Law on Taxation

MUST READ CASES (LAW ON TAXATION)

TAX I
Paseo Realty & Development Corporation v. Court of Appeals, GR
No. 119286, October 13, 2004
Taxation is described as a destructive power which interferes with the
personal and property rights of the people and takes from them a portion of
their property for the support of the government.
Commissioner of Internal Revenue v. Fortune Tobacco Corporation,
559 SCRA 160 (2008)
The power to tax is inherent in the State, such power being inherently
legislative, based on the principle that taxes are a grant of the people who
are taxed, and the grant must be made by the immediate representative of
the people, and where the people have laid the power, there it must remain
and be exercised.
Mactan Cebu International Airport Authority v. Marcos, 261 SCRA
667 (1996)
As an incident of sovereignty, the power to tax has been described as
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it.
PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008
It is a settled principle that the power of taxation by the state is plenary.
Comprehensive and supreme, the principal check upon its abuse resting in
the responsibility of the members of the legislature to their constituents.
Commissioner of Internal Revenue v. SM Prime Holdings, Inc., 613
SCRA 774 (2010)
The power to tax is sometimes called the power to destroy. Therefore, it
should be exercised with caution to minimize injury to the proprietary rights
of the taxpayer. It must be exercised fairly, equally and uniformly, lest the
tax collector kills the hen that lays the golden egg.
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC.
vs. SECRETARY OF THE DSWD, G.R. No. 175356 (2013).

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The 20% senior citizen discount and tax deduction scheme are valid
exercises of police power of the State absent a clear showing that it is
arbitrary, oppressive or confiscatory. The discount is intended to improve the
welfare of the senior citizens who, at their age, are less likely to be gainfully
employed, more prone to illnesses and other disabilities, and thus, in need of
subsidy in purchasing commodities. As to its nature an effects, although the
regulation affects the pricing, and, hence, the profitability of a private
establishment, it does not purport to appropriate or burden specific
properties, used in the operation or conduct of the business of private
establishments, for the use or benefit of the public, or senior citizens for that
matter, but merely regulates the pricing of goods and services relative to,
and the amount of profits or income/gross sales that such private
establishments may derive from, senior citizens. The State can employ police
power measures to regulate the pricing of goods and services, and, hence,
the profitability of business establishments in order to pursue legitimate
State objectives for the common good, provided, the regulation does not go
too far as to amount to taking.
SOUTHERN
CROSS
CEMENT
CORPORATION
v.
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES,
158540, August 3, 2005

CEMENT
G.R. No.

The motivation behind many taxation measures is the implementation of

police power goals. Progressive income taxes alleviate the margin between
rich and poor; the so-called sin taxes on alcohol and tobacco
manufacturers help dissuade the consumers from excessive intake of these
potentially harmful products.
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON
S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, G.R. No. 168056,
September 1, 2005
The expenses of government, having for their object the interest of all,
should be borne by everyone, and the more man enjoys the advantages of
society, the more he ought to hold himself honored in contributing to those
expenses.
RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF
FINANCE, G.R. No. 193007, July 19, 2011
A tax is imposed under the taxing power of the government principally for
the purpose of raising revenues to fund public expenditures; toll fees, on the
other hand, are collected by private tollway operators as reimbursement for
the costs and expenses incurred in the construction, maintenance and
operation of the tollways. Taxes may be imposed only by the government

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under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT
MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos.
147036-37 April 10, 2012
The Court was satisfied that the coco-levy funds were raised pursuant to law
to support a proper governmental purpose. They were raised with the use of
the police and taxing powers of the State for the benefit of the coconut
industry and its farmers in general.
GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA 696 (2007
The theory behind the exercise of the power to tax emanates from necessity,
without taxes, government cannot fulfill its mandate of promoting the
general welfare and well being of the people.
COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE
COURT OF TAX APPEALS, G.R. No. L-28896, February 17, 1988
Despite the natural reluctance to surrender part of one's hard earned income
to the taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its part is
expected to respond in the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of exaction by
those in the seat of power.
COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R.
No. 154068 August 3, 2007
As well said in a prior case, revenue laws are not intended to be liberally
construed. Considering that taxes are the lifeblood of the government and in
Holmess memorable metaphor, the price we pay for civilization, tax laws
must be faithfully and strictly implemented.
SWEDISH MATCH PHILIPPINES INC. v. THE TREASURER OF THE CITY
OF MANILA, G.R. No. 181277, July 3, 2013
Double taxation means taxing the same property twice when it should be
taxed only once; that is, taxing the same person twice by the same
jurisdiction for the same thing. There is indeed double taxation if a taxpayer
is subjected to the taxes under both Section 14 (Tax on Manufacturers,
Assemblers and other Processors) and Section 21 (Tax on Business Subject to

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the Excise, Value-Added or Percentage Taxes under the NIRC) of

Ordinance No. 7794.

the Tax

SERAFICA v. CITY TREASURER OF ORMOC, G.R. No. L- 24813, April

28, 1968
Regulation and taxation are two different things, the first being an exercise of
police power, whereas the latter involves the exercise of the power of
taxation. While R.A. 2264 provides that no city may impose taxes on forest
products and although lumber is a forest product, the tax in question is
imposed not on the lumber but upon its sale; thus, there is no double
taxation and even if there was, it is not prohibited.
COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON AND SON,
INC. G.R. No. 127105 June 25, 1999
In negotiating tax treaties, the underlying rationale for reducing the tax rate
is that the Philippines will give up a part of the tax in the expectation that the
tax given up for this particular investment is not taxed by the other country.
Thus, if the rates of tax are lowered by the state of source, in this case, by
the Philippines, there should be a concomitant commitment on the part of
the state of residence to grant some form of tax relief, whether this be in the
form of a tax credit or exemption.
DEUTSCHE BANK AG MANILA BRANCH v. COMMISSIONER
INTERNAL REVENUE, G.R. No. 188550, August 19, 2013

OF

Tax conventions are drafted with a view towards the elimination of

international juridical double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same taxpayer in respect of
the same subject matter and for identical periods. A corporation who has
paid 15% Branch Profit Remittance Tax (BPRT) has the right to avail (by way
of refund ) of the benefit of a preferential tax rate of 10% BPRT in
accordance with the RP-Germany Tax Treaty despite non-compliance with an
application with ITAD at least 15 days before the transaction for the lower
rate. Bearing in mind the rationale of tax treaties, the requirements for the
application for availment of tax treaty relief as required by RMO No. 1-2000
should not operate to divest entitlement to the relief as it would constitute a
violation of the duty required by good faith in complying with a tax treaty.
CBK Power Company Limited vs. Commissioner of Internal
Revenue/Commissioner of Internal Revenue vs. CBK Power Company
Limited, G.R. No. 193383-84/G.R. No. 193407-08 (January 14,
2015).
The Philippine Constitution provides for adherence to the general principles
of international law as part of the law of the land. The time-honored

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international principle of pacta sunt servanda demands the performance in

good faith of treaty obligations on the part of the states that enter into the
agreement. In this jurisdiction, treaties have the force and effect of law. The
obligation to comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has
negative implications on international relations, and unduly discourages
foreign investors. The objective of RMO No. 1-2000 in requiring the
application for treaty relief with the ITAD before a partys availment of the
preferential rate under a tax treaty is to avert the consequences of any
erroneous interpretation and/or application of treaty provisions, such as
claims for refund/credit for overpayment of taxes, or deficiency tax liabilities
for underpayment. However, the underlying principle of prior application with
the BIR becomes moot in refund cases where the very basis of the claim
is erroneous or there is excessive payment arising from the non-availment of
a tax treaty relief at the first instance. CBK Power could not have applied for
a tax treaty relief 15 days prior to its payment of the final withholding tax on
the interest paid to its lenders precisely because it erroneously paid said
tax on the basis of the regular rate as prescribed by the NIRC, and not on the
preferential tax rate provided under the different treaties. The prior
application requirement under RMO No. 1-2000 is not only illogical, but is
also an imposition that is not found at all in the applicable tax treaties. BIR
should not impose additional requirements that would negate the availment
of the reliefs provided for under international agreements, especially since
said tax treaties do not provide for any prerequisite at all for the availment of
the benefits under said agreements.
COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL
PETROLEUM CORPORATION, G.R. No. 188497, February 19, 2014
Section 135(a) should be construed as prohibiting the shifting of the burden
of the excise tax to the international carriers who buy petroleum products
from the local manufacturers. Said international carriers are thus allowed to
purchase the petroleum products without the excise tax component which
otherwise would have been added to the cost or price fixed by the local
manufacturers or distributors/sellers.
COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO
P. TODA, JR. G.R. No. 147188 September 14, 2004
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due; (2)
an accompanying state of mind which is described as being "evil," in "bad
faith," "willfull," or "deliberate and not accidental"; and (3) a course of action
or failure of action which is unlawful.

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(FELS ENERGY, INC. v. PROVINCE OF BATANGAS, 516 SCRA 186

(2007))
Taxation is the rule and exemption is the exception.
BATANGAS POWER CORPORATION BATANGAS CITY and NATIONAL
POWER CORPORATION, G.R. No. 152675, April 28, 2004
This Court recognized the removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most significant provisions
of the 1991 LGC. Specifically, we stressed that Section 193 of the LGC, an
express and general repeal of all statutes granting exemptions from local
taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC
under its Charter.
ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October
30, 1995
Since the law granted the press a privilege, the law could take back the
privilege anytime without offense to the Constitution. The reason is simple:
by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative; indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which other businesses have
long ago been subject.
MCIAA v. Marcos, G.R. No. 120082 September 11, 1996
Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
SOUTH AFRICAN AIRWAYS v. COMMISSIONER OF INTERNAL REVENUE,
612 SCRA 665 (2010)
Taxes cannot be subject to compensation for the simple reason that the
Government and the taxpayers are not creditors and debtors of each other,
debts are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity.
DOMINGO v. GARLITOS, 8 SCRA 443 (1963)

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However, if the obligation to pay taxes and the taxpayers claim against the
government are both overdue, demandable, as well as fully liquidated,
compensation takes place by operation of law and both obligations are
extinguished to their concurrent amounts.
ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF
INTERNAL REVENUE G.R. No. 179115 September 26, 2012
A tax amnesty, much like a tax exemption, is never favored or presumed in
law. The grant of a tax amnesty, similar to a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority.
FORT BONIFACIO DEVELOPMENT CORPORATION v. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 173425, September 4, 2012
While administrative agencies, such as the Bureau of Internal Revenue, may
issue regulations to implement statutes, they are without authority to limit
the scope of the statute to less than what it provides, or extend or expand
the statute beyond its terms, or in any way modify explicit provisions of the
law. Hence, in case of discrepancy between the basic law and an
interpretative or administrative ruling, the basic law prevails.
COMMISSIONER OF INTERNAL REVENUE v. SM PRIME HOLDINGS, INC.
613 SCRA 774 (2010)
Revenue Memorandum Circulars (RMCs) must not override, supplant, or
modify the law, but must remain consistent and in harmony with the law
they seek to apply and implement.
TEAM
ENERGY
CORPORATION
(Formerly
MIRANT
PAGBILAO
CORPORATION) v. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
197760, January 13, 2014
BIR Ruling No. DA-489-03 is a general interpretative rule because it is a
response to a query made, not by a particular taxpayer, but by a
government agency tasked with processing tax refunds and credits. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance
on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional.
PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No.
166006, March 14, 2008)
It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. When a tax law is only a mask to exact

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funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of
"public purpose."
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON
S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY G.R. No. 168056 September 1, 2005
The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power,
which can never be delegated, has been described as the authority to make
a complete law complete as to the time when it shall take effect and as to
whom it shall be applicable and to determine the expediency of its
enactment.
NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No.
149110 April 9, 2003
Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution.
QUEZON CITY, et al. v. ABS-CBN BROADCASTING CORPORATION, G.R.
No. 162015, March 6, 2006
Clearly then, while a new slant on the subject of local taxation now prevails
in the sense that the former doctrine of local government units delegated
power to tax had been effectively modified with Article X, Section 5 of the
1987 Constitution now in place, the basic doctrine on local taxation remains
essentially the same. For as the Court stressed in Mactan, "the power to tax
is [still] primarily vested in the Congress."
SOUTHERN CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005
Assuming that Section 28(2) Article VI did not exist, the enactment of the
SMA [Safeguard Measure Act] by Congress would be voided on the ground
that it would constitute an undue delegation of the legislative power to tax.
The constitutional provision shields such delegation from constitutional
infirmity, and should be recognized as an exceptional grant of legislative
power to the President, rather than the affirmation of an inherent executive
power.

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Alexander Howden & Co., Ltd. v. Collector of Internal Revenue as

cited in COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIERNICKEL, G.R. No. 153793, August 29, 2006
The reinsurance premiums remitted to appellants by virtue of the
reinsurance contracts, accordingly, had for their source the undertaking to
indemnify Commonwealth Insurance Co. against liability. Said undertaking is
the activity that produced the reinsurance premiums, and the same took
place in the Philippines.
COMMISSIONER OF INTERNAL REVENUE v. JAPAN AIR LINES, INC.,
G.R.
No.
60714,
March
6,
1991
For the source of income to be considered as coming from the Philippines, it
is sufficient that the income is derived from activities within this country
regardless of the absence of flight operations within Philippine territory.
Indeed, the sale of tickets is the very lifeblood of the airline business, the
generation of sales being the paramount objective.
CITY OF IRIGA v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC.,
G.R. No. 192945, September 5, 2012
Since it partakes of the nature of an excise tax, the situs of taxation is the
place where the privilege is exercised, in this case in the City of Iriga, where
CASURECO III has its principal office and from where it operates, regardless
of the place where its services or products are delivered.
COMMISSIONER OF INTERNAL REVENUE v.AMERICAN EXPRESS
INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June
29, 2005
As a general rule, the VAT system uses the destination principle as a basis for
the jurisdictional reach of the tax. Goods and services are taxed only in the
country where they are consumed; thus, exports are zero-rated, while
imports are taxed.
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY (PFDA) v.
CENTRAL BOARD OF ASSESSMENT APPEALS, G.R. No. 178030,
December 15, 2010
As property of public dominion, the Lucena Fishing Port Complex is owned by
the Republic of the Philippines and thus exempt from real estate tax.
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS,
INC. v. HON. BIENVENIDO TAN, G.R. No. 81311, June 30, 1988

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Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes
of taxation; inequalities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation.
LUNG CENTER OF THE PHILIPPINES v. QUEZON CITY, G.R. No. 144104,
June 29, 2004
Even as we find that the petitioner is a charitable institution, we hold that
those portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes. On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.
COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012
Section 30(E) and (G) of the NIRC requires that an institution be "operated
exclusively" for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not
lose its tax exemption if it earns income from its for-profit activities. Such
income from for-profit activities, under the last paragraph of Section 30, is
merely subject to income tax, previously at the ordinary corporate rate but
now at the preferential 10% rate pursuant to Section 27(B).
JOHN HAY PEOPLES ALTERNATIVE COALITION, et al. v. VICTOR LIM, et
al., G. R. No. 119775, October 24, 2003
The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ,
hence, the extension of the same to the John Hay SEZ finds no support
therein. The challenged grant of tax exemption would circumvent the
Constitution's imposition that a law granting any tax exemption must have
the concurrence of a majority of all the members of Congress.
COMMISSIONER OF INTERNAL REVENUE v. MARUBENI CORPORATION,
G.R. No. 137377, December 18, 2001
A contractor's tax is generally in the nature of an excise tax on the exercise
of a privilege of selling services or labor rather than a sale on products; and
is directly collectible from the person exercising the privilege. Being an
excise tax, it can be levied by the taxing authority only when the acts,
privileges or business are done or performed within the jurisdiction of said
authority.

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CITY OF IRIGA v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC.,

G.R. No. 192945, September 5, 2012
A franchise tax is a tax on the privilege of transacting business in the state
and exercising corporate franchises granted by the state. It is not levied on
the corporation simply for existing as a corporation, upon its property or its
income, but on its exercise of the rights or privileges granted to it by the
government.
ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF
INTERNAL REVENUE G.R. No. 179115 September 26, 2012
Indirect taxes, like VAT and excise tax, are different from withholding taxes:
To distinguish, in indirect taxes, the incidence of taxation falls on one person
but the burden thereof can be shifted or passed on to another person, such
as when the tax is imposed upon goods before reaching the consumer who
ultimately pays for it. On the other hand, in case of withholding taxes, the
incidence and burden of taxation fall on the same entity, the statutory
taxpayer. The burden of taxation is not shifted to the withholding agent who
merely collects, by withholding, the tax due from income payments to
entities arising from certain transactions and remits the same to the
government.
ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October
30, 1995
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive since what it simply provides is that
Congress shall "evolve a progressive system of taxation." The constitutional
provision has been interpreted to mean simply that "direct taxes are to be
preferred [and] as much as possible, indirect taxes should be minimized."
CHINA BANKING CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 175108 (2013).
The 20% final tax withheld on a banks passive income should be included in
the computation of the Gross Receipts Tax (GRT). Bureau of Internal Revenue
(BIR) has consistently ruled that the term gross receipts do not admit of any
deduction. It emphasized that interest earned by banks, even if subject to
the final tax and excluded from taxable gross income, forms part of its gross
receipt for GRT purposes. The interest earned refers to the gross interest
without deduction, since the regulations do not provide for any deduction.
Absent a statutory definition of the term, the BIR had consistently applied it
in its ordinary meaning, i.e., without deduction.
TAN v. DEL ROSARIO, JR. 237 SCRA 324
Global treatment is a system where the tax treatment views indifferently the
tax base and generally treats in common all categories of taxable income of

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the taxpayer. Schedular approach is a system employed where the income

tax treatment varies and made to depend on the kind or category of taxable
income of the taxpayer.
CIR vs Isabela Cultural Corp., GR 172231, February 12, 2007
The accrual method relies upon the taxpayers right to receive amounts or its
obligation to pay them, in opposition to actual receipt or payment, which
characterizes the cash method of accounting. Amounts of income accrue
where the right to receive them become fixed, where there is created an
enforceable liability. Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to indeterminacy merely of time of
payment. For a taxpayer using the accrual method, the determinative
question is, when do the facts present themselves in such a manner that the
taxpayer must recognize income or expense? The accrual of income and
expense is permitted when the all-events test has been met. This test
requires: (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or
liability.
Tomas Calasanz, et al. vs. Commissioner of Internal Revenue, et al.,
G.R. No. L-26284, October 9, 1986
The proceeds from the inherited land of petitioners, which they subdivided
into small lots and in the process converted into a residential subdivision and
given the name Don Mariano Subdivision, is taxable as ordinary income.
Property initially classified as a capital asset may thereafter be treated as an
ordinary asset if a combination of the factors indubitably tend to show that
the activity was in furtherance of or in the course of the taxpayer's trade or
business; thus, a sale of inherited real property usually gives capital gain or
loss even though the property has to be subdivided or improved or both to
make it salable--however, if the inherited property is substantially improved
or very actively sold or both it may be treated as held primarily for sale to
customers in the ordinary course of the heir's business.
CIR vs CA, G.R. No. 108576 January 20, 1999
Stock dividends, strictly speaking, represent capital and do not constitute
income to its recipient. So that the mere issuance thereof is not yet subject
to income tax as they are nothing but an enrichment through increase in
value of capital investment. However, the redemption or cancellation of
stock dividends, depending on the time and manner it was made, is
essentially equivalent to a distribution of taxable dividends, making the
proceeds thereof taxable income to the extent it represents profits. The
exception was designed to prevent the issuance and cancellation or
redemption of stock dividends, which is fundamentally not taxable, from

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being made use of as a device for the actual distribution of cash dividends,
which is taxable.
Ma. Isabel T. Santos vs. Servier Phil., Inc., et al., G.R. No. 166377,
November 28, 2008
Respondent terminated petitioners services due to her illness, rendering her
incapable of continuing to work, and gave her retirement benefits but
withheld the tax due thereon. The retirements benefits are taxable because
the petitioner was only 41 yrs old at the time of retirement and had rendered
only 8 years of service; for these benefits to be exempt from tax, the
following requisites must concur: (1) a reasonable private benefit plan is
maintained by the employer; (2) the retiring official or employee has been in
the service of the same employer for at least ten (10) years; (3) the retiring
official or employee is not less than fifty (50) years of age at the time of his
retirement; and (4) the benefit had been availed of only once.
C. M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, G.R.
No. L-24059, November 28, 1969
Payment by the taxpayer-corporation to its controlling stockholder (Hoskins)
of 50% of its supervision fees (paid by a client of the corporation for the
latter's services as managing agent of a subdivision project) or the amount of
P99,977.91 is not a deductible ordinary and necessary expense because it
does not pass the test of reasonable compensation. If independently, a onetime P100,000.00-fee to plan and lay down the rules for supervision of a
subdivision project were to be paid to an experienced realtor such as
Hoskins, its fairness and deductibility by the taxpayer could be conceded;
however, the fee paid to Hoskins continued every year since 1955 up to
1963 and for as long as its contract with the subdivision owner subsisted,
regardless of whether services were actually rendered by Hoskins.
Philippine Refining Company vs. Court of Appeals, et al., G.R. No.
118794, May 8, 1996
In claiming deductions for bad debts, the only evidentiary support given by
PRC was the explanation posited by its accountant, whose allegations were
not supported by any documentary evidence. One of the requisites to qualify
as bad debt is that the debt must be actually ascertained to be worthless
and uncollectible during the taxable year, and the taxpayer must prove that
he exerted diligent efforts to collect the debts by (1) sending of statement of
accounts; (2) sending of collection letters; (3) giving the account to a lawyer
for collection; and (4) filing a collection case in court.
Consolidated Mines, Inc. vs. Court of Tax Appeals, et al., G.R. Nos. L18843 & 18844, August 29, 1974

Law on Taxation

Both depletion and depreciation are predicated on the same basic promise of
avoiding a tax on capital. The allowance for depletion is based on the theory
that the extraction of minerals gradually exhausts the capital investment in
the mineral deposit. The purpose of the depiction deduction is to permit the
owner of a capital interest in mineral in place to make a tax-free recovery of
that depleting capital asset. A depletion is based upon the concept of the
exhaustion of a natural resource whereas depreciation is based upon the
concept of the exhaustion of the property, not otherwise a natural resource,
used in a trade or business or held for the production of income. Thus,
depletion and depreciation are made applicable to different types of assets.
And a taxpayer may not deduct that which the Code allows as of another.
COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE AIRLINES,
INC. (PAL), G.R. No. 179259 (2013).
A corporation like the Philippine Airlines who has a franchise of its own
cannot be subject to the minimum corporate income tax. The reason beingas provided in PD 1590, Section 13 of PAL's franchise, its taxation shall be
strictly governed by two fundamental rules, to wit: (1) respondent shall pay
the Government either the basic corporate income tax or franchise tax,
whichever is lower; and (2) the tax paid by respondent, under either of these
alternatives, shall be in lieu of all other taxes, duties, royalties, registration,
license, and other fees and charges, except only real property tax.
Manila Banking Corp. v. CIR, 499 SCRA 782
The intent of Congress relative to the MCIT is to grant a 4 year suspension of
tax payment to newly formed corporations. Corporations still starting have to
stabilize their venture in order to obtain stronghold in the industry. It is not a
surprise when many corporations reported losses in their initial years of
operations.
Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R.
No. 124043, October 14, 1998
YMCA, a non-stock non-profit corporation with charitable objectives, claimed
exemption from payment of income tax by invoking the NIRC and the
Constitution. While the income received by the organizations enumerated in
Section 26 of the NIRC is, as a rule, exempted from the payment of tax in
respect to income received by them as such, the exemption does not apply
to income derived from any of their properties, real or personal, or from any
of their activities conducted for profit, regardless of the disposition made of
such income; Moreover, charitable institutions under Art. VI, sec. 28 of the
Constitution are only exempted from property taxes, and YMCA is not an
educational institution under Article XIV, Section 4 of the Constitution.

Law on Taxation

Commissioner of Internal Revenue vs. Citytrust Investment Phils.,

Inc., G.R. Nos. 139786 & 140857, September 27, 2006
Citytrust and Asianbank are domestic corporations which paid gross receipts
tax and claimed a refund on the basis of a CTA ruling that the 20% FWT on a
banks passive income does not form part of the taxable gross receipts. The
20% FWT on a banks interest income forms part of the taxable gross
receipts because gross receipts means the entire receipts without any
deduction; moreover, the imposition of the 20% FWT and 5% GRT does not
constitute double taxation because GRT is a percentage tax while FWT is an
income tax, and the two concepts are different from each other.
COMMISSIONER OF INTERNAL REVENUE vs. TEAM (PHILIPPINES)
OPERATIONS CORPORATION, G.R. No. 185728 (2013).
For a taxpayer to be entitled to a tax credit or refund of creditable
withholding tax, the following requisites must be complied with: First, The
claim must be filed with the CIR within the two-year period from the date of
payment of the tax; Second, It must be shown on the return of the recipient
that the income received was declared as part of the gross income; and
Third, The fact of withholding is established by a copy of the statement duly
issued by the payor to the payee showing the amount paid and the amount
of tax withheld.
TAX II
GONZALO VILLANUEVA vs. SPOUSES FROILAN, G.R. No. 172804,
January 24, 2011
Post-mortem dispositions typically
(1) Convey no title or ownership to the transferee before the death of the
transferor; or, what amounts to the same thing, that the transferor should
retain the ownership (full or naked) and control of the property while alive;
(2) That before the [donors] death, the transfer should be revocable by the
transferor at will, ad nutum; but revocability may be provided for indirectly
by means of a reserved power in the donor to dispose of the properties
conveyed;
(3) That the transfer should be void if the transferor should survive the
transferee;
[4] [T]he specification in a deed of the causes whereby the act may be
revoked by the donor indicates that the donation is inter vivos, rather than a
disposition mortis causa;
[5] That the designation of the donation as mortis causa, or a provision in the
deed to the effect that the donation is to take effect at the death of the
donor are not controlling criteria; such statements are to be construed

Law on Taxation

together with the rest of the instrument, in order to give effect to the real
intent of the transferor; and
(6) That in case of doubt, the conveyance should be deemed donation inter
vivos rather than mortis causa, in order to avoid uncertainty as to the
ownership of the property subject of the deed.
ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and
ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990
The conveyance in question is not, first of all, one of mortis causa, which
should be embodied in a will. In this case, the monies subject of savings
account were in the nature of conjugal funds. In the case relied on, Rivera v.
People's Bank and Trust Co., we rejected claims that a survivorship
agreement purports to deliver one party's separate properties in favor of the
other, but simply, their joint holdings.
RAFAEL ARSENIO S. DIZON vs. COURT OF TAX APPEALS, G.R. No.
140944, April 30, 2008
As held in Propstra v. U.S., where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact that
the claimant subsequently settled for lesser amount did not preclude the
estate from deducting the entire amount of the claim for estate tax
purposes. These pronouncements essentially confirm the general principle
that post-death developments are not material in determining the amount of
the deduction.
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 123206, March 22, 2000
Administration expenses, as an allowable deduction from the gross estate of
the decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to
include all expenses "essential to the collection of the assets, payment of
debts or the distribution of the property to the persons entitled to it." In other
words, the expenses must be essential to the proper settlement of the estate
and expenditures incurred for the individual benefit of the heirs, devisees or
legatees are not deductible.
SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT
OF APPEALS, G.R. No. 111904, October 5, 2000
The granting clause shows that Diego donated the properties out of love and
affection for the donee which is a mark of a donation inter vivos; second, the
reservation of lifetime usufruct indicates that the donor intended to transfer
the naked ownership over the properties; third, the donor reserved sufficient
properties for his maintenance in accordance with his standing in society,
indicating that the donor intended to part with the six parcels of land; lastly,
the donee accepted the donation.

Law on Taxation

The Philippine American Life and General Insurance Company vs.

The Secretary of Finance and the Commissioner of Internal Revenue,
G.R. No. 210987 (November 24, 2014).
The absence of donative intent does not exempt the sales of stock
transaction from donors tax since Sec. 100 of the NIRC categorically states
that the amount by which the fair market value of the property exceeded the
value of the consideration shall be deemed a gift. Thus, even if there is no
actual donation, the difference in price is considered a donation by fiction of
law. Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC
but merely sets the parameters for determining the fair market value of a
sale of stocks. Lastly, RMC 25-11, even if issued after the sale, was not
being applied retroactively since it merely called for the strict application of
Sec. 100, which was already in force the moment the NIRC was enacted.
COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC.,
G.R. No. 178697, November 17, 2010
Thus, there must be a sale, barter or exchange of goods or properties before
any VAT may be levied. Certainly, there was no such sale, barter or exchange
in the subsidy given by SIS to Sony; it was but a dole out by SIS and not in
payment for goods or properties sold, bartered or exchanged by Sony.
MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction.
However, it does not follow that an isolated transaction cannot be an
incidental transaction for purposes of VAT liability. Indeed, a reading of
Section 105 of the 1997 Tax Code would show that a transaction "in the
course of trade or business" includes "transactions incidental thereto."
CIR v. SM Prime Holdings, Inc. and First Asia Realty Development
Corp., G.R. No. 183505, February 26, 2010
Among those included in the enumeration is the lease of motion picture
films, films, tapes and discs. This, however, is not the same as the showing
or exhibition of motion pictures or films. The legislative intent is not to
impose VAT on persons already covered by the amusement tax and this
holds true even in the case of cinema/theater operators taxed under the LGC
of 1991 precisely because the VAT law was intended to replace the
percentage tax on certain services.
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION
vs. COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 141104 &
148763, June 8, 2007

Law on Taxation

According to the Destination Principle, goods and services are taxed only in
the country where these are consumed. In connection with the said principle,
the Cross Border Doctrine mandates that no VAT shall be imposed to form
part of the cost of the goods destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT, while those
destined for use or consumption within the Philippines shall be imposed with
10% VAT.
CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21, 2006
While an ecozone is geographically within the Philippines, it is deemed a
separate customs territory and is regulated in laws as foreign soul. Sales by
supplies outside the borders of ecozone to this separate customs territory
are deemed exports and treated as export sales.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs.
THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15,
2011
The rationale for the exemption from indirect taxes provided for in P.D. 1869
and the extension of such exemption to entities or individuals dealing with
PAGCOR in casino operations are best elucidated from the 1987 case of
Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the
absolute tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the exemption
of contractee WHO should be implemented to mean that the entity or person
exempt is the contractor itself who constructed the building owned by
contractee WHO, and such does not violate the rule that tax exemptions are
personal because the manifest intention of the agreement is to exempt the
contractor so that no contractor's tax may be shifted to the contractee WHO.
LUZON HYDRO CORPORATION vs. COMMISSION ON INTERNAL
REVENUE, G.R. No. 188260 (2013).
Even though the sale of electricity by a power generation company is subject
to zero-rated VAT, its claim for refund or tax credit cannot be granted where
no VAT official receipts and VAT returns have been presented to prove that it
actually made zero-rated sales of electricity. An entity claiming for refund or
tax credit carries with it the burden of proving that not only is it entitled
under the substantive law to the allowance of its claim for refund or tax
credit but also that it met all the requirements for evidentiary substantiation
of its claim before the administrative official concerned.
CBK POWER COMPANY LIMITED vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. Nos. 198729-30 (2014).

Law on Taxation

Under Section 112(A) of the NIRC, for VAT-registered persons whose sales are
zero-rated or effectively zero-rated, a claim for the refund or credit of
creditable input tax that is due or paid, and that is attributable to zero-rated
or effectively zero-rated sales, must be filed within two years after the close
of the taxable quarter when such sales were made. The reckoning frame
would always be the end of the quarter when the pertinent sale or
transactions were made, regardless of when the input VAT was paid. Also, in
the filing of judicial claims, the 30-day period to appeal to the CTA is
dependent on the 120-day period, compliance with both periods is
jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.
COMMISSIONER
OF
INTERNAL
REVENUE
vs.
MINDANAO
II
PARTNERSHIP, G.R. No. 191498 (2014).
Section 112(D) speaks of two periods: the period of 120 days, which serves
as a waiting period to give time for the CIR to act on the administrative claim
for refund or credit, and the period of 30 days, which refers to the period for
interposing an appeal with the CTA. The 30-day period applies not only to
instances of actual denial by the CIR of the claim for refund or tax credit, but
to cases of inaction by the CIR as well. Therefore, notwithstanding the timely
filing of administrative claims, the CTA does not have jurisdiction over the
case where the taxpayers judicial claim was filed beyond the 30 day period,
the nature of such time requirement being mandatory.
Commissioner of Internal Revenue vs. Silicon Philippines, Inc.
(formerly Intel Philippines Manufacturing, Inc.), G.R. No. 169778
(March 12, 2014).
Prior to seeking judicial recourse before the CTA, a VATregistered person
may apply for the issuance of a tax credit certificate or refund of creditable
input tax attributable to zerorated or effectively zerorated sales within two
(2) years after the close of taxable quarter when the sales or purchases were
made. Additionally, under paragraph (D) of Section 112, Tax Code, the
Commissioner of Internal Revenue is given a 120day period, from
submission of complete documents in support of the administrative
claim within which to act on claims for refund/applications for issuance of the
tax credit certificate. Upon denial of the claim or application, or upon
expiration of the 120day period, the taxpayer only has 30 days within which
to appeal said adverse decision or unacted claim before the CTA.
Taganito Mining Corporation vs. Commissioner of Internal Revenue,
G.R. No. 197591 (June 18, 2014).
The 2010 Aichi case instructs that once the administrative claim is filed
within the prescriptive period, the claimant must wait for the 120-day period
to end and, thereafter, he is given a 30-day period to file his judicial claim

Law on Taxation

before the CTA, even if said 120-day and 30-day periods would exceed the
aforementioned two (2)-year prescriptive period.
Taganito Mining Corporation vs. Commissioner of Internal Revenue,
G.R. No. 201195 (November 26, 2014).
The 2-year period under Section 229 does not apply to appeals before the
CTA in relation to claims for a refund or tax credit for unutilized creditable
input VAT. Section 229 pertains to the recovery of taxes erroneously, illegally,
or excessively collected. Input VAT is not excessively collected as
understood under Section 229 because, at the time the input VAT is
collected, the amount paid is correct and proper. It is, therefore, Section 112
which applies specifically with regard to claiming a refund or tax credit for
unutilized creditable input VAT.
FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013
Prior payment of taxes is not necessary before a taxpayer could avail of the
8% transitional input tax credit: first, it was never mentioned in Section 105
of the old NIRC [now Sec. 111] that prior payment of taxes is a requirement;
second, since the law (Section 105 of the NIRC) does not provide for prior
payment of taxes, to require it now would be tantamount to judicial
legislation which, to state the obvious, is not allowed; third, a transitional
input tax credit is not a tax refund per se but a tax credit; fourth, if the intent
of the law were to limit the input tax to cases where actual VAT was paid, it
could have simply said that the tax base shall be the actual value-added tax
paid; and fifth, this Court had already declared that prior payment of taxes is
not required in order to avail of a tax credit.
COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY
(PHILIPPINES), G.R. No. 153866, February 11, 2005
Having determined that respondent's purchase transactions are subject to a
zero VAT rate, the tax refund or credit is in order. To repeat, the VAT is a tax
imposed on consumption, not on business. Although respondent as an entity
is exempt, the transactions it enters into are not necessarily so. The VAT
payments made in excess of the zero rate that is imposable may certainly be
refunded or credited.
CIR vs Pascor Realty and Development Corp., GR no. 128315, June
29, 1999
An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time when
penalties and protests begin to accrue against the taxpayer. To enable the
taxpayer to determine his remedies thereon, due process requires that it

Law on Taxation

must be served on and received by the taxpayer. Accordingly, an affidavit,

which was executed by revenue officers stating the tax liabilities of a
taxpayer and attached to a criminal complaint for tax evasion, cannot be
deemed an assessment that can be questioned before the Court of Tax
Appeals.
SMI-ED Philippine Technology, Inc. vs. Commissioner of Internal
Revenue, G.R. No. 175410 (November 12, 2014)
The power and duty to assess national internal revenue taxes are lodged
with
the
BIR.
The Court of Tax Appeals has no power to make an assessment at the first
instance. On matters such as tax collection, tax refund, and others related to
the national internal revenue taxes, the Court of Tax Appeals jurisdiction is
appellate in nature. However, because Republic Act No. 1125 also vests the
Court of Tax Appeals with jurisdiction over the BIRs inaction on a taxpayers
refund claim, there may be instances when the Court of Tax Appeals has to
take cognizance of cases that have nothing to do with the BIRs assessments
or decisions. If the BIR fails to act on the request for refund, the taxpayer
may bring the matter to the Court of Tax Appeals.
Samar-I Electric Cooperative vs. Commissioner of Internal Revenue,
G.R. No. 193100 (December 10, 2014).
Our stand that the law should be interpreted to mean a separation of the
three different situations of false return, fraudulent return with intent to
evade tax, and failure to file a return is strengthened immeasurably by the
last portion of the provision which segregates the situations into three
different classes, namely falsity, fraud and omission. That there is a
difference between false return and fraudulent return cannot be denied.
While the first merely implies deviation from the truth, whether intentional or
not, the second implies intentional or deceitful entry with intent to evade the
taxes due.
CIR vs Hantex Trading Co., GR no. 136975, March 31, 2005
The rule is that in the absence of the accounting records of a taxpayer, his
tax liability may be determined by estimation. The petitioner is not required
to compute such tax liabilities with mathematical exactness. Approximation
in the calculation of the taxes due is justified. To hold otherwise would be
tantamount to holding that skillful concealment is an invincible barrier to
proof. However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. In fine, then, the petitioner acted arbitrarily and
capriciously in relying on and giving weight to the machine copies of the
Consumption Entries in fixing the tax deficiency assessments against the
respondent.

Law on Taxation

PHILIPPINE AIRLINES, INC. vs. COMMISSIONER OF INTERNAL

REVENUE, G.R. No. 198759 (2013).
Section 204(c) of the NIRC provides that it is the statutory taxpayer which
has the legal personality to file a claim for refund. Accordingly, in cases
involving excise tax exemptions on petroleum products under Section 135,
the Court has consistently held that it is the statutory taxpayer who is
entitled to claim a tax refund based thereon and not the party who merely
bears its economic burden. However, the abovementioned rule should not
apply to instances where the law clearly grants the party to which the
economic burden of the tax is shifted an exemption from both direct and
indirect taxes. In which case, the latter must be allowed to claim a tax refund
even if it is not considered as the statutory taxpayer under the law. In this
case, PALs franchise grants it an exemption from both direct and indirect
taxes on its purchase of petroleum products. Hence, PAL has the legal
personality to file the claim for refund for the passed on excise taxes
because of its franchise.
CIR vs Primetown Property Group Inc., GR 162155, August 28, 2007
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to
365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant. There obviously exists a manifest
incompatibility in the manner of computing legal periods under the Civil
Code and the Administrative Code of 1987. For this reason, we hold that
Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the
more recent law, governs the computation of legal periods.
CIR vs Phoenix Assurance Co., L-19127, May 20, 1965
Considering that the deficiency assessment was based on the amended
return which, as aforestated, is substantially different from the original
return, the period of limitation of the right to issue the same should be
counted from the filing of the amended income tax return. We believe that to
hold otherwise, we would be paving the way for taxpayers to evade the
payment of taxes by simply reporting in their original return heavy losses
and amending the same more than five years later when the Commissioner
of Internal Revenue has lost his authority to assess the proper tax
thereunder. The object of the Tax Code is to impose taxes for the needs of
the Government, not to enhance tax avoidance to its prejudice.
CIR v. Metro Star Superama, Inc. 637 SCRA 633

Law on Taxation

Sec. 228 of the Tax Code clearly requires that the taxpayer must be informed
that he is liable for deficiency taxes through the sending of a Preliminary
Assessment Notice. The sending of a PAN to the taxpayer is to inform him of
the assessment made is but part of due process requirement in the issuance
of a deficiency tax assessment, the absence of which renders nugatory any
assessment made by the tax authorities.
CIR v. Enron Subic Power Corp. 575 SCRA 212
A taxpayer must be informed in writing of the legal and factual bases of the
tax assessment made against him. This is a mandatory requirement. The
advice of a tax deficiency given by the CIR to an employee of Enron as well
as the preliminary 5-day letter notice, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment.
Sec. 228 of the NIRC requires that the legal and factual bases be stated in
the formal letter of demand and assessment notice. Otherwise the law and
RR 12-99 would be rendered nugatory. In view of the absence of a fair
opportunity for Enron to be informed of the bases of the assessment, the
assessment was void. This is a requirement of due process.
CIR vs First Express Pawnshop Company, GR 172045-46, June 16,
2009
Petitioner cannot insist on the submission of proof of DST payment because
such document does not exist as respondent claims that it is not liable to
pay, and has not paid, the DST on the deposit on subscription. The term
relevant supporting documents should be understood as those documents
necessary to support the legal basis in disputing a tax assessment as
determined by the taxpayer. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand what type of supporting
documents should be submitted. Otherwise, a taxpayer will be at the mercy
of the BIR, which may require the production of documents that a taxpayer
cannot submit.
Allied Banking Corporation vs CIR, G.R. No. 175097, February 5,
2010
Records show that petitioner disputed the PAN but not the Formal Letter of
Demand with Assessment Notices. Nevertheless, we cannot blame petitioner
for not filing a protest against the Formal Letter of Demand with Assessment
Notices since the language used and the tenor of the demand letter indicate
that it is the final decision of the respondent on the matter. We have time
and again reminded the CIR to indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his final
determination thereon in order for the taxpayer concerned to determine
when his or her right to appeal to the tax court accrues. Viewed in the light
of the foregoing, respondent is now estopped from claiming that he did not

Law on Taxation

intend the Formal Letter of Demand with Assessment Notices to be a final

decision.
CIR vs Union Shipping Corporation, GR L-66160, May 21, 1990
The request for reinvestigation and reconsideration was in effect considered
denied by petitioner when the latter filed a civil suit for collection of
deficiency income. Under the circumstances, the Commissioner of Internal
Revenue, not having clearly signified his final action on the disputed
assessment, legally the period to appeal has not commenced to run. Thus, it
was only when private respondent received the summons on the civil suit for
collection of deficiency income on December 28, 1978 that the period to
appeal commenced to run.
CIR vs Kudos Metal Corp., GR 178087, May 5, 2010
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer,
there are cases however where a taxpayer may be prevented from setting up
the defense of prescription even if he has not previously waived it in writing
as when by his repeated requests or positive acts the Government has been,
for good reasons, persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant by
the Government.
CIR vs Philippine Global Communication, GR 167146, October 31,
2006
The running of the prescription period where the acts of the taxpayer did not
prevent the government from collecting the tax. Partial payment would not
prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby persuaded to postpone collection
to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant.
Bank of Philippine Islands (Formerly Far East Bank and Trust
Company) v. Commissioner of Internal Revenue, G. R. No. 174942,
March 7, 2008
The law prescribing a limitation of actions for the collection of the income tax
is beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers,
not to determine the latters real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. Without such a legal

Law on Taxation

defense taxpayers would furthermore be under obligation to always keep

their books and keep them open for inspection subject to harassment by
unscrupulous tax agents.
Republic vs Enriquez, GR 78391, October 21, 1988
It is settled that the claim of the government predicated on a tax lien is
superior to the claim of a private litigant predicated on a judgment. The tax
lien attaches not only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable. Besides, the
distraint on the subject properties of Maritime Company of the Philippines as
well as the notice of their seizure were made by petitioner, through the
Commissioner of Internal Revenue, long before the writ of execution was
issued by the Regional Trial Court.
Commissioner of Internal Revenue vs. Manila Electric Company, G.R.
No. 181459 (June 9, 2014).
The claim for tax refund in the aggregate amount must fail since the same
has already prescribed under Section 229 of the Tax Code. The prescriptive
period of two (2) years commences to run from the time that the refund is
ascertained, the propriety thereof is determined by law (in this case, from
the date of payment of tax), and not upon the discovery by the taxpayer of
the erroneous or excessive payment of taxes. The issuance by the BIR of the
Ruling declaring the tax-exempt status of NORD/LB, if at all, is merely
confirmatory in nature. BIR Ruling No. DA-342-2003 is not the operative act
from which an entitlement of refund is determined.
Systra Philippines vs CIR, GR 176290, September 21, 2007
A corporation entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid has two options: (1) to carry over the excess
credit or (2) to apply for the issuance of a tax credit certificate or to claim a
cash refund. If the option to carry over the excess credit is exercised, the
same shall be irrevocable for that taxable period. This is known as the
irrevocability rule and is embodied in the last sentence of Section 76 of the
Tax Code.
Philippine Phosphate Fertilizer Corp. vs CIR, GR 141973, June 28,
2005
In cases before tax courts, Rules of Court applies only by analogy or in a
suppletory character and whenever practicable and convenient shall be
liberally construed in order to promote its objective of securing a just, speedy
and inexpensive disposition of every action and proceeding. Since it is not
disputed that petitioner is entitled to tax exemption, it should not be
precluded from presenting evidence to substantiate the amount of refund it

Law on Taxation

is claiming on mere technicality especially in this case, where the failure to

present invoices at the first instance was adequately explained by petitioner.
ACCRA Investments vs CA, G.R. No. 96322, December 20, 1991
For corporations, the two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the
adjusted final tax return. The rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for
refund from the time it filed its final adjustment return is the fact that it was
only then that ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations.
Silkair vs CIR, G.R. Nos. 171383 & 172379, November 14, 2008
The proper party to question, or seek a refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who
paid the same even if he shifts the burden thereof to another. Even if Petron
Corporation passed on to Silkair the burden of the tax, the additional amount
billed to Silkair for jet fuel is not a tax but part of the price which Silkair had
to pay as a purchaser.
Angeles City vs. Angeles City Electric Corp., GR 166134, June 29,
2010
The National Internal Revenue Code of 1997 (NIRC) expressly provides that
no court shall have the authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge imposed by the
code. The situation, however, is different in the case of the collection of local
taxes as there is no express provision in the LGC prohibiting courts from
issuing an injunction to restrain local governments from collecting taxes.
Such statutory lapse or intent, however it may be viewed, may have allowed
preliminary injunction where local taxes are involved but cannot negate the
procedural rules and requirements under Rule 58.
PNOC vs CA, G.R. No. 109976, April 26, 2005
Compromise may be the favored method to settle disputes, but when it
involves taxes, it may be subject to closer scrutiny by the courts. A
compromise agreement involving taxes would affect not just the taxpayer
and the BIR, but also the whole nation, the ultimate beneficiary of the tax
revenues collected.
People vs Sandiganbayan, GR 152532, August 16, 2005
The BIR may therefore abate or cancel the whole or any unpaid portion of a
tax liability, inclusive of increments, if its assessment is excessive or
erroneous; or if the administration costs involved do not justify the collection

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of the amount due. No mutual concessions need be made, because an

excessive or erroneous tax is not compromised; it is abated or canceled. Only
correct taxes should be paid.
PELIZLOY REALTY CORPORATION vs. THE PROVINCE OF BENGUET,
G.R. No. 183137 (2013).
Amusement taxes are percentage taxes. Provinces are not barred from
levying amusement taxes even if amusement taxes are a form of percentage
taxes. Section 140 of the LGC expressly allows for the imposition by
provinces of amusement taxes on the proprietors, lessees, or operators of
theatres, cinemas, concert halls, circuses, boxing stadia, and other places of
amusement. Theatres, 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. Thus, resorts, swimming pools, bath houses, hot
springs and tourist spots do not belong to the same category or class as
theatres, 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.
National Power Corporation v. City of Cabanatuan, G.R. No. 149110,
April 09, 2003
As commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the
state." To determine whether the petitioner is covered by franchise tax, the
following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its
rights or privileges under this franchise within the territory of the respondent
city government.
Municipality of San Fernando, La Union v. Sta. Romana, G.R. No. L30159, March 31, 1987
Under the Local Tax Code. there is no question that the authority to impose
the license fees collected from the hauling of sand and gravel excavated
properly belongs to the province concerned and not to the municipality
where they are found which is specifically prohibited under Section 22 of the
same Code "from levying taxes, fees and charges that the province or city is
authorized to levy in this Code."

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Province of Cagayan v. Lara, G.R. No. 188500, July 24, 2013

In order for an entity to legally undertake a quarrying business, he must first
comply with all the requirements imposed not only by the national
government, but also by the local government unit where his business is
situated. Particularly, Section 138 (2) of RA 7160 requires that such entity
must first secure a governor's permit prior to the start of his quarrying
operations
City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No.
181845, August 04, 2009
When a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of
commerce, pursuant to Section 143 (a) of the LGC, said municipality or city
may no longer subject the same manufacturers, etc. to a business tax under
Section 143 (h) of the same Code. Section 143 (h) may be imposed only on
businesses that are subject to excise tax, VAT, or percentage tax under the
NIRC, and that are "not otherwise specified in preceding paragraphs".
Ericsson Telecoms vs. City of Pasig. G.R. NO. 176667, November 22,
2007
Tax should be computed based on gross receipts; the right to receive income,
and not the actual receipt, determines when to include the amount in gross
income. The imposition of local business tax based on petitioners gross
revenue will inevitably result in the constitutionally proscribed double
taxation taxing of the same person twice by the same jurisdiction for the
same thing inasmuch as petitioners revenue or income for a taxable year
will definitely include its gross receipts already reported during the previous
year and for which local business tax has already been paid.
Palma Development Corp. v. Municipality of Malangas, G.R. No.
152492, October 16, 2003
Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of
wharfage, of fees as well as all other taxes or charges in any form
whatsoever on goods or merchandise. It is therefore irrelevant if the fees
imposed are actually for police surveillance on the goods, because any other
form of imposition on goods passing through the territorial jurisdiction of the
municipality is clearly prohibited by Section 133(e).
Jardine Davies Insurance Brokers Inc. v. Aliposa, G.R. No. 118900,
February 27, 2003
As a general precept, a taxpayer may file a complaint assailing the validity of
the ordinance and praying for a refund of its perceived overpayments
without first filing a protest to the payment of taxes due under the ordinance.

Law on Taxation

Valley Trading Co., Inc. v. CFI of Isabela, Branch II, G.R. No. L-49529,
March 31, 1989
Unlike the National Internal Revenue Code, the Local Tax Code does not
contain any specific provision prohibiting courts from enjoining the collection
of local taxes. Such Statutory lapse or intent, however it may be viewed, may
have allowed preliminary injunction where local taxes are involved but
cannot negate the procedural rules and requirements under Rule 58.
Manila International Airport Authority v. Court of Appeals, G.R. No.
155650, July 20, 2006
Under Section 234(a), real property owned by the Republic is exempt from
real estate tax except when the government gives the beneficial use of the
real property to a taxable entity. The justification for the exception to the
exemption is that the real property, although owned by the Republic, is not
devoted to public use or public service but devoted to the private gain of a
taxable person.
Allied Banking Corporation, etc., v. Quezon City Government, et al.,
G. R. No. 154126, October 11, 2005
Real properties shall be appraised at the current and fair market value
prevailing in the locality where the property is situated and classified for
assessment purposes on the basis of its actual use.
Heirs of Tajonera v. Court of Appeals, G.R. No. L-26677, March 27,
1981
It is `the duty of each person' acquiring real estate in the city to make a new
declaration thereof, with the advertence that failure to do so shall make the
assessment in the name of the previous owner 'valid and binding on all
persons interested, and for all purposes, as though the same had been
assessed in the name of its actual owner.'
Spouses Hu v. Spouses Unico, G.R. No. 146534, September 18, 2009
With regard to determining to whom the notice of sale should have been
sent, settled is the rule that, for purposes of real property taxation, the
registered owner of the property is deemed the taxpayer. Thus, in identifying
the real delinquent taxpayer, a local treasurer cannot rely solely on the tax
declaration but must verify with the Register of Deeds who the registered
owner of the particular property is.
Ty v. Trampe, G.R. No. 117577, December 01, 1995
The protest contemplated under Sec. 252 of R.A. 7160 is needed where there
is a question as to the reasonableness of the amount assessed. Hence, if a
taxpayer disputes the reasonableness of an increase in a real estate tax
assessment, he is required to "first pay the tax" under protest; otherwise, the
city or municipal treasurer will not act on his protest.

Law on Taxation

Davao Oriental Electric Coop vs. Prov. Dvo. of Oriental, 576 SCRA
645
Under then Sec. 30 of PD 464 [now under Sec. 226, LGC], having failed to
appeal the real property assessments to the LBAA, taxpayer now cannot
assail the validity of the tax assessment before the courts. For failure to
exhaust administrative remedies, the assessment became final. Under Sec.
64 of PD 464 [now under Sec. 252, LGC), the taxpayer must first pay under
protest and then assail the validity of the assessment.
Fels Energy, Inc. v. Province of Batangas, G.R. No. 168557, 170628,
February 16, 2007
Under Section 226 of R.A. No 7160, the last action of the local assessor on a
particular assessment shall be the notice of assessment; it is this last action
which gives the owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy of filing a
motion for reconsideration before the local assessor.
Nestle Philippines, Inc. v. Court of Appeals, G.R. No. 134114, July 06,
2001
Customs duties" is "the name given to taxes on the importation and
exportation of commodities, the tariff or tax assessed upon merchandise
imported from, or exported to, a foreign country.
Feeder International Line, Pte., Ltd. v. Court of Appeals, G.R. No.
94262, May 31, 1991
Section 1202 of the Tariff and Customs Code provides that importation
begins when the carrying vessel or aircraft enters the jurisdiction of the
Philippines with intention to unload therein. It is clear from the provision of
the law that mere intent to unload is sufficient to commence an importation
and "intent," being a state of mind, is rarely susceptible of direct proof, but
must ordinarily be inferred from the facts, and therefore can only be proved
by unguarded, expressions, conduct and circumstances generally.
Jardeleza v. People, G.R. No. 165265, February 06, 2006
Smuggling is committed by any person who: (1) fraudulently imports or
brings into the Philippines any article contrary to law; (2) assists in so doing
any article contrary to law; or (3) receives, conceals, buys, sells or in any
manner facilitate the transportation, concealment or sale of such goods after
importation, knowing the same to have been imported contrary to law.
Carrara Marble Phil., Inc. v. Commissioner of Customs, G.R. No.
129680, September 01, 1999
The Tariff and Customs law subjects to forfeiture any article which is removed
contrary to law from any public or private warehouse under customs
supervision, or released irregularly from Customs custody. Before forfeiture

Law on Taxation

proceedings are instituted the law requires the presence of probable cause;
once established, the burden of proof is shifted to the claimant.
People v. Court of First Instance of Rizal, G.R. No. L-41686,
November 17, 1980
It is quite clear that seizure and forfeiture proceedings under the tariff and
customs laws are not criminal in nature as they do not result in the
conviction of the offender nor in the imposition of the penalty provided for in
section 3601 of the Code. As can be gleaned from Section 2533 of the code,
seizure proceedings, such as those instituted in this case, are purely civil and
administrative in character, the main purpose of which is to enforce the
administrative fines or forfeiture incident to unlawful importation of goods or
their deliberate possession.
Subic Bay Metropolitan Authority v. Rodriguez, G.R. No. 160270,
April 23, 2010
Regional trial courts are devoid of any competence to pass upon the validity
or regularity of seizure and forfeiture proceedings conducted by the BOC and
to enjoin or otherwise interfere with these proceedings. Regional trial courts
are precluded from assuming cognizance over such matters even through
petitions for certiorari, prohibition or mandamus.
Jao v. Court of Appeals, G.R. No. 104604, 111223, October 06, 1995
Even if the seizure by the Collector of Customs were illegal, which has yet to
be proven, we have said that such act does not deprive the Bureau of
Customs of jurisdiction thereon. The allegations of petitioners regarding the
propriety of the seizure should properly be ventilated before the Collector of
Customs.
Transglobe International, Inc. v. Court of Appeals, G.R. No. 126634,
January 25, 1999
A forfeiture proceeding is in the nature of a proceeding in rem, i.e., directed
against the res or imported articles and entails a determination of the
legality of their importation. In this proceeding, it is in legal contemplation
the property itself which commits the violation and is treated as the offender,
without reference whatsoever to the character or conduct of the owner.
Commr. v. Hambretch & Quist Philippines, Inc., G.R. No. 169225,
November 17, 2010
The appellate jurisdiction of the CTA is not limited to cases which involve
decisions of the CIR on matters relating to assessments or refunds. Section 7
of Republic Act No. 1125 covers other cases that arise out of the National
Internal Revenue Code (NIRC) or related laws administered by the Bureau of
Internal Revenue (BIR).

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Duty Free Philippines vs. Bureau of Internal Revenue, G.R. No.

197228 (October 8, 2014).
This Court has had a long-standing rule that a courts jurisdiction over the
subject matter of an action is conferred only by the Constitution or by
statute. In this regard, petitioners direct appeal to this Court is fatal to its
claim. Section 2, Rule 4 of the Revised Rules of the CTA reiterates the
exclusive appellate jurisdiction of the CTA en banc relative to the review of
the court divisions decisions or resolutions on motion for reconsideration or
new trial in cases arising from administrative agencies such as the BIR.
Clearly, this Court is without jurisdiction to review decisions rendered by a
division of the CTA, exclusive appellate jurisdiction over which is vested in
the CTA en banc.
Yaokasin v. Commissioner of Customs, G.R. No. 84111, December 22,
1989
Without the automatic review by the Commissioner of Customs and the
Secretary of Finance, a collector in any of our country's far-flung ports, would
have absolute and unbridled discretion to determine whether goods seized
by him are locally produced, hence, not dutiable, or of foreign origin, and
therefore subject to payment of customs duties and taxes. His decision,
unless appealed by the aggrieved party (the owner of the goods), would
become final with no one the wiser except himself and the owner of the
goods.
Rizal Commercial Banking Corp. v. Commr., G.R. No. 168498, June
16, 2006
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision, or from the lapse
of the one hundred eighty (180)-day period; otherwise the decision shall
become final, executory and demandable.