TAXATION LAW 1

Justice Presbitero J. Velasco, Jr. (2006-2016)

G.R. No. 148083
The definition of the term "tax credit" is plain and clear, and
the attempt of Revenue Regulations No. 2-94 to define it
differently is the root of the conflict.
It equated "tax credit" with "tax deduction," contrary to the
definition in Black's Law Dictionary, which defined tax credit
as:
An amount subtracted from an individual's or entity's tax
liability to arrive at the total tax liability. A tax credit reduces
the taxpayer's liability x xx, compared to a deduction which
reduces taxable income upon which the tax liability is
calculated. A credit differs from deduction to the extent that
the former is subtracted from the tax while the latter is
subtracted from income before the tax is computed.
In cases of conflict between the law and the rules and
regulations implementing the law, the law shall always
prevail. Should Revenue Regulations deviate from the law
they seek to implement, they will be struck down.
G.R. No. 147295
It is undisputed that P.D. 1869, the charter creating
PAGCOR, grants the latter an exemption from the payment
of taxes. A close scrutiny of the above provisos clearly gives
PAGCOR a blanket exemption to taxes with no distinction on
whether the taxes are direct or indirect. We are one with
the CA ruling that PAGCOR is also exempt from indirect
taxes, like VAT.
The manner of charging VAT does not make PAGCOR liable
to said tax
It is true that VAT can either be incorporated in the value of
the goods, properties, or services sold or leased, or charged
as an additional 10% to the value. Verily, the seller or lessor
has the option to follow either way in charging its clients
and customer. In the instant case, Acesite followed the
latter method, that is, charging an additional 10% of the
gross sales and rentals. Be that as it may, the use of either
method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect
tax, like VAT.
Thus, while it was proper for PAGCOR not to pay the 10%
VAT charged by Acesite, Acesite is not liable for the payment
of it as it is exempt in this particular transaction by
operation of law to pay the indirect tax. Such exemption
falls within the former Section 102 (b) (3) of the 1977 Tax
Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which
provides:
Section 102. Value-added tax on sale of services (a) Rate
and base of tax There shall be levied, assessed and
collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of
services x xx; Provided, that the following services performed
in the Philippines by VAT-registered persons shall be subject
to 0%.x x xx

(b) Transactions subject to zero percent (0%) rated.x xxx

(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to zero (0%) rate (emphasis supplied).
In Commissioner of Internal Revenue v. John Gotamco&
Sons, Inc., 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
contractors tax may be shifted to the contractee WHO.
Thus, the proviso in P.D. 1869, extending the exemption to
entities or individuals dealing with PAGCOR in casino
operations, is clearly to proscribe any indirect tax, like VAT,
that may be shifted to PAGCOR.
G.R. No. 172598
The statement on the subject Tax Credit Certificate (TCC)
stating that it is issued subject to post-audit is in the nature
of a suspensive condition under Article 1181 of the Civil
Code, which is quoted hereunder for ready reference, to
wit:
In conditional obligations, the acquisition of rights, as well
as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which
constitutes the condition.
The above-quoted article speaks of obligations. These
conditions affect obligations in diametrically opposed ways.
If the suspensive condition happens, the obligation arises; in
other words, if the condition does not happen, the
obligation does not come into existence. On the other hand,
the resolutory condition extinguishes rights and obligations
already existing; in other words, the obligations and rights
already exist, but under the threat of extinction upon the
happening of the resolutory condition.
In adopting the foregoing provision of law, this Court rules
that the issuance of the tax credit certificate is subject to the
condition that a post-audit will subsequently be conducted
in order to determine if the holder is indeed qualified for its
issuance. As stated earlier, the holder takes the same
subject to the outcome of the post-audit. Thus, unless and
until there is a final determination of the holders right to
the issuance of the certificate, there exists no obligation on
the part of the DOF or the BIR to recognize the rights of then
holder or transferee. x xx
x xxx
The validity and propriety of the TCC to effectively
constitute payment of taxes to the government are still
subject to the outcome of the post-audit. In other words,
when the issuing authority (DOF) finds, as in the case at bar,
circumstances which may warrant the cancellation of the

To have knowledge, you must first have reverence for the Lord. (Proverbs 1:7)
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TAXATION LAW 2

Justice Presbitero J. Velasco, Jr. (2006-2016)

certificate, the holder is inevitably bound by the outcome by
the virtue of the express provisions of the TCCs.
G.R. No. 172129
Verily, a claim for tax refund may be based on a statute
granting tax exemption, or the result of legislative grace. In
such case, the claim is to be construed strictissimijuris
against the taxpayer, meaning that the claim cannot be
made to rest on vague inference.
Where the rule of strict interpretation against the taxpayer
is applicable as the claim for refund partakes of the nature
of an exemption, the claimant must show that he clearly
falls under the exempting statute. On the other hand, a tax
refund may be, as usually it is, predicated on tax refund
provisions allowing a refund of erroneous or excess
payment of tax. The return of what was erroneously paid is
founded on the principle of solutioindebiti, a basic postulate
that no one should unjustly enrich himself at the expense of
another. The caveat against unjust enrichment covers the
government. And as decisional law teaches, a claim for tax
refund proper, as here, necessitates only the
preponderance-of-evidence threshold like in any ordinary
civil case.
G.R. No. 172129
Sec. 110(A)(1)(B) of the NIRC pertinently provides:
Section 110. Tax Credits.
A. Creditable Input Tax.
(1) Any input tax evidenced by a VAT invoice or official
receipt issued in accordance with Section 113 hereof on the
following transactions shall be creditable against the output
tax:
(a) Purchase or importation of goods:
x xxx
(b) Purchase of services on which a value-added tax has
been actually paid. (Emphasis ours.)
Without necessarily saying that the BIR is precluded from
requiring additional evidence to prove that input tax had
indeed paid or, in fine, that the taxpayer is indeed entitled
to a tax refund or credit for input VAT, we agree with the
CAs above disposition. As the Court distinctly notes, the law
considers a duly-executed VAT invoice or OR referred to in
the above provision as sufficient evidence to support a claim
for input tax credit.
G.R. No. 172129
Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise,

Abate and Refund or Credit Taxes. The Commissioner may

x xxx
(c) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for
use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner
a claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as
a written claim for credit or refund.
x xxx
Sec. 229. Recovery of Tax Erroneously or Illegally
Collected. No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue
tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have
been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected
without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after
the expiration of two (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears
clearly to have been erroneously paid. (Emphasis ours.)
Notably, the above provisions also set a two-year
prescriptive period, reckoned from date of payment of the
tax or penalty, for the filing of a claim of refund or tax credit.
Notably too, both provisions apply only to instances of
erroneous payment or illegal collection of internal revenue
taxes.
G.R. No. 172129
For perspective, under Sec. 105 of the NIRC, creditable input
VAT is an indirect tax which can be shifted or passed on to
the buyer, transferee, or lessee of the goods, properties, or
services of the taxpayer. The fact that the subsequent sale
or transaction involves a wholly-tax exempt client, resulting
in a zero-rated or effectively zero-rated transaction, does
not, standing alone, deprive the taxpayer of its right to a
refund for any unutilized creditable input VAT, albeit the
erroneous, illegal, or wrongful payment angle does not
enter the equation.

To have knowledge, you must first have reverence for the Lord. (Proverbs 1:7)
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TAXATION LAW 3

Justice Presbitero J. Velasco, Jr. (2006-2016)

G.R. No. 172129
The nature of the VAT and the entitlement to tax refund or
credit of a zero-rated taxpayer:
Viewed broadly, the VAT is a uniform tax x xx levied on
every importation of goods, whether or not in the course of
trade or business, or imposed on each sale, barter, exchange
or lease of goods or properties or on each rendition of
services in the course of trade or business as they pass along
the production and distribution chain, the tax being limited
only to the value added to such goods, properties or
services by the seller, transferor or lessor. It is an indirect
tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. As
such, it should be understood not in the context of the
person or entity that is primarily, directly and legally liable
for its payment, but in terms of its nature as a tax on
consumption. In either case, though, the same conclusion is
arrived at.
The law that originally imposed the VAT in the country, as
well as the subsequent amendments of that law, has been
drawn from the tax credit method. Such method adopted
the mechanics and self-enforcement features of the VAT as
first implemented and practiced in Europe x xx. Under the
present method that relies on invoices, an entity can credit
against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged
by a seller are equal to the input taxes passed on by the
suppliers, no payment is required. It is when the output
taxes exceed the input taxes that the excess has to be paid.
If, however, the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of
capital goods, any excess over the output taxes shall instead
be refunded to the taxpayer or credited against other
internal revenue taxes.
G.R. No. 172129
Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero.
When applied to the tax base, such rate obviously results in
no tax chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund
of or a tax credit certificate for the VAT previously charged
by suppliers.
G.R. No. 186242
SEC. 234. Exemptions from Real Property Tax. The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the Philippines
or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or
otherwise, to a taxable person.

This exemption, however, must be read in relation with Sec.

133(o) of the LGC, which prohibits LGUs from imposing
taxes or fees of any kind on the national government, its
agencies, and instrumentalities:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
x xxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. (Emphasis supplied.)
Thus read together, the provisions allow the Republic to
grant the beneficial use of its property to an agency or
instrumentality of the national government. Such grant does
not necessarily result in the loss of the tax exemption. The
tax exemption the property of the Republic or its
instrumentality carries ceases only if, as stated in Sec. 234(a)
of the LGC of 1991, "beneficial use thereof has been
granted, for a consideration or otherwise, to a taxable
person." GSIS, as a government instrumentality, is not a
taxable juridical person under Sec. 133(o) of the LGC. GSIS,
however, lost in a sense that status with respect to the
Katigbak property when it contracted its beneficial use to
MHC, doubtless a taxable person.
G.R. No. 180356
Taxes cannot be subject to compensation for the simple
reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material
distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to
the Government in its sovereign capacity. We find no cogent
reason to deviate from the aforementioned distinction.
We have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax
on the ground that the government owes him an amount
equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit
against the government.
G.R. No. 180356
Since an action for a tax refund partakes of the nature of an
exemption, which cannot be allowed unless granted in the
most explicit and categorical language, it is strictly
construed against the claimant who must discharge such
burden convincingly.
G.R. No. 185588
Republic Act No. (RA) 9282 amended Section 7 of RA 1125
to read as follows:

To have knowledge, you must first have reverence for the Lord. (Proverbs 1:7)
COMPILED BY ATTY. RAL CASABAR

TAXATION LAW 4

Justice Presbitero J. Velasco, Jr. (2006-2016)

Section 7. Section 7 of the same Act is hereby amended to

read as follows:
"Sec. 7. Jurisdiction. - The CTA shall exercise:
"a. Exclusive appellate jurisdiction to review by appeal, as
herein provided:
x xxx

tax credit, or the failure on the part of the Commissioner to

act on the application within the period prescribed above,
the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax
Appeals.
G.R. No. 210987

"3. Decisions, orders or resolutions of the Regional Trial

Courts in local tax cases originally decided or resolved by
them in the exercise of their original or appellate
jurisdiction.

SECTION 4. Power of the Commissioner to Interpret Tax

Laws and to Decide Tax Cases. The power to interpret the
provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.

G.R. No. 185588

G.R. No. 210987

In the instant case, the original complaint filed with the trial
court was in the nature of a collection case, purportedly to
collect on the obligation of petitioner by virtue of the bonds
executed by it in favor of respondent, essentially a
contractual obligation.

Sec. 7. Jurisdiction.- The CTA shall exercise:

An action based upon a surety bond cannot be considered a

tax collection case. Rather, such action would properly be a
case based on a contract.
Although the original obligation of the lumber company
arose from non-payment of taxes, the complaint against
said Company and the Surety is predicated upon the bond
executed by them. In other words, plaintiffs right originally
arising from law has become a right based upon a written
contract, enforceable within ten (10) years x xx
G.R. No. 180705
Taxes are imposed only for a public purpose. "They cannot
be used for purely private purposes or for the exclusive
benefit of private persons." When a law imposes taxes or
levies from the public, with the intent to give undue benefit
or advantage to private persons, or the promotion of private
enterprises, that law cannot be said to satisfy the
requirement of public purpose.
As the coconut levy funds partake of the nature of taxes and
can only be used for public purpose, and importantly, for
the purpose for which it was exacted.
G.R. No. 187485
SEC. 112. Refunds or Tax Credits of Input Tax.
(D) Period Within Which Refund or Tax Credit of Input Taxes
Shall be Made. - In proper cases, the Commissioner shall
grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days
from the date of submission of compete documents in
support of the application filed in accordance with
Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or

a. Exclusive appellate jurisdiction to review by appeal, as

herein provided:
1. Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of
Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers
rulings of the Commissioner, We hold that it is, nonetheless,
sufficient enough to include appeals from the Secretarys
review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable
interpretation which does not defeat the very purpose for
which they were passed.
G.R. No. 210987
While there is no express grant of such power, with respect
to the CTA, Section 1, Article VIII of the 1987 Constitution
provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be
established by law and that judicial power includes the duty
of the courts of justice to settle actual controversies
involving rights which are legally demandable and
enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or
instrumentality of the Government.
On the strength of the above constitutional provisions, it
can be fairly interpreted that the power of the CTA includes
that of determining whether or not there has been grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory
order in cases falling within the exclusive appellate
jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue
writs of certiorari in these cases.

To have knowledge, you must first have reverence for the Lord. (Proverbs 1:7)
COMPILED BY ATTY. RAL CASABAR

TAXATION LAW 5

Justice Presbitero J. Velasco, Jr. (2006-2016)

G.R. No. 210987
Sec. 100 of the National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full
Consideration.- Where property, other than real property
referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or moneys worth,
then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for
the purpose of the tax imposed by this Chapter, be deemed
a gift, and shall be included in computing the amount of
gifts made during the calendar year.
The absence of donative intent, if that be the case, does not
exempt the sales of stock transaction from donor's 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.
G.R. Nos. 212536-37
The Court has recognized the applicability of the exemption
granted to PAL under its charter and necessarily its right to a
refund, when appropriate.
In all then, PAL has presented in context a clear statutory
basis for its refund claim of excise tax, a claim predicated on
a statutory grant of exemption from that forced exaction. It
thus behooves the government to refund what it
erroneously collected.
G.R. No. 203754
Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local governments. [Section 5, Article X,
1987 Constitution];
Accordingly, under the present Constitution, where there is
neither a grant nor a prohibition by statute, the tax power
of municipal corporations must be deemed to exist although
Congress may provide statutory limitations and guidelines.
G.R. No. 203754
The LGC provides as follows:
Section 140. Amusement Tax.
(a) The province may levy an amusement tax to be collected
from the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be

deducted and withheld by their proprietors, lessees, or

operators and paid to the provincial treasurer before the
gross receipts are divided between said proprietors, lessees,
or operators and the distributors of the cinematographic
films.
G.R. NO. 212825
Section 222(a) of the 1997 NIRC
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.
(a) In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be
assessed, or a preceeding in court for the collection of such
tax may be filed without assessment, at any time within ten
(I 0) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action
for the collection thereof.
G.R. NO. 212825
Section 203 of the 1997 NIRC mandates the BIR to assess
internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the
actual date of filing of such return, whichever comes later.
Hence, an assessment notice issued after the three-year
prescriptive period is not valid and effective. Exceptions to
this rule are provided under Section 2224 of the NIRC.
Section 222(b) of the NIRC provides that the period to
assess and collect taxes may only be extended upon a
written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period.
G.R. No. 151413
Sec. 4. Privileges for the Senior citizens.The senior citizens
shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all
establishments relative to utilization of transportation
services, hotels and similar lodging establishments,
restaurants and recreation centers and purchase of
medicines anywhere in the country: Provided, That private
establishments may claim the cost as tax credit. (Emphasis
ours.)
The fact that petitioner suffered a net loss in 1995 will not
make the tax credit due to petitioner unavailable.
The net loss for a taxable year does not bar the grant of the
tax credit to a taxpayer pursuant to RA 7432 and that prior
tax payments are not required for such grant. We explained:
Although this tax credit benefit is available, it need not be
used by losing ventures, since there is no tax liability that
calls for its application. Neither can it be reduced to nil by
the quick yet callow stroke of an administrative pen, simply

To have knowledge, you must first have reverence for the Lord. (Proverbs 1:7)
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TAXATION LAW 6

Justice Presbitero J. Velasco, Jr. (2006-2016)

because no reduction of taxes can instantly be effected. By
its nature, the tax credit may still be deducted from a future,
not a present, tax liability, without which it does not have
any use. x x x
xxxx
While a tax liability is essential to the availment or use of
any tax credit, prior tax payments are not. On the contrary,
for the existence or grant solely of such credit, neither a tax
liability nor a prior tax payment is needed. The Tax Code is
in fact replete with provisions granting or allowing tax
credits, even though no taxes have been previously paid.
G.R. No. 152904
In this regard, we point with approbation the appellate
courts application of Sec. 216 in relation with Sec. 215 of
the Local Government Code on the proper classification of
the subject CHHMAC building as "special" and not
"commercial." Secs. 215 and 216 pertinently provide:
SEC. 215. Classes of Real Property for Assessment
Purposes.For purposes of assessment, real property shall
be classified as residential, agricultural, commercial,
industrial, mineral, timberland or special.
xxxx
SEC. 216. Special Classes of Real Property.All lands,
buildings, and other improvements thereon actually,
directly and exclusively used for hospitals, cultural or
scientific purposes, and those owned and used by local
water districts, and government-owned or controlled
corporations rendering essential public services in the
supply and distribution of water and/or generation and
transmission of electric power shall be classified as special.
(Emphasis supplied.)
Thus, applying the above provisos in line with City Tax
Ordinance of Cebu City, the 10% special assessment should
be imposed for the CHHMAC building which should be
classified as "special."
G.R. No. 159490
Tax refunds are in the nature of tax exemptions, and are to
be construed strictissimi juris against the taxpayer.

To have knowledge, you must first have reverence for the Lord. (Proverbs 1:7)
COMPILED BY ATTY. RAL CASABAR