRC expressly qualifies that income from activities
for profit is taxable regardless of the disposition made of such income.

8. Activities for profit should not escape the reach of taxation. Being a nonstock and nonprofit corporation does
not, by this reason alone, completely exempt an institution from tax. An institution cannot use its corporate
form to prevent its profitable activities from being taxed.

9. St. Lukes fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax
exempt from all its income. However, it remains a proprietary non-profit hospital under Section 27(B) of the
NIRC as long as it does not distribute any of its profits to its members and such profits are reinvested
pursuant to its corporate purposes. St. Lukes, as a proprietary nonprofit hospital, is entitled to the preferential
tax rate of 10% on its net income from its for-profit activities.

10. RMC No. 67-2012 directs the full implementation of the Supreme Court decision by ensuring that the proper
taxes are collected from private nonprofit hospitals and educational institutions starting from January 1, 1998.

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 45 of 77

C. 2011 BIR ISSUANCES

(1). Revenue Regulation 5-2011: Further Amending De Minimis Benefits;

NOTE: RR 8-2012, UNIFORM AND CLOTHING ALLOWANCE IS INCREASED TO
P 5,000.00 PER ANNUM

DE MINIMIS BENEFITS
(AS AMENDED BY RR 5-2011)
MONETIZED UNUSED VL (private
sector)
10 DAYS
MONETIZED VL/SL (government) no limit
MEDICAL CASH ALLOWANCE TO
DEPENDENTS OF EMPLOYEES
NOT EXCEEDING P 750/EMPLOYEE/SEM
OR P 125/MO
RICE SUBSIDY
P 1,500/MO OR ONE SACK OF RICE OF
50KG/MO ( P 1,500.00)
UNIFORM/CLOTHING
ALLOWANCE
P 5,000/YEAR (increased per RR 8-
2012)
ACTUAL MEDICAL ASSISTANCE NOT EXCEEDING P 10,000/YEAR
LAUNDRY ALLOWANCE NOT EXCEEDING P 300/MO
ACHIEVEMENT AWARDS NOT EXCEEDING P 10,000/YEAR
GIFTS GIVEN DURING
CHRISTMAS/ANNIVERSARY
CELEBRATIONS
NOT EXCEEDING P
5,000/EMPLOYEE/YEAR
DAILY MEAL ALLOWANCE FOR
OT/NIGHT/GRAVEYARD SHIFT
NOT EXCEEDING 25% OF BASIC
MINIMUM
NOTE: IF NOT PART OF
ABOVE LIST
NOT DE MINIMIS, IE,
TAXABLE/SUBJECT TO WT

(2). Revenue Regulation 7-2011: Policies on Campaign Contributions

POLICIES ON CAMPAIGN CONTRIBUTION ( RR 7-2011)
(1). NOT INCLUDED IN THE TAXABLE INCOME OF CANDIDATE, IE, EXEMPT
FROM INCOME TAX;
(2). FOR EXEMPTION TO APPLY, CONTRIBUTIONS MUST BE UTILIZED TO
COVER CANDIDATE'S EXPENDITURES FOR ELECTORAL CAMPAIGN
(3). UNUTILIZED/EXCESS CAMPAIGN FUNDS ARE PART OF TAXABLE INCOME;
(4). FAILURE OF CANDIDATE TO FILE WITH COMELEC THE STATEMENT OF
EXPENDITURES PRECLUDES DEDUCTIONS FROM CAMPAIGN
CONTRIBUTIONS, THUS, THE ENTIRE CONTRIBUTION SHALL BE TAXABLE.


(3). Revenue Regulation 10-2011: Amendments to RR 16-2006 as amended by RR 4-2007 on Consolidated
VAT Regulations of 2005

INSTANCES WITHOUT VAT:

(a). No VAT on goods or properties which are originally intended for sale or for use in the ordinary course of trade of
business existing as of occurrence of change of control of corporation by acquisition of the controlling interest of such
corporation by another stockholder or group of stockholders. Exchange of goods or properties including real estate
properties used in trade or 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;
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 46 of 77



(b). Change of trade or corporate name of the business: NO VAT;

. Merger or consolidation of corporations: NO VAT but the unused input tax of the dissolved corporation, as of date
of merger or consolidation, shall be absorbed by the surviving new corporation.

(4). Revenue Regulation 12-2011: Reportorial Requirements for Establishments Leasing or Renting Out
Spaces for Commercial Activities

REQUIREMENTS:

(a). Registration of business with BIR;
(b). Owners of rented property shall ensure that lessees are BIR-registered taxpayer; and
. Submission to BIR every 31
st
of January and 31
st
of July of contract of lease, space layout of the entire area being
leased, lessee information statement in BIR prescribed form;

(5). Revenue Regulation 16-2011: Increase in Threshold for VAT exempt transactions

Based on present values using Consumer Price Index as published by the NSO to be adjusted every three years and to
be covered by revenue regulation issued by BIR on or before 31
st
of March yearly:

Section Amount in Pesos ( 2005) Adjusted Threshold Amounts
109 (P) 1,500,000.00 1,919,500.00
109(P) 2,500,000.00 3,199,200.00
109(Q) 10,000.00 12,800.00
109 (V) 1,500,000.00 1,919,500.00


(6). Revenue Regulation 18-2011: Requirement to Indicate VAT Separately in the Invoice

(a). All VAT-registered taxpayers who are required under Section 237 of the 1997 Tax Code, as amended to issue
sales or commercial invoices or official receipts should separately bill the VAT corresponding thereto. The amount
of the tax shall be shown as a separate item in the invoice or receipt.

(b). Failure or refusal to comply with the requirement in Section 1 hereof shall, upon conviction, for each act or
omission, be punished by a fine of not less than One Thousand Pesos (PhP1,000.00) but not more than Fifty
Thousand Pesos (Php50,000.00) and suffer imprisonment of not less than two (2) years but not more than four (4)
years.

D. 2011 BIR ISSUANCES

(1). RR 7-2010 Tax Privileges of Senior Citizens

(1). Senior Citizens are not exempt from final withholding tax on interest income and dividends, CGT, donors tax,
estate tax, excise tax, and DST;

(2). Discount is 20% from gross selling price;

(3). Special discount of 5% on utilization of water and electricity supplied by public utilities provided the meter is
named after the senior citizen, consumption is not more than 100 kwh, privilege is granted per household;

(4). Special discount of 50% on the consumption of senior citizens center and residential care/group homes run by
Govt or nsnp domestic corporations for such purpose;

(5). In case of promotional discount, the privilege of senior citizens should not be lower than discount under the
regulation;

(6). All discounts shall be treated as ordinary and necessary expenses of the establishment deductible from its
gross income and can only be claimed if it does not avail of OSD;

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 47 of 77

(7). Senior citizen who is a minimum wage earner is exempt from income tax;

(8). Individual benefactor of a senior citizen is entitled to PE of P 50,000.00 but not to AE of P 25,000.00;

(9). Establishments employing senior citizens are entitled to deduction from their gross income equivalent to 15%
of the salaries/wages of senior citizens provided that the employment is continuous for at least 6 months and that
the income of the senior citizen does not exceed the poverty level fixed by the NEDA;

(2). RR 8-2010 Tax Privileges Provisions of R.A. No. 9994, Otherwise Known as the Expanded Senior
Citizens Act of 2010

Sale of water and electricity to senior citizens which is afforded 5% special discount shall not be exempt from Value
Added Tax.
E. 2009 BIR ISSUANCES

(1). REVENUE REGULATIONS NO. 1-2009 Rules and Regulations Implementing Republic Act No. 9442,
entitled An Act Amending Republic Act 7277, Otherwise Known as the Magna Carta for Persons with
Disability, Relative to the Tax Privileges of Persons with Disability and Tax Incentives for Establishments
Granting Sales Discount

(a). Person with disability (PWD) shall refer to an individual suffering from restriction or different abilities, as
a result of mental, physical or sensory impairment to perform an activity in a manner or within the range considered normal
for human being.

(b). Disability shall mean a physical or mental impairment that substantially limits one or more psychological,
physiological or anatomical function of an individual or activities of such individuals; a record of such an impairment; or
being regarded as having such an impairment.

. Persons with disability shall be entitled to claim at least twenty percent (20%) discount from the following
establishments relative to the sale of goods or services for their exclusive use or enjoyment, viz:

1. Hotels and similar lodging establishments and restaurants;
2. Sports and recreation centers;
3. Theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and
amusement;
3. All drugstores regarding purchase of medicine;
4. Medical and dental privileges in government facilities, such as but not limited to diagnostic and laboratory
fees (e.g., x-rays, computerized tomography scans and blood tests) subject to guidelines to be issued by the
DOH, in coordination with the Philippine Health Insurance Corporation (Philhealth);
5. Medical and dental privileges in private facilities, such as but not limited to diagnostic and laboratory fees
(e.g., x-rays, computerized tomography scans and blood tests), including professional fees of attending doctors,
subject to guidelines to be issued by the DOH, in coordination with Philhealth; and
6. Domestic air and sea transportation based on the actual fare except promotional fare. If the promotional
fare discount is higher than the 20% discount privilege, the person with disability may choose the promotional fare
and should no longer be entitled to the 20% discount privilege; and
7. Land transportation privileges in bus fares such as ordinary, aircon fares and on public railways such as LRT,
MRT, PNR, and such other similar infrastructure that will be constructed, established and operated by public or
private entity. Toll fees of skyways and expressways are likewise subject to at least 20% discount, however, this
privilege can be availed only by a person with disability owning the vehicle.

(d). Establishments granting sales discounts to persons with disability on their sale of goods and/or services specified
under Section 3 above shall be entitled to deduct the said sales discount from their gross income.

(2). REVENUE REGULATIONS NO. 8-2009: Campaign Contributions

(a).Income payments made by political parties and candidates of local and national elections of all their
campaign expenditures, and income payments made by individuals or juridical persons for their purchases of
goods and services intended to be given as campaign contribution to political parties and candidates - Five
percent (5%).

(b). Persons required to deduct and withhold The following persons are hereby constituted as withholding agents
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 48 of 77

for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2:
All individuals, juridical persons and political parties, with respect to their income payments made as campaign
expenditures and/or purchase of goods and services intended as campaign contributions.

E. 2008 BIR ISSUANCES

(1). REVENUE REGULATIONS NO. 5-2008: Further Amendments to Revenue Regulations Nos. 2-98 and 3-
98, as Last Amended by Revenue Regulations No. 10- 2000, With Respect to De Minimis Benefits .

The term DE MINIMIS benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or
privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or
furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his
employees such as

(2). REPUBLIC ACT NO. 9504 An Act Amending Sections 22, 24, 34, 35, 51, 79 of RA 8424 as amended
(Effectivity Date: 06 July 2008); REVENUE REGULATIONS NO. 10 - 2008 Implementing Pertinent Provisions
of Republic Act No. 9504, An Act Amending Sections 22, 24, 34, 35, 51, and 79 of Republic Act No. 8424,
as Amended, Otherwise Known as The National Internal Revenue Code Relative to the Withholding of
Income Tax on Compensation and Other Concerns.

(A). DE MINIMIS BENEFITS

The following shall be considered as "de minimis" benefits not subject to income tax, hence, not subject to withholding
tax on compensation income of both managerial and rank and file employees:

(a) Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year and the
monetized value of leave credits paid to government officials and employees;

(b) Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or
P125 per month;

(c) Rice subsidy of P1,500.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,500.00;

(d) Uniforms and clothing allowance not exceeding P4,000.00 per annum (NOTE: PER RR 8-2012, INCREASED
TO P 5,000.00 PER ANNUM);

(e) Actual yearly medical benefits not exceeding P10,000.00 per annum;

(f) Laundry allowance not exceeding P300.00 per month;

(g) Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form
of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding
P10,000.00 received by the employee under an established written plan which does not
discriminate in favor of highly paid employees;

(h) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 .00 per employee per
annum;

(i) Flowers, fruits, books, or similar items given to employees under special circumstances, e.g., on account of
illness, marriage, birth of a baby, etc.; and

(j) Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage.

The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in
determining the P30,000.00 ceiling of other benefits excluded from gross income under Section 32(b)(7)(e) of the Code.
Provided that, the excess of the de minimis benefits over the irrespective ceilings prescribed by these regulations shall be
considered as part of other benefits and the employee receiving it will be subject to tax only on the excess over the
P30,000.00 ceiling. Provided, further , that MWEs receiving other benefits exceeding the P30,000.00 limit shall be taxable
on the excess benefits, as well as on his salaries, wages and allowances, just like an employee receiving compensation
income beyond the SMW.

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 49 of 77

Any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or
fringe benefits, shall constitute as deductible expense upon such employer. Where compensation is paid in property other
than money, the employer shall make necessary arrangements to ensure that the amount of the tax required to be withheld
is available for payment to the Bureau of Internal Revenue .

(B). Minimum Wage Earners

The following income payments are exempted from the requirements of withholding tax on compensation and not
subject to income tax: Compensation income of MWEs who work in the private sector and being paid the Statutory
Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages and
Productivity Commission (NWPC), applicable to the place where he/she is assigned.

Statutory Minimum Wage (SMW) shall refer to the rate fixed by the Regional Tripartite Wage and Productivity
Board (RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and
Employment (DOLE). The RTWPB of each region shall determine the wage rates in the different regions based on
established criteria and shall be the basis of exemption from income tax for this purpose.

Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE shall
likewise be covered by the above exemption. Provided, however, that an employee who receives/earns additional
compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of
P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and
night shift differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not
exempt from income tax and, consequently, from withholding tax.

MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except
income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income
earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay
and hazard pay shall still be exempt from withholding tax.

( C ). Personal Exemptions/Additional Exemptions

Individual taxpayers regardless of status are entitled to P50,000 personal exemption. Additional exemption is at P
25,000.00 per child. Dependent pertains to a child of whatever kind and status, not more than 21 years of age, not married,
not gainfully employed, chiefly dependent and living with the taxpayer, and regardless of age, if incapable of self-support by
reason of physical or mental defect.

The husband shall be the proper claimant of the additional exemption for qualified dependent children unless he
explicitly waives his right in favor of his wife in the Application for Registration (BIR Form No. 1902) or in the Certificate
of Update of Exemption and of Employers and Employees Information (BIR Form No. 2305), whichever is applicable .
Provided, however, that where the spouse of the employee is unemployed or is a non-resident citizen deriving income from
foreign sources, the employed spouse within the Philippines shall be automatically entitled to claim the additional exemptions
for children.

(D). Optional Standard Deduction (OSD)

REVENUE REGULATIONS NO. 16 - 2008 IMPLEMENTING THE PROVISIONS OF SECTION 34(L) OF THE TAX
CODE OF 1997, AS AMENDED BY SECTION 3 OF REPUBLIC ACT NO. 9504, DEALING ON THE OPTIONAL
STANDARD DEDUCTION (OSD) ALLOWED TO INDIVIDUALS AND CORPORATIONS IN COMPUTING THEIR
TAXABLE INCOME

(a). "SEC. 34. Deductions from Gross Income. - Except for taxpayers earning compensation income arising from
personal services rendered under an employer-employee relationship where no deductions shall be allowed under this
Section other than under Subsection (M) hereof, in computing taxable income subject to income tax there shall be allowed
the following deductions from the gross income:

"(L) Optional Standard Deduction. - In lieu of the deductions allowed under the preceding Subsections, an
individual subject to tax under Section 24, other than a nonresident alien, may elect a standard deduction in an amount not
exceeding forty percent (40%) of his gross sales or gross receipts, as the case may be. In the case of a corporation subject
to tax under section 27(A) and 28(A)(1), it may elect a standard deduction in an amount not exceeding forty percent
(40%) of it gross income as defined in Section 32 of this Code. Unless the taxpayer signifies in his return his intention to
elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the
preceding Subsections. Such election when made in the return shall be irrevocable for the taxable year for which the return
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 50 of 77

is made: Provided, That an individual who is entitled to and claimed for the optional standard shall not be required to
submit with his tax return such financial statements otherwise required under this Code: Provided, further, That except
when the Commissioner otherwise permits, the said individual shall keep such records pertaining to his gross sales or gross
receipts, or the said corporation shall keep such records pertaining to his gross income as defined in Section 32 of this
Code during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner;

(b). SEC. 2. PERSONS COVERED. - The following may be allowed to claim OSD in lieu of the itemized
deductions (i.e. items of ordinary and necessary expenses allowed under Sections 34 (A) to (J) and (M), Section 37, other
special laws, if applicable):

1. Individuals:
i. Resident Citizen
ii. Non-resident citizen
iii. Resident Alien
iv. Taxable estates and trusts
2. Corporations:
i. Domestic corporation
ii. Resident foreign corporation
G. 2007

(1). REVENUE REGULATIONS NO. 1 2007: Amending Revenue Regulations No. 4-2006 Implementing the
Tax Privileges Provisions of R.A. No. 9257, Otherwise Known as the Expanded Senior Citizens Act of 2003

(a). The business establishment giving sales discounts to qualified senior citizens is required to keep separate and
accurate record of sales, which shall include the name of the senior citizen, OSCA ID, gross sales/receipts, sales
discount granted, date of transaction and invoice number for every sale transaction to senior citizen.

(b). VAT on sales of goods or services with sales discounts granted by establishments enumerated under Section 8
hereof shall be computed in accordance with the following illustration:

Amount of sale (without the VAT) P100.00
Less: 20% sales discount 20.00

Vatable sale P 80.00
Plus: 12% VAT (based on P80) 9.60
Total amount to be paid by the senior citizen P89.60

(2). REVENUE REGULATIONS NO. 2-2007 Amending Certain Provisions of Revenue Regulations No. 16-
2005, Otherwise Known as the Consolidated Value-Added Tax Regulations of 2005.

If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax, the excess input
tax 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 applied for a tax credit certificate which
may be used in the payment of internal revenue taxes, subject to the limitations as may be provided for by law, as well
as, other implementing rules.
______________________________________________________________________________________

PART 3:
INCOME TAXATION/ESTATE TAX/DONORS TAX/RPT


(A). ILLUSTRATIONS OF TAX EXEMPTIONS OF VARIOUS INSTITUTIONS
FACTS: Institution occupies real property. Part of the property is leased to KFC.
A. GOVERNMENT AGENCIES (Example: PNP)
General Rule: Government agencies are exempt from payment of taxes as long as they are directly
performing government functions
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 51 of 77

Exception: If the agency is in the exercise of proprietary functions, it is subject to tax and treated as an
ordinary corporation subject to corporate income tax of 30%.
GOCCs are considered as ordinary corporations except SSS, PHIC, PCSO, GSIS. PAGCOR is already taxable
under the new law because it gives some semblance to legitimacy to gambling.
1. PNP earns money from collection of license fees.
a. Is this income? Yes.
b. Is this taxable? No.
2. Rentals paid by KFC
a. Is this income? Yes.
b. Is this taxable? Yes.
3. X donates P500,000 to PNP.
a. Is this income on the part of PNP? Yes, but it is not subject to income tax [Sec 32 (B)(3),
NIRC excludes gifts, bequests, devises from gross income].
b. Is the donation subject to estate/donors tax? No. Transfers for public use are exempt
from estate or donors tax ( Sections 87 and 101 of the tax Code)
c. Can X deduct the donation from his gross income? It depends.
i. If X were a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for compensation income
earners (personal exemptions, additional exemptions & premiums on
health/hospitalization insurance). Donations are not among them.
ii. If X were an individual engaged in trade or business, the entire amount may be
deducted.
iii. If X were a corporation, the entire amount may be deducted.
4. Payment of Real Estate Tax - government agencies directly performing government functions are exempt.
NOTE: Ownership of property is not necessary for the government to be exempt from payment of taxes. It
is the beneficial use of the property that exempts the government agency from payment of tax.
B. GOVERNMENT EDUCATIONAL INSTITUTIONS such as public elementary school, high school, state
colleges (Example: PUP)

1. PUP earns money from tuition fees.
a. Is it income? Yes
b. Is it taxable? No. Sec. 30, NIRC exempts income by the institution if it is realized as such.
2. Rental fee received from KFC
a. Is it income? Yes.
b. Is it taxable? Yes. The last paragraph of Sec. 30, NIRC provides that income from any activity
conducted for profit regardless of the disposition shall be subject to tax.

3. X donated P500,000 to PUP.
a. Is it income on the part of PUP? Yes, but not subject to income tax. (same reason as
government agencies).
b. Is it subject to estate/donors tax? No. Section 87/101 of the tax code on transfer for
public use;
c. Can X deduct the donation from gross income? Same rules as government agencies.
4. Real Estate Tax (RET) - As long as the property is ACTUALLY, DIRECTLY and EXCLUSIVELY used for
educational purposes, it is exempt from payment of RET.

C. NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS

1. Money received as tuition fee
a. Is it income?
b. Is it taxable?
There is an apparent conflict between the Constitutional provision and Sec. 30 of the NIRC: The
Constitutional provision indicates that the basis for exemption is the use of revenue but under
Sec 30, NIRC, the source of revenue is the basis of the exemption. Solution: Apply the rules of
StatCon - Follow the NIRC because it is considered as a special law as opposed to the Constitution
which is considered to be a general law. Therefore, exempt from payment of income tax under
Section 30. This is considered as income as such.
2. Rental fee received from KFC
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 52 of 77

a. Is it income? Yes.
b. Is it taxable? Yes. (last paragraph Sec 30, NIRC)

3. X donated P500,000 to the institution.
a. Is it income on the part of the institution? Yes but it is not subject to tax [Sec. 32 (B)(3),
NIRC]
b. Is it subject to estate/donors tax? No, provided that not more than 30% is used for
administration purposes. . (Section 87 and 101 of the Tax Code)
c. Can X deduct the amount of the donation from his gross income? It depends.
i. If X were a compensation income earner, he cannot deduct. Reason: There are
only 3 allowable kinds of deductions for compensation income earners (personal
exemptions, additional exemptions & premiums on health/hospitalization insurance).
Donations are not among them.
ii. If X were an individual engaged in trade or business, up to the extent of 10% of
the amount of taxable income may be deducted;
iii. If X were a corporation, up to the extent of 5% of the amount of taxable income
may be deducted
4. Real Estate Tax - Such institution is exempt from payment of RET (BASIS: LGC and Constitution)

5. Income from operating a canteen
For the operation of a canteen inside the campus, the income thereon being incidental to the
operations of the school is exempt
6. Income from bookstore
Not subject to income tax since operation from bookstore is an ancillary activity the conduct of which
is carried out within the school premises
7. Income from dormitories
Not subject to income tax provided the dormitory is within the campus as the same is an ancillary
activity. However, income from dormitory located outside of school premises shall be subject to income
tax already.
8. Income from concessionaires of the canteen and operators of the dormitory. These are already
subject to income tax and treated as income from an activity conducted for profit pursuant to the last
paragraph of Section 30, NIRC.
Revenue Memorandum Circular No. 76-03 provides that revenues derived from assets used in the
operation of cafeterias/canteens and bookstores are exempt from taxation provided they are owned and
operated by the educational institution as ancillary services and the same are located within the school
premises. However, they shall be subject to internal revenue taxes on income from trade, business or
activity, the conduct of which is not related to the exercise or performance by such institutions of their
educational purposes or functions ( ie. Rental payment from their building/premises).
The interest income from currency bank deposits and yield from deposit substitutes instruments actually,
directly, and exclusively in pursuance of their purposes as an educational institution are exempt from the
20% final tax and 7 % tax on interest income under the expanded foreign currency deposit system
upon compliance of certain conditions.
D. PROPRIETARY EDUCATIONAL INSTITUTIONS
1. Income tax

General Rule: Proprietary Educational institutions are not exempt from tax unless there is a law
providing for an exemption. Sec 27B NIRC in relation to the Constitution: If the income from
unrelated trade/activity (ut/a)exceeds 50% of the total income, it is treated as an ordinary
corporation taxable at the rate of 30%. Otherwise, it is subject to a preferential rate of 10%.
NOTE: The exemption from income tax is not absolute but dependent on the income from unrelated trade
or activity.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 53 of 77

2. If X donates P500,000 to the institution:
a. Is it income on the part of the institution? Yes, but not included in computation of the gross
income, therefore not taxable. [Sec. 32 (B)(3), NIRC]
b. Is it subject to estate/donors tax? No, provided that not more than 30% is used for
administration purposes.
c. Can X deduct the amount of the donation from his gross income? It depends.
i. If X were a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for compensation income
earners (personal exemptions, additional exemptions & premiums on
health/hospitalization insurance). Donations are not among them.
ii. If X were an individual engaged in trade or business, up to the extent of 10% of
the amount of taxable income may be deducted;
e. If X were a corporation, up to the extent of 5% of the amount of taxable income may be
deducted

E. CHARITABLE/ RELIGIOUS INSTITUTIONS

NOTE: The Constitutional provision regarding charitable/religious institutions is limited only to exemption from
RET. The exemption is based on the ACTUAL USE of the property not ownership.
The term educational does not refer to those managed by the religious institutions but to carrying on by these
institutions of educational purpose incidental to its primary purpose. (i.e. catechism, church daycare centers, etc.)
1. Money received as a charitable/religious institution
a. Is it income? Yes.
b. Is it taxable? No. Sec. 30, NIRC exempts income by the institution if it is realized as such.

2. Rental fee received from KFC
a. Is it income? Yes.
b. Is it taxable? Yes. The last paragraph of Sec. 30, NIRC provides that income from any activity
conducted for profit regardless of the disposition shall be subject to tax.
3. X donated P500,000 to the institution.
a. Is it income on the part of the institution? Yes, but it is not subject to tax as gifta bequests
nd devises are items of exclusions.[Sec. 32 (B)(3), NIRC]
b. Is it subject to estate/donors tax? No, provided that not more than 30% is used for
administration purposes.
c. Can X deduct the amount of the donation from his gross income? It depends.
i. If X is a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for compensation income
earners (personal exemptions, additional exemptions & premiums on
health/hospitalization insurance). Donations are not among them.
ii. If X is an individual engaged in trade or business, 10% of the amount of donation
may be deducted
iii. If X is a corporation, 5% of the amount of donation may be deducted
4. Real Estate Tax - The institution is exempt from payment of RET (Local Government Code of 1991)

INCOME TAXATION

(A). QUESTIONS TO ASK IN INCOME TAXATION:
1. Did you receive anything? ( in cash or in kind/ legal or illegal source)
2. If you did, is it income?
3. If yes, is it taxable?
4. If it is taxable, how do you determine taxability and what kind of tax do we impose?

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 54 of 77

NOTE: In question number 3, taxability of income depends on the KIND OF TAXPAYER, SOURCE OF INCOME,
AND KIND OF INCOME.
(B). WHO ARE THE TAXPAYERS?
(1). INDIVIDUALS
(A). CITIZENS
(I). RESIDENT CITIZENS;
(2). NON-RESIDENT CITIZENS;

(B). ALIENS
(1). RESIDENT ALIENS;
(2). NON-RESIDENT ALIENS;
(I). NON-RESIDENT ALIENS ENGAGED IN T/B;
(II). NON-RESIDENT ALIENS NOT ENGAGED IN T/B
NOTE: ESTATES AND TRUSTS ARE TREATED AS INCOME TAX PAYERS;

(2). CORPORATIONS
(A). DOMESTIC CORPORATIONS;
(B). FOREIGN CORPORATIONS;
(I). RESIDENT FOREIGN CORPORATIONS;
(2). NON-RESIDENT FOREIGN CORPORATIONS.
NOTE: PARTNERSHIPS ARE TREATED AS CORPORATE TAXPAYERS WHICH ARE FURTHER CLASSIFIED INTO GENERAL PROFESSIONAL
PARTNERSHIPS (GPP) OR GENERAL CO-PARTNERSHIPS (GCP)

(C). INDIVIDUAL TAXPAYERS:
Resident citizens:
a. Passive income from within the Phils - Final Tax
Passive income from outside the Phils - Net Income Tax (NIT)
b. Dividends:
1. Issued by DC - Final Tax
2. Issued by FC NIT

c. Sale of Shares of Stocks treated as capital assets
NOTE: The shares of stocks contemplated by law are those issued by DC. Shares of stocks from FC are
subject to NIT.
1. Gains from Sale of capital shares of stocks - Capital Gains Tax (CGT)(FWT) if not traded thru the local
stock exchange. If traded thru the stock exchange, % tax under Section 127 of the NIRC;
2. Gains from Sale of ordinary shares of stocks - NIT

Note: In case of sale of shares of stocks in a foreign corporation, all gains are subject to NIT. In case of sale
of shares of stocks in DC and FC loss ( ex: if sold for insufficient consideration), if untraded thru the local
stock exchange, impose donors or estate tax on the difference bet the FMV and the consideration . However,
if sold thru the local stock exchange, % tax plus donors or estate tax. (Basis: Section 100 in relation to
Section 85 of the tax code)
d. Sale of Real Property
1. If the property is within the Philippines - 6% CGT (FWT) if it is a capital asset. Otherwise, NIT if it is
an ordinary asset.
2. If the property is outside the Philippines it is always subject to NIT whether ordinary or capital
asset.

Exemption from CGT for sale of real property: Requisites [Sec 24 (D)(2), NIRC]:
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 55 of 77

i. The real property must be the actual principal residence of the taxpayer/seller
ii. Seller must inform the BIR of his intention to avail of the exemption (within 30 days from sale)
iii. Seller must build or purchase another principal residence within 18 months from sale
iv. Proceeds from the sale should be used in building/purchasing new principal residence
v. 6% CGT will be applied proportionately to proceeds not used for new principal residence.

All kinds of taxpayers can avail of the exemption from payment of CGT for sale of real property, except
corporate taxpayers.
Question: Is an alien exempt from the payment of CGT for sale of real property?
Answer:
Resident aliens, under certain circumstances (succession, ownership of condominium units and
former Filipino citizens), are allowed by Phil. laws to own real property.
Apply same rules to NRA engaged in trade/business
NRA not engaged in trade/business - there is a further limitation
They must be among those enumerated in Sec. 25 (c), (d), (e) of the NIRC [Key: MOP]:
a. those employed by Regional Area/Operational Headquarters of Multinational Companies
b. those employed by Offshore Banking Units
c. those employed by Petroleum Service Contractors and Subcontractors
Preferential Tax Treatment under Sec. 25, NIRC:

If the NRAs Filipino counterpart is given the option to be taxed 10% on the gross, the alien
may also be taxed at the same rate. It is not necessary that the Filipino counterpart should exercise
the option. It is enough that there is an option.
Note: If one is taxed on the gross, there are no deductions allowed.

Summary of rules on individual taxpayers:
1. Among all individual taxpayers, only RC is taxed for income within and outside the Phils.
2. All kinds of taxpayers are similarly taxed for income within EXCEPT:
a. NRA engaged in t/b- 20% Final tax on cash and property dividends
b. NRA not engaged in t/b are taxed on the gross
3. All kinds of individual taxpayers are subject to CGT on sale of shares of stock
4. All kinds of individual taxpayers may be exempt from 6% CGT on sale of real property

(D). CORPORATE TAXPAYERS:

Note that MCIT is in lieu of 30% corporate net income tax while IAET is in addition to all other taxes imposed
upon the corporation.
A foreign corporation can NEVER be subjected to CGT on sale of real property because under the
Constitution, they are NEVER allowed to own real property in the Philippines.
(E). INCLUSIONS, EXCLUSIONS, DEDUCTIONS:

A. Proceeds of Life Insurance Policy:
Facts: X is the employee of Y. X insures his own life and pays premium of P5,000 annually. Beneficiaries are his
wife and children (W & C). Policy states that if X pays premium for the next 20 years, he will get:
Proceeds: P1M; Interest 10: and Return of Premium (ROP)
Tax Effects/Consequence:
1. Can X deduct premium from computation of gross income? No. X is a compensation income
earner and premium for life insurance is not among those deductions that a compensation income earner
is allowed to make.

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 56 of 77

2. The policy states that if X survives to be 60 years old, he may receive the proceeds, interest and ROP.
a. If X survives, are the above-enumerated items considered as income? The proceeds of
P1M and the 10% interest are considered income. ROP, being mere return of capital, is not.

Taxable? Only the 10% interest is taxable since proceeds are among the items of exclusions in
Sec. 32(B), NIRC.
b. Assuming X dies and the proceeds are received by W & C, will this be considered as
income on their part? Yes, except for the ROP (Reason: If X had lived, he would have
received it as mere return of capital).

Included in the computation of gross income? Only the 10% interest will be included;
3. When X dies, will the above-enumerated items be included in the computation of the gross
estate? It depends. There are 2 sets of rules:
a. If the beneficiary is the EXECUTOR/ADMINISTRATOR or the ESTATE, it will be INCLUDED
in the computation of the gross income, whether the assignment of beneficiary is
revocable or not.
b. If the beneficiary is anyone other than those in (a):
Revocable assignment- include in the computation of gross estate
Irrevocable assignment- exclude in the computation of gross estate
As long as the decedent has control over the proceeds, it will be included in the
computation of the gross estate.
Facts: X is the employee of Y. Y insured Xs life. Premium paid by Y and he was also the beneficiary and will
receive proceeds: P1M +10% interest +ROP.
Tax Effects/Consequence:
1. Can Y deduct premium payments as business expense? No. This is not a legitimate business
expense. In addition Section 36, provides that premiums on life insurance taken by the
employer insuring the life of his employees wherein directly or indirectly he is the beneficiary
is NOT DEDUCTIBLE.

2. If X dies and Y gets proceeds, is this income on the part of Y? Yes, except the ROP. However,
only the 10% interest is taxable. ROP and the amount of P1M are the first 2 items of exclusion under
Sec. 32 (B), NIRC.

3. Are the proceeds included in the computation of Xs gross estate? No. X did not have any interest
over the proceeds. In fact, the only participation of X is his life.

Facts: X is the employee of Y. X took a life insurance but premium payments were made by Y. Xs wife and
children (W & C) were the assigned beneficiaries. Proceeds are as follows: P1M +10% interest +ROP.
Tax Effects/Consequence:
1. Is it income on the part of X? Yes, the premium paid for by employer Y is considered as income on
the part of X.

Is it taxable? If X is:
Managerial/supervisory employee - Fringe benefit tax
Rank and file employee - Net income tax

2. Can Y deduct the premium payments from the computation of gross income? No, unless Y pays for the
life insurance of ALL of his employees. If X gets singled out, Y can never deduct because it is not a
necessary business expense.

3. If X dies and the proceeds go to W & C, is this income on the part of W & C? Yes, except for ROP.
However, only the 10% interest is taxable (income tax).
Will this be included in the computation of the gross estate of X? It depends. Apply the rules on
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 57 of 77

revocable/irrevocable assignment of beneficiaries.
NOTE: Proceeds of accident insurance:
For purposes of income tax, proceeds of accident insurance are not income and not taxable as they are merely
reimbursements for the damage resulting from the accident. In case of death however and for purposes of estate
tax, they are generally speaking excluded from the computation of the gross estate unless one of the risks insured
against is the death of the insured by accident in which case, the insurance maybe considered as a life insurance.
In this instance also, for purposes of income tax, they shall still be excluded from the computation of gross
income.
B. Gifts, Bequests, and Devises

Income on the part of the recipient donee/heir/recipient but not forming part of the taxable income as this is an
item of exclusion from the gross income of the donee/heir/recipient. If however, the property received realizes
income, then the income of the property forms part of the gross income of the taxpayer;

C. Damages

Damages - compensation for physical injuries/disability or death for causes beyond the control of the employer
and only those actually resulting therefrom are excluded from computation of the gross income. Attorneys fees
and costs of suit are only deductible if the amount awarded is equivalent to the actual expense incurred. This shall
not be considered as income and not taxable because it is a mere reimbursement. Any amount in excess of the
actual expense is considered taxable income. Moral and exemplary damages are taxable.

D. Retirement Benefits

The Labor Code requires the employer to contribute to a valid retirement fund. The contribution is deductible since
it is necessary in carrying on the trade/business.

If the employee is also allowed to contribute (contributory retirement fund), the employees contribution is not
deductible since it is not among the allowable deductions for compensation income earners.
If the employee retires and receives retirement benefits:
Tax treatment: the retirement benefits are income but among the items of exclusions listed in Sec. 32(B),
NIRC hence, NOT TAXABLE. It is not considered compensation provided that:
1. The employee is at least 50 years old;
2. Employed with the same employer for at least 10 years; and
3. The fund must be used for the benefit of the employee and no other purpose.

What if the fund is contributory? If the employee contributes to the fund, only the interest/profits will be
considered as income but excluded from the computation of gross income therefore, not taxable. His contributions
will be considered as mere return of capital, hence, not income.
Example: The retirement plan provides that if the employee renders x years of service and he dies, he
shall be considered as retired as if he retired alive. The heirs will receive the retirement benefits.
Tax Treatment:
1. Is it income on the part of the heirs? Yes.
Is it taxable? No. The benefits are among the items of exclusions from gross income.
2. Is it part of the employees gross estate? Yes, provided that it will later on be deducted from
the gross estate.

3. Why do we have to add first before we deduct? Gross estate is defined as the value of ALL the
property of the deceased, real or personal, tangible or intangible.

NOTE: Benefits received from SSS, GSIS, Pag-ibig and PhilHealth , US Veterans Act
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 58 of 77

Not income
Not compensation
Not taxable
(The employees contributions are not deductible)
E. Fringe Benefits, De Minimis Benefits, and Compensation for Managerial/Supervisory/Rank and File/
Minimum Wage Earners (MWEs)

- these are all benefits given by an employer to an employee
- the benefits must be in relation to the employers business
-
Compensation - All the basic benefits given by the employer to the employee
Fringe Benefits - Any benefit given to a managerial/supervisory employee above all benefits given to other
employees.
De Minimis Benefits Privileges of small value provided by the employer to an employee;
DE MINIMIS BENEFITS
(AS AMENDED BY RR 5-2011)
MONETIZED UNUSED VL (private
sector)
10 DAYS
MONETIZED VL/SL (government) no limit
MEDICAL CASH ALLOWANCE TO
DEPENDENTS OF EMPLOYEES
NOT EXCEEDING P 750/EMPLOYEE/SEM
OR P 125/MO
RICE SUBSIDY
P 1,500/MO OR ONE SACK OF RICE OF
50KG/MO ( P 1,500.00)
UNIFORM/CLOTHING
ALLOWANCE
P 4,000/YEAR (PER RR 8-2012,
INCREASED TO P 5,000.00/ANNUM)
ACTUAL MEDICAL ASSISTANCE NOT EXCEEDING P 10,000/YEAR
LAUNDRY ALLOWANCE NOT EXCEEDING P 300/MO
ACHIEVEMENT AWARDS NOT EXCEEDING P 10,000/YEAR
GIFTS GIVEN DURING
CHRISTMAS/ANNIVERSARY
CELEBRATIONS
NOT EXCEEDING P
5,000/EMPLOYEE/YEAR
DAILY MEAL ALLOWANCE FOR
OT/NIGHT/GRAVEYARD SHIFT
NOT EXCEEDING 25% OF BASIC
MINIMUM
NOTE: IF NOT PART OF
ABOVE LIST
NOT DE MINIMIS, IE,
TAXABLE/SUBJECT TO WT

The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the
P30,000.00 ceiling of other benefits excluded from gross income under Section 32(b)(7)(e) of the Code. Provided that,
the excess of the de minimis benefits over the irrespective ceilings prescribed by these regulations shall be considered
as part of other benefits and the employee receiving it will be subject to tax only on the excess over the P30,000.00
ceiling. Provided, further , that MWEs receiving other benefits exceeding the P30,000.00 limit shall be taxable on the
excess benefits, as well as on his salaries, wages and allowances, just like an employee receiving compensation income
beyond the SMW.

Any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe
benefits, shall constitute as deductible expense upon such employer. Where compensation is paid in property other than
money, the employer shall make necessary arrangements to ensure that the amount of the tax required to be withheld is
available for payment to the Bureau of Internal Revenue .

Statutory Minimum Wage:

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 59 of 77

(SMW) shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), as defined by
the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). The RTWPB of
each region shall determine the wage rates in the different regions based on established criteria and shall be the basis of
exemption from income tax for this purpose.

Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned MWE shall
likewise be covered by the above exemption. Provided, however, that an employee who receives/earns additional
compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory amount of
P30,000.00, taxable allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and
night shift differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not
exempt from income tax and, consequently, from withholding tax.

MWEs receiving other income, such as income from the conduct of trade, business, or practice of profession, except
income subject to final tax, in addition to compensation income are not exempted from income tax on their entire income
earned during the taxable year. This rule, notwithstanding, the SMW, Holiday pay, overtime pay, night shift differential pay
and hazard pay shall still be exempt from withholding tax.

KINDS OF
EMPLOYEES
EMPLOYEE BENEFITS
Basic Pay OT/HP/HP/NSD
DMB OTHER BENEFITS
w/in
limits
excess
w/in
30k
limit
excess
M/S C (NIT)

exempt
transfer
to 30k
limit
exempt FB
R/F C (NIT) C (NIT) exempt exempt C (NIT)
MWE SMW(Exempt) exempt exempt exempt
not
MWE/all
income
taxable

Specific Rules:
(1). Table is not applied if benefit is furnished for the convenience of the employer or necessary in trade or
business of the employer;
(2). If DMB received exceeds the limits provided by law, the excess shall be treated as other benefits which if
not exceeding the 30k limit shall be exempt from payment of tax;
(3). If other benefits exceed the 30k limit, the same shall be treated as FB in the case of a M/S employee and
C in the case of a R/F employee. IN the case of an MWE whose other benefits exceed the 30k limit, he stops
being considered as an MWE and the instead treated as an ordinary R/F employee whose income from
employment shall be subject to tax except the DMB within limits and other benefits within the 30k limit;
(4). If an MWE has income derived from trade or business or any income other than SMW, the SMW,
OT/HP/HP/NSD, DMB within limits, and other benefits within 30k limit, shall still be exempt from tax except
when his other benefits exceed 30k limit, in which case, the table for R/F employee shall be applied to him.
NOTE: If the employee is one of the NRAs not engaged in trade/business under Sec. 25 (c), (d), (e), NIRC,
there is no distinction between fringe benefits and compensation because they are taxed on the gross.
If the benefit is either (1) furnished for the convenience of the employer or (2) necessary to the trade or
business of the employer, it is not income, not compensation, not fringe benefits and not taxable.
Fringe Benefit Tax is NOT imposed on the following:
1. Rank and file employees they do not receive fringe benefits
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 60 of 77

2. NRA not engaged in t/b under Sec 25 (c), (d), (e) NIRC they are taxed on the gross at the rate of
either 25% or 15%.
3. Filipino counterpart of the NRA under Sec 25 NIRC who chooses to be taxed at the rate of 15% on the
gross.

INFORMERS REWARD:
Forms part of the gross income of the taxpayer informant and subject to income tax
TIPS AND GRATUITIES PAID BY CLIENTS and NIGHT SHIFT DIFFERENTIAL:
1. If paid directly by clients to employees, income and subject to tax on the part of employee but cannot be
subjected to withholding tax by the employer;
2. If paid to the employer by reason of service rendered by employees, income, taxable on the part of the
employee but subject to withholding by the employer;
3. Night shift differential, income and subject to tax on the part of the employee who is not an MWE but
subjected to withholding tax by the employer;

COMPENSATION FOR DEATH, PHYSICAL INJURIES, PHYSICAL DISABILITY PAID BY EMPLOYER TO
EMPLOYEE OR HIS HEIRS, OR FOR CAUSES BEYOND THE CONTROL OF EMPLOYEE
1. Not income as mere compensation for the damage or loss of life;
2. Separation pay for retrenchment, redundancy, or any labor saving device is income but not subject to tax
due to causes beyond control of employee;
3. Backwages in case of illegal dismissal, income and subject to tax;
4. Separation pay in case of non-reinstatement of employee due to strained relation between employer and
employee after illegal dismissal, income but not taxable;
5. Award of moral, exemplary and nominal damages in illegal dismissal cases, are income but if strictly
interpreted, should be subject to tax. In liberal interpretation, these are exempt due to causes beyond
control of employee. However, exemptions are strictly construed against taxpayer claimant;

DEDUCTIONS FROM GROSS INCOME
Deductions (Sec. 34H NIRC)

Take note that Sec. 34 pertains only to items related to the trade/business of the taxpayer.
Requisites of Deductibility of Items under Section 34 of the Tax Code:
(1). Necessary in Trade or Business of the taxpayer;
(2). Actually paid or incurred;
(3). Reasonable in amount; and
(4). Supported by documents.
The following are not subject to any kind of deduction:
1. Taxpayers or income subject to Gross Income Tax (GIT)
2. Income subject to Final Withholding Tax

Comparison between OSD in income taxation and SD for estate taxation:
Optional Standard deduction Standard deduction in estate tax
OSD is in lieu of other deductions from
gross income.
Standard Deduction is in addition to
other deductions from the gross estate
40% of gross income may be deducted Maximum amount of P 1M may be
deducted

SUMMARY OF ALLOWABLE DEDUCTIONS:
(1). Individual earning purely compensation income:
personal exemptions (PE), additional exemptions (AE) , and premium on health and hospitalization insurance
(PHHI)
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 61 of 77

(2). Individual engaged in trade or business:
PE, AE, PHHI, plus Itemized deductions under Section 34 OR Optional Standard deduction (OSD)
Note: Individuals who are non-resident aliens not engaged in trade or business are not allowed deductions as they
are subject to Gross Income Tax. Non-resident aliens engaged in trade or business are allowed personal exemptions
subject to reciprocity rule. All kinds of individual taxpayers are not allowed to claim for deductions on income which
are subject to final withholding taxes such as passive income, capital gains on sale of shares of stocks and real
property;
(3). Corporate taxpayers
Itemized deductions under Section 34 OR OSD. Non-resident foreign corporations which are subject to gross
income tax are not allowed to claim any deduction. Income of all kinds of corporate taxpayers which are subject to
final withholding taxes such as passive income, capital gains on sale of shares of stocks and real property, are not
subject to deductions.
DEDUCTIONS: Section 34, 35, & 36, NIRC
(A). BUSINESS EXPENSES:
1. Illegal expenses are not deductible whether business is legal or illegal;
2. Legitimate expenses whether business is legal or illegal are deductible;
3. Capital expenditures are not deductible.
4. Ordinary means commonly incurred, necessary means appropriate and helpful to the taxpayer or intended to
realize profit or to minimize loss;
5. Rentals on lease of property provided taxpayer does not acquire interest other than as a mere possessor, thus
rentals on lease to own scheme are not deductible as they are capital expenditures already;
6. Real estate tax on the property leased and shouldered by the lessee is deductible expense on the part of the
lessee BUT treated as taxable income on the part of the lessor;
7. Cost of improvements introduced by lessee in an ordinary asset are not deductible expense on the part of the
lessee as these are capital investment on his part but maybe depreciated by the lessee;
8. Travel and transportation expenses or expenses while away from home incurred by employers and given to
employees pursuant or trade or business when necessary and reasonable;
9. advertising expenses designed to stimulate the current sale of merchandise or use of services are deductible
business expenses;

Examples of non-deductible business expenses:
1. compensation to public relations firm for services rendered in carrying on campaign to sell additional capital
stock;
2. expenses relating to recapitalization and reorganization of corporation;
3. promotion or marketing expenses which are tantamount to purchase of goodwill;
4. bribes and kickbacks;
5. expenses for major repairs are not deductible but expenses for minor repairs are deductible;
6. personal and living expenses of the taxpayer as they are already allowed to claim for personal and additional
exemptions;
7. advertising expenses designed to stimulate the future sale of merchandise or use of services as these are
already considered as capital outlay;

Tax Benefit Rule: applies to
(1). Taxes claimed and allowed as deductions from gross income when refunded or credited, shall be included as part
of gross income in the year of receipt to the extent of the income tax benefit of said deduction;
(2). Bad debts claimed and allowed as deductions from gross income deducted but subsequently paid or recovered;
(3). Casualty losses deducted as such but later recovered;
(B). Taxes as deduction: ( income and estate tax)
Income Tax Estate Tax
Only taxes previously paid may be
deducted (unpaid taxes can never be
deducted)
Taxes which remain unpaid and
accruing until the time of death may be
deducted from the gross estate
The taxes must be in connection with The taxes need not be in connection
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 62 of 77

taxpayers trade/business with decedents trade or business

. Bad Debts/Interest on Loans: ( income and estate tax)
Facts: X borrowed P100,000 from Y with 10% interest per annum. Total amount due is P110,000.
1. X paid Y P110 000.
Is it income on the part of Y? Only the 10% interest is income and taxable.
Can X deduct the 10% as interest on loan? Yes, provided that the loan was in relation to Xs trade or business
and subject further to the 33% limitation of the interest earnings of the said debtor;
2. X was not able to pay Y
Tax consequence: Y may declare the P110,000 as bad debt. It will be deductible if: (1) Y is engaged in
trade/business and (2) the amount of bad debt is in relation to his trade or business. There are no tax
consequences on X.
NOTE: There can be no deduction if X and Y are related to each other under Sec. 36(B), NIRC.
3. If X dies before paying his debt
Tax consequences: Y will have to file a claim during settlement of Xs estate. It will be considered as a claim
against the estate (CAE) and the entire amount may be deducted from the estate whether or not the loan is in
connection with Xs trade or business.
If the estate subsequently pays Y, is it income on his part? Only the interest is income and taxable.
What if prior to Xs death, Y claimed the debt as a deduction (bad debt) and during the settlement of the
estate, the court ordered that Y be paid the amount of the loan + interest? Apply the tax benefit rule.

4. If Y dies before X pays the debt.
Tax consequences:
a. The estate of Y should include the debt as part of Ys gross estate (a debt is an intangible personal
property, hence should be included in the gross estate as provided under Section 85 of the NIRC)
b. The debt is an allowable deduction from the gross estate of Y as a claim against an insolvent person
(CAIP)

If the estate of Y is allowed to deduct and X subsequently pays the debt + interest, the tax benefit rule cannot
be applied. The payment will form part of the income of the estate subject to Net Income Tax. Remember
that the estate is considered as a taxpayer.
(D). Casualty Loss: (income and estate tax)
The property lost (1) must not be compensated by insurance and (2) must be lost due to theft, robbery,
embezzlement or other natural calamity . The loss is characterized by suddenness;
LOSSES IN INCOME TAX LOSSES IN ESTATE TAX
Property lost must be in relation to
trade/business of taxpayer
The property lost may or may not be in
relation to trade/ business of deceased
The loss must occur during the taxable period The loss may occur until 6 months after
death

NOTE: If the loss of property is previously deducted for income tax purposes, it cannot be deducted
for estate tax purposes.
(E). DEPRECIATION

Depreciation is allowed only for taxpayers engaged in trade or business . Depreciation period for personal properties is
five (5) years while the period for real properties ranges from 15 to 25 years depending on the economic or useful life
of the asset.

Rules:

(1). A taxpayer who is purely earning purely compensation income is not allowed to claim depreciation as a deduction;

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 63 of 77

(2). In case a taxpayer purchases an asset used in his trade or business, he is not entitled to claim the amount as
deductible business expense considering that the same is a capital expenditure, but the taxpayer is allowed to claim
depreciation of the asset as a deduction;

(3). Under a Build Operate Transfer agreement, the builder is allowed to depreciate the asset until the time of transfer
and after transfer, the transferee can also claim depreciation of the asset based on the FMV of the property at the time
of acquisition;

(4). Under a lease agreement with provision that all permanent improvements shall accrue to the lessor upon end of
lease contract, the lessee who is engaged in t/b can claim depreciation of the improvements while the lessor can claim
depreciation of the leased property excluding the improvements;

(5). Under a lease to own contract, the lessee who introduces the improvements shall have the right to claim
depreciation of the improvements only while the lessor claims depreciation of the leased property only. The lessee
cannot claim rentals for the lease as deductible business expenses because he acquires interest other than as a mere
possessor of the property; Upon expiration of the contract, the lessee owns the property in full and lessor loses all
rights over the property;

(F). PREMIUM ON HEALTH AND HOSPITALIZATION INSURANCE (PHHI)

This deduction is allowed to both taxpayers who are engaged in trade or business and those who are not engaged in
trade or business in the amount of P 2,400.00 per family provide that the gross annual income does not exceed P
250,000.00.

(G). RESEARCH AND DEVELOPMENT

Expenses for research and development to be deductible from the gross income are limited to those which are related
to the trade and business of the taxpayer.

(H). PERSONAL EXEMPTIONS/ADDITIONAL EXEMPTIONS (effective 01 July 2008)

Individual taxpayers regardless of status are entitled to P50,000 personal exemption. Additional exemption is at P
25,000.00 per child. Dependent pertains to a child of whatever kind and status, not more than 21 years of age, not married,
not gainfully employed, chiefly dependent and living with the taxpayer, and regardless of age, if incapable of self-support by
reason of physical or mental defect.

The husband shall be the proper claimant of the additional exemption for qualified dependent children unless he
explicitly waives his right in favor of his wife in the Application for Registration (BIR Form No. 1902) or in the Certificate of
Update of Exemption and of Employers and Employees Information (BIR Form No. 2305), whichever is applicable . Provided,
however, that where the spouse of the employee is unemployed or is a non-resident citizen deriving income from foreign
sources, the employed spouse within the Philippines shall be automatically entitled to claim the additional exemptions for
children.

A NRA engaged in t/b in the Philippines is entitled to personal exemption subject to reciprocity rule.

(I). RECOGNITION OF GAINS/LOSSES IN EXCHANGES OF PROPERTY

RULE:

(1). All gains and losses realized or incurred in exchanges of ordinary and capital assets are RECOGNIZED;
(2). In exchanges of capital assets with gains, the gains are not immediately included in the gross income but first
charged against losses sustained in exchanges of capital assets. In recognizing the gains/losses, the taxpayer may
apply the concept of holding period ( if held for more than one year- g/l recognized at 50%; if held for less than one
year g/l recognized at 50%); The holding period does not apply to a corporate taxpayer, thus, all gains/losses are
recognized at 100%;

(3). After charging the gains against the losses and the taxpayer realizes Net capital gains, the same shall be included
in the gross income of the taxpayer. After charging the gains against the losses and the taxpayer realizes net capital
loss, then a taxpayer, other than a corporation, is allowed to carry over the same for three succeeding years (NCLCO);

(4). In exchanges of ordinary assets with gains, the gains are not immediately included in the gross income of the
taxpayer but first charged against losses sustained in exchanges of ordinary assets. Holding period does not apply.
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 64 of 77

After charging the gains versus the losses, if taxpayer realizes net ordinary gains, include the same in the gross
income but if the taxpayer realizes net ordinary losses, no carry over will be allowed;

(5). Rule Nos. 1 to 4, are not applied in the following instances: (NO GAINS/ NO LOSS RECOGNIZED)

(a). In case of valid merger and consolidation;
(b). In case a stockholder exchanges property for stocks in a corp wherein he, together with three others,
acquires control over the corporation;
. In wash sales of shares of stocks wherein the taxpayer sells shares of stocks wherein he realized gains,
gains are always recognized but in case of loss sustained and 30 days prior to sale or 30 days after the sale,
he acquires similar shares of stocks as the ones disposed of and for which sustained losses, ALL LOSSES WILL
NOT RECOGNIZED;
(d). In sale of shares of stocks (capital in character), not traded thru local stock exchange, gains are always
subject to either 5% or 10% FWT. If traded, gains or loss, the tax is % tax under Section 127 of the NIRC;
(e). In sale of real property located in the Philippines (capital in character), whether gains or loss, the
taxpayer shall be subject to 6% CGT which is in the nature of FWT.

(H). COMPARISON BETWEEN NET CAPITAL LOSS CARRY OVER (NCLCO) AND NET OPERATING LOSS
CARRY OVER ( NOLCO)

Rules:

(1). NOLCO refers to net operating loss carry over which is applicable only to a corporate taxpayer. If a corporate
taxpayer has more deductions than gross income, the corporation sustains net operating losses which maybe carried
over to the succeeding year only. Consequently, if during the succeeding year, the taxpayer realized taxable net
income, this maybe reduced by the net operating loss carried over from the previous year;
(2). NCLCO refers to net capital loss carry over which is applicable only to individual taxpayers. This results from
exchanges of capital assets wherein gains and losses have been recognized such that during the taxable period, after
charging all capital losses from the capital gains, the taxpayer may either realize net capital gains (included in the gross
income therefore taxable) OR net capital loss ( which maybe carried over for the succeeding 3 years);

(3). NOLCO pertains to expenses and deductions from gross income while NCLCO pertains to exchanges of capital
assets;

(I). COMPARISON OF INCOME TAX, ESTATE TAX AND DONORS TAX IN THE TREATMENT OF CAPITAL
AND ORDINARY ASSETS [Please refer to Secs. 100, 85(B) and 24(D), NIRC]

Transfers for Insufficient Consideration:
Example: X has the following real properties all valued at P 3M each.
Within the Philippines: House and Lot
Parlor

In the United States: Vacation house
Parlor
Tax consequences if each real property was sold at P50,000:
Sale of House and Lot in Phils. - subject to CGT on sale of real property (6%) since it is a capital asset and
CGT is tax on the presumed gains realized from the sale
Sale of Parlor located in the Phils. - subject to donors tax or estate tax and not NIT since there is no income
derived from the sale
Sale of Vacation house in the US - donors tax or estate tax is imposed on the difference between the fair
market value of P3M and the consideration of P 50,000
Sale of parlor in the US - donors tax or estate tax is imposed on the difference between the fair market value
of P 3M and the consideration of P 50,000

However, if the seller/taxpayer is an resident alien or a non-reside , the sale of real property outside the
Philippines for insufficient consideration is not subject to NIT but still subject to donors or estate tax taxable
in the case of a resident alien;
Example: X has the following personal properties all valued at P1M each.
Within the Philippines: Car for personal use
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 65 of 77

Car used for the parlor in the Phils.

In the United States: Car for personal use when on vacation abroad
Car used for the parlor in the US

Tax consequence if each was sold at P50,000 - all will be subject to donors tax
When property other than real property provided under Section 24(B) NIRC is transferred for insufficient
consideration, the difference between the consideration and the fair market value at the time of transfer shall be
considered as a donation subject to donors tax (Section 100) or estate tax (Section 85g).
If the seller is a Non-Resident Alien at the time of transfer for insufficient consideration, only the property in the
Philippines is taxable.
All kinds of donors except NRA are taxable for donations of property within and outside the Philippines.
Rules on determining taxability:
INCOME TAX (source of income determines taxability)
Taxable
Income
RC NRC NA NRA
Income within
the Phils.

Income
outside the
Phils.


ESTATE AND DONORS TAX (location of the property determines taxability)
RC NRC NA NRA
Located
within the
Phils.

Located
outside the
Phils.


Transfers of property not subject to estate tax: (Section 87, NIRC)

(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
heir;

(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;
Sale of Shares of Stocks:
Tax treatment if shares of stocks outside the Philippines are sold cheap and seller is NRA, do we impose CGT on
shares of stocks outside the Philippines? Unfortunately, that is missing in the law.
Correlation with Sec. 85(B) NIRC:
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 66 of 77

If the transfer for insufficient consideration is at the same time in contemplation of death in the nature of a
revocable transfer, or property passing under a general power of attorney, CGT and donors tax are not
imposed. We impose estate tax.
Please take note that the transfer occurs during the lifetime of the transferor.
What happens if the donors tax has been paid and transferor dies later on?
The payment shall be treated as part of the estate.
Upon death, if it is determined that the property was transferred for insufficient consideration and in
contemplation of death, it shall be subject to estate tax.

Situs of Tax on Intangible Personal Property (from point of view of income, estate and donors taxes)
Income Tax:
General Rule: Mobilia sequuntur personam (movables follow the person)
Exceptions: 1. Wells Fargo Bank v. CIR (70 Phil. 325) shares of stock are also taxable in the situs of their
actual location
2. When the law itself provides for a different situs Example: Section 104, NIRC

PART IV: VALUE ADDED TAX

(A). Transactions covered by Value Added Tax (VAT):

(1). Each sale of goods in the course of trade or business;
(2). Each sale of service in the course of trade or business;
(3). Each importation of goods whether or not in the course of trade or business.

In VAT, real property is considered as goods. IN case of rendition of service not pursuant to employer-
employee relationship, the same shall be covered by VAT.

(B). Transactions deemed sale in VAT:

There is no actual sale of goods but the law considers the goods sold, thus, subject to VAT, such as:

(1). Transfer, use or consumption not in the course of trade or business of goods or properties originally intended
for sale or use in the course of trade or business;
(2). Distribution or transfer to shareholders or investors as share in the profits of Vat registered person or to
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 goods existing as of the time
of retirement or cessation;

. How does VAT work?

Output Tax less Input Tax is equal TO VAT PAYABLE. IN CASE INPUT TAX IS MORE THAN THE OUTPUT TAX,
TAX CREDIT OR REFUND IS THE AVAILABLE REMEDY FOR THE TAXPAYER.
Output tax is the value added tax paid on sales of a vat registered person or entity while input tax is the value
added tax on trade and business related purchases of the taxpayer.
(D). Rates of VAT:

(1). 12% of the gross sales (sale of goods)/ gross receipts ( sale of service)/ amount fixed by the Bureau of
Customs to include excise and % taxes (for importation);
(2). Zero Rate; and
(3). Exempt Transactions.

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 67 of 77

(E). Distinctions between 0% and exempt transactions:

(1). 0% rated transactions are not subject to VAT at all stages while exempt transactions are not subject to
VAT only at a particular stage;
(2). In 0% rated transactions, the input tax attributable to the said transaction is allowed to be credited
against the output tax while in exempt transactions, the input tax is not allowed to be credited against the
output tax.

PART V: TAX REMEDIES
A. NIRC
TAX RETURN - a subscribed and sworn statement filed by the taxpayer containing relevant and material information.
All taxes under the NIRC are in the nature of self-assessed taxes
Information required in a tax return: (examples)
Name, address and TIN of taxpayer
For INCOME TAX: source of income and deductions allowed
For ESTATE TAX: list of properties in the estate and the deductions allowed

If the taxpayer falsifies or forges an entry or files a return fraudulently or in bad faith, he will be criminally liable for
PERJURY or FALSIFICATION as the circumstances may apply PLUS DEFICIENCY TAXES.
In case of individuals engaged in trade or business, audited financial statements by a CPA are necessary to support
the return
There is no return filed for final withholding tax
In case of CGT, a return is filed 30 days after each transaction

Kinds of filing of return:
1. filing in good faith
2. filing in bad faith (fraudulent filing)
3. non-filing

SUBSTITUTED FILING applies to a compensation income earner who:
1. is employed only by one employer
2. there is no other form of income but compensation
3. not received any investigation prior to said substituted filing

There are only 2 parties in tax remedies: the TAXPAYER and BIR
A return may be amended within 3 years from the date of filing of the original return provided that no notice
of investigation has ACTUALLY been received by the taxpayer;
Sec. 5 to 15 NIRC provide for powers of BIR to determine whether or not the entries in the return are true and
correct. When BIR exercises any or all the powers in Sec. 5-15 NIRC and has negative findings, an investigation
will be conducted. A Letter of Authority shall first be issued, then by a preliminary assessment notice, and
eventually a Final Assessment Notice will be issued.
Preliminary Assessment Notice - is a form of informal conference with the taxpayer and allows the BIR to
open his books of account. The taxpayers refusal to open books of account will cause the BIR to issue a jeopardy
assessment.
Final Assessment Notice is later issued
No Preliminary Assessment Notice is required (Sec. 228, NIRC):
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 68 of 77

1. 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
2. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
3. 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
4. When the excise tax due on excisable articles has not been paid; or
5. When an article locally purchased or imported by an exempt person, such as, not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

FINAL ASSESSMENT NOTICE assessment for deficiency tax
Prescriptive Periods:
DATE OF FILING

PRESCRIPTIVE PERIOD
1. Filed on due date 3 years from due date
2. Filed before due date 3 years from due date
3. Fled beyond due date 3 years from actual filing
4. Fraudulent filing 10 years from discovery of bad
faith/fraud
5. Non-filing 10 years from discovery of non-filing
6. Depending upon the agreement of the parties provided that the agreement to
extend is executed prior to expiration of the original period of assessment;

Due Dates for filing of Return:
Income Tax
Individuals: April 15
th
of the following year
Corporate taxpayer: 3 quarterly returns on a cumulative basis - 60 days from the end of the
quarter
1 final consolidated return filed on:
- Calendar year: April 15
th

- Fiscal year: 15
th
day of the 4
th
month following close of fiscal year
Estate Tax - 180 days from death
Donors Tax - 30 days from the donation reckoned from the date of document
VAT 3 quarterly returns plus 1 final consolidated return but with monthly remittances on or before the 10
th
day
of the month covering the transactions for the previous month.
GROUNDS FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF ASSESSMENT

1. Taxpayer requests for reinvestigation which is granted by the Commissioner
2. Taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed
or collected
3. When the warrant of distraint or levy is duly served upon the taxpayer and no property could be located
4. When the taxpayer is out of the Philippines
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 69 of 77


The date of issuance AND receipt of notice of assessment is important in determining prescriptive
period.
Non-filing v. Late Filing
If the filing of return is beyond the taxable year, it is equivalent to non-filing
If the filing is made within the taxable year but beyond the due date, it is late filing
FINAL ASSESSMENT NOTICE:
The taxpayer must file an administrative protest within 30 days from receipt of final assessment (non-
extendible)
It need not be in the form of a pleading and may be a letter for reinvestigation, re-computation or
motion for reconsideration
If the taxpayer files beyond the 30-day period, it is automatically denied
If the last day of filing falls on a Saturday, the next business day shall be considered as the last day
2 KINDS OF PROTEST
1. Complete the protest includes all necessary documents
2. Incomplete the documents may be completed within a period of time as maybe required by the BIR which
period shall not exceed 60 days;

The protest may result to:
GRANT ends the process
DENIAL the decision may be appealed to
PARTIAL GRANT/DENIAL CTA division 30 days from receipt of the same
NON-ACTION WITHIN 180 DAYS FROM FILING
Appeal may be taken at any time from the 181
st
to the 210
th
day (30 days from lapse of 180-day
period)
In case of an incomplete protest, the 180-day period will start to run on the day the required documents are
completed (actual receipt of documents by the BIR)
If the taxpayer refuses to submit the documents, the 180-day period will not run
If submission of complete documents is made beyond the given period, the 180-day rule will still apply
provided that the BIR recognizes the late submission

If BIR issues a decision granting/denying the protest after the 180-day period and there is already an appeal pending
in the CTA division, the appeal shall continue and the taxpayer shall manifest before the CTA that BIR has issued a
decision. Is there a need to file another appeal on the decision of the BIR? There is no need for filing of a new appeal
as one is already pending before the CTA.
If the BIR decision is in favor of the taxpayer, the taxpayer can withdraw his appeal or inform CTA of BIR decision if
protest is denied.
INSTANCES WHEN DIRECT APPEAL TO CTA EN BANC IS ALLOWED
1. Decisions of RTC on tax collection cases rendered in exercise of its appellate jurisdiction;
2. Decisions of the Central Board of Assessment Appeals in local taxation cases
CTA DIVISION may GRANT ends the process
DENY
PARTLY GRANT/DENY appeal to the CTA en banc
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 70 of 77


What is the period to appeal to the CTA en banc? RA 9282 does not provide a period so we follow the Rules of
Court (15 days from receipt of decision). In the meantime, the prejudiced party may file a motion for
reconsideration or motion for new trial within 15 days from receipt of the unfavorable decision rendered by the Court
of Appeals Division.
Is the BIR allowed to appeal to the CTA?
The BIR may not appeal its own decision to CTA division but it may appeal the decision of CTA
Division to CTA en banc. Either party or both parties may file the appeal to CTA En Banc.
What is the effect if the BIR issues a second assessment pending a protest regarding the first
assessment?
If the second assessment is substantially the same as the first, there is no need to file another
protest
If the two assessments are substantially different, another protest is necessary otherwise, the second
assessment will become FINAL & EXECUTORY

PRESCRIPTIVE PERIOD FOR COLLECTION OF TAXES:




ASSESSMENT (A)

COLLECTION (C)
Return is filed on or
before due date
3 years from due date 5 years from receipt of A
Return is filed after
due date
3 years from actual filing 5 years from receipt of A
Fraudulent filing of
return
10 years from discovery of
fraud/bad faith
5 years from receipt of A
Non-filing 10 years from discovery of
non-filing
5 years from receipt of A
No assessment is issued by the BIR
The BIR may opt not to issue assessment when:
1. return is filed fraudulently; or
2. no return is filed
10 years from discovery of
filing of fraudulent return
or non-filing

JURISDICTION IN COLLECTION SUIT (apply BP 129 and RA 9282)
MTC and other
lower courts
RTC CTA
Within Metro
Manila
P 0.00 to P 400,
000
More than P
400,000 to
below P 1 M
P 1M & above
Outside Metro
Manila
P 0.00 to P 300,
000
More than P 300,
000 to below P 1
M
P 1M & above

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 71 of 77

Did RA 9282 (CTA Law) amend the Totality Rule under the Rules of Court by giving CTA exclusive
original jurisdiction of collection suits involving the amount of at least P 1M exclusive of penalties,
surcharges and interests?
No. If the case is with the MTC, RTC and other regular courts, we follow the Totality Rule. If the case is
originally filed with CTA, we exclude penalties, surcharges and interests.
TOTALITY RULE: Where the claims in all the causes of action are principally for recovery of money, the aggregate
amount claimed shall be the test of jurisdiction. (Rule 2 Sec. 5[d], Rules of Court)
What if the BIR files a collection suit with the court and the taxpayer is still preparing his protest to
the assessment?
Solution: File the protest and answer the complaint.
If the answer is not filed, taxpayer may be declared in default and BIR will present evidence ex-parte
which may consequently lead to rendition of judgment in favor of BIR and against the taxpayer which
is prejudicial to any possible appeal to the CTA that the taxpayer may avail of in relation to the
protest.
If answer is filed and without filing a protest, then the assessment becomes final and executory
which may be used by the BIR against the taxpayer in the civil action for collection pending before the
regular court.
If there is a pending protest and BIR filed an action for collection, filing of the action will be equivalent to a
denial of the protest, and the taxpayer may appeal to CTA division on the basis of the summons and copy of
the complaint filed served by the regular court to the taxpayer.

JURISDICTION IN CRIMINAL SUITS
A criminal case consists of either:
1. A criminal offense with deficiency tax; or
2. A criminal offense only;

If the criminal action results to civil case, we follow the rules on jurisdiction on civil action for collection ; If the
criminal case consists of a criminal offense only, criminal procedure will apply and jurisdiction will be determined
by the penalty. In criminal offenses with deficiency of tax, both the criminal and civil cases are filed
simultaneously. Exoneration however from criminal offense does not exonerate taxpayer from civil liability to pay
the tax.
PART VI: TARIFF AND CUSTOMS CODE
(in relation to CTA JURISDICTION)

(1). Agencies involved:
Department of Trade and Industry (DTI) - dumping duties for non-agricultural products
Department of Agriculture (DA) - dumping duties for agricultural products
Department of Finance (DOF) -automatic review of decisions of Commissioner of Customs
Bureau of Customs (BOC)
(2). Procedure in Protest Cases:
Examiner issues an Assessment (import/export)

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 72 of 77


Commissioner of Customs


Rule against taxpayer Rule for taxpayer


Appeal to CTA division Automatic review by DOF
within 30 days from receipt
of decision denying protest
Reverse BOC decision Uphold BOC
(end of process)

If the BOC files a collection suit for deficiency, see jurisdiction of regular courts and the CTA on the amount. In case of
criminal offenses, we follow the same rules provided above under NIRC.

(3). Applicable laws:
(a). Tariff and Customs Code as implemented by the Bureau of Customs
(b). All other laws implemented by the BOC
(4). Territorial jurisdiction of the Bureau of Customs
(a). all seas within the jurisdiction of the Philippines following the archipelagic doctrine
(b). all coasts, ports, airports, harbors, bays, rivers and inland waters whether navigable or not from the sea;

(5). Transactions covered:
(a). importation of goods
(b). exportation of goods
. transportation of passengers and cargoes into or out of, or within the Philippines

(6). Classification of articles under the TCC
(a). subject to duty
(b). prohibited articles
. conditionally free from tariff and duties ( Section 105, TCC; governmental agencies and international
institutions; granted by President upon NEDAs recommendation)
(d). absolutely free from tariff and duties

(7). Kinds of Customs duties:
(a). regular: ad valorem
specific duty
alternating duty
compound duty

(b). special: dumping
countervailing
marking
discriminatory
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 73 of 77


(8). Flexible Tariff Clause under the constitution
Section 28, Article 6, 1987 Constitution subject to limitations under the law;
(9). Remedies under the TCC
BOC: Administrative: Tax lien
Fines and forfeitures
Reduction of customs duties
Compromise
Judicial: Civil Action
Criminal Action

TAXPAYER:

Administrative: Protest on published value
Protest on assessment (payment under protest)
Refund
Payment of fine or redemption after seizure
Appeal to BOC Commissioner from the BOC Examiner

Judicial: Appeal to CTA
Action to question the legality of seizure
Abandonment
Note: failure to file import entry within 30 days from discharge

(10). Procedure in protest cases:

(a). Arrival of goods
(b). Examiner/Collector issues assessment and collects the tariff and duties
. Within 15 days pay under protest ands file protest before the Collector/Examiner
(d). Hearing within 15 days from receipt of protest;
(e). Collector either grants or denies the protest;

Possible procedures:

If granted favorable to the importer, review by the Commissioner within 30 days from decision by the
Collector;
If Commissioner upholds the decision of the Collector ( favorable to taxpayer), automatic review by the Dept
of Finance;
If Commissioner reverses the decision of the Collector ( not favorable to the importer), importer may appeal to
the CTA Division within 30 days from receipt of such decision, then file MR. to CTA Division, then appeal to CTA en
banc, then petition for review to the SC within 15 days from receipt of the decision of the CTA En Banc;
If Collector denies the protest, (favorable to the government), importer appeals to the CTA Division within 30
days from receipt of such decision, then file MR. to CTA Division, then appeal to CTA en banc, then petition for review
to the SC within 15 days from receipt of the decision of the CTA En Banc;

(11). Procedure in Seizure and Forfeiture

- available in case of smuggling which may refer to the following: Prohibited articles; Wrong entry of port;
Export of goods contrary to law; Contraband

Notes: (a). Common carriers are generally not subject to seizure and forfeiture

(b). In the absence of prima facie evidence, if the owner has no knowledge of or did not participate in the
unlawful act, the vessel shall not be subjected to seizure and forfeiture;

. Examples of evidence of knowledge:

Use of the vehicle twice for the transaction;
Owner is not in the business for which the conveyance is generally used
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 74 of 77

Owner is not in a position to use such conveyance

(12). Doctrine of Hot Pursuit
If the act committed in violation of the TCC is done within Philippine waters, seizure and forfeiture may be
pursued or continued beyond the territorial jurisdiction or the maritime zone and on the high seas

(14). The regular courts have no jurisdiction over seizure and forfeiture cases except that writs of injunction,
mandamus, or prohibition.
_______________________________________________

PART VII: LOCAL TAXATION

(1). Nature of Local Taxing Power

- exercised by the Sanggunian
- inherent in the LGU
- exercised only if delegated by law or Constitution
- subject to limitations provided for by law;
- power includes to prescribe penalties or fines for violations of tax ordinance;
- power to adjust local tax rates shall not be oftener than once every five years and in no case to exceed
10% of the rates fixed by the LGC;
- grant of exemptions thru ordinances shall nor include regulatory fees:
- instance when exemption maybe granted: natural calamities
- exemptions should apply to all others similarly situated;
- effectivity of exemptions shall be during the next calendar year for a period not exceeding 12 months;
- incentives maybe granted on new investments in the LGU; should be for a definite period of time of not
more than one (1) year thru an ordinance passed prior to first day of January of the following year and shall
be applicable to all similarly situated;
- power to tax by LGU is subject to constitutional and inherent limitations;

(2). Ordinance

- must satisfy the requirements of procedural and substantive due process;
- public hearing is required with quorum, voting, and approval and/or veto requirements complied with;
- publication of the ordinance within ten (10) days from approval; publication in full for three (3) consecutive
days in a newspaper of general circulation and/or posting in at least two (2) conspicuous and publicly
accessible places;

(3). Important principles in local taxation

(a). Residual Taxing Power

Power to levy taxes, fees, or charges on any base or subject not specifically enumerated under the LGC and not taxed
under the NIRC or any other tax laws

(b). Rule of pre-emption

If the national government elects a particular area as subject to tax, it impliedly withholds from the local government
unit the delegated power to tax the same fields or area

(4). Situs of local taxation

The same rule as in national taxation shall be applied to situs of local taxes

(5). Taxes covered by the LGC of 1991

(a). Community Tax
(b). Ordinary/Regular Local Taxes
. Real Estate Tax

(6). Community tax
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 75 of 77


(a). Individuals
18 years of age;
regularly employed on a wage or salary basis for at least thirty (30) days;
engaged in trade or business;
owns real property with an aggregate assessed value of P1,000.00 or more;
required by law to file ITR;

Rate: P 5.00 plus P1.00 for every P1,000.00 above P5,0000.00

(b). Corporations

P500.00 not to exceed P10,000.00
For every P5,000.00 worth of real property P2.00
For every P5,000.00 worth of gross receipts or earnings P 2.00

. Place of payment: residence or principal place of business
(d). Time of payment: first day of January and not later than last day of February;
(e). Penalty : 24% per annum

(7). Other Local/Regular Taxes

-Imposed on a calendar year basis but paid on a quarterly basis;
- Accrues on the first day of January, however, new taxes accrue on the first day of the quarter next
following the effectivity of the ordinance;
- Payable on the first twenty (20) days of January or of each quarter extendible for six (6) months

(8). Taxes imposed by specific LGU:

Provinces: Tax on transfer of real property;
Tax on Business of printing and publication;
Franchise tax;
Tax on sand, gravel and other quarry resources from public lands;
Professional tax;
Amusement tax;
Annual fixed tax on delivery truck or van of manufacturers, producers, retailers,
wholesalers in certain products:

Municipalities: Taxes on manufacturers, assemblers, repackers, etc. of any article of whatever kind;

Wholesalers, distributors, dealers in any article of commerce;
Exporters and on manufacturers, millers, producers, wholesalers, distributors, dealers of
essential commodities;

Retailers,
Contractors;
Banks and other financial institutions;
Peddlers engaged in the sale of any merchandise or article of commerce;
Tax on any business, not otherwise specified above;
Tax on business/occupation except professional fees;
Business taxes;

Cities: Taxes which the province or municipality may impose

Barangays: Tax on stores/retailers with fixed business establishments with gross sales or receipts for the
previous year of P 50,000 or less for barangays in cities and P 30,000 or less for barangays in
municipalities;

Reasonable fees and charges on commercial breeding of fighting cocks, cockfights and
cockpits, on places of recreation with charge admission fees, and on billboards, signboards,
neon signs and outdoor advertisements.

JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 76 of 77

Common Fees/Charges for LGUs:

Reasonable fees and charges for services rendered;
Public utility charges for operation of public utilities owned, operated and maintained by LGUs within its jurisdiction;
Toll fees for use of any public road, pier, wharf,, waterway, bridge, ferry or telecommunication system
funded/constructed by LGU except officers and enlisted men of the AFP/PNP, post office personnel delivering mail, and
physically handicapped and disabled citizens who are 65 years old.

9). Remedies of the LGU in ordinary local taxes

Lien ( administrative)
Distraint or levy (administrative)
Collection Suit ( judicial in character)
These remedies maybe concurrently or simultaneously availed of by the LGU

(10). Prescriptive Period for Assessment and Collection of ordinary local taxes

Assessment Collection

5 yrs from due date 5 years from date of A
10 years from discovery of
fraud or intent to evade 5 years from date of A payment

(11). Remedies of Taxpayer in ordinary local taxes

Before Assessment: (1). In ordinary local taxes, appeal to Secretary of Justice within thirty (30) days from
effectivity of ordinance; (2). Declaratory Relief

After Assessment: (1). In ordinary local taxes, protest to local treasurer within sixty (60) days from Assessment
after which taxpayer has the right to appeal to competent court of proper jurisdiction; (2). Rt. of Redemption

Judicial remedies: (1). In ordinary local taxes, 30 days after receipt of decision of the Sec of Justice or lapse of 60
days from filing of appeal to DOJ, petition for review to the CTA; (2). declaratory relief; (3). injunction

Real Estate Tax (Real Property Tax)

(1). Nature:

-Article 415 of the Civil Code applies to include improvements;
-Direct tax on the ownership
-Ad valorem tax;
-Proportionate;
-Indivisible;
-Local tax;
-Idle lands maybe exempt from RET due to valid causes such as force majeure, civil disturbance, natural
calamity, or any other reason which prevents the owner from utilizing the property
-Exemption from RET shall be based on the actual use not the ownership;
-Unpaid RET attaches to the land and not the owner, thus, the remedy of lien available to the government

(2). Rates of real estate tax:

Province: not exceeding 1% of assessed value
City: not exceeding 2% of assessed value
Municipality: not exceeding 2% of assessed value

(3). Kinds of Real Estate Tax:

ad valorem tax: based on a fixed proportion of the value of the property;
special levies: *special education fund (SPF)
*1% to finance SPF
*Additional ad valorem on idle lands not exceeding 5% of assessed value of land
JURISTS BAR REVIEW CENTER

2014 Updates in Taxation by Atty. Rizalina V. Lumbera for Jurists Bar Review Center
Page 77 of 77

*For public works
*Lands benefited by public works
Imposed by other laws: Socialized housing tax

(4). EXEMPTIONS FROM REAL ESTATE TAX

(a). owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted for consideration to a taxable person;

(b). charitable institutions, churches, parsonages, convents, mosques, or religious cemeteries and all L, B, and
I, ADE for religious, charitable, and educational purposes;

. Machineries and equipment ADE by local water utilities and GOCCs engaged in supply/distribution of water
and/or generation of electric power;

(d). real properties owned by cooperatives;

(e). machinery and equipment used for pollution control and environment protection.

(5). Procedure

-Declaration of the real property for both land and building or improvement;
-Listing of real property in the Assessment Roll;
-Appraisal and valuation of real property for FMV;
-Determination of the Assessed Value;

(6). Assessment/Due date: 1
st
day of January of every year

(7). Collection: *Five (5) years from due date;
*Ten (10) years from discovery of fraud or intent to evade payment;

(8). Remedies of the Government
Lien
Distraint and levy
Civil case for collection

(9). Remedies of the Taxpayer

(a). Protest within 30 days to Treasurer;

(b). If protest is denied, appeal to LBAA within 30 days from receipt of denial of protest then appeal to CBAA
within 60 days from denial of LBAA appeal;

. Appeal to CTA En Banc within 30 days from the receipt of the decision of the CBAA;

(d). Appeal to the Supreme Court from the CTA decision within 15 days

(e). Refund within 2 years from date that taxpayer is entitled to reduction or adjustment; if denied, appeal to
LBAA then to CBAA;



GOOD LUCK and Thank you very much for reading the materials