TAXATION LAW REVIEW (CONCISE VERSION - PART II)

I. TRANSFER TAXES

A. Estate Tax
1. Basic principles, concepts and definition
a. Kinds of decedents / Situs rules - Secs. 85 and 104 of the NIRC – Sec. 4 of RR No. 12-
2018.
b. Rules on Intangible Personal Property - Sec. 104 of the NIRC.
c. Rule on Reciprocity - Sec. 104 of the NIRC.
i. Collector vs. Fisher, GR Nos. L-11622 and L11668 (1961)  BAGALANON

COLLECTOR OF INTERNAL REVENUE V. FISHER

GR. No. L-11622, January 28, 1961
DOCTRINE: Reciprocity must be total. If any of the two states collects or imposes or does not exempt any transfer, death,
legacy or succession tax of any character, the reciprocity does not work.

FACTS: Walter G. Stevenson was born in the Philippines of British parents, married in Manila to another Britsh subject,
Beatrice. He died in 1951 in California where he and his wife moved to. In his will, he instituted Beatrice as his sole heiress
to certain real and personal properties, among which are 210,000 shares of stocks in Mindanao Mother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate filed an estate and inheritance tax return.
He made a preliminary return to secure the waiver of the CIR on the inheritance of the Mines shares of stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the spouses Fisher. Statt, filed an amended
estate and inheritance tax return claiming additional exceptions, one of which is the estate and inheritance tax on the Mines‘
shares of stock pursuant to a reciprocity proviso in the NIRC, hence, warranting a refund from what he initially paid. The
collector denied the claim. He then filed in the CFI of Manila for the said amount.
CFI ruled that:
a) The 1/2 share of Beatrice should be deducted from the net estate of Walter;
b) The intangible personal property belonging to the estate of Walter is exempt from inheritance tax pursuant to the
reciprocity proviso in NIRC.

ISSUE: Whether or not the estate can avail itself of the reciprocity proviso in the NIRC granting exception from the payment
of taxes for the Mines shares of stock.

RULING: No. Reciprocity must be total. If any of the two states collects or imposes or does not exempt any transfer, death,
legacy or succession tax of any character, the reciprocity does not work.
In the Philippines, upon the death of any citizen or resident, or non-resident with properties, they are imposed upon
his estate, both an estate and an inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also, although the Federal Internal Revenue
Code imposes an estate tax, it does not grant exemption based on reciprocity. Thus, a Filipino Citizen shall always be at a
disadvantage. This is not what the legislators intended. Specifically, Section 122 of the NIRC provides that ―No tax shall be
collected under this title in respect of intangible personal property:
a) if the decedent at the time of his death was a resident of a foreign country which at the same of his death did not
impose a transfer of tax or death tax of any character in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or
b) if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar
exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned
by citizens of the Philippines not residing in that foreign country, or
On the other hand, Section 13851 of the California Inheritance Tax Law provides that intangible personal property
is exempt from tax if the decedent at the time of his death was: a resident of a territory of another State of the United States;
or of a foreign state or country which then imposed a legacy, succession, or death tax in respect to intangible personal
property of its own residents, but either:
1) did not impose a legacy, succession, or death tax of any character in respect to intangible personal property of
residents of this State; or
2) had in its laws a reciprocal provision under which intangible personal property of a nonresident was exempt from
legacy, succession, or death taxes of every character if the territory; or other State of the United States; or foreign
state or country in which the nonresident resided allowed a similar exemption in respect to intangible personal

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 property of residents of the territory or State of the United States or foreign state or country of residence of the
decedent.

d. Inclusion Rules
i. Property Passing under a General Power of Appointment – Sec. 85(D) of the
NIRC correlate with Sec. 87(B) and (C) of the NIRC.
ii. Proceeds of Life Insurance – Sec. 85(E) of the NIRC.
2. Deductions
a. Allowed to a Citizen or a Resident – Sec. 86(A) of the NIRC – Sec. 6 of RR No. 12-2018.
(as amended by RA 10963)
b. Allowed to a Nonresident alien – Sec. 86(B) of the NIRC – Sec. 7 of RR No. 12- 2018. (as
amended by RA 10963)
c. Date of death valuation principle
i. Dizon vs. CTA, GR No. 140944 dated April 30, 2008

DIZON v CTA
G.R. No. 140944 April 30, 2008
FACTS: On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will was filed with
Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). The probate court then appointed retired Supreme Court
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). Petitioner alleged that several requests for extension of the period to file
the required estate tax return were granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be
collated, determined and identified.

ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which were not
formally offered by the BIR; and
2. Whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the gross estate of
Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the
Estate with its creditors Or Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency
estate tax imposed against the Estate.

RULING:
1. Yes. While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in
themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's evidence is
not a mere procedural technicality which may be disregarded considering that it is the only means by which the CTA may
ascertain and verify the truth of BIR's claims against the Estate. The BIR's failure to formally offer these pieces of
evidence, despite CTA's directives, is fatal to its cause

2. Yes. The claims existing at the time of death are significant to, and should be made the basis of, the determination of
allowable deductions. Also, 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. This is called the date-of-death
valuation rule.

3. Exclusions
a. Sec. 87 of the NIRC – correlate with Sec. 85(D) of the NIRC.
4. Filing of Estate Tax Return and Payment of Estate Tax
a. Secs. 90 and 91 of the NIRC - – Sec. 9 of RR No. 12-2018. (as amended by RA 10963)
b. Payment by Installment
i. Sec. 91(C) of the NIRC – Sec. 9 of RR No. 12-2018. (as amended by RA 10963)
5. Other TRAIN law amendments
i. Rule on withdrawal of bank deposit – Sec. 97 of the NIRC – Sec. 10 of RR No.
12-2018, RMC No. 62-2018. (as amended by RA 10963)

B. Donor‘s Tax
1. Basic principles, concepts and definition
a. Kinds of donors / Situs rules – Sec. and 104 of the NIRC – Sec. 4 of RR No. 12- 2018.
b. Rules on Intangible Personal Property - Sec. 104 of the NIRC.
c. Rule on Reciprocity - Sec. 104 of the NIRC.

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 d. New Tax Rate as amended by the TRAIN law – Sec. 99 of the NIRC (as amended by RA
10963)
e. Rule on Political Contributions
i. Sec. 99(C) of the NIRC.
ii. Secs. 13 and 14 of RA No. 7166.
iii. RR No. 7-2011 dated February 16, 2011.
iv. RMC No. 30-2016 dated March 14, 2016.
2. Requisites of a valid donation
a. Abello vs. CIR, GR No. 120721 dated February 23, 2005.  BUENO

Abella v. CIR
G.R. No. 120721, February 23, 2005, Azcuna, J.:
FACTS: During the 1987 national elections, petitioners, who are partners in the Angara, Abello, Concepcion, Regala and Cruz
(ACCRA) law firm, contributed ₱882,661.31 each to the campaign funds of Senator Edgardo Angara, then running for the Senate. In
letters dated April 21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the petitioners ₱263,032.66 for their
contributions. On August 2, 1988, petitioners questioned the assessment through a letter to the BIR. They claimed that political or
electoral contributions are not considered gifts under the National Internal Revenue Code (NIRC), and that, therefore, they are not
liable for donor‘s tax. The claim for exemption was denied by the Commissioner.
As per Solicitor General, the fact that the contributions were given to be used as campaign funds of Sen. Angara does not
affect the character of the fund transfers as donation or gift. There was thereby no retention of control over the disposition of the
contributions. There was simply an indication of the purpose for which they were to be used. For as long as the contributions were
used for the purpose for which they were intended, Sen. Angara had complete and absolute power to dispose of the contributions.
He was fully entitled to the economic benefits of the contributions.

ISSUES:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO CONSIDER IN ITS DECISION THE
PURPOSE BEHIND THE ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE INTENTION OF THE GIVERS IN
DETERMINING WHETHER OR NOT THE PETITIONERS‘ POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE AMERICAN JURISPRUDENCE
RELIED UPON BY THE COURT OF TAX APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN JURISPRUDENCE ON THE
GROUND THAT THIS WAS NOT KNOWN AT THE TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?

HELD:
1. For ISSUES 1, 3 & 4. NO. Section 91 of the National Internal Revenue Code (NIRC) reads:
a. There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of
the property by gift, a tax, computed as provided in Section 92
b. The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether
the property is real or personal, tangible or intangible. The NIRC does not define transfer of property by gift.
However, Article 18 of the Civil Code, states: In matters which are governed by the Code of Commerce and
special laws, their deficiency shall be supplied by the provisions of this Code. Thus, reference may be made to
the definition of a donation in the Civil Code. Article 725 of said Code defines donation as: . . . an act of
liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Donation
has the following elements:
i. the reduction of the patrimony of the donor;
ii. the increase in the patrimony of the donee; and
iii. the intent to do an act of liberality or animus donandi.

The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G. Abello , Jose C.
Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave ₱882,661.31 to the campaign funds of Senator Edgardo Angara,
without any material consideration. All three elements of a donation are present. The patrimony of the four petitioners were reduced
by ₱882,661.31 each. Senator Edgardo Angara‘s patrimony correspondingly increased by ₱3,530,645.249 . There was intent to do
an act of liberality or animus donandi was present since each of the petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and unambiguous, thereby leaving no
room for construction.

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 2. NO. Since animus donandi or the intention to do an act of liberality is an essential element of a donation, petitioners argue
that it is important to look into the intention of the giver to determine if a political contribution is a gift. Petitioners‘ argument
is not tenable. First of all, donative intent is a creature of the mind. It cannot be perceived except by the material and
tangible acts which manifest its presence. This being the case, donative intent is presumed present when one gives a part
of ones patrimony to another without consideration. Second, donative intent is not negated when the person donating has
other intentions, motives or purposes which do not contradict donative intent. This Court is not convinced that since the
purpose of the contribution was to help elect a candidate, there was no donative intent. Petitioners‘ contribution of money
without any material consideration evinces animus donandi. The fact that their purpose for donating was to aid in the
election of the donee does not negate the presence of donative intent.

b. Capacity to Buy
i. Sps. Evono vs. DOF, CTA EB Case No. 705 dated June 4, 2012.  GIBA

EVONO v. DOF, CIR

CTA EB NO. 705, JUNE 4, 2012
DOCTRINE: To determine whether or not there is a donation, the true intention of the parties must be ascertained. Records show
that petitioners presented various contracts to prove that their children were also buyers in the sale of the subject properties.
However, in order to determine the tax liability for any transaction, not only the legal documents will be considered, but also some
other external factors surrounding the transaction, such as the capacity of the buyer in cases of transfer of properties. This is a
preventive measure imposed to prevent avoidance of the legal tax due.

FACTS: Maribel Evono purchased parcels of land from Sps. Credo and Sps. Diores in two separate transactions, by way of
absolute deeds of sale. For each separate transaction, the Sps. Credo and Diores acknowledge having received form Evono the
amounts of P1,356,000, and P4,117,500, respectively. For each transaction, BIR RDO-80 issued a Certificate Authorizing
registration (CAR).
Maribel Evono then wrote a letter to the Devenue District Officer requesting the latter to include the name of her children
in the CAR so that their names would also be affixed in the titles of the properties. For this, Evono received a computation for
Donor‘s tax which she eventually paid under protest. She then wrote a letter to the CIR requesting for the cancellation of the
computation for the Donor‘s tax. This letter was not acted upon by the CIR, hence Evono filed a petiton for review with the CTA. The
petition was dismissed by the first division because of prescription. Hence, Evono filed a petiton for review with the CTA EnBanc.
In their petition for review, Evono alleged that the frst division erred in assuming that Evono transferred to properties to the
minor children when in fact the deeds of absoulute sale says that the transfer was from the original owners and unto Evono and her
minor children.

ISSUE: Whether the inclusion on the names of the minor children in the CAR and transfer certificate of titles may be deemed as
donation from their parents.

RULING: Yes, as aptly ruled by the Special First Division there is clearly an animus donandi on the part of petitioners.
Donation (donatio) is defined as "a gift; a transfer of the title to property to one who receives it without paying for it; the act
by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another person, without any
consideration.
Section 98 of the NIRC of 1997, as amended, provides:
SEC. 98. Imposition of Tax.-
A. There shall be levied, assessed, collected and paid upon the transfer by any person, resident or non- resident, of the
property by gift, a tax, computed as provided in Section 99.
B. The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
C. whether the property 1s real or personal, tangible or intangible.

Pursuant to the above provision, the transfer of property by gift is taxable, whether the same is direct or indirect, real or
personal, tangible or intangible.
To determine whether or not there is a donation, the true intention of the parties must be ascertained. Records show that
petitioners presented various contracts to prove that their children were also buyers in the sale of the subject properties. However, in
order to determine the tax liability for any transaction, not only the legal documents will be considered, but also some other external
factors surrounding the transaction, such as the capacity of the buyer in cases of transfer of properties. This is a preventive measure
imposed to prevent avoidance of the legal tax due.
In this case, petitioners admitted that their children are not earning income, but are financially capable to purchase the
subject properties from their own savings from allowances given by their parents. Logically, at such young ages, the three minor
children would not be able to save such substantial amount, even if they were receiving enormous allowances from their parents.
To own a real property at an early age without a source of income, said property is deemed to be a donation, within the meaning of

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the law. There is a clear animus donandi, as evidenced by petitioners' request to include the names of their minor children in the
CARs and certificates of title of the properties.

3. Transfers considered a donation

a. Condonation of debt
b. Transfers for insufficient consideration
i. Sec. 100 of the NIRC (as amended by RA 10963)
ii. Compare with old rule - Philamlife vs. SOF, GR No. 210987 (2014)

PHILAM LIFE v. SECRETARY OF FINANCE

G.R. No. 210987, Case Digest
FACTS: Philam Life sold its shares in Philam Care Health Systems to STI Investments Inc., the highest bidder. After the sale was
completed, Philam life applied for a tax clearance and was informed by BIR that there is a need to secure a BIR Ruling due to a
potential donor‘s tax liability on the sold shares.

ISSUE on DONOR’S TAX: W/N the sales of shares sold for less than an adequate consideration be subject to donor‘s tax?

PETITIONER’S CONTENTION: The transaction cannot attract donor‘s tax liability since there was no donative intent and, ergo, no
taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the shares were sold at their actual fair
market value and at arm‘s length; that as long as the transaction conducted is at arm‘s length––such that a bonafide business
arrangement of the dealings is done in the ordinary course of business––a sale for less than an adequate consideration is not
subject to donor‘s tax; and that donor‘s tax does not apply to sale of shares sold in an open bidding process.

CIR DENYING THE REQUEST: Through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the
shares thus sold was lower than their book value based on the financial statements of Philam Care as of the end of 2008.
The Commissioner held donor‘s tax became imposable on the price difference pursuant to Sec. 100 of the National Internal
Revenue Code (NIRC):

SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where property, other than real property referred to in
Section 24(D), is transferred for less than an adequate and full consideration in money or money‘s worth, then the amount by which
the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.

RULING: The price difference is subject to donor’s tax.

Petitioner‘s substantive arguments are unavailing. 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.
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. Such issuance was made pursuant to the Commissioner‘s power to interpret tax laws and
to promulgate rules and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being applied retroactively
in contravention to Sec. 246 of the NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was already in force
the moment the NIRC was enacted.

ISSUE on TAX REMEDIES: The issue that now arises is this––where does one seek immediate recourse from the adverse ruling of
the Secretary of Finance in its exercise of its power of review under Sec. 4? Petitioner essentially questions the CIR‘s ruling that
Petitioner‘s sale of shares is a taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7
(C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by the CIR as bases for its unfavourable opinion. Clearly,
the Petition involves an issue on the taxability of the transaction rather than a direct attack on the constitutionality of Sec. 100, Sec.7
(c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a quandary on what
mode of appeal should be taken, to which court or agency it should be filed, and which case law should be followed.
Petitioner‘s above submission is specious (erroneous).
CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so long as it is
within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain
transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is
based.

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 Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested the
applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the validity of Sec. 7(c.2.2) of RR 06-08 and
RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary to petitioner‘s arguments.

iii. RMC No. 30-2019.

c. Renunciation of Conjugal or Community Property/Share in the Inheritance
i. Sec. 12 of RR No. 12-2018.
4. Exempt Gifts
a. Sec. 101 of the NIRC. (as amended by RA 10963)

II. VALUE-ADDED TAX

A. Concept and elements of VATable transactions
1. VAT as an indirect tax
a. Impact vs. incidence of tax.

Value-Added Tax Description

Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of
goods or properties and services in the Philippines and on importation of goods into the Philippines. It is an indirect tax,
which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.

Who are Required to File VAT Returns?

 Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or
properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed
Three Million Pesos (Php3,000,000.00)
 A person required to register as VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who imports goods

Value-Added Tax Rates

 On sale of goods and properties - twelve percent (12%) of the gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged
 On sale of services and use or lease of properties - twelve percent (12%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties
 On importation of goods - twelve percent (12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such as tax to
be paid by the importer prior to the release of such goods from customs custody; provided, that where the customs
duties are determined on the basis of quantity or volume of the goods, the VAT shall be based on the landed cost
plus excise taxes, if any.
 On export sales and other zero-rated sales - 0%

REVENUE REGULATIONS NO. 15-2018 issued on April 5, 2018 amends Revenue Regulations (RR) No. 8-2018 on the updating of
registration of taxpayers from Value-Added Tax (VAT) to non-VAT which was due last March 31, 2018.
Section 13 of RR No. 8-2018 is amended by extending the deadline of registration updates to read as follows:

SECTION 13. TRANSITORY PROVISIONS. – In connection with the provision of Section 24 (A)(2)(b) and Section 2(A)(2)(c) of the
Tax Code, as amended, all existing VAT registered taxpayers whose gross sales/receipts and other non-operating income in the
preceding year did not exceed the VAT threshold of P3,000,000.00 shall have the option to update their registration to non-VAT until
April 30, 2018, following the existing procedures on registration updates, and the inventory and surrender/cancellation of unused
VAT invoices/receipt. After the above-mentioned date, existing VAT-registered taxpayers who have note exceeded the threshold for
the immediately preceding three years, may opt to update their registration to non-VAT following rules and regulations on
registration updates, verification, and the inventory and cancellation of VAT invoices/receipts.

b. Contex vs. CIR, GR No. 151135 dated July 2, 2004.  VENGCO

CONTEX CORPORATION V. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 151135, July 2, 2004, Quisumbing, J.

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DOCTRINE 1: VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought,
transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee.
Unlike a direct tax, such as the income tax, which primarily taxes an individual‘s ability to pay based on his income or net
wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the
same. The VAT, thus, forms a substantial portion of consumer expenditures.

DOCTRINE 2: Only VAT-Registered entities can claim Input VAT Credit/Refund. An exempt VAT taxpayer, is not allowed
any tax credit on VAT (input tax) previously paid.

FACTS: Petitioner Contex Corporation is a domestic corporation engaged in the business of manufacturing hospital textiles
and garments and other hospital supplies for export. Petitioner‘s place of business is at the Subic Bay Freeport Zone
(SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant
to the provisions of RA No. 7227 (Bases Conversion and Development Act). As an SBMA-registered firm, petitioner is
exempt from all local and national internal revenue taxes except for the preferential tax provided for in Section 12 (c) of RA
No. 7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer.

From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in the conduct
of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items,
which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.

On the belief that it was exempt from all national and local taxes, including VAT, pursuant to RA No. 7227, petitioner filed 2
applications for tax refund or tax credit of the VAT it paid. The revenue district officer of BIR RDO No. 19, denied the first
application letter in 1998.

In 1999, petitioner filed another application for tax refund/credit directly with the regional director of BIR Revenue Region No.
4. The letter sought a refund or issuance of a tax credit certificate in the amount of P1,108,307.72, representing erroneously
paid input VAT for the period January 1, 1997 to November 30, 1998.

When the BIR Regional Director did not respond, petitioner elevated the matter to the Court of Tax Appeals (CTA), in a
petition for review. Petitioner stressed that under the National Internal Revenue Code (NIRC), and RA No. 7227 would show
that it was not liable in any way for any value-added tax.

In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims for refund are strictly
construed against the taxpayer. Since petitioner failed to establish both its right to a tax refund or tax credit and its
compliance with the rules on tax refund as provided for in the NIRC, its claim should be denied.

The CTA, in its Decision, partially granted the petition and ordered the BIR to Refund or in the alternative to issue a tax
credit certificate in favor of Petitioner the sum of P683,061.90, representing erroneously paid input VAT.

In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The tax
court stressed that the provisions apply only to entities registered as VAT taxpayers whose sales are zero-rated. Petitioner
does not fall under this category, since it is a non-VAT taxpayer thus it is exempt from VAT, pursuant to RA No. 7227.

Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of supplies and
materials. It pointed out that under Section 12(c) of RA No. 7227 and the Implementing Rules and Regulations of the Bases
Conversion and Development Act of 1992, all that petitioner is required to pay as a SBFZ-registered enterprise is a 5%
preferential tax.

The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred by the two-
year prescriptive period under the Tax Code. The CTA limited the refund only to the input VAT paid by the petitioner on the
supplies and materials directly used by the petitioner in the manufacture of its goods. It struck down all claims for input VAT
paid on maintenance, office supplies, freight charges, and all materials and supplies shipped or delivered to the petitioner‘s
offices.

Respondent CIR then filed a petition for review of the CTA decision by the Court of Appeals (CA). Respondent maintained
that the exemption of Contex Corp. under RA No. 7227 was limited only to direct taxes and not to indirect taxes such as the
input component of the VAT. The Commissioner pointed out that from its very nature, the value-added tax is a burden
passed on by a VAT registered person to the end users; hence, the direct liability for the tax lies with the suppliers and not
Contex.

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The CA reversed the CTA Decision holding that the exemption from duties and taxes on the importation of raw materials,
capital, and equipment of SBFZ-registered enterprises under RA No. 7227 and its implementing rules covers only "the VAT
imposable under Section 107 of the NIRC, which is a direct liability of the importer, and in no way includes the value-added
tax of the seller-exporter the burden of which was passed on to the importer as an additional costs of the goods." This was
because the exemption granted by RA No. 7227 relates to the act of importation and the NIRC specifically imposes the VAT
on importations. The CA applied the principle that tax exemptions are strictly construed against the taxpayer. The CA
pointed out that under the implementing rules of RA No. 7227, the exemption of SBFZ-registered enterprises from internal
revenue taxes is qualified as pertaining only to those for which they may be directly liable. It then stated that apparently, the
legislative intent behind RA No. 7227 was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may
be liable for and only in connection with their importation of raw materials, capital, and equipment as well as the sale of their
goods and services.

ISSUE 1: Whether VAT is a direct tax.

HELD 1: No. VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought,
transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee.
Unlike a direct tax, such as the income tax, which primarily taxes an individual‘s ability to pay based on his income or net
wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the
same. The VAT, thus, forms a substantial portion of consumer expenditures.

Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier
pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such
instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price, the seller
remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for
payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and legally
liable for the payment thereof, ultimately bears the burden of the tax.

ISSUE 2: Whether Petitioner is exempt from payment of VAT on its purchases of supplies and materials.

HELD 2: Yes. Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the
transaction can have preferential treatment in the following ways:

(a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the use or lease
of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax)
previously paid. This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter
or exchange of the goods or properties).

The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers
because the said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of VAT-exempt
goods/properties or services which are exempt from VAT is not entitled to any input tax on such purchase despite
the issuance of a VAT invoice or receipt.

(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax
burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with
these regulations.

Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the
VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt firm‘s business
or non-retail customers. It is for this reason that a sharp distinction must be made between zero-rating and exemption in
designating a value-added tax.

Apropos, the petitioner‘s claim to VAT exemption in the instant case for its purchases of supplies and raw materials is
founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them from all national and local
internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.

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Petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the respondent. In fact, petitioner is
registered as a NON-VAT taxpayer per Certificate of Registration issued by the BIR. As such, it is exempt from VAT on all its
sales and importations of goods and services.

ISSUE 3: Whether Petitioner may claim for a tax refund.

HELD: No. Petitioner‘s claim for exemption from VAT for its purchases of supplies and raw materials is incongruous with its
claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT Credit/Refund.

While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since
such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund.

Petitioner is registered as a NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed
any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption from the burden of VAT
on petitioner‘s purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as
petitioner is an exempt VAT taxpayer.

Rather, it is the petitioner‘s suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner
of the VAT erroneously passed on to the latter.

The CA did not commit any reversible error of law in holding that petitioner‘s VAT exemption under RA No. 7227 is limited to
the VAT on which it is directly liable as a seller and hence, it cannot claim any refund or exemption for any input VAT it paid,
if any, on its purchases of raw materials and supplies.

2. Persons Liable
a. VAT registration – Mandatory and Optional
i. Secs. 236(G) and 236(H) of the NIRC. (as amended by RA 10963)

SEC. 236. Registration Requirements. —

(G) Persons Required to Register for Value-Added Tax. —

1. Any person who, in the course of trade or business, sells, barters or exchanges goods or properties, or engages in the
sale or exchange of services, shall be liable to register for value-added tax if:
a. His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Section
109(A) to (BB), have exceeded Three million pesos (₱3,000,000); or
b. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other
than those that are exempt under Section 109(A) to (BB), will exceed Three million pesos (₱3,000,000).
2. Every person who becomes liable to be registered under paragraph (1) of this Subsection shall register with the Revenue
District Office which has jurisdiction over the head office or branch of that person, and shall pay the annual registration fee
prescribed in Subsection (B) hereof. If he fails to register, he shall be liable to pay the tax under Title IV as if he were a
VAT-registered person, but without the benefit of input tax credits for the period in which he was not properly registered.

ii. Sec. 109(2) of the NIRC.

Sec. 109. Exempt Transactions.–

1. Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: X
XX
2. A VAT-registered person may elect that Subsection (1) not apply to its sale of goods or properties or services: Provided,
That an election made under this Subsection shall be irrevocable for a period of three (3) years from the quarter the
election was made.

iii. Q/As 6, 30 and 31 of RMC No. 46-2008.

REVENUE MEMORANDUM CIRCULAR NO. 46-2008 issued on June 20, 2008 provides basic questions and answers to clarify
issues concerning common carriers by air and their agents relative to the revenue and receipt from transport of passengers,
goods/cargoes and ma il and from excess baggage.

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Q-6: Can on-line international air carriers opt to be under the VAT system and be subject to VAT at zero-rate on their
outbound international operations similar to domestic air carriers registered as domestic corporations?

A-6: No. The business of an international air carrier is exempt from VAT because it is a sale of services subject to percentage tax. If
the main business is exempt from VAT, the VAT-exempt person cannot elect that the said exempt business/es be placed under the
VAT system. The option to be subject to VAT on its exempt transactions is available only to a VAT-registered person pursuant to
Section 109(2) of the Code, as amended by R.A. 9337.

Q-30: Can an international airline company who is engaged in other activities subject to VAT, i.e. leasing of properties,
etc., elect that all its business activities be subject to VAT?

A-30: No. The main or principal business of an international airline company is VAT-exempt because the same is subject to the
percentage tax under Title V of the Tax Code. Therefore, the international airline cannot elect that its exempt principal business be
subject to VAT even if its secondary businesses are subject to VAT.

Q-31: How do we determine the main or principal business of a taxpayer who is engaged in mixed business activities?

A-31: In determining the main or principal business of a taxpayer, we apply the pre-dominance test. Under this test, if more than fifty
percent (50%) of its gross sales and/or gross receipts comes from its business/es subject to VAT, its main/principal business falls
within the VAT system making its status as a VAT person. Otherwise, he cannot be considered as a VAT person eligible for the
election provided for under Section 109(2) of the Tax Code.

iv. VAT vs. Percentage Tax – Sec. 109(BB) vs. Sec. 116 of the NIRC. (as amended
by RA 10963)

Sec. 116. Tax on Persons Exempt from Value-added Tax (VAT).— Any person whose sales or receipts are exempt under
Section 109(BB) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives, and beginning January 1,
2019, self-employed and professionals with total annual gross sales and/or gross receipts not exceeding Five hundred thousand
pesos (₱500,000) shall be exempt from the three percent (3%) gross receipts tax herein imposed.

REVENUE REGULATIONS NO. 7-2004 issued on May 21, 2004 amends certain provisions of RR No. 1-2003, as amended, by
excluding the services rendered by doctors of medicine duly registered with the Professional Regulatory Commission (PRC) and
services rendered by lawyers duly registered with the Integrated Bar of the Philippines (IBP) from the coverage of Value-Added Tax
(VAT).
Beginning January 1, 2004, services rendered by the following shall be excluded from the coverage of VAT, in
accordance with Section 2 of Republic Act (RA) No. 9238:
a. Services rendered by a doctor of medicine duly registered and of good standing with the PRC in the practice of
his medical profession, for such services which may be rendered, under existing law, only by a duly licensed
doctor of medicine in good standing with the PRC
b. Legal services rendered by a lawyer duly registered and of good standing with the IBP in the practice of his
legal profession for such services which may be rendered, under existing law, only by a lawyer duly registered
and in good standing with the IBP
c. Medical services rendered by a general professional partnership whose partners are composed exclusively of
doctors of medicine registered with the PRC where the general professional partnership was organized solely
and exclusively for the practice of medical profession, and for such services which may be rendered, under
existing law, only by a duly licensed doctor of medicine in good standing with the PRC
d. Legal services rendered by a general professional partnership whose partners are composed exclusively of
lawyers duly registered with the IBP in the practice of legal profession where the general professional
partnership was organized solely and exclusively for the practice of law, and for such services which may be
rendered, under existing law, only by a lawyer duly registered and of good standing with the IBP.
Doctors of medicine and lawyers and general professional partnerships referred to above, whether registered as a VAT
taxpayer or a NON-VAT taxpayer, are required to update their corresponding registration records with the concerned Revenue
District Office on or before June 20, 2004, by filing the necessary registration update forms (BIR Form No. 1905) converting their
status from VAT to NON-VAT or Non-Percentage Tax taxpayer, for those whose services were not subject to VAT but to Percentage
Tax.
Doctors of medicine and lawyers and general professional partnerships referred to in the Regulations, who change status
from VAT to NON-VAT as a result of the effectivity of RA No. 9238 should submit on or before the date he/she/it registered as a
NON-VAT taxpayer (which shall in no case be later than June 30, 2004) an inventory of unused receipts as of the date he registered
as a NON-VAT taxpayer, indicating the number of booklets and the corresponding serial numbers. Unused VAT receipts included in
the said inventory submitted to the BIR shall be allowed for use in transactions provided the phrase ―NON-VAT registered as of

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__________________‖ is stamped on all copies thereof. These receipts with the proper stamp shall be allowed for use until July 31,
2004.

b. Meaning of the phrase ―in the ordinary course of trade or business‖

i. CIR v. CA & Commonwealth Management Services, GR No. 125355 dated
March 30, 2000.  VILLABLAGON
ii. CIR vs. Sony Phils, Inc., G.R. No. 178697 (2010)  ALANZALON
iii. Mindanao II Geothermal Partnership vs. CIR, GR No. 193301 dated March
11, 2013.  ALMOJUELA
iv. Power Sector Assets and Liabilities Management Corporation vs. CIR, GR
No. 198146 dated August 8, 2017.  DELFIN

COMMISSIONER OF INTERNAL REVENUE V. COURT OF APPEALS

329 SCRA 237, G.R. No. 125355 March 30, 2000
DOCTRINE: The above provision clarifies that even a non-stock, nonprofit, organization or government entity, is liable to pay VAT
on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter,
exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term ―in
the course of trade or business‖ requires the regular conduct or pursuit of a commercial or an economic activity, regardless of
whether or not the entity is profit-oriented.

The definition of the term ―in the course of trade or business‖ incorporated in the present law applies to all transactions even to
those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells,
barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock,
nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.

FACTS: Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and
existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the
latter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its
other affiliates.
Petitioner, Commissioner of the Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988.
With this, COMASERCO filed with the BIR, a letter-protest objecting to the latter‘s finding of deficiency VAT. In lieu
however, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency
VAT.
As a result, COMASERCO filed with the Court of Tax Appeals a petition for review contesting the Commissioner‘s
assessment asserting that the services it rendered to Philamlife and its affiliates, relating to collections, consultative and other
technical assistance, including functioning as an internal auditor, were on a ―no-profit, reimbursement-of-cost-only‖ basis. It averred
that it was not engaged in the business of providing services to Philamlife and its affiliates. COMASERCO stressed that it was not
profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988, hence
not liable to pay VAT.
The Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue.
On its appeal with the Court of Appeals, the appellate court rendered decision reversing that of the Court of Tax Appeals.
The former anchored its decision on the ratiocination in another tax case involving the same parties, where it was held that
COMASERCO was not liable to pay fixed and contractor‘s tax for services rendered to Philamlife and its affiliates. The Court of
Appeals, in that case, reasoned that COMASERCO was not engaged in business of providing services to Philamlife and its
affiliates. In the same manner, the Court of Appeals held that COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling services.

ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon

HELD/RULING: YES. The Court agreed with the Petitioner that to ―engage in business‖ and to ―engage in the sale of services‖ are
two different things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or
consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit
is derived from rendering the service.
Pursuant to Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other sections, Section 99 of the
Tax Code, it is provided that:

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Sec. 105. Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections
106 and 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. This rule shall likewise apply to existing sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.
The phrase ―in the course of trade or business‖ means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a
nonstock, nonprofit organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members
of their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by
nonresident foreign persons shall be considered as being rendered in the course of trade or business.
Contrary to COMASERCO‘s contention the above provision clarifies that even a non-stock, non-profit, organization or
government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of
profit attributable thereto. The term ―in the course of trade or business‖ requires the regular conduct or pursuit of a commercial or an
economic activity regardless of whether or not the entity is profit-oriented.
The definition of the term ―in the course of trade or business‖ present law applies to all transactions even to those made
prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of goods and services.
Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase ―sale of services‖ as the ―performance of all
kinds of services for others for a fee, remuneration or consideration.‖ It includes ―the supply of technical advice, assistance or
services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking
or project.‖
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 12 emphasizing that a
domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and
received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services
rendered. In fact, even if such corporation was organized without any intention realizing profit, any income or profit generated by the
entity in the conduct of its activities was subject to income tax.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services
rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT
on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is
subject to VAT.

COMM’R OF INTERNAL REVENUE v. SONY PHILIPPINES

G.R. No. 178697. November 17, 2010
DOCTRINES:
It is evident under Section 110 of the 1997 Tax Code that an advertising expense duly covered by a Value Added Tax (VAT) invoice
is a legitimate business expense. —The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the
CTA-EB, Sony‘s deficiency VAT assessment stemmed from the CIR‘s disallowance of the input VAT credits that should have been
realized from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an advertising expense
duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than CIR‘s own witness, Revenue
Officer Antonio Aluquin. There is also no denying that Sony incurred advertising expense. Aluquin testified that advertising
companies issued invoices in the name of Sony and the latter paid for the same. Indubitably, Sony incurred and paid for advertising
expense/services. Where the money came from is another matter altogether but will not change said fact.

Value Added Tax (VAT); Services rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are also
subject to Value Added Tax (VAT).—In the case of CIR v. Court of Appeals (CA), 329 SCRA 237 (2000), the Court had the occasion
to rule that services rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are also subject to
VAT. The case, however, is not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in
turn, the affiliates paid the former reimbursement-oncost which means that it was paid the cost or expense that it incurred although
without profit. This is not true in the present case. Sony did not render any service to SIS at all. The services rendered by the
advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the
amount equivalent to the latter‘s advertising expense but never received any goods, properties or service from Sony.

FACTS: On November 28, 1990 the Commission on Internal Revenue (CIR) issued a Letter of Authority (LOA) authorizing certain
revenue officer to examine the books of accounts and other accounting records regarding revenue taxes for the "period 1997 and

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unverified prior years". On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and penalties were issued by CIR
which Sony protested. Acting on the protest of Sony, CIR issued the final assessment notices, demand letter and details of
discrepancies wherein Sony was made liable to pay P15,895,632.25 comprising of Late Remittance of Income Payments, Late
Remittance of Withholding Tax, Deficiency of Value Added Tax (VAT) on Royalty, Deficiency on Expanded Withholding Wax (EWT),
and Deficiency on VAT.

Sony then sought for the re-evaluation of the assessment by filing a protest.

After trial, the First Division of the Court of Tax Appeals (CTA) partly granted the petition of Sony. CTA disallowed the deficiency
VAT assessment because the subsidized advertising expense paid by Sony was duly covered by a VAT invoice which resulted to an
input VAT credit. It also disallowed the EWT assessment on rental expense because the rental deposit was incurred from January to
March 1998. CTA however maintained that deficiency on EWT Assessment on the motor vehicle and professional fees paid to
general profession partnership. It also assessed Cony with 5% EWT pursuant to RR 6-85. Except for compromise penalties, CTA
also upheld the penalties for the late payment of VAT on royalties, late remittance for Final Withholding tax on royalty as of
December 1997 and for the late remittance of EWT assessment as well as the penalties.

CIR sought for reconsideration of the decision of CTA-First Division which was denied. CIR then filed a petition for review with the
CTA En Banc raising the same issues. CTA-En banc dismissed the petition as well as CIR's motion for reconsideration. Hence the
present petition for review.

ISSUE: Whether or not Sony is liable to pay deficiency VAT.

HELD: CIR insists that LOA 19734, although it states "the period 1997 and unverified prior years" should be understood to mean the
fiscal year ending in March 31, 1998. The Court cannot agree. Based on Section13 of the Tax Code, a Letter of Authority is authority
given to appropriate Revenue Officers assigned to perform such functions. It empowers or enables said officer to examine the books
of account and other records of a taxpayer for the purpose of collecting the correct amount of tax. The very provision of the Tax
Code that the CIR relies on is unequivocal regarding its power to grant authority to examine and assess a taxpayer.

XXX

Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important
is that the revenue office so authorized must not go beyond the authority given. In absence of such authority, the assessment or
examination is a nullity.

As earlier stated, LOA 19734 covered the "period 1997 and unverified prior years". For the said reason, the CIR, acting through its
revenue officers went beyond the scope of their authority because the deficiency VAT Assessment they arrived at was based in
records from January - Mary 1998. As pointed put by CATFirst Decision, CIR knew which period should be covered by the
investigation, Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including in the
LO or by issuing another LOA.

Upon review of CTA-En Ban, the phrase "unverified prior years" violated Section C of RMO-43-90 which state that LOA should
cover a taxable period not exceeding one taxable year. On this point alone, the deficiency VAT assessment should have been
disallowed.

CIR also argued that Sony's advertising expense could not be considered as an input VAT Credit because the same was eventually
reimbursed to Sony International. Hence, Sony did no incur any expense and is not entitled to a tax credit. This is also erroneous.
As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sony‘s deficiency VAT assessment stemmed from the
CIR‘s disallowance of the input VAT credits that should have been realized from the advertising expense of the latter. It is evident
under Section 110 of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business
expense. This is confirmed by no less than CIR‘s own witness, Revenue Officer Antonio Aluquin. There is also no denying that Sony
incurred advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid
for the same. Indubitably, Sony incurred and paid for advertising expense/services. Where the money came from is another matter
altogether but will not change said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable.

XXX

Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax, the Court agrees.
However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy
termed by the CIR as reimbursement was not even exclusively earmarked for Sony‘s advertising expense for it was but an

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assistance or aid in view of Sony‘s dire or adverse economic conditions and was only ―equivalent to the latter‘s (Sony‘s) advertising
expenses.‖ Section 106 of the Tax Code explains when VAT may be imposed.

XXX

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.

In the case of CIR v. Court of Appeals (CA),23 the Court had the occasion to rule that services rendered for a fee even on
reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however, is not applicable to the
present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former reimbursement-
on-cost which means that it was paid the cost or expense that it incurred although without profit. This is not true in the present case.
Sony did not render any service to SIS at all. The services rendered by the advertising companies, paid for by Sony using SIS dole-
out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latter‘s advertising expense but
never received any goods, properties or service from Sony.

MINDANAO II GEOTHERMAL PARTNERSHIP v. COMM’R OF INTERNAL REVENUE

MINDANAO I GEOTHERMAL PARTNERSHIP v. COMM’R OF INTERNAL REVENUE
G.R. Nos. 193301, 194637, March 11, 2013
DOCTRINE: SUMMARY OF RULES ON PRESCRIPTIVE PERIODS INVOLVING VAT
1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-
rated or effectively zero-rated sales were made.
2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within
which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-
year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-
day period expires without any decision from the CIR, then the administrative claim may be considered denied by inaction
3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR‘s decision denying the administrative
claim, or from the expiration of the 120-day period without any action from the CIR.
4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day
periods.

FACTS: Mindanao I and II (Mindanao) are value-added taxpayers, and Block Power Production Facilities accredited by the
Department of Energy. They had a Build-Operate-Transfer contract with the Philippine National Oil Corporation–Energy
Development Company (PNOC-EDC), whereby Mindanao converts steam supplied to it by PNOC-EDC into electricity, and then
delivers the electricity to the National Power Corporation (NPC) in behalf of PNOC-EDC.
The Electric Power Industry Reform Act of 2000 (EPIRA, RA 9136), amended the Tax Reform Act of 1997 (RA 8424),
when it decreed that sales of power by generation companies shall be subjected to a zero rate of VAT. Pursuant to EPIRA,
Mindanao I and II filed their claims for the issuance of tax credit certificates on unutilized or excess input taxes from their sales of
generated power and delivery of electric capacity and energy to NPC.
The CTA En Banc denied Mindanao II‘s claims for refund tax credit for the first and second quarters of 2003, and
Mindanao I‘s claims for refund/tax credit for the first, second, third, and fourth quarters of 2003, for being filed out of time.
The following are relevant dates:

xxx

CTA (En Banc): Mindanao II‘s judicial claims were filed beyond the period allowed in Sec. 112(A), by which the reckoning of the
two-year prescriptive period for filing the application for refund or credit of input VAT attributable to zero-rated sales or effectively
zero-rated sales shall be counted from the close of the taxable quarter when the sales were made (regardless of whether the tax
was actually paid), according to CIR v. Mirant Pagbilao Corporation (Mirant). Also, the sale of the fully-depreciated Nissan Patrol is
incidental to Mindanao II‘s VAT zero-rated transactions and is VATable pursuant to Sec. 105.
Mindanao I‘s claims for the first, second, third and fourth quarters of 2003 were filed out of time. Section 229 is inapplicable in light
of Mirant. Moreover, the procedure prescribed under Section 112(C) should be followed first before the CTA En Banc can act on
Mindanao I‘s claim.
Mindanao I and II went up to the Supreme Court arguing that their claims were timely filed pursuant to the case of Atlas,
which was then the controlling ruling at the time of the filing. The Mirant case, which uses the close of the taxable quarter when the
sales were made as the reckoning date in counting the two-year prescriptive period, cannot be applied retroactively to their
prejudice.

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 14
ISSUE 1: Whether the reckoning date for counting the two-year prescriptive period in Section 112 should be counted from the end
of the taxable quarter when the sales were made (Mirant) or the date of filing the return (Atlas)?

HELD: Neither Atlas nor Mirant applies, because when Mindanao II and Mindanao I filed their respective administrative and judicial
claims in 2005, neither case had been promulgated. Atlas was promulgated on 8 June 2007, Mirant on 12 September 2008.
Besides, Atlas merely stated that the two-year prescriptive period should be counted from the date of payment of the output VAT,
not from the close of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine did not interpret,
expressly or impliedly, the 120+30 day periods.

Prescriptive Period for the Filing of Administrative Claims

Section 112(A) of the 1997 Tax Code was the applicable law at the time of filing of the claims in issue, therefore the
claims needed to have been filed within two (2) years after the close of the taxable quarter when the sales were made. Mindanao I
and II‘s administrative claims for the first quarter of 2003 had prescribed, but their claims for the second, third and fourth quarters of
2003 were filed on time.

Prescriptive Period for the Filing of Judicial Claims

In determining whether the claims for the second, third and fourth quarters of 2003 had been properly appealed, there is
still see no need to refer to either Atlas or Mirant, or even to Sec. 229. The second paragraph of Sect. 112(C) is clear that the
taxpayer can appeal to the CTA ―within thirty (30) days from the receipt of the decision denying the claim or after the expiration of
the one hundred twenty day-period.‖
The 120+30 day periods are mandatory and jurisdictional. The taxpayer cannot simply file a petition with the CTA without
waiting for the Commissioner‘s decision within the 120-day period, because otherwise there would be no ―decision‖ or ―deemed a
denial‖ decision for the CTA to review. Moreover, Sec. 112(C) expressly grants a 30-day period to appeal to the CTA, and this
period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within such time.
The said prescriptive period does not refer to the filing of the judicial claim with the CTA, but to the administrative claim with the
Commissioner.

San Roque: Recognition of BIR Ruling No. DA-489-03

BIR Ruling No. DA-489-03 provided that the ―taxpayer-claimant need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA.‖ In the consolidated cases of CIR v. San Roque, however, the Supreme Court En Banc held
that the taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner‘s decision within the 120-day
jurisdictional period. Notwithstanding, the Court also held in San Roque that BIR Ruling No. DA-489-03 constitutes equitable
estoppel in favor of taxpayers. Being a general interpretative rule, it can be relied on by all taxpayers from the time of its issuance on
10 December 2003 up to its reversal by the Court in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi) on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.‖
Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 April 2005. Counting 120
days after filing of the administrative claim (11 August 2005) and 30 days after the CIR‘s denial by inaction, the last day for filing a
judicial claim with the CTA for the second, third, and fourth quarters of 2003 was on 12 September 2005. However, the judicial claim
could not be filed earlier than 11 August 2005, which was the expiration of the 120-day period for the Commissioner to act.
Mindanao II filed its judicial claim for the second quarter before the expiration of the 120-day period; it was thus prematurely filed.
However, pursuant to San Roque, the claim qualifies under the exception to the strict application of the 120+30 day periods. Its
judicial claims for the third quarter and fourth quarter of 2003 were filed on time.
Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April 2005. Counting 120
days after filing of the administrative claim with the CIR (2 August 2005) and 30 days after the CIR‘s denial by inaction, the last day
for filing a judicial claim was on 1 September 2005. However, the judicial claim cannot be filed earlier than 2 August 2005, which is
the expiration of the 120-day period for the Commissioner to act on the claim. Mindanao I prematurely filed its judicial claim for the
second quarter of 2003 but claim qualifies under the exception in San Roque. Its judicial claims for the third and fourth quarters of
2003, however, were filed after the prescriptive period.

ISSUE 2: Whether the sale of the fully-depreciated Nissan Patrol is a one-time transaction not incidental to the VAT zero-rated
operation of Mindanao II, thus not VATable?

Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its
business but an isolated transaction that should not have been subject to 10% VAT. It does not follow that an isolated transaction
cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 would show that a transaction ―in
the course of trade or business‖ includes ―transactions incidental thereto.‖ In the course of its business, Mindanao II bought and
eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II‘s property, plant, and equipment.

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 15
Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II‘s business which should be
liable for VAT.

DISPOSITION: Petitions partially granted. The claim of Mindanao II for the first quarter of 2003 is DENIED, while its claims for the
second, third, and fourth quarters of 2003 are GRANTED. The claims of Mindanao I for the first, third, and fourth quarters of 2003
are DENIED while its claim for the second quarter of 2003 is GRANTED.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION v. COMM’R

OF INTERNAL REVENUE
G.R. No. 198146 August 8, 2017
DOCTRINE:
The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

FACTS: Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled
corporation created under Republic Act No. 9136 (RA 9136), also known as the Electric Power Industry Reform Act of 2001
(EPIRA). Section 50 of RA 9136 states that the principal purpose of PSALM is to manage the orderly sale, disposition, and
privatization of the National Power Corporation (NPC) generation assets, real estate and other disposable assets, and
Independent Power Producer (IPP) contracts with the objective of liquidating all NPC financial obligations and stranded
contract costs in an optimal manner.

PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant
(Pantabangan-Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant) on 8 September 2006 and 14 December
2006, respectively. First Gen Hydropower Corporation with its $129 Million bid and SN Aboitiz Power Corporation with its
$530 Million bid were the winning bidders for the PantabanganMasiway Plant and Magat Plant, respectively.

On 28 August 2007, the NPC received a letter dated 14 August 2007 from the Bureau of Internal Revenue (BIR) demanding
immediate payment of ₱3,813,080,472 deficiency value-added tax (VAT) for the sale of the Pantabangan-Masiway Plant
and Magat Plant. The NPC indorsed BIR's demand letter to PSALM. On 30 August 2007, the BIR, NPC, and PSALM
executed a Memorandum of Agreement (MOA), wherein in compliance with the MOA, PSALM remitted under protest to the
BIR the amount of ₱3, 813, 080, 472, representing the total basic VAT due.

On 21 September 2007, PSALM filed with the Department of Justice (DOJ) a petition for the adjudication of the dispute with
the BIR to resolve the issue of whether the sale of the power plants should be subject to VAT. DOJ ruled in favor of PSALM.

The BIR moved for reconsideration the BIR stated that the sale of the subject power plants by PSALM to private entities is in
the course of trade or business, as contemplated under Section 105 of the National Internal Revenue Code (NIRC) of 1997,
which covers incidental transactions. Thus, the sale is subject to VAT. On 14 January 2009, the DOJ denied BIR's Motion for
Reconsideration.

On 7 April 2009, the BIR Commissioner filed with the Court of Appeals a petition for certiorari, seeking to set aside the DOJ's
decision for lack of jurisdiction and was dismissed. The Court of Appeals held that the petition filed by PSALM with the DOJ
was really a protest against the assessment of deficiency VAT, which under Section 204 of the NIRC of 1997 is within the
authority of the Commissioner of Internal Revenue (CIR) to resolve. In fact, PSALM's objective in filing the petition was to
recover the ₱3,813,080,472 VAT which was allegedly assessed erroneously and which PSALM paid under protest to the
BIR. PSALM moved for reconsideration, which the Court of Appeals denied in its 3 August 2011 Resolution. Hence, this
petition.

ISSUE: Whether or not the sale of the Pantabangan-Masiway and Magat Power Plants to private entities under the mandate
of the EPIRA is subject to VAT

HELD: NO. The Court must determine whether the sale is "in the course of trade or business" as contemplated under
Section 105 of the NIRC, which reads:

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SEC 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee
of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties
or services at the time of the effectivity of Republic Act 7716.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by
nonresident foreign persons shall be considered as being rendered in the course of trade or business. (Emphasis supplied).

Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition, and privatization
of the NPC generation assets, real estate and other disposable assets, and IPP contracts with the objective of liquidating all
NPC financial obligations and stranded contract costs in an optimal manner.

PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and Magat Power
Plants, is pursuant to PSALM's mandate under the EPIRA law and is not conducted in the course of trade or business.
PSALM cited the BIR Ruling No. 020- 02, that PSALM' s sale of assets is not conducted in pursuit of any commercial or
profitable activity as to fall within the ambit of a VAT-able transaction under Sections 105 and 106 of the NIRC. The pertinent
portion of the ruling adverted to states:

2. Privatization of assets by PSALM is not subject to VAT

Pursuant to Section 105 in relation to Section 106, both of the Tax Code of 1997, a value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods, is collected from any person, who, in the
course of trade or business, sells, barters, exchanges, leases goods or properties, which tax shall be paid by the seller or
transferor.

The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial activity, including
transactions incidental thereto.

Since the disposition or sale of the assets is a consequence of PSALM's mandate to ensure the orderly sale or disposition
of' the property and thereafter to liquidate the outstanding loans and obligations of NPC, utilizing the proceeds from sales
and other property contributed to it, including the proceeds from the Universal Charge, and not conducted in pursuit of any
commercial or profitable activity, including transactions incidental thereto, the same will be considered an isolated
,transaction, which will therefore not be subject to VAT. (BIR Ruling No. 113-98 dated July 23, 1998) (Emphasis
supplied)

CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-02 is also deemed revoked since PSALM
is a successor-in-interest of NPC. Furthermore, the CIR avers that prior to the sale, NPC still owned the power plants and
not PSALM, which is just considered as the trustee of the NPC properties. Thus, the sale made by NPC or its successors-in-
interest of its power plants should be subject to the 10% VAT beginning 1 November 2005 and 12% VAT beginning 1
February 2007.

We do not agree with the CIR's position. The power plants are already owned by PSALM, not NPC. Under the EPIRA law,
the ownership of these power plants was transferred to PSALM for sale, disposition, and privatization in order to liquidate all
NPC financial obligations. Unlike the Mindanao II case, the power plants in this case were not previously used in PSALM's
business. The power plants, which were previously owned by NPC were transferred to PSALM for the specific purpose of
privatizing such assets. The sale of the power plants cannot be considered as an incidental transaction made in the course
of NPC's or PSALM's business. Therefore, the sale of the power plants should not be subject to VAT. Since PSALM is not
a successor-in-interest of NPC, the repeal by RA 9337 of NPC's VAT exemption does not affect PSALM.

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 17
In any event, even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is not "in the course
of trade or business" as contemplated under Section 105 of the NIRC, and thus, not subject to VAT. The sale of the power
plants is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC
generation assets. PSALM was created primarily to liquidate all NPC financial obligations and stranded contract costs in an
optimal manner.

B. VAT on Goods
1. Sec. 106 of the NIRC.

SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or
properties, value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

(1) ―Goods or Properties.‖ The term ―goods‖ or ―properties ―shall mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:

(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;

(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;

(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;

(d) The right or the privilege to use motion picture films, tapes and discs; and

(e) Radio, television, satellite transmission and cable television time.

The term ―gross selling price‖ means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to
the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise tax,
if any, on such goods or properties shall form part of the gross selling price.

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

(a) Export Sales. - The term ―export sales‖ means:

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);

(2) Sale and delivery of goods to:

(i) Registered enterprises within a separate customs territory as provided under special laws; and
(ii) Registered enterprises within tourism enterprise zones as declared by the Tourism Infrastructure and Enterprise Zone
Authority(TIEZA) subject to the provisions under Republic Act No. 9593 or The Tourism Act of 2009.

(NOTE: The amendment introduced by the TRAIN Law on Section 106(A)(2)(9)(2) was vetoed by the President. The veto message
reads:

I am constrained to veto the provisions under Section 31 of the enrolled bill, to wit:

Section 31:

(2) Sale and Delivery of Goods to:

(i) Registered Enterprises Within a Separate Customs Territory As Provided Under Special Laws; and
(ii) Registered Enterprises Within Tourism Enterprise Zones As Declared By The Tourism Infrastructure And Enterprise Zone
Authority(TIEZA) Subject To The Provisions Under Republic Act No. 9593 Or The Tourism Act of 2009.)

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(3) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to
be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(4) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of
total annual production;

(5) Those considered export sales under Executive Order No. 226, otherwise known as the ―Omnibus Investment Code of 1987‖,
and other special laws; and

(6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport
operations: Provided, That the goods, supplies, equipment and fuel shall be used for international shipping or air transport
operations.

Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to the twelve percent (12%) value-added tax and no longer be
considered export sales subject to zero percent (0%) VAT rate upon satisfaction of the following conditions:

(1) The successful establishment and implementation of an enhanced VAT refund system that grants refunds of creditable input tax
within ninety (90) days from the filing of the VAT refund application with the Bureau: Provided, That, to determine the effectivity of
item no. 1, all applications filed from January 1, 2018 shall be processed and must be decided within ninety (90) days from the filing
of the VAT refund application; and

(2) All pending VAT refund claims as of December 21, 2017 shall be fully paid in cash by December 31, 2019.

Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of Internal Revenue (BIR) and in the
Bureau of Customs (BOC) that will handle the processing and granting of cash refunds of creditable input tax.

An amount equivalent to five percent (5%) of the total VAT collection of the BIR and the BOC from the immediately preceding year
shall be automatically appropriated annually and shall be treated as a special account in the General Fund or as trust receipts for
the purpose of funding claims for VAT refund: Provided, That any unused fund, at the end of the year shall revert to the General
Fund.

Provided, further, That the BIR and the BOC shall be required to submit to the Congressional Oversight Committee on the
Comprehensive Tax Reform Program (COCCTRP) a quarterly report of all pending claims for refund and any unused fund.

(b) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines
is a signatory effectively subjects such sales to zero rate.

(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:

(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the
course of business;

(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and

(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or
cessation.

(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection (A) of this Section shall
also apply to goods disposed of or existing as of a certain date if under circumstances to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a VAT-registered
person changes or is terminated.

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(D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and subsequently returned or for
which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts for the quarter in
which a refund is made or a credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time
of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within
the same quarter it was given.

(E) Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall, by rules and regulations
prescribed by the Secretary of Finance, determine the appropriate tax base in cases where a transaction is deemed a sale, barter or
exchange of goods or properties under Subsection (B) hereof, or where the gross selling price is unreasonably lower than the actual
market value.

2. Sale of Real Property – Tax base for goods vs. Tax base for real property. – Sec. 4.106-4 of RR No.
16-2005.

SEC. 4.106-4. Meaning of the Term ―Gross Selling Price‖. – The term ―gross selling price‖ means the total amount of money or
its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the
goods or properties, excluding VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price.

In the case of sale, barter or exchange of real property subject to VAT, gross selling price shall mean the consideration stated in the
sales document or the fair market value whichever is higher. The term ―fair market value‖ shall mean whichever is the higher of:

1) the fair market value as determined by the Commissioner (zonal value), or

2) the fair market value as shown in schedule of values of the Provincial and City Assessors (real property tax declaration).
However, in the absence of zonal value, gross selling price refers to the market value shown in the latest real property tax
declaration or the consideration, whichever is higher. If the gross selling price is based on the zonal value or market value of the
property, the zonal or market value shall be deemed inclusive of VAT. If the VAT is not billed separately, the selling price stated in
the sales document shall be deemed to be inclusive of VAT.

a. Exempt Real Property – Sec. 109(p) of the NIRC. (as amended by RA 10963)
i. Clarification of VAT exempt thresholds – Sec. 4.109-1 p of RR No. 13-2018.

SEC. 109. Exempt Transactions. –

(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax.

(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real
property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, residential lot valued at One million pesos (P1,500,000) and below,
house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided,
That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, sale of real property utilized for socialized housing as
defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings with the selling price of not more than Two
million pesos (P2,000,000): Provided, further, That every three (3) years thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as published by the Philippine Statistics Authority(PSA);

SEC. 4.109-1. VAT-Exempt Transactions. – xxx xxx xxx

(B) Exempt transactions. –

(1) Subject to the provisions of Section 4.109.2 hereof, the following transactions shall be exempt from VAT:

(p) The following sales of real properties are exempt from VAT, namely:

(1) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or
business.

However, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of
trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a
transaction incidental to the taxpayer‘s main business.

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 (2) Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as the "Urban
Development and Housing Act of 1992" and other related laws.

"Low-cost housing" refers to housing projects intended for homeless low-income family beneficiaries, undertaken by the
Government or private developers, which may either be a subdivision or a condominium registered and licensed by the Housing and
Land Use Regulatory Board/Housing (HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling
price is within the selling price per unit as set by the Housing and Urban Development Coordinating Council (HUDCC)
pursuant to RA No. 7279 otherwise known as the ―Urban Development and Housing Act of 1992‖ and other laws.

(3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as
RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P450,000.00 or as may from time to time be determined by the
HUDCC and the NEDA and other related laws.

"Socialized housing" refers to housing programs and projects covering houses and lots or home lots only undertaken by
the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services
development, long-term financing, liberated terms on interest payments, and such other benefits in accordance with the provisions
of RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and RA No. 7835 and RA No. 8763.
"Socialized housing" shall also refer to projects intended for the underprivileged and homeless wherein the housing package selling
price is within the lowest interest rates under the Unified Home Lending Program (UHLP) or any equivalent housing program of the
Government, the private sector or nongovernment organizations.

(4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot
and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted in
2011 using the 2010 Consumer Price Index values.

If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as
one residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed P1,500,000.00. Adjacent
residential lots, although covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same
buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot.

Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not
primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale of real property
utilized for socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings
with selling price of not more than Two Million Pesos (P2,000,000.00): Provided, further, That every three (3) years thereafter,
the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as published by the Philippine
Statistics Authority (PSA).

3. Transactions deemed sale – Sec. 106(B) of the NIRC - Sec. 4.106-7 of RR No. 16-2005 as amended
by RR No. 4-2007.

SEC. 4.106-7. Transactions Deemed Sale. –

(a) The following transactions shall be ―deemed sale‖ pursuant to Sec. 106 (B) of the Tax Code:

(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the
course of business. Transfer of goods or properties not in the course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;

(2) Distribution or transfer to:

i. Shareholders or investors share in the profits of VAT-registered person;

Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared out of retained earnings on
or after January 1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or fair
market value at the time of distribution, whichever is applicable.

ii. Creditors in payment of debt or obligation.

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(3) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. Consigned goods
returned by the consignee within the 60-day period are not deemed sold;

(4) Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or
materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor.
The following circumstances shall, among others, give rise to transactions ―deemed sale‖ for purposes of this Section;

i. Change of ownership of the business. There is a change in the ownership of the business when a single proprietorship
incorporates; or the proprietor of a single proprietorship sells his entire business.

ii. Dissolution of a partnership and creation of a new partnership which takes over the business.

(b) The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where a transaction is deemed a sale,
barter or exchange of goods or properties under Sec. 4.106-7 paragraph (a) hereof, or where the gross selling price is unreasonably
lower than the actual market value. The gross selling price is unreasonably lower than the actual market value if it is lower by more
than 30% of the actual market value of the same goods of the same quantity and quality sold in the immediate locality on or nearest
the date of sale.

For transactions deemed sale, the output tax shall be based on the market value of the goods deemed sold as of the time of the
occurrence of the transactions enumerated in Sec. 4.106-7(a)(1),(2), and (3) of these Regulations. However, in the case of
retirement or cessation of business, the tax base shall be the acquisition cost or the current market price of the goods or properties,
whichever is lower.

In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual market value shall be
the tax base.

C. VAT on Services
1. Sec. 108 of the NIRC.

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of
gross receipts derived from the sale or exchange of services, including the use or lease of properties.

The phrase ―sale or exchange of services‖ means the performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged in milling processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission by any entity, and distribution companies, including electric cooperatives,
services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise
grantees except those under section 119 of this Code, and non-life insurance companies (except their crop insurances), including
surety, fidelity, indemnity, and bonding companies; and similar services regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties. The phrase ―sale or exchange of services‖ shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret formula or process,
goodwill, trademark, trade brand or other like property or right;

(2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment;

(3) The supply of scientific, technical, industrial or commercial knowledge or information;

(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned
in subparagraph (3);

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(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or
the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person.

(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of
any scientific, industrial or commercial undertaking, venture, project or scheme;

(7) The lease of motion picture films, films, tapes and discs; and

(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing
agreement was executed if the property is leased or used in the Philippines.

The term ―gross receipts‖ means the total amount of money or its equivalent representing the contract price, compensation, service
fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments
actually or constructively received during the taxable quarter for the services performed or to be performed for another person,
excluding value-added tax.

(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the Philippines by VAT- registered
persons shall be subject to zero percent (0%) rate:

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in business conducted outside
the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed,
the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

(4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of
property for use thereof: Provided, That these services shall be exclusively for international shipping or air transport operations;

(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual production;

(6) Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country; and

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen
fuels.

(8) Services rendered to:

(i) Registered enterprises within a separate customs territory as provided under special law; and

(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA subject to the provisions under Republic Act No.
9593 or the Tourism Act of 2009.

(NOTE: The amendment introduced by the TRAIN Law was vetoed by the President. The veto message reads:
I am constrained to veto the provisions under Section 33 of the enrolled bill, to wit:

Section 33:

(8) Services Rendered To:

I. Registered Enterprises Within A Separate Customs Territory As Provided Under Special Laws; and

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II. Registered Enterprises Within Tourism Enterprise Zones As Declared By the TIEZA Subject To the Provisions Under Republic
Act No. 9593 Or The Tourism Act of 2009.

The above provisions go against the principle of limiting the VAT zero-rating to direct exporters. The proliferation of separate
customs territories, which include buildings, creates significant leakages in our tax system. This makes the tax system highly
inequitable and significantly reduces the revenues that could be better used for the poor. As to tourism enterprises, the current law
only allows for duty and tax free importation of capital equipment, transportation equipment and other goods. The TIEZA Law
explicitly allows only duty and tax free importation of capital equipment, transportation equipment and other goods (in certain cases
and always subject to rules provided by the DOF). Thus, this provision actually grants a new incentive to suppliers of registered
tourism enterprises. At any rate, TIEZA law, which is still in effect for two more years, can be used to avail of the above-mentioned
incentives.)

Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the twelve percent (12%) value-added tax and no longer
subject to zero percent (0%) VAT rate upon satisfaction of the following conditions:

(1) The successful establishment and implementation of an enhanced VAT refund system that grants refund of creditable input tax
within ninety (90) days from the filing of the VAT refund application with the Bureau; Provided, That, to determine the effectivity of
item no. 1, all applications filed from January 1, 2018 shall be processed and must be decided within ninety (90) days from the filing
of the VAT refund application; and

(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of Internal Revenue(BIR) and in the
Bureau of Customs(BOC) that will handle the processing and granting of cash refunds of creditable input tax.

An amount equivalent to five percent (5%) of the total value-added tax collection of the BIR and the BOC from the immediately
preceding year shall be automatically appropriated annually and shall be treated as a special account in the General Fund or as
trust receipts for the purpose of funding claims for VAT Refund: Provided, That any unused fund, at the end of the year shall revert
to the General Fund.
Provided, further, That the BIR and the BOC shall be required to submit to the COCCTRP a quarterly report of all pending claims for
refund and any unused fund.

2. Medicard Philippines, Inc. vs. CIR, GR No. 222743 dated April 5, 2017.  GARCIA
3. CIR vs. SM Prime Holdings, Inc. GR No. 183505 dated February 26, 2010.  GONZALES
4. Diaz vs. The Secretary of Finance and CIR, GR No. 193007 dated July 19, 2011.  PALMIANO

MEDICARD PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 222743. April 5, 2017
DOCTRINE: HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee actually or
constructively received during the taxable period for the services performed or to be performed for another person, excluding the
value-added tax. The compensation for their services representing their service fee, is presumed to be the total amount received as
enrollment fee from their members plus other charges received.

Section 4. 108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits
applied as payments for services rendered, and advance payments actually or constructively received during the taxable period for
the services performed or to be performed for another person, excluding the VAT.

The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly, the general
rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication. In answering the question of who is subject to tax statutes, it is basic that in case of
doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. As burdens, taxes
should not be unduly exacted nor assumed beyond the plain meaning of the tax laws.

FACTS: MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance coverage to
its clients. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by duly licensed physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.

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MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing and Payment System (EFPS), and its
Fourth Quarterly VAT Return.
Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns, the CIR informed
MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-00020 dated September 20, 2007. Subsequently, the CIR also
issued a Preliminary Assessment Notice (PAN) against MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007
was likewise issued recommending the issuance of a Formal Assessment Notice (FAN) against MEDICARD. On. January 4, 2008,
MEDICARD received CIR's FAN dated December' 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total amount of
P 196,614,476.69,10 inclusive of penalties.
According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any deduction under
Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005. Citing Commissioner of Internal Revenue v. Philippine Health Care
Providers, Inc., the CIR argued that since MEDICARD does not actually provide medical and/or hospital services, but merely
arranges for the same, its services are not VAT exempt.
MEDICARD argued that:
1) the services it renders is not limited merely to arranging for the provision of medical and/or hospital services by hospitals
and/or clinics but include actual and direct rendition of medical and laboratory services; in fact, its 2006 audited balance
sheet shows that it owns x-ray and laboratory facilities which it used in providing medical and laboratory services to its
members;
2) the professional fees in the amount of Pl 1 Million should also be excluded because it represents the amount of medical
services actually and directly rendered by MEDICARD and/or its subsidiary company; and
3) even if it is liable to pay for the VAT, the 12% VAT rate should not be applied on the entire amount but only for the period
when the 12% VAT rate was already in effect, i.e., on February 1, 2006. It should not also be held liable for surcharge and
deficiency interest because it did not pass on the VAT to its members.
On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer Romualdo Plocios to verify the
supporting documents of MEDICARD's Protest. MEDICARD also submitted additional supporting documentary evidence in aid of its
Protest thru a letter dated March 18, 2008.
On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated May 15, 2009, denying
MEDICARD's protest. On July 20, 2009, MEDICARD proceeded to file a petition for review before the CTA, reiterating its position
before the tax authorities. On June 5, 2014, the CTA Division rendered a Decision affirming with modifications the CIR's deficiency
VAT assessment covering taxable year 2006.
MEDICARD is ordered to pay CIR the amount of P223,173,208.35, inclusive of the 25% surcharge imposed under -Section
248(A)(3) of the NIRC of 1997.
The CTA Division held that:
1) the amounts that MEDICARD earmarked, and eventually paid to doctors, hospitals and clinics cannot be excluded from •
the computation of its gross receipts under the provisions of RR No. 4-2007 because the act of earmarking or allocation is
by itself an act of ownership and management over the funds by MEDICARD which is beyond the contemplation of RR
No. 4-2007;
2) MEDICARD's earnings from its clinics and laboratory facilities cannot be excluded from its gross receipts because the
operation of these clinics and laboratory is merely an incident to MEDICARD's main line of business as HMO and there is
no evidence that MEDICARD segregated the amounts pertaining to this at the time it received the premium from its
members; and
3) MEDICARD was not able to substantiate the amount pertaining to its January 2006 income and therefore has no basis to
impose a 10% VAT rate.
MEDICARD filed a Motion for Reconsideration but it was denied. Hence, MEDICARD elevated the matter to the CTA en banc.
In a Decision dated September 2, 2015, the CTA en banc partially granted the petition only insofar as the 10% VAT rate for January
2006 is concerned but sustained the findings of the CTA Division in all other matters.
MEDICARD filed a motion for reconsideration but it was denied by the CTA. Hence, MEDICARD now seeks recourse to this
Court via a petition for review on certiorari.

ISSUE: Whether or Not the amounts that MEDICARD earmarked and eventually paid to the medical service providers should still
form part of its gross receipts for vat purposes?

HELD: NO. The amounts earmarked and actually spent for medical utilization of its members should not be included in the
computation of its gross receipts.
MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A Division that the gross
receipts of an HMO for VAT purposes shall be the total amount of money or its equivalent actually received from members
undiminished by any amount paid or payable to the owners/operators of hospitals, clinics and medical and dental practitioners.
MEDICARD explains that its business as an HMO involves two different although interrelated contracts. One is between a corporate
client and MEDICARD, with the corporate client's employees being considered as MEDICARD members; and the other is between
the health care institutions/healthcare professionals and MEDICARD.
Under the first, MEDICARD undertakes to make arrangements with healthcare institutions/healthcare professionals for the
coverage of MEDICARD members under specific health related services for a specified period of time in exchange for payment of a

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more or less fixed membership fee. Under its contract with its corporate clients, MEDICARD expressly provides that 20% of the
membership fees per individual, regardless of the amount involved, already includes the VAT of 10%/20% excluding the remaining
80% because MEDICARD would earmark this latter portion for medical utilization of its members. Lastly, MEDICARD also assails
CIR's inclusion in its gross receipts of its earnings from medical services which it actually and directly rendered to its members.
Since an HMO like MEDICARD is primarily engaged in arranging for coverage or designated managed care services that
are needed by plan holders/members for fixed prepaid membership fees and for a specified period, then MEDICARD is principally
engaged in the sale of services. Its VAT base and corresponding liability is, thus, determined under Section 108(A)32 of the Tax
Code, as amended by Republic Act No. 9337.
Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer in securities whose
gross receipts is the amount actually received as contract price without allowing any deduction from the gross receipts. This
restrictive tenor changed under RR No. 16-2005. Under this RR, an HMO's gross receipts and gross receipts in general were
defined.
HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee actually or
constructively received during the taxable period for the services performed or to be performed for another person, excluding the
value-added tax. The compensation for their services representing their service fee, is presumed to be the total amount received as
enrollment fee from their members plus other charges received.

Section 4. 108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits
applied as payments for services rendered, and advance payments actually or constructively received during the taxable period for
the services performed or to be performed for another person, excluding the VAT.

The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005 merely presumed that the
amount received by an HMO as membership fee is the HMO's compensation for their services. As a mere presumption, an HMO is,
thus, allowed to establish that a portion of the amount it received as membership fee does NOT actually compensate it but some
other person, which in this case are the medical service providers themselves. It is a well-settled principle of legal hermeneutics that
words of a statute will be interpreted in their natural, plain and ordinary acceptation and signification, unless it is evident that the
legislature intended a technical or special legal meaning to those words. The Court cannot read the word "presumed" in any other
way.
To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the regularization of service as well as payment, the substantial
reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not, except incidentally to
these features, the indemnification for cost after .the services is rendered. Except the last, these are not distinctive or
generally characteristic of the insurance arrangement. There is, therefore, a substantial difference between contracting in this
way for the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost when or after it
is rendered. (Emphasis ours).
The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly, the general
rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication. In answering the question of who is subject to tax statutes, it is basic that in case of
doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. As burdens, taxes
should not be unduly exacted nor assumed beyond the plain meaning of the tax laws.
The Court rules that for purposes of determining the VAT liability of an HMO, the amounts earmarked and actually spent
for medical utilization of its members should not be included in the computation of its gross receipts.

COMMISSIONER OF INTERNAL REVENUE v. SM PRIME HOLDINGS, INC. and FIRST

ASIA REALTY DEVELOPMENT CORPORATION
G.R. No. 183505, February 26, 2010
FACTS :

CTA Case No. 7079 - On September 26, 2003, the BIR sent SM Prime a Preliminary Assessment Notice (PAN) for value added tax
(VAT) deficiency on cinema ticket sales in the amount of ₱119,276,047.40 for taxable year 2000. In response, SM Prime filed a
letter-protest dated December 15, 2003.
On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency, which the
latter protested in a letter dated January 14, 2004.
On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the VAT deficiency for taxable
year 2000 in the amount of ₱124,035,874.12.
On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA Case No. 7079.

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CTA Case No. 7085 - On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on cinema ticket sales for taxable year
1999 in the total amount of ₱35,823,680.93. First Asia protested the PAN in a letter dated July 9, 2002
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested by First
Asia in a letter dated December 12, 2002.\
On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia to pay the amount of
₱35,823,680.93 for VAT deficiency for taxable year 1999.
Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7085.

CTA Case No. 7111 - On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for taxable year
2000 in the amount of ₱35,840,895.78. First Asia protested the PAN through a letter dated April 22, 2004.
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency. First Asia protested the same in a letter
dated July 9, 2004.
On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT deficiency in the amount of
₱35,840,895.78 for taxable year 2000.
This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004. The case was docketed as
CTA Case No. 7111.

CTA Case No. 7272

Re: Assessment Notice No. 008-02

A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of ₱32,802,912.21 was
issued against First Asia by the BIR. In response, First Asia filed a protest-letter dated November 11, 2004. The BIR then sent a
Formal Letter of Demand, which was protested by First Asia on December 14, 2004.

Re: Assessment Notice No. 003-03

A PAN for VAT deficiency on cinema ticket sales in the total amount of ₱28,196,376.46 for the taxable year 2003 was
issued by the BIR against First Asia. In a letter dated September 23, 2004, First Asia protested the PAN. A Formal Letter of Demand
was thereafter issued by the BIR to First Asia, which the latter protested through a letter dated November 11, 2004.
On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to pay the amounts of
₱33,610,202.91 and ₱28,590,826.50 for VAT deficiency for taxable years 2002 and 2003, respectively.
Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7272.

Consolidated Petitions - The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime and
First Asia . SM Prime Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case No. 7079 on the grounds that the
issues raised therein are identical and that SM Prime is a majority shareholder of First Asia was granted.

CTA DIVISION RULINGS: CTA rendered a Decision granting the Petition for Review. Resorting to the language used and the
legislative history of the law, it ruled that the activity of showing cinematographic films is not a service covered by VAT under the
National Internal Revenue Code (NIRC) of 1997, as amended, but an activity subject to amusement tax under RA 7160, otherwise
known as the Local Government Code (LGC) of 1991. CTA held that the House of Representatives resolved that there should only
be one business tax applicable to theaters and movie houses, which is the 30% amusement tax imposed by cities and provinces
under the LGC of 1991. Further, it held that consistent with the State‘s policy to have a viable, sustainable and competitive theater
and film industry, the national government should be precluded from imposing its own business tax in addition to that already
imposed and collected by local government unit. The CTA First Division likewise found that (RMC) No. 28-2001, which imposes VAT
on gross receipts from admission to cinema houses, cannot be given force and effect because it failed to comply with the procedural
due process for tax issuances under RMC No. 20-86. Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-
03 and 008-02 are ORDERED cancelled and set aside.

CTA ENBANC RULINGS: Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are intended to
be subject to VAT. And since the showing or exhibition of motion pictures, films or movies by cinema operators or proprietors is not
among the enumerated activities contemplated in the phrase "sale or exchange of services," then gross receipts derived by cinema/
theater operators or proprietors from admission tickets in showing motion pictures, film or movie are not subject to VAT. It
reiterated that the exhibition or showing of motion pictures, films, or movies is instead subject to amusement tax under the LGC
of 1991. CTA En Banc agreed with its First Division that the same cannot be given force and effect for failure to comply with RMC
No. 20-86.

ISSUE: Whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT.

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RULINGS: The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross
receipts of cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition under the Local
Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or
proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot be
presumed nor can it be extended by implication. A law will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. As it is, the power to impose amusement tax on cinema/theater operators or proprietors remains
with the local government.

Revenue Memorandum Circular No. 28-2001 is invalid - Considering that there is no provision of law imposing VAT on the gross
receipts of cinema/theater operators or proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the
gross receipts from admission to cinema houses must be struck down. We cannot overemphasize that 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.

Rule on tax exemption does not apply - Moreover, respondents need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer is
clearly subject to the tax being levied against him. The reason is obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the provision. Thus, unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed. In fact, in case of
doubt, tax laws must be construed strictly against the government and in favor of the taxpayer.
Petition DENIED. The Decision of the CTA En Banc holding that gross receipts derived by respondents from admission
tickets in showing motion pictures, films or movies are not subject to value-added tax under Section 108 of the National Internal
Revenue Code of 1997 AFFIRMED.

DIAZ V. THE SECRETARY OF FINANCE AND CIR

GR No. 193007. July 19, 2011
DOCTRINE: Not only do tollway operators come under the broad term "all kinds of services," they also come under the specific
class described in Section 108 as "all other franchise grantees" who are subject to VAT, "except those under Section 119 of this
Code."

Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.

VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax.

FACTS: Petitioners assails the validity of the impending imposition of VAT on the collections of tollway operators. They claim that,
since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of
services" that are subject to VAT; that a toll fee is a "user‘s tax," not a sale of services; that to impose VAT on toll fees would amount
to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would
violate the non-impairment clause of the constitution.

ISSUE: W/N toll fees collected by tollway operators can be subjected to VAT.

HELD: Yes. Sec. 108 of NIRC imposes VAT on "all kinds of services" rendered in the Philippines for a fee, including those specified
in the list. The enumeration of affected services is not exclusive. By qualifying "services" with the words "all kinds," Congress has
given the term "services" an all-encompassing meaning. The listing of specific services are intended to illustrate how pervasive and
broad is the VAT‘s reach rather than establish concrete limits to its application. Thus, every activity that can be imagined as a form
of "service" rendered for a fee should be deemed included unless some provision of law especially excludes it.
PD 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render.
Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators‘ expense.
Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads.
Traffic in the regular public highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the
operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover
their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a motorist, the fee
is in effect for the latter‘s use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the
law recognize. In this sense, the tollway operator is no different from the following service providers under Section 108 who allow
others to use their properties or facilities for a fee.
And not only do tollway operators come under the broad term "all kinds of services," they also come under the specific
class described in Section 108 as "all other franchise grantees" who are subject to VAT, "except those under Section 119 of this
Code."

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 Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than ₱10 million and gas and water utilities) that Section 119 spares
from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of
public concern.14
Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation,
and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant
of authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress,
tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under PD 1112. The franchise
in this case is evidenced by a "Toll Operation Certificate."
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed
under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on
the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction,
maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged
for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be
imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private
individuals or entities, as an attribute of ownership.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In
indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may
shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not
the seller‘s liability but merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the
amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax and simply becomes part
of the cost that the buyer must pay in order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section
105 of the Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden
of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a "user‘s tax." VAT is
assessed against the tollway operator‘s gross receipts and not necessarily on the toll fees. Although the tollway operator may shift
the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes
part of the toll fees that one has to pay in order to use the tollways.

D. Zero-rated Sales and Exempt Sales

1. Zero-Rated Sales
a. Sec. 106(A)(2) and Sec. 108(B) of the NIRC. (as amended by RA 10963)
b. Provisions vetoed by the President.
2. Exempt Sales
a. Sec. 109(1) of the NIRC. (as amended by RA 10963)

SEC. 109. Exempt Transactions. –

(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax.

(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of or kind generally used
as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.

Products classified under this paragraph shall be considered in their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping.
Polished and/or husked rice, corn grits, raw sugar or raw cane sugar and molasses, ordinary salt and copra shall be considered in
their original state;

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets);

(C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and
nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the
Tariff and Customs Code of the Philippines;

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(D) Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic
animals, and personal and household effects belonging to persons coming to settle in the Philippines or Filipinos or their families
and descendants who are now residents or citizens of other countries, such parties hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or position of the persons importing said items, for their own use and not
for barter or sale, accompanying such persons, or arriving within a reasonable time: Provided, That the Bureau of Customs may,
upon the production of satisfactory evidence that such persons are actually coming to settle in the Philippines and the goods are
brought from their former place of abode, exempt such goods from payment of duties and taxes: Provided, further, That the
vehicles, vessels, aircrafts, machineries and other similar goods for use in manufacture, shall not fall within this classification and
shall therefore be subject to duties, taxes and other charges;

(E) Services subject to percentage tax under Title V;

(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;

(G) Medical, dental, hospital and veterinary services except those rendered by professionals;

(H) Educational services rendered by private educational institutions, duly accredited by the Department of Education(DepED), the
Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered
by government educational institutions;

(I) Services rendered by individuals pursuant to an employer-employee relationship;

(J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do
not earn or derive income from the Philippines;

(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529;

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale
of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their
produce;

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development
Authority;

(N) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the Cooperative Development Authority:
Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of
the aggregate capital and net surplus ratably distributed among the members;

(O) Export sales by persons who are not VAT-registered;

(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real
property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, residential lot valued at One million pesos (P1,500,000) and below,
house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided,
That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, sale of real property utilized for socialized housing as
defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings with the selling price of not more than Two
million pesos (P2,000,000): Provided, further, That every three (3) years thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as published by the Philippine Statistics Authority(PSA);

(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos (P15,000);

(R) Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;

(S) Transport of passengers by international carriers;

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(T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;

(U) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations: Provided, That
the fuel, goods, and supplies shall be used for international shipping or air transport operations;

(V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial
intermediaries;

(W)Sale or lease of goods and services to senior citizens and persons with disability, as provided under Republic Act Nos. 9994
(Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons With Disability),
respectively;

(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;

(Y) Associations dues, membership fees, and other assessments and charges collected by homeowners‘ associations and
condominium corporations;

(Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);

(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning January 1, 2019; and

(BB) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed the amount of Three million pesos (P3,000,000).

b. Percentage Tax – Sec. 116. (as amended by RA 10963)

SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). - Any person whose sales or receipts are exempt under
Section 109(BB) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives, and beginning January 1,
2019, self-employed and professionals with total annual gross sales and/or gross receipts not exceeding Five hundred thousand
pesos (P500,000) shall be exempt from the three percent (3%) gross receipts tax herein imposed.

(NOTE: The amendment introduced by the TRAIN Law was vetoed by the President. The veto message reads:

C. Exemptions from percentage tax of gross sales/receipts not exceeding five hundred thousand pesos (P500,000)

I am constrained to veto the provision which provides for the above under line 12 of Sec. 38 in the enrolled bill, to wit:

“And Beginning January 1, 2019, Self-Employed and Professionals With Total Annual Gross Sales And/Or Gross Receipts Not
exceeding Five Hundred Thousand Pesos (P500,000)

The Proposed exemption from percentage tax will result in unnecessary erosion of revenues and would lead to abuse and leakages.
The subject taxpayers under this provision are already exempted from the VAT, thus, the lower three percent percentage tax on
gross sales or gross receipts is considered as their fair share in contributing to the revenue base of the country.)

c. Sec. 4.109-1 of RR No. 13-2018.

SEC. 4.109-1. VAT-Exempt Transactions. –

(A) In general. – ―VAT-exempt transactions‖ refer to the sale of goods or properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases.

The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said
transaction is not subject to VAT.

(B) Exempt transactions. –

(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT:

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(a) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used
as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.

Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include fowls, ducks, geese and turkey.
Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally considered as pets.

Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster, shrimps, prawns, oysters,
mussels and clams.

Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this paragraph shall be considered in
their original date even if they have undergone the simple processes of preparation or preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or stripping, including those using advanced technological means of packaging, such as
shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging methods.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered as agricultural
food products in their original state.

Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5 o and above are presumed to be
refined sugar.

Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:

(1) product of a refining process,

(2) products of a sugar refinery, or

(3) product of a production line of a sugar mill accredited by the BIR to be producing and/or capable of producing sugar with
polarimeter reading of 99.5o and above, and for which the quedan issued therefor, and verified by the Sugar Regulatory
Administration, identifies the same to be of a polarimeter reading of 99.5o and above.

Bagasse is not included in the exemption provided for under this section.

(b) Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets);

―Specialty feeds‖ refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets.

(c) Importation of personal and household effects belonging to residents of the Philippines returning from abroad and non-resident
citizens coming to resettle in the Philippines; Provided, that such goods are exempt from customs duties under the Tariff and
Customs Code of the Philippines;

(d) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery and other goods for use in the manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence
satisfactory to the Commissioner of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the
change of residence is bonafide;

(e) Services subject to percentage tax under Title V of the Tax Code, as enumerated below:

(1) Sale or lease of goods or properties or the performance of services of non-VATregistered persons, other than the transactions
mentioned in paragraphs (A) to (U) of Sec. 109(1) of the Tax Code, the gross annual sales and/or receipts of which does not exceed
the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00); Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO) (Sec. 116 of the Tax Code);

(2) Services rendered by domestic common carriers by land, for the transport of passengers and keepers of garages (Sec. 117);

(3) Services rendered by international air / shipping carriers (Sec. 118);

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(4) Services rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding
year do not exceed Ten Million Pesos (P10,000,000.00), and by franchise grantees of gas and water utilities (Sec. 119);

(5) Service rendered for overseas dispatch, message or conversation originating from the Philippines (Sec. 120);

(6) Services rendered by any person, company or corporation (except purely cooperative companies or associations) doing life
insurance business of any sort in the Philippines (Sec. 123);

(7) Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance companies (Sec. 124);

(8) Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball
games, Jai-Alai and race tracks (Sec. 125); and

(9) Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial
public offering (Sec. 127).

(f) Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane into raw sugar;

―Agricultural contract growers‖ refers to those persons producing for others poultry, livestock or other agricultural and marine food
products in their original state.

(g) Medical, dental, hospital and veterinary services, except those rendered by professionals.

Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is
subject to VAT.

(h) Educational services rendered by private educational institutions duly accredited by the Department of Education (DepED), the
Commission on Higher Education (CHED) and the Technical Education and Skills Development Authority (TESDA) and those
rendered by government educational institutions;

―Educational services‖ shall refer to academic, technical or vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by government educational institutions and it does not include
seminars, in-service training, review classes and other similar services rendered by persons who are not accredited by the DepED,
the CHED and/or the TESDA;

(i) Services rendered by individuals pursuant to an employer-employee relationship;

(j) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region and do
not earn or derive income from the Philippines;

(k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws
except those granted under PD No. 529 — Petroleum Exploration Concessionaires under the Petroleum Act of 1949; and

(l) Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development Authority (CDA) to
their members, as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of
direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;

(m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the
Cooperative Development Authority,

(n) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing with the CDA;
Provided, That the share capital contribution of each member does not exceed Fifteen Thousand Pesos (P15,000.00) and
regardless of the aggregate capital and net surplus ratably distributed among the members.

Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.

(o) Export sales by persons who are not VAT-registered;

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(p) The following sales of real properties are exempt from VAT, namely:

(1) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business.

(2) Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as the ―Urban Development
and Housing Act of 1992‖ and other related laws, such as RA No. 7835 and RA No. 8763.

―Low-cost housing‖ refers to housing projects intended for homeless low-income family beneficiaries, undertaken by the
Government or private developers, which may either be a subdivision or a condominium registered and licensed by the Housing and
Land Use Regulatory Board/Housing (HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling price
is within the selling price ceiling per unit of P750,000.00 under RA No. 7279, otherwise known as the ―Urban Development and
Housing Act of 1992‖ and other laws, such as RA No. 7835 and RA No. 8763.

(3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No.
7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC
and the NEDA and other related laws.

―Socialized housing‖ refers to housing programs and projects covering houses and lots or home lots only undertaken by the
Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development,
long-term financing, liberated terms on interest payments, and such other benefits in accordance with the provisions of RA No.
7279, otherwise known as the ―Urban Development and Housing Act of 1992‖ and

RA No. 7835 and RA No. 8763. ―Socialized housing‖ shall also refer to projects intended for the underprivileged and homeless
wherein the housing package selling price is within the lowest interest rates under the Unified Home Lending Program (UHLP) or
any equivalent housing program of the Government, the private sector or non-government organizations.

(4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot and other
residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1, 2005; Provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO); Provided, further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year;

If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as one
residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed P1,500,000.00. Adjacent
residential lots, although covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same
buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot.

(q) Lease of residential units with a monthly rental per unit not exceeding Ten Thousand Pesos (P10,000.00), regardless of the
amount of aggregate rentals received by the lessor during the year; Provided, that not later than January 31, 2009 and every three
(3) years thereafter, the amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as published
by the NSO;

The foregoing notwithstanding, lease of residential units where the monthly rental per unit exceeds Ten Thousand Pesos
(P10,000.00) but the aggregate of such rentals of the lessor during the year do not exceed One Million Five Hundred Pesos
(P1,500,000.00) shall likewise be exempt from VAT, however, the same shall be subjected to three percent (3%) percentage tax.

In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding
P10,000.00 while others are leased out for more than P10,000.00 per unit, his tax liability will be as follows:

1. The gross receipts from rentals not exceeding P10,000.00 per month per unit shall be exempt from VAT regardless of the
aggregate annual gross receipts.

2. The gross receipts from rentals exceeding P10,000.00 per month per unit shall be subject to VAT if the aggregate annual gross
receipts from said units only (not including the gross receipts from units leased for not more than P10,000.00) exceeds
P1,500,000.00. Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code.

The term ‗residential units‘ shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units
thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel
rooms.

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The term ‗unit‘ shall mean an apartment unit in the case of apartments, house in the case of residential houses; per person in the
case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent.

(r) Sale, importation, printing or publication of books and any newspaper, magazine, review, or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;

(s) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;

Provided, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to
those of one hundred fifty (150) tons and above, including engine and spare parts of said vessels; Provided, further, that the vessels
to be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the vessel‘s original
commissioning, as follows: (i) for passenger and/or cargo vessels, the age limit is fifteen (15) years old, (ii) for tankers, the age limit
is ten (10) years old, and (iii) For high-speed passenger crafts, the age limit is five (5) years old; Provided, finally, that exemption
shall be subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as ―The Domestic Shipping Development
Act of 2004‖;

(t) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided, that
the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in
the Philippines directly to a foreign port without stopping at any other port in the Philippines;

Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to 10% VAT;

(u) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial
intermediaries subject to percentage tax under Secs. 121 and 122 of the Tax Code, such as money changers and pawnshops; and

(v) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed the amount of One Million Five Hundred Thousand Pesos
(P1,500,000.00);

Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount of P1,500,000.00 shall be adjusted
to its present value using the Consumer Price Index, as published by the NSO.

For purposes of the threshold of P1,500,000.00, the husband and the wife shall be considered separate taxpayers. However, the
aggregation rule for each taxpayer shall apply.

For instance, if a professional, aside from the practice of his profession, also derives revenue from other lines of business which are
otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus,
the VAT-exempt sales shall not be included in determining the threshold.

d. CIR vs. United Cadiz Sugar Farmers Association Multi Purpose Cooperative, GR No.
209776 dated December 7, 2016.  QUILANG

CIR v. UNITED CADIZ

G.R. No. 209776, December 07, 2016, J. Brion
Facts: The respondent United Cadiz Sugar Farmers Association Multi-purpose Cooperative (UCSFA-MPC) is a multi-purpose
cooperative. Tax exemtion was granted in favor of UCSFA-MPC. In November 2007, BIR Regional Director Rodita B. Galanto of
BIR Region 12 - Bacolod City required UCSFA-MPC to pay in advance the value-added tax (VAT) before her office could issue the
Authorization Allowing Release of Refined Sugar (AARRS) from the sugar refinery/mill. Coop made query. the CIR ruled that the
cooperative "is considered as the actual producer of the members' sugarcane production, because it primarily provided the various
inputs (fertilizers), capital, technology transfer, and farm management." Regional Director Galanto, again demanded the payment of
advance VAT from UCSFA-MPC. Forced to pay. On November 11, 2009, UCSFA-MPC filed an administrative claim for refund with
the BIR under the Cooperative Code. The CTA division ruled in UCSFA-MPC's favor. the division held that the amount of
P3,469,734.00 representing advance VAT on 34,017 LKG bags of refined sugar withdrawn from the refinery, was illegally or
erroneously collected by the BIR. MR denied. the CTA en banc affirmed the CTA division's ruling

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Issue: whether the granted exemption also covers the payment of advance VAT upon withdrawal of refined sugar from the refinery
or mill

Ruling: As we discussed above, the sale of refined sugar by an agricultural cooperative is exempt from VAT. To fully understand
the difference between VAT on the sale of refined sugar and the advance VAT upon withdrawal of refined sugar, we distinguish
between the tax liability that arises from the imposition of VAT and the obligation of the taxpayer to pay the same.
Persons liable for VAT on the sale of goods shall pay the VAT due, in general, on a monthly basis. VAT accruing from the
sale of goods in the current month shall be payable the following month.56 However, there are instances where VAT is required to
be paid in advance,57 such as in the sale of refined sugar.58
To specifically address the policies and procedures governing the advance payment of VAT on the sale of refined sugar,
RR Nos. 6-2007 and 13-2008 were issued.
Under these regulations, VAT on the sale of refined sugar that, under regular circumstances, is payable within the month
following the actual sale of refined sugar, shall nonetheless be paid in advance before the refined sugar can even be withdrawn from
the sugar refinery/mill by the sugar owner. Any advance VAT paid by sellers of refined sugar shall be allowed as credit against their
output tax on the actual gross selling price of refined sugar.
Recall in this regard that VAT is a transaction tax imposed at every stage of the distribution process: on the sale, barter,
exchange, or lease of goods or services.60 Simply stated, VAT generally arises because an actual sale, barter, or exchange has
been consummated.
In the sugar industry, raw sugar is processed in a refinery/mill which thereafter transforms the raw sugar into refined
sugar. The refined sugar is then withdrawn or taken out of the refinery/mill and sold to customers. Under this flow, the withdrawal of
refined sugar evidently takes place prior to its sale.
The VAT implications of the withdrawal of refined sugar from the sugar refinery/mill and the actual sale of refined sugar
are different. While the sale is the actual transaction upon which VAT is imposed, the withdrawal gives rise to the obligation to pay
the VAT due, albeit in advance. Therefore, the requirement for the advance payment of VAT for refined sugar creates a special
situation: While the transaction giving rise to the imposition of VAT — the actual sale of refined sugar — has not yet taken place, the
VAT that would be due from the subsequent sale is, nonetheless, already required to be paid earlier, which is before the withdrawal
of the goods from the sugar refinery/mill.
To be clear, the transaction subject to VAT is still the sale of refined sugar. The withdrawal of sugar is not a separate
transaction subject to VAT. It is only the payment thereof that is required to be made in advance.
While the payment of advance VAT on the sale of refined sugar is, in general, required before these goods may be
withdrawn from the refinery/mill, cooperatives are exempt from this requirement because they are cooperatives.
Revenue regulations specifically provide that such withdrawal shall not be subject to the payment of advance VAT if the
following requisites are present, viz:
First, the withdrawal is made by a duly accredited and registered agricultural cooperative in good standing.62 It
was later clarified that a cooperative is in good standing if it is a holder of a certificate of good standing issued by the CDA.
Second, the cooperative should also the producer of the sugar being withdrawn.
Third, the cooperative withdrawing the refined sugar should subsequently sell the same to either its members or another
agricultural cooperative.
In sum, the sale of refined sugar by an agricultural cooperative duly registered with the CDA is exempt from VAT. A
qualified cooperative also enjoys exemption from the requirement of advance payment of VAT upon withdrawal from the
refinery/mill. The agricultural cooperative's exemption from the requirement of advance payment is a logical consequence of the
exemption from VAT of its sales of refined sugar. We elaborate on this point as follows:
First, the VAT required to be paid in advance (upon withdrawal) is the same VAT to be imposed on the subsequent sale
of refined sugar. If the very transaction (sale of refined sugar) is VAT-exempt, there is no VAT to be paid in advance because,
simply, there is no transaction upon which VAT is to be imposed.
Second, any advance VAT paid upon withdrawal shall be allowed as credit against its output tax arising from its sales of
refined sugar. If all sales by a cooperative are VAT-exempt, no output tax shall materialize. It is simply absurd to require a
cooperative to make advance VAT payments if it will not have any output tax against which it can use/credit its advance payments.

3. Destination Principle and Cross-Border Doctrine

a. Coral Bay Nickel Corporation vs. CIR, GR No. 190506 (2016)  SIMBAJON

CORAL BAY NICKEL CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 190506, June 13, 2016, BERSAMIN, J.:
Facts: Coral Bay Nickel Corporation, the petitioner is a VAT registered entity. It is also registered with Philippine Economic
Zone Authority (PEZA) as an Ecozone Export Enterprise. The appeal to the Supreme Court was brought by the petitioner,
when its claim for refund or credit to its alleged input tax for the third and fourth quarters of the year 2002 was denied by
CTA Division, and which decision was subsequently upheld by CTA En Banc.
CTA Division denied petitioner's claim for refund, following Section 106(A)(2)(a)(5) of the National Internal
Revenue Code (NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus Investment Code and conformably

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with the Cross Border Doctrine. In support of its ruling, the CTA in Division cited Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils) Inc. (Toshiba).
Petitioner contends that Toshiba is not applicable inasmuch as the unutilized input VAT subject of its claim was
incurred from May 1, 2002 to December 31, 2002 as a VAT-registered taxpayer, not as a PEZA-registered enterprise; that
during the period subject of its claim, it was not yet registered with PEZA because it was only on December 27, 2002 that its
Certificate of Registration was issued; that until then, it could not have refused the payment of VAT on its purchases
because it could not present any valid proof of zero-rating to its VAT-registered suppliers; and that it complied with all the
procedural and substantive requirements under the law and regulations for its entitlement to the refund.

Issue: Whether or not, petitioner, an entity located within an ECOZONE, is entitled to the refund of its unutilized input taxes
incurred before it became a PEZA-registered entity.

Ruling: The Supreme Court Ruled in the negative.

Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered enterprises was based on their choice
of fiscal incentives, namely: (1) if the PEZA-registered enterprise chose the 5% preferential tax on its gross income in lieu of
all taxes, as provided by Republic Act No. 7916, as amended, then it was VAT-exempt; and (2) if the PEZA-registered
enterprise availed itself of the income tax holiday under Executive Order No. 226, as amended, it was subject to VAT at
10%17 (now, 12%). This is not true with the petitioner. With the issuance of RMC 74-99, the distinction under the old rule
was disregarded and the new circular took into consideration the two important principles of the Philippine VAT system: the
Cross Border Doctrine and the Destination Principle.
The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan. Its plant site was
specifically located inside the Rio Tuba Export Processing Zone - a special economic zone (ECOZONE). As such, the
purchases of goods and services by the petitioner that were destined for consumption within the ECOZONE should be free
of VAT; hence, no input VAT should then be paid on such purchases, rendering the petitioner not entitled to claim a tax
refund or credit. Verily, if the petitioner had paid the input VAT, the CTA was correct in holding that the petitioner's proper
recourse was not against the Government but against the seller who had shifted to it the output VAT.
In the meantime, the claim for input tax credit by the exporter-buyer should be denied without prejudice to the claimant's
right to seek reimbursement of the VAT paid, if any, from its supplier.
We should also take into consideration the nature of VAT as an indirect tax. Although the seller is statutorily liable
for the payment of VAT, the amount of the tax is allowed to be shifted or passed on to the buyer. However, reporting and
remittance of the VAT paid to the BIR remained to be the seller/supplier's obligation. Hence, the proper party to seek the tax
refund or credit should be the suppliers, not the petitioner.
In view of the foregoing considerations, the Court must uphold the rejection of the appeal of the petitioner.

4. Exempt Person vs. Exempt Transaction / Effectively Zero-Rated vs. Automatic Zero- Rating
a. CIR vs. Seagate Technology (Phils.), GR No. 153866 (2005)  TABABA

COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES)

451 SCRA 132, February 11, 2005
DOCTRINE: The VAT on capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a VAT-registered person, however, is entitled to their credits.

The VAT is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.

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.

Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost
to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.

Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of proving the factual
basis of their claims; and of showing, by words too plain to be mistaken, that the legislature intended to exempt them.

FACTS: Seagate is a resident foreign corporation duly registered with the SEC to do business in the Philippines, with principal office
at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu. Seagate is registered with the
Philippine Export Zone Authority (PEZA) and has been issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66,
as amended, to engage in the manufacture of recording components primarily used in computers for export. Such registration was
made on 6 June 1997. Seagate is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No. 97-
083-000600-V issued on 2 April 1997. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by Seagate. An
administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the

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P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with Revenue District Office No.
83, Talisay Cebu. No final action has been received by Seagate from CIR on Seagate claim for VAT refund.

ISSUE: WON respondent is entitled to the refund or issuance of Tax Credit Certificate representing alleged unutilized input VAT
paid on capital goods purchased.

HELD: Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent --
are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the VAT. Although export
sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction between
exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT.
Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it
paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to
such refund or credit.

Preferential Tax Treatment Under Special Laws

Respondent enjoys preferential tax treatment. It is not subject to internal revenue laws and regulations and is even entitled to tax
credits. The VAT on capital goods is an internal revenue tax from which respondent as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a VAT-registered person, however, is entitled to their credits.

Nature of the VAT and the Tax Credit Method

Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent 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 and subsequently adopted in New Zealand and Canada. 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.

E. Input Tax
1. Substantiation Requirements
a. Sec. 110(A) in relation to Sec. 113 of the NIRC.
b. Sec. 4.110-8 of RR No. 16-2005.

SEC. 110. Tax Credits. -

A. Creditable Input Tax. –

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:

(a) Purchase or importation of goods:

(i) For sale; or

(ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or

(iii) For use as supplies in the course of business; or

(iv) For use as materials supplied in the sale of service; or

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(v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code.

(b) Purchase of services on which a value-added tax has been actually paid.

(2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable:

(a) To the purchaser upon consummation of sale and on importation of goods or properties; and

(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of
Customs.

Provided, that the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code shall be spread evenly over the a month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos
(P1,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, further, That the amortization of the
input VAT shall only be allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods
purchased or imported shall be allowed to apply the same as scheduled until fully utilized: Provided, finally, That in the case of
purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment
of the compensation, rental, royalty or free.

(3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as
follows:

(a) Total input tax which can be directly attributed to transactions subject to value-added tax; and

(b) A ratable portion of any input tax which cannot be directly attributed to either activity.

The term ―input tax‖ means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business
on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It
shall also include the transitional input tax determined in accordance with Section 111 of this Code.

The term ―output tax‖ means the value-added tax due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under Section 236 of this Code.

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered person shall issue:

(1) A VAT invoice for every sale, barter or exchange of goods or properties; and

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT
invoice or VAT official receipt:

(1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the
value-added tax. Provided, That:

(a) The amount of the tax shall be known as a separate item in the invoice or receipt;

(b) If the sale is exempt from value-added tax, the term ―VAT-exempt sale: shall be written or printed prominently on the invoice or
receipt;

(c) If the sale is subject to zero percent (0%) value-added tax, the term ―zero-rated sale‖ shall be written or printed prominently on
the invoice or receipt.

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(d) If the sale involved goods, properties or services some of which are subject to and some of which are VAT zero-rated or Vat
exempt, the invoice or receipt shall clearly indicate the break-down of the sale price between its taxable, exempt and zero-rated
components, and the calculation of the value-added tax on each portion of the sale shall be known on the invoice or receipt:
Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale.

(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and

(4) In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-
registered person, the name, business style, if any, address and Taxpayer Identification Number (TIN) of the purchaser, customer or
client.

(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-added tax under
Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and purchases are recorded. The subsidiary journals shall contain such
information as may be required by the Secretary of Finance.

(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt.-

(1) If a person who is not a VAT-registered person issues an invoice or receipt showing his Taxpayer Identification Number (TIN),
followed by the word ―VAT‖;

(a) The issuer shall, in addition to any liability to other percentage taxes, be liable to:

(i) The tax imposed in Section 106 or 108 without the benefit of any input tax credit; and

(ii) A 50% surcharge under Section 248(B) of this Code;

(b) The VAT shall, if the other requisite information required under Subsection (B) hereof is shown on the invoice or receipt, be
recognized as an input tax credit to the purchaser under Section 110 of this Code.

(2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the term ‗VAT exempt sale,‘ the issuer shall be liable to account for the tax imposed in section
106 or 108 as if Section 109 did not apply.

(E) Transitional Period. – Notwithstanding Subsection (B) hereof, taxpayers may continue to issue VAT invoices and VAT official
receipt for the period July 1, 2005 to December 31, 2005 in accordance with Bureau of Internal Revenue administrative practices
that existed as of December 31, 2004.

SEC. 4.110-8. Substantiation of Input Tax Credits. --

(a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade
or business, whether such input taxes shall be credited against zero-rated sale, non-zero-rated sales, or subjected to the 5% Final
Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns
required to be submitted to the Bureau:

(1) For the importation of goods - import entry or other equivalent document showing actual payment of VAT on the imported goods.

(2) For the domestic purchase of goods and properties – invoice showing the information required under Secs. 113 and 237 of the
Tax Code.

(3) For the purchase of real property – public instrument i.e., deed of absolute sale, deed of conditional sale, contract/agreement to
sell, etc., together with VAT invoice issued by the seller.

(4) For the purchase of services – official receipt showing the information required under Secs. 113 and 237 of the Tax Code.

A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows
the information required under Secs. 113 and 237 of the Tax Code.

(b) Transitional input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to the BIR.

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(c) Input tax on ―deemed sale‖ transactions shall be substantiated with the invoice required under Sec. 4.113-2 of these Regulations.

(d) Input tax from payments made to non-residents (such as for services, rentals and royalties) shall be supported by a copy of the
Monthly Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld by the payor.

(e) Advance VAT on sugar shall be supported by the Payment Order showing payment of the advance VAT.

2. Rule on Capital Goods – Sec. 110(A) (as amended by RA 10963)

a. Sec. 4.110-3 of RR No. 13-2018.

SEC. 4.110-3. Claims for Input Tax on Depreciable Goods. – Where a VATregistered person purchases or imports capital goods,
which are depreciable assets for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar
month exceeds One Million pesos (P1,000,000.00), regardless of the acquisition cost of each capital good, shall be claimed as
credit against output tax in the following manner:

(a) If the estimated useful life of a capital good is five (5) years or more - The input tax shall be spread evenly over a
period of sixty (60) months and the claim for input tax credit will commence in the calendar month when the capital good is acquired.
The total input taxes on purchases or importations of this type of capital goods shall be divided by 60 and the quotient will be the
amount to be claimed monthly.

(b) If the estimated useful life of a capital good is less than five (5) years — The input tax shall be spread evenly on a
monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of the capital good. The
claim for input tax credit shall commence in the calendar month that the capital goods were acquired.

Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or
imported during any calendar month does not exceed One million pesos (P 1,000,000.00), the total input taxes will be allowable as
credit against output tax in the month of acquisition.

Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which
are treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale of taxable
goods or services.
The aggregate acquisition cost of depreciable assets in any calendar month refers to the total price, excluding the VAT,
agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. Thus, an asset
acquired on installment for an acquisition cost of more than P1,000,000.00, excluding the VAT, will be subject to the amortization of
input tax despite the fact that the monthly payments/installments may not exceed P1,000,000.00.

Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not depreciated until
the asset is placed in service. Normally, upon completion, a CIP item is reclassified and the reclassified asset is capitalized and
depreciated.

CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be determined
based on the progress billings. Until such time the construction has been completed, it will not qualify as capital goods as herein
defined, in which case, input tax credit on such transaction can be recognized in the month the payment was made: Provided, that
an official receipt of payment has been issued based on the progress billings.

In case of contract for the sale of service where only the labor will be supplied by the contractor and the materials will be
purchased by the contractee from other suppliers, input tax credit on the labor contracted shall still be recognized on the month the
payment was made based on a progress billings while input tax on the purchase of materials shall be recognized at the time the
materials were purchased.

Once the input tax has already been claimed while the construction is still in progress, no additional input tax can be
claimed upon completion of the asset when it has been reclassified as a depreciable capital asset and depreciated.

(c) The amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with
unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully
utilized: Provided, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.

3. CIR vs. Sony Phils, Inc., G.R. No. 178697 dated November 17, 2010.  TATOY

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 41
COMMISSIONER OF INTERNAL REVENUE v. SONY PHILIPPINES, INC.
G.R. No. 178697. November 17, 2010
DOCTRINE(1):
It is evident under Section 110 of the 1997 Tax Code that an advertising expense duly covered by a Value Added Tax (VAT)
invoice is a legitimate business expense.— The Court is not persuaded. As aptly found by the CTA-First Division and later
affirmed by the CTA-EB, Sony‘s deficiency VAT assessment stemmed from the CIR‘s disallowance of the input VAT credits that
should have been realized from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an
advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than CIR‘s own
witness, Revenue Officer Antonio Aluquin. There is also no denying that Sony incurred advertising expense. Aluquin testified that
advertising companies issued invoices in the name of Sony and the latter paid for the same. Indubitably, Sony incurred and paid for
advertising expense/ services. Where the money came from is another matter all t ogether but will definitely not change said fact.

DOCTRINE (2):
Value Added Tax (VAT); Services rendered for a fee even on reimbursement-oncost basis only and without realizing profit
are also subject to Value Added Tax (VAT).— In the case of CIR v. Court of Appeals (CA), 329 SCRA 237 (2000), the Court had
the occasion to rule that services rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are also
subject to VAT. The case, however, is not applicable to the present case. In that case, COMASERCO rendered service to its
affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that it
incurred although without profit. This is not true in the present case. Sony did not render any service to SIS at all. The services
rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to
Sony in the amount equivalent to the latter‘s advertising expense but never received any goods, properties or service from Sony.

FACTS:
 On November 24, 1998, the CIR issued Letter of Authority (LOA) authorizing certain revenue officers to examine Sony‘s
books of accounts and other accounting records regarding revenue taxes for ―the period 1997 and unverified prior years.‖
 On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which
Sony protested.
 Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand and the details of
discrepancies.
 Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000. Sony submitted
relevant documents in support of its protest on the 16th of that same month.
 On October 24, 2000, within 30 days after the lapse of 180 days from submission of the said supporting documents to the
CIR, Sony filed a petition for review before the CTA.
 After trial, the CTA-First Division disallowed the deficiency VAT assessment because the subsidized advertising expense
paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. As regards the EWT, the CTA-
First Division maintained the deficiency EWT assessment on Sony‘s motor vehicles and on professional fees paid to
general professional partnerships. It also assessed the amounts paid to sales agents as commissions with five percent
(5%) EWT pursuant to Section 1(g) of Revenue Regulations No. 6-85. The CTA-First Division, however, disallowed the
EWT assessment on rental expense since it found that the total rental deposit of P10,523,821.99 was incurred from
January to March 1998 which was again beyond the coverage of LOA 19734. Except for the compromise penalties, the
CTA-First Division also upheld the penalties for the late payment of VAT on royalties, for late remittance of final
withholding tax on royalty as of December 1997 and for the late remittance of EWT by some of Sony‘s branches. In sum,
the CTA-First Division partly granted Sony‘s petition by cancelling the deficiency VAT assessment but upheld a modified
deficiency EWT assessment as well as the penalties.
 DISPOSITIVE PORTION: ―WHEREFORE, the petition for review is hereby PARTIALLY GRANTED. Respondent is
ORDERED to CANCEL and WITHDRAW the deficiency assessment for value-added tax for 1997 for lack of merit.
However, the deficiency assessments for expanded withholding tax and penalties for late remittance of internal revenue
taxes are UPHELD.
 Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded withholding tax in the amount of
P1,035,879.70 and the following penalties for late remittance of internal revenue taxes in the sum of P1,269,593.90:
1. VAT on Royalty P 429,242.07
2. Withholding Tax on Royalty P 831,428.20
3. EWT of Petitioner‘s Branches P 8,923.63
Total P 1,269,593.90

 Plus 20% delinquency interest from January 17, 2000 until fully paid pursuant to Section 249(C) (3) of the 1997 Tax Code.
SO ORDERED.‖

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  The CIR sought a reconsideration of the above decision but the CTA-First Division denied the motion for reconsideration.
The CIR filed a petition for review with the CTA-EB.
 The CTA-EB dismissed CIR‘s petition on May 17, 2007. CIR‘s motion for reconsideration was denied by the CTA-EB on
July 5, 2007. Hence, this petition.

ISSUES:
1. W/N Sony is liable for deficiency VAT.
2. W/N the CTA En Banc erred in ruling that the commision expense should be subjected to a withholding tax of 5% instead
of 10% tax rate.
3. W/N the CTA En Banc erred in ruling that the assessment with respect to the 5% withholding tax on rental deposit is not
proper.

HELD:
1. NO. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sony‘s deficiency VAT assessment
stemmed from the CIR‘s disallowance of the input VAT credits that should have been realized from the advertising
expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an advertising expense duly covered by a
VAT invoice is a legitimate business expense. This is confirmed by no less than CIR‘s own witness, Revenue Officer
Antonio Aluquin.
There is also no denying that Sony incurred advertising expense. Aluquin testified that advertising companies
issued invoices in the name of Sony and the latter paid for the same. Indubitably, Sony incurred and paid for advertising
expense/services. Where the money came from is another matter all together but will definitely not change said fact.
Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax,
the Court agrees. However, the Court does not agree that the same subsidy should b subject to the 10% VAT. To begin
with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony‘s advertising
expense for it was but an assistance or aid in view of Sony‘s dire or adverse economic conditions, and was only
―equivalent to the latter‘s (Sony‘s) advertising expenses.‖
Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus:

SEC. 106. Value-added Tax on Sale of Goods or Pro perties.— (A) Rate and Base of Tax.—There shall be levied,
assessed and collected on every sale, barter or exchange of goods or properties, valueadded tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor.

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 propertie sold, bartered or exchanged by Sony.
In the case of CIR v. Court of Appeals (CA), the Court had the occasion to rule that services rendered for a
fee even on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however, is
not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates
paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred although without
profit. This is not true in the present case.
Sony did not render any service to SIS at all. The services rendered by the advertising companies, paid for by
Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the
latter‘s advertising expense but never received any goods, properties or service from Sony.

2. YES, it should be subjected to 5% tax rate. Regarding the deficiency EWT assessment, more particularly Sony‘s
commission expense, the CIR insists that said deficiency EWT assessment is subject to the ten percent (10%) rate
instead of the five percent (5%) citing Revenue Regulation No. 2-98 dated April 17, 1998.
On the other hand, the application of the five percent (5%) rate by the CTA-First Division is based on Section
1(g) of Revenue Regulations No. 6-85.
The Court agrees with the CTA-EB when it affirmed the CTAFirst Division decision. Indeed, the applicable rule
is Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12- 94, which was the applicable rule during
the subject period of examination and assessment as specified in the LOA. Revenue Regulations No. 2-98, cited by the
CIR, was only adopted in April 1998 and, therefore, cannot be applied in the present case. Besides, the withholding tax on
brokers and agents was only increased to 10% much later or by the end of July 2001 under Revenue Regulations No. 6-
2001. Until then, the rate was only 5%.

3. NO. The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT
assessment on the rental deposit. According to their findings, Sony incurred the subject rental deposit in the amount of
P10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate LOA specifying the
coverage, the CIR‘s deficiency EWT assessment from January to March 1998, is not valid and must be disallowed.

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 4. Transitional Input Tax
a. Sec. 111(A) of the NIRC.
b. Fort Bonifacio Development vs. CIR GR No. 173425 (2012)  VALDEZ

SEC. 111. Transitional/Presumptive Input Tax Credits. –

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance,
upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies
equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax.

(B) Presumptive Input Tax Credits. - Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable against the output tax, equivalent
to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their
production.

As used in this Subsection, the term 'processing' shall mean pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to
which it could not have been put in its original form or condition.

FORT BONIFACIO DEVELOPMENT CORP v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 173425, September 4, 2012
DOCTRINE: It is argued that prior payment of taxes is a prerequisite before a taxpayer could avail of the transitional input tax credit.
This argument has long been settled. To reiterate, prior payment of taxes is not necessary before a taxpayer could avail of the 8%
transitional input tax credit. This position is solidly supported by law and jurisprudence.

FACTS: By virtue of RA 7227, creating the Bases Conversion Development Authority, and EO No. 40, petitioner FBDC purchased
from the national government a portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City (Global City).
After the restructuring of the VAT systems, through RA 7716, by extending its coverage to real properties held primarily
for sale to customers or held for lease in the ordinary course of trade or business, petitioner FBDC submitted to the Bureau of
Internal Revenue (BIR) an inventory of all its real properties.
Petitioner FBDC started selling Global City lots to interested buyers and paid the output VAT by making cash payments to
the BIR. Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997,
petitioner FBDC filed with the BIR a claim for refund of the amount of ₱359,652,009.47 erroneously paid as output VAT for the said
period. Due to the inaction of the respondent CIR, petitioner FBDC elevated the matter to the CTA.
The CTA denied petitioner FBDC‘s claim for refund on the ground that the benefit of transitional input tax credit comes
with the condition that business taxes should have been paid first. In this case, since petitioner FBDC acquired the Global City
property under a VAT-free sale transaction, it cannot avail of the transitional input tax credit. It likewise pointed out that under RR 7-
95, implementing Section 105 of the old NIRC, the 8% transitional input tax credit should be based on the value of the
improvements on land such as buildings, roads, drainage system and other similar structures, constructed on or after January 1,
1998, and not on the book value of the real property. On appeal, the Court of Appeals (CA) affirmed the decision of the CTA.

ISSUES: Whether or not petitioner FBDC is entitled to 8% transitional input tax credit provided in Section 105 of the old NIRC?

HELD: YES. The Court held that petitioner FBDC is entitled to the 8% transitional input tax credit provided in Section 105 of the old
NIRC. The fact that it acquired the Global City property under a tax-free transaction makes no difference as prior payment of taxes
is not a pre-requisite.
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any person who elects to be a
VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on
such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

Contrary to the view of the CTA and the CA, there is nothing in the above-quoted provision to indicate that prior payment
of taxes is necessary for the availment of the 8% transitional input tax credit. Obviously, all that is required is for the taxpayer to file
a beginning inventory with the BIR.

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 To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial legislation but would also
render nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be ―8% of the value of [the
beginning] inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is higher‖ because the actual VAT
(now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of the beginning inventory
which, following the view of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid.
Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was not the
intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials, and supplies
where no taxes were paid.
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund
per se but a tax credit. Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and
is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from one‘s total tax liability. It
is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus, unlike a tax refund, prior
payment of taxes is not a prerequisite to avail of a tax credit.
However, the Court did not agree with its finding that the carry-over of tax credits under the said special law to succeeding
taxable periods, and even their application against internal revenue taxes, did not necessitate the existence of a tax liability.
In this case, when petitioner FBDC realized that its transitional input tax credit was not applied in computing its output
VAT for the 1st quarter of 1997, it filed a claim for refund to recover the output VAT it erroneously or excessively paid for the 1st
quarter of 1997. In filing a claim for tax refund, petitioner is simply applying its transitional input tax credit against the output VAT it
has paid. Hence, it is merely availing of the tax credit incentive given by law to first time VAT taxpayers.
Obviously then, the purpose behind the transitional input tax credit is not confined to the transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its possible meaning to the shift from the sales tax
regime to the VAT regime. Indeed, it could also allude to the transition one undergoes from not being a VAT-registered person to
becoming a VAT-registered person. Such transition does not take place merely by operation of law, EO No. 273 or RA No. 7716, in
particular. It could also occur when one decides to start a business. Section 105 states that the transitional input tax credits become
available either to (1) a person who becomes liable to VAT; or (2) any person who elects to be VAT-registered. The clear language
of the law entitles new trades or businesses to avail of the tax credit once they become VAT-registered. The transitional input tax
credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as when a business
as it commences operations. If we view the matter from the perspective of a starting entrepreneur, greater clarity emerges on the
continued utility of the transitional input tax credit.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of transition
from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very
beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT.
The transitional input tax credit mitigates this initial diminution of the taxpayer's income by affording the opportunity to offset the
losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments.
As regards Section 4.105-1 of RR 7-95 which limited the 8% transitional input tax credit to the value of the improvements
on the land, the same contravenes the provision of Section 105 of the old NIRC, in relation to Section 100 of the same Code, as
amended by RA 7716, which defines "goods or properties," as tangible and intangible objects which are capable of pecuniary
estimation and shall include real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling law. An
implementing rule or regulation cannot modify, expand, or subtract from the law it is intended to implement. Any rule that is not
consistent with the statute itself is null and void.

DISSENTING OPINION OF CARPIO, ANTONIO T., J.:

It is hornbook doctrine that a taxpayer cannot claim a refund or credit of a tax that was never paid because the law never
imposed the tax in the first place, as in the present case. A tax refund or credit assumes a tax was previously paid, which means
there was a law that imposed the tax. The source of the tax refund or credit is the tax that was previously paid, and this previously
paid tax is simply being returned to the taxpayer due to double, excessive, erroneous, advance or creditable tax payment.
Without such previous tax payment as source, the tax refund or credit will be an expenditure of public funds for the
exclusive benefit of a specific private individual or entity. This violates the fundamental principle, as ruled by this Court in several
cases, that public funds can be used only for a public purpose. Section 4(2) of the Government Auditing Code of the Philippines
mandates that ―Government funds or property shall be spent or used solely for public purposes.‖ Any tax refund or credit in favor of
a specific taxpayer for a tax that was never paid will have to be sourced from government funds. This is clearly an expenditure of
public funds for a private purpose. Congress cannot validly enact a law transferring government funds, raised through taxation, to
the pocket of a private individual or entity. A well-recognized inherent limitation on the constitutional power of the State to levy taxes
is that taxes can only be used for a public purpose.
Even if only a tax credit is granted, it will still be an expenditure of public funds for the benefit of a private purpose in the
absence of a prior tax payment as source of the tax credit. The tax due from a taxpayer is a public fund. If the taxpayer is allowed to
keep a part of the tax as a tax credit even in the absence of a prior tax payment as source, it is in fact giving a public fund to a

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private person for a private benefit. This is a clear violation of the constitutional doctrine that taxes can only be used for a public
purpose.
Moreover, such refund or credit without prior tax payment is an expenditure of public funds without an appropriation law.
This violates Section 29(1), Article VI of the Constitution, which mandates that "No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law." Without any previous tax payment as source, a tax refund or credit will be paid out of
the general funds of the government, a payment that requires an appropriation law. The Tax Code, particularly its provisions on the
VAT, is a revenue measure, not an appropriation law.
The VAT is a tax on transactions. The VAT is levied on the value that is added to goods and services at every link in the
chain of transactions. However, a tax credit is allowed for taxes previously paid when the same goods and services are sold further
in the chain of transactions. The purpose of this tax crediting system is to prevent double taxation in the subsequent sale of the
same product and services that were already previously taxed. Taxes previously paid are thus allowed as input VAT credits, which
may be deducted from the output VAT liability.
The VAT is paid by the seller of goods and services, but the amount of the VAT is passed on to the buyer as part of the
purchase price. Thus, the tax burden actually falls on the buyer who is allowed by law a tax credit or refund in the subsequent sale
of the same goods and services. The 8% transitional input VAT was introduced to ease the transition from the old VAT to the
expanded VAT system that included more goods and services, requiring new documentation not required under the old VAT
system. To simplify the transition, the law allows an 8% presumptive input VAT on goods and services newly covered by the
expanded VAT system. In short, the law grants the taxpayer an 8% input VAT without need of substantiating the same, on the legal
presumption that the VAT imposed by law prior to the expanded VAT system had been paid, regardless of whether it was actually
paid.
Under the VAT system, a tax refund or credit requires that a previous tax was paid by a taxpayer, or in the case of the
transitional input tax, that the tax imposed by law is presumed to have been paid. Not a single centavo of VAT was paid, or could
have been paid, by anyone in the sale by the National Government to petitioner of the Global City land for two basic reasons. First,
the National Government is not subject to any tax, including VAT, when the law authorizes it to sell government property like the
Global City land. Second, in 1995 the old VAT law did not yet impose VAT on the sale of land and thus no VAT on the sale of land
could have been paid by anyone.
Petitioner FBDC bought the Global City land from the National Government in 1995, and this sale was of course exempt
from any kind of tax, including VAT. The National Government did not pass on to petitioner any previous sales tax or VAT as part of
the purchase price of the Global City land. Thus, petitioner FBDC is not entitled to claim any transitional input VAT refund or credit
when petitioner subsequently sells the Global City land. In short, since petitioner FBDC will not be subject to double taxation on its
subsequent sale of the Global City land, petitioner FBDC is not entitled to a tax refund or credit under the VAT system.
Section 105 of the old NIRC provides that a taxpayer is ―allowed input tax on his beginning inventory x x x equivalent to
8% x x x, or the actual value-added tax paid x x x, whichever is higher.‖ The 8% transitional input VAT in Section 105 assumes that
a previous tax was imposed by law, whether or not it was actually paid. This is clear from the phrase "or the actual value-added tax
paid, whichever is higher," which necessarily means that the VAT was already imposed on the previous sale. The law creates a
presumption of payment of the transitional input VAT without need of substantiating the same, provided the VAT is imposed on the
previous sale. Thus, in order to be entitled to a tax refund or credit, petitioner must point to the existence of a law imposing the tax
for which a refund or credit is sought. Since land was not yet subject to VAT or any other input business tax at the time of the sale of
the Global City land in 1995, the 8% transitional input VAT could never be presumed to have been paid. Hence, petitioner‘s
argument must fail since the transitional input VAT requires a transaction where a tax has been imposed by law.
Moreover, the ponente insists that no prior payment of tax is required to avail of the transitional input tax since it is not a
tax refund per se but a tax credit. The ponente claims that in filing a claim for tax refund the petitioner is simply applying its
transitional input tax credit against the output VAT it has paid.
Availing of a tax credit and filing for a tax refund are alternative options allowed by the Tax Code. The choice of one option
precludes the other. A taxpayer may either (1) apply for a tax refund by filing for a written claim with the BIR within the prescriptive
period, or (2) avail of a tax credit subject to verification and approval by the BIR. A claim for tax credit requires that a person who
becomes liable to VAT for the first time must submit a list of his inventories existing on the date of commencement of his status as a
VAT-registered taxable person. Both claims for a tax refund and credit are in the nature of a claim for exemption and should be
construed in strictissimi juris against the person or entity claiming it. The burden of proof to establish the factual basis or the
sufficiency and competency of the supporting documents of the claim for tax refund or tax credit rests on the claimant.
In the present case, petitioner FBDC actually filed with the BIR a claim for tax refund in the amount of ₱347,741,695.74. In
filing a claim for tax refund, petitioner has the burden to show that prior tax payments were made, or at the very least, that there is
an existing law imposing the input tax. Similarly, in a claim for input tax credit, a VAT taxpayer must submit his beginning inventory
showing previously paid business taxes on his purchase of goods, materials and supplies. In both claims, prior tax payments should
have been made. Thus, in claiming for a tax refund or credit, prior tax payment must be clearly established and duly proven by a
VAT taxpayer in order to be entitled to the claim. In a claim for transitional input tax credit, as in the present case, the VAT taxpayer
must point to a law imposing the input VAT, without need of proving such input VAT was actually paid. Petitioner further argues that
RR 7-95 is invalid since the Revenue Regulation (1) limits the 8% transitional input VAT to the value of the improvements on the
land, and (2) violates the express provision of Section 105 of the old NIRC, in relation to Section 100, as amended by RA 7716.
Section 4.105-1 of RR 7-954 and its Transitory Provisions5 provide that the basis of the 8% transitional input VAT is the
value of the improvements on the land and not the value of the taxpayer‘s land or real properties. This Revenue Regulation finds

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statutory basis in Section 105 of the old NIRC, which provides that input VAT is allowed on the taxpayer‘s "beginning inventory of
goods, materials and supplies." Thus, the presumptive input VAT refers to the input VAT paid on "goods, materials or supplies" sold
by suppliers to the taxpayer, which the taxpayer used to introduce improvements on the land.
Under RA 7716 or the Expanded Value-Added Tax Law, the VAT was expanded to include land or real properties held
primarily for sale to customers or held for lease in the ordinary course of trade or business. Before this law was enacted, only
improvements on land were subject to VAT. Since the Global City land was not yet subject to VAT at the time of the sale in 1995,
the Global City land cannot be considered as part of the beginning inventory under Section 105. Clearly, the 8% transitional input
tax credit should only be applied to improvements on the land but not to the land itself.
There is no dispute that if the National Government sells today a parcel of land, the sale is completely tax-exempt. The
sale is not subject to VAT, and the buyer cannot claim any input VAT from the sale. Stated otherwise, a taxpayer like petitioner
FBDC cannot claim any input VAT on its purchase today of land from the National Government, even when VAT on land for real
estate dealers is already in effect. With greater reason, petitioner cannot claim any input VAT for its 1995 purchase of government
land when VAT on land was still non-existent and petitioner, as a real estate dealer, was still not subject to VAT on its sale of land.
In short, if petitioner FBDC cannot claim a tax refund or credit if the same transaction happened today when there is already a VAT
on sales of land by real estate developers, then with more reason petitioner cannot claim a tax refund or credit when the transaction
happened in 1995 when there was still no VAT on sales of land by real estate developers.
In sum, granting 8% transitional input VAT in the amount of ₱359,652,009.47 to petitioner FBDC is fraught with grave
legal infirmities, namely: (1) violation of Section 4(2) of the Government Auditing Code of the Philippines, which mandates that
public funds shall be used only for a public purpose; (2) violation of Section 29(1), Article VI of the Constitution, which mandates that
no money in the National Treasury, which includes tax collections, shall be spent unless there is an appropriation law authorizing
such expenditure; and (3) violation of the fundamental concept of the VAT system, as found in Section 105 of the old NIRC, that
before there can be a VAT refund or credit there must be a previously paid input VAT that can be deducted from the output VAT
because the purpose of the VAT crediting system is to prevent double taxation.

CONCURRING OPINION OF ABAD, ROBERTO A., J.:

A value added tax is a form of indirect sales tax paid on products and services at each stage of production or distribution,
based on the value added at that stage and included in the cost to the ultimate consumer.
To illustrate how VAT works, take a lumber store that sells a piece of lumber to a carpentry shop for ₱100.00. The lumber
store must pay a 12% VAT or ₱12.00 on such sale but it may charge the carpentry shop ₱112.00 for the piece of lumber, passing
on to the latter the burden of paying the ₱12.00 VAT.
When the carpentry shop makes a wooden stool out of that lumber and sells the stool to a furniture retailer for ₱150.00
(which would now consists of the ₱100.00 cost of the lumber, the ₱50.00 cost of shaping the lumber into a stool, and profit), the
carpentry shop must pay a 12% VAT of ₱6.00 on the ₱50.00 value it added to the piece of lumber that it made into a stool. But it
may charge the furniture retailer the VAT of ₱12.00 passed on to it by the lumber store as well as the VAT of ₱6.00 that the
carpentry shop itself has to pay. Its buyer, the furniture retailer, will pay ₱150.00, the price of the wooden stool, and ₱18.00 (₱12.00
+ ₱6.00), the passed-on VAT due on the same.
When the furniture retailer sells the wooden stool to a customer for ₱200.00, it would have added to its ₱150.00
acquisition cost of the stool its mark-up of ₱50.00 to cover its overhead and profit. The furniture retailer must, however, pay an
additional 12% VAT of ₱6.00 on the ₱50.00 add-on value of the stool. But it could charge its customer all the accumulated VAT
payments: the ₱12.00 paid by the lumber store, the ₱6.00 paid by the carpentry shop, and the other ₱6.00 due from the furniture
retailer, for a total of ₱24.00. The customer will pay ₱200.00 for the stool and ₱24.00 in passed-on 12% VAT.
Now, would the furniture retailer pay to the BIR the ₱24.00 VAT that it passed on to its customer and collected from him at
the store‘s counter? Not all of the ₱24.00. The furniture retailer could claim a credit for the ₱12.00 and the ₱6.00 in input VAT
payments that the lumber store and the carpentry shop passed on to it and that it paid for when it bought the wooden stool. The
furniture retailer would just have to pay to the BIR the output VAT of ₱6.00 covering its ₱50.00 mark-up. This payment rounds out
the 12% VAT due on the final sale of the stool for ₱200.00.
When the VAT law first took effect, it would have been unfair for a furniture retailer to pay all of the 10% VAT (the old rate)
on the wooden stools in its inventory at that time and not be able to claim deduction for any tax on sale that the lumber store and the
carpentry shop presumably passed on to it when it bought those wooden stools. To remedy this unfairness, Section 105 of the NIRC
granted those who must pay VAT for the first time a transitional input tax credit of 8% of the value of the inventory of goods they
have or actual value-added tax paid on such goods when the VAT law took effect. The furniture retailer would thus have to pay only
a 2% VAT on the wooden stools in that inventory, given the transitional input VAT tax credit of 8% allowed it under the old 10% VAT
rate.
In the case before the Court, FBDC had an inventory of Fort Bonifacio lots when the VAT law was made to cover the sale
of real properties for the first time. FBDC registered as new VAT payer and submitted to the BIR an inventory of its lots. FBDC
sought to apply the 8% transitional input tax credit that Section 105 grants first-time VAT payers like it but the CIR would not allow it.
The dissenting opinion of Justice Carpio echoes the CIR‘s reason for such disallowance. When the Government sold the Fort
Bonifacio lands to FBDC, the Government paid no sales tax whatsoever on that sale. Consequently, it could not have passed on to
FBDC what could be the basis for the 8% transitional input tax credit that Section 105 provides.

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 The reasoning appears sound at first glance. But Section 105 grants all first-time VAT payers such transitional input tax
credit of 8% without any precondition. It does not say that a taxpayer has to prove that the seller, from whom he bought the goods or
the lands, paid sales taxes on them. Consequently, the CIR has no authority to insist that sales tax should have been paid
beforehand on FBDC‘s inventory of lands before it could claim the 8% transitional input tax credit.
But there is a point that has apparently been missed. When the Government sold the military lands to FBDC for
development into mixed residential and commercial uses, the presumption is that in fixing their price the Government took into
account the price that private lands similarly situated would have fetched in the market place at that time. The clear intent was to
privatize ownership of those former military lands. It would make no sense for the Government to sell the same to intended private
investors at a price lesser than the price of comparable private lands. The presumption is that the sale did not give undue benefit to
the buyers in violation of the anti-graft and corrupt practices act.
Moreover, there is one clear evidence that the former military lands were sold to private investors at market price. After
the Government sold the lands to FBDC, then wholly owned by BCDA, the latter sold 55% of its shares in FBDC to private investors
in a public bidding where many competed. Since FBDC had no assets other than the lands it bought from the Government, the
bidding was essentially for those lands. There can be no better way of determining the market price of such lands than a well-
publicized bidding for them, joined in by interested bona fide bidders.
Thus, since the Government sold its lands to investors at market price like they were private lands, the price FBDC paid to
it already factored in the cost of sales tax that prices of ordinary private lands included. This means that FBDC, which bought the
lands at private-land price, should be allowed like other real estate dealers holding private lands to claim the 8% transitional input
tax credit that Section 105 grants with no precondition to first-time VAT payers. Otherwise, FBDC would be put at a gross
disadvantage compared to other real estate dealers. It will have to sell at higher prices than market price, to cover the 10% VAT that
the BIR insists it should pay. Whereas its competitors will pay only a 2% VAT, given the 8% transitional input tax credit of Section
105. To deny such tax credit to FBDC would amount to a denial of its rights to fairness and to equal protection.
The Court was correct in allowing FBDC the right to be refunded the VAT that it already paid, applying instead to the VAT
tax due on its sales the transitional input VAT that Section 105 provides.
Justice Carpio also argues that if FBDC will be given a tax refund, it would be sourced from public funds, which violates
Section 4(2) of the Govenment Auditing Code that government funds or property cannot be used in order to benefit private
individuals or entities. They shall only be spent or used solely for public purposes.
But the records show that FBDC actually paid to the BIR the amounts for which it seeks a BIR tax refund. The CIR does
not deny this fact. FBDC was forced to pay cash on the VAT due on its sales because the BIR refused to apply the 8% transitional
input VAT tax credits that the law allowed it. Since such tax credits were sufficient to cover the VAT due, FBDC is entitled to a
refund of the VAT it already paid. And, contrary to the dissenting opinion, if FBDC will be given a tax refund, it would be sourced, not
from public funds, but from the VAT payments which FBDC itself paid to the BIR.
Like the previous cases before the Court, the BIR has the option to refund what FBDC paid it with equivalent tax credits.
Such tax credits have never been regarded as needing appropriation out of government funds. Indeed, FBDC concedes in its
prayers that it may get its refund in the form of a Tax Credit Certificate.

F. VAT Refund
1. Sec. 112 of the NIRC. (as amended by RA 10963)
2. RMC No. 17-2018 and Sec. 112-1 of RR No. 13-2018. (new rules on input VAT refund)
3. Contex vs. CIR, GR No. 151135 dated July 2, 2004.  Repeated / See pp 6-9 by VENGCO
4. Atlas Consolidated Mining vs. CIR, GR Nos. 141104 and 148763 dated June 8, 2007.  BESA
5. CIR vs. San Roque Power, GR No. 187485 dated February 12, 2013. – old rule.  BUENO
6. Microsoft Phils., Inc. vs. CIR, GR No. 180173 dated April 6, 2011.  GIBA
7. Coca-Cola Bottlers Philippines, Inc. vs. CIR, GR No. 222428 (2018)

ATLAS CONSOLIDATED MINING DEVT CORP v. CIR

524 SCRA 73, 103 GR Nos. 141104 & 148763, June 8, 2007
DOCTRINE/S:
"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should not be
permitted to stand on vague implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed
claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable
quarters of the years 1990 and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition for review
before the CTA. The latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists
of exports, that the same were not filed within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed
only on April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for refund/credit. The petitioner,

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on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA as zero-rated
export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15,
1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness
of the contents of the summary of suppliers‘ invoices or receipts examined, evaluated and audited by said CPA should substantiate
its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for
refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and
PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs
territory from the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still denies the
claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during
the period claimed for not being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be
construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must
justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications.

CIR v. SAN ROQUE POWER CORPORATION

G.R. No. 187485, February 12, 2013
FACTS: On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and energy for the Luzon
Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides, among
others, that [San Roque] shall be responsible for the design, construction, installation, completion, testing and commissioning of the
Power Station and shall operate and maintain the same, subject to NPC instructions.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam, spillway and
power plant, [San Roque] allegedly incurred, excess input VAT in the amount of ₱559,709,337.54 for taxable year 2001 which it
declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for refund, in the
total amount of ₱559,709,337.54.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased its
unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate
amended claims for refund in the aggregate amount of ₱560,200,283.14. [CIR‘s] inaction on the subject claims led to the filing by
[San Roque] of the Petition for Review with the Court [of Tax Appeals] in Division on April 10, 2003.
The CTA Second Division initially denied San Roque‘s claim. In its Decision dated 8 March 2006, it cited the following as
bases for the denial of San Roque‘s claim: lack of recorded zero-rated or effectively zero-rated sales; failure to submit documents
specifically identifying the purchased goods/services related to the claimed input VAT which were included in its Property, Plant and
Equipment account; and failure to prove that the related construction costs were capitalized in its books of account and subjected to
depreciation.
The CTA Second Division required San Roque to show that it complied with the following requirements of Section 112(B)
of (RA 8424) to be entitled to a tax refund or credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a
VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT invoices and/or official receipts;
(3) it did not offset or apply the claimed input VAT payments on capital goods against any output VAT liability; and (4) its claim for
refund was filed within the twoyear prescriptive period both in the administrative and judicial levels.
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its November 2007 Amended Decision,
the CTA Second Division found legal basis to partially grant San Roque‘s claim. The CTA Second Division ordered the
Commissioner to refund or issue a tax credit in favor of San Roque in the amount of ₱483,797,599.65, which represents San
Roque‘s unutilized input VAT on its purchases of capital goods and services for the taxable year 2001. The CTA based the
adjustment in the amount on the findings of the independent certified public accountant. The following reasons were cited for the
disallowed claims: erroneous computation; failure to ascertain whether the related purchases are in the nature of capital goods; and
the purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the difference between San
Roque‘s claim and that appearing on its books; the official receipts covering the claimed input VAT on purchases of local services
are not within the period of the claim; and the amount of VAT cannot be determined from the submitted official receipts and invoices.
The CTA Second Division denied San Roque‘s claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated
or effectively zero-rated sales because San Roque had no record of such sales for the four quarters of 2001.
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque‘s claim for refund or
tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution
in CTA Case No. 6647. The CTA EB dismissed the CIR‘s petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc. and RMC No. 49-03,22 as its bases for ruling
that San Roque‘s judicial claim was not prematurely filed.

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 Lastly, it is apparent from the following provisions of RMC No. 49-03 dated August 18, 2003, that [the CIR] knows that
claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR
and that taxpayers need not wait for the lapse of the subject 120-day period.

ISSUE: Did the CTA En Banc erred in holding that [San Roque‘s] claim for refund was not prematurely filed.

HELD: YES. On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March
2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather two crucial facts:
first, San Roque did not wait for the 120-day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim
more than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner
to decide whether to grant or deny San Roque‘s application for tax refund or credit. It is indisputable that compliance with the 120-
day waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of
the first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was extended to 120 days
effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books for
more than fifteen (15) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the
CTA does not acquire jurisdiction over the taxpayer‘s petition. Philippine jurisprudence is replete with cases upholding and
reiterating these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the Commissioner of
Internal Revenue in cases involving x x x refunds of internal revenue taxes." When a taxpayer prematurely files a judicial claim for
tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to
review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly
provides that if the Commissioner fails to decide within "a specific period" required by law, such "inaction shall be deemed a denial"
of the application for tax refund or credit. It is the Commissioner‘s decision, or inaction "deemed a denial," that the taxpayer can take
to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has no jurisdiction
over a petition for review.
San Roque‘s failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. Article
5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws shall be void, except when the law
itself authorizes their validity." San Roque‘s void petition for review cannot be legitimized by the CTA or this Court because Article 5
of the Civil Code states that such void petition cannot be legitimized "except when the law itself authorizes [its] validity." There is no
law authorizing the petition‘s validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or
acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This doctrine is
repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or omissions which are
against the law or which infringe upon the rights of others."50 For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque‘s petition with the CTA is a mere scrap of
paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period just
because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not question the entitlement
of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally,
erroneously or excessively collected from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance
with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and necessary for
such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or
credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the Commissioner
chose not to contest the numerical correctness of the claim for tax refund or credit of the taxpayer. Non-compliance with mandatory
periods, non-observance of prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer‘s claim
for tax refund or credit, whether or not the Commissioner questions the numerical correctness of the claim of the taxpayer. This
Court should not establish the precedent that non-compliance with mandatory and jurisdictional conditions can be excused if the
claim is otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every tax refund case will have to be decided on the numerical correctness
of the amounts claimed, regardless of non-compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed its
petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did not exist at the time San
Roque failed to comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse for its failure to
wait for the 120-day period to lapse. In any event, the Atlas doctrine merely stated that the two-year prescriptive period should be
counted from the date of payment of the output VAT, not from the close of the taxable quarter when the sales involving the input
VAT were made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+3052 day periods.

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 In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court in Atlas as the
applicable provision of the law did not yet provide for the 30-day period for the taxpayer to appeal to the CTA from the decision or
inaction of the Commissioner. Thus, the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day
mandatory and jurisdictional period. Also, the difference between the Atlas doctrine on one hand, and the Mirant doctrine on the
other hand, is a mere 20 days. The Atlas doctrine counts the two-year prescriptive period from the date of payment of the output
VAT, which means within 20 days after the close of the taxable quarter. The output VAT at that time must be paid at the time of filing
of the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the
law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayer‘s claim. The law is clear,
plain, and unequivocal: "x x x 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 complete documents." Following the verba legis doctrine, this law
must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA
without waiting for the Commissioner‘s decision within the 120-day mandatory and jurisdictional period. The CTA will have no
jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San
Roque‘s case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner.
Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly
as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the
Commissioner to the CTA within 30 days from receipt of the Commissioner‘s decision, or if the Commissioner does not act on the
taxpayer‘s claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day
period.

MICROSOFT PHILIPPINES VS. COMMISSIONER OF INTERNAL REVENUE

GR No. 180173, APRIL 6, 2011, CARPIO. J:
DOCTRINE: Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and
this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any
input tax.
A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input
taxes on domestic purchases for goods or services attributable to zero-rated sales.

FACTS: Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly registered with the Bureau of Internal
Revenue (BIR). Microsoft renders marketing services to Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI),
both affiliated non-resident foreign corporations. The services are paid for in acceptable foreign currency and qualify as zero-rated
sales for VAT purposes under Section 108(B)(2) of the National Internal Revenue Code (NIRC.
Microsoft filed for a tax credit in the amount of P11, 449, 814.99, representing input taxes in paid in 2001 on its domestic
pucrases of taxable goods and services. Due to the inaction of the BIR, Microsoft filed a petition for review with the CTA, alleging
that is its entitled to refund of unutilized input Vat attributable to its zero-rated sales. The CTA denied the petition on the ground that
Microsoft failed to comply with the invoicing requirements under Sections 113 and 117 of the NIRC, as well as Section 4.108-1 of
RR 7-95. According to the CTA, the official receipts of Microsoft does not bear the imprinted words ‗zero-rated‘ on its face, hence it
cannot be considered as a valid evidence to prove zero-rated sales for vat purposes. Microsoft field for a petition for review with the
CTA En Banc but the same was denied on the ground that no new matters were alleged in the petition. Hence, Microsoft filed a
petition for review on certiorari with the SC. Microsoft insist that Section 113 and 237 of the NIRC and Section 4.108-1 of RR 7-95
does not provide that failure to indicate the word ‗zero-rated‘ in the receipts would invalidate these receipts for input tax purposes.

ISSUE: Whether Microsoft is entitled to claim of tax credit or refund on input taxes for domestic purchases of goods and services,
even if its receipts do not bear the words ‗zero-rated‘.

RULING: Microsoft is not entitled to a tax credit or to a tax refund for failure to comply with the invoicing requirements under Section
113 and 237 of the NIRC and Section 4.108-1 of RR 7-95.
Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VAT-registered persons state:

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the
information required under Section 237, the following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the
value-added tax. x x x

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SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each
sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered
receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of
One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to value-
added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to
the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser.

The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected,
who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period
of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept
and preserved by the issuer, also in his place of business, for a like period.

The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the
provisions of this Section.

Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which must appear on the face of the
official receipts or invoices for every sale of goods by VAT-registered persons. At the time Microsoft filed its claim for credit of VAT
input tax, RR 7-95 was already in effect. The provision states:

Sec. 4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods or properties or
services, issue duly registered receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.

Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and
this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any
input tax.
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear. A
VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on
domestic purchases for goods or services attributable to zero-rated sales. A "VAT invoice" is an invoice that meets the requirements
of Section 4.108-1 of RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly states that "[A]ll purchases covered by invoices
other than a VAT invoice shall not give rise to any input tax." Microsoft's invoice, lacking the word "zero-rated," is not a "VAT
invoice," and thus cannot give rise to any input tax.

∞
SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That
where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties
or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of sales. Provided, finally, That for a person making
sales that are zero-rated under Section 108(B) (6), the input taxes shall be allocated ratably between his zero-rated and non-zero-
rated sales.

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(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status under Section 106(C) of this Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other
internal revenue taxes.

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a
refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other
documents in support of the application filed in accordance with Subsections (A) and (B) hereof: Provided, That should the
Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the
denial.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any
official, agent, or employee of the BIR to act on the application within ninety (90) days period shall be punishable under Section 269
of this Code.

(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by the Chairman, Commission on audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds under this paragraph shall be subject to post
audit by the Commission on Audit.

SEC. 4.112-1. Claims for Refund/Credit of Input Tax. –

(a) Zero-rated and Effectively Zero-rated Sales of Goods, Properties or Services

A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may apply
for the issuance of a tax refund of input tax attributable to such sales. The input tax that may be subject of the claim shall exclude
the portion of input tax that has been applied against the output tax. The application should be filed within two (2) years after the
close of the taxable quarter when such sales were made.

In case of zero-rated sales under Secs. 106(A)(2)(a)(1) and (3), Secs. 108(B)(1) and (2) of the Tax Code, the payments
for the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and
regulations.

Where the taxpayer is engaged in both zero-rated or effectively zerorated sales and in taxable (including sales subject to
final withholding VAT) or exempt sales of goods, properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, only the proportionate share of input taxes allocated to zero-rated or
effectively zero-rated sales can be claimed for refund or issuance of a tax credit certificate.

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 III. REMEDIES UNDER THE NIRC
G. Letter of Authority / Audit Notice
1. Sec. 6(A) of the NIRC and Sec. 13 of the NIRC.

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration
and Enforcement. - (A) Examination of Returns and Determination of Tax Due - After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and
the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.
Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided,
That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no
notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the
taxpayer.

SEC. 13. Authority of a Revenue Offices. - subject to the rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to
a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to
collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts
could have been performed by the Revenue Regional Director himself.

2. Revenue Memorandum Order No. 43-90. (as cited in the SC Cases)

Commissioner of Internal Revenue vs. De La Salle University, Inc.

808 SCRA 156, G.R. No. 196596, G.R. No. 198841, G.R. No. 198941 November 9, 2016

Taxation; The requirement to specify the taxable period covered by the Letter of Authority (LOA) is simply to inform the
taxpayer of the extent of the audit and the scope of the revenue officer’s authority.—Read in this light, the requirement to
specify the taxable period covered by the LOA is simply to inform the taxpayer of the extent of the audit and the scope of the
revenue officer‘s authority. Without this rule, a revenue officer can unduly burden the taxpayer by demanding random accounting
records from random unverified years, which may include documents from as far back as ten years in cases of fraud audit.

The issue of the LOA' s validity was raised during trial; hence, the issue was deemed properly submitted for decision and
reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable period and that the practice of
issuing a LOA covering audit of unverified prior years is prohibited. The prohibition is consistent with Revenue Memorandum Order
(RMO) No. 43-90, which provides that if the audit includes more than one taxable period, the other periods or years shall be
specifically indicated in the LOA.
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. Hence, the
assessments for deficiency income tax, VAT and DST for taxable years 2001 and 2002 are void, but the assessment for taxable
year 2003 is valid.

3. CIR vs. Sony Phils, Inc., G.R. No. 178697, November 17, 2010  BESA
4. CIR vs. De La Salle, GR No. 198841 dated November 9, 2016  OBNIAL

COMMISSIONER OF INTERNAL REVENUE s. SONY PHILIPPINES, INC.

G.R. No. 178697, November 17, 2010
DOCTRINE: Letter of Authority – There must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of
such an authority, the assessment or examination is a nullity

FACTS: The CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to examine Sony‘s books of accounts
and other accounting records regarding revenue taxes for the period 1997 and unverified prior years. A preliminary assessment for
1997 deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the CIR issued
final assessment notices, the formal letter of demand and the details of discrepancies. The CIR assessed a deficiency VAT -
P11,141,014.41

ISSUES:
1. Whether or not he Letter of Authority is Valid
2. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41

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RULING:
1. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer
assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account
and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax.
There must be a grant of authority before any revenue officer can conduct an examination or assessment.
Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such
an authority, the assessment or examination is a nullity.
The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR acting through its
revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was
based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998.
It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority should cover a
taxable period not exceeding one taxable year.

2. CIRs argument that Sonys advertising expense could not be considered as an input VAT credit because the same was
eventually reimbursed by Sony International Singapore (SIS).

Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should
have been realized from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that
an advertising expense duly covered by a VAT invoice is a legitimate business expense. There is also no denying that
Sony incurred advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and
the latter paid for the same. Indubitably, Sony incurred and paid for advertising expense/ services. Where the money
came from is another matter all together but will definitely not change said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable.

Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the Court agrees.
However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said
subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sonys advertising expense for it
was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was only equivalent to the latters
(Sonys) advertising expenses.
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.

CIR v. DE LA SALLE
G.R. No. 198841, November 9, 2016
DOCTRINE: A LOA is the authority given to the appropriate revenue officer to examine the books of account and other accounting
records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities and for the purpose of collecting the
correct amount oftax, in accordance with Section 5 of the Tax Code, which gives the CIR the power to obtain information, to
summon/examine, and take testimony of persons. The LOA commences the audit process and informs the taxpayer that it is under
audit for possible deficiency tax assessment

FACTS: Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. 2794 authorizing its
revenue officers to examine the latter's books of accounts and other accounting records for all internal revenue taxes for the period
Fiscal Year Ending 2003 and Unverified Prior Years. On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU.
Subsequently on August 18, 2004, the BIR through a Formal Letter of Demand assessed DLSU the following deficiency taxes: (1)
income tax on rental earnings from restaurants/canteens and bookstores operating within the campus; (2) value-added tax (VAT) on
business income; and (3) documentary stamp tax (DST) on loans and lease contracts. The BIR demanded the payment of
P17,303,001.12, inclusive of surcharge, interest and penalty for taxable years 2001, 2002 and 2003.DLSU protested the
assessment. The Commissioner failed to act on the protest; thus, DLSU filed on August 3, 2005 a petition for review with the CTA
Division.
DLSU, a non-stock, non-profit educational institution, principally anchored its petition on Article XIV, Section 4 (3) of the
Constitution, which reads: All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties. xxx.

ISSUE: Whether the entire assessment should be voided because of the defective LOA.

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RULING: The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003 is valid. DLSU objects to the CTA En
Banc's conclusion that the LOA is valid for taxable year 2003 and insists that the entire LOA should be voided for being contrary to
RMO No. 43-90, which provides that if tax audit includes more than one taxable period, the other periods or years shall be
specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to examine the books of account and other accounting
records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities and for the purpose of collecting the
correct amount oftax, in accordance with Section 5 of the Tax Code, which gives the CIR the power to obtain information, to
summon/examine, and take testimony of persons. The LOA commences the audit process and informs the taxpayer that it is under
audit for possible deficiency tax assessment. Given the purposes of a LOA, is there basis to completely nullify the LOA issued to
DLSU, and consequently, disregard the BIR and the CTA's findings of tax deficiency for taxable year 2003?
The Court answer in the negative.
The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads:
A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year. The practice of issuing
[LOAs] covering audit of unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one
taxable period, the other periods or years shall be specifically indicated in the [LOA].
What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior years. RMO 43-90
does not say that a LOA which contains unverified prior years is void. It merely prescribes that if the audit includes more than one
taxable period, the other periods or years must be specified. The provision read as a whole requires that if a taxpayer is audited for
more than one taxable year, the BIR must specify each taxable year or taxable period on separate LOAs. Read in this light, the
requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the extent of the audit and the
scope of the revenue officer's authority. Without this rule, a revenue officer can unduly burden the taxpayer by demanding random
accounting records from random unverified years, which may include documents from as far back as ten years in cases of fraud
audit. In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. The LOA does not
strictly comply with RMO 43-90 because it includes unverified prior years. This does not mean, however, that the entire LOA is void.
As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is specified in the LOA. DLSU
was fully apprised that it was being audited for taxable year 2003. Corollarily, the assessments for taxable years 2001 and 2002 are
void for having been unspecified on separate LOAs as required under RMO No. 43-90. Lastly, the Commissioner's claim that DLSU
failed to raise the issue of the LOA's validity at the CTA Division, and thus, should not have been entertained on appeal, is not
accurate. On the contrary, the CTA En Banc found that the issue of the LOA's validity came up during the trial.100 DLSU then
raised the issue in its memorandum and motion for partial reconsideration with the CTA Division. DLSU raised it again on appeal to
the CTA En Banc. Thus, the CTA En Banc could, as it did, pass upon the validity of the LOA.101 Besides, the Commissioner had
the opportunity to argue for the validity of the LOA at the CTA En Banc but she chose not to file her comment and memorandum
despite notice.

5. Medicard Philippines, Inc. vs. CIR, GR No. 222743 dated April 5, 2017

MEDICARD PHILIPPINES, INC. v.COMMISSIONER OF INTERNAL REVENUE

G.R. No. 222743, April 5, 2017
DIGEST COPIED FROM THE WEDNESDAY CLASS

FACTS: MEDICARD is a health maintenance organization (HMO) that provides prepaid health and medical insurance coverage to
its clients. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by duly licensed physicians, specialists, and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.
MEDICARD filed it first, second, and third quarterly VAT Returns through Electronic Filing and Payment System (EFPS)
on April 20, July 25, and October 25, 2006, respectively, and its fourth quarterly VAT Return on January 25, 2007.
Upon finding some discrepancies between MEDICARD‘s Income Tax Returns (ITR) and VAT Returns, the CIR issued a
Letter Notice (LN) dated September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT. MEDICARD received CIR‘s FAN dated December 10, 2007 for allegedly deficiency VAT for taxable
year 2006 including penalties.
MEDICARD filed a protest arguing, among others, that that the services it render is not limited merely to arranging for the
provision of medical and/or hospitalization services but include actual and direct rendition of medical and laboratory services. On
June 19, 2009, MEDICARD received CIR‘s Final Decision denying its protest. The petitioner MEDICARD proceeded to file a petition
for review before the CTA.
The CTA Division held that the determination of deficiency VAT is not limited to the issuance of Letter of Authority (LOA)
alone and that in lieu of an LOA, an LN was issued to MEDICARD informing it if the discrepancies between its ITRs and VAT
Returns and this procedure is authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-2003. Also, the amounts
that MEDICARD earmarked and eventually paid to doctors, hospitals and clinics cannot be excluded from the computation of its
gross receipts because the act of earmarking or allocation is by itself an act of ownership and management over the funds by
MEDICARD which is beyond the contemplation of RR No. 4-2007. Furthermore, MEDICARD‘s earnings from its clinics and

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laboratory facilities cannot be excluded from its gross receipts because the operation of these clinics and laboratory is merely an
incident to MEDICARD‘s line of business as an HMO.
MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner elevated the matter to the CTA en banc.
CTA en banc partially granted the petition only insofar as 10% VAT rate for January 2006 is concerned but sustained the
findings of the CTA Division.

ISSUES:
1. Is the absence of the Letter of Authority fatal?
2. Should the amounts that MEDICARD earmarked and eventually paid to the medical service providers still form part of its gross
receipts for VAT purposes?

RULING: It is clear that unless authorized by the CIR himself or by his duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be undertaken. The circumstances contemplated under Section 6 where the taxpayer
may be assessed through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA.
These are simply methods of examining the taxpayer in order to arrive at the correct amount of taxes. Hence, unless undertaken by
the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations
without prior authority.

1. Yes. The absence of the LOA violated MEDICARD‘s right to due process. An LOA is the authority given to the appropriate
revenue officer assigned to perform assessment functions. Under the NLRC, unless authorized by the CIR himself or by his duly
authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. An LOA is premised on
the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR
himself or his duly authorized representatives. In this case, there is no dispute that no LOA was issued prior to the issuance of a
PAN and FAN against MEDICARD. Therefore, no LOA was also served on MEDICARD.

2. No. The VAT is a tax on the value added by the performance of the service by the taxpayer. It is, thus, this service and the value
charged thereof by the taxpayer that is taxable under the NLRC.

6. Number of times a taxpayer may be audited

a. Sec. 235 of the NIRC

SEC. 235. Preservation of Books and Accounts and Other Accounting Records. - All the books of accounts, including the
subsidiary books and other accounting records of corporations, partnerships, or persons, shall be preserved by them for a period
beginning from the last entry in each book until the last day prescribed by Section 203 within which the Commissioner is authorized
to make an assessment.
The said books and records shall be subject to examination and inspection by internal revenue officers: Provided, That for
income tax purposes, such examination and inspection shall be made only once in a taxable year, except in the following cases:
(a) Fraud, irregularity or mistakes, as determined by the Commissioner;
(b) The taxpayer requests reinvestigation;
(c) Verification of compliance with withholding tax laws and regulations;
(d) Verification of capital gains tax liabilities; and
(e) In the exercise of the Commissioner's power under Section 5(B) to obtain information from other persons in which
case, another or separate examination and inspection may be made. Examination and inspection of books of accounts and other
accounting records shall be done in the taxpayer's office or place of business or in the office of the Bureau of Internal Revenue. All
corporations, partnerships or persons that retire from business shall, within ten (10) days from the date of retirement or within such
period of time as may be allowed by the Commissioner in special cases, submit their books of accounts, including the subsidiary
books and other accounting records to the Commissioner or any of his deputies for examination, after which they shall be returned.
Corporations and partnerships contemplating dissolution must notify the Commissioner and shall not be dissolved until cleared of
any tax liability.
Any provision of existing general or special law to the contrary notwithstanding, the books of accounts and other pertinent
records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the Bureau of Internal Revenue
for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives,
and their tax liability, if any.

H. Tax Assessment
1. CIR vs. Pascor Realty, GR No. 128315 dated June 29, 1999  BESA
2. SMI-ED Technology Corporation, Inc. v. CIR, GR No. 175410 dated Nov.12, 2014  OBNIAL
3. CIR vs. Fitness By Design, Inc., GR No. 215957 dated November 9, 2016  BAGALANON

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COMM’R OF IR v. PASCOR REALTY & DEV’T CORP., ROGELIO A. DIO & VIRGINIA S. DIO
G.R. No. 128315, June 29, 1999
DOCTRINE: Tax Assessment - An assessment must be sent to and received by the taxpayer, and must demand payment of the
taxes described therein within a specific period. An assessment is not necessary before criminal charges can be filed. A criminal
charge need not only be supported by a prima facie showing of failure to file a required return

FACTS: The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty
and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an
assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. On March 1, 1995, Commissioner filed a criminal
complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an
urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability.
On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint. In
a letter dated, May 17, 1995, the Commissioner denied private respondent‘s request for reconsideration (reinvestigation on the
ground that no formal assessment has been issued) which the latter elevated to the CTA on a petition for review.
The Commissioner‘s motion to dismiss on the ground of the CTA‘s lack of jurisdiction inasmuch as no formal assessment
was issued against private respondent was denied by CTA and ordered the Commissioner to file an answer but did not instead filed
a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report
of the revenue officers and the endorsement of said report as assessment which may be appealed to he CTA.
The CA sustained the CTA decision and dismissed the petition.

ISSUES:
1. Whether or not the criminal complaint for tax evasion can be construed as an assessment
2. Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted

RULING:
1. No. The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code
nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment.
An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes
described therein within a specific period. The revenue officer‘s affidavit merely contained a computation of respondent‘s
tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the
taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to be a notice
of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the DOJ,
and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue
an assessment.

2. No. An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported
by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether
to issue an assessment, or to file a criminal case against the taxpayer, or to do both.

SMI-ED Tech Corp v. CIR

G.R. No. 175410, November 12, 2014
FACTS: SMI-Ed Philippines is a PEZA-registered corporation authorized "to engage in the business of manufacturing ultra high-
density microprocessor unit package." After its registration on June 29, 1998, SMI-Ed Philippines constructed buildings and
purchased machineries and equipment. As of December 31, 1999, the total cost of the properties amounted to ₱3,150,925,917.00.
SMI-Ed Philippines "failed to commence operations." Its factory was temporarily closed, effective October 15, 1999. On August 1,
2000, it sold its buildings and some of its installed machineries and equipment to Ibiden Philippines, Inc., another PEZA-registered
enterprise, for ¥2,100,000,000.00 (₱893,550,000.00). SMI-Ed Philippines was dissolved on November 30, 2000. In its quarterly
income tax return for year 2000, SMI-Ed Philippines subjected the entire gross sales of itsproperties to 5% final tax on PEZA
registered corporations. SMI-Ed Philippines paid taxes amounting to ₱44,677,500.00. On February 2, 2001, after requesting the
cancellation of its PEZA registration and amending its articles of incorporation to shorten its corporate term, SMI-Ed Philippines filed
an administrative claim for the refund of ₱44,677,500.00 with the Bureauof Internal Revenue (BIR). SMIEd Philippines alleged that
the amountwas erroneously paid. It also indicated the refundable amount in its final income tax return filed on March 1, 2001. It also
alleged that it incurred a net loss of ₱2,233,464,538.00. The BIR did not act on SMI-Ed Philippines‘ claim, which prompted the latter
to file a petition for reviewbefore the Court of Tax Appeals on September 9, 2002.

ISSUE: Whether or not the honorable CTA En Banc grievously erred and acted beyond its jurisdiction when it assessed for
deficiency tax in the first instance.

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RULING: The term "assessment" refers to the determination of amounts due from a person obligated to make payments. In the
context of national internal revenue collection, it refers the determination of the taxes due from a taxpayer under the National
Internal Revenue Code of 1997. The power and duty to assess national internal revenue taxes are lodged with the BIR. Thus, the
BIR first has to make an assessment of the taxpayer‘s liabilities. When the BIR makes the assessment, the taxpayer is allowed to
dispute that assessment before the BIR. If the BIR issues a decision that is unfavorable to the taxpayer or if the BIR fails to act on a
dispute brought by the taxpayer, the BIR‘s decision or inaction may be brought on appeal to the Court of Tax Appeals. The Court of
Tax Appeals then acquires jurisdiction over the case.
When the BIR‘s unfavorable decision is brought on appeal to the Court of Tax Appeals, the Court of Tax Appeals reviews
the correctness of the BIR‘s assessment and decision. In reviewing the BIR‘s assessment and decision, the Court of Tax Appeals
had to make its own determination of the taxpayer‘s tax liabilities. The Court of Tax Appeals may not make such determination
before the BIR makes its assessment and before a dispute involving such assessment is brought to the Court of Tax Appeals on
appeal. The Court of Tax Appeals‘ jurisdiction is not limited to cases when the BIR makes an assessment or a decision unfavorable
to the taxpayer. Because Republic Act No. 1125 also vests the Court of Tax Appeals with jurisdiction over the BIR‘s inaction on a
taxpayer‘s 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 BIR‘s assessments or decisions. When the BIR fails to act on a claim for refund of voluntarily but mistakenly paid
taxes, for example, there is no decision or assessment involved.
Taxes are generally self-assessed. They are initially computed and voluntarily paid by the taxpayer. The government does
not have to demand it. If the tax payments are correct, the BIR need not make an assessment.The self-assessing and voluntarily
paying taxpayer, however, may later find that he or she has erroneously paid taxes. Erroneously paid taxes may come in the form of
amounts thatshould not have been paid. Thus, a taxpayer may find that he or she has paid more than the amount that should have
been paid under the law. Erroneously paid taxes may also come in the form of tax payments for the wrong category of tax. Thus, a
taxpayer may find that he or she has paid a certain kindof tax that he or she is not subject to. In these instances, the taxpayer may
ask for a refund. If the BIR fails to act on the request for refund, the taxpayer may bring the matter to the Court of Tax Appeals.
From the taxpayer‘s self-assessment and tax payment up to his or her request for refund and the BIR‘s inaction,the BIR‘s
participation is limited to the receipt of the taxpayer‘s payment. The BIR does not make an assessment; the BIR issues no decision;
and there is no dispute yet involved. Since there is no BIR assessment yet, the Court of Tax Appeals may not determine the amount
of taxes due from the taxpayer. There is also no decision yet to review. However, there was inaction on the part of the BIR. That
inaction is within the Court of Tax Appeals‘ jurisdiction. In other words, the Court of Tax Appeals may acquire jurisdiction over cases
even if they do not involve BIR assessments or decisions.
In this case, the Court of Tax Appeals‘ jurisdiction was acquired because petitioner brought the case on appeal before the
Court of Tax Appeals after the BIR had failed to act on petitioner‘s claim for refund of erroneously paid taxes. The Court of Tax
Appeals did not acquire jurisdiction as a result of a disputed assessment of a BIR decision.

COMMISSIONER OF INTERNAL REVENUE v. FITNESS BY DESIGN, INC.

COPIED FROM THE WEDNESDAY CLASS
DOCTRINE: To avail of the extraordinary period of assessment in Section 222(a) of the National Internal Revenue Code, the
Commissioner of Internal Revenue should show that the facts upon which the fraud is based is communicated to the taxpayer. The
burden of proving that the facts exist in any subsequent proceeding is with the Commissioner. Furthermore, the Final Assessment
Notice is not valid if it does not contain a definite due date for payment by the taxpayer.
The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law on which the assessment
was based; otherwise, these shall be void. The taxpayer or the authorized representative may administratively protest the formal
letter of demand and assessment notice within 30 days from receipt of the notice.

FACTS: This is a Petition for Review on Certiorari1 filed by the CIR, which assails the Decision of the Court of Tax Appeals. The
CTA En Banc affirmed the Decision of the First Division, which declared the assessment issued against Fitness by Design, Inc.
(Fitness) as invalid.
Fitness filed its Annual Income Tax Return for the taxable year of 1995.According to Fitness, it was still in its pre-operating
stage during the covered period.6 Fitness received a copy of the Final Assessment Notice (FAN). Fitness filed a protest. According
to Fitness, the Commissioner‘s period to assess had already prescribed. Further, the assessment was without basis since the
company was only incorporated on May 30, 1995.Commissioner issued a Warrant of Distraint and/or Levy. Fitness filed before the
First Division of the Court of Tax Appeals a Petition for Review (With Motion to Suspend Collection of Income Tax, Value-Added
Tax, Documentary Stamp Tax and Surcharges and Interests) .
CIR filed an Answer to Fitness‘ Petition and raised special and affirmative defenses. The Commissioner denied that there
was a protest to the Final Assessment Notice filed by Fitness on June 25, 2004.According to the Commissioner, the alleged protest
was ―nowhere to be found in the [Bureau of Internal Revenue] Records nor reflected in the Record Book of the Legal Division as
normally done by [its] receiving clerk when she received [sic] any document.‖Therefore, the Commissioner had sufficient basis to
collect the tax deficiency through the Warrant of Distraint and/or Levy. The alleged fraudulent return was discovered through a tip
from a confidential informant. The revenue officers‘ investigation revealed that Fitness had been operating business with sales
operations amounting to P7,156,336.08 in 1995, which it neglected to report in its income tax return.Fitness‘ failure to report its

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income resulted in deficiencies to its income tax and value-added tax of P8,265,568.17 and P2,377,274.02 respectively, as well as
the documentary stamp tax with regard to capital stock subscription.
CTA First Division granted Fitness‘ Petition on the ground that the assessment has already prescribed.28 It cancelled and
set aside the Final Assessment Notice as well as the Warrant of Distraint and/or Levy issued by the Commissioner. It ruled that the
Final Assessment Notice is invalid for failure to comply with the requirements of Section 228 of the National Internal Revenue Code.
Commissioner filed an appeal before the Court of Tax Appeals En Banc. The Commissioner asserted that it had 10 years
to make an assessment due to the fraudulent income tax return filed by Fitness.34 It also claimed that the assessment already
attained finality due to Fitness‘ failure to file its protest within the period provided by law.
Fitness argued that the Final Assessment Notice issued to it could not be claimed as a valid deficiency assessment that
could justify the issuance of a warrant of distraint and/or levy.36 It asserted that it was a mere request for payment as it did not
provide the period within which to pay the alleged liabilities.37
The Court of Tax Appeals En Banc ruled in favor of Fitness.

ISSUE: Whether the Final Assessment Notice issued against respondent Fitness by Design, Inc. is a valid assessment under
Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99.

HELD: Petitioner argues that the Final Assessment Notice issued to respondent is valid since it complies with Section 228 of the
National Internal Revenue Code and Revenue Regulations No. 12-99. The law states that the taxpayer shall be informed in writing
of the facts, jurisprudence, and law on which the assessment is based. Nothing in the law provides that due date for payment is a
substantive requirement for the validity of a final assessment notice.
Petitioner further claims that a perusal of the Final Assessment Notice shows that April 15, 2004 is the due date for
payment. The pertinent portion of the assessment reads:
The complete details covering the aforementioned discrepancies established during the investigation of this case are
shown in the accompanying Annex 1 of this Notice. The 50% surcharge and 20% interest have been imposed pursuant to Sections
248 and 249(B) of the [National Internal Revenue Code], as amended. Please note, however, that the interest and the total amount
due will have to be adjusted if paid prior or beyond April 15, 2004.
This Court, through the Resolution4dated July 22, 2015, required respondent to comment on the Petition for Review.
In its Comment, respondent argues that the Final Assessment Notice issued was merely a request and not a demand for
payment of tax liabilities.48 The Final Assessment Notice cannot be considered as a final deficiency assessment because it
deprived respondent of due process when it failed to reflect its fixed tax liabilities. Moreover, it also gave respondent an indefinite
period to pay its tax liabilities.
Respondent points out that an assessment should strictly comply with the law for its validity. Jurisprudence provides that
―not all documents coming from the [Bureau of Internal Revenue] containing a computation of the tax liability can be deemed
assessments[,] which can attain finality.‖ Therefore, the Warrant of Distraint and/or Levy cannot be enforced since it is based on an
invalid assessment.
Respondent likewise claims that since the Final Assessment Notice was allegedly based on fraud, it must show the details
of the fraudulent acts imputed to it as part of due process.
An assessment ―refers to the determination of amounts due from a person obligated to make payments.‖ ―In the context of
national internal revenue collection, it refers to the determination of the taxes due from a taxpayer under the National Internal
Revenue Code of 1997.‖
The assessment process starts with the filing of tax return and payment of tax by the taxpayer. The initial assessment
evidenced by the tax return is a self-assessment of the taxpayer. The tax is primarily computed and voluntarily paid by the taxpayer
without need of any demand from government. If tax obligations are properly paid, the Bureau of Internal Revenue may dispense
with its own assessment.
After filing a return, the Commissioner or his or her representative may allow the examination of any taxpayer for
assessment of proper tax liability.61 The failure of a taxpayer to file his or her return will not hinder the Commissioner from
permitting the taxpayer‘s examination. The Commissioner can examine records or other data relevant to his or her inquiry in order to
verify the correctness of any return, or to make a return in case of noncompliance, as well as to determine and collect tax liability.
The indispensability of affording taxpayers sufficient written notice of his or her tax liability is a clear definite requirement.
Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99, as amended, transparently outline the
procedure in tax assessment.
Section 3 of Revenue Regulations No. 12-99, the then prevailing regulation regarding the due process requirement in the
issuance of a deficiency tax assessment, requires a notice for informal conference. The revenue officer who audited the taxpayer‘s
records shall state in his or her report whether the taxpayer concurs with his or her findings of liability for deficiency taxes. If the
taxpayer does not agree, based on the revenue officer‘s report, the taxpayer shall be informed in writing of the discrepancies in his
or her payment of internal revenue taxes for ―Informal Conference.‖ The informal conference gives the taxpayer an opportunity to
present his or her side of the case.
The taxpayer is given 15 days from receipt of the notice of informal conference to respond. If the taxpayer fails to respond,
he or she will be considered in default. The revenue officer endorses the case with the least possible delay to the Assessment
Division of the Revenue Regional Office or the Commissioner or his or her authorized representative. The Assessment Division of

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the Revenue Regional Office or the Commissioner or his or her authorized representative is responsible for the ―appropriate review
and issuance of a deficiency tax assessment, if warranted.‖
If, after the review conducted, there exists sufficient basis to assess the taxpayer with deficiency taxes, the officer shall
issue a preliminary assessment notice showing in detail the facts, jurisprudence, and law on which the assessment is based. The
taxpayer is given 15 days from receipt of the pre-assessment notice to respond. If the taxpayer fails to respond, he or she will be
considered in default, and a formal letter of demand and assessment notice will be issued.7
The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law on which the assessment
was based; otherwise, these shall be void. The taxpayer or the authorized representative may administratively protest the formal
letter of demand and assessment notice within 30 days from receipt of the notice.
The word ―shall‖ in Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99 means the
act of informing the taxpayer of both the legal and factual bases of the assessment is mandatory. The law requires that the bases be
reflected in the formal letter of demand and assessment notice. This cannot be presumed. Otherwise, the express mandate of
Section 228 and Revenue Regulations No. 12-99 would be nugatory. The requirement enables the taxpayer to make an effective
protest or appeal of the assessment or decision.
The rationale behind the requirement that taxpayers should be informed of the facts and the law on which the
assessments are based conforms with the constitutional mandate that no person shall be deprived of his or her property without due
process of law. Between the power of the State to tax and an individual‘s right to due process, the scale favors the right of the
taxpayer to due process.
The purpose of the written notice requirement is to aid the taxpayer in making a reasonable protest, if necessary. Merely
notifying the taxpayer of his or her tax liabilities without details or particulars is not enough.
Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc. held that a final assessment notice that
only contained a table of taxes with no other details was insufficient:
In the present case, a mere perusal of the [Final Assessment Notice] for the deficiency EWT for taxable year 1994 will
show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was provided by
petitioner. Only the resulting interest, surcharge and penalty were anchored with legal basis. Petitioner should have at least attached
a detailed notice of discrepancy or stated an explanation why the amount of P48,461.76 is collectible against respondent and how
the same was arrived at.
Any deficiency to the mandated content of the assessment or its process will not be tolerated. In Commissioner of Internal
Revenue v. Enron, an advice of tax deficiency from the Commissioner of Internal Revenue to an employee of Enron, including the
preliminary five (5)-day letter, were not considered valid substitutes for the mandatory written notice of the legal and factual basis of
the assessment. The required issuance of deficiency tax assessment notice to the taxpayer is different from the required contents of
the notice. Thus:
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the [National Internal
Revenue Code] and [Revenue Regulations] No. 12-99 would be rendered nugatory. The alleged ―factual bases‖ in the advice,
preliminary letter and ―audit working papers‖ did not suffice. There was no going around the mandate of the law that the legal and
factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice.
However, the mandate of giving the taxpayer a notice of the facts and laws on which the assessments are based should
not be mechanically applied. To emphasize, the purpose of this requirement is to sufficiently inform the taxpayer of the bases for the
assessment to enable him or her to make an intelligent protest.
In Samar-I Electric Cooperative v. Commissioner of Internal Revenue, substantial compliance with Section 228 of the
National Internal Revenue Code is allowed, provided that the taxpayer would be later apprised in writing of the factual and legal
bases of the assessment to enable him or her to prepare for an effective protest. Thus:
Although the [Final Assessment Notice] and demand letter issued to petitioner were not accompanied by a written
explanation of the legal and factual bases of the deficiency taxes assessed against the petitioner, the records showed that
respondent in its letter dated April 10, 2003 responded to petitioner‘s October 14, 2002 letter-protest, explaining at length the factual
and legal bases of the deficiency tax assessments and denying the protest.
Considering the foregoing exchange of correspondence and documents between the parties, we find that the requirement
of Section 228 was substantially complied with. Respondent had fully informed petitioner in writing of the factual and legal bases of
the deficiency taxes assessment, which enabled the latter to file an ―effective‖ protest, much unlike the taxpayer‘s situation in Enron.
Petitioner‘s right to due process was thus not violated.
A final assessment notice provides for the amount of tax due with a demand for payment.103This is to determine the
amount of tax due to a taxpayer. However, due process requires that taxpayers be informed in writing of the facts and law on which
the assessment is based in order to aid the taxpayer in making a reasonable protest. To immediately ensue with tax collection
without initially substantiating a valid assessment contravenes the principle in administrative investigations ―that taxpayers should be
able to present their case and adduce supporting evidence.‖
Respondent filed its income tax return in 1995. Almost eight (8) years passed before the disputed final assessment notice
was issued. Respondent pleaded prescription as its defense when it filed a protest to the Final Assessment Notice. Petitioner
claimed fraud assessment to justify the belated assessment made on respondent.108 If fraud was indeed present, the period of
assessment should be within 10 years. It is incumbent upon petitioner to clearly state the allegations of fraud committed by
respondent to serve the purpose of an assessment notice to aid respondent in filing an effective protest.

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 I. Prescriptive period to assess and collect
1. Period for Assessment – General Rule/Ordinary Prescription - Sec. 203 of the NIRC

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was
filed.
For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered
as filed on such last day.

2. Period for Collection – General Rule Sec. 222(C) of the NIRC.

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof
may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.

3. False Return, Fraudulent Return, Omission to File a Return/Extraordinary Prescription

a. Sec. 222(A) of the NIRC. Correlate with Sec. 248(B) of the 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 proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) 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.

SEC. 248. Civil Penalties. - (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and
regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax
or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery of the falsity or fraud:
Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as
determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall
constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an
amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of
actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.

b. Aznar vs. CTA, GR No. L-20569 dated August 23, 1974  BESA
c. CIR vs. Asalus Corporation, GR No. 22150 dated February 22, 2017  OBNIAL
d. CIR vs. Fitness By Design, Inc., GR No. 215957 dated November 9, 2016  DELFIN

JOSE B. AZNAR v. CTA & COLLECTOR OF INTERNAL REVENUE

G.R. No. L-20569 August 23, 1974
DOCTRINE: False Return/Fraudulent Return - In the case of a false or fraudulent return with intent to evade tax or of a failure to file
a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any
time within ten years after the discovery of the falsity, fraud or omission. Fraud cannot be presumed but must be proven, As a
corollary thereto, we can also state that fraudulent intent could not be deduced from mistakes however frequent they may be.

FACTS: Matias Aznar died, of which predecessors in interest filed an income tax return, however the veracity of the same was
doubted by the BIR Examiner Guerrero, thus caused him to make investigations.
The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax returns for
the aforesaid years. This was controverted by the predecessors of Matias and requested for reinvestigation, but even then, more
deficiencies and inconsistencies were dug up.
Properties of Matias were levied, however he filed a petition for review of the case with a subsequent petition to restrain
the levying of his properties for tax deficiencies. CTA found in favor of the findings of the lower court and the examiner that there
was tax deficiencies and also include surcharge of 50% for the fraudulent intent to evade tax. Hence the case.

ISSUES:

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 1. w/n the right of the CIR to assess deficiency income taxes of the deceased Matias Aznar had already prescribed
2. w/n the deceased was guilty of fraudulent returns with intent to evade tax, thus subjected to the %50 surcharge

RULING:
1. No. Court held that there being an undoubtedly false tax returns, the Sec. 332(a) of the NIRC shall apply, where In the
case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission.
2. No. The Court differentiated false returns from fraudulent tax returns, 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.
It was held that there were no proven fraudulent returns with intent to evade taxes that would justify the
imposition of the 50% surcharge authorized by law as fraud penalty. The presumption of the lower court is based on a
presumption that fraud can be deduced from the very substantial disparity of incomes as reported and determined by the
inventory method for six years. Fraud cannot be presumed but must be proven, As a corollary thereto, we can also state
that fraudulent intent could not be deduced from mistakes however frequent they may be.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by
the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a
mere mistake cannot be considered as fraudulent.

CIR v. ASALUS CORP

G.R. No. 221590, February 22, 2017
DOCTRINE: A mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is
sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC.

FACTS: On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from Revenue
District Office (RDO) No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the investigation conducted by
Revenue Officer Fidel M. Bañares II (Bañares) on the Value-Added Tax (VAT) transactions of Asalus for the taxable year 2007.
Asalus filed its Letter-Reply, dated December 29, 2010, questioning the basis of Bañares' computation for its VAT liability. On
January 10, 2011, petitioner Commissioner of Internal Revenue (CIR) issued the Preliminary Assessment Notice (PAN) finding
Asalus liable for deficiency VAT for 2007 in the aggregate amount of ₱413, 378, 058.11, inclusive of surcharge and interest. Asalus
filed its protest against the PAN but it was denied by the CIR. On August 26, 2011, Asalus received the Formal Assessment Notice
(FAN) stating that it was liable for deficiency VAT for 2007 in the total amount of ₱95,681,988.64, inclusive of surcharge and
interest. Consequently, it filed its protest against the FAN, dated September 6, 2011. Thereafter, Asal us filed a supplemental
protest stating that the deficiency VAT assessment had prescribed pursuant to Section 203 of the National Internal Revenue Code
(NIRC). On October 16, 2012, Asal us received the Final Decision on Disputed Assessment8 (FDDA) showing VAT deficiency for
2007 in the aggregate amount of ₱106,761,025.17, inclusive of surcharge and interest and ₱25,000.00 as compromise penalty. As
a result, it filed a petition for review before the CTA Division.

ISSUE: Whether or not respondent‘s failure to report in its VAT Returns all the fees it collected from its members applying for
healthcare services constitutes ―false‖ return under Sec 222(A) of the 1997 NIRC.

RULING: Generally, internal revenue taxes shall be assessed within three (3) years after the ,last day prescribed by law for the filing
of the return, or where the return is filed beyond the period, from the day the return was actually filed. Section 222 of the NIRC,
however, provides for exceptions to the general rule. It states that in the case of a false or fraudulent return with intent to evade tax
or of failure to file a return, the assessment may be made within ten (10) years from the discovery of the falsity, fraud or omission.
The Court believes that the proper and reasonable interpretation of said provision should be that in the three different
cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery
of the (1) falsity, (2) fraud, (3) omission. 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.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be
applicable to normal circumstances, but whenever the government is placed, at a disadvantage so as to prevent its lawful agents
from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file
returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, We affirm the

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conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within
which to assess petitioner's tax liability had not expired at the time said assessment was made. (Emphasis supplied)
Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud,
is sufficient to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC.
In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income, there
is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support the falsity of the
return, unless the taxpayer fails to overcome the presumption against it. Applied in this case, the audit investigation revealed that
there were undeclared VA Table sales more than 30% of that declared in Asalus' VAT returns. Moreover, Asalus' lone witness
testified that not all membership fees, particularly those pertaining to medical practitioners and hospitals, were reported in Asalus'
VAT returns. The testimony of its witness, in trying to justify why not all of its sales were included in the gross receipts reflected in
the VAT returns, supported the presumption that the return filed was indeed false precisely because not all the sales of Asalus were
included in the VAT returns. Hence, the CIR need not present further evidence as the presumption of falsity of the returns was not
overcome. Asalus was bound to refute the presumption of the falsity of the return and to prove that it had filed accurate returns. Its
failure to overcome the same warranted the application of the ten (10)-year prescriptive period for assessment under Section 222 of
the NIRC. To require the CIR to present additional evidence in spite of the presumption provided in Section 248(B) of the NIRC
would render the said provision inutile.

CIR v. FITNESS BY DESIGN

G.R. No. 215957 November 9, 2016
DOCTRINE: To avail of the extraordinary period of assessment in Section 222(a) of the National Internal Revenue Code, the
Commissioner of Internal Revenue should show that the facts upon which the fraud' is based is communicated to the taxpayer. The
burden of proving that the facts exist in any subsequent proceeding is with the Commissioner. Furthermore, the Final Assessment
Notice is not valid if it does not contain a definite due date for payment by the taxpayer.

FACTS: On April 11, 1996, Fitness filed its Annual Income Tax Return for the taxable year of 1995. According to Fitness, it was still
in its pre-operating stage during the covered period. On June 9, 2004, Fitness received a copy of the Final Assessment Notice dated
March 17, 2004. The Final Assessment Notice was issued under Letter of Authority. The Final Assessment Notice assessed that
Fitness had a tax deficiency in the amount of ₱10,647,529.69. Fitness filed a protest to the Final Assessment Notice on June 25,
2004. According to Fitness, the Commissioner's period to assess had already prescribed. Further, the assessment was without
basis since the company was only incorporated on May 30, 1995.
On February 2, 2005, the Commissioner issued a Warrant of Distraint and/or Levy to Fitness. Fitness filed before the First
Division of the Court of Tax Appeals a Petition for Review (With Motion to Suspend Collection of Income Tax, Value Added Tax,
Documentary Stamp Tax and Surcharges and Interests) on March 1, 2005. The Commissioner posited that the Warrant of Distraint
and/or Levy was issued in accordance with law. The Commissioner claimed that its right to assess had not yet prescribed under
Section 222(a) of the National Internal Revenue Code. Because the 1995 Income Tax ,Return filed by Fitness was false and
fraudulent for its alleged intentional failure to reflect its true sales, Fitness' respective taxes may be assessed at any time within 10
years from the discovery of fraud or omission. The Commissioner asserted further that the assessment already became final and
executory for Fitness' failure , to file a protest within the reglementary period.

ISSUE: W/N or not there is fraud assessment to justify the belated assessment made on respondent.

HELD: The prescriptive period in making an assessment depends upon whether a tax return was filed or whether the tax return filed
was either false or fraudulent.1âwphi1 When a tax return that is neither false nor fraudulent has been filed, the Bureau of Internal
Revenue may assess within three (3) years, reckoned from the date of actual filing or from the last day prescribed by law for filing.
However, in case of a false or fraudulent return with intent to evade tax, Section 222(a) provides:

Section 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
proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) 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. (Emphasis supplied)

In Aznar v. Court of Tax Appeals, this Court interpreted Section 332 (now Section 222[a] of the National Internal Revenue
Code) by dividing it in three (3) different cases: first, in case of false return; second, in case of a fraudulent return with intent to
evade; and third, in case of failure to file a return. Thus:
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 aggregates the situations into three different classes, namely "falsity'', "fraud" and "omission."

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 This Court held that there is a difference between "false return" and a "fraudulent return." A false return simply involves a
"deviation from the truth, whether intentional or not" while a fraudulent return "implies intentional or deceitful entry with intent to
evade the taxes due."116
Fraud is a question of fact that should be alleged and duly proven. "The willful neglect to file the required tax return or the
fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be
presumed." Fraud entails corresponding sanctions under the tax law. Therefore, it is indispensable for the Commissioner of Internal
Revenue to include the basis for its allegations of fraud in the assessment notice.
During the proceedings in the Court of Tax Appeals First Division, respondent presented its President, Domingo C. Juan
Jr. (Juan, Jr.), as witness. Juan, Jr. testified that respondent was, in its pre-operating stage in 1995. During that period, respondent
"imported equipment and distributed them for market testing in the Philippines without earning any profit." He also confirmed that the
Final Assessment Notice and its attachments failed to substantiate the Commissioner's allegations of fraud against respondent,
thus:
More than three (3) years from the time petitioner filed its 1995 annual income tax return on April 11, 1996, respondent
issued to petitioner a [Final Assessment Notice] dated March 17, 2004 for the year 1995, pursuant to the Letter of Authority.The
attached Details of discrepancy containing the assessment for income tax (IT), value-added tax (VAT) and documentary stamp tax
(DST) as well as the Audit Result/ Assessment Notice do not impute fraud on the part of petitioner. Moreover, it was obtained on
information and documents illegally obtained by a [Bureau of Internal Revenue] informant from petitioner's accountant Elnora Carpio
in 1996. (Emphasis supplied)
Petitioner did not refute respondent's allegations. For its defense, it presented Socrates Regala (Regala), the Group
Supervisor of the team, who examined respondent's tax liabilities. Regala confirmed that the investigation was prompted by a tip
from an informant who provided them with respondent's list of sales. He admitted that the gathered information did not show that
respondent deliberately failed to reflect its true income in 1995.

4. Suspension of the prescriptive period

a. Secs. 223 and 91(B) of the NIRC

SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203
and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change
in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon
the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.

SEC. 91. Payment of Tax. -

(B) Extension of Time. - When the Commissioner finds that the payment on the due date of the estate tax or of any part
thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any
part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case the estate is settled
extrajudicially.
In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration
of the period of the extension, and the running of the Statute of Limitations for assessment as provided in Section 203 of this Code
shall be suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part
of the taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may
be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner
deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension.

b. CIR v. United Salvage & Towage (Phils.), Inc., GR No. 197515, 7/2/2014  VENGCO
c. BPI vs. CIR, GR No. 139736 dated October 17, 2005  VILLABLAGON
d. CIR v. BASF Coating + Inks Phils., Inc., GR No. 198677, Nov. 26, 2014  GARCIA

CIR v. UNITED SALVAGE AND TOWAGE (PHILS.)

G.R. No. 197515 , July 2, 2014, Peralta, J
DOCTRINE: The Commissioner has 3 years from the date of actual filing of the tax return to assess a national internal revenue tax
or to commence court proceedings for the collection thereof without an assessment. However, when it validly issues an assessment
within the 3-year period, it has another 3 years within which to collect the tax due by distraint, levy, or court proceeding. The

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 65
assessment of the tax is deemed made and the 3-year period for collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent to the taxpayer.

FACTS: Respondent United Salvage and Towage Phils., Inc. (USTP) is engaged in the business of sub-contracting work for service
contractors engaged in petroleum operations in the Philippines. During the taxable years in question, it had entered into various
contracts and/or sub-contracts with several petroleum service contractors, such as Shell Philippines Exploration, B.V. and Alorn
Production Philippines for the supply of service vessels.
In the course of USTP‘s operations, petitioner Commissioner of Internal Revenue found respondent liable for deficiency
income tax, withholding tax, VAT and documentary stamp tax (DST) for taxable years 1992, 1994, 1997 and 1998. Petitioner issued
demand letters with attached assessment notices for withholding tax on compensation (WTC) and expanded withholding tax (EWT)
for taxable years 1992, 1994 and 1998.
In 1998 and 2001, USTP filed administrative protests against the 1994 and 1998 EWT assessments, respectively. USTP
appealed by way of Petition for Review before the Court in action (which was thereafter raffled to the CTA-Special First Division)
alleging, among others, that the Notices of Assessment are bereft of any facts, law, rules and regulations or jurisprudence; thus, the
assessments are void and the right of the government to assess and collect deficiency taxes from it has prescribed on account of
the failure to issue a valid notice of assessment within the applicable period.
During the pendency of the proceedings, USTP moved to withdraw the aforesaid Petition because it availed of the
benefits of the Tax Amnesty Program under R.A. No. 9480. Having complied with all the requirements therefor, the CTA-Special
First Division partially granted the Motion to Withdraw and declared the issues on income tax, VAT and DST deficiencies closed and
terminated.
The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for deficiency EWT for taxable years
1994 and 1998 were not formally offered; hence, pursuant to Section 34, Rule 132 of the Rules of Court, the Court shall neither
consider the same as evidence nor rule on their validity. As regards the Final Assessment Notices (FANs) for deficiency EWT for
taxable years 1994 and 1998, the CTA-Special First Division held that the same do not show the law and the facts on which the
assessments were based. Said assessments were, therefore, declared void for failure to comply with Section 228 of the 1997 NIRC.
From the foregoing, the only remaining valid assessment is for taxable year 1992.
Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect the deficiency EWT and WTC,
respectively, for taxable year 1992 had already lapsed pursuant to Section 203 of the Tax Code. Thus, in ruling for USTP, the CTA-
Special First Division cancelled Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-92, both dated January 9, 1996 and
covering the period of 1992, as declared in its Decision dated March 12, 2010.
On appeal to the SC, petitioner averred that its right to collect the EWT for taxable year 1992 has not yet prescribed. It
argued that while the final assessment notice and demand letter on EWT for taxable year 1992 were all issued on January 9, 1996,
the 5-year prescriptive period to collect was interrupted when respondent filed its request for reinvestigation on March 14, 1997
which was granted by petitioner on January 22, 2001 through the issuance of Tax Verification Notice No. 00165498 on even date.
Thus, the period for tax collection should have begun to run from the date of the reconsidered or modified assessment.

ISSUE: Whether Petitioner‘s right to collect the EWT for taxable year 1992 has prescribed.

HELD: Yes. The statute of limitations on assessment and collection of national internal revenue taxes was shortened from
5 years to 3 years by virtue of BP Blg. 700. Thus, petitioner has 3 years from the date of actual filing of the tax return to
assess a national internal revenue tax or to commence court proceedings for the collection thereof without an
assessment. However, when it validly issues an assessment within the 3-year period, it has another 3 years within which
to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the 3-year
period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or
sent to the taxpayer.
As correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency taxes for taxable year 1992 was
only issued on February 21, 2002, despite the fact that the FANs for the deficiency EWT and WTC for taxable year 1992 was issued
as early as January 9, 1996. Clearly, 5 long years had already lapsed, beyond the three (3)-year prescriptive period, before
collection was pursued by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted upon by petitioner
on January22, 2001, also beyond the 3 year statute of limitations reckoned from January 9, 1996, notwithstanding the lack of
impediment to rule upon such issue. We cannot countenance such inaction by petitioner to the prejudice of respondent pursuant to
our ruling in Commissioner of Internal Revenue v. Philippine Global Communication, Inc., to wit:
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR‘s
claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the
respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this
assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year
prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.
Here, petitioner had ample time to make a factually and legally well-founded assessment and implement collection
pursuant thereto. Whatever examination that petitioner may have conducted cannot possibly outlast the entire 3-year prescriptive

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period provided by law to collect the assessed tax. Thus, there is no reason to suspend the running of the statute of limitations in
this case.

BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL REVENUE

473 SCRA 205, G.R. No. 139736. October 17, 2005, Chico-Nazario, J.
DOCTRINES:
 Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be
fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that
the proceedings have validly began or commenced and that their execution has not been suspended by reason of the
voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. It is
only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to
suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service
of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed.
 That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute
of limitations is even supported by existing jurisprudence. The act of requesting a reinvestigation alone does not
suspend the period. The request should first be granted, in order to effect suspension. A mere request for
reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed
the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver,
the taxpayer may be estopped from raising the defense of prescription because by his repeated requests or positive acts,
he had induced Government authorities to delay collection of the assessed tax.

FACTS: Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two
separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of
the Philippines (Central Bank), for the total sales amount of US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued assessment notice finding petitioner BPI liable for
deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank. Petitioner BPI received the
Assessment, together with the attached Assessment Notice, on 20 October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR
on 17 November 1989. Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the
BIR issued a Warrant of Distraint and/or Levy against BPI only on 23 October 1992
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13
August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its ―request for reconsideration,‖.
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on
10 October 1997.
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter,
dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the
assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-
002054, but she waited for seven years and nine months to deny the protest.
The CTA held that the statute of limitations for respondent BIR Commissioner to collect on the Assessment had not yet
prescribed. In resolving the issue of prescription, the CTA reasoned that—In the case of Commissioner of Internal Revenue vs.
Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first
issue. It categorically ruled that a “protest” is to be treated as request for reinvestigation or reconsideration and a mere request for
reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . .
The CA affirmed the decision of the CTA. Hence, the instant case.

ISSUES:
1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for
taxable year 1985 had prescribed; and
2. Whether or not a request for reconsideration tolls the prescriptive period of the CIR to collect on an assessment.

RULING:
There is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST
assessed against petitioner BPI.
Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein
determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already
prescribed.

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 The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be
construed liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The
protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which
could have suspended the running of the statute of limitations on collection of the assessed deficiency DST under Section 224 of the
Tax Code of 1977, as amended.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver.
Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of
1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended
―when the taxpayer requests for a reinvestigation which is granted by the Commissioner.‖
This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for
reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the
Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and
distinguishes between the two types of protest, as follows—

a) Request for reconsideration.—refers to a plea for a reevaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a question of fact or of law or both.
b) Request for reinvestigation.—refers to a plea for reevaluation of an assessment on the basis of newly-discovered or
additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or
both.

It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period
for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration.
Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend
the running of the statute of limitations on collection of the assessed tax, while the latter cannot.

COMM’R OF INTERNAL REVENUE v. BASF COATING + INKS PHILS., INC.

G.R. No. 198677 November 26, 2014, PERALTA, J.:
DOCTRINES:
 Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections
203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in
respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer
requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant
of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.
 It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of Limitations provided under
the provisions of Sections 203 and 222 of the same Act shall be suspended when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or collected. In addition, Section 11 of
Revenue Regulation No. 12-85 states that, in case of change of address, the taxpayer is required to give a written notice
thereof to the Revenue District Officer or the district having jurisdiction over his former legal residence and/or place of
business. However, this Court agrees with both the CTA Special First Division and the CTA En Banc in their ruling that the
above-mentioned provisions on the suspension of the three-year period to assess apply only if the BIR Commissioner is
not aware of the whereabouts of the taxpayer.

FACTS: Two-thirds (2/3) of BC's board members and stockholders decided to dissolve the corporation by cutting its 50-year term of
existence (from 1990) short (only until March 31, 2001). Subsequently, BC moved out of its address in Las Piñas City and
transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.
On June 26, 2001, BASF Coating (BC) submitted 2 letters to BIR. The first was a notice of dissolution. The send was a
manifestation with documents supporting said dissolution such as BIR Form 1905 which refers to an update of information contained
in its tax registration. Thereafter, a FAN was sent to BC's former address in Las Piñas City. The FAN indicated an amount of 18
million pesos representing income tax, VAT, WTC, EWT and DST for the taxable year of 1999.

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 On March 5, 2004, BIR's RDO No. 39, South Quezon City, issued a First Notice Before Issuance of Warrant of Distraint
and Levy (FNB), which was sent to the residence of one of BC's directors. On March 19, 2004, BC filed a protest letter citing lack of
due process and prescription as grounds.
After 180 days without action on the part of the CIR, BC filed a petition for review with the CTA. Trial ensued.
The CTA 1D ruled that since the CIR was actually aware of BC's new address and such error in sending should not be
taken against BC. According to the CTA 1D, since there are no valid notices sent to BC, the subsequent assessments against it are
considered void.
CIR filed an MR. It was denied. So, it went to CTA en banc. The CTA En Banc held that CIR's right to assess respondent
for deficiency taxes for the taxable year 1999 has already prescribed and that the FAN issued to respondent never attained finality
because BC did not receive it. CIR filed an MR. Denied.

ISSUE: Whether or not the running of the 3-year prescriptive period to assess was suspended when BC failed to notify the CIR of its
change of address?

HELD: No, the 3-year prescriptive period to assess was not suspended in favor of the CIR even if BC failed notify regarding its
change of address.
It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of Limitations provided under
the provisions of Sections 203 and 222 of the same Act shall be suspended when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected. In addition, Section 11 of Revenue Regulation No.
12-85 states that, in case of change of address, the taxpayer is required to give a written notice thereof to the Revenue District
Officer or the district having jurisdiction over his former legal residence and/or place of business. However, this Court agrees with
both the CTA Special First Division and the CTA En Banc in their ruling that the above-mentioned provisions on the suspension of
the three-year period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the taxpayer.
However, the Supreme Court ruled that the above-mentioned provisions on the suspension of the 3-year period to assess
apply only if the CIR is not aware of the whereabouts of the taxpayer.
In the present case, the CIR, by all indications, was well aware that BC had moved to its new address in Calamba,
Laguna, as shown by the documents which formed part of respondent's records with the BIR.
Moreover, before the FAN was sent to BC's old address, the RDO sent BC a letter regarding the results of its investigation
and an invitation to an information conference. This could not have been done without being aware of BC's new address. Finally, the
PAN was "returned to sender" before the FAN was sent.
Hence, despite the absence of a formal written notice of Bc's change of address, the fact remains that petitioner became
aware of respondent's new address as shown by documents replete in its records. As a consequence, the running of the three-year
period to assess respondent was not suspended and has already prescribed.

5. Waiver of the Statute of Limitations

a. New Requirements under RMO No. 14-2016 dated April 4, 2016

REVENUE MEMORANDUM ORDER NO. 14-2016 issued on April 18, 2016 revises the guidelines for the execution of waivers from
the defense of prescription pursuant to Section 222 of the National Internal Revenue Code (NIRC) of 1997, as amended.
The waiver may be, but not necessarily, in the form prescribed by Revenue Memorandum Order No. 20-90 or Revenue
Delegation Authority Order No. 05-01. The taxpayer's failure to follow the aforesaid forms does not invalidate the executed waiver
for as long as the following are complied with:
a) The Waiver of the Statute of Limitations under Section 222 (b) and (d) shall be executed before the expiration of the
period to assess or to collect taxes. The date of execution shall be specifically indicated in the waiver.
b) The waiver shall be signed by the taxpayer himself or his duly authorized representative. ln the case of a corporation, the
waiver must be signed by any of its responsible officials;
c) The expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription
should be indicated.
Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the waiver need not specify the
particular taxes to be assessed nor the amount thereof, and it may simply state "all internal revenue taxes" considering that during
the assessment stage, the Commissioner of Internal Revenue (CIR) or her duly authorized representative is still in the process of
examining and determining the tax liability of the taxpayer.
The taxpayer is charged with the burden of ensuring that the waivers of statute of limitation are validly executed by its
authorized representative. The authority of the taxpayer's representative who participated in the conduct of audit or investigation
shall not be thereafter contested to invalidate the waiver. The waiver may be notarized. However, it is sufficient that the waiver is in
writing as specifically provided by the NIRC, as amended. The waiver shall take legal effect and be binding on the taxpayer upon its
execution thereof.
lt shall be the duty of the taxpayer to submit its duly executed waiver to the CIR or officials previously designated in
existing issuances or the concerned revenue district officer or group supervisor as designated in the Letter of
Authority/Memorandum of Assignment who shall then indicate acceptance by signing the same. Such waiver shall be executed and

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duly accepted prior to the expiration of the period to assess or to collect. The taxpayer shall have the duty to retain a copy of the
accepted waiver.
The two (2) material dates that need to be present on the waiver are the date of execution of the waiver by the taxpayer or
its authorized representative; and the expiry date of the period the taxpayer waives the statute of limitations. Before the expiration of
the period set on the previously executed waiver, the period earlier set may be extended by subsequent written waiver made in
accordance with this Order.

b. Phil. Journalists, Inc. vs. CIR, GR No. 162852, December 16, 2004
c. CIR v. Kudos Metal, GR No. 178087, May 5, 2010 – take note of old rule.  ALMOJUELA
d. RCBC vs. CIR, GR No. 170257 dated September 7, 2011  DELFIN
e. CIR vs. Next Mobile, Inc., GR No. 212825 dated December 29, 2015  GARCIA
f. Asian Transmission Corporation v. CIR, GR No. 230861, Sept. 19, 2018  GONZALES

Philippine Journalists, Inc. vs. Commissioner of Internal Revenue

447 SCRA 214, G.R. No. 162852. December 16, 2004, Ynares-Santiago, J.
COPIED FROM THE WEDNESDAY CLASS

FACTS: In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return for the year 1994. In 1995, a tax audit was
conducted by the Bureau of Internal Revenue (BIR) where it was found that PJI was liable for a tax deficiency. In September 1997,
PJI asked that it be allowed to present its evidence to dispute the finding. In the same month, the Comptroller of PJI (Lorenza
Tolentino) executed a waiver of the statute of limitations whereby PJI agreed waived the running of the prescriptive period of the
government‘s right to make an assessment. Said right was set to expire on April 17, 1998 but due to the additional evidence that PJI
sought to present, the government needed more time.
And so a reinvestigation took place which yielded the same result – PJI is liable for tax deficiencies. In December 1998, a
formal assessment notice (FAN) was sent via registered mail to PJI. Subsequently, a warrant for distraint/levy was issued against
the assets of PJI.
PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred that the waiver executed by Tolentino
was incomplete; that no acceptance date was indicated to show that the waiver was accepted by BIR; that no copy was furnished
PJI; that the waiver was an unlimited waiver because it did not indicate as to how long the extension of the prescriptive period
should last. As such, there was no valid waiver of the statute of limitations which in turn make the FAN issued in December 1998
void.
The Commissioner of Internal Revenue (CIR) argued that the placing of the acceptance date is merely a formal
requirement and not vital to the validity of the waiver; that there is no need to furnish PJI a copy of the waiver because in the first
place, it was PJI, through its representative, who was making the waiver so it should know about it; and that there is no need to
place a specific date as to how long the prescriptive period should be extended because PJI was waiving the prescriptive period and
was not asking to extend it.
The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of Appeals reversed the CTA as it ruled in favor of the
CIR.

ISSUES:
1. Whether or not that the assessment having been made beyond the 3-year prescriptive period is null and void; and
2. Whether or not the CTA gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum
Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations?

HELD: The answers are in the Negative. The requirement to place the acceptance date is not merely formal. The waiver of the
statute of limitations is not a unilateral act by the taxpayer. The BIR has to accept it hence the need for a BIR representative to affix
his signature and the date of acceptance. There is also therefore a need to furnish a copy to the taxpayer for the latter to be
apprised that his waiver has been accepted. It must be noted that the waiver is an agreement between the taxpayer and the BIR
that the period to issue an assessment and collect the taxes due is extended to a date certain and not to waive the right to invoke
the defense of prescription. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally
particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such protection.

CIR v. KUDOS METAL CORPORATION

G.R. No. 178087 dated May 5, 2010.
DOCTRINE: VALID WAIVER REQUIRES STRICT COMPLIANCE WITH PROCEDURES PRESCRIBED IN REVENUE
MEMORANDUM ORDER NO. (―RMO‖) 20-90 AND REVENUE DELEGATION AUTHORITY ORDER NO.(―RDAO‖) 05-01.

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Short Summary: Kudos Corp, through its accountant, executed two Waivers of Defense of Prescription. The Bureau of Internal
Revenue (―BIR‖) issued an assessment, which K Corp duly protested. The BIR denied the protest and required K Corp to pay
deficiency tax liabilities. In its petition for review before the Court of Tax Appeals (―CTA‖), K Corp raised the defense of prescription
on the ground that the waivers executed by its accountant were invalid and thus did not extend the BIR‘s period toassess.

FACTS:
 Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos Metal Corp Notices of
Presentation of Records. Kudos failed to comply with these notices. Hence, the BIR issued a Subpeona Duces Tecum
dated September 21, 2006.
 On December 10, 2001, Kudos‘ accountant, executed a Waiver of the Defense of Prescription. This was followed by a
second Waiver of Defense of Prescription on February 18, 2003.
 On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent.
This was followed by a Formal Letter of Demand with Assessment Notices.
 CTA Division
o Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not the revenue official
authorized to sign the waiver, as the tax case involves more than P1,000,000. The waiver failed to indicate the
date of acceptance. The fact of receipt by the taxpayer of his file copy was not indicated on the original copy.
 CTA En Banc
o Agreed only to the second and third grounds.

ISSUE: Whether the right of the government to assess has expired.

HELD/RATIO: Yes. An assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222 of the NIRC. The period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO
20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of the
waiver. To wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the
waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to
the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or
the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy
for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file
copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.

The first waiver had the following infirmities:

1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.

Estoppel does not apply in this case. In another case, estoppel was applied as an exception to the statute of limitations on
collection of taxes and not on the assessment of taxes. There was a finding that the taxpayer made several requests or positive acts
to convince the government to postpone the collection of taxes.
In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made
any request to persuade the BIR to postpone the issuance of the assessments.
The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO05-01,
which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having
caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver
of the statute of limitations, being a derogation of the taxpayer‘s right to security against prolonged and unscrupulous investigations,
must be carefully and strictly construed.

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RIZAL COMMERCIAL BANKING CORPORATION v. COMM’R OF INTERNAL REVENUE
G.R. No. 170257, September 7, 2011
DOCTRINE: Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that "an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying
thereon." A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order
to prevent fraud and falsehood.
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued
within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner
truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised assessment.

FACTS: Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in general banking operations. It
seasonably filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar years 1994 and
1995. On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then Commissioner of Internal Revenue (CIR)
Liwayway Vinzons-Chato, authorizing a special audit team to examine the books of accounts and other accounting records for all
internal revenue taxes from January 1, 1994 to December 31, 1995.
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute of Limitations of the
National Internal Revenue Code covering the internal revenue taxes due for the years 1994 and 1995, effectively extending the
period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000. Subsequently, on January 27, 2000, RCBC
received a Formal Letter of Demand together with Assessment Notices from the BIR for deficiency tax assessments. On the same
day, RCBC paid the following deficiency taxes as assessed by the BIR. RCBC, however, refused to pay the following assessments
for deficiency onshore tax and documentary stamp tax which remained to be the subjects of its petition for review.
RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997 were not valid because
the same were not signed or conformed to by the respondent CIR as required under Section 222(b) of the Tax Code. As regards the
deficiency FCDU onshore tax, RCBC contended that because the onshore tax was collected in the form of a final withholding tax, it
was the borrower, constituted by law as the withholding agent, that was primarily liable for the remittance of the said tax.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing the Court that this
petition, relative to the DST deficiency assessment, had been rendered moot and academic by its payment of the tax deficiencies on
Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR approved its
applications for tax abatement.
In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that the only remaining issues raised in the
present petition were those pertaining to RCBC‘s deficiency tax on FCDU Onshore Income for taxable years 1994 and 1995 in the
aggregate amount of ₱ 80,161,827.56 plus 20% delinquency interest per annum. The CIR prayed that RCBC be considered to have
withdrawn its appeal with respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years 1994 and 1995 and that
the questioned CTA decision regarding RCBC‘s deficiency tax on FCDU Onshore Income for the same period be affirmed.

ISSUE: Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is rendered
estopped from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax

HELD: Petitioner is estopped from questioning the validity of the waivers.

RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers were merely
attested to by Sixto Esquivias, then Coordinator for the CIR, and that he failed to indicate acceptance or agreement of the CIR, as
required under Section 223 (b) of the 1977 Tax Code.28 RCBC further argues that the principle of estoppel cannot be applied
against it because its payment of the other tax assessments does not signify a clear intention on its part to give up its right to
question the validity of the waivers.
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that "an admission or representation
is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon." A
party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent
fraud and falsehood.
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued
within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner
truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised assessment. RCBC‘s subsequent action effectively belies its insistence that
the waivers are invalid. The records show that on December 6, 2000, upon receipt of the revised assessment, RCBC immediately
made payment on the uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise
and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity
which this institution holds dear.

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COMMISSIONER OF INTERNAL REVENUE v. NEXT MOBILE, INC.
G.R. No. 212825, December 07, 2015, Velasco, J.
FACTS: On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Annual Income Tax Return (ITR) for
taxable year ending December 31, 2001. Respondent also filed its Monthly Remittance Returns of Final Income Taxes Withheld
(BIR Form No. 1601-F), its Monthly Remittance Returns of Expanded Withholding Tax (BIR Form No. 1501-E) and its Monthly
Remittance Return of Income Taxes Withheld on Compensation (BIR Form No. 1601-C) for year ending December 31, 2001.
On September 25, 2003, respondent received a copy of the Letter of Authority dated September 8, 2003 signed by
Regional Director Nestor S. Valeroso authorizing Revenue Officer Nenita L. Crespo of Revenue District Office 43 to examine
respondent's books of accounts and other accounting records for income and withholding taxes for the period covering January 1,
2001 to December 31, 2001.
Ma. Lida Sarmiento (Sarmiento), respondent's Director of Finance, subsequently executed several waivers of the statute
of limitations to extend the prescriptive period of assessment for taxes due in taxable year ending December 31, 2001 (Waivers).
On September 26, 2005, respondent received from the BIR a Preliminary Assessment Notice dated September 16, 2005
to which it filed a Reply.
On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and Assessment Notices/Demand No. 43-
734 both dated October 17, 2005 from the BIR, demanding payment of deficiency income tax, final withholding tax (FWT), expanded
withholding tax (EWT), increments for late remittance of taxes withheld, and compromise penalty for failure to file returns/late
filing/late remittance of taxes withheld, in the total amount of P313,339,610.42 for the taxable year ending December 31, 2001.
On November 23, 2005, respondent filed its protest against the FLD and requested the reinvestigation of the
assessments. On July 28, 2009, respondent received a letter from the BIR denying its protest. Thus, on August 27, 2009,
respondent filed a Petition for Review before the CTA docketed as CTA Case No. 7965.
Petitioner's Motion for Reconsideration was denied on March 14, 2013. Petitioner filed a Petition for Review before the
CTA En Banc. On May 28, 2014, the CTA En Banc rendered a Decision denying the Petition for Review and affirmed that of the
former CTA First Division.
It held that the five (5) Waivers of the statute of limitations were not valid and binding; thus, the three-year period of
limitation within which to assess deficiency taxes was not extended. It also held that the records belie the allegation that respondent
filed false and fraudulent tax returns; thus, the extension of the period of limitation from three (3) to ten (10) years does not apply.

ISSUE: Whether or not the waiver of the statute of limitations must faithfully comply with RMO No. 20-90 and RDAO 05-01 in order
to be valid?

HELD: YES. The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No. 20-
90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, due to its peculiar
circumstances, we shall treat this case as an exception to this rule.
First, the parties in this case are in pari delicto or ―in equal fault.‖ Second, the Court has repeatedly pronounced that
parties must come to court with clean hands. Parties who do not come to court with clean hands cannot be allowed to benefit from
their own wrongdoing. Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has
repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for assessment of
taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application of estoppel in this case would
promote the administration of the law, prevent injustice and avert the accomplishment of a wrong and undue advantage.
Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed petitioner to rely on
them and did not raise any objection against their validity until petitioner assessed taxes and penalties against it. Moreover, the
application of estoppel is necessary to prevent the undue injury that the government would suffer because of the cancellation of
petitioner‘s assessment of respondent‘s tax liabilities.

ASIAN TRANSMISSION CORPORATION v. CIR

2018, Bersamin (First Division)
SUMMARY: ATC executed waivers of the defense of prescription. After a Formal Letter of Demand for deficiency, ATC assailed the
validity of the waivers. Despite non-compliance with the requisites for waiver, the Court nevertheless held that the waivers were
valid, hence prescription cannot be invoked.

DOCTRINE: In Commissioner of Internal Revenue v. Next Mobile Inc. , the Court declared that as a general rule a waiver that did
not comply with the requisites for validity specified in RMO No. 20-90 and RDAO 01-05 was invalid and ineffective to extend the
prescriptive period to assess the deficiency taxes. However, due to peculiar circumstances obtaining, the Court treated the case
as an exception to the rule, and considered the waivers concerned as valid for the following reasons:
First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two parties to a
controversy are equally culpable or guilty and they shall have no action against each other. However, although the parties are in pari

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delicto, the Court may interfere and grant relief at the suit of one of them, where public policy requires its intervention, even though
the result may be that a benefit will be derived by one party who is in equal guilt with the other. Here, to uphold the validity of the
Waivers would be consistent with the public policy embodied in the principle that taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need. Taxes are the nation's lifeblood through which government agencies continue
to operate and which the State discharges its functions for the welfare of its constituents. As between the parties, it would be more
equitable if petitioner's lapses were allowed to pass and consequently uphold the Waivers in order to support this principle and
public policy.
Second, the Court has repeatedly pronounced that parties must come to court with clean hands. Parties who do
not come to court with clean hands cannot be allowed to benefit from their own wrongdoing. Following the foregoing principle,
respondent should not be allowed to benefit from the flaws in its own Waivers and successfully insist on their invalidity in order to
evade its responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has
repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for assessment of
taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application of estoppel in this case would
promote the administration of the law, prevent injustice and avert the accomplishment of a wrong and undue advantage.
Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed petitioner to rely on them and did
not raise any objection against their validity until petitioner assessed taxes and penalties against it. Moreover, the application of
estoppel is necessary to prevent the undue injury that the government would suffer because of the cancellation of petitioner's
assessment of respondent's tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after
voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other hand, the BIR
miserably failed to exact from respondent compliance with its rules. The BIR's negligence in the performance of its duties was so
gross that it amounted to malice and bad faith. Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in
the Waivers. Such a situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their responsibility
to pay taxes by mere expedient of hiding behind technicalities. It is true that petitioner was also at fault here because it was careless
in complying with the requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by
enforcing the provisions imposing administrative liabilities upon the officers responsible for these errors. The BIR's right to assess
and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers, especially in cases like this
where the taxpayer is obviously in bad faith.

FACTS: ATC is a manufacturer of motor vehicle transmission component parts and engines of Mitsubishi vehicles. On January 3,
2003 and March 3, 2003, ATC filed its Annual Information Return of Income Taxes Withheld on Compensation and Final
Withholding Taxes and Annual Information Return of Creditable Income Taxed Withheld (Expanded)/Income Payments Exempt
from Withholding Tax, respectively. On August 11, 2004, ATC received Letter of Authority [(LOA)] No. 200000003557 where [the
CIR] informed ATC that its revenue officers from the Large Taxpayers Audit and Investigation Division II shall examine its books of
accounts and other accounting records for the taxable year 2002.Thereafter, [the CIR] issued a Preliminary Assessment Notice
(PAN) to ATC. Consequently, on various dates, ATC, through its Vice President for Personnel and Legal Affairs, Mr. Roderick M.
Tan, executed several documents denominated as "Waiver of the Defense of Prescription Under the Statute of Limitations of the
National Internal Revenue Code". Meanwhile, on February 28, 2008, ATC availed of the Tax Amnesty [P]rogram under Republic Act
No.9480.On July 15, 2008, ATC received a Formal Letter of Demand from [the] CIR for deficiency [WTC] in the amount of
P[hp]62,977,798.02, [EWT] in the amount of P[hp]6,916,910.51, [FWT] in the amount ofP[hp]501,077.72. On August 14, 2008, ATC
filed its Protest Letter in regard thereto. Accordingly, on April 14, 2009, ATC received the Final Decision on Disputed Assessment
where [the]CIR found ATC liable to pay deficiency tax in the amount of P[hp]75,696,616.75. Thus, on May 14, 2009, ATC filed an
appeal letter/request for reconsideration with [the] CIR. On April 10, 2012, ATC received the Decision of [the] CIR dated November
15, 2011, denying its request or reconsideration. As such, on April 23, 2012, ATC filed the instant Petition for Review (with
Application for Preliminary Injunction and Temporary Restraining Order)
On November 28, 2014, the CTA in Division rendered its decision granting the petition for review of ATC .It held that ATC
was not estopped from raising the invalidity of the waivers inasmuch as the Bureau of Internal Revenue (BIR) had itself caused the
defects there of. On August 9, 2016, the CTA En Banc promulgated the assailed decision reversing and setting aside the decision of
the CTA in Division, and holding that the waivers were valid. It observed that the CIR's right to assess deficiency withholding taxes
for CY 2002 against ATC had not yet prescribed.

ISSUES: WoN the waivers executed by ATC are valid YES. In this case, the CTA in Division noted that the eight waivers of ATC
contained the following defects, to wit:
1. The notarization of the Waivers was not in accordance with the 2004 Rules on Notarial Practice;
2. Several waivers clearly failed to indicate the date of acceptance by the Bureau of Internal Revenue;
3. The Waivers were not signed by the proper revenue officer; and
4. The Waivers failed to specify the type of tax and the amount of tax due.

RULINGS: We agree with the holding of the CTA En Banc that ATC's case was similar to the case of the taxpayer involved in
Commissioner of Internal Revenue v. Next Mobile Inc. The foregoing defects noted in the waivers of ATC were not solely

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attributable to the CIR. Indeed, although RDAO 01-05 stated that the waiver should not be accepted by the concerned BIR office or
official unless duly notarized, a careful reading of RDAO 01-05 indicates that the proper preparation of the waiver was primarily the
responsibility of the taxpayer or its authorized representative signing the waiver. Such responsibility did not pertain to the BIR as the
receiving party. Consequently, ATC was not correct in insisting that the act or omission giving rise to the defects of the waivers
should be ascribed solely to the respondent CIR and her subordinates.
Moreover, the principle of estoppel was applicable. The execution of the waivers was to the advantage of ATC because
the waivers would provide to ATC the sufficient time to gather and produce voluminous records for the audit. It would really be
unfair, therefore, were ATC to be permitted to assail the waivers only after the final assessment proved to be adverse.
Thus, the CTA En Banc did not err in ruling that ATC, after having benefitted from the defective waivers, should not be
allowed to assail them. In short, the CTA En Banc properly applied the equitable principles of in pari delicto, unclean hands, and
estoppel as enunciated in Commissioner of Internal Revenue v. Next Mobile case. Petition for review on certiorari DENIED.

J. Procedure in issuing an assessment / Requisites of a valid assessment / Due Process

1. Sec. 228 of the NIRC.

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be
required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing
on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said
notice.
If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based
on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the
assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.

2. RR No. 12-1999 dated September 6, 1999, as amended by RR No. 18-2013 dated November 28,
2013, further amended by RR No. 7-2018.

REVENUE REGULATIONS NO. 7-2018 issued on January 31, 2018 amends certain sections of Revenue Regulations (RR) No. 12-
99, as amended by RR No. 18-13, relative to the due process requirement in the issuance of a deficiency tax assessment.
The Revenue Officer (RO) who audited the taxpayer‘s records shall, among others, state in his report whether or not the
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the
said Officer‘s submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office (RDO) or by
the Special Investigation Division (SID), as the case may be (in the case of Revenue Regional Offices) or by the Chief of Division
concerned (in case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer‘s payment of his internal revenue
taxes, for the purpose of ―Informal Conference,‖ in order to afford the taxpayer with an opportunity to present his side of the case.
The Informal Conference shall, in no case, extend beyond thirty (30) days from receipt of the notice for informal
conference. If it is found that the taxpayer is still liable for deficiency tax or taxes after presenting his side, and the taxpayer is not
amenable, the RDO or the Chief, SID of the Revenue Regional Office, or the Chief of Division in the National Office, as the case
may be, shall endorse the case within seven (7) days from the conclusion of the Informal Conference to the Assessment Division of
the Revenue Regional Office or to the Commissioner or his duly authorized representative for issuance of a deficiency tax
assessment.

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 Failure on the part of ROs to comply with the prescribed periods shall be meted with penalty as provided by existing laws,
rules and regulations.

3. CIR vs. Metro Star Superama, Inc., G.R. No. 185371 dated December 8, 2010  GONZALES
4. CIR vs. Asalus Corporation, GR No. 22150 dated February 22, 2017
5. CIR vs. Fitness By Design, Inc., GR No. 215957 dated November 9, 2016  QUILANG
6. Samar-I Electric Cooperative vs. CIR, GR No. 193100 dated December 10, 2014
7. CIR v. Avon Products Manufacturing, Inc., GR Nos. 201398-99, October 3, 2018  TABABA

COMMISSIONER OF INTERNAL REVENUE v. METRO STAR SUPERAMA, INC.

G.R. No. 185371, December 8, 2010
FACTS: Petitioner is a domestic corporation. On January 26, 2001, the Regional Director of Revenue in Legazpi City, issued
Letter of Authority to examine petitioner‘s books of accounts and other accounting records for taxable year 1999. For petitioner‘s
failure to comply with several requests to present the records and Subpoena Duces Tecum, BIR Legal Division issued an
Indorsement to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment
notice. Then, RDO issued a Preliminary Assessment Notice Letter stating a deficiency in VAT and withholding taxes in the amount
of P292, 874.16 for the year 1999. Thereafer, a formal letter of demand was sent. The Final Notice of Seizure came next, giving
Metro Star Superama last opportunity to settle its deficiency tax liabilities within ten (10) days from receipt thereof, otherwise
BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection.
Not able to comply, Metro Super Rama received a Warrant of Distraint and/or Levy demanding payment of deficiency
value-added tax and withholding tax payment in the amount of P292,874.16. The Commissioner denied the MOR filed by
Metro Super Rama. Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due
process, Metro Star filed a petition for review with the CTA.
The CTA-Second Division rendered a decision in favor of the Metro Super Rama. The CTA-Second Division opined that
―while there is a disputable presumption that a ailed letter is deemed received by the addressee in the ordinary course of mail, a
direct denial of the receipt of mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee.‖ It found that there was no clear showing that Metro Star actually received the alleged PAN. It,
accordingly, ruled that the Formal Letter of Demand and the Warrant of Distraint and/or Levy dated were void, as Metro Star was
denied due process. CTA En Banc affirmed in toto the CTA Second Division‘s decision. Hence, this petition.

ISSUE: Is the failure to strictly comply with notice requirements prescribed under Section 228 (Preliminary Assessment
Notice or PAN) of the National Internal Revenue Code of 1997 tantamount to a denial of due process?

RULINGS: YES, not complying strictly with the Preliminary Assessment Notice or PAN is tantamount to a denial of due process.
The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro
Star indeed received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from
the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement
of service of the PAN. It merely accepted the letter of Metro Star‘s chairman dated April 29, 2002, that stated that he had received
the FAN dated April 3, 2002, but not the PAN.
Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing
a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be
able to present their case and adduce supporting evidence.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment
Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules
and. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default,
in which case, a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for
payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. From the provision quoted above,
it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the ―due process
requirement in the issuance of a deficiency tax assessment,‖ the absence of which renders nugatory any assessment made by
the tax authorities. The use of the word ―shall‖ in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process.
Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228
of R.A. No. 8424, the assessment made by the CIR is void.

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 It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due
process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the
laws on the other, the scales must tilt in favor of the individual, for a citizen‘s right is amply protected by the Bill of Rights under the
Constitution.
Thus, while ―taxes are the lifeblood of the government,‖ the power to tax has its limits, in spite of all its plenitude.

COMMISSIONER OF INTERNAL REVENUE vs. ASALUS CORPORATION

February 22, 2017 GR No. 221590, MENDOZA, J.:
COPIED FROM THE WEDNESDAY CLASS

DOCTRINE: Substantial compliance with the requirement as laid down under Section 228 of the NIRC suffices, for what is important
is that the taxpayer has been sufficiently informed of the factual and legal bases of the assessment so that it may file an effective
protest against the assessment. In the case at bench, Asalus was sufficiently informed that with respect to its tax liability, the
extraordinary period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN and all subsequent
communications from the CIR made reference to the PAN. Asalus was eventually able to file a protest addressing the issue on
prescription, although it was done only in its supplemental protest to the FAN.

FACTS: On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from Revenue
District Office No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the investigation conducted by Revenue
Officer Fidel M. Bañares II on the Value-Added Tax transactions of Asalus for the taxable year 2007. Asalus filed its Letter-Reply,
dated December 29, 2010, questioning the basis of Bañares' computation for its VAT liability.
On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary Assessment Notice finding
Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11.
On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for deficiency VAT for 2007 in the total
amount of P95,681,988.64, inclusive of surcharge and interest. Consequently, it filed its protest against the FAN, dated September
6, 2011.
On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing VAT deficiency for 2007 in
the aggregate amount of P106,761,025.17, inclusive of surcharge and interest and P25,000.00 as compromise penalty. As a result,
it filed a petition for review before the CTA Division.
In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August 26, 2011 had prescribed
and consequently deemed invalid.

ISSUE: Whether petitioner had sufficiently apprised respondent that the fan and fdda issued against the latter falls under section
222(a) of the 1997 NIRC, as amended;

HELD: Yes. Generally, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the
filing of the return, or where the return is filed beyond the period, from the day the return was actually filed. Section 222 of the NIRC,
however, provides for exceptions to the general rule. It states that in the case of a false or fraudulent return with intent to evade tax
or of failure to file a return, the assessment may be made within ten (10) years from the discovery of the falsity, fraud or omission.
Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient
to warrant the application of the ten (10) year prescriptive period under Section 222 of the NIRC. Under Section 248(B) of the NIRC,
there is a prima facie evidence of a false return if there is a substantial underdeclaration of taxable sales, receipt or income. The
failure to report sales, receipts or income in an amount exceeding 30% what is declared in the returns constitute substantial
underdeclaration. In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or
income, there is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support
the falsity of the return, unless the taxpayer fails to overcome the presumption against it.

CIR v. FITNESS BY DESIGN

GR No.
FACTS:
 March 17, 2004: CIR assessed Fitness by Design Inc. for deficiency Income Taxes for the year of 1995 for P 10,647,
529.69
 February 1, 2005: CIR issued a warrant of distraint and levy against petitioner which prompted petitioner to file a Petition
for Review before the CTA where he alleged his defense of prescription based on Sec. 203 of the Tax Code.
 CIR answer: Tax return was false and fraudulent for deliberately failing to declare its true sales of P 7,156,336.08 and
failure to file a VAT return for it. Since petitioner failed to file a protest, it is subject to either distraint or levy. Moreover, it
cited Sec. 222 (a) of 1997 Tax Code where false and fraudulent return with intent to evade tax or failure to file a return
prescribe 10 years after the discovery of the falsity, fraud or omission.

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  March 10, 2005: BIR filed a criminal complaint before the DOJ against the officers and accountant of petitioner for
violation against the 1977 NIRC.
 During the preliminary hearing on the issue of prescription, petitioner's former bookkeeper attested that his former
colleague, CPA Sablan, illegally took custody of accounting records and turned them over to the BIR.
 Petitioner then requested a subpoena ad testificandum for Sablan who failed to appear.
 CTA: Denied the motion for issuance of subpoena and disallowed the submission of written interrogatories to Sablan who
is NOT a party to the case nor was his testimony relevant. It also violates Section 2 of Republic Act No. 2338, as
implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of informers of
violations of internal revenue laws, except when the information is proven to be malicious or false. Moreover, the
subpoena is NOT needed to obtain affidavit of the informer.

ISSUE: W/N BIR can use the information without petitioner's consent

HELD: YES. Sec. 5 of the tax code provides that the BIR is authorized to obtain from any person other than the person whose
internal revenue tax liability is subject to audit or investigation and can even summon any person having possession, custody or
care of the books of accountants and other accounting records containing entries relating to the business of the person liable for tax.
This includes even those which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. CTA
case is not a criminal prosecution where he can cross examine the witness against him. CTA can enforce its order by citing them
for indirect contempt.

CIR v. AVON PRODUCTS MANUFACTURING, INC.

GR No. 201398-99 October 3, 2018
DOCTRINE: Tax assessments issued in violation of the due process rights of a taxpayer are null and void. While the government
has an interest in the swift collection of taxes, the Bureau of Internal Revenue and its officers and agents cannot be overreaching in
their efforts, but must perform their duties in accordance with law, with their own rules of procedure, and always with regard to the
basic tenets of due process.
The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue regulations allow a taxpayer to file
a reply or otherwise to submit comments or arguments with supporting documents at each stage in the assessment process. Due
process requires the Bureau of Internal Revenue to consider the defenses and evidence submitted by the taxpayer and to render a
decision based on these submissions. Failure to adhere to these requirements constitutes a denial of due process and taints the
administrative proceedings with invalidity.

FACTS: Avon filed its Value Added Tax (VAT) Returns and Monthly Remittance Returns of Income Tax Withheld for the taxable
year 1999 on the following dates:

XXX

Avon signed two (2) Waivers of the Defense of Prescription dated October 14, 2002 and December 27, 2002,9 which
expired on January 14, 2003 and April 14, 2003, respectively.10
On July 14, 2004, Avon was served a Collection Letter11 dated July 9, 2004. It was required to pay P80,246,459.1512.
These deficiency assessments were the same deficiency taxes covered by the Preliminary Assessment Notice14 dated November
29, 2002, received by Avon on December 23, 2002.15
On February 14, 2003, Avon filed a letter dated February 13, 2003 protesting against the Preliminary Assessment
Notice.16
Without ruling on Avon's protest, the Commissioner prepared the Formal Letter of Demand17 and Final Assessment
Notices,18 all dated February 28, 2003, received by Avon on April 11, 2003. Except for the amount of interest, the Final Assessment
Notices were the same as the Preliminary Assessment Notice.19
In a letter20 dated and filed on May 9, 2003, Avon protested the Final Assessment Notices. Avon resubmitted its protest
to the Preliminary Assessment Notice and adopted the same as its protest to the Final Assessment Notices.21
A conference was allegedly held on June 26, 2003 where Avon informed the revenue officers that all the documents
necessary to support its defenses had already been submitted. Another meeting was held on August 4, 2003, where it showed the
original General Ledger Book as previously directed by the revenue officers. During these meetings, the revenue officers allegedly
expressed that they would cancel the assessments resulting from the alleged discrepancy in sales if Avon would pay part of the
assessments.22
Thus, on January 30, 2004, Avon paid the following portions of the Final Assessment Notices:
a. Disallowed taxes and licenses/Fringe Benefit Tax adjustment P153,559.37; and
b. Withholding Tax on Compensation - Late Remittance - P32,829.2823

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 However, in a Memorandum dated May 27, 2004, the Bureau of Internal Revenue's officers recommended the
enforcement and collection of the assessments on the sole justification that Avon failed to submit supporting documents within the
60-day period as required under Section 228 of the Tax Code.24
The Large Taxpayers Collection and Enforcement Division thereafter served Avon with the Collection Letter dated July 9,
2004.25Avon asserted that even the items already paid on January 30, 2004 were still included in the deficiency tax assessments
covered by this Collection Letter.26
In a letter27 to the Deputy Commissioner for Large Taxpayers Service dated and filed on July 27, 2004, Avon requested
the reconsideration and withdrawal of the Collection Letter. It argued that it was devoid of legal and factual basis, and was
premature as the Commissioner of Internal Revenue had not yet acted on its protest against the Final Assessment Notices.28
The Commissioner did not act on Avon's request for reconsideration. Thus, Avon was constrained to treat the Collection Letter as
denial of its protest.29
On August 13, 2004, Avon filed a Petition for Review before the Court of Tax Appeals.30 On August 24, 2004, it filed an
Urgent Motion for Suspension of Collection of Tax.31
On May 13, 2010, the Court of Tax Appeals Special First Division rendered its Decision,32 partially granting Avon's
Petition for Review insofar as it ordered the cancellation of the Final Demand and Final Assessment Notices for deficiency excise
tax, VAT, withholding tax on compensation, and expanded withholding tax. However, it ordered Avon to pay deficiency income tax in
the amount of P357,345.88 including 20% deficiency interest on the total amount due pursuant to Section 249, paragraphs (b) and
(c)(3) of the Tax Code. The Court of Tax Appeals Special First Division also made the following pronouncements:33
a) There was no deprivation of due process in the issuance by the CIR of the assessment for deficiency income
tax, deficiency excise tax, deficiency VAT, deficiency final withholding tax on compensation and deficiency
expanded withholding tax against AVON for the latter was afforded an opportunity to explain and present its
evidence;
b) The Waivers of the Statute of Limitations executed by AVON are invalid and ineffective as the CIR failed to
provide [AVON] a copy of the accepted Waivers, as required under Revenue Memorandum Order No. 20-90.
Hence, the assessment of AVON's deficiency VAT, deficiency expanded withholding tax and deficiency
withholding tax on compensation is considered to have prescribed;
c) AVON's failure to submit the relevant documents in support of its protest did not make the assessment final and
executory;
d) As to assessment on AVON's deficiency Income Tax,
1. there was no undeclared sales/income in the amount of P62,911,619.58 per ITR for the taxable year
1999;
2. AVON's liability for disallowed taxes and licenses and December 1998 Fringe Benefit Tax payment
adjustment in the amount of P152,632.10 and P927.27, respectively, or a total of P153,559.37 is
extinguished in view of the payment made;
3. The discrepancy between Ending Inventories reflected in Balance Sheet and Cost of Sales
represents variance/adjustments on standard cost to actual cost allocated to ending inventories and
not under-declaration as alleged by CIR;
4. AVON's claimed tax credits in the amount of P203,645.89 was disallowed as the same was
unsupported by withholding tax certificates as required under Section 2.58.3 (B) of Revenue
Regulations No. 2-98. However, the amount of P140,505.28 was upheld as a proper deduction from
its 1999 income tax due; and
e) As to assessment on AVON's deficiency excise tax, the same is deemed cancelled and withdrawn in view of its
Application for Abatement over its deficiency excise tax assessment for the year 1999 and its corresponding
payment.34
The parties' Motions for Partial Reconsideration were denied in the July 12, 2010 Resolution.36 Both parties filed their
respective Petitions for Review before the Court of Tax Appeals En Banc.37
In its assailed November 9, 2011 Decision,38 the Court of Tax Appeals En Banc denied the respective Petitions of the
Commissioner and Avon, and affirmed the Court of Tax Appeals Special First Division May 13, 2010 Decision. It held that the
Waivers of the Defense of Prescription were defective, thereby rendering the assessment of Avon's deficiency VAT, expanded
withholding tax, and withholding tax on compensation to have prescribed.39 It further ruled that contrary to the Commissioner's
argument, the requirement under Revenue Memorandum Order No. 20-90 to furnish the taxpayer with copies of the accepted
waivers was not merely formal in nature, and non-compliance with it rendered the Waivers of the Defense of Prescription invalid and
ineffective.40
On the issue of jurisdiction, the Court of Tax Appeals En Banc held that under Section 228 of the Tax Code, the taxpayer
has two (2) options in case of inaction of the Commissioner on disputed assessments. The first option is to file a petition with the
Court of Tax Appeals within 30 days from the lapse of the 180-day period for the Commissioner to decide. The second option is to
await the final decision of the Commissioner and appeal this decision within 30 days from its receipt. Here, Avon opted for the
second remedy by filing its petition on July 14, 2004, within 30 days from receipt of the July 9, 2004 Collection Letter, which also
served as the final decision denying its protest. Hence, the Court of Tax Appeals En Banc ruled that it had jurisdiction over the
case.41

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 The Court of Tax Appeals En Banc further affirmed the Court of Tax Appeals Special First Division's factual findings with
regard to the cancellation of deficiency tax assessments42 and disallowance of Avon's claimed tax credits.43
Finally, the Court of Tax Appeals En Banc rejected Avon's contention regarding denial of due process. It held that Avon was
accorded by the Commissioner a reasonable opportunity to explain and present evidence.44 Moreover, the Commissioner's failure
to appreciate Avon's supporting documents and arguments did not ipso facto amount to denial of due process absent any proof of
irregularity in the performance of duties.45
In its April 10, 2012 Resolution,46 the Court of Tax Appeals En Banc denied the Commissioner's Motion for
Reconsideration and Avon's Motion for Partial Reconsideration. It held that the "RCBC case,"47 cited by the Commissioner, was not
on all fours with, and therefore not applicable as stare decisis in this case. Instead, the ruling in CIR v. Kudos Metal Corporation,48
precluding the Bureau of Internal Revenue from invoking the doctrine of estoppel to cover its failure to comply with the procedures in
the execution of a waiver, would apply.49

ISSUE/S: WON the assessments are void ab initio due to the failure of the Commissioner to observe due process?

RULING: Yes. The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper taxes, and to administer
and enforce the Tax Code.63 To perform its functions of tax assessment and collection properly, it is given ample powers under the
Tax Code, such as the power to examine tax returns and books of accounts,64 to issue a subpoena,65 and to assess based on best
evidence obtainable,66 among others. However, these powers must "be exercised reasonably and [under] the prescribed
procedure."67 The Commissioner and revenue officers must strictly comply with the requirements of the law, with the Bureau of
Internal Revenue's own rules,68 and with due regard to taxpayers' constitutional rights.
The Commissioner exercises administrative adjudicatory power or quasi-judicial function in adjudicating the rights and
liabilities of persons under the Tax Code.
Quasi-judicial power has been described as: Quasi-judicial or administrative adjudicatory power on the other hand is the
power of the administrative agency to adjudicate the rights of persons before it. It is the power to hear and determine questions
of fact to which the legislative policy is to apply and to decide in accordance with the standards laid down by the law itself
in enforcing and administering the same law. The administrative body exercises its quasi-judicial power when it performs in a
judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such manner is
incidental to or reasonably necessary for the performance of the executive or administrative duty entrusted to it.69
(Emphasis supplied, citations omitted)
In carrying out these quasi-judicial functions, the Commissioner is required to "investigate facts or ascertain the existence
of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion
in a judicial nature."70 Tax investigation and assessment necessarily demand the observance of due process because they affect
the proprietary rights of specific persons.
This Court has stressed the importance of due process in administrative proceedings:
The principle of due process furnishes a standard to which governmental action should conform in order to impress it with
the stamp of validity. Fidelity to such standard must of necessity be the overriding concern of government agencies exercising
quasi-judicial functions. Although a speedy administration of action implies a speedy trial, speed is not the chief objective of a trial.
Respect for the rights of all parties and the requirements of procedural due process equally apply in proceedings before
administrative agencies with quasi-judicial perspective in administrative decision making and for maintaining the vision which led to
the creation of the administrative office.71
In Ang Tibay v. The Court of Industrial Relations,72 this Court observed that although quasi-judicial agencies "may be
said to be free from the rigidity of certain procedural requirements[, it] does not mean that it can, in justiciable cases coming before
it, entirely ignore or disregard the fundamental and essential requirements of due process in trials and investigations of an
administrative character."73 It then enumerated the fundamental requirements of due process that must be respected in
administrative proceedings:
1. The party interested or affected must be able to present his or her own case and submit evidence in support of it.
2. The administrative tribunal or body must consider the evidence presented.
3. There must be evidence supporting the tribunal's decision.
4. The evidence must be substantial or "such relevant evidence as a reasonable mind might accept as adequate to support
a conclusion."
5. The administrative tribunal's decision must be rendered on the evidence presented, or at least contained in the record and
disclosed to the parties affected.
6. The administrative tribunal's decision must be based on the deciding authority's own independent consideration of the law
and facts governing the case.
7. The administrative tribunal's decision is rendered in a manner that the parties may know the various issues involved and
the reasons for the decision.75Mendoza v. Comelec76 explained that the first requirement is the party's substantive right
at the hearing stage of the proceedings, which, in essence, is the opportunity to explain one's side or to seek a
reconsideration of the adverse action or ruling.

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 It was emphasized, however, that the mere filing of a motion for reconsideration does not always result in curing the due
process defect,77 "especially if the motion was filed precisely to raise the issue of violation of the right to due process and the lack
of opportunity to be heard on the merits remained."78
The second to the sixth requirements refer to the party's "inviolable rights applicable at the deliberative stage."79 The
decision-maker must consider the totality of the evidence presented as he or she decides the case.80
The last requirement relating to the form and substance of the decision is the decision-maker's '"duty to give reason' to
enable the affected person to understand how the rule of fairness has been administered in his [or her] case, to expose the reason
to public scrutiny and criticism, and to ensure that the decision will be thought through by the decision-maker."81
The Ang Tibay safeguards were subsequently "simplified into four basic rights,"82 as follows:
(a) [T]he right to notice, be it actual or constructive, of the institution of the proceedings that may affect a person's legal right; (b)
reasonable opportunity to appear and defend his rights and to introduce witnesses and relevant evidence in his favor; (c) a tribunal
so constituted as to give him reasonable assurance of honesty and impartiality, and one of competent jurisdiction; and (d) a finding
or decision by that tribunal supported by substantial evidence presented at the hearing or at least ascertained in the records or
disclosed to the parties.83 (Emphasis supplied)
Saunar v. Ermita84 expounded on Ang Tibay by emphasizing that while administrative bodies enjoy a certain procedural
leniency, they are nevertheless obligated to inform themselves of all facts material and relevant to the case, and to render a decision
based on an accurate appreciation of facts. In this regard, this Court held that Ang Tibay did not necessarily do away with the
conduct of hearing and a party may invoke its right to a hearing to thresh out substantial factual issues, thus:
A closer perusal of past jurisprudence shows that the Court did not intend to trivialize the conduct of a formal hearing but
merely afforded latitude to administrative bodies especially in cases where a party fails to invoke the right to hearing or is given the
opportunity but opts not to avail of it. In the landmark case of Ang Tibay, the Court explained that administrative bodies are free from
a strict application of technical rules of procedure and are given sufficient leeway. In the said case, however, nothing was said that
the freedom included the setting aside of a hearing but merely to allow matters which would ordinarily be incompetent or
inadmissible in the usual judicial proceedings.
In fact, the seminal words of Ang Tibay manifest a desire for administrative bodies to exhaust all possible means to
ensure that the decision rendered be based on the accurate appreciation of facts. The Court reminded that administrative bodies
have the active duty to use the authorized legal methods of securing evidence and informing itself of facts material and relevant to
the controversy. As such, it would be more in keeping with administrative due process that the conduct of a hearing be the general
rule rather than the exception.
To reiterate, due process is a malleable concept anchored on fairness and equity. The due process requirement before
administrative bodies are not as strict compared to judicial tribunals in that it suffices that a party is given a reasonable opportunity
to be heard. Nevertheless, such "reasonable opportunity" should not be confined to the mere submission of position papers and/or
affidavits and the parties must be given the opportunity to examine the witnesses against them. The right to a hearing is a right
which may be invoked by the parties to thresh out substantial factual issues. It becomes even more imperative when the rules itself
of the administrative body provides for one. While the absence of a formal hearing does not necessarily result in the deprivation of
due process, it should be acceptable only when the party does not invoke the said right or waives the same. 85(Emphasis supplied)
In Saunar, this Court held that the petitioner in that case was denied due process when he was not notified of the
clarificatory hearings conducted by the Presidential Anti-Graft Commission. Under the Presidential Anti-Graft Commission's Rules,
in the event that a clarificatory hearing was determined to be necessary, the Presidential Anti-Graft Commission must notify the
parties of the clarificatory hearings. Further, "the parties shall be afforded the opportunity to be present in the hearings without the
right to examine witnesses. They, however, may ask questions and elicit answers from the opposing party coursed through the
[Presidential Anti-Graft Commission]."86 This Court held that the petitioner in Saunar was not treated fairly in the proceedings
before the Presidential Anti-Graft Commission because he was deprived of the opportunity to be present in the clarificatory hearings
and was denied the chance to propound questions through the Presidential Anti-Graft Commission against the opposing parties.
"[A] fair and reasonable opportunity to explain one's side"87 is one aspect of due process. Another aspect is the due consideration
given by the decision-maker to the arguments and evidence submitted by the affected party.
Baguio Country Club Corp. v. National Labor Relations Commission88 precisely involved the question of the denial of due
process for failure of the labor tribunals to consider the evidence presented by the employer. The labor tribunals unanimously
denied the employer's application for clearance to terminate the services of an employee on the ground of insufficient evidence to
show a just cause for the employee's dismissal, and ordered the reinstatement of the employee with backwages.
This Court held that "[t]he summary procedures used by the [labor tribunals] were too summary to satisfy the
requirements of justice and fair play."89 It noted the irregular procedures adopted by the Labor Arbiter. First, "[he] allowed a last
minute position paper of [the] respondent ... to be filed and without requiring a copy to be served upon the Baguio Country Club and
without affording the latter an opportunity to refute or rebut the contents of the paper, [and] forthwith decided the case."90 Second,
"the petitioner specifically stressed to the arbiter that it was 'adopting the investigations which were enclosed with the application to
terminate, which are now parts of the record of the Ministry of Labor, as part and parcel of this position paper."'91 But the Labor
Arbiter, instead of calling for the complete records of the conciliation proceedings, "denied the application for clearance on the
ground that all that was before it was a position paper with mere quotations about an investigation conducted . . ."92 This Court held
that the affirmance by the Commission of the decision of the Labor Arbiter was a denial of the elementary principle of fair play.
[I]t was a denial of elementary principles of fair play for the Commission not to have ordered the elevation of the entire
records of the case with the affidavits earlier submitted as part of the position paper but completely ignored by the labor arbiter. Or

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at the very least, the case should have been remanded to the labor arbiter consonant with the requirements of administrative due
process.
The ever increasing scope of administrative jurisdiction and the statutory grant of expansive powers in the exercise of
discretion by administrative agencies illustrate our nation's faith in the administrative process as an efficient and effective mode of
public control over sensitive areas of private activity. Because of the specific constitutional mandates on social justice and protection
to labor, and the fact that major labor¬ management controversies are highly intricate and complex, the legislature and executive
have reposed uncommon reliance upon what they believe is the expertise, the rational and efficient modes of ascertaining facts, and
the unbiased and discerning adjudicative techniques of the Ministry of Labor and Employment and its instrumentalities.
The instant petition is a timely reminder to labor arbiters and all who wield quasi-judicial power to ever bear in mind that
evidence is the means, sanctioned by rules, of ascertaining in a judicial or quasi-judicial proceeding, the truth respecting a matter of
fact ... The object of evidence is to establish the truth by the use of perceptive and reasoning faculties . . . The statutory grant of
power to use summary procedures should heighten a concern for due process, for judicial perspectives in administrative decision
making, and for maintaining the visions which led to the creation of the administrative office.93
In Alliance for the Family Foundation, Philippines, Inc. v. Garin,94 this Court held that the Food and Drug Administration
failed to observe the basic requirements of due process when it did not act on or address the oppositions submitted by petitioner
Alliance for the Family Foundation, Philippines, Inc., but proceeded with the registration, recertification, and distribution of the
questioned contraceptive drugs and devices. It ruled that petitioner was not afforded the genuine opportunity to be heard.
Administrative due process is anchored on fairness and equity in procedure.95 It is satisfied if the party is properly notified
of the charge against it and is given a fair and reasonable opportunity to explain or defend itself.96 Moreover, it demands that the
party's defenses be considered by the administrative body in making its conclusions,97 and that the party be sufficiently informed of
the reasons for its conclusions.

K. Protesting an assessment
1. Reinvestigation vs. Reconsideration
a. RR No. 18-2013 dated November 28, 2013.

REVENUE REGULATIONS NO. 18-2013 issued on November 28, 2013 amends certain sections of Revenue Regulations (RR) No.
12-99 relative to the due process requirement in the issuance of a deficiency tax assessment.
Section 3 of RR No. 12-99 was amended by deleting Section 3.1.1 thereof, which provides for the preparation of a Notice
of Informal Conference, thereby renumbering other provisions thereof, and prescribing other provisions for the assessment of tax
liabilities.
If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is
determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said office shall issue to the
taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules
and regulations, or jurisprudence on which the proposed assessment is based.
If the taxpayer fails to respond within 15 days from date of receipt of the PAN, he shall be considered in default, in which
case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
If the taxpayer, within 15 days from date of receipt of the PAN, responds that he/it disagrees with the findings of deficiency
tax or taxes, an FLD/FAN shall be issued within 15 days from filing/submission of the taxpayer‘s response, calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties.
Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any of the following cases:
a. When the finding for any deficiency tax is the result of mathematical error in the computation of the
tax appearing on the face of the tax return filed by the taxpayer; or
b. When a discrepancy has been determined between the tax withheld and the amount actually remitted
by the withholding agent; or
c. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over and automatically applied the same amount
claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding
taxable year; or
d. When the Excise Tax due on excisable articles has not been paid; or
e. When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to
non-exempt persons.
In the above-cited cases, a FLD/FAN shall be issued outright by the Commissioner or his duly authorized representative.
The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based; otherwise, the assessment shall be void.
The taxpayer or its authorized representative or tax agent may protest administratively against the aforesaid FLD/FAN
within 30 days from date of receipt thereof. The taxpayer protesting an assessment may file a written request for reconsideration or
reinvestigation, which was defined in the Regulations.

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 The taxpayer shall state in his protest (i) the nature of protest, whether reconsideration or reinvestigation, specifying newly
discovered or additional evidence he intends to present if it is a request for reinvestigation; (ii) date of the assessment notice; and
(iii) the applicable law, rules and regulations, or jurisprudence on which his protest is based; otherwise, his protest shall be
considered void and without force and effect.
If there are several issues involved in the FLD/FAN but the taxpayer only disputes or protests against the validity of some
of the issues raised, the assessment attributable to the undisputed issue or issues shall become final, executory and demandable.
The taxpayer shall then be required to pay the deficiency tax or taxes attributable thereto, in which case, a collection letter shall be
issued to the taxpayer calling for payment of the said deficiency tax or taxes, inclusive of the applicable surcharge and/or interest. If
there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the
same shall be considered undisputed issue or issues, in which case, the assessment attributable thereto shall become final,
executory and demandable. The taxpayer shall then be required to pay the deficiency tax or taxes attributable thereto and a
collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge
and/or interest.
For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his protest
within 60 days from date of filing of his letter of protest, otherwise, the assessment shall become final. The 60-day period for the
submission of all relevant supporting documents shall not apply to requests for reconsideration. The term ―the assessment shall
become final‖ shall mean the taxpayer is barred from disputing the correctness of the issued assessment by introduction of newly
discovered or additional evidence, and the FDDA shall consequently be denied.
If the taxpayer fails to file a valid protest against the FLD/FAN within 30 days from date of receipt thereof, the assessment
shall become final, executory and demandable. No request for reconsideration or reinvestigation shall be granted on tax
assessments that have already become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner‘s duly authorized representative, the taxpayer may either:
(i) appeal to the Court of Tax Appeals (CTA) within 30 days from date of receipt of the said decision; or (ii) elevate his protest
through request for reconsideration to the Commissioner within 30 days from date of receipt of the said decision. No request for
reinvestigation shall be allowed in administrative appeal and only issues raised in the decision of the Commissioner‘s duly
authorized representative shall be entertained by the Commissioner.
If the protest is not acted upon by the Commissioner‘s duly authorized representative within 180 days counted from the
date of filing of the protest in case of a request reconsideration; or from date of submission by the taxpayer of the required
documents within 60 days from the date of filing of the protest in case of a request for reinvestigation, the taxpayer may either: (i)
appeal to the CTA within 30 days after the expiration of the 180-day period; or (ii) await the final decision of the Commissioner‘s duly
authorized representative on the disputed assessment.
If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the Commissioner, the
taxpayer may appeal to the CTA within 30 days from date of receipt of the said decision. Otherwise, the assessment shall become
final, executory and demandable. A motion for reconsideration of the Commissioner‘s denial of the protest or administrative appeal,
as the case may be, shall not toll the 30-day period to appeal to the CTA.
If the protest or administrative appeal is not acted upon by the Commissioner within 180 days counted from the date of
filing of the protest, the taxpayer may either: (i) appeal to the CTA within 30 days from after the expiration of the 180-day period; or
(ii) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA 30 days after
the receipt of a copy of such decision.
It must be emphasized, however, that in case of inaction on protested assessment within the 180-day period, the option of
the taxpayer to either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await
the final decision of the Commissioner or his duly authorized representative on the disputed assessment and appeal such final
decision to the CTA within 30 days after the receipt of a copy of such decision, are mutually exclusive and the resort to one bars the
application of the other.
The decision of the Commissioner or his duly authorized representative shall state the (i) facts, the applicable law, rules
and regulations, or jurisprudence on which such decision is based; otherwise, the decision shall be void, and (ii) that the same is his
final decision.
The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may be served by the Commissioner or his duly
authorized representative through several modes specified in the Regulations.
Section 5 of RR No. 12-99 was amended by modifying Section 5.5 thereof which provides for modes of procedures in
computing for the tax and/or applicable surcharge. In cases of late payment of a deficiency tax assessed, the taxpayer shall be
liable for the delinquency interest provided under Section 249 (C)(3) of the 1997 National Internal Revenue Code, as amended.
Section 5.5 of RR No. 12-99 shall now read as follows:
―5.5 Late payment of a deficiency tax assessed. – In general, the deficiency tax assessed shall be paid by
the taxpayer within the time prescribed in the notice and demand, otherwise, such taxpayer shall be liable for
the delinquency interest incident to late payment.‖

b. BPI vs. CIR, GR No. 139736 dated October 17, 2005  TATOY

BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL REVENUE

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G.R. No. 139736. October 17, 2005.
DOCTRINES:
 The BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the
filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for
the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure
to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR
of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year
period, whichever is appropriate, then the BIR has another three years after the assessment within which to collect the
national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed
made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had
been released, mailed or sent by the BIR to the taxpayer.
 Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be
fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that
the proceedings have validly began or commenced and that their execution has not been suspended by reason of the
voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. It is
only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to
suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service
of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed.
 Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation.
The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period
of time.
 A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of
the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued
Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the
proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be
strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess
and collect shall be administratively dealt with.
 The burden of proof that the taxpayer‘s request for reinvestigation had been actually granted shall be on respondent BIR
Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the
respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation.

FACTS: Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two
separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of
the Philippines (Central Bank), for the total sales amount of US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5- 85-89-002054,3 finding
petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank.
Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20 October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR
on 17 November 1989.
PROTEST:
1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of foreign exchange is
paid by the buyer. Thus, when BPI sells to any party, the cost of documentary stamp tax is added to the total price or
charge to the buyer and the seller affixes the corresponding documentary stamp on the document. Similarly, when the
Central Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary stamp on the transaction.
2. In the two transactions subject of your assessment, no documentary stamps were affixed because the buyer, Central
Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994, a proviso was added to sec.
222 (now sec. 186) of the Tax Code ―that whenever one party to a taxable document enjoys exemption from the tax
herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax,‖ this proviso (and the
other amendments of P.D. 1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the
liability for the documentary stamp tax could not be shifted to the seller.
Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a
Warrant of Distraint and/or Levy against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of
P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.

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 Warrant on petitioner BPI only on 23 October 1992.
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13
August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its ―request for reconsideration,‖ and addressing
the points raised by petitioner BPI in its protest letter.
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on
10 October 1997; to which respondent BIR Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08
December 1997.
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter,
dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the
assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-
002054, but she waited for seven years and nine months to deny the protest.
In her Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in
her letter to petitioner BPI, dated 13 August 1997, which denied the latter‘s protest; and remained silent as to the expiration of the
prescriptive period for collection of the assessed deficiency DST.

CTA (issues):
1. whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for
taxable year 1985 had prescribed; and
2. whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank
were subject to DST.

CTA (held):
1. NO. In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September
30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a ―protest‖ is to be
treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the
prescriptive period of the Commissioner to collect on an assessment. . . . . .
In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment on
November 17, 1989, there can be no conclusion other than that said protest stopped the running of the prescriptive period
of the Commissioner to collect.
2. NO. Referring to its own decision in an earlier case, Consolidated Bank & Trust Co. v. The Commissioner of Internal
Revenue, the CTA reached the conclusion that the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were not subject to DST.
From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the period
June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST)
pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as
buyer of the foreign currency, is exempt from paying the documentary stamp tax for the period abovementioned. This
Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when
Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the
Central Bank is shifted to the seller.
Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of
foreign currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable
thereof. However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the
Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of
the documentary stamp tax for the former‘s 1985 sales of foreign currencies to the latter.
In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on
Assessment No. FAS-5- 85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said
Assessment because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-
exempt.

CA –
1. sustained the finding of the CTA on the first issue, that the running of the prescriptive period for collection on Assessment
No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and, therefore,
the prescriptive period for collection on the Assessment had not yet lapsed.
2. reversed the CTA on the second issue and basically adopted the position of the respondent BIR Commissioner that the
sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of
Appeals, thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay
the amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty.

ISSUES:
1. W/N the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year
1985 had prescribed.

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 2. W/N the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject
to DST.

HELD:
1. YES. The efforts of respondent Commissioner to collect on Assessment No. FAS-5- 85-89- 002054 were already barred
by prescription.
The BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by
law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax
or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery
by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or
ten-year period, whichever is appropriate, then the BIR has another three years after the assessment within which to
collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax
is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed or sent by the BIR to the taxpayer.
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint
and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It
is enough that the proceedings have validly began or commenced and that their execution has not been suspended by
reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint
and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the
taxpayer. It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the
taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only
be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said
taxpayer, and the resolute intention of the BIR to collect the tax assessed.
2. NO. There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed
DST under the Tax Code of 1977, as amended.
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both
the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer
of the assurance that he will no longer be subjected to further investigation for taxe after the expiration of a reasonable
period of time.
In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of
1977, as amended, identifies specifically in Sections 223 and 224 thereof the circumstances when the prescriptive periods
for assessing and collecting taxes could be suspended or interrupted.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive
periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to
wit—SEC. 223. Exceptions as to period of limitation of assessment and collection of taxes.—x x x (b) If before the
expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon. . . . (d) Any internal revenue tax which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed upon. The agreements so
described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the
statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the
defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain,
within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the
right to invoke prescription unequivocally.
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,
as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of
the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued
Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the
proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be
strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess
and collect shall be administratively dealt with.
This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by
the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the
Tax Code and implementing rules, will not suspend the running thereof.

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 The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on
the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver,
under Section 224 thereof, which reads—

SEC. 224. Suspension of running of statute.— The running of the statute of limitation provided in Section[s] 203 and
223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer
requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the
Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant
of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a
request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used
interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax
Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a
request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited
to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on
collection of the assessed tax, while the latter can not.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of
the statute of limitations is even supported by existing jurisprudence. In the case of Republic of the Philippines v.
Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the
disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the
request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced
that—. . . The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted,
in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the
Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There
were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . .
The burden of proof that the taxpayer‘s request for reinvestigation had been actually granted shall be on
respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the
actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for
reinvestigation.
As had been previously discussed herein, the statute of limitations on assessment and collection of national
internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b)
and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the
same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory
provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in
the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. x x x In the Suyoc case, this Court expressly
conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the
statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof.
However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by
his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in
the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or
positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court
pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estoppedit from setting up the
defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco
case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and,
consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as
amended.
WHEREFORE, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring
petitioner BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive
of the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89- 002054 is hereby ordered
CANCELED. SO ORDERED.

2. Submission of relevant documents / 60-day period

a. RR No. 18-2013 dated November 28, 2013 – Same as above!

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 b. CIR vs. First Express Pawnshop, GR Nos. 172045-06 dated June 16, 2009  VALDEZ

COMM’R OF INTERNAL REVENUE v. FIRST EXPRESS PAWNSHOP COMPANY, INC.

G.R. Nos. 172045-46, June 16, 2009, First Division, CARPIO, J.:
FACTS: Respondent First Express Pawnshop (FEP) received the assessment notices from the CIR. It filed its written protest on the
above assessments. Since petitioner did not act on the protest during the 180-day period, respondent filed a petition before the
CTA. Respondent FEP (a) contended that petitioner CIR did not consider the supporting documents on the interest expenses and
donations which resulted in the deficiency income tax; (b) maintained that pawnshops are not lending investors whose services are
subject to VAT, hence it was not liable for deficiency VAT; (c) alleged that no deficiency DST was due because Section 180 of the
National Internal Revenue Code (Tax Code) does not cover any document or transaction which relates to respondent; and, (d)
argued that the issuance of a pawn ticket did not constitute a pledge under Section 195 of the Tax Code.
The CTA affirmed respondent FEP‘s liability to pay the VAT and ordered it to pay DST on its pawnshop tickets but held
that it‘s deposit on subscription was not subject to DST.

ISSUE: Whether or not the assessment has become final, executory and demandable, hence, unappealable for failure of
respondent First Express Pawnshop to file all relevant supporting documents?

HELD: No. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise,
the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.
Section 228 of the Tax Code provides the remedy to dispute a tax assessment within a certain period of time. It states that
an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the
assessment by the taxpayer. Within 60 days from filing of the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant supporting documents.
Respondent, having submitted the supporting documents together with its protest, did not present additional documents
anymore.
It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final
because when respondent submitted its protest, respondent attached the GIS and Balance Sheet. Further, 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.
After respondent submitted its letter-reply stating that it could not comply with the presentation of the proof of DST
payment, no reply was received from petitioner.
Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer
adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180-day period. Respondent, having
submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioner‘s reply to its
protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of the protest as the
supporting documents were simultaneously filed, respondent filed a petition before the CTA.
Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the Tax Code.
Hence, the tax assessment cannot be considered as final, executory and demandable. Further, respondent‘s deposit on
subscription is not subject to the payment of DST. Consequently, respondent is not liable to pay the deficiency DST of ₱12,328.45.

L. Decision / Inaction on the Pending Protest / Appeal to the Court of Tax Appeals
1. The 180-day period to Decide
a. Sec. 228 of the NIRC – Same as above!
b. RR No. 18-2013 dated November 28, 2013 – Same as above!
2. Final Decision on a Disputed Assessment (―FDDA‖)
a. RR No. 18-2013 dated November 28, 2013 – Same as above!
b. CIR v. Liquigaz Philippines Corp., GR No. 215534, April 18, 2016

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COMMISSIONER OF INTERNAL REVENUE v. LIQUIGAZ PHILIPPINES CORPORATION
G.R. No. 215534
-------------------------------
LIQUIGAZ PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 215557, April 18, 2016, MENDOZA, J.
COPIED FROM THE WEDNESDAY CLASS
TOPIC: Final Decision on a Disputed Assessment (FDDA)

DOCTRINE: The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the requirement of informing
the taxpayer of the legal and factual bases of the assessment and the decision made against him is mandatory.The requirement of
providing the taxpayer with written notice of the factual and legal bases applies both to the FLD/FAN and the FDDA.
Section 228 of the NIRC should not be read restrictively as to limit the written notice'only to the assessment itself. As
implemented by RR No. 12-99, the written notice requirement for both the FLD and the FAN is in observance of due process—to
afford the taxpayer adequate opportunity to file a protest on the assessment and thereafter file an appeal in case of an adverse
decision.

FACTS: On July 11, 2006, Liquigaz received a copy of Letter of Authority (LOA) No. 00067824, dated July 4, 2006, issued by the
Commissioner of Internal Revenue (CIR), authorizing the investigation of all internal revenue taxes for taxable year 2005.
On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice of Informal Conference (NIC), as well as
the detailed computation of its supposed tax liability. On May 28, 2008, it received a copy of the Preliminary Assessment Notice[5]
(PAN), dated May 20, 2008, together with the attached details of discrepancies for the calendar year ending December 31, 2005.
Upon investigation, Liquigaz was initially assessed with deficiency withholding tax liabilities, inclusive of interest, in the aggregate
amount of P23,931,708.72.
Thereafter, on June 25, 2008, it received a Formal Letter of Demand[7] (FLD)/Formal Assessment Notice (FAN), together
with its attached details of discrepancies, for the calendar year ending December 31, 2005. The total deficiency withholding tax
liabilities, inclusive of interest, under the FLD was P24,332,347.20.
Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA Division assailing the validity of the
FDDA issued by the CIR.
In its November 22, 2012 Decision, the CTA Division partially granted Liquigaz's petition cancelling the EWT and FBT
assessments but affirmed with modification the WTC assessment. It ruled that the portion of the FDDA relating to the EWT and the
FBT assessment was void pursuant to Section 228 of the National Internal Revenue Code (NIRC) of 1997, as implemented by
Revenue Regulations (RR) No. 12-99.
The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA issued did not provide the details thereof,
hence, Liquigaz had no way of knowing what items were considered by the CIR in arriving at the deficiency assessments. This was
especially true because the FDDA reflected a different amount from what was stated in the FLD/FAN.Both the CIR and Liquigaz
moved for reconsideration, but their respective motions were denied by the CTA Division in its February 20, 2013 Resolution.
Aggrieved, they filed their respective petitions for review before the CTA En Banc. The CTA En Banc affirmed the assailed
decision of the CTA Division. It reiterated its pronouncement that the requirement that the taxpayer should be informed in writing of
the law and the facts on which the assessment was made applies to the FDDA— otherwise the assessment would be void. The
CTA En Bane explained that the FDDA determined the final tax liability of the taxpayer, which may be the subject of an appeal
before the CTA.
The CTA En Banc echoed the findings of the CTA Division that while the FDDA indicated the legal provisions relied upon
for the assessment, the source of the amounts from which the assessments arose were not shown. It emphasized the need for
stating the factual bases as the FDDA reflected different amounts than that contained in the FLD/FAN.
Both parties moved for a partial reconsideration of the CTA En Banc Decision, but the latter denied the motions in its
November 26, 2014 Resolution.Not satisfied, both parties filed their respective petitions for review.
Liquigaz argues that the FDDA is void as it did not contain the factual bases of the assessment and merely showed the
amounts of its alleged tax liabilities.On the other hand, the CIR avers that the assessments for EWT and FBT liability should be
upheld because the FDDA must be taken together with the PAN and FAN, where details of the assessments were attached. Hence,
the CIR counters that Liquigaz was fully apprised of not only the laws, but also the facts on which the assessment was based, which
were likewise evidenced by the fact that it was able to file a protest on the assessment. Further, the CIR avers that even if the FDDA
would be declared void, it should not result in the automatic abatement of tax liability especially because RR No. 12-99 merely
states that a void decision of the CIR or his representative shall not be considered as a decision on the assessment.

ISSUE: Whether or not the FDDA is valid.

HELD: No. The FDDA is void. Section 228 of the NIRC declares that an assessment is void if the taxpayer is not notified in writing
of the facts and law on which it is made. Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must state the facts and law on
which it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section 3.1.6 of RR No. 12-99 specifically requires that

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the decision of the CIR or his duly authorized representative on a disputed assessment shall state the facts, law and rules and
regulations, or jurisprudence on which the decision is based. Failure to do so would invalidate the FDDA.
The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the requirement of informing
the taxpayer of the legal and factual bases of the assessment and the decision made against him is mandatory.The requirement of
providing the taxpayer with written notice of the factual and legal bases applies both to the FLD/FAN and the FDDA.
Section 228 of the NIRC should not be read restrictively as to limit the written notice'only to the assessment itself. As
implemented by RR No. 12-99, the written notice requirement for both the FLD and the FAN is in observance of due process—to
afford the taxpayer adequate opportunity to file a protest on the assessment and thereafter file an appeal in case of an adverse
decision.

A VOID FDDA DOES NOT IPSO FACTO RENDER THE ASSESSMENT VOID

Liquigaz harps that a void FDDA will lead to a void assessment because the FDDA ultimately determines the final tax
liability of a'taxpayer, which may then be appealed before the CTA. On the other hand, the CIR believes that a void FDDA does not
ipso facto result in the nullification of the assessment.
In resolving the issue on the effects of a void FDDA, it is necessary to differentiate an "assessment" from a "decision." In
St. Stephen's Association v. Collector of Internal Revenue,[14] the Court has long recognized that a "decision"- differs from an
"assessment," to wit:
In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent
Collector's decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section li of Republic Act
No. 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment.
Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer)
believes he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and the
taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment, in
accordance with paragraph (1) of section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax Appeals
to review "decisions of the Collector of Internal Revenue in cases involving disputed assessment..."
From the foregoing, it is clear that what is appealable to the CTA is the "decision" of the CIR on disputed assessment and
not the assessment itself.
An assessment becomes a disputed assessment after a taxpayer has filed its protest to the assessment in the
administrative level. Thereafter, the CIR either issues a decision on the disputed assessment or fails to act on it and is, therefore,
considered denied. The taxpayer may then appeal the decision on the disputed assessment or the inaction of the CIR. As such, the
FDDA is not the only means that the final tax liability of a taxpayer is fixed, which may then be appealed by the taxpayer. Under the
law, inaction on the part of the CIR may likewise result in the finality of a taxpayer's tax liability as it is deemed a denial of the protest
filed by the latter, which may also be appealed before the CTA.
Clearly, a decision of the CIR on a disputed assessment differs from the assessment itself. Hence, the invalidity of one
does not necessarily result to the invalidity of the other—unless the law or regulations otherwise provide.
Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not informed in writing of the law and
the facts on which it is based. It is, however, silent with regards to a decision on a disputed assessment by the CIR which fails to
state the law and facts on which it is based. This void is filled by RR No. 12-99 where it is stated that failure of the FDDA to reflect
the facts and law on which it is based will make the decision void. It, however, does not extend to the nullification of the entire
assessment.

THE FDDA MUST STATE THE FACTS AND LAW ON WHICH IT IS BASED TO PROVIDE THE TAXPAYER THE
OPPORTUNITY TO FILE AN INTELLIGENT APPEAL

It is undisputed that the FDDA merely showed Liquigaz' tax liabilities without any details on the specific transactions which
gave rise to its supposed tax deficiencies. While it provided for the legal bases of the assessment, it fell short of informing Liquigaz
of the factual bases thereof. Thus, the FDDA as regards the EWT and FBT tax deficiency did not comply with the requirement in
Section 3.1.6 of RR No. 12-99, as amended, for failure to inform Liquigaz of the factual basis thereof.
The CIR erred in claiming that Liquigaz was informed of the factual bases of the assessment because the FDDA made
reference to the PAN and FAN/FLD, which were accompanied by details of the alleged discrepancies. The CTA En Banc highlighted
that the amounts in the FAN and the FDDA were different.
As such, the Court agrees with the tax court that it becomes even more imperative that the FDDA contain details of the
discrepancy. Failure to do so would deprive Liquigaz adequate opportunity to prepare an intelligent appeal. It would have no way of
determining what were considered by the CIR in the: defenses it had raised in the protest to the FLD. Further, without the details of
the assessment, it would open the possibility that the reduction of the assessment could have been arbitrarily or capriciously arrived
at.
The Court, however, finds that the CTA erred in concluding that the assessment on EWT and FBT deficiency was void
because the FDDA covering the same was void. The assessment remains valid notwithstanding the nullity of the FDDA because as
discussed above, the assessment itself differs from a decision on the disputed assessment.

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 As established, an FDDA that does not inform the taxpayer in writing of the facts and law on which it is based renders the
decision void. Therefore, it is as if there was no decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR,
which may still be appealed before the CTA and the assessment evaluated on the basis of the available evidence and documents.
The merits of the EWT and FBT assessment should have been discussed and not merely brushed aside on account of the void
FDDA.
On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of its tax liabilities with regard to its
WTC assessment. As highlighted by the CTA, the basis for the assessment was the same for the FLD and the FDDA, where the
salaries reflected in the ITR and the alphalist were compared resulting in a discrepancy of P9,318,255.84. The change in the
amount of assessed deficiency withholding taxes on compensation merely arose from the modification of the tax rates used— 32%
in the FLD and the effective tax rate of 25.40% in the FDDA. The Court notes it was Liquigaz itself which proposed the rate of
25.40% as a more appropriate tax rate as it represented the effective tax on compensation paid for taxable year 2005.[22] As such,
Liquigaz was effectively informed in writing of the factual bases of its assessment for WTC because the basis for the FDDA, with
regards to the WTC, was identical with the FAN— which had a detail of discrepancy attached to it.
To recapitulate, a "decision" differs from an "assessment" and failure of the FDDA to state the facts and law on which it is
based renders the decision void—but not necessarily the assessment. Tax laws may not be extended by implication beyond the
clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided.

3. Inaction during the 180-day period / Appeal to the Court of Tax Appeals
a. Sec. 228 of the NIRC – Same as above!
b. RR No. 18-2013 dated November 28, 2013 – Same as above!
c. Revised Rules of the CTA, AM No. 05-11-07-CTA dated November 22, 2005, as amended
on September 16, 2008. – See codal‘s Appendix.
d. Lascona Land vs. CIR, GR No. 171251 dated March 5, 2012  BESA
e. RCBC vs. CIR, GR No. 168498 dated April 24, 2007  BUENO
f. PAGCOR vs. BIR, GR No. 208731 dated January 27, 2016  GIBA
g. Fishwealth Canning Corp. vs. CIR, GR No. 179343 dated January 21, 2010  OBNIAL
h. Allied Banking Corporation v. CIR, GR No. 175097, February 5, 2010  VENGCO

LASCONA LAND CO., INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 171251, March 5, 2012
DOCTRINE: Inaction during the 180 day period/ appeal to CTA – upon the lapse of the 180 reglementary period for the CIR to act,
the taxpayer has 2 options, either to appeal the inaction of the CTA or to await a final decision by the Commissioner. To argue that
the proper action for the taxpayer was to appeal the inaction of the CIR after lapse of 180 days within 30 days thereafter would be
inconsistent with Sec. 228 providing two options for the taxpayer, which is to appeal inaction or to await final decision.

FACTS: On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 0000047-93-4075against
Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of
₱753,266.56.
There was inaction by the CIR beyond the 180 reglementary period, of which Lascona also failed to act within the 30 days
period provided under Section 228 of the NIRC.
Petitioners contention: that after the lapse of 180 days, it has the option to either: (1) appeal to the CTA within 30 days
from the lapse of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment even beyond
the 180-day period − in which case, the taxpayer may appeal such final decision within 30 days from the receipt of the said decision.
Corollarily, petitioner posits that when the Commissioner failed to act on its protest within the 180-day period, it had the option to
await for the final decision of the Commissioner on the protest, which it did.
CIR contention: that in case of the inaction by the Commissioner on the protested assessment within the 180-day
reglementary period, petitioner should have appealed the inaction to the CTA. Respondent maintains that due to Lascona's failure to
file an appeal with the CTA after the lapse of the 180-day period, the assessment became final and executory.

ISSUE: Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an
appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of
the NIRC.

RULING: The Court held that In arguing that the assessment became final and executory by the sole reason that petitioner failed to
appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period, respondent, in effect, limited the
remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner
on its protested assessment after the lapse of the 180-day period. This is incorrect
Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to
limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested

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an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses
to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the protested assessment.
It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment, while we reiterate −
the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day
period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA
within 30 days after the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the
application of the other.
Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the protested assessment.
It is imperative that the taxpayers are informed of its action in order that the taxpayer should then at least be able to take recourse to
the tax court at the opportune time
Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the former spoke of an
assessment becoming final, executory and demandable by reason of the inaction by the Commissioner, while the latter referred to
decisions becoming final, executory and demandable should the taxpayer adversely affected by the decision fail to appeal before
the CTA within the prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must prevail over
the revenue regulations.

RCBC v. CIR
G.R. No. 168498, April 24, 2007
DOCTRINE: The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with
jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30
days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-
day period within which to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the
Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely
directory but mandatory and it is beyond the power of the courts to extend the same.
In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final
decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are
mutually exclusive, and resort to one bars the application of the other.

FACTS: Petitioner reiterates its claim that its former counsel‘s failure to file petition for review with the Court of Tax Appeals within
the period (180 days) set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable.

ISSUE: Did petitioner timely filed his its Petition for Review before the CTA, thus, CTA had jurisdiction over the case?

HELD: NO. Petitioner‘ s failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the
disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity
of the assessment and prescription of the Government‘s right to assess.

RULE 8
Procedure in Civil Cases
xxxx
SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a decision, ruling or the inaction of the
Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling
of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a
Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days
after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue
to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims for refund of internal
revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year period
prescribed by law from payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the
Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed
within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by
law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and
failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and

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determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the
courts to extend the same.
In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final
decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are
mutually exclusive, and resort to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission
of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition for
review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period. Consequently, it was
dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence,
the disputed assessment became final, demandable and executory.
Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained unacted
upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court
of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which
was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed
assessment because of the Commissioner‘ s inaction.

PAGCOR v. BIR
GR. NO. 208731, JAN. 27, 2016
DOCTRINE: A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the
CTA within 30 days from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR
within 30 days from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required
supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period

FACTS: PAGCOR provides a car plan for its qualified employees under the 60% of cost is shudder by it and the remaining 40% is
shouldered by the qualified employee. On October 10, 2007, PAGCOR received a post reporting notice from BIR RR6 Manila for
VAT, EWT, and FBT. The VAT and EWT were late on abandoned by the BIR due to the tax exemption of PAGCOR for the same.
Pertinent dates are as follows:
On January 17, 2008, PAGCOR received a FAN for the payment of the FBT in the amount of P48,589,507.65.
On January 24, 2008, PAGCOR protested the said assessment.
On August 14, 2008, PAGCOR elevated its protest to the CIR due to the inaction of the RD of RR6 Manila to its protest.
On September 23, 2008, PAGCR was informed by RR6 Manila that the Legal Division sustained the assessment for the
FBT.
On November 19, 2008, PAGCOR received a letter from RR6 Manila informing it that its protest was forwarded to RDO
33 for appropriate action.
On March 11, 2009, PAGCOR filed a petition for review with the CTA alleging inaction by the BIR on it protest on the FBT
this was raffled to the first division of the CTA.
The First Division ruled in favor of the BIR. According to the CTA, PAGCOR belatedly filed its protest. It should have field
its protest on or before August 21, 2008, which is the 30th day after the 180-day period after it filed its protest with h BOR on
January 24, 2008. Having filed the same with the CTA on March 11, 2009, the same was filed beyond the reglementary period.
On November 23, 2011, PAGCOR filed a petition for review with the CTA enbanc which affirmed the first division
decision. The CTA En Banc ruled that the protest filed before the RD is a valid protest; hence, it was superfluous for PAGCOR to
raise the protest before the CIR. When PAGCOR filed its administrative protest on 24 January 2008, the CIR or her duly authorized
representative had 180 days or until 22 July 2008 to act on the protest. After the expiration of the 180 days, PAGCOR had 30 days
or until 21 August 2008 to assail before the CTA the non-determination of its protest.

ISSUE: Whether te CTA was correct in dismissing PAGCOR‘s petiion.

RULING: The CTA En Bane and 1st Division were correct in dismissing PAGCOR's petition. However, as we shall explain below,
the dismissal should be on the ground of premature, rather than late, filing.
The relevant portions of Section 228 of the NIRC of 1997 provide:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his findings: x x x.

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 xxxx
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the
assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.

Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above, provides:

3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative may protest administratively against the
aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, x x x.

If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days
from date of receipt thereof, the assessment shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax Appeals
within thirty (30) days from the date of receipt of the said decision, otherwise, the assessment shall become final, executory and
demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the
taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the
assessment shall become final executory and demandable: Provided, however, that if the taxpayer elevates his protest to the
Commissioner within thirty (30) days from date of receipt of the final decision of the Commissioner's duly authorized representative,
the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the
Commissioner.
If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty
(180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to
the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise the assessment shall become
final, executory and demandable.
A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the
CTA within 30 days from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR
within 30 days from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required
supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's authorized representative may be appealed to
the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's authorized
representative's failure to act may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the
CIR's authorized representative.
PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR made separate and successive filings
before the RD and the CIR before it filed its petition with the CTA.
In the instant case, PAGCOR failed t0 make use in any of the three periods stated above:
Under the third option described above, even if we grant leeway to PAGCOR and consider its unspecified April 2008
submission, PAGCOR still should have waited for the RD's decision until 27 October 2008, or 180 days from 30 April 2008.
PAGCOR then had 30 days from 27 October 2008, or until 26 November 2008, to file its petition before the CTA. PAGCOR,
however, did not make use of the third option. PAGCOR did not file a petition before the CTA on or before 26 November 2008.
Under the second option, PAGCOR ought to have waited for the RD's whole or partial denial of its protest before it filed an
appeal before the CIR. PAGCOR rendered the second option moot when it formulated its own rule and chose to ignore the clear text
of Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on 13 August 2008 without any decision from the RD, then filed a
petition before the CTA on 11 March 2009. A textual reading of Section 228 and Section 3.1.5 will readily show that neither Section
228 nor Section 3.1.5 provides for the remedy of an appeal to the CIR in case of the RD's failure to act. The third option states that
the remedy for failure to act by the CIR or his authorized representative is to file an appeal to the CTA within 30 days after the lapse
of 180 days from the submission of the required supporting documents. PAGCOR clearly failed to do this.
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to make use of any of the three options
described above. A petition before the CTA may only be made after a whole or partial denial of the protest by the CIR or the

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CIR's authorized representative. When PAGCOR filed its petition before the CTA on 11 March 2009, there was still no denial of
PAGCOR's protest by either the RD or the CIR. Therefore, under the first option, PAGCOR's petition before the CTA had no cause
of action because it was prematurely filed. The CIR made an unequivocal denial of PAGCOR's protest only on 18 July 2011, when
the CIR sought to collect from PAGCOR the amount of P46,589,507.65. The CIR's denial further puts PAGCOR in a bind, because
it can no longer amend its petition before the CTA.

FISHWEALTH CANNING CORP. v. CIR

G.R. No.179343, January 21, 2010
DOCTRINE: Tax Code provides that an assessment may be protested administratively by filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.

FACTS: The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000, ordered the examination
of the internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The investigation disclosed that
petitioner was liable in the amount of ₱2,395,826.88 representing income tax, value added tax (VAT), withholding tax deficiencies
and other miscellaneous deficiencies. Petitioner eventually settled these obligations on August 30, 2000. On August 25, 2000,
respondent reinvestigated petitioner‘s books of accounts and other records of internal revenue taxes covering the same period for
the purpose of which it issued a subpoena duces tecum requiring petitioner to submit its records and books of accounts. Petitioner
requested the cancellation of the subpoena on the ground that the same set of documents had previously been examined. As
petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint against petitioner for violation of Sections 5 (c)
and 266 of the 1997 Internal Revenue Code, which complaint was dismissed for insufficiency of evidence. Respondent sent, on
August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies totalling ₱67,597,336.75 for the taxable
year 1999, which assessment petitioner contested by letter of September 23, 2003. Respondent thereafter issued a Final Decision
on Disputed Assessment dated August 2, 2005, which petitioner received on August 4, 2005, denying its letter of protest, apprising it
of its income tax and VAT liabilities in the amounts of "₱15,396,905.24 and ₱63,688,434.40 [sic], respectively, for the taxable year
1999," and requesting the immediate payment thereof, "inclusive of penalties incident to delinquency." Respondent added that if
petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA) "within thirty (30) days from date of receipt hereof, otherwise
our said deficiency income and value-added taxes assessments shall become final, executory, and demandable.

ISSUE: Whether or not CTA En Banc erred in holding that the petition it filed before the CTA First Division as well as that filed
before it (CTA En Banc) was filed out of time.

RULING: Section 228 of the 1997 Tax Code provides that an assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.
In the case at bar, petitioner‘s administrative protest was denied by Final Decision on Disputed Assessment dated August
2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997
Tax Code, petitioner had 30 days to appeal respondent‘s denial of its protest to the CTA. Since petitioner received the denial of its
administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed
one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal to the CTA. On petitioner‘s final contention that it has a meritorious
case in view of the dismissal of the above-mentioned criminal case filed against it for violation of the 1997 Internal Revenue
Code,19 the same fails. For the criminal complaint was instituted not to demand payment, but to penalize the taxpayer for violation
of the Tax Code.

ALLIED BANKING CORPORATIONS v. CIR

G.R. No. 175097 , February 5, 2010, Del Castillo, J.
DOCTRINE: The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate clearly and
unequivocally to the taxpayer whether an action constitutes a final determination on a disputed assessment. Words must be
carefully chosen in order to avoid any confusion that could adversely affect the rights and interest of the taxpayer.

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FACTS: In April 30, 2004, the BIR issued a Preliminary Assessment Notice (PAN) to petitioner Allied Banking Corporation for
deficiency Documentary Stamp Tax (DST) in the amount of ₱12,050,595.60 and Gross Receipts Tax (GRT) in the amount of
₱38,995,296.76 on industry issue for the taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against
it on May 27, 2004.
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which partly reads as
follows: It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to
delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within 30 days from
receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.
Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004. On September 29, 2004,
petitioner filed a Petition for Review with the CTA which was raffled to its First Division.
Respondent CIR filed his Answer and filed a Motion to Dismiss on the ground that petitioner failed to file an administrative
protest on the Formal Letter of Demand with Assessment Notices. Petitioner opposed.
The First Division of the CTA rendered a Resolution granting respondent‘s Motion to Dismiss. It ruled that it is neither the
assessment nor the formal demand letter itself that is appealable to this Court. It is the decision of the Commissioner of Internal
Revenue on the disputed assessment that can be appealed to this Court. As correctly pointed out by respondent, a disputed
assessment is one wherein the taxpayer or his duly authorized representative filed an administrative protest against the formal letter
of demand and assessment notice within 30 days from date of receipt thereof. Petitioner failed to file an administrative protest on the
formal letter of demand with the corresponding assessment notices. Hence, the assessments did not become disputed assessments
as subject to the Court‘s review under RA No. 9282.
Petitioner appealed the dismissal to the CTA En Banc which found no reversible error in the Resolutions and denied the
Petition for Review. The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in
order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a
taxpayer in challenging the legality or validity of an assessment.

ISSUE: Whether petitioner correctly filed its protest.

HELD: YES. Sec. 228 of the NIRC provides for the procedure for protesting an assessment. It states: ―If the protest is denied in
whole or in part, or is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the CTA within 30 days from receipt of the said decision, or from the lapse of the 180-day period;
otherwise, the decision shall become final, executory and demandable.‖
In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a
Formal Letter of Demand with Assessment Notices. Pursuant to Sec. 228 of the NIRC, the proper recourse of petitioner was to
dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did
not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules,
the dismissal of the Petition for Review by the CTA was proper.
In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment
Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment
Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the
matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a
disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when
his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from
claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.
In the Formal Letter of Demand with Assessment Notices, respondent used the word "appeal" instead of "protest",
"reinvestigation", or "reconsideration". Although there was no direct reference for petitioner to bring the matter directly to the CTA, it
cannot be denied that the word "appeal" under prevailing tax laws refers to the filing of a Petition for Review with the CTA.
As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms "protest", "reinvestigation" and "reconsideration"
refer to the administrative remedies a taxpayer may take before the CIR, while the term "appeal" refers to the remedy
available to the taxpayer before the CTA. Sec. 9 of RA 9282, amending Sec. 11 of RA 1125, likewise uses the term "appeal"
when referring to the action a taxpayer must take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it
then, petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue from
respondent. Besides, any doubt in the interpretation or use of the word "appeal" in the Formal Letter of Demand with
Assessment Notices should be resolved in favor of petitioner, and not the respondent who caused the confusion.
To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Sec. 3 of
BIR RR No. 12-99. It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or
disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen‘s Chinese Girl‘s
School v. Collector of Internal Revenue, that the counting of the 30 days within which to institute an appeal in the CTA commences
from the date of receipt of the decision of the CIR on the disputed assessment, not from the date the assessment was issued.
What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices which was not
administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words
used, specifically the words "final decision" and "appeal", taken together led petitioner to believe that the Formal Letter of Demand

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with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and that the available remedy was to
appeal the same to the CTA.

4. Administrative Appeal with the CIR

a. RR No. 18-2013 dated November 28, 2013 – See previous attachments!

M. Collection / Remedies of the Government

1. Prescriptive period to collect
a. Secs. 222(C) and 222(A) of the 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 proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) 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.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and
the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof
may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the
expiration of the five (5) -year period.
The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period
previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty
law or decree.

2. Administrative remedies / Summary Remedies / Judicial Collection

a. Secs. 205 and 220 of the NIRC

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue taxes, fees
or charges, and any increment thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and
other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real property and
interest in rights to real property; and
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the
collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of tax
involve is not more than One hundred pesos (P100).
The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of
the criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil or
criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof,
as well as of real property and improvements thereon.

SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions and proceedings
instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall
be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal
Revenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code
shall be filed in court without the approval of the Commissioner.

b. Republic vs. Hizon, GR No. 130430 dated December 13, 1997(?)  VILLABLAGON
c. CIR v. Hambrecht & Quist Phils., Inc., GR No. 169225, 11/17/2010  ALANZALON

REPUBLIC v. HIZON
320 SCRA 574, G.R. No. 130430, December 13, 1999

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DOCTRINES:
 Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal
Division of regional district offices to institute the necessary civil and criminal actions for tax collection. As the complaint
filed in this case was signed by the BIR‘s Chief of Legal Division for Region 4 and verified by the Regional Director, there
was, therefore, compliance with the law.
 Sec. 229 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer‘s
receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore,
demandable. The notice of assessment for respondent‘s tax deficiency was issued by petitioner on July 18, 1986. On the
other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she
received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to
avoid the harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her
properties by petitioner‘s agents which took place on January 12, 1989. Even assuming that she first learned of the
deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more
than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period
provided under §223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994,
this is of no moment and does not detract from the fact that the assessment had long become demandable.

FACTS: July 18, 1986, the BIR issued to respondent Hizon a deficiency income tax assessment of P1,113,359.68 covering the
fiscal year 1981-1982. Respondent did not contest the assessment. On January 12, 1989 petitioner served warrants of distraint and
levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More
than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency
assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, BIR filed a case with the Regional
Trial Court to collect the tax deficiency. The complaint was signed by the Chief of the Legal Division, BIR Region 4, and verified by
the Bureau's Regional Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR
Commissioner as required by the National Internal Revenue Code and (2) that the action for collection had already prescribed for
being filed after 3 years from the assessment of tax.
As for the first ground, Petitioner argued that Revenue Administrative Order No. 10-95 specifically authorizes the Litigation
and Prosecution Section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax
collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the
Regional Director, there was, therefore, compliance with the law.
For the second ground, Petitioner argued that, respondent's request for reinvestigation of her tax deficiency assessment
on November 3, 1992 effectively suspended the running of the period of prescription such that the government could still file a case
for tax collection. It also argued that the running of the prescriptive period under §223(c) was suspended when the BIR timely served
the warrants of distraint and levy on respondent on January 12, 1989. Petitioner cites for this purpose the ruling in Advertising
Associates Inc., v. Court of Appeals. Because of the suspension, it is argued that the BIR could still avail of the other remedy under
§223(c) of filing a case in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997.

ISSUES:
1. WHETHER THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS WITHOUT THE APPROVAL
OF THE COMMISSIONER IS IN VIOLATION OF SECTION 221 OF THE NATIONAL INTERNAL REVENUE CODE.
2. WHETHER THE ACTION FOR COLLECTION OF TAXES FILED AGAINST RESPONDENT HAD ALREADY BEEN
BARRED BY THE STATUTE OF LIMITATIONS.

HELD:
1. NO. Administrative issuances that relate solely to carrying into effect the provisions of the law, are valid and have the
force of law. The governing statutory provision in this case is §4(d) of the NIRC which provides:

Specific provisions to be contained in regulations. — The regulations of the Bureau of Internal Revenue shall, among
other things, contain provisions specifying, prescribing, or defining:

(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and
conduct of legal actions and proceedings.

RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes
the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate
official with the rank equivalent to a division chief or higher, subject to certain exceptions therein. None of the exceptions
relates to the Commissioner's power to approve the filing of tax collection cases.

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 2. YES. Sec. 229 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer's
receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore,
demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the
other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she
received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to
avoid the harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her
properties by petitioner's agents which took place on January 12, 1989. Even assuming that she first learned of the
deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it
more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the
prescriptive period provided under §223(c). Although the Commissioner acted on her request by eventually denying it
on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become
demandable.
Moreover, Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is
misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v. Commissioner of Internal
Revenue, is that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax
deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even
after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely
relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not
lost on the Court. Thus, in Advertising Associates, it was held: It should be noted that the Commissioner did not
institute any judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to interrupt the
running of the statute of limitations.
For the foregoing reasons, we hold that petitioner's contention that the action in this case had not prescribed
when filed has no merit. Our holding, however, is without prejudice to the disposition of the properties covered by the
warrants of distraint and levy which petitioner served on respondent, as such would be a mere continuation of the
summary remedy it had timely begun. Although considerable time has passed since then, as held in Advertising
Associates Inc. v. Court of Appeals 17 and Palanca v. Commissioner of Internal Revenue, the enforcement of tax
collection through summary proceedings may be carried out beyond the statutory period considering that such remedy
was seasonably availed of.

COMMISSIONER OF INTERNAL REVENUE v. HAMBRECHT & QUIST PHILIPPINES, INC.

COPIED FROM THE WEDNESDAY CLASS
Topic: Collection/Remedies of the Government: Summary Remedies/Judicial Collection

FACTS: In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue (BIR), through its West-Makati
District Office of its change of business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the 22nd Floor
PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City. Said letter was duly received by the BIR-West Makati
on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter dated October 11, 1993 issued by the
Accounts Receivable/Billing Division of the BIR‘s National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding
for payment of alleged deficiency income and expanded withholding taxes for the taxable year 1989 amounting to ₱2,936,560.87.
On December 3, 1993, respondent, through its external auditors, filed with the same Accounts Receivable/Billing Division
of the BIR‘s National Office, its protest letter against the alleged deficiency tax assessments for 1989 as indicated in the said tracer
letter dated October 11, 1993.
On November 7, 2001, nearly eight (8) years later, respondent‘s external auditors received a letter from herein petitioner
Commissioner of Internal Revenue dated October 27, 2001. The letter advised the respondent that petitioner had rendered a final
decision denying its protest on the ground that the protest against the disputed tax assessment was allegedly filed beyond the 30-
day reglementary period prescribed in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review before the Court of Tax Appeals.
The CTA Original Division held that the subject assessment notice sent by registered mail on January 8, 1993 to
respondent‘s former place of business was valid and binding since respondent only gave formal notice of its change of address on
February 18, 1993. Thus, the assessment had become final and unappealable for failure of respondent to file a protest within the
30-day period provided by law. However, the CTA (a) held that the CIR failed to collect the assessed taxes within the prescriptive
period; and (b) directed the cancellation and withdrawal of the assessment notice.
Petitioner argues that the CTA had no jurisdiction over the case since the CTA itself had ruled that the assessment had
become final and unappealable. Citing Protector‘s Services, Inc. v. Court of Appeals, the CIR argued that, after the lapse of the 30-
day period to protest, respondent may no longer dispute the correctness of the assessment and its appeal to the CTA should be
dismissed. The CIR took issue with the CTA‘s pronouncement that it had jurisdiction to decide "other matters" related to the tax
assessment such as the issue on the right to collect the same since the CIR maintains that when the law says that the CTA has
jurisdiction over "other matters," it presupposes that the tax assessment has not become final and unappealable.

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 Further, CIR insists that its right to collect the tax deficiency it assessed on respondent is not barred by prescription since
the prescriptive period thereof was allegedly suspended by respondent‘s request for reinvestigation.

ISSUES:
1. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO RULE THAT THE GOVERNMENT‘S
RIGHT TO COLLECT THE TAX HAS PRESCRIBED.
2. WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS PRESCRIBED.

HELD:
1.Yes. The jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as amended, and the term "other matters"
referred to by the CIR in its argument can be found in number (1) of the aforementioned provision, to wit:

Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein
provided –
Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue
Code or other law as part of law administered by the Bureau of Internal Revenue.

Plainly, the assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing provision upon which
petitioner‘s theory with regard to the parameters of the term "other matters" can be supported or even deduced. What is rather
clearly apparent, however, is that the term "other matters" is limited only by the qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the appellate jurisdiction of the CTA is not limited
to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers
other cases that arise out of the National Internal Revenue Code (NIRC) or related laws administered by the Bureau of Internal
Revenue (BIR).
In the case at bar, the issue at hand is whether or not the BIR‘s right to collect taxes had already prescribed and that is a
subject matter falling under Section 223(c) of the 1986 NIRC, the law applicable at the time the disputed assessment was made. To
quote Section 223(c):
Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years following the assessment of the tax.
In connection therewith, Section 3 of the 1986 NIRC states that the collection of taxes is one of the duties of the BIR, to
wit:

Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of Internal Revenue shall comprehend the
assessment and collection of all national internal revenue taxes, fees, and charges and the enforcement of all forfeitures, penalties,
and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and
the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police power conferred to it by this
Code or other laws.

Thus, from the foregoing, the issue of prescription of the BIR‘s right to collect taxes may be considered as covered by the term
"other matters" over which the CTA has appellate jurisdiction.
Furthermore, the phraseology of Section 7, number (1), denotes an intent to view the CTA‘s jurisdiction over disputed
assessments and over "other matters" arising under the NIRC or other laws administered by the BIR as separate and independent
of each other. This runs counter to petitioner‘s theory that the latter is qualified by the status of the former, i.e., an "other matter"
must not be a final and unappealable tax assessment or, alternatively, must be a disputed assessment.
Likewise, the first paragraph of Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282, belies
petitioner‘s assertion as the provision is explicit that, for as long as a party is adversely affected by any decision, ruling or inaction of
petitioner, said party may file an appeal with the CTA within 30 days from receipt of such decision or ruling. The wording of the
provision does not take into account the CIR‘s restrictive interpretation as it clearly provides that the mere existence of an adverse
decision, ruling or inaction along with the timely filing of an appeal operates to validate the exercise of jurisdiction by the CTA.
To be sure, the fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed
only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the
assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax
has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to
decide.

2. YES. The pertinent provision of the 1986 NIRC is Section 224, to wit:

Section 224. Suspension of running of statute. – The running of the statute of limitations provided in Sections 203 and 223 on
the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency,

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shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being
assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the statute will not be
suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of
his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.

The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to enforce
collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such request.
Consequently, the mere filing of a protest letter which is not granted does not operate to suspend the running of the period
to collect taxes. In the case at bar, the records show that respondent filed a request for reinvestigation on December 3, 1993,
however, there is no indication that petitioner acted upon respondent‘s protest.
It is evident that the respondent did not conduct a reinvestigation, the protest having been dismissed on the ground that
the assessment has become final and executory. There is nothing in the record that would show what action was taken in
connection with the protest of the petitioner. In fact, petitioner did not hear anything from the respondent nor received any
communication from the respondent relative to its protest, not until eight years later when the final decision of the Commissioner
was issued. In other words, the request for reinvestigation was not granted.

3. No injunction to restrain collection of taxes

a. Sec. 218 of the NIRC

SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

b. Rule 10, Revised Rules of the CTA, AM No. 05-11-07-CTA dated November 22, 2005, as
amended on September 16, 2008.

RULE 10
SUSPENSION OF COLLECTION OF TAX

SECTION 1. No suspension of collection of tax, except as herein prescribed. – No appeal taken to the Court shall suspend the
payment, levy, distraint, or sale of any property of the taxpayer for the satisfaction of his tax liability as provided under existing laws,
except as hereinafter prescribed. (n)

SEC. 2. Who may file. – Where the collection of the amount of the taxpayer‘s liability, sought by means of a demand for payment,
by levy, distraint or sale of any property of the taxpayer, or by whatever means, as provided under existing laws, may jeopardized
the interest of the Government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax
liability. (RCTA, Rule 12, sec. 1a)

SEC. 3. When to file. – The motion for the suspension of the collection of the tax may be filed together with the petition for review or
with the answer, or in a separate motion filed by the interested party at any stage of the proceedings. (RCTA, Rule 12, sec. 2)

SEC. 4. Contents and attachments of the motion. – The motion for the suspension of the collection of the tax shall be verified
and shall state clearly and distinctly the facts and the grounds relied upon in support of the motion. Affidavits and other documentary
evidence in support thereof shall be attached thereto, which, if uncontroverted, would be admissible in evidence as proof of the facts
alleged in the motion. (RCTA, Rule 12, sec. 3a)

SEC. 5. Opposition. – Unless a shorter period is fixed by the Court because of the urgency of the motion, the adverse party shall,
within five days after receipt of a copy of the motion, file an opposition thereto, if any, which shall state clearly and distinctly the facts
and the grounds relied upon in support of the opposition. (RCTA, Rule 12, sec. 4)

SEC. 6. Hearing of the motion. – The movant shall, upon receipt of the opposition, set the motion for hearing at the next available
motion day, and the Court shall give preference to the motion over all other cases, except criminal cases. At the hearing, both
parties shall submit their respective evidence. If warranted, the Court may grant the motion if the movant shall deposit with the Court
an amount in cash equal to the value of the property or goods under dispute or filing with the Court of an acceptable surety bond in
an amount not more than double the disputed amount or value. However, for the sake of expediency, the Court, motu proprio or
upon motion of the parties, may consolidate the hearing of the motion for the suspension of the collection of the tax with the hearing
on the merits of the case. (RCTA, Rule 12, sec. 5a)

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SEC. 7. Corporate surety bonds. – In the selection and qualification of surety companies, the parties and the Court shall be guided
by Supreme Court Circular A.M. No. 04-7-02-SC, dated July 20, 2004. (n)

c. Spouses Pacquiao vs. the CTA, GR No. 213394 dated April 6, 2016  ALMOJUELA
d. Tridharma Marketing Corporation v. CTA, GR No. 215950, June 20, 2016  DELFIN

SPOUSES PACQUIAO v. THE CTA

GR No. 213394 dated April 6, 2016
DOCTRINE: APPEAL WILL NOT SUSPEND THE COLLECTION OF TAX; EXCEPTIONS

FACTS: Manny Pacquiao received a Letter of Authority, dated March 25, 2010, from the Regional District Office (RDO) of the
Bureau of Internal Revenue (BIR) for the examination of his books of accounts and other accounting records for the period covering
January 1, 2008 to December 31, 2008. It was found that Pacquiao failed to file his VAT returns for the years 2008 and 2009.
Furthermore, he also failed to state his US sourced income for the year 2009.
Pursuant to this, the respondent Commissioner on Internal Revenue (CIR) issued another Letter of Authority, dated July
27, 2010 (July LA), authorizing the BIR‘s National Investigation Division (NID) to examine the books of accounts and other
accounting records of both Pacquiao and Jinkee for the last 15 years, from 1995 to 2009.
The spouses countered that they were already subjected to an investigation for the years prior to 2007 and no fraud has
been found. Moreover, they cannot produce the necessary documents pertaining to those years since it was has already been
disposed of and the previous counsels that handled their cases and documents were already dead. Due to this, the CIR resorted to
the best evidence available like third party information sources. Consequently, the CIR issued a Notice of Initial Assessment-
Informal Conference (NIC) informing them that based on the best evidence obtainable, they were liable for deficiency income taxes
in. Subsequently, a Preliminary Assessment Notice (PAN) was issued for deficiency income taxes, but also for their non-payment of
their VAT liabilities. This process continued until the a Final Decision on Disputed Assessment (FDDA) was issued addressed to
Manny only, informing him that the CIR found him liable for deficiency income tax and VAT for taxable years 2008 and 2009 which,
inclusive of interests and surcharges, amounted to a total of P2,261,217,439.92.
The CIR proceeded to affect Warrants of Distraint and Levy and Garnishment on the properties of the petitioners, who in
turn, questioned such collection process in the Court of Tax Appeals.
Before the CTA in division, the petitioners contended that the assessment of the CIR was defective because it was
predicated on its mere allegation that they were guilty of fraud. They also questioned the validity of the attempt by the CIR to collect
deficiency taxes from Jinkee, arguing that she was denied due process. According to the petitioners, as all previous communications
and notices from the CIR were addressed to both petitioners, the FDDA was void because it was only addressed to Pacquiao. They
also contended that the assessment was merely based on the ―best possible sources‖ and not actual transaction documents. Lastly,
they argued that the methods resorted to by the CIR are mere summary in nature and deprives them of due process.
The CTA Second Division issued a decision ordering the CIR to desist from collecting on the deficiency tax assessments
against the petitioners. In its resolution, the CTA noted that the amount sought to be collected was way beyond the petitioners‘ net
worth, which, based on Pacquiao‘s Statement of Assets, Liabilities and Net Worth (SALN), only amounted to P1,185,984,697.00.
Considering that the petitioners still needed to cover the costs of their daily subsistence, the CTA opined that the collection of the
total amount of P3,298,514,894.35 from the petitioners would be highly prejudicial to their interests and should, thus, be suspended
pursuant to Section 11 of R.A. No. 1125, as amended.
However, it also ordered petitioners to deposit the amount of P3,298,514,894.35 or post a bond in the amount of
P4,947,772,341.53, an amount which is clearly beyond Pacquiao‘s net worth. This order was then brought to the Supreme Court
under Rule 65.

ISSUE: Whether or not CTA may issue injunctive writs to restraints collection of taxes.

HELD/RATIO: Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the rule that an appeal to the CTA from the
decision of the CIR will not suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his
tax liability as provided by existing law. When, in the view of the CTA, the collection may jeopardize the interest of the Government
and/or the taxpayer, it may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a
surety bond.
The application of the exception to the rule is the crux of the subject controversy. Specifically, Section 11 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected by a decision, ruling or inaction of
the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal
with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for
action as referred to in Section 7(a)(2) herein‖. xxx
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs
or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry

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and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability as provided by existing law:
Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount
with the Court. xxx

Despite the amendments to the law, the Court still holds that the CTA has ample authority to issue injunctive writs to
restrain the collection of tax and to even dispense with the deposit of the amount claimed or the filing of the required bond,
whenever the method employed by the CIR in the collection of tax jeopardizes the interests of a taxpayer for being patently in
violation of the law. Such authority emanates from the jurisdiction conferred to it not only by Section 11 of R.A. No. 1125, but also by
Section 7 of the same law, which, as amended provides:

SEC. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue; xxx

It is clear that the authority of the courts to issue injunctive writs to restrain the collection of tax and to dispense with the
deposit of the amount claimed or the filing of the required bond is not simply confined to cases where prescription has set in. As
explained by the Court in those cases, whenever it is determined by the courts that the method employed by the Collector of Internal
Revenue in the collection of tax is not sanctioned by law, the bond requirement under Section 11 of R.A. No. 1125 should be
dispensed with. The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to
prevent the absurd situation wherein the court would declare ―that the collection by the summary methods of distraint and levy was
violative of law, and then, in the same breath require the petitioner to deposit or file a bond as a prerequisite for the issuance of a
writ of injunction.‖

TRIDHARMA MARKETING CORPORATION v. CTA & COMM’R OF INTERNAL REVENUE

G.R. No. 215950, June 20, 2016
DOCTRINES:
 The CTA may order the suspension of the collection of taxes provided that the taxpayer either: (1) deposits the amount
claimed; or (2) files a surety bond for not more than double the amount.
 It becomes imperative to reiterate the principle that the power to tax is not the power to destroy. In Philippine Health Care
Providers, Inc. v. Commissioner of Internal Revenue, the Court has stressed that: As a general rule, the power to tax is an
incident of sovereignty and is 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 is to pay it.
So potent indeed is the power that it was once opined that the power to tax involves the power to destroy.

FACTS: On August 16, 2013, the petitioner received a Preliminary Assessment Notice (PAN) from the Bureau of Internal Revenue
(BIR) assessing it with various deficiency taxes - income tax (IT), value-added tax (VAT), withholding tax on compensation (WTC),
expanded withholding tax (EWT) and documentary stamp tax (DST) - totalling P4,640,394,039.97, inclusive of surcharge and
interest. A substantial portion of the deficiency income tax and VAT arose from the complete disallowance by the BIR of the
petitioner's purchases from Etheria Trading in 2010 amounting to P4,942,937,053.82. The petitioner replied to the PAN through its
letter dated August 30, 2013.
On September 23, 2013, the petitioner received from the BIR a Formal Letter of Demand assessing it with deficiency
taxes for the taxable year ending December 31, 2010 amounting to P4,697,696,275.25, inclusive of surcharge and interest. It filed a
protest against the formal letter of demand. Respondent Commissioner of Internal Revenue (CIR) required the petitioner to submit
additional documents in support of its protest, and the petitioner complied.
On February 28, 2014, the petitioner received a Final Decision on Disputed Assessment
The petitioner filed with the CIR a protest through a Request for Reconsideration. However, the CIR rendered a decision
dated May 26, 2014 denying the request for reconsideration.
Prior to the CIR's decision, the petitioner paid the assessments corresponding to the WTC, DST and EWT deficiency
assessments, inclusive of interest, amounting to P5,836,786.10. It likewise reiterated its offer to compromise the alleged deficiency
assessments on IT and VAT.
On June 13, 2014, the petitioner appealed the CIR's decision to the CTA via its so-called Petition for Review with Motion
to Suspend Collection of Tax which was granted.
The petitioner filed its Motion for Partial Reconsideration praying, among others, for the reduction of the bond to an
amount it could obtain.

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 On December 22, 2014, the CTA in Division issued its second assailed resolution reducing the amount of the petitioner's
surety bond to P4,467,391,881.76, which was the equivalent of the BIR's deficiency assessment for IT and VAT.
Hence, the petitioner has commenced this special civil action for certiorari.

ISSUE: W/N or note the CTA may order the suspension of collection of taxes.

HELD: YES. Section 11 of Republic Act No. 1125 (R.A. No. 1125), as amended by Republic Act No. 9282 (RA 9282) it is stated
that:

Sec. 11. Who may appeal; effect of appeal. — x x x

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

Clearly, the CTA may order the suspension of the collection of taxes provided that the taxpayer either: (1) deposits the
amount claimed; or (2) files a surety bond for not more than double the amount.
The Court holds, however, that the CTA in Division gravely abused its discretion under Section 11 because it fixed the
amount of the bond at nearly five times the net worth of the petitioner without conducting a preliminary hearing to ascertain whether
there were grounds to suspend the collection of the deficiency assessment on the ground that such collection would jeopardize the
interests of the taxpayer. Although the amount of P4,467,391,881.76 was itself the amount of the assessment, it behoved the CTA
in Division to consider other factors recognized by the law itself towards suspending the collection of the assessment, like whether
or not the assessment would jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in determining the
liability of the taxpayer was legal and valid. Simply prescribing such high amount of the bond like the initial 150% of the deficiency
assessment of P4,467,391,881.76 (or P6,701,087,822.64), or later on even reducing the amount of the bond to equal the deficiency
assessment would practically deny to the petitioner the meaningful opportunity to contest the validity of the assessments, and would
likely even impoverish it as to force it out of business.
At this juncture, it becomes imperative to reiterate the principle that the power to tax is not the power to destroy. In
Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, the Court has stressed that: As a general rule, the
power to tax is an incident of sovereignty and is 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 is to pay it.
So potent indeed is the power that it was once opined that the power to tax involves the power to destroy.

N. Claims for refund and credit of taxes

1. Taxpayer / Withholding Agent / Proper Party to file the claim for refund
a. CIR vs. Smart Communications, Inc., GR Nos. 179045-46, August 25, 2010  GARCIA
b. Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist and Supervisors
Union, GR No. 204142 dated November 19, 2014  GONZALES
c. Diageo Philippines, Inc. vs. CIR, GR No. 183553. (Perlas-Bernabe)  PALMIANO
d. PAL vs. CIR, GR No. 198759 dated July 1, 2013. (Perlas-Bernabe)  QUILANG

COMMISSIONER OF INTERNAL REVENUE v. SMART COMMUNICATIONS, INC.

G.R. No. 179045-46, August 25, 2010, Del Castillo, J.
DOCTRINE: Sections 204(c) and 229 of the National Internal Revenue Code (NIRC) provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The Commissioner may – (C)
Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue
stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit
or refund.

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner

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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.

FACTS: Smart Communication (Smart for brevity), is a domestic corporation and duly registered with the Board of Investment.
Respondent Smart entered into three agreements for Programming and Consultancy Services with PRISM Transactive, a
non-resident corporation duly organized and existing under the law of Malaysia. Under the agreement, PRISM was to provide
programming and consultancy service for the installation of SDM and CM, for the implementation of SIM.
PRISM billed respondent of US$547822.45 and respondent withheld the 25% royalty tax of US$136,955.61.
Respondent filed a claim of refund with the BIR of the amount PhP7,008,840. Respondent claim that it is entitled to a
refund because the payment made to PRISM are not royalties but business profits pursuant to the definition of royalties under the
RP-Malaysia Tax Treaty.
Due to the failure of the petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent filed
a Petition for Review with the CTA, docketed as CTA Case No. 6782 which was raffled to its Second Division.
In a Decision dated February 23, 2006, the Second Division of the CTA upheld respondent‘s right, as a withholding agent,
to file the claim for refund. However, as to the claim for refund, the Second Division found respondent entitled only to a partial
refund. Although it agreed with respondent that the payments for the CM and SIM Application Agreements are "business profits,"
and therefore, not subject to tax under the RP-Malaysia Tax Treaty, the Second Division found the payment for the SDM Agreement
a royalty subject to withholding tax. Accordingly, respondent was granted refund in the amount of ₱3,989,456.43.
Both parties moved for partial reconsideration, but the CTA Second Division denied the motions in a Resolution dated July
18, 2006.
On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial refund granted to respondent. In sustaining
respondent‘s right to file the claim for refund, the CTA En Banc said that although respondent "and Prism are unrelated entities,
such circumstance does not affect the status of [as a party-in-interest [as its legal interest] is based on its direct and independent
liability under the withholding tax system." The CTA En Banc also concurred with the Second Division‘s characterization of the
payments made to Prism, specifically that the payments for the CM and SIM Application Agreements constitute "business profits,"
while the payment for the SDM Agreement is a royalty.
Only petitioner sought reconsideration of the Decision. The CTA En Banc, however, found no cogent reason to reverse its
Decision, and thus, denied petitioner‘s motion for reconsideration in a Resolution dated July 31, 2007. Hence, this Petition.

ISSUE: Whether or Not respondent has the right to file the claim for refund.

HELD: Withholding agent may file a claim for refund.

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.
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.
Pursuant to the foregoing, the person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does
not file a claim for refund, the withholding agent may file the claim. A withholding agent was considered a proper party to file a claim
for refund of the withheld taxes of its foreign parent company.
Relation between the taxpayer and the withholding agent is a factor that increases the latter‘s legal interest to file a claim
for refund, there is nothing in the decision to suggest that such relationship is required or that the lack of such relation deprives the
withholding agent of the right to file a claim for refund. Rather, what is clear in the decision is that a withholding agent has a legal
right to file a claim for refund for two reasons. First, he is considered a "taxpayer" under the NIRC as he is personally liable for the
withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally
found to be less than the amount that should have been withheld under law. Second, as an agent of the taxpayer, his authority to file
the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for
refund and to bring an action for recovery of such claim.
In this connection, it is however significant to add that while the withholding agent has the right to recover the taxes
erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the
taxpayer, it is his duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the
principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund.

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 As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue cited by the petitioner, we find the same
inapplicable as it involves excise taxes, not withholding taxes. In that case, it was ruled that 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."
In view of the foregoing, we find no error on the part of the CTA in upholding respondent‘s right as a withholding agent to
file a claim for refund.

HONDA CARS PHILIPPINES INC v. HONDA CARS TECHNICAL SPECIALISTS

ANDSUPERVISORS UNION
Nov 19, 2014 | Brion, J.
FACTS: Honda Cars Philippines, Inc (company) and respondent union, the exclusive collective bargaining representative of the
company‘s supervisors and technical specialists, entered into a CBA effective April 1, 2006 to March 31, 2011.Prior to April 1, 2005,
the union members were receiving a transportation allowance (Php3,300/month). But was later converted to a monthly gasoline
allowance.
The allowance answers for the gasoline consumed by the union members for official business purposes and for home to
office travel and vice-versa.
The company claimed that the grant of the gasoline allowance is tied up to a similar company policy for managers and
assistant vice-presidents (AVPs), which provides that In the event the amount of gasoline is not fully consumed, the gasoline not
used may be converted into cash, subject to whatever tax may be applicable.
Since the cash conversion is paid in the monthly payroll as an excess gas allowance, the company considers the amount
as part of the managers' and AVPs' compensation that is subject to income tax on compensation.
The company deducted from the union members‘ salaries the withholding tax corresponding to the conversion to cash of
unused gasoline allowance.
UNION: the gasoline allowance is a ―negotiated item‖ under the CBA on fringe benefits.
Company should not have treated the gasoline allowance as part of compensation income. The issue was submitted to
the panel of voluntary arbitrators as required by the CBA Voluntary Arbitrators: the cash conversion of the unused gasoline
allowance enjoyed by the members of the union is a fringe benefit subject to the fringe benefit tax, NOT income tax.CA: upheld the
VA decision. Cash conversion of the unused gasoline allowance is a fringe benefit granted under the CBA and should not have
been subject to withholding tax.
It is undisputed that the reason behind the grant of the gasoline allowance to the union members is primarily for the
convenience and advantage of Honda, their employer. The gasoline allowance orthe cash conversion is not subject to fringe benefit
tax.

ISSUE: WON the Voluntary Arbitrator has jurisdiction to settle tax matters - NO

VA ’s jurisdiction is limited to labor disputes

The Labor Code vests the VA original and exclusive jurisdiction to hear and decide all unresolved grievances arising from
the interpretation or implementation of the CBA and those arising from the interpretation or enforcement of company personnel
policies. Upon agreement of the parties, the VA shall also hear and decide all other labor disputes, including ULP and bargaining
deadlocks.
Labor dispute - any controversy or matter concerning terms and conditions of employment or the association or
representation of persons in negotiating fixing maintaining changing or arranging the terms and conditions or employment
regardless of whether the disputants stand in the proximate relation of employer and employee.
The VA has no competence to rule on the taxability of the gas allowance and on the propriety of the withholding of tax,
which are tax matters and do not involve labor disputes.
They do not require the application of the Labor Code or the interpretation of company personnel policies. CIR has the
exclusive and original jurisdiction to interpret the provisions of the NIRC and other tax laws. The union/company should have
requested fora tax ruling from the BIR for clarification.

DIAGEO PHILIPPINES, INC. v. CIR

GR No.
DOCTRINE: The statutory taxpayer is the proper party to claim refund of indirect taxes. A statutory taxpayer is the person on whom
the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.

FACTS: Diageo is a domestic corporation engaged in the business of importing, exporting, manufacturing, marketing, distributing,
buying and selling, by wholesale, all kinds of beverages and liquors. Diageo purchased raw alcohol. The supplier imported the raw
alcohol and paid the related excise taxes thereon. The purchase price for the raw alcohol included, among others, the excise taxes

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paid by the supplier. Within 2 years from the time the supplier paid the subject excise taxes, Diageo filed with the BIR applications
for tax refund/issuance of tax credit certificates corresponding to the excise taxes which its supplier paid but passed on to it as part
of the purchase price of the subject raw alcohol invoking Section 130(D) of the Tax Code. The BIR failed to act upon Diageo‘s
claims. The CTA Second Division issued a Resolution dismissing the petition on the ground that Diageo is not the real party in
interest to file the claim for refund. The CTA En Banc affirmed the ruling of the CTA Second Division.

ISSUE: Whether Diageo has the legal personality to file a claim for refund or tax credit

HELD: None. Diageo bases its claim for refund on Section 130 of the Tax Code which reads:

Section 130.Filing of Return and Payment of Excise Tax on Domestic Products. – xxx
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax.-
(1) Persons Liable to File a Return. – Every person liable to pay excise tax imposed under this Title shall file a separate return for
each place of production setting forth, among others, the description and quantity or volume of products to be removed, the
applicable tax base and the amount of tax due thereon; Provided however, That in the case of indigenous petroleum, natural gas or
liquefied natural gas, the excise tax shall be paid by the first buyer, purchaser or transferee for local sale, barter or transfer, while
the excise tax on exported products shall be paid by the owner, lessee, concessionaire or operator of the mining claim.Should
domestic products be removed from the place of production without the payment of the tax, the owner or person having possession
thereof shall be liable for the tax due thereon.
xxxx
(D) Credit for Excise tax on Goods Actually Exported.- When goods locally produced or manufactured are removed and actually
exported without returning to the Philippines, whether so exported in their original state or as ingredients or parts of any
manufactured goods or products, any excise tax paid thereon shall be credited or refunded upon submission of the proof of actual
exportation and upon receipt of the corresponding foreign exchange payment: Provided, That the excise tax on mineral products,
except coal and coke, imposed under Section 151 shall not be creditable or refundable even if the mineral products are actually
exported.

A reading of the foregoing provision, however, reveals that contrary to the position of Diageo, the right to claim a refund or
be credited with the excise taxes belongs to its supplier. The phrase "any excise tax paid thereon shall be credited or refunded"
requires that the claimant be the same person who paid the excise tax. In Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal
Revenue, the Court has categorically declared that "[t]he 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."
Excise taxes partake of the nature of indirect taxes when it is passed on to the subsequent purchaser. Indirect taxes are defined as
those wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted to another person.
When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part
of the price of goods sold or services rendered.
Accordingly, when the excise taxes paid by the supplier were passed on to Diageo, what was shifted is not the tax per se
but an additional cost of the goods sold. Thus, the supplier remains the statutory taxpayer even if Diageo, the purchaser, actually
shoulders the burden of tax.
Relevant is Section 204(C) of the Tax Code which provides:

Section 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes.- The Commissioner may -
xxxx
(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 refined 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.

Pursuant to the foregoing, the person entitled to claim a tax refund is the statutory taxpayer or the person liable for or
subject to tax. In the present case, it is not disputed that the supplier of Diageo imported the subject raw alcohol, hence, it was the
one directly liable and obligated to file a return and pay the excise taxes under the Tax Code before the goods or products are
removed from the customs house. It is, therefore, the statutory taxpayer as contemplated by law and remains to be so, even if it
shifts the burden of tax to Diageo. Consequently, the right to claim a refund, if legally allowed, belongs to it and cannot be
transferred to another, in this case Diageo, without any clear provision of law allowing the same.
Unlike the law on Value Added Tax which allows the subsequent purchaser under the tax credit method to refund or credit
input taxes passed on to it by a supplier, no provision for excise taxes exists granting non-statutory taxpayer like Diageo to claim a
refund or credit. It should also be stressed that when the excise taxes were included in the purchase price of the goods sold to
Diageo, the same was no longer in the nature of a tax but already formed part of the cost of the goods.

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 Finally, statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the
taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken.
Unfortunately, Diageo failed to meet the burden of proof that it is covered by the exemption granted under Section 130(D) of the Tax
Code.
In sum, Diageo, not being the party statutorily liable to pay excise taxes and having failed to prove that it is covered by the
exemption granted under Section 130(D) of the Tax Code, is not the proper party to claim a refund or credit of the excise taxes paid
on the ingredients of its exported locally produced liquor.

PHILIPPINE AIRLINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 198759, July 01, 2013
DOCTRINE: The law confers an exemption from both direct and indirect taxes, a claimant is entitled If to a tax refund even if it only
bears the economic burden of the applicable tax.

FACTS: Caltex Philippines, Inc. (―Caltex‖) imported Jet A-1 fuel for which it pad excise taxes. Caltex sold the fuel to Philippine
Airlines, Inc. (PAL), for which Caltex issued a billing including the amount of excise tax paid on the imported fuel. PAL filed a claim
for refund with the BIR, seeking the refund of the excise taxes passed on to it by Caltex. PAL hinged its claim on its franchise, PD
No, 1590, which conferred upon it certain tax exemption privileges on its purchase and/or importation of aviation gas, fuel and oil,
including those which are passed on to it by the seller and/or importer thereof. Due to BIR‘s inaction, PAL filed a petition with the
CTA. Relying on the case of Silkair(Singapore) Pte. Ltd. vs. CIR1 , the CTA denied PAL‘s petition on the ground that only a statutory
taxpayer (Caltex, in this case) may seek a refund of the excise tax it paid. Even if the tax burden was shifted to PAL, the latter
cannot be deemed the statutory taxpayer.

ISSUE: whether PaL can claim for refund

HELD: On appeal to the Supreme Court, the Court ruled that while the NIRC mandates the manufacturer/producer of goods
manufactured or produced in the Philippines and the importer and the owner/importer of imported goods as the persons to pay
theapplicable excise taxes directly to the government, they may, however, shift theeconomic burden of such payments to someone
else – usually the purchaser of thegoods – since excise taxes are considered as a kind of indirect tax. Even if thepurchaser
effectively pays the tax, the manufacturers/producers 1 or theowners/importers are still regarded as the statutory taxpayers. Section
204(c) of theNIRC states that it is the statutory taxpayer which has the legal personality to file aclaim for refund. Accordingly, in
cases involving excise tax exemptions on petroleum products underSection 135 of the NIRC, it is the statutory taxpayer who is
entitled to claim a tax refundand not the party who merely bears its economic burden. However, this rule does notapply to instances
where the law clearly grants the party to which the economic burdenof tax is shifted an exemption from both direct and indirect
taxes. In which case, thelatter must be allowed to claim a tax refund even if it is not considered as the statutorytaxpayer. if the law
confers an exemption from both direct and indirect tax, a claimant isentitled to a refund even if it only bears the economic burden of
the applicable tax. onthe other hand, if the exemption conferred by law applies to direct taxes, then thestatutory taxpayer is regarded
as the proper party to file the refund claim.

2. Requisites for a valid claim for refund / Creditable Withholding Tax Cases
a. CIR vs. Meralco, GR No. 181459 dated June 9, 2014
b. CIR vs. Far East Bank, GR No. 173854 March 15, 2010  TABABA
c. Metrobank vs. CIR, GR No. 182582 dated April 17, 2017. (Perlas-Bernabe)  TATOY

COMMISSIONER OF INTERNAL REVENUE, v. MANILA ELECTRIC COMPANY (MERALCO)

G.R. No. 181459, June 9, 2014, PERALTA, J.:
COPIED FROM THE WEDNESDAY CLASS
TOPIC: Requisites for a valid claim for refund/ creditable withholding tax cases

DOCTRINE: As can be gleaned from the foregoing, the prescriptive period provided is mandatory regardless of any supervening
cause that may arise after payment. It should be pointed out further that while 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. As aptly held by the CTA-First
Division, there is no basis that the subject exemption was provided and ascertained only through BIR Ruling No. DA-342-2003,
since said ruling is not the operative act from which an entitlement of refund is determined. In other words, the BIR is tasked only to
confirm what is provided under the Tax Code on the matter of tax exemptions as well as the period within which to file a claim for
refund.

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FACTS: MERALCO obtained loan from Norddeutsche Landesbank Girozentrale (NORD/LB) Singapore Branch in the amount of
USD120,000,000.00 with ING Barings South East Asia Limited (ING Barings) as the Arranger. On September 4, 2000, respondent
MERALCO executed another loan agreement with NORD/LB Singapore Branch for a loan facility in the amount of
USD100,000,000.00 with Citicorp International Limited as Agent.
Under the foregoing loan agreements, the income received by NORD/LB, by way of respondent MERALCO‘s interest
payments, shall be paid in full without deductions, as respondent MERALCO shall bear the obligation of paying/remitting to the BIR
the corresponding ten percent (10%) final withholding tax. Pursuant thereto, respondent MERALCO paid/remitted to the Bureau of
Internal Revenue (BIR) the said withholding tax on its interest payments to NORD/LB Singapore Branch, covering the period from
January 1999 to September 2003 in the aggregate sum of ₱264,120,181.44.
Upon discovering that NORD/LB is Singapore Branch is a foreign government-owned financing institution of Germany,
MERALCO filed a request for a BIR Ruling with petitioner Commissioner of Internal Revenue (CIR) with regard to the tax exempt
status of NORD/LB Singapore Branch, in accordance with Section 32(B)(7)(a) of the 1997 NIRC. BIR in turn, issued a ruling
declaring that the interest payments made to NORD/LB Singapore Branch are exempt from the ten percent (10%) final withholding
tax, since it is a financing institution owned and controlled by the foreign government of Germany.
Relying on said ruling, MERALCO filed with the BIR a claim for tax refund or issuance of tax credit certificate in the
aggregate amount of ₱264,120,181.44, representing the erroneously paid or overpaid final withholding tax on interest payments
made to NORD/LB Singapore Branch. BIR however, denied its claim for tax refund on the basis that the same had already
prescribed under Section 204 of the Tax Code, which gives a taxpayer/claimant a period of two (2) years from the date of payment
of tax to file a claim for refund before the BIR.
The CTA First Division Ruling: It partially granted MERALCO‘s petition for review. This was also upheld by the CTA En
Banc.

ISSUE: Whether or not MERALCO is entitled to a tax refund/credit lative to its payment of final withholding taxes on interest
payments made to NORD/LB from January 1999 to September 2003.

HELD: we are of the considered view that respondent MERALCO has shown clear and convincing evidence that NORD/LB is
owned, controlled or enjoying refinancing from the Federal Republic of Germany, a foreign government, pursuant to Section
32(B)(7)(a) of the Tax Code, as amended, which provides that:

Section 32. Gross Income. –

x x x x.
(B) Exclusions from Gross Income. −The following items shall not be included in gross income and shall be exempt
from taxation under this title:
xxxx
(7) Miscellaneous Items. −
(a) Income Derived by Foreign Government. − Income derived from investments in the Philippines in loans, stocks, bonds or
other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions
owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions
established by foreign governments.
x x x x.

Notwithstanding the foregoing, however, we uphold the ruling of the CTA En Banc that the claim for tax refund in the
aggregate amount of Thirty-Nine Million Three Hundred Fifty-Nine Thousand Two Hundred Fifty-Four Pesos and Seventy-Nine
Centavos (₱39,359,254.79) pertaining to the period from January 1999 to July2002 must fail since the same has already prescribed
under Section 229 of the Tax Code, to wit:

Section 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.

As can be gleaned from the foregoing, the prescriptive period provided is mandatory regardless of any supervening cause
that may arise after payment. It should be pointed out further that while 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

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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. As aptly held by the CTA-First
Division, there is no basis that the subject exemption was provided and ascertained only through BIR Ruling No. DA-342-2003,
since said ruling is not the operative act from which an entitlement of refund is determined. In other words, the BIR is tasked only to
confirm what is provided under the Tax Code on the matter of tax exemptions as well as the period within which to file a claim for
refund.
In this regard, petitioner is misguided when it relied upon the six (6)-year prescriptive period for initiating an action on the
ground of quasi contract or solutio indebiti under Article 1145 of the New Civil Code. There is solutio indebiti where: (1) payment is
made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment;
and (2) the payment is made through mistake, and not through liberality or some other cause. Here, there is a binding relation
between petitioner as the taxing authority in this jurisdiction and respondent MERALCO which is bound under the law to act as a
withholding agent of NORD/LB Singapore Branch, the taxpayer. Hence, the first element of solutio indebitiis lacking. Moreover, such
legal precept is inapplicable to the present case since the Tax Code, a special law, explicitly provides for a mandatory period for
claiming a refund for taxes erroneously paid.
Tax refunds are based on the general premise that taxes have either been erroneously or excessively paid. Though the
Tax Code recognizes the right of taxpayers to request the return of such excess/erroneous payments from the government, they
must do so within a prescribed period. Further, "a taxpayer must prove not only his entitlement to a refund, but also his compliance
with the procedural due process as non-observance of the prescriptive periods within which to file the administrative and the judicial
claims would result in the denial of his claim." In the case at bar, respondent MERALCO had ample opportunity to verify on the tax-
exempt status of NORD/LB for purposes of claiming tax refund. Even assuming that respondent MERALCO could not have
emphatically known the status of NORD/LB, its supposition of the same was already confirmed by the BIR Ruling which was issued
on October 7, 2003. Nevertheless, it only filed its claim for tax refund on July 13, 2004, or ten (10) months from the issuance of the
aforesaid Ruling. We agree with the CTA-First Division, therefore, that respondent MERALCO's claim for refund in the amount of
Two Hundred Twenty-Four Million Seven Hundred Sixty Thousand Nine Hundred Twenty-Six Pesos and Sixty-Five Centavos
(₱224,760,926.65) representing erroneously paid and remitted final income taxes for the period January 1999 to July 2002 should
be denied on the ground of prescription.

CIR v. FAR EAST BANK

GR No. 173854 March 15, 2010
DOCTRINE: A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: 1)
The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the
return that the income received was declared as part of the gross income; and 3) The fact of withholding must be established by a
copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.
Based on the entries in the return, the income derived from rentals and sales of real property upon which the creditable
taxes were withheld were not included in respondent‘s gross income as reflected in its return. Since no income was reported, it
follows that no tax was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the income upon which any
creditable tax is required to be withheld at the source.
The fact that the petitioner failed to present any evidence or to refute the evidence presented by respondent does not ipso
facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a taxpayer‘s claim for refund. Rather, the
burden of establishing the factual basis of a claim for a refund rests on the taxpayer.
And while the petitioner has the power to make an examination of the returns and to assess the correct amount of tax, his
failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still
present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund.

FACTS: On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two Corporate Annual Income Tax Returns,
one for its Corporate Banking Unit (CBU)4 and another for its Foreign Currency Deposit Unit (FCDU),5 for the taxable year ending
December 31, 1994. The return for the CBU consolidated the respondent‘s overall income tax liability for 1994, which reflected a
refundable income tax of P12,682,864.00.
Pursuant to Section 697 of the old National Internal Revenue Code (NIRC), the amount of P12,682,864.00 was carried
over and applied against respondent‘s income tax liability for the taxable year ending December 31, 1995. On April 15, 1996,
respondent filed its 1995 Annual Income Tax Return, which showed a total overpaid income tax in the amount of P17,443,133.00,
detailed as follows:
Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be refunded by respondent. As to
the remaining P3,798,024.00, respondent opted to carry it over to the next taxable year.
On May 17, 1996, respondent filed a claim for refund of the amount of P13,645,109.00 with the BIR. Due to the failure of
petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent was compelled to bring the matter to
the CTA on April 8, 1997 via a Petition for Review docketed as CTA Case No. 5487.
FEBTC submitted its ITR for 1994 and 1995 for CBU and FCDU, Certificates of Creditable tax withheld, monthly
remittance returns of income taxes issued by various withholding agents. BIR did not present any evidence.

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 CTA—rendered a decision denying FEBTC‘s claim for refund on the ground that it failed to show that the income derived
from rentals and sale of property form with the taxes were withheld were reflected in its 1994 annual ITR. FEBTC filed a motion for
new trial based on excusable negligence and to present additional evidence to support its claim. It was denied by the CTA.
CA—FEBTC has duly proven that the income derived from rentals and sale of of real property upon which the taxes were
withheld were included in the return as part of the gross income.

ISSUE/S: WON the respondent has proved its entitlement to refund?

RULING: No. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:
1. The claim must be filed with the CIR within the two-year period from the date of payment of the tax;
2. It must be shown on the return that the income received was declared as part of the gross income; and
3. The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the
amount paid and the amount of the tax withheld.

There is no dispute that respondent complied with the first requirement. However, respondent failed to prove that the
income derived from rentals and sale of real property were included in the gross income as reflected in its return. To establish the
fact of withholding, respondent submitted Certificates of Creditable Tax Withheld at Source and Monthly Remittance Returns of
Income Taxes Withheld, which pertain to rentals and sales of real property, respectively. However, a perusal of respondent‘s 1994
Annual Income Tax Return shows that the gross income was derived solely from sales of services. In fact, the phrase ―NOT
APPLICABLE‖ was printed on the schedules pertaining to rent, sale of real property, and trust income. Thus, based on the entries in
the return, the income derived from rentals and sales of real property upon which the creditable taxes were withheld were not
included in respondent‘s gross income as reflected in its return. Since no income was reported, it follows that no tax was withheld.
To reiterate, it is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax is required to be
withheld at the source.
Also, respondent failed to present all the Certificates of Creditable Tax Withheld at Source. The CA likewise failed to
consider in its Decision the absence of several Certificates of Creditable Tax Withheld at Source. It immediately granted the refund
without first verifying whether the fact of withholding was established by the Certificates of Creditable Tax Withheld at Source as
required under Section 10 of Revenue Regulation No. 6-85. As correctly pointed out by the CTA, the certifications (Exhibit UU)
issued by respondent cannot be considered in the absence of the required Certificates of Creditable Tax Withheld at Source.

METROPOLITAN BANK & TRUST COMPANY v. THE COMM’R OF INTERNAL REVENUE

G.R. No. 182582.* April 17, 2017
DOCTRINES:
1. Section 204 of the National Internal Revenue Code, as amended, provides the CIR with, inter alia, the authority to grant
tax refunds. Pertinent portions of which read: Section 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes.—The Commissioner may — x x x x (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.
2. A claimant for refund must first file an administrative claim for refund before the CIR, prior and judicial claim before the
CTA. Notably, both the administrative and judicial claims for refund should be filed within two (2)- year prescriptive period
indicated therein, and that the claimant is allowed to file the latter even without waiting for the resolution of the former in
order to prevent the forfeiture of its claim through prescription. In this regard, case law states that ―the primary purpose of
filing an administrative claim [is] to serve as a notice of warning to the CIR that court action would follow unless the tax or
penalty alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code — then
Section 306 of the old Tax Code — however does not mean that the taxpayer must await the final resolution of its
administrative claim for refund, since doing so would be tantamount to the taxpayer‘s forfeiture of its right to seek judicial
recourse should the two (2)-year prescriptive period expire without the appropriate judicial claim being filed.‖

FACTS: On June 5, 1997, Solidbank Corporation (Solidbank) entered into an agreement with Luzon Hydro Corporation (LHC),
whereby the former extended to the latter a foreign currency denominated loan in the principal amount of US$123,780,000.00
(Agreement). Pursuant to the Agreement, LHC is bound to shoulder all the corresponding internal revenue taxes required by law to
be deducted or withheld on the said loan, as well as the filing of tax returns and remittance of the taxes withheld to the Bureau of
Internal Revenue (BIR). On September 1, 2000, Metrobank acquired Solidbank, and consequently, assumed the latter‘s rights and
obligations under the aforesaid Agreement.

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 On March 2, 2001 and October 31, 2001, LHC paid Metroban the total amounts of US$1,538,122.17 and
US$1,333,268.31, respectively. Pursuant to the Agreement, LHC withheld, and eventually paid to the BIR, the ten percent (10%)
final tax on the interest portions of the aforesaid payments, on the same months that the respective payments were made to
petitioner. In sum, LHC remitted a total of US$106,178.69, or its Philippine Peso equivalent of P5,296,773.05, as evidenced by
LHC‘s Schedules of Final Tax and Monthly Remittance Returns for the said months.
According to Metrobank, it mistakenly remitted the aforesaid amounts to the BIR as well when they were inadvertently
included in its own Monthly Remittance Returns of Final Income Taxes Withheld for the months of March 2001 and October 2001.
Thus, on December 27, 2002, it filed a letter to the BIR requesting for the refund thereof. Thereafter and in view of respondent the
Commissioner of Internal Revenue‘s (CIR) inaction, Metrobank filed its judicial claim for refund via a petition for review filed before
the CTA on September 10, 2003, docketed as CTA Case No. 6765.
In defense, the CIR averred that: (a) the claim for refund is subject to administrative investigation; (b) Metrobank must
prove that there was double payment of the tax sought to be refunded; (c) such claim must be filed within the prescriptive period laid
down by law; (d) the burden of proof to establish the right to a refund is on the taxpayer; and (e) claims for tax refunds are in the
nature of tax exemptions, and as such, should be construed strictissimi juris against the taxpayer.
CTA Division Ruling - denied Metrobank‘s claims for refund for lack of merit.
Metrobank moved for reconsideration,17 which was partially granted in a Resolution18 dated November 14, 2007, and
thus, was allowed to present further evidence regarding its claim for refund for the October 2001 final tax. However, the CTA
Division affirmed the denial of the claim relative to its March 2001 final tax on the ground of prescription.
Aggrieved, Metrobank filed a petition for partial review before the CTA En Banc – it affirmed the CTA Division’s ruling.
It held that since Metrobank‘s March 2001 final tax is in the nature of a final withholding tax, the two (2)- year prescriptive period was
correctly reckoned by the CTA Division from the time the same was paid on April 25, 2001. As such, Metrobank‘s claim for refund
had already prescribed as it only filed its judicial claim on September 10, 2003.

ISSUE: W/N the CTA En Banc correctly held that Metrobank‘s claim for refund relative to its March 2001 final tax had already
prescribed.

HELD: YES. The petition is without merit.

Section 204 of the National Internal Revenue Code, as amended, provides the CIR with, inter alia, the authority to grant
tax refunds. Pertinent portions of which read: Section 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes.—The Commissioner may — x x x x (C) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit
or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.
A claimant for refund must first file an administrative claim for refund before the CIR, prior and judicial claim before the
CTA. Notably, both the administrative and judicial claims for refund should be filed within two (2)- year prescriptive period indicated
therein, and that the claimant is allowed to file the latter even without waiting for the resolution of the former in order to prevent the
forfeiture of its claim through prescription. In this regard, case law states that ―the primary purpose of filing an administrative claim
[is] to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected
erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code — then Section 306 of the old Tax Code — however
does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be
tantamount to the taxpayer‘s forfeiture of its right to seek judicial recourse should the two (2)-year prescriptive period expire without
the appropriate judicial claim being filed.‖
As aptly put in CIR v. TMX Sales, Inc., 205 SCRA 184 (1992), ―payment of quarterly income tax should only be
considered [as] mere installments of the annual tax due. These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or
portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. x x x Consequently, the two-year
prescriptive period x x x should be computed from the time of filing of the Adjustment Return or Annual Income Tax Return and final
payment of income tax.‖ Verily, since quarterly income tax payments are treated as mere ―advance payments‖ of the annual
corporate income tax, there may arise certain situations where such ―advance payments‖ would cover more than said corporate
taxpayer‘s entire income tax liability for a specific taxable year. Thus, it is only logical to reckon the two (2)-year prescriptive period
from the time the Final Adjustment Return or the Annual Income Tax Return was filed, since it is only at that time that it would be
possible to determine whether the corporate taxpayer had paid an amount exceeding its annual income tax liability.
It may be gleaned that final withholding taxes are considered as full and final payment of the income tax due, and thus,
are not subject to any adjustments. Thus, the two (2)-year prescriptive period commences to run from the time the refund is
ascertained, i.e., the date such tax was paid, and not upon the discovery by the taxpayer of the erroneous or excessive payment of
taxes. In the case at bar, it is undisputed that Metrobank‘s final withholding tax liability in March 2001 was remitted to the BIR on
April 25, 2001. As such, it only had until April 25, 2003 to file its administrative and judicial claims for refund. However, while
Metrobank‘s administrative claim was filed on December 27, 2002, its corresponding judicial claim was only filed on September 10,
2003. Therefore, Metrobank‘s claim for refund had clearly prescribed.

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 3. Refunds where written claim is not needed
a. Secs. 204(C) and 229 of the NIRC

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may -
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change
unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim
for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax,
excluding withholding taxes, for which the taxpayer is directly liable.
Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of
this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting
from availment of incentives granted pursuant to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of
Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts
and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or
compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said
report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are
reasonably exercised and that the government is not unduly deprived of revenues.

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.

4. Refunds of Corporate taxpayers / Irrevocability Rule

a. Sec. 76 of the NIRC

SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering
the total taxable income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire
taxable income of that year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years.
Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters
of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed therefor.

b. CIR v. TMX Sales, Inc., GR No. 83736 dated January 15, 1992  VALDEZ
c. Systra Phils. Inc. vs. CIR, GR No. 176290 dated September 21, 2007  BAGALANON
d. Winbrenner & Inigo Insurance Brokers, Inc., GR No. 206526, Jan. 28, 2015  BESA
e. University Physicians Services, Inc. – Management v. CIR, GR No. 205955  BUENO
f. Rhombus Energy, Inc. CIR, GR No. 206362 dated August 1, 2018  GIBA

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 113
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TMX SALES, INC. and THE
COURT OF TAX APPEALS, respondents.
G.R. No. 83736 January 15, 1992, GUTIERREZ, JR., J.:
COPIED FROM THE WEDNESDAY CLASS

FACTS: TMX Sales, Inc. thru its external auditor, SGV & Co. filed with the Appellate Division of the BIR a claim for refund in the
amount of P247,010.00 representing overpaid income tax.This claim was not acted upon by the CIR. On March 14, 1984, TMX
Sales, Inc. filed a petition for review before the CTA against the CIR, praying that the petitioner, as private respondent therein, be
ordered to refund to TMX Sales, Inc. overpaid income tax for the taxable year ended December 31, 1981.
In his answer, the CIR averred that "granting, without admitting, the amount in question is refundable, the petitioner (TMX
Sales, Inc.) is already barred from claiming the same considering that more than two (2) years had already elapsed between the
payment (May 15, 1981) and the filing of the claim in Court (March 14, 1984). (Sections 292 and 295 of the Tax Code of 1977, as
amended)."
CTA rendered a decision granting the petition of TMX Sales, Inc. and ordering the CIR to refund the amount claimed. The
Tax Court, granted the petition.
Petitioner CIR is now before this Court seeking a reversal of the above decision. Thru the OSG, he contends that the
basis in computing the two-year period of prescription provided for in Section 292 (now Section 230) of the Tax Code, should be
May 15, 1981, the date when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment Return for the
year ended December 31, 1981 was filed. He cites the case of Pacific Procon Limited v. Commissioner of Internal Revenue (G.R.
No. 68013, November 12, 1984) involving a similar set of facts, wherein this Court in a minute resolution affirmed the Court of
Appeals' decision denying the claim for refund of the petitioner therein for being barred by prescription.

ISSUE: Whether or not the two-year prescriptive period to claim a refund of erroneously collected tax provided for in Section 292
(now Section 230) of the National Internal Revenue Code, in a case involving corporate quarterly income tax, commence to run from
the date the quarterly income tax was paid, as contended by the petitioner, or from the date of filing of the Final Adjustment Return
(final payment), as claimed by the private respondent?

RULING: The two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982. The case is
not yet barred from prescription.
Section 292 (now Section 230) of the National Internal Revenue Code and other provisions of the Tax Code, particularly
Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly
Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts should be harmonized with
each other.
Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a refund of a tax erroneously or illegally paid,
counted from the tile the tax was paid. But a literal application of this provision in the case at bar which involves quarterly income tax
payments may lead to absurdity and inconvenience. Section 85 (now Section 68) provides for the method of computing corporate
quarterly income tax which is on a cumulative basis while Section 87 (now Section 69) requires the filing of an adjustment returns
and final payment of income tax.
Here, the amount of P247,010.00 claimed by private respondent TMX Sales, Inc. based on its Adjustment Return required
in Section 87 (now Section 69), is equivalent to the tax paid during the first quarter. A literal application of Section 292 (now Section
230) would thus pose no problem as the two-year prescriptive period reckoned from the time the quarterly income tax was paid can
be easily determined. However, if the quarter in which the overpayment is made, cannot be ascertained, then a literal application of
Section 292 (Section 230) would lead to absurdity and inconvenience. The following application of Section 85 (now Section 68)
clearly illustrates this point:

FIRST QUARTER:
Gross Income 100,000.00
Less: Deductions 50,000.00
—————
Net Taxable Income 50,000.00
=========
Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00
=========
SECOND QUARTER:
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00 150,000.00
—————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00 125,000.00
—————

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Net Taxable Income 25,000.00
=========
Tax Due Thereon 6,250.00
Less: Tax Paid 1st Quarter 12,500.00
—————
Creditable Income Tax (6,250.00)
—————
THIRD QUARTER:
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00
3rd Quarter 100,000.00 250,000.00
—————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00
3rd Quarter 25,000.00 150,000.00
————— —————
100,000.00
=========
Tax Due Thereon 25,000.00
Less: Tax Paid 1st Quarter 12,500.00
2nd Quarter — 12,500.00
————— =========
FOURTH QUARTER: (Adjustment Return required in Sec. 87)
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00
3rd Quarter 100,000.00
4th Quarter 75,000.00 325,000.00
————— —————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00
3rd Quarter 25,000.00
4th Quarter 100,000.00 250,000.00
————— —————
Net Taxable Income 75,000.00
=========
Tax Due Thereon 18,750.00
Less: Tax Paid 1st Quarter 12,500.00
2nd Quarter —
3rd Quarter 12,500.00 25,000.00
————— —————
Creditable Income Tax (to be REFUNDED) (6,250.00)
=========

Based on the above hypothetical data appearing in the Final Adjustment Return, the taxpayer is entitled under Section 87
(now Section 69) of the Tax Code to a refund of P6,250.00. If Section 292 (now Section 230) is literally applied, what then is the
reckoning date in computing the two-year prescriptive period? Will it be the 1st quarter when the taxpayer paid P12,500.00 or the
3rd quarter when the taxpayer also paid P12,500.00? Obviously, the most reasonable and logical application of the law would be to
compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it
can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax.
Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code requires that the books of accounts of
companies or persons with gross quarterly sales or earnings exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and
examined yearly by an independent Certified Public Accountant and their income tax returns be accompanied by certified balance
sheets, profit and loss statements, schedules listing income producing properties and the corresponding incomes therefrom and
other related statements.
It is generally recognized that before an accountant can make a certification on the financial statements or render an
auditor's opinion, an audit of the books of accounts has to be conducted in accordance with generally accepted auditing standards.
Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly, then it is the Final
Adjustment Return, where the figures of the gross receipts and deductions have been audited and adjusted, that is truly reflective of
the results of the operations of a business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed
that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.

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 Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR
Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These
quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a
net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final
payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code
should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when a tax is
paid in installments, the prescriptive period of two years provided in Section 306 (Section 292) of the National internal Revenue
Code should be counted from the date of the final payment. This ruling is reiterated in Commission of Internal Revenue v. Carlos
Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was paid on installment, the computation of the
two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period
should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales, Inc. is not yet barred by prescription.

SYSTRA PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 176290, September 21, 2007, CORONA, J.:
TOPIC: Refunds of Corporate taxpayers / Irrevocability Rule

FACTS: On April 16, 2001, petitioner filed with the [Bureau of Internal Revenue (BIR)] its Annual Income Tax Return ("ITR") for the
taxable year ended December 31, 2000 declaring revenues in the amount of [₱18,252,719] the bulk of which consists of income
from management consultancy services rendered to the Philippine Branch of Group Systra SA, France. Subjecting said income from
consultancy services of petitioner to 5% creditable withholding tax, a total amount of [₱4,703,019] was declared by petitioner as
creditable taxes withheld for the taxable year 2000.
For the same period, petitioner reflected a total gross income of [₱3,752,129], a net loss of [₱17,930] and a minimum
corporate income tax (MCIT) of [₱75,043]. Said MCIT of ₱75,043 was offset against its total tax credits for the year 2000 amounting
to [₱4,703,019] thereby leaving a total unutilized tax credits of [₱4,627,976. Petitioner opted to carry over the said excess tax credit
to the succeeding taxable year 2001.
For the taxable year ended December 31, 2001, petitioner filed with the BIR its Annual ITR on April 12, 2002, reflecting a
total gross income of [₱4,771,419] and a total creditable taxes withheld of [₱1,111,587] for consultancy services. It likewise declared
a taxable income of [₱1,936,851] with corresponding normal income tax due in the amount of [₱619,792]. After deducting the
unexpired excess of the previous year MCIT [1999 and 2000] in the amount of [₱222,475] from the normal income tax due for the
period, petitioner‘s net tax due of [₱397,317] was applied against the accumulated tax credits of [₱5,739,563]. Said reported tax
credits comprised of prior year‘s excess tax credits in the amount of [₱4,627,976] and creditable taxes withheld during the year 2001
in the sum of [₱1,111,587]. These excess tax credits were utilized to pay off the income tax still due of [₱397,317] resulting to an
overpayment of [₱5,342,246]. Petitioner indicated in the 2001 ITR the option "To be issued a Tax Credit Certificate" relative to its tax
overpayments.
On August 9, 2002, petitioner instituted a claim for refund or issuance of a tax credit certificate with the BIR of its
unutilized creditable withholding taxes in the amount of ₱5,342,246.00 as of December 31, 2001."
Due to the inaction of the BIR on petitioner‘s claim for refund and to preserve its right to claim for the refund to its
unutilized CWT for CYs 2000 and 2001 by judicial action, petitioner filed a petition for review with the Court in Division on April 14,
2003.19
In its August 3, 2005 decision, the First Division of the CTA partially granted the petition and ordered the issuance of a tax
credit certificate to petitioner in the amount of ₱1,111,587 representing the excess or unutilized creditable withholding taxes for
taxable year 2001. The CTA, however, denied petitioner‘s claim for refund of the excess tax credits for the year 2000 in the amount
of ₱4,627,976. It ruled that petitioner was precluded from claiming a refund thereof or requesting a tax credit certificate therefor.
Once it was made for a particular taxable period, the option to carry over became irrevocable.1avvphi1
Petitioner moved for reconsideration but it was denied. Petitioner elevated the case to the CTA en banc which rendered
the assailed decision. Thus, this petition.

ISSUE: Whether or not the exercise of the option to carry-over excess income tax credits under Section 76 of the Tax Code bars a
taxpayer from claiming the excess tax credits for refund even if the amount remains unutilized in the succeeding taxable year

RULING: Yes. Section 76 of the Tax Code provides:

SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27 shall file a final adjustment return covering
the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or

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(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed
therefor.(emphasis supplied)
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.
In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box
provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these
remedies are in the alternative and the choice of one precludes the other.
This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The phrase
"such option shall be considered irrevocable for that taxable period" means that the option to carry over the excess tax credits of a
particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid:
(1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been
issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.
In this case, it was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry
them over as tax credits for the next taxable year. Under Section 76 of the Tax Code, a claim for refund of such excess credits can
no longer be made. The excess credits will only be applied "against income tax due for the taxable quarters of the succeeding
taxable years." Since petitioner elected to carry over its excess credits for the year 2000 in the amount of ₱4,627,976 as tax credits
for the following year, it could no longer claim a refund. Again, at the risk of being repetitive, once the carry over option was made,
actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized.
Nevertheless, as held in Philam Asset Management, Inc., the amount will not be forfeited in favor of the government but will remain
in the taxpayer‘s account. Petitioner may claim and carry it over in the succeeding taxable years, creditable against future income
tax liabilities until fully utilized.

WINEBRENNER & IÑIGO INSURANCE BROKERS, INC. v. COMM’R OF IR

G.R. No. 206526, January 28, 2015
DOCTRINE: Refunds of corporate Taxpayers - It must be emphasized that once the requirements laid down by the NIRC have
been met, a claimant should be considered successful in discharging its burden of proving its right to refund. Thereafter, the burden
of going forward with the evidence, as distinct from the general burden of proof, shifts to the opposing party that is, the CIR. It is
then the turn of the CIR to disprove the claim by presenting contrary evidence which could include the pertinent ITRs easily
obtainable from its own files.

FACTS: April 7, 2006, petitioner applied for the administrative tax credit/refund claiming entitlement to the refund of its excess or
unutilized CWT for CY 2003.
When CTA initially granted partially the claim for refund, CIR moved for reconsideration, praying for the denial of the entire
amount of refund because petitioner failed to present the quarterly Income Tax Returns (ITRs) for CY 2004. To the CIR, the
presentation of the 2004 quarterly ITRs was indispensable in proving petitioner's entitlement to the claimed amount because it
would prove that no carry-over of unutilized and excess CWT for the four (4) quarters of CY 2003 to the succeeding four (4) quarters
of CY 2004 was made. In the absence of said ITRs, no refund could be granted in accordance with the irrevocability rule under
Section 76 of the NIRC.
CTA then denied the entire claim of petitioner. It reasoned out that petitioner should have presented as evidence its first,
second and third quarterly ITRs for the year 2004 to prove that the unutilized CWT being claimed had not been carried over to the
succeeding quarters. It stated that before a cash refund or an issuance of tax credit certificate for unutilized excess tax credits could
be granted, it was essential for petitioner to establish and prove, by presenting the quarterly ITRs of the succeeding years, that the
excess CWT was not carried over to the succeeding taxable quarters considering that the option to carry over in the succeeding
taxable quarters could not be modified in the final adjustment returns (FAR). Because petitioner did not present the first, second and
third quarterly ITRs for CY 2004, despite having offered and submitted the Annual ITR/FAR for the same year, the CTA-En Banc
stated that the petitioner failed to discharge its burden, hence, no refund could be granted

ISSUE: Whether the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year is
indispensable in a claim for refund.

RULING: The logic in not requiring quarterly ITRs of the succeeding taxable years to be presented remains true to this day. What
Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having

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carried over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding
quarterly ITRs are absolutely needed.
This simply underscores the rule that any document, other than quarterly ITRs may be used to establish that indeed the
non-carry over clause has been complied with, provided that such is competent, relevant and part of the records.
It goes without saying that the annual ITR (including any other proof that may be sufficient to the Court)can sufficiently
reveal whether carry over has been made in subsequent quarters even if the petitioner has chosen the option of tax credit or refund
in the immediately 2003 annual ITR.
It must be remembered that taxes computed in the quarterly returns are mere estimates. It is the annual ITR which shows
the aggregate amounts of income, deductions, and credits for all quarters of the taxable year. It is the final adjustment return which
shows whether a corporation incurred a loss or gained a profit during the taxable quarter. Thus, the presentation of the annual ITR
would suffice in proving that prior year's excess credits were not utilized for the taxable year in order to make a final determination of
the total tax due.
The absence of any amount written in the Prior Year excess Credit — Tax Withheld portion of petitioner's 2004 annual
ITR clearly shows that no prior excess credits were carried over in the first four quarters of 2004 . And since petitioner was able to
sufficiently prove that excess tax credits in 2003 were not carried over to taxable year 2004 by leaving the item "Prior Year's Excess
Credits" as blank in its 2004 annual ITR, then petitioner is entitled to a refund.
It must be emphasized that once the requirements laid down by the NIRC have been met, a claimant should be
considered successful in discharging its burden of proving its right to refund. Thereafter, the burden of going forward with the
evidence, as distinct from the general burden of proof, shifts to the opposing party that is, the CIR. It is then the turn of the CIR to
disprove the claim by presenting contrary evidence which could include the pertinent ITRs easily obtainable from its own files.

UNIVERSITY PHYSICIANS SERVICES, INC.-MANAGEMENT v. CIR

G.R. No. 205955, March 07, 2018
DOCTRINE: When a corporation overpays its income tax liability as adjusted at the close of the taxable year, it has two options: (1)
to be refunded or issued a tax credit certificate, or (2) to carry over such overpayment to the succeeding taxable quarters to
be applied as tax credit against income tax due. Once the carry-over option is taken, it becomes irrevocable such that the
taxpayer cannot later on change its mind in order to claim a cash refund or the issuance of a tax credit certificate of the very same
amount of overpayment or excess income tax credit.
Irrevocability is limited only to the option of carry-over such that a taxpayer is still free to change its choice after
electing a refund of its excess tax credit. But once it opts to carry over such excess creditable tax, after electing refund or
issuance of tax credit certificate, the carry-over option becomes irrevocable. Accordingly, the previous choice of a claim for
refund, even if subsequently pursued, may no longer be granted

FACTS: On April 16, 2007, petitioner filed its Annual Income Tax Return (ITR) for the year ended December 31, 2006 with the
Revenue District No. 34 of the Revenue Region No. 6 of the BIR, reflecting an income tax overpayment of 5,159,341.00.
Subsequently, on November 14, 2007, petitioner filed an Annual ITR for the short period fiscal year ended March 31,
2007, ref1ecting the income tax overpayment of 5,159.341 from the previous period as "Prior Year‘s Excess Credit‖
On the same date, petitioner filed an amended Annual ITR tor the short period fiscal year ended March 31, 2007,
reflecting the removal of the amount of the instant claim in the ''Prior Year's Excess Credit". Thus, the amount thereof was changed
from P 5,159,341 to P 2,231,507.
On October 10, 2008, petitioner filed with the respondent's office, a claim for refund and/or issuance of a Tax Credit
Certificate (TCC) in the amount of P 2,927,834.00, representing the alleged excess and unutilized creditable withholding taxes for
2006.
In view of the fact that respondent has not acted upon the foregoing claim for refund/tax credit, petitioner filed with a
Petition for Review on April 14, 2009 before the Court in Division.
After trial, the CTA Division denied the petition reasoning that UPSI-MI effectively exercised the carry-over option under
Section 76 of the NIRC of 1997. On MR, UPSI-MI argued that the irrevocability rule under Section 76 of the NIRC is not applicable
for the reason that it did not carry over to the succeeding taxable period the 2006 excess income tax credit. UPSI-MI added that the
subject excess tax credits were inadvertently included in its original 2007 ITR, and such mistake was rectified in the amended 2007
ITR. Thus, UPSI-MI insisted that what should control is its election of the option "To be issued a Tax Credit Certificate" in its 2006
ITR.

ISSUE: Does the irrevocability rule apply exclusively to the carry-over option?

HELD: Yes. Irrevocability is limited only to the option of carry-over such that a taxpayer is still free to change its choice after
electing a refund of its excess tax credit. But once it opts to carry over such excess creditable tax, after electing refund or issuance
of tax credit certificate, the carry-over option becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if
subsequently pursued, may no longer be granted.

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SECTION 76. Final Adjustment Return. — Every corporation liable to tax under Section 27 shall file a final adjustment return
covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the
said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be
allowed therefor.
Under the cited law, there are two options available to the corporation whenever it overpays its income tax for the taxable
year: (1) to carry over and apply the overpayment as tax credit against the estimated quarterly income tax liabilities of the
succeeding taxable years (also known as automatic tax credit) until fully utilized (meaning, there is no prescriptive period); and (2) to
apply for a cash refund or issuance of a tax credit certificate within the prescribed period. Such overpayment of income tax is
usually occasioned by the over-withholding of taxes on the income payments to the corporate taxpayer.
The irrevocability rule is provided in the last sentence of Section 76. A perfunctory reading of the law unmistakably
discloses that the irrevocable option referred to is the carry-over option only. There appears nothing therein from which to infer that
the other choice, i.e., cash refund or tax credit certificate, is also irrevocable. If the intention of the lawmakers was to make such
option of cash refund or tax credit certificate also irrevocable, then they would have clearly provided so.
In other words, the law does not prevent a taxpayer who originally opted for a refund or tax credit certificate from shifting
to the carry-over of the excess creditable taxes to the taxable quarters of the succeeding taxable years. However, in case the
taxpayer decides to shift its option to carry-over, it may no longer revert to its original choice due to the irrevocability rule.
Applying the foregoing precepts to the given case, UPSI-MI is barred from recovering its excess creditable tax through
refund or TCC. It is undisputed that despite its initial option to refund its 2006 excess creditable tax, UPSI-MI subsequently indicated
in its 2007 short-period FAR that it carried over the 2006 excess creditable tax and applied the same against its 2007 income tax
due. The CTA was correct in considering UPSI-MI to have constructively chosen the option of carry-over, for which reason, the
irrevocability rule forbade it to revert to its initial choice. It does not matter that UPSI-MI had not actually benefited from the carry-
over on the ground that it did not have a tax due in its 2007 short period. Neither may it insist that the insertion of the carry-over in
the 2007 FAR was by mere mistake or inadvertence. As we previously laid down, the irrevocability rule admits of no qualifications or
conditions.
In sum, the petitioner is clearly mistaken in its view that the irrevocability rule also applies to the option of refund or tax
credit certificate. In view of the court's finding that it constructively chose the option of carry-over, it is already barred from recovering
its 2006 excess creditable tax through refund or TCC even if it was its initial choice.
However, the petitioner remains entitled to the benefit of carry-over and thus may apply the 2006 overpaid income tax as
tax credit in succeeding taxable years until fully exhausted. This is because, unlike the remedy of refund or tax credit
certificate, the option of carry-over under Section 76 is not subject to any prescriptive period.

RHOMBUS ENERGY v. CIR

GR NO. 206362, AUGUST 1, 2018
DOCTRINE: In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the
excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry over and apply the excess quarterly
income tax against income tax due for the taxable years of the succeeding taxable years has been made, such option shall
be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.

FACTS: Rhombus fled its annual income tax return for the taxable year 2005 with an overpayment amounting to P1,500,653.00. in
the said ITR, it indicated that the said excess is to be refunded. For each of the quarterly income tax returns for the taxable period
2006, it indicated the said amount as a prior year‘s excess credits, but on its Annual ITR for taxable year 2006, filed on April 2007, it
showed prior year‘s excess credits as zero.
In December 2006, Rhombus filed an administrative claim for refund for alleged excess or unutilized CWT for the year
2005 in the aforementioned amount. In December 2007, pending its admin claimed for refund, it filed a petition for review with the
CTA. In response, the CIR alleged that the taxpayer failed to prove that the said taxes were illegally collected by the BIR and that
the said taxes are presumed to have been collected in accordance with the regulations.
On appeal to the CTA, the first division granted the petition for review. CIR filed a motion for reconsideration but was
denied, hence it filed a petition for review with the CTA enbanc. The CTA enbanc reversed the decision for the division holding that

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based on the irrevocability rule once the taxpayer chose an option it cannot make another option. Or once an option for carry over
has been made, it cannot thereafter choose to have the taxes refunded.

ISSUE: Whether or not Rhombus is entitled to refund of its excess CWT.

RULING: Yes, Rhombus is still entitled to refund.

Section 76 of the National Internal Revenue Code (NIRC), viz.:

Section 76. Final Adjusted Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering
the total taxable income for the preceding calendar of fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry over and apply the excess quarterly income
tax against income tax due for the taxable years of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.

In the case of CIR vs. BPI, the Court held that Section 76 of the NIRC is clear and unequivocal in providing that the carry-
0ver option once actually or constructively chosen by the taxpayer becomes irrevocable. It held that ‗the controlling factor for the
operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make
another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of
whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the
option to carry over has been made, "no application for tax refund or issuance of a tax credit certificate shall be allowed therefor."
In the instant case, the evidence on record shows that petitioner clearly signified its intention to be refunded of its
excess creditable tax withheld for calendar year 2005 in its Annual ITR for the said year. Petitioner under Line 31 of the
said ITR marked "x" on the box "To be refunded". Moreover, petitioner's 2006 and 2007 Annual ITRs do not have any entries in
Line 28A "Prior Year's Excess Credits" which only prove that petitioner did not carry-over its 2005 excess/unutilized creditable
withholding tax to the succeeding taxable years or quarters.
In the case of Republic vs. Team (Phils) Energy Corporation, the requisite for entitlement of refund are as follows:
1. That the claim for refund is filed within the two-year reglementary period pursuant to Section 229 of the NIRC;
2. when it it shown on the ITR that the income payment received is being declared part of the taxoayer‘s gross income;
3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the
payee, showing the amount paid and income tax withheld from that amount.

O. The Court of Tax Appeals

a. RA No. 9282, as amended by RA No. 9503 – See codal‘s Appendix.
b. Jurisdiction in civil and criminal cases
c. Revised Rules of the CTA, AM No. 05-11-07-CTA dated November 22, 2005, as amended
on September 16, 2008 – See codal‘s Appendix.
d. CIR v. CTA and Petron Corp., GR No. 207843, 7/15/2015. (Perlas- Bernabe)  OBNIAL
e. Banco De Oro vs. Republic, GR No. 198756 dated January 13, 2015 and resolution on
the Motion for reconsideration, GR No. 198756 dated August 16, 2016. – compare
with the Petron case.  VENGCO
f. City of Manila v. Grecia-Cuerdo, GR No. 175723, February 4, 2014  VILLABLAGON
g. Asiatrust Development Bank, Inc. vs. CIR, GR No. April 19, 2017  ALANZALON
h. Power Sector Assets and Liabilities Management Corporation vs. CIR, GR No.
198146 dated August 8, 2017  ALMOJUELA

CIR v. CTA AND PETRON CORP.

G.R. No. 207843, July 15,1992
DOCTRINE: The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. The CTA
is a court of special jurisdiction, with power to review by appeal decisions involving tax disputes rendered by either the CIR or the

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COC. Conversely, it has no jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the exercise of their
quasi-legislative powers to interpret tax laws.

FACTS: Petron, which is engaged in the manufacture and marketing of petroleum products, imports alkylate as a raw material or
blending component for the manufacture of ethanol-blended motor gasoline. For the period January 2009 to August 2011, as well as
for the month of April 2012, Petron transacted an aggregate of 22 separate importations for which petitioner the Commissioner of
Internal Revenue (CIR) issued Authorities to Release Imported Goods (ATRIGs), categorically stating that Petron's importation of
alkylate is exempt from the payment of the excise tax because it was not among those articles enumerated as subject to excise tax
under Title VI of Republic Act No. (RA) 8424, as amended, or the 1997 National Internal Revenue Code (NIRC). With respect,
however, to Petron's alkylate importations covering the period September 2011 to June 2012 (excluding April 2012), the CIR
inserted, without prior notice, a reservation for all ATRIGs issued, stating that: This is without prejudice to the collection of the
corresponding excise taxes, penalties and interest depending on the final resolution of the Office of the Commissioner on the issue
of whether this item is subject to the excise taxes under the National Internal Revenue Code of 1997, as amended. In June 2012,
Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in the total amount of 41,657,533.00 as evidenced by
Import Entry and Internal Revenue Declaration (IEIRD) No. SN 122406532. Based on the Final Computation, said importation was
subjected by the Collector of Customs of Port Limay, Bataan, upon instructions of the Commissioner of Customs (COC), to excise
taxes of ₱4.35 per liter, or in the aggregate amount of ₱55,691,571.00, and consequently, to an additional VAT of 12% on the
imposed excise tax in the amount of ₱6,682,989.00.8 The imposition of the excise tax was supposedly premised on Customs
Memorandum Circular (CMC) No. 164-2012 dated July 18, 2012, implementing the Letter dated June 29, 2012 issued by the CIR,
which states that: [A]lkylate which is a product of distillation similar to that of naphta, is subject to excise tax under Section 148( e) of
the National Internal Revenue Code (NIRC) of 1997.

ISSUE: Whether or not the CTA properly assumed jurisdiction over the petition assailing the imposition of excise tax on Petron's
importation of alkylate based on Section 148 (e) of the NIRC.

RULING: The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148 (e) of the NIRC, embodied in CMC
No. 164-2012, is an exercise of her quasi-legislative function which is reviewable by the Secretary of Finance, whose decision, in
turn, is appealable to the Office of the President and, ultimately, to the regular courts, and that only her quasi-judicial functions or the
authority to decide disputed assessments, refunds, penalties and the like are subject to the exclusive appellate jurisdiction of the
CTA.20 She likewise contends that the petition suffers from prematurity due to Petron's failure to exhaust all available remedies
within the administrative level in accordance with the Tariff and Customs Code (TCC). Section 4 of the NIRC confers upon the CIR
both: (a) the power to interpret tax laws in the exercise of her quasi-legislative function; and (b) the power to decide tax cases in the
exercise of her quasi-judicial function. It also delineates the jurisdictional authority to review the validity of the CIR's exercise of the
said powers, thus: SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals. The CTA is a court of special jurisdiction, with power to review by appeal decisions involving tax disputes
rendered by either the CIR or the COC. Conversely, it has no jurisdiction to determine the validity of a ruling issued by the CIR or
the COC in the exercise of their quasi-legislative powers to interpret tax laws. In this case, Petron's tax liability was premised on the
COC's issuance of CMC No. 164-2012, which gave effect to the CIR's June 29, 2012 Letter interpreting Section 148 (e) of the NIRC
as to include alkyl ate among the articles subject to customs duties, hence, Petron's petition before the CTA ultimately challenging
the legality and constitutionality of the CIR's aforesaid interpretation of a tax provision. In line with the foregoing discussion,
however, the CIR correctly argues that the CT A had no jurisdiction to take cognizance of the petition as its resolution would
necessarily involve a declaration of the validity or constitutionality of the CIR's interpretation of Section 148 (e) of the NIRC, which is
subject to the exclusive review by the Secretary of Finance and ultimately by the regular courts. As the CIR aptly pointed out, the
phrase "other matters arising under this Code," as stated in the second paragraph of Section 4 of the NIRC, should be understood
as pertaining to those matters directly related to the preceding phrase "disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto" and must therefore not be taken in isolation to invoke the jurisdiction of
the CTA. In other words, the subject phrase should be used only in reference to cases that are, to begin with, subject to the
exclusive appellate jurisdiction of the CTA, i.e., those controversies over which the CIR had exercised her quasi-judicial functions or
her power to decide disputed assessments, refunds or internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, not to those that involved the CIR's exercise of quasi-legislative powers.
Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section 7 of RA 1125, as amended by RA 9282,
what is appealable to the CT A is the decision of the COC over a customs collector's adverse ruling on a taxpayer's protest: In this
case, there was even no tax assessment to speak of. While customs collector Federico Bulanhagui himself admitted during the
CTA's November 8, 2012 hearing that the computation he had written at the back page of the IEIRD served as the final assessment
imposing excise tax on Petron's importation of alkylate, the Court concurs with the CIR's stance that the subject IEIRD was not yet
the customs collector's final assessment that could be the proper subject of review. And even if it were, the same should have been
brought first for review before the COC and not directly to the CTA. It should be stressed that the CTA has no jurisdiction to review

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by appeal, decisions of the customs collector. The TCC prescribes that a party adversely affected by a ruling or decision of the
customs collector may protest such ruling or decision upon payment of the amount due35 and, if aggrieved by the action of the
customs collector on the matter under protest, may have the same reviewed by the COC. It is only after the COC shall have made
an adverse ruling on the matter may the aggrieved party file an appeal to the CT A. Notably, Petron admitted to not having filed a
protest of the assessment before the customs collector and elevating a possible adverse ruling therein to the COC, reasoning that
such a procedure would be costly and impractical, and would unjustly delay the resolution of the issues which, being purely legal in
nature anyway, were also beyond the authority of the customs collector to resolve with finality.38 This admission is at once decisive
of the issue of the CTA's jurisdiction over the petition. There being no protest ruling by the customs collector that was appealed to
the COC, the filing of the petition before the CTA was premature as there was nothing yet to review.Verily, the fact that there is no
decision by the COC to appeal from highlights Petron's failure to exhaust administrative remedies prescribed by law. Before a party
is allowed to seek the intervention of the courts, it is a pre-condition that he avail of all administrative processes afforded him, such
that if a remedy within the administrative machinery can be resorted to by giving the administrative officer every opportunity to
decide on a matter that comes within his jurisdiction, then such remedy must be exhausted first before the court's power of judicial
review can be sought, otherwise, the premature resort to the court is fatal to one's cause of action.40 While there are exceptions to
the principle of exhaustion of administrative remedies, it has not been sufficiently shown that the present case falls under any of the
exceptions.

BANCO DE ORO, ET AL. v. REPUBLIC

G.R. No. 198756 , January 13, 2015, Leonen, J.
DOCTRINE 1: The rule on exhaustion of administrative remedies also finds no application when the exhaustion will result in an
exercise in futility.

DOCTRINE 2: The jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals.

DOCTRINE 3: In exceptional cases the Supreme Court entertains direct recourse to it when dictated by public welfare and the
advancement of public policy, or demanded by the broader interest of justice, or the orders complained of were found to be patent
nullities, or the appeal was considered as clearly an inappropriate remedy.

FACTS: In 2001, the Caucus of Development NGO Networks (CODE-NGO) with the assistance of its financial advisors, Rizal
Commercial Banking Corp. (―RCBC‖), et al. requested an approval from the Department of Finance for the issuance by the Bureau
of Treasury (BOT) of 10-year zero-coupon Treasury Certificates (T-notes). The T-notes would initially be purchased by a special
purpose vehicle on behalf of CODE-NGO, repackaged and sold at a premium to investors as the PEACe Bonds.
The BOT held an auction for the 10-year zero-coupon bonds. The BOT issued another memorandum quoting excerpts of
the ruling issued by the Bureau of Internal Revenue (BIR) concerning the Bonds‘ exemption from 20% final withholding tax and the
opinion of the Monetary Board on reserve eligibility.
After the auction, RCBC which participated on behalf of CODE-NGO was declared as the winning bidder having tendered
the lowest bids. Accordingly, the BOT issued P35 billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately
P10.17 billion, resulting in a discount of approximately P24.83 billion.
The RCBC entered into an underwriting agreement with CODE-NGO, whereby RCBC was appointed as the Issue
Manager and Lead Underwriter for the offering of the PEACe Bonds. RCBC agreed to underwrite on a firm basis the offering,
distribution and sale of the P35 billion Bonds at the price of P11,995,513,716.51. In Sec. 7(r) of the underwriting agreement, CODE-
NGO represented that ―all income derived from the Bonds, inclusive of premium on redemption and gains on the trading of the
same, are exempt from all forms of taxation as confirmed by BIR letter rulings dated 31 May 2001 and 16 August 2001,
respectively.‖
RCBC sold the Government Bonds in the secondary market for an issue price of P11,995,513,716.51. Petitioners Banco
De Oro, et al. purchased the PEACe Bonds on different dates.
On October 7, 2011, the Commissioner of Internal Revenue issued BIR Ruling No. 370-2011 (2011 BIR Ruling),
declaring that the PEACe Bonds being deposit substitutes are subject to the 20% final withholding tax. Pursuant to this ruling, the
Secretary of Finance directed the Bureau of Treasury to withhold a 20% final tax from the face value of the PEACe Bonds upon their
payment at maturity on October 18, 2011. The BIR Ruling was issued in response to a query of the Secretary of Finance on the
proper tax treatment of the discount or interest income derived from the Government Bonds.
Petitioners filed a petition for certiorari, prohibition, and/or mandamus (with urgent application for a temporary restraining
order and/or writ of preliminary injunction) before the Supreme Court (SC).
The SC issued a TRO ―enjoining the implementation of BIR Ruling No. 370-2011 against the PEACe Bonds, subject to the
condition that the 20% final withholding tax on interest income therefrom shall be withheld by the petitioner banks and placed in
escrow pending resolution of the petition.
Respondents argued that petitioners‘ direct resort to the SC to challenge the 2011 BIR Ruling violates the doctrines of
exhaustion of administrative remedies and hierarchy of courts, resulting in a lack of cause of action that justifies the dismissal of the

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petition. According to them, ―the jurisdiction to review the rulings of the Commissioner of Internal Revenue, after the aggrieved party
exhausted the administrative remedies, pertains to the Court of Tax Appeals.‖

ISSUE 1: Whether the petitioners violated the Doctrine of Exhaustion of Administrative remedies.

HELD: NO. Under Sec. 4 of the 1997 NIRC, interpretative rulings are reviewable by the Secretary of Finance.

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.- The power to interpret the provisions of
this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.

Thus, it was held that ―if superior administrative officers [can] grant the relief prayed for, [then] special civil actions are
generally not entertained.‖ The remedy within the administrative machinery must be resorted to first and pursued to its appropriate
conclusion before the court‘s judicial power can be sought.
Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of administrative remedies:

[The doctrine of exhaustion of administrative remedies] is a relative one and its flexibility is called upon by the peculiarity
and uniqueness of the factual and circumstantial settings of a case. Hence, it is disregarded (1) when there is a violation of due
process, (2) when the issue involved is purely a legal question, (3) when the administrative action is patently illegal amounting to
lack or excess of jurisdiction,(4) when there is estoppel on the part of the administrative agency concerned,(5) when there is
irreparable injury, (6) when the respondent is a department secretary whose acts as an alter ego of the President bears the implied
and assumed approval of the latter, (7) when to require exhaustion of administrative remedies would be unreasonable, (8) when it
would amount to a nullification of a claim, (9) when the subject matter is a private land in land case proceedings, (10) when the rule
does not provide a plain, speedy and adequate remedy, (11) when there are circumstances indicating the urgency of judicial
intervention.

The exceptions under (2) and (11) are present in this case. The question involved is purely legal, namely: (a) the
interpretation of the 20-lender rule in the definition of the terms public and deposit substitutes under the 1997 National Internal
Revenue Code; and (b) whether the imposition of the 20% final withholding tax on the PEACe Bonds upon maturity violates the
constitutional provisions on non-impairment of contracts and due process. Judicial intervention is likewise urgent with the impending
maturity of the PEACe Bonds on October 18, 2011.
The rule on exhaustion of administrative remedies also finds no application when the exhaustion will result in an
exercise in futility.
In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR Ruling would be a futile exercise
because it was upon the request of the Secretary of Finance that the 2011 BIR Ruling was issued by the Bureau of Internal
Revenue. It appears that the Secretary of Finance adopted the Commissioner of Internal Revenue‘s opinions as his own. This
position was in fact confirmed in the letter dated October 10, 2011 where he ordered the Bureau of Treasury to withhold the amount
corresponding to the 20% final withholding tax on the interest or discounts allegedly due from the bondholders on the strength of the
2011 BIR Ruling.

ISSUE 2: Whether the petitioners violated the Doctrine of Hierarchy of Courts.

HELD: NO. We agree with respondents that the jurisdiction to review the rulings of the Commissioner of Internal Revenue
pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection
with the implementation of the 1997 National Internal Revenue Code on the taxability of the interest income from zero-coupon bonds
issued by the government.
Under R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended by R.A. No. 9282, such rulings of
the Commissioner of Internal Revenue are appealable to that court, thus:

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

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters arising under the National Internal
Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until
and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act.

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 In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court emphasized the jurisdiction of the
Court of Tax Appeals over rulings of the Bureau of Internal Revenue, thus:

While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed that the
jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the
RTC. The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner.

In exceptional cases, however, this Court entertained direct recourse to it when ―dictated by public welfare and
the advancement of public policy, or demanded by the broader interest of justice, or the orders complained of were found
to be patent nullities, or the appeal was considered as clearly an inappropriate remedy.
Here, the nature and importance of the issues raised to the investment and banking industry with regard to a definitive
declaration of whether government debt instruments are deposit substitutes under existing laws, and the novelty thereof, constitute
exceptional and compelling circumstances to justify resort to this court in the first instance.

BANCO DE ORO v. REPUBLIC

G.R. No. 198756 , August 16, 2016, Leonen, J.
DOCTRINE: The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and
regulations, and other administrative issuances of the Commissioner of Internal Revenue.

HELD: We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc. The Court of Tax Appeals has
exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative
issuances of the Commissioner of Internal Revenue.
Article VIII, Section 1 of the 1987 Constitution provides the general definition of judicial power:

Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.

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.
This Court further explained that the Court of Tax Appeals' authority to issue writs of certiorari is inherent in the exercise of
its appellate jurisdiction.
Judicial power likewise authorizes lower courts to determine the constitutionality or validity of a law or regulation in the first
instance. This is contemplated in the Constitution when it speaks of appellate review of final judgments of inferior courts in cases
where such constitutionality is in issue.
In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of Tax Appeals and elevated its
rank to the level of a collegiate court with special jurisdiction. Section 1 specifically provides that the Court of Tax Appeals is of the
same level as the Court of Appeals and possesses "all the inherent powers of a Court of Justice."
Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to resolve all tax-related issues.
The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or regulation
when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund. It is only in the lawful
exercise of its power to pass upon all maters brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as amended.
This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of cases directly
challenging the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders, revenue
memorandum circulars, rulings).
Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes, appeals from the decisions of
quasi-judicial agencies (Commissioner of Internal Revenue, Commissioner of Customs, Secretary of Finance, Central Board of
Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be brought exclusively to the Court of
Tax Appeals.
In other words, within the judicial system, the law intends the Court of Tax Appeals to have exclusive jurisdiction
to resolve all tax problems. Petitions for writs of certiorari against the acts and omissions of the said quasi-judicial
agencies should, thus, be filed before the Court of Tax Appeals.
RA No. 9282, a special and later law than BP Blg. 129 provides an exception to the original jurisdiction of the Regional
Trial Courts over actions questioning the constitutionality or validity of tax laws or regulations. Except for local tax cases, actions
directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance may be filed
directly before the Court of Tax Appeals.
Furthermore, with respect to administrative issuances (revenue orders, revenue memorandum circulars, or
rulings), these are issued by the Commissioner under its power to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws. Tax rulings, on the other hand, are official positions of the Bureau on
inquiries of taxpayers who request clarification on certain provisions of the National Internal Revenue Code, other tax laws, or their

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implementing regulations. Hence, the determination of the validity of these issuances clearly falls within the exclusive
appellate jurisdiction of the Court of Tax Appeals under Section 7(1) of Republic Act No. 1125, as amended, subject to
prior review by the Secretary of Finance, as required under Republic Act No. 8424.

Difference with Petron Case

As the CIR aptly pointed out, the phrase "other matters arising under this Code," as stated in the second paragraph of
Section 4 of the NIRC, should be understood as pertaining to those matters directly related to the preceding phrase "disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto" and must therefore not
be taken in isolation to invoke the jurisdiction of the CTA. In other words, the subject phrase should be used only in reference to
cases that are, to begin with, subject to the exclusive appellate jurisdiction of the CTA, i.e., those controversies over which
the CIR had exercised her quasi-judicial functions or her power to decide disputed assessments, refunds or internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, not to those that involved the CIR's exercise of quasi-legislative powers.
Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-legislative functions, the
proper recourse against the subject tax ruling expressed in CMC No. 164-2012 is a review by the Secretary of Finance and
ultimately the regular courts.

CITY OF MANILA v. GRECIA-CUERDO

715 SCRA 182, G.R. No. 175723 February 4, 2014

DOCTRINE: On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and giving to the said court
jurisdiction over the following: (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National
Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; (2) Decisions of the
Commissioner of Customs in cases involving liability for customs duties, fees or other money charges; seizure, detention or release
of property affected fines, forfeitures or other penalties imposed in relation thereto; or other matters arising under the Customs Law
or other law or part of law administered by the Bureau of Customs; and (3) Decisions of provincial or City Boards of Assessment
Appeals in cases involving the assessment and taxation of real property or other matters arising under the Assessment Law,
including rules and regulations relative thereto. On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA
9282) amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a
collegiate court with special jurisdiction.

FACTS: Petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for the taxable period from
January to December 2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star Appliances Center,
Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus
Marketing Corp. and Signature Lines. In addition to the taxes purportedly due from private respondents pursuant to Section 14, 15,
16, 17 of the Revised Revenue Code of Manila (RRCM), said assessment covered the local business taxes petitioners were
authorized to collect under Section 21 of the same Code. Because payment of the taxes assessed was a precondition for the
issuance of their business permits, private respondents were constrained to pay the ₱19,316,458.77 assessment under protest.
Private respondents filed [with the Regional Trial Court of Pasay City] the complaint denominated as one for "Refund or
Recovery of Illegally and/or Erroneously-Collected Local Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary
Injunction"
RTC granted private respondents' application for a writ of preliminary injunction. Petitioners filed a Motion for
Reconsideration but the RTC denied it in its Order. Petitioners then filed a special civil action for certiorari with the CA assailing the
July 9, 2004 and October 15, 2004 Orders of the RTC. CA dismissed petitioners' petition for certiorari holding that it has no
jurisdiction over the said petition. The CA ruled that since appellate jurisdiction over private respondents' complaint for tax refund,
which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded jurisdiction under Republic Act
No. 9282 (RA 9282), it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case
should, likewise, be filed with the CTA. Petitioners filed a Motion for Reconsideration,7but the CA denied it. Hence, this petition.

ISSUE: Whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the
RTC in a local tax case.

HELD: YES. Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by expanding the jurisdiction of the
CTA, enlarging its membership and elevating its rank to the level of a collegiate court with special jurisdiction.
While it is clearly stated that the CTA has exclusive appellate jurisdiction over decisions, orders or resolutions of the RTCs
in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction, there is no
categorical statement under RA 1125 as well as the amendatory RA 9282, which provides that th e CTA has jurisdiction over
petitions for certiorari assailing interlocutory orders issued by the RTC in local tax cases filed before it.
The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original jurisdiction which
must be expressly conferred by the Constitution or by law and cannot be implied from the mere existence of appellate jurisdiction.

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 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.
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to issue,
among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be
assumed that the law intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such appellate
jurisdiction. There is no perceivable reason why the transfer should only be considered as partial, not total.
If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA, this Court
would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically the same subject matter –
precisely the split-jurisdiction situation which is anathema to the orderly administration of justice.35 The Court cannot accept that
such was the legislative motive, especially considering that the law expressly confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of judicial review over local tax cases without mention of any other court that may
exercise such power. Thus, the Court agrees with the ruling of the CA that since appellate jurisdiction over private respondents'
complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the same court. To rule otherwise would lead to an absurd situation where one
court decides an appeal in the main case while another court rules on an incident in the very same case.
Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to take
cognizance of petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in
the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.
Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi-judicial tribunals are
concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by law and cannot be
implied from the mere existence of their appellate jurisdiction. This doctrine remains as it applies only to quasi-judicial bodies.

ASIATRUST DEVELOPMENT BANK, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 201530, April 19, 2017, DEL CASTILLO, J.:
TOPIC: The Court of Tax Appeals | COPIED FROM THE WEDNESDAY CLASS

FACTS: Asiatrust received from CIR three Formal Letters of Demand (FLD) with Assessment Notices for deficiency internal revenue
taxes in the amounts of P131,909,161.85, P83,012,265.78, and ₱l44,012,918.42 for fiscal years ending June 30, 1996, 1997, and
1998, respectively.
Asiatrust timely protested the assessment notices. Due to the inaction of the CIR on the protest, Asiatrust filed before the
CTA a Petition for Review. CIR issued against Asiatrust new Assessment Notices for deficiency taxes in the amounts of ₱l
12,816,258.73, ₱53,314,512.72, and ₱133,013,458.73, covering the fiscal years ending June 30, 1996, 1997, and 1998,
respectively.
On the same day, Asiatrust partially paid said deficiency tax assessments. CIR approved Asiatrust's Offer of Compromise
of DST - regular assessments for the fiscal years ending June 30, 1996, 1997, and 1998.
CTA Division rendered a Decision partially granting the Petition. The CTA Division declared void the tax assessments for
fiscal year ending June 30, 1996 for having been issued beyond the three-year prescriptive period.
Asiatrust filed a Motion for Reconsideration. The CIR, on the other hand, filed a Motion for Partial Reconsideration of the
assessments assailing the CTA Division's finding of prescription and cancellation of assessment notices for deficiency income, DST
- regular, DST - trust, and fringe benefit tax for fiscal years ending June 30, 1997 and 1998.
CTA Division issued a Resolution denying the motion of the CIR while partially granting the motion of Asiatrust.
Meanwhile, the CIR appealed however dismissed the Petition for being premature considering that the proceedings before the CTA
Division was still pending.
Both parties appealed to CTA En Banc which denied both appeals. It denied the CIR' s appeal for failure to file a prior
motion for reconsideration of the Amended Decision, while it denied Asiatrust's appeal for lack of merit. Hence, this petition.

ISSUE: WHETHER OR NOT THE CTA EN BANC COMMITTED REVERSIBLE ERROR WHEN IT DISMISSED [THE CIR'S]
PETITION FOR REVIEW ON THE GROUND THAT THE LATTER ALLEGEDLY FAILED TO COMPLY WITH SECTION 1, RULE 8
OF THE REVISED RULES OF THE CTA.

HELD: NO. An appeal to the CTA En Banc must be preceded by the filing of a timely motion for reconsideration or new trial with the
CTA Division.

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 Section 1, Rule 8 of the Revised Rules of the CTA states:

SECTION 1. Review of cases in the Court en bane. - In cases falling under the exclusive appellate jurisdiction of the Court en
bane, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for
reconsideration or new trial with the Division.

Thus, in order for the CTA En Banc to take cognizance of an appeal via a petition for review, a timely motion for
reconsideration or new trial must first be filed with the CTA Division that issued the assailed decision or resolution. Failure to do so
is a ground for the dismissal of the appeal as the word "must" indicates that the filing of a prior motion is mandatory, and not merely
directory.
The same is true in the case of an amended decision. Section 3, Rule 14 of the same rules defines an amended decision
as "[a]ny action modifying or reversing a decision of the Court en bane or in Division." As explained in CE Luzon Geothermal Power
Company, Inc. v. Commissioner of Internal Revenue, an amended decision is a different decision, and thus, is a• proper subject of
a motion for reconsideration.
In this case, the CIR's failure to move for a reconsideration of the Amended Decision of the CTA Division is a ground for
the dismissal of its Petition for Review before the CTA En Banc. Thus, the CTA En Banc did not err in denying the CIR's appeal on
procedural grounds.
Due to this procedural lapse, the Amended Decision has attained finality insofar as the CIR is concerned. The CIR,
therefore, may no longer question the merits of the case before this Court. Accordingly, there is no reason for the Court to discuss
the other issues raised by the CIR.
As the Court has often held, procedural rules exist to be followed, not to be trifled with, and thus, may be relaxed only for
the most persuasive reasons.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION v. CIR

GR No. 198146 dated August 8, 2017
DOCTRINE: All disputes and claims solely between government agencies and offices, government-owned or controlled corporation,
shall be administratively settled by the Secretary of Justice, the Solicitor General or the Government Corporate Counsel.

FACTS: Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled
corporation created under Republic Act No. 9136 (RA 9136), also known as the Electric Power Industry Reform Act of 2001
(EPIRA). Section 50 of RA 9136 states that the principal purpose of PSALM is to manage the orderly sale, disposition, and
privatization of the National Power Corporation (NPC) generation assets, real estate and other disposable assets, and Independent
Power Producer (IPP) contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an
optimal manner.
PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant
(Pantabangan-Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant) on 8 September 2006 and 14 December 2006,
respectively. First Gen Hydropower Corporation with its $129 Million bid and SN Aboitiz Power Corporation with its $530 Million bid
were the winning bidders for the PantabanganMasiway Plant and Magat Plant, respectively.
On 28 August 2007, the NPC received a letter dated 14 August 2007 from the Bureau of Internal Revenue (BIR)
demanding immediate payment of ₱3,813,080,4726 deficiency value-added tax (VAT) for the sale of the Pantabangan-Masiway
Plant and Magat Plant. The NPC indorsed BIR's demand letter to PSALM.
On 30 August 2007, the BIR, NPC, and PSALM executed a Memorandum of Agreement (MOA). In compliance with the
MOA, PSALM remitted under protest to the BIR the amount of ₱3, 813, 080, 472, representing the total basic VAT due.
On 21 September 2007, PSALM filed with the Department of Justice (DOJ) a petition for the adjudication of the dispute with the BIR
to resolve the issue of whether the sale of the power plants should be subject to VAT. The case was docketed as OSJ Case No.
2007-3.
On 13 March 2008, the DOJ ruled in favor of PSALM. The BIR moved for reconsideration, alleging that the DOJ had no
jurisdiction since the dispute involved tax laws administered by the BIR and therefore within the jurisdiction of the Court of Tax
Appeals (CTA). Furthermore, the BIR stated that the sale of the subject power plants by PSALM to private entities is in the course of
trade or business, as contemplated under Section 105 of the National Internal Revenue Code (NIRC) of 1997, which covers
incidental transactions. Thus, the sale is subject to VAT. But this is to no avail.
The BIR Commissioner (Commissioner of Internal Revenue) filed with the Court of Appeals a petition for certiorari,
seeking to set aside the DOJ's decision for lack of jurisdiction. In a Resolution dated 23 April 2009, the Court of Appeals dismissed
the petition for failure to attach the relevant pleadings and documents. Upon motion for reconsideration, the Court of Appeals
reinstated the petition in its Resolution dated 10 July 2009.
The Court of Appeals held that the petition filed by PSALM with the DOJ was really a protest against the assessment of
deficiency VAT, which under Section 204 of the NIRC of 1997 is within the authority of the Commissioner of Internal Revenue (CIR)
to resolve. In fact, PSALM's objective in filing the petition was to recover the ₱3,813,080,472 VAT which was allegedly assessed
erroneously and which PSALM paid under protest to the BIR.

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 Power Sector Assets & Liabilities Management Corporation (PSALM) filed a Petition for Review seeking the reversal of
the earlier decision and resolution of the Court of Appeals nullifying the decision of the Secretary of Justice.
Issue: Whether or not the Secretary of Justice has jurisdiction over the case.

HELD/RATIO: It was noted that the DOJ is vested by law to have jurisdiction over this case pursuant to Presidential Decree No. 242
which states that all disputes and claims solely between government agencies and offices, government-owned or controlled
corporation, shall be administratively settled by the Secretary of Justice, the Solicitor General or the Government
Corporate Counsel. The SC ruled that the sale of the power plants is not subject to VAT since the sale was made pursuant to
PSALMS‘s mandate to privatize NPC assets and was not undertaken in the course of trade or business, thus, PSALM was merely
exercising a governmental function under EPIRA law.

P. Abatement of Tax / Tax Compromise

a. Secs. 7 and 204 of the NIRC

SEC. 7. Authority of the Commissioner to Delegate Power - The Commissioner may delegate the powers vested in him under
the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject
to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance,
upon recommendation of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be
delegated:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided, however, That
assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and
minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon
recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation
board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are
produced or kept.

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may -
(A) Compromise the Payment of any Internal Revenue Tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax;
and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.

(B) Abate or Cancel a Tax Liability, when:

(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change
unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes
or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as
a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax,
excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits
may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate
showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further,
That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no
actual payment was made.

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 The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of
Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts
and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or
compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said
report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are
reasonably exercised and that the government is not unduly deprived of revenues.

Q. Civil Penalties
1. Surcharge
a. Sec. 248 of the NIRC

SEC. 248. Civil Penalties. - (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-
five percent (25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and
regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with
whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this
Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date
prescribed for its payment.

(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in
case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the
deficiency tax, in case, any payment has been made on the basis of such return before the discovery of the falsity or fraud:
Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as
determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall
constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an
amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of
actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.

2. New Rule on Interest

a. Sec. 249 of the NIRC. (as amended by RA 10963)
b. RR No. 21-2018.

SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of double the
legal interest rate for loans or forbearance of any money in the absence of an express stipulation as set by the Bangko Sentral ng
Pilipinas from the date prescribed for payment until the amount is fully paid: Provided, That in no case shall the deficiency and the
delinquency interest prescribed under Subsections (B) and (C) hereof, be imposed simultaneously.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest
prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the
full payment thereof, or upon issuance of a notice and demand by the Commissioner of Internal Revenue, whichever comes earlier.
(C) Delinquency Interest. - In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the
Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof
until the amount is fully paid, which interest shall form part of the tax.
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such amount or
installment on or before the date prescribed for its payment, or where the Commissioner has authorized an extension of time within
which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove
prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid.

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 IV. LOCAL AND REAL PROPERTY TAXATION
R. General Principles in Local Taxation
1. Local Government Units‘ Power to Tax
a. Sec. 5 Art. X of the 1987 Constitution
b. Sec. 129 of the Local Government Code (―LGC‖)

Section 5. 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 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources
of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local government units.

c. Film Development Council of the Philippines v. Colon Heritage Realty, GR No.

203754 dated June 16, 2015  DELFIN

Film Development Council of the Phils. v. Colon Heritage Realty Corp.

G.R. No. 203754 & 204418, [June 16, 2015] | VELASCO, JR., J.:
DOCTRINE: In Pimentel v. Aguirre, fiscal autonomy was defined as "the power [of LGUs] to create their own sources of revenue in
addition to their equitable share in the national taxes released by the national government, as well as the power to allocate their
resources in accordance with their own priorities. It extends to the preparation of their budgets, and local officials in tum have to
work within the constraints thereof."
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. The basic
rationale for the current rule on local fiscal autonomy is the strengthening of LGUs and the safeguarding of their viability and self-
sufficiency through a direct grant of general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation
to be absolute and unconditional. The legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each LGU will have its fair share of available resources; ( c) the resources of the national
government will not be unduly disturbed; and ( d) local taxation will be fair, uniform, and just.

FACTS: Sometime in 1993, City of Cebu, in its exercise of its power to impose amusement taxes under Section 140 of the Local
Government Code (LGC) anchored on the constitutional policy on local autonomy, passed City Ordinance No. LXIX otherwise
known as the "Revised Omnibus Tax Ordinance of the City of Cebu (tax ordinance)." Central to the case at bar are Sections 42 and
43, Chapter XI thereof which require proprietors, lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement, to pay an amusement tax equivalent to thirty percent (30%) of the gross receipts of admission fees
to the Office of the City Treasurer of Cebu City. Almost a decade later, or on June 7, 2002, Congress passed RA 9167, creating the
Film Development Council qf the Philippines (FDCP) and abolishing the Film Development Foundation of the Philippines, Inc. and
the Film Rating Board. Secs. 13 and 14 of RA 9167 provided for the tax treatment of certain graded films. According to petitioner,
from the time RA 9167 took effect up to the present, all the cities and municipalities in Metro Manila, as well as urbanized and
independent component cities, with the sole exception of Cebu City, have complied with the mandate of said law.
Accordingly, petitioner, through the Office of the Solicitor General, sent on January 2009 demand letters for unpaid
amusement tax reward (with 5% surcharge for each month of delinquency) due to the producers of the Grade "A" or "B". In said
letters, the proprietors and cinema operators, including private respondent Colon Heritage Realty Corp. (Colon Heritage), operator
of the Oriente theater, were given ten (10) days from receipt thereof to pay the aforestated amounts to FDCP. The demand,
however, fell on deaf ears. Meanwhile, on March 25, 2009, petitioner received a letter from Regal Entertainment, Inc., inquiring on
the status of its receivables for tax rebates in Cebu cinemas for all their A and B rate films along with those which it co-produced
with GMA films. This was followed by a letter from Star Cinema ABS-CBN Film Productions, Inc., requesting the immediate
remittance of its amusement tax rewards for its graded films for the years 2004-2008.
Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts as FDCP demanded,
on one hand, and Cebu City's assertion of a claim on the amounts in question, the city finally filed on May 18, 2009 before the RTC,
Branch 14 a petition for declaratory relief with application for a writ of preliminary injunction. In said petition, Cebu City sought the
declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional. Similarly, Colon Heritage filed before the RTC, seeking to
declare Sec. 14 of RA 9167 as unconstitutional.

ISSUE: Whether or not Secs. 13 and 14 of RA 9167 are invalid for being unconstitutional.

HELD: Material to the case at bar is the concept and scope of local fiscal autonomy. In Pimentel v. Aguirre, fiscal autonomy was
defined as "the power [of LGUs] to create their own sources of revenue in addition to their equitable share in the national taxes

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 130
released by the national government, as well as the power to allocate their resources in accordance with their own priorities. It
extends to the preparation of their budgets, and local officials in tum have to work within the constraints thereof."
With the adoption of the 1973 Constitution, and later the 1987 Constitution, municipal corporations were granted fiscal
autonomy via a general delegation of the power to tax. Section 5, Article XI of the 1973 Constitution gave LGUs the "power to create
its own sources of revenue and to levy taxes, subject to such limitations as may be provided by law.'' This authority was further
strengthened in the 1987 Constitution, through the inclusion in Section 5, Article X thereof of the condition that " [s]uch taxes, fees,
and charges shall accrue exclusively to local governments."
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. The basic
rationale for the current rule on local fiscal autonomy is the strengthening of LGUs and the safeguarding of their viability and self-
sufficiency through a direct grant of general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation
to be absolute and unconditional. The legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each LGU will have its fair share of available resources; ( c) the resources of the national
government will not be unduly disturbed; and ( d) local taxation will be fair, uniform, and just.
In conformity to the dictate of the fundamental law for the legislature to "enact a local government code which shall
provide for a more responsive and accountable local government structure instituted through a system of decentralization,"
consistent with the basic policy of local autonomy, Congress enacted the LGC, Book II of which governs local taxation and fiscal
matters and sets forth the guidelines and limitations for the exercise of this power. In Pelizloy Realty Corporation v. The Province of
Benguet, the Court alluded to the fundamental principles governing the taxing powers of LGUs as laid out in Section 130 of the
LGC, to wit:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be subject to the
disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

It is in the application of the adverted fourth rule, that is-all revenue collected pursuant to the provisions of the LGC shall
inure solely to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless
otherwise specifically provided by the LGC-upon which the present controversy grew.

RA 9167 violates local fiscal autonomy

It is beyond cavil that the City of Cebu had the authority to issue its City Ordinance No. LXIX and impose an amusement
tax on cinemas pursuant to Sec. 140 in relation to Sec. 151 of the LGC. Sec. 140 states, among other things, that a "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." By operation of said Sec. 151, extending to them the authority of provinces and municipalities to levy certain taxes, fees, and
charges, cities, such as respondent city government, may therefore validly levy amusement taxes subject to the parameters set forth
under the law. Based on this authority, the City of Cebu passed, in 1993, its Revised Omnibus Tax Ordinance,32 Chapter XI, Secs.
42 and 43 of which reads:
Then, after almost a decade of cities reaping benefits from this imposition, Congress, through RA
9167, amending Section 140 of the LGC, among others, transferred this income from the cities and
municipalities in Metropolitan Manila and highly urbanized and independent component cities, such
as respondent City of Cebu, to petitioner FDCP, which proceeds will ultimately be rewarded to the
producers of graded films.

A reading of the challenged provision reveals that the power to impose amusement taxes was NOT removed from the
covered LGUs, unlike what Congress did for the taxes enumerated in Sec. 133, Article X of the LGC, which lays down the common
limitations on the taxing powers of LGUs.
From the above, the difference between Sec. 133 and the questioned amendment of Sec. 140 of the LGC by RA 9167 is
readily revealed. In Sec. 133, what Congress did was to prohibit the levy by LGUs of the enumerated taxes. For RA 9167, however,
the covered LGUs were deprived of the income which they will otherwise be collecting should they impose amusement taxes, or, in
petitioner's own words, "Section 14 of [RA 9167] can be viewed as an express and real intention on the part of Congress to remove
from the LGU's delegated taxing power, all revenues from the amusement taxes on graded films which would otherwise accrue to
[them] pursuant to Section 140 of the [LGC]."

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 In other words, per RA 9167, covered LGUs still have the power to levy amusement taxes, albeit at the end of the day,
they will derive no revenue therefrom. The same, however, cannot be said for FDCP and the producers of graded films since the
amounts thus levied by the LGUs which should rightfully accrue to them, they being the taxing authority-will be going to their coffers.
As a matter of fact, it is only through the exercise by the LGU of said power that the funds to be used for the amusement tax reward
can be raised. Without said imposition, the producers of graded films will receive nothing from the owners, proprietors and lessees
of cinemas operating within the territory of the covered LGU.
Taking the resulting scheme into consideration, it is apparent that what Congress did in this instance was not to exclude
the authority to levy amusement taxes from the taxing power of the covered LGUs, but to earmark, if not altogether confiscate, the
income to be received by the LGU from the taxpayers in favor of and for transmittal to FDCP, instead of the taxing authority. This, to
Our mind, is in clear contravention of the constitutional command that taxes levied by LGUs shall accrue exclusively to said LGU
and is repugnant to the power of LGUs to apportion their resources in line with their priorities.
It is a basic precept that the inherent legislative powers of Congress, broad as they may be, are limited and confined
within the four walls of the Constitution. Accordingly, whenever the legislature exercises its power to enact, amend, and repeal laws,
it should do so without going beyond the parameters wrought by the organic law.
In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the amusement taxes
levied by the covered LGUs did not and will under no circumstance accrue to them, not even partially, despite being the taxing
authority therefor. Congress, therefore, clearly overstepped its plenary legislative power, the amendment being violative of the
fundamental law's guarantee on local autonomy, as echoed in Sec. 130(d) of the LGC.
Moreover, in Pimentel, the Court elucidated that local fiscal autonomy includes the power of LGUs to allocate their
resources in accordance with their own priorities. By earmarking the income on amusement taxes imposed by the LGUs in favor of
FDCP and the producers of graded films, the legislature appropriated and distributed the LGUs' funds-as though it were legally
within its control-under the guise of setting a limitation on the LGUs' exercise of their delegated taxing power. This, undoubtedly, is a
usurpation of the latter's exclusive prerogative to apportion their funds, an impermissible intrusion into the LGUs' constitutionally-
protected domain which puts to naught the guarantee of fiscal autonomy to municipal corporations enshrined in our basic law.

2. Repeal of Tax Exemptions

a. Sec. 193 of the LGC

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.

b. PLDT vs. City of Davao GR No. 143867, August 22, 2001  GARCIA

PLDT v. City of Davao

G.R. No. 143867, [August 22, 2001], 415 PHIL 764-780
COPIED FROM THE WEDNESDAY CLASS!

DOCTRINE: There is nothing in the language of Sec. 23 nor in the proceedings of both the House of Representatives and the
Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities,
including those whose exemptions had been withdrawn by the LGC.

FACTS: Petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayor's Permit to operate its Davao Metro
Exchange. Respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax.
Petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997
and the first to the third quarters of 1998. Petitioner contended that it was exempt from the payment of franchise tax based on an
opinion of the Bureau of Local Government Finance (BLGF) which reads as follows:
PLDT:
Section 12 of RA 7082 provides as follows:
"SECTION 12. The grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate, buildings, and personal property, exclusive of
this franchise, as other persons or corporations are now or hereafter may be
required by law to pay. In addition thereto, the grantee, its successors or assigns
shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of
the telephone or other telecommunications businesses transacted under this
franchise by the grantee, its successors or assigns, and the said percentage
shall be in lieu of all taxes on this franchise or earnings thereof . . ."

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 It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a franchise
to install, operate and maintain a telephone system throughout the Philippine Islands was approved
on August 3, 1991. Section 12 of said franchise, likewise, contains the "in lieu of all taxes" proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was approved on March 1, 1995,
provides for the equality of treatment in the telecommunications industry:
"SECTION 23. Equality of Treatment in the Telecommunications Industry. —
Any advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of
previously granted telecommunications franchise and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the
life span of the franchise, or the type of service authorized by the franchise."

On the basis of the aforequoted Section 23 of RA 7925, PLDT as a telecommunications

franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which
took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business taxes
imposable by LGUs under Sections 137 and 143 (sic), respectively, of the LGC, upon the effectivity of
RA 7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes
on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period PLDT
was not enjoying the "most favored clause" proviso of RA 7025 (sic).

In a letter, respondent Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund of
petitioner, citing the legal opinion of the City Legal Officer of Davao and Art. 10, §1 of Ordinance No. 230, Series of 1991, as
amended by Ordinance No. 519, Series of 1992, which provides:
Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.
The trial court denied petitioner's appeal and affirmed the City Treasurer's decision. It ruled that the LGC withdrew all tax
exemptions previously enjoyed by all persons and authorized local government units to impose a tax on businesses enjoying a
franchise notwithstanding the grant of tax exemption to them.

ISSUE: Whether or not the LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government
units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them.

RULING: Yes. The LGC, which took effect on January 1, 1992, provides:
SECTION 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special
law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent
(1%) of the capital investment. In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or
any fraction thereof, as provided herein.8
SECTION 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or -controlled corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.

Sec. 137 does not state that it covers future exemptions. In Philippine Airlines, Inc. v. Edu, where a provision of the Tax
Code enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed by PAL, it was held that a subsequent amendment of
PAL's franchise, exempting it from all other taxes except that imposed by its franchise, again entitled PAL to exemption from the
date of the enactment of such amendment. The Tax Code provision withdrawing the tax exemption was not construed as prohibiting
future grants of exemptions from all taxes.
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the
power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the
constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts
must be resolved in favor of municipal corporations.

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 The question, therefore, is whether, after the withdrawal of its exemption by virtue of Sec. 137 of the LGC, petitioner has
again become entitled to exemption from local franchise tax. Petitioner answers in the affirmative and points to Sec. 23 of R.A. No.
7925, in relation to the franchises of Globe Telecom (Globe) and Smart Communications, Inc. (Smart), which allegedly grant the
latter exemption from local franchise taxes.
To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum
Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be
odious to the law. He who claims an exemption must be able to point to some positive provision of
law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. & P.
Bank (91 Tenn., 546, 550), "The right of taxation is inherent in the State. It is a prerogative essential
to the perpetuity of the government; and he who claims an exemption from the common burden must
justify his claim by the clearest grant of organic or statute law." Other utterances equally or more
emphatic come readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt
(16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation will not be held to have
been surrendered, "unless the intention to surrender is manifested by words too plain to be
mistaken." In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of
the United States said that the surrender, when claimed, must be shown by clear, unambiguous
language, which will admit of no reasonable construction consistent with the reservation of the power.
If a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State. In
Erie Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt,
speaking of exemptions, observed that a State cannot strip itself of the most essential power of
taxation by doubtful words. "It cannot, by ambiguous language, be deprived of this highest attribute of
sovereignty." In Tennessee vs. Whitworth (117 U.S., 129, 136), it was said: "In all cases of this kind
the question is as to the intent of the legislature, the presumption always being against any surrender
of the taxing power." In Farrington vs. Tennessee and County of Shelby (95 U.S., 679, 686), Mr.
Justice Swayne said: ". . . When exemption is claimed, it must be shown indubitably to exist. At the
outset, every presumption is against it. A well-founded doubt is fatal to the claim. It is only when the
terms of the concession are too explicit to admit fairly of any other construction that the proposition
can be supported."

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi jurisagainst the
taxpayer and liberally in favor of the taxing authority.
In the present case, petitioner justifies its claim of tax exemption by strained inferences. First, it cites R.A. No. 7925,
otherwise known as the Public Telecommunications Policy Act of the Philippines, Sec. 23 of which reads:
SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage,
favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted telecommunications franchises and shall
be accorded immediately and unconditionally to the grantees of such franchises: Provided, however,
That the foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type of service
authorized by the franchise.

Petitioner then claims that Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their
legislative franchises per opinion of the Bureau of Local Government Finance of the Department of Finance. Finally, it argues that
because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected
by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it.
The acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise, Globe is required
to pay a franchise tax of only one and one-half percentum (1½%) of all gross receipts from its transactions while Smart is required to
pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioner's theory would require that, to level the
playing field, any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be extended to all
telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications
company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to
"level the playing field" so to speak. This could not have been the intent of Congress in enacting §23 of Rep. Act 7925. Petitioner's
theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some
companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege,
exemption, or immunity to all telecommunications entities.
The fact is that the term "exemption" in Sec. 23 is too general. A cardinal rule in statutory construction is that legislative
intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. For, taken in the
abstract, a word or phrase might easily convey a meaning which is different from the one actually intended. A general provision may

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actually have a limited application if read together with other provisions. Hence, a consideration of the law itself in its entirety and the
proceedings of both Houses of Congress is in order.
R.A. No. 7925 is thus a legislative enactment designed to set the national policy on telecommunications and provide the
structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the
law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus
promote a level playing field in the telecommunications industry. There is nothing in the language of Sec. 23 nor in the
proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it
contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.
What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to this case: "When exemption is
claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the
claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be
supported." In this case, the word "exemption" in Sec. 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or
reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local
taxes, the BLGF did not base its opinion on Sec. 23 but on the fact that the franchises granted to them after the effectivity of the
LGC exempted them from the payment of local franchise and business taxes.
Second. In the case of petitioner, the BLGF opined that Sec. 23 of R.A. No. 7925 amended the franchise of petitioner and
in effect restored its exemptions from local taxes. Petitioner contends that courts should not set aside conclusions reached by the
BLGF because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the
courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial
functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services
and technical assistance to local governments and the general public on local taxation, real property assessment, and other related
matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of Sec. 23 of R.A. No. 7925.
There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective
fields.
In sum, it does not appear that, in approving Sec. 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax
exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule
that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, the
Court holds that Sec. 23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to
exemption from the imposition of local franchise taxes.

3. Procedure for approval and effectivity of tax ordinance

a. Secs. 132, 187 and 188 of the LGC

Section 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue under this Code shall be
exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public Hearings. - The
procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code:
Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days
from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of
the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.

Section 188. Publication of Tax Ordinances and Revenue Measures. - Within ten (10) days after their approval, certified true copies
of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a
newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of
local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.

S. Common Limitations on Local Government Units‘ Power to Tax

1. Sec. 133 of the LGC

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
a) Income tax, except when levied on banks and other financial institutions;
b) Documentary stamp tax;

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 c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;
d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees,
charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;
e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes,
fees, or charges in any form whatsoever upon such goods or merchandise;
f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration;
h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or charges
on petroleum products;
i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except
as otherwise provided herein;
j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water, except as provided in this Code;
k) Taxes on premiums paid by way or reinsurance or retrocession;
l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the
driving thereof, except tricycles;
m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;
n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A.
No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperative Code of the Philippines" respectively; and
o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government
units.

2. Petron Corp. vs. Tiangco, GR No. 158881 dated April 16, 2008  GONZALES
3. Batangas City vs. Pilipinas Shell Petroleum Corporation, GR No. 187631, July 8, 2015  PALMIANO
4. City of Manila vs. Colet, GR No. 120051 dated December 10, 2014  QUILANG
5. Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil, GR # 183416, 10/5/2016  SIMBAJON
6. MIAA vs. CA, GR No. 155650 dated July 20, 2006  TABABA

Batangas City v. Pilipinas Shell Petroleum Corp.,

G.R. No. 187631, [July 8, 2015]
DOCTRINE: Petroleum products are specifically excluded from the broad power granted to LGUs under Section 143(h) of the LGC
to impose business taxes.

FACTS: Batangas City is a LGU with the capacity to sue and be sued under its Charter and Section 22(a)(2) of the LGC. PSPC
operates an oil refinery and depot in Batangas City, which manufactures and produces petroleum products that are distributed
nationwide.
Batangas City sent a notice of assessment to PSPC demanding payment of business taxes for its manufacture and
distribution of petroleum products. PSPC filed a protest contending among others that it is not liable for the payment of the local
business tax either as a manufacturer or distributor of petroleum products. Batangas City denied protest and declared that under
Section 14 of the Batangas City Tax Code, they are empowered to withhold the issuance of the Mayor‘s Permit for failure of
respondent to pay the business taxes. PSPC filed a Petition for Review. It maintained that Batangas City have no authority to
impose the said taxes and fees and argued that the levy of local business taxes on the business of manufacturing and distributing
gasoline and other petroleum products is contrary to law and against national policy. In its Answer, Batangas City contended that it
can legally impose taxes on the business of manufacturing and distribution of petroleum products. The RTC rendered a Decision
sustaining the imposition of business taxes. The CTA Second Division granted PSPC petition. It held that PSPC is not subject to the
business taxes on the manufacture and distribution of petroleum products because of the express limitation provided under Section
133(h) of the LGC. The CTA En Banc promulgated a Decision affirming in toto the Decision of the CTA Second Division.

ISSUE: Whether a LGU is empowered under the LGC to impose business taxes on persons or entities engaged in the business of
manufacturing and distribution of petroleum products.

HELD: No. Although the power to tax is inherent in the State, the same is not true for LGUs because although the mandate to
impose taxes granted to LGUs is categorical and long established in the 1987 Philippine Constitution, the same is not all
encompassing as it is subject to limitations as explicitly stated in Section 5, Article X of the 1987 Constitution, viz.:
SECTION 5. 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

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 provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.

Section 133 provides for the common limitations on the taxing powers of LGUs. Among the common limitations on the
taxing powers of LGUs under Section 133 of the LGC is par. (h) which states:
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(h) Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees or charges on
petroleum products.;

From the foregoing, Section 133(h) clearly specifies the two kinds of taxes which cannot be imposed by LGUs:
1. excise taxes on articles enumerated under the NIRC, as amended; and
2. taxes, fees or charges on petroleum products.

Indisputably, the power of LGUs to impose business taxes derives from Section 143 of the LGC. However, the same is
subject to the explicit statutory impediment provided for under Section 133(h) of the same Code.
Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even
the activity or privilege related to the petroleum products, such as manufacturing and distribution of said products, it is covered by
the said limitation and thus, no levy can be imposed. On the contrary, Section 143 of the LGC defines the general power of LGUs to
tax businesses within its jurisdiction. Thus, the omnibus grant of power to LGUs under Section 143(h)of the LGC cannot overcome
the specific exception or exemption in Section 133(h) of the same Code. This is in accord with the rule on statutory construction that
specific provisions must prevail over general ones. A special and specific provision prevails over a general provision irrespective of
their relative positions in the statute. Generalia specialibus non derogant. Where there is in the same statute a particular enactment
and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are
not within the provisions of the particular enactment.

City of Manila, et al vs. Judge Colet, and Malaysian Airline System

G.R. No. 120051, December 10, 2014
FACTS: The case involves 10 consolidated petitions involving several corporations operating as ―transportation contractors,
persons who transport passenger or freight for hire, and common carriers by land, air or water‖ with principal offices in Metro Manila,
and City of Manila‘s Ordinance No. 7807 which amended Sec. 21 (B) of the Manila Revenue Code. Sec.21 (B) imposed business
tax on ―transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water‖;
while the subject ordinance amended such by lowering the tax rate from 3% per annum to .5% per annum. The City of Manila,
through its City Treasurer, began imposing and collecting the business tax under Section 21(B) of the Manila Revenue Code, as
amended, beginning January 1994.
Because they were assessed and/or compelled to pay business taxes pursuant to Section 21(B) of the Manila Revenue
Code before they were issued their business permits for 1994, several corporations questioned the constitutionality of Sec. 21 (B)
for being contrary to the Constitution and the Local Government Code, and asked for the refund of what they had paid as business
tax.
The City of Manila, argued that it was constitutional and valid; and such position was adopted by the RTC and the CA
when the case reached the respective fora. The City argued that the enactment of Sec. 21 (B) is based on the exempting clause
found at the beginning of Sec. 133, in conjunction with Section 143(h), of the LGC. See Sec. 33 above!

SEC. 143. Tax on Business. – The municipality may impose taxes on the following businesses:
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to
tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue
Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates
prescribed herein. (Emphases supplied by the Supreme Court)

ISSUE: Is Sec. 21 (B) of the Manila Revenue Code, as amended, unconstitutional?

HELD: Yes. The power to tax is not inherent in LGUs to whom the power must be delegated by Congress and must be exercised
within the guidelines and limitations that Congress may provide.

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 Sec. 5 of Article X of the Constitution granted LGUs 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...‖ In conformity with said constitutional
provision, the Local Gov‘t Code was enacted by Congress.
Sec. 130 of the LGC provides for the fundamental principles governing the taxing powers of LGUs. Sec. 133 provides for
the common limitations on the taxing powers of LGUs. Among the common limitations on the taxing power of LGUs is Section 133(j)
of the LGC, which states that ―unless otherwise provided herein,‖ the taxing power of LGUs shall not extend to ―taxes on the gross
receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code.‖
Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of
transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land,
or water. Yet, confusion arose from the phrase ―unless otherwise provided herein,‖ found at the beginning of the said provision, and
the City of Manila anchors the validity of Sec. 21 (B) on said phrase.
However, the Court is not convinced with the City‘s contention. Sec. 133(j) of the LGC prevails over Sec. 143(h) of the
same Code, and Sec. 21(B) of the Manila Revenue Code, as amended, was manifestly in contravention of the former.
Sec. 133(j) of the LGC is a specific provision that explicitly withholds from any LGU the power to tax the gross receipts of
transportation contractors, common carriers, persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land, or water. In contrast, Sec. 143 of the LGC defines the general power of the municipality (as well as the city, if
read in relation to Section 151 of the same Code) to tax businesses within its jurisdiction.
The succeeding proviso of Section 143(h) of the LGC, viz., ―Provided, That on any business subject to the excise, value-
added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%)
of gross sales or receipts of the preceding calendar year,‖ is not a specific grant of power to the municipality or city to impose
business tax on the gross sales or receipts of such a business. Rather, the proviso only fixes a maximum rate of imposable
business tax in case the business taxed under Section 143(h) of the LGC happens to be subject to excise, value added, or
percentage tax under the NIRC.
The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific
exception/exemption in Section 133(j) of the same Code.
In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance imposing business tax on the
gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land, or water, when said sanggunian was already specifically prohibited from doing so.
Such construction gives effect to both Sections 133(j) and 143(h) of the LGC. Also, Sec. 5(b) of the LGC itself, on Rules of
Interpretation, provides that in case of doubt, any tax ordinance shall be construed strictly against the LGU enacting it, and liberally
in favor of the taxpayer. Furthermore, such a construction is pursuant to the legislative intent to exclude from the taxing power of the
LGU the imposition of business tax against common carriers to prevent a duplication of the so-called ―common carrier‘s tax.

T. Specific Taxes
1. Local Transfer Tax
a. Sec. 135 of the LGC

Section 135. Tax on Transfer of Real Property Ownership.

a) The province may impose a tax on the sale , donation, barter, or on any other mode of transferring ownership or title of
real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total consideration involved in
the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not
substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. No. 6657 shall be
exempt from this tax.
b) For this purpose, the Register of Deeds of the province concerned shall, before registering any deed, require the
presentation of the evidence of payment of this tax. The provincial assessor shall likewise make the same requirement
before cancelling an old tax declaration and issuing a new one in place thereof, Notaries public shall furnish the provincial
treasurer with a copy of any deed transferring ownership or title to any real property within thirty (30) days from the date of
notarization.
It shall be the duty of the seller, donor, transferor, executor or administrator to pay the tax herein imposed within sixty (60)
days from the date of the execution of the deed or from the date of the decedent's death.

2. Franchise Tax
a. Sec. 137 of the LGC

Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a
tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

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 In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction thereon, as provided herein.

b. Smart Communications vs. City of Davao, GR No. 155491, Sep. 16, 2008  TATOY
c. City of Iriga vs. Camarines Sur III Electric Cooperative, Inc., GR No. 192945 dated
September 5, 2012. (Perlas-Bernabe)  VALDEZ

Smart Communications, Inc. v. City of Davao

G.R. No. 155491, [September 16, 2008], 587 PHIL 20-41
DOCTRINE: The uncertainty in the ―in lieu of all taxes‖ clause in R.A. No. 7294 on whether Smart is exempted from both local an
national franchise tax is construed strictly against Smart who is claiming the exemption. Smart has the burden of proving that, aside
from the imposed 3% franchise tax, Congress intended it to be exempted from all kinds of franchise taxes—whether local or
national. However, Smart failed in this regard. Tax exemptions are never presumed and are strictly construed against the taxpayer
and liberally in favor of the taxing authority. They can only be given force when the grant is clear and categorical. The surrender of
the power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable construction consistent with
the reservation of the power. If the intention of the legislature is open to doubt, then the intention of the legislature must be resolved
in favor of the State. In this case, the doubt must be resolved in favor of the City of Davao. The ―in lieu of all taxes‖ clause applies
only to national internal revenue taxes and not to local taxes.

FACTS:
 On February 18, 2002, Smart filed a special civil action for declaratory relief under Rule 63 of the Rules of Court, for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao, particularly Section 1, Article 10
thereof, the pertinent portion of which reads:
 ―Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.‖
 Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the following
grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 7294 subsequent to R.A. No. 7160 shows the
clear legislative intent to exempt it from the provisions of R.A. 7160; (b) Section 137 of R.A. No. 7160 can only apply to
exemptions already existing at the time of its effectivity and not to future exemptions; (c) the power of the City of Davao to
impose a franchise tax is subject to statutory limitations such as the ―in lieu of all taxes‖ clause found in Section 9 of R.A.
No. 7294; and (d) the imposition of franchise tax by the City of Davao would amount to a violation of the constitutional
provision against impairment of contracts.
 On March 2, 2002, respondents filed their Answer in which they contested the tax exemption claimed by Smart. They
invoked the power granted by the Constitution to local government units to create their own sources of revenue.
 On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved in the case, the RTC
issued an order requiring the parties to submit their respective memoranda and, thereafter, the case would be deemed
submitted for resolution.
 On July 19, 2002, the RTC rendered its Decision denying the petition. The trial court noted that the ambiguity of the ―in
lieu of all taxes‖ provision in R.A. No. 7294, on whether it covers both national and local taxes, must be resolved against
the taxpayer. The RTC ratiocinated that tax exemptions are construed in strictissimi juris against the taxpayer and liberally
in favor of the taxing authority and, thus, those who assert a tax exemption must justify it with words too plain to be
mistaken and too categorical not to be misinterpreted. On the issue of violation of the nonimpairment clause of the
Constitution, the trial court cited Mactan Cebu International Airport Authority v. Marcos, and declared that the city‘s power
to tax is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the
fundamental law. It added that while such power may be subject to restrictions or conditions imposed by Congress, any
such legislated limitation must be consistent with the basic policy of local autonomy.
 Smart filed a motion for reconsideration which was denied by the trial court in an Order dated September 26, 2002.
 Thus, the instant case.

ISSUE: W/N Smart is liable to pay the franchise tax imposed by the City of Davao.

HELD:
 YES. The uncertainty in the ―in lieu of all taxes‖ clause in R.A. No. 7294 on whether Smart is exempted from both local
and national franchise tax is construed strictly against Smart who is claiming the exemption. Smart has the burden of
proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempted from all kinds of franchise
taxes—whether local or national. However, Smart failed in this regard. Tax exemptions are never presumed and are
strictly construed against the taxpayer and liberally in favor of the taxing authority. They can only be given force when the

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 grant is clear and categorical. The surrender of the power to tax, when claimed, must be clearly shown by a language that
will admit of no reasonable construction consistent with the reservation of the power. If the intention of the legislature is
open to doubt, then the intention of the legislature must be resolved in favor of the State. In this case, the doubt must be
resolved in favor of the City of Davao. The ―in lieu of all taxes‖ clause applies only to national internal revenue taxes and
not to local taxes.
 It should be noted that the ―in lieu of all taxes‖ clause in R.A. No. 7294 has become functus officio with the abolition of the
franchise tax on telecommunications companies. As admitted by Smart in its pleadings, it is no longer paying the 3%
franchise tax mandated in its franchise. Currently, Smart along with other telecommunications companies pays the
uniform 10% value-added tax. The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross
receipts derived from the sale or exchange of services. R.A. No. 7716, as amended by the Expanded Value Added Tax
Law (R.A. No. 8241), the pertinent portion of which is hereunder quoted, amended Section 9 of R.A. No. 7294: x x x R.A.
No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special laws relative to the rate of
franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and regulations, or parts
thereof which are inconsistent with it. In effect, the ―in lieu of all taxes‖ clause in R.A. No. 7294 was rendered ineffective by
the advent of the VAT Law.
 In support of its argument that the ―in lieu of all taxes‖ clause is to be construed as an exemption from local franchise
taxes, Smart submits the opinion of the Department of Finance, through the BLGF, dated August 13, 1998 and February
24, 1998, regarding the franchises of Smart and Globe, respectively. Smart presents the same arguments as the
Philippine Long Distance Telephone Company in the previous cases already decided by this Court. As previously held by
the Court, the findings of the BLGF are not conclusive on the courts.
 Smart gives another perspective of the ―in lieu of all taxes‖ clause in Section 9 of R.A. No. 7294 in order to avoid the
payment of local franchise tax. It says that, viewed from another angle, the ―in lieu of all taxes‖ clause partakes of the
nature of a tax exclusion and not a tax exemption. A tax exemption means that the taxpayer does not pay any tax at all.
Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more accurately a tax exclusion. However, as
previously held by the Court, both in their nature and effect, there is no essential difference between a tax exemption and
a tax exclusion. An exemption is an immunity or a privilege; it is the freedom from a charge or burden to which others are
subjected. An exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions. An exclusion is, thus, also an immunity or privilege which frees a
taxpayer from a charge to which others are subjected. Consequently, the rule that a tax exemption should be applied in
strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.
 We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of Section 23 of R.A.
No. 7925. As aptly explained in the en banc decision of this Court in Philippine Long Distance Telephone Company, Inc.
v. City of Davao, 363 SCRA 522 (2001), and recently in Digital Telecommunications Philippines, Inc. (Digitel) v. Province
of Pangasinan, 516 SCRA 541 (2007), Congress, in approving Section 23 of R.A. No. 7925, did not intend it to operate as
a blanket tax exemption to all telecommunications entities. The language of Section 23 of R.A. No. 7925 and the
proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been withdrawn by R.A. No. 7160. The term
―exemption‖ in Section 23 of R.A. No. 7925 does not mean tax exemption. The term refers to exemption from certain
regulations and requirements imposed by the National Telecommunications Commission.
 Smart‘s franchise was granted with the express condition that it is subject to amendment, alteration, or repeal. As held in
Tolentino v. Secretary of Finance, 235 SCRA 630 (1994): It is enough to say that the parties to a contract cannot, through
the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws
read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign
power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and
good order of society. In truth, the Contract Clause has never been thought as a limitation on the exercise of the State‘s
power of taxation save only where a tax exemption has been granted for a valid consideration. x x x.

City of Iriga v. Camarines Sur III Electric Cooperative, Inc.

G.R. No. 192945, [September 5, 2012], 694 PHIL 378-392
DOCTRINE: The Court reiterates that a franchise tax is a tax levied on the exercise by an entity of the rights or privileges granted to
it by the government. In the absence of a clear and subsisting legal provision granting it tax exemption, a franchise holder, though
non-profit in nature, may validly be assessed franchise tax by a local government unit.

FACTS: CASURECO III, an electric cooperative duly organized and existing by virtue of PD 269, as amended, and registered with
the National Electrification Administration (NEA), is engaged in the business of electric power distribution to various end-users and
consumers within the City of Iriga and the Rinconada Area of the Province of Camarines Sur.
Petitioner City of Iriga demanded CASURECO III to pay the franchise taxes due for the period 1998-2003 and real
property taxes due for the period 1995-2003. CASURECO III, however, refused to pay said taxes on the ground that it is an electric

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cooperative provisionally registered with the Cooperative Development Authority (CDA), and therefore exempt from the payment of
local taxes. It denied liability for the assessed taxes, asserting that the computation of the petitioner was erroneous because it
included (1) gross receipts from service areas beyond the latter‘s territorial jurisdiction; (2) taxes that had already prescribed; and,
(3) taxes during the period when it was still exempt from local government tax by virtue of its then subsisting registration with the
CDA.
The RTC held CASURECO III liable for franchise taxes on the ground that the ―situs of taxation is the place where the
privilege is exercised.‖ On appeal, the CA relieved CASURECO III from liability to pay franchise taxes since it is a non-profit entity,
not falling within the purview of ―businesses enjoying a franchise‖ pursuant to Section 137 of the LGC; hence the petition.

ISSUE: Whether or not CASURECO III is exempt from payment of franchise tax?

HELD: No. CASURECO III is not exempt from payment of franchise tax.

CASURECO III CAN NO LONGER Invoke PD 269 to Evade Local Taxes

PD 269, which took effect on August 6, 1973, granted electric cooperatives registered with the NEA, like CASURECO III,
several tax privileges, one of which is exemption from the payment of ―all national government, local government and municipal
taxes and fees, including franchise, filing, recordation, license or permit fees or taxes.‖
On March 10, 1990, Congress enacted into law RA 6938, otherwise known as the ―Cooperative Code of the Philippines,‖
and RA 6939 creating the CDA. The latter law vested the power to register cooperatives solely on the CDA, while the former
provides that electric cooperatives registered with the NEA under PD 269 which opt not to register with the CDA shall not be entitled
to the benefits and privileges under the said law.
On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax exemptions or incentives previously
enjoyed by ―all persons, whether natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions.‖
Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local taxes. Moreover, its provisional
registration with the CDA which granted it exemption for the payment of local taxes was extended only until May 4, 1992. Thereafter,
it can no longer claim any exemption from the payment of local taxes, including the subject franchise tax.

CASURECA III is Liable to Pay Franchise Tax

1. Indisputably, petitioner City of Iriga has the power to impose local taxes. The power of the local government units to
impose and collect taxes is derived from the Constitution itself which grants them ―the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitation as the Congress may provide.‖
This explicit constitutional grant of power to tax is consistent with the basic policy of local autonomy and decentralization
of governance. With this power, local government units have the fiscal mechanisms to raise the funds needed to deliver
basic services to their constituents and break the culture of dependence on the national government. Thus, consistent
with these objectives, the LGC was enacted granting the local government units, like petitioner, the power to impose and
collect franchise tax, to wit:
SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction. xxx

SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy
the taxes, fees, and charges which the province or municipality may impose: Provided, however, That
the taxes, fees and charges levied and collected by highly urbanized and independent component
cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of
taxes that the city may levy may exceed the maximum rates allowed for the province or municipality
by not more than fifty percent (50%) except the rates of professional and amusement taxes.

2. CASURECO III maintains that it is exempt from payment of franchise tax because of its nature as a non-profit
cooperative, as contemplated in PD 269, and insists that only entities engaged in business, and not non-profit entities like
itself, are subject to the said franchise tax.
Thus, to be liable for local franchise tax, the following requisites should concur: (1) that one 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 pertinent local government unit.
There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA granted CASURECO
III a franchise to operate an electric light and power service for a period of fifty (50) years from June 6, 1979, and it is
undisputed that CASURECO III operates within Iriga City and the Rinconada area. It is, therefore, liable to pay franchise
tax notwithstanding its non-profit nature.

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 3. It should be stressed that what the petitioner seeks to collect from CASURECO III is a franchise tax, which as defined, is a
tax on the exercise of a privilege. As Section 137 of the LGC provides, franchise tax shall be based on gross receipts
precisely because it is a tax on business, rather than on persons or property. 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.
Hence, franchise tax covers all gross receipts from Iriga City and the Rinconada Area.

3. Professional Tax
a. Sec. 139 of the LGC

Section 139. Professional Tax. -

a) The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession
requiring government examination at such amount and reasonable classification as the sangguniang panlalawigan may
determine but shall in no case exceed Three hundred pesos (P300.00).
b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he practices
his profession or where he maintains his principal office in case he practices his profession in several places: Provided,
however, That such person who has paid the corresponding professional tax shall be entitled to practice his profession in
any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such
profession.
c) Any individual or corporation employing a person subject to professional tax shall require payment by that person of the
tax on his profession before employment and annually thereafter.
d) The professional tax shall be payable annually, on or before the thirty-first (31st) day of January. Any person first
beginning to practice a profession after the month of January must, however, pay the full tax before engaging therein. A
line of profession does not become exempt even if conducted with some other profession for which the tax has been paid.
Professionals exclusively employed in the government shall be exempt from the payment of this tax.
e) Any person subject to the professional tax shall write in deeds, receipts, prescriptions, reports, books of account, plans
and designs, surveys and maps, as the case may be, the number of the official receipt issued to him.

4. Amusement Tax
a. Sec. 140 of the LGC. (as amended by RA 9640)
b. Sec. 131(c) of the LGC

Section 1. Section 140 of Republic Act No. 7160, otherwise known as "The Local Government Code of 1991", is hereby amended
to read as follows:
SEC. 140. Amusement Tax. –
a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than ten percent (10%) of the
gross receipts from the admissions 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 devided between said proprietors, lessees, or operators
and the distributors of the cinematographic films.
c) The holding of operas, concerts, dramas, recitals, paintings, and art exhibitions, flower shows, musical programs, literary
and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax herein
imposed.
d) The sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of
fraud or failure to pay the tax, the sangguniang panlalawigan may impose such surcharges, interest and penalties as it
may deem appropriate.
e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where such
amusement places are located.

Section 131. Definition of Terms. - When used in this Title, the term:
b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation, pastime, or fun;
c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where one seeks
admission to entertain oneself by seeing or viewing the show or performances.

c. Pelizloy Realty Corp., vs. Province of Benguet, GR No. 183137 dated April 10, 2013.
(compare with old case of PBA vs. CA GR No. 119122, August 8, 2000)  BAGALANON
d. Alta Vista Golf and Country Club v. The City of Cebu, GR # 180235 , 1/20/2016  BESA

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Pelizloy Realty Corp. v. Province of Benguet
G.R. No. 183137, [April 10, 2013], 708 PHIL 466-485
FACTS: Petitioner Pelizloy Realty Corporation owns Palm Grove Resort in Tuba, Benguet, which has facilities like swimming pools,
a spa and function halls.
In 2005, the Provincial Board of Benguet approved its Revenue Code of 2005. Section 59, the tax ordinance levied a 10%
amusement tax on gross receipts from admissions to "resorts, swimming pools, bath houses, hot springs and tourist spots."
Pelizloy's posits that amusement tax is an ultra vires act. Thus, it filed an appeal/petition before the Secretary of Justice. Upon the
Secretary‘s failure to decide on the appeal within sixty days, Pelizloy filed a Petition for Declaratory Relief and Injunction before the
RTC.
Pelizloy argued that the imposition was in violation of the limitation on the taxing powers of local government units under
Section 133 (i) of the Local Government Code, which provides that the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided.
The Province of Benguet assailed the that the phrase ‗other places of amusement‘ in Section 140 (a) of the LGC
encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since Article 131 (b) of the LGC defines
"amusement" as "pleasurable diversion and entertainment synonymous to relaxation, avocation, pastime, or fun."
RTC rendered a Decision assailed Decision dismissing the Petition for Declaratory Relief and Injunction for lack of merit.
Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. However, it gave credence to the Province of Benguet's
assertion that resorts, swimming pools, bath houses, hot springs, and tourist spots are encompassed by the phrase ‗other places of
amusement‘ in Section 140 of the LGC.

ISSUE: W/N provinces are authorized to impose amusement taxes on admission fees to resorts, swimming pools, bath houses, hot
springs, and tourist spots for being "amusement places" under the LGC.

RULING: NO. Amusement taxes are percentage taxes. However, provinces are not barred from levying amusement taxes even if
amusement taxes are a form of percentage taxes. The levying of percentage taxes is prohibited "except as otherwise provided" by
the LGC. Section 140 provides such exception.
Section 140 expressly allows for the imposition by provinces of amusement taxes on "the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement."
However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places expressly
mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination of whether amusement taxes
may be levied on admissions to these places hinges on whether the phrase ‗other places of amusement‘ encompasses resorts,
swimming pools, bath houses, hot springs, and tourist spots.
Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of particular and specific
words of the same class or where the latter follow the former, the general word or phrase is to be construed to include, or to be
restricted to persons, things or cases akin to, resembling, or of the same kind or class as those specifically mentioned."
Section 131 (c) of the LGC already provides a clear definition: "Amusement Places" include theaters, cinemas, concert halls,
circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances.
As defined in The New Oxford American Dictionary, ‗show‘ means "a spectacle or display of something, typically an
impressive one"; while ‗performance‘ means "an act of staging or presenting a play, a concert, or other form of entertainment." As
such, the ordinary definitions of the words ‗show‘ and ‗performance‘ denote not only visual engagement (i.e., the seeing or viewing
of things) but also active doing (e.g., displaying, staging or presenting) such that actions are manifested to, and (correspondingly)
perceived by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be
considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or performances".
While it is true that they may be venues where people are visually engaged, they are not primarily venues for their proprietors or
operators to actively display, stage or present shows and/or performances.

Alta Vista Golf and Country Club v. City of Cebu

G.R. No. 180235, [January 20, 2016]
FROM THE WEDNESDAY CLASS!

DOCTRINE: The Local Government Code authorizes the imposition by local government units of amusement tax under Section
140. "Amusement places," as defined in Section 131 (c) of the Local Government Code, "include theaters, cinemas, concert halls,
circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performance."

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FACTS: Alta Vista Golf & Country Club is a non-stock and non-profit corporation operating a golf course in Cebu City. Sometime in
June 1993, the Sangguniang Panglunsodof Cebu enacted CTO No. LXIX known as the Revised Omnibus Tax Ordinance. It stated
therein that an amusement tax of 20% of gross receipts on entrance, playing green, and/or admission fees will be charged on golf
courses and polo grounds. Petitioner alleged that amusement tax can only be imposed upon operators of theaters, cinemas, concert
halls, or places, where one seeks to entertain himself by seeing or viewing a show or performance.

ISSUE: Whether or not local government can impose amusement tax on golf courses and polo grounds.

RULING: NO. The Local Government Code authorizes the imposition by local government units of amusement tax under Section
140, which provides:

Sec. 140. Amusement Tax. –

a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of
the gross receipts from admission fees.
b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators
and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators
and the distributors of the cinematographic films.
c) The holding of operas, concerts, dramas, recitals, painting, and art exhibitions, flower shows, musical programs, literary
and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax hereon
imposed.
d) The sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of
fraud or failure to pay the tax, the sangguniang panlalawigan may impose such surcharges, interests and penalties as it
may deem appropriate.
e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where such
amusement places are located.

"Amusement places," as defined in Section 131 (c) of the Local Government Code, "include theaters, cinemas, concert
halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performance."
The pronouncements of the Court in Pelizloy Realty Corporation v. The Province of Benguet are of particular significance
to this case. The Court, in Pelizloy Realty, declared null and void the second paragraph of Article X, Section 59 of the Benguet
Provincial Code, in so far as it imposes amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs,
and tourist spots. Applying the principle of ejusdem generis, as well as the ruling in the PBA case, the Court expounded on the
authority of local government units to impose amusement tax under Section 140, in relation to Section 131(c), of the Local
Government Code.
In light of Pelizloy Realty, a golf course cannot be considered a place of amusement. As petitioner asserted, people do not
enter a golf course to see or view a show or performance. Petitioner also, as proprietor or operator of the golf course, does not
actively display, stage, or present a show or performance. People go to a golf course to engage themselves in a physical sport
activity, i.e., to play golf; the same reason why people go to a gym or court to play badminton or tennis or to a shooting range for
target practice, yet there is no showing herein that such gym, court, or shooting range is similarly considered an amusement place
subject to amusement tax. There is no basis for singling out golf courses for amusement tax purposes from other places where
people go to play sports. This is in contravention of one of the fundamental principles of local taxation: that the "[taxation shall be
uniform in each local government unit." Uniformity of taxation, like the kindred concept of equal protection, requires that all subjects
or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.

5. Business Tax
a. Sec. 143 of the LGC – Check the LGC!
b. Nursery Care Corporation vs. Acevedo, GR No. 180651 dated July 30, 2014  BUENO

Nursery Care Corp. v. Acevedo

G.R. No. 180651, [July 30, 2014]
FROM THE WEDNESDAY CLASS!

FACTS: The City of Manila assessed and collected taxes from the individual petitioners pursuant to Section 15 (Tax on
Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code of Manila. At the same time, the City
of Manila imposed additional taxes upon the petitioners pursuant to Section 21 ofthe Revenue Code of Manila,4 as amended, as a
condition for the renewal of their respective business licenses for the year 1999. Section 21 of the Revenue Code of Manila stated:

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 144
 Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under
the NIRC - On any of the following businesses and articles of commerce subject to the excise, value-
added or percentage taxes under the National Internal Revenue Code, hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the
gross sales or receipts of the preceding calendar year is hereby imposed:
A) On person who sells goods and services in the course of trade or businesses; x x
x PROVIDED, that all registered businesses in the City of Manila already paying the
aforementioned tax shall be exempted from payment thereof.

ISSUE: Whether or not the imposition made by City of Manila proper constitutes double-taxation.

RULING: YES. The petitioners point out that although Section 21 of the Revenue Code of Manila was not itself unconstitutional or
invalid, its enforcement against the petitioners constituted double taxation because the local business taxes under Section 15 and
Section 17 of the Revenue Code of Manila were already being paid by them. They contend that the proviso in Section 21 exempted
all registered businesses in the City of Manila from paying the tax imposed under Section 21; and that the exemption was more in
accord with Section 143 of the Local Government Code, the law that vested in the municipal and city governments the power to
impose business taxes.
The respondents counter, however, that double taxation did not occur from the imposition and collection of the tax
pursuant to Section 21 of the Revenue Code of Manila; that the taxes imposed pursuant to Section 21 were in the concept of
indirect taxes upon the consumers of the goods and services sold by a business establishment; and that the petitioners did not
exhaust their administrative remedies by first appealing to the Secretary of Justice to challenge the constitutionalityor legality of the
tax ordinance.
In resolving the issue of double taxation involving Section 21 of the Revenue Code of Manila, the Court is mindful of the
ruling in City of Manila v. Coca-Cola Bottlers Philippines, Inc., which has been reiterated in Swedish Match Philippines, Inc. v. The
Treasurer of the City of Manila. In the latter, the Court has held:
x x x [T]he issue of double taxation is not novel, as it has already been settled by this Court in The City of Manila v. Coca-
Cola Bottlers Philippines, Inc.,in this wise:
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own detriment. Said
exempting proviso was precisely included in said section so as to avoid double taxation.
Double taxation means taxingthe same property twice when it should be taxed only once; that is, "taxing the same person
twice by the same jurisdictionfor the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once.
Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the
same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes
under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the
privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of
Manila contribute tocity revenues; (3) by the same taxing authority – petitioner Cityof Manila; (4) within the same taxing jurisdiction –
within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or
character – a local business tax imposed on gross sales or receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is
specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to impose a local
business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It is apparent from a perusal
thereof that 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 percentagetax under the NIRC, and that are "not otherwise specified in preceding
paragraphs." In the same way, businesses such as respondent‘s, already subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under
Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section 21 of the
ManilaRevenue Code for the fourth quarter of 2001, considering thatit had already been paying local business tax under Section 14
of the same ordinance.

U. Remedies on Local Taxation

1. Constitutionality of Tax Ordinance
a. Sec. 187 of the LGC

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public Hearings. - The
procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code:

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Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days
from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of
the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.

b. Smart Communications, Inc. vs. Municipality of Malvar, GR No. 204429, GR No. 204429
dated February 18, 2014  GIBA

Smart Communications, Inc. v. Municipality of Malvar, Batangas

G.R. No. 204429, [February 18, 2014], 727 PHIL 430-447
FROM THE WEDNESDAY CLASS!

DOCTRINE: Section 142 of the LGC grants municipalities the power to levy taxes, fees, and charges not otherwise levied by
provinces. Section 143 of the LGC provides for the scale of taxes on business that may be imposed by municipalities while Section
147 of the same law provides for the fees and charges that may be imposed by municipalities on business and occupation.

FACTS: Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of providing
telecommunications services to the general public while respondent Municipality of Malvar, Batangas (Municipality) is a local
government unit created by law.
In the course of its business, Smart constructed a telecommunications tower within the territorial jurisdiction of the
Municipality. The construction of the tower was for the purpose of receiving and transmitting cellular communications within the
covered area.
On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An Ordinance Regulating the
Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the Mayor of the Municipality
an assessment letter with a schedule of payment for the total amount of ₱389,950.00 for Smart‘s telecommunications tower.

ISSUE: Whether or not the ―fees‖ imposed upon by Ordinance No. 18 is a tax.

RULING: NO. The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "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
government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to each local government unit. Specifically,
Section 142 of the LGC grants municipalities the power to levy taxes, fees, and charges not otherwise levied by provinces. Section
143 of the LGC provides for the scale of taxes on business that may be imposed by municipalities while Section 147 of the same
law provides for the fees and charges that may be imposed by municipalities on business and occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against persons or property, while
the term "fee" means "a charge fixed by law or ordinance for the regulation or inspection of a business or activity."
In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance Regulating the Establishment of
Special Projects," to regulate the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric, telegraph
and telephone wires, conduits, meters and other apparatus, and provide for the correction, condemnation or removal of the same
when found to be dangerous, defective or otherwise hazardous to the welfare of the inhabitant[s]." It was also envisioned to address
the foreseen "environmental depredation" to be brought about by these "special projects" to the Municipality. Pursuant to these
objectives, the Municipality imposed fees on various structures, which included telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate the "placing, stringing,
attaching, installing, repair and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus" listed therein, which included Smart‘s telecommunications tower. Clearly, the purpose of the assailed Ordinance is to
regulate the enumerated activities particularly related to the construction and maintenance of various structures. The fees in
Ordinance No. 18 are not impositions on the building or structure itself; rather, they are impositions on the activity subject of
government regulation, such as the installation and construction of the structures.
Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects,
which included "cell sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature,
and not primarily revenue-raising. While the fees may contribute to the revenues of the Municipality, this effect is merely incidental.
Thus, the fees imposed in Ordinance No. 18 are not taxes.

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 2. Protest
a. Sec. 195 of the LGC

Section 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct taxes, fees,
or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of
deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer
may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and
executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the
protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local
treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer.
The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period
prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and
unappealable.

b. San Juan vs. Castro, GR No. 174617 dated December 27, 2007  OBNIAL

San Juan v. Castro

G.R. No. 174617, [December 27, 2007], 565 PHIL 810-818
FROM THE WEDNESDAY CLASS!

DOCTRINE: Under Section 195 of the Local Government Code which is quoted immediately below, a taxpayer who disagrees with
a tax assessment made by a local treasurer may file a written protest thereof, and from a denial of the same, either appeal the
assessment before the court of competent jurisdiction or pay the tax and then seek a refund.

FACTS: Romulo D. San Juan (petitioner), registered owner of real properties in Rancho Estate I, Concepcion II, Marikina City
conveyed by Deed of Assignment, the properties to the Saints and Angels Realty Corporation (SARC), then under the process of
incorporation, in exchange for 258,434 shares of stock therein. The Securities and Exchange Commission approved the Articles of
Incorporation of SARC. Petitioner‘s representative thereafter went to the Office of the Marikina City Treasurer to pay the transfer tax
based on the consideration stated in the Deed of Assignment. Ricardo L. Castro (respondent), the City Treasurer, informed him,
however, that the tax due is based on the fair market value of the property. Petitioner protested said assessment, but it was decided
against his protest. Petitioner thus filed before the Regional Trial Court (RTC) of Marikina City a Petition for mandamus and
damages against respondent in his capacity as Marikina City Treasurer praying that respondent be compelled to "perform a
ministerial duty, that is, to accept the payment of transfer tax based on the actual consideration of the transfer/assignment. RTC
denied petitioner‘s petition for not complying with the phrase ―there is no other plain, speedy and adequate remedy in the ordinary
course of law". Hence this petition.

ISSUE: Whether or not the remedy availed by the petitioner is correct.

RULING: NO. Under Section 195 of the Local Government Code which is quoted immediately below, a taxpayer who disagrees with
a tax assessment made by a local treasurer may file a written protest thereof:
SECTION 195. Protest of Assessment. – When the local treasurer or his duly authorized representative finds
that the correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the
nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty
(60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local
treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local
treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the
protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment.
However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest
wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the
denial of the protest or from the lapse of the sixty-day (60) period prescribed herein within which to appeal with
the court of competent jurisdiction, otherwise the assessment becomes conclusive and unappealable.

That petitioner protested in writing against the assessment of tax due and the basis thereof is on record as in fact it was
on that account that respondent sent him the above-quoted July 15, 2005 letter which operated as a denial of petitioner‘s written
protest.
Petitioner should thus have, following the earlier above-quoted Section 195 of the Local Government Code, either
appealed the assessment before the court of competent jurisdiction or paid the tax and then sought a refund.
Petitioner did not observe any of these remedies available to him, however. He instead opted to file a petition for
mandamus to compel respondent to accept payment of transfer tax as computed by him.

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 3. Refund
a. Sec. 196 of the LGC

Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any court for the recovery of any tax,
fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. No
case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of the payment of such tax,
fee, or charge, or from the date the taxpayer is entitled to a refund or credit.

4. Is Injunction Available?
a. Angeles City vs. Angeles Electric Corporation, GR No. 166134, June 29, 2010  VENGCO

Angeles City v. Angeles Electric Corporation

G.R. No. 166134, [June 29, 2010], 636 PHIL 43-57
FROM THE WEDNESDAY CLASS

DOCTRINE: Taxes being the lifeblood of the government should be collected promptly, without unnecessary hindrance or delay.
The NIRC of 1997 expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the code. An exception to this rule obtains only when in the opinion of the
CTA the collection thereof may jeopardize the interest of the government and/or the taxpayer.

FACTS: On June 18, 1964, respondent AEC was granted a legislative franchise under RA 4079 to construct, maintain and operate
an electric light, heat, and power system for the purpose of generating and distributing electric light, heat and power for sale in
Angeles City, Pampanga. Pursuant to Section 3-A thereof, AEC‘s payment of franchise tax for gross earnings from electric current
sold was in lieu of all taxes, fees and assessments.
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed into law, conferring upon
provinces and cities the power, among others, to impose tax on businesses enjoying franchise. In accordance with the LGC, the
Sangguniang Panlungsod of Angeles City enacted on December 23, 1993 Tax Ordinance No. 33, S-93, otherwise known as the
Revised Revenue Code of Angeles City (RRCAC).
On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the provisions of the RRCAC was
filed with the Sangguniang Panlungsod by Metro Angeles Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a
member. There being no action taken by the Sangguniang Panlungsod on the matter, MACCI elevated the petition to the
Department of Finance, which referred the same to the Bureau of Local Government Finance (BLGF). In the petition, MACCI
alleged that the RRCAC is oppressive, excessive, unjust and confiscatory; that it was published only once, simultaneously on
January 22, 1994; and that no public hearings were conducted prior to its enactment. Acting on the petition, the BLGF issued a First
Indorsement to the City Treasurer of Angeles City, instructing the latter to make representations with the Sangguniang Panlungsod
for the appropriate amendment of the RRCAC in order to ensure compliance with the provisions of the LGC, and to make a report
on the action taken within five days.
Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office of the City Treasurer on a
quarterly basis, in addition to the national franchise tax it pays every quarter to the Bureau of Internal Revenue (BIR).
On January 22, 2004, the City Treasurer issued a Notice of Assessment to AEC for payment of business tax, license fee and other
charges for the period 1993 to 2004. AEC protested the assessment but was denied the protest for lack of merit and requested AEC
to settle its tax liabilities.
AEC appealed the denial of its protest to the RTC of Angeles City via a Petition for Declaratory Relief but the City
Treasurer levied on the real properties of AEC. This prompted AEC to file with the RTC, where the petition for declaratory relief was
pending, an Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin Angeles City
and its City Treasurer from levying, annotating the levy, seizing, confiscating, garnishing, selling and disposing at public auction the
properties of AEC. The RTC issued a TRO and granted the issuance of a Writ of Preliminary Injunction.

ISSUE: W/N the RTC gravely abused its discretion in issuing the writ of preliminary injunction

HELD: No. The LGC does not specifically prohibit an injunction enjoining the collection of taxes.
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be collected
promptly, without unnecessary hindrance or delay. In line with this principle, the NIRC of 1997 expressly provides that no court shall
have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the
code. An exception to this rule obtains only when in the opinion of the CTA the collection thereof may jeopardize the interest of the
government and/or the taxpayer.
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. Thus, in the case of Valley Trading
Co., Inc. v. Court of First Instance of Isabela, Branch II, cited by the petitioner, we ruled that:

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 Unlike the NIRC, 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.
Two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely: (1) the existence of a
clear and unmistakable right that must be protected; and (2) an urgent and paramount necessity for the writ to prevent serious
damage.
It appearing that the two essential requisites of an injunction have been satisfied, as there exists a right on the part of the
petitioner to be protected, its rights of ownership and possession of the properties subject of the auction sale, and that the acts
(conducting an auction sale) against which the injunction is to be directed, are violative of the said rights of the petitioner, the Court
has no other recourse but to grant the prayer for the issuance of a writ of preliminary injunction considering that if the respondent will
not be restrained from doing the acts complained of, it will preempt the Court from properly adjudicating on the merits the various
issues between the parties, and will render moot and academic the proceedings before it.

V. General Principles on Real Property Taxation

1. Machineries and Improvements
a. Secs. 199 (m) and (o) of the LGC

Section 199. Definitions. - When used in this Title:

(m) "Improvement" is a valuable addition made to a property or an amelioration in its condition, amounting to more than
a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or
utility or to adapt it for new or further purposes;
(o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which
may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the
installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently
attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business
or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes;

b. Manila Electric Company vs. The City of Assessor and City Treasurer of Lucena City, GR
No. 166102 dated August 5, 2015  VILLABLAGON
c. Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil, GR No. 183416 dated
October 5, 2016  ALANZALON
d. Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, GR No. 180110 dated May 30,
2016  ALMOJUELA

Manila Electric Co. v. City Assessor

G.R. No. 166102, [August 5, 2015]
DOCTRINE: Under Section 199(o) of the Local Government Code, machinery, to be deemed real property subject to real property
tax, need no longer be annexed to the land or building as these "may or may not be attached, permanently or temporarily to the real
property," and in fact, such machinery may even be "mobile."

FACTS: MERALCO is a private corporation organized and existing under Philippine laws to operate as a public utility engaged in
electric distribution. MERALCO has been successively granted franchises to operate in Lucena City beginning 1922 until present
time.
On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No. 019-6500
covering the following electric facilities, classified as capital investment, of the company: (a) transformer and electric post; (b)
transmission line; (c) insulator; and (d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under the
said Tax Declaration, these electric facilities had a market value of P81,811,000.00 and an assessed value of P65,448,800.00, and
were subjected to real property tax as of 1985.
MERALCO appealed the Tax Declaration before the LBAA of Lucena City and claimed that its capital investment
consisted only of its substation facilities, the true and correct value of which was only P9,454,400.00; and that it was exempted from
payment of real property tax on said substation facilities.
The LBAA rendered a Decision finding that under its franchise, MERALCO was required to pay the City Government of
Lucena a tax equal to 5% of its gross earnings, and said tax shall be due and payable quarterly and shall be in lieu of any and all
taxes of any kind, nature, or description levied, established, or collected x x x, on its poles, wires, insulators, transformers and
structures, installations, conductors, and accessories, x x x, from which taxes the grantee (MERALCO) is hereby expressly
exempted." As regards the issue of whether or not the poles, wires, insulators, transformers, and electric meters of MERALCO were
real properties, the LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric Company (1964 MERALCO case)
in which the Court held that: (1) the steel towers fell within the term "poles" expressly exempted from taxes under the franchise of

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MERALCO; and (2) the steel towers were personal properties under the provisions of the Civil Code and, hence, not subject to real
property tax. The LBAA lastly ordered that the Tax Declaration would remain and the poles, wires, insulators, transformers, and
electric meters of MERALCO would be continuously assessed, but the City Assessor would stamp on the said Tax Declaration the
word "exempt."
CBAA affirmed the assailed LBAA judgment. Six years later, on October 29, 1997, MERALCO received a letter dated
October 16, 1997 from the City Treasurer of Lucena, which stated that the company was being assessed real property tax
delinquency on its machineries beginning 1990.

ISSUE: W/N the subject properties are real properties subject to real property tax

HELD: Yes. The Court found that the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO
are no longer exempted from real property tax and may qualify as "machinery" subject to real property tax under the Local
Government Code.
MERALCO relied heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which affirmed the
Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said decisions of the CBAA and the LBAA, in turn, cited Board of
Assessment Appeals v. Manila Electric Co., which was decided by the Court way back in 1964 (1964 MERALCO case). The
decisions in CBAA Case No. 248 and the 1964 MERALCO case recognizing the exemption from real property tax of the
transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO are no longer applicable because of
subsequent developments that changed the factual and legal milieu for MERALCO in the present case.
Section 234 of the Local Government Code particularly identifies the exemptions from payment of real property tax, based
on the ownership, character, and use of the property, viz.:
a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership
are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality,
(v) a barangay, and (vi) registered cooperatives.
b) Character Exemptions. Exempted from real property taxes on the basis of their character
are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages
or convents appurtenant thereto, mosques, and (iii) nonprofit or religious cemeteries.
c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct
and exclusive use to which they are devoted are: (i) all lands, buildings and improvements
which are actually directly and exclusively used for religious, charitable or educational
purposes; (ii) all machineries and equipment actually, directly and exclusively used by local
water districts or by government-owned or controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power; and (iii) all
machinery and equipment used for pollution control and environmental protection.
To help provide a healthy environment in the midst of the modernization of the
country, all machinery and equipment for pollution control and environmental protection
may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or

juridical persons including government-owned or controlled corporations are withdrawn
upon the effectivity of the Code.

The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local Government Code,
exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the same section. MERALCO, a private corporation engaged in electric distribution, and its
transformers, electric posts, transmission lines, insulators, and electric meters used commercially do not qualify under any of the
ownership, character, and usage exemptions enumerated in Section 234 of the Local Government Code.
The Court highlighted that under Section 199(o) of the Local Government Code, machinery, to be deemed real property
subject to real property tax, need no longer be annexed to the land or building as these "may or may not be attached, permanently
or temporarily to the real property," and in fact, such machinery may even be "mobile." The same provision though requires that to
be machinery subject to real property tax, the physical facilities for production, installations, and appurtenant service facilities, those
which are mobile, self-powered or self-propelled, or not permanently attached to the real property (a) must be actually, directly, and
exclusively used to meet the needs of the particular industry, business, or activity; and (2) by their very nature and purpose, are
designed for, or necessary for manufacturing, mining, logging, commercial, industrial, or agricultural purposes.
Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone
equipment, breakable or easily damaged containers (glass or cartons), microcomputers, facsimile machines, telex machines, cash
dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing
machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be
considered within the definition of machinery under this Rule.
Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "machinery, receptacles,
instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or

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on a piece of land, and which tend directly to meet the needs of the said industry or works." The Civil Code, however, does not
define "machinery." The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or "those
which are essentially movables, but by the purpose for which they have been placed in an immovable, partake of the nature of the
latter because of the added utility derived therefrom." These properties, including machinery, become immobilized if the following
requisites concur: (a) they are placed in the tenement by the owner of such tenement; (b) they are destined for use in the industry or
work in the tenement; and (c) they tend to directly meet the needs of said industry or works. The first two requisites are not found
anywhere in the Local Government Code.
MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and the Local Government Code. The
Court disagrees, however, for this would necessarily mean imposing additional requirements for classifying machinery as real
property for real property tax purposes not provided for, or even in direct conflict with, the provisions of the Local Government Code.
As between the Civil Code, a general law governing property and property relations, and the Local Government Code, a
special law granting local government units the power to impose real property tax, then the latter shall prevail.

Provincial Assessor of Agusan Del Sur v. Filipinas Palm Oil Plantation, Inc.
G.R. No. 183416, [October 5, 2016]
DOCTRINE: Machinery; Words and Phrases; Section 199(o) of the Local Government Code (LGC) defines “machinery” as real
property subject to real property tax. —Section 199(o) of the Local Government Code defines ―machinery‖ as real property subject
to real property tax, thus: SECTION 199. Definition of Terms. —When used in this Title, the term: . . . . (o) ―Machinery‖ embraces
machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property
which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their
very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural
purposes[.]
Immovable Property; Machinery; Words and Phrases; Article 415(5) of the New Civil Code defines “machinery” as that
which constitutes an immovable property. — Article 415(5) of the New Civil Code defines ―machinery‖ as that which constitutes an
immovable property: Article 415. The following are immovable property: . . . . (5) Machinery, receptacles, instruments or implements
intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or works.

FACTS: Filipinas Palm Oil (Filipinas) is a private organization engaged in palm oil plantation with a total of more than 7000 hectares
of NDC lands in Agusan del Sur. Within the plantation, there are also three plantation roads and a number of residential homes
constructed by Filipinas for its employees. After passage of CARL, NDC lands were transferred to CARL beneficiaries. The CARL
beneficiaries formed themselves as merged NGPI-NGEI. Filipinas entered into a lease contract with NGPI-NGEI.
The provincial assessor of Agusan del Sur assessed Filipinas properties found within the plantation area which was
assailed by Filipinas before Board of Assessment Appeals.
The Board of Assessment found that the declared market value made by the Assessor is unreasonable and held that the
sudden increase of realty tax is confiscatory. It also found that the assessment should only be based on 98 trees because the terrain
and not the roads of any kind, as well as all their improvements, should not be taxed because it was intermittently used by the
public. It also exempted low-cost housing units from taxation and considered road equipment and mini-haulers as movable that are
vital to Filipinas' business.
Filipinas appealed before CBAA which set aside the decision of the Board of Assessment and declared that the market
value should be 57.55; Filipinas is not liable to pay real property tax on the roads; not liable to pay real property tax on the lands
owned by the cooperative; low cost housing with market value of 175,000 or less shall be subjected to 0% assessment; road
equipment and hauler are not real properties, hence exempt; and that any real property taxes already paid by Filipinas shall be
applied to future taxes rightfully due from them.
City Assessor filed a motion for reconsideration which was denied. They appealed before CA which sustained the order of
CBAA. Hence the present case.

ISSUE: Whether or not machineries are real properties subject to real property tax.

HELD: The road equipment and mini haulers shall be considered as real property, subject to real property tax.
Petitioner contends that the second sentence of Section 199(o) includes the road equipment and mini haulers since these
are directly and exclusively used by respondent to meet the needs of its operations.86 It further claims that Article 415(5) of the New
Civil Code should not control the Local Government Code, a subsequent legislation.
On the other hand, respondent claims that the road equipment and mini haulers are movables by nature. It asserts that
although there may be a difference between the meaning of ―machinery‖ under the Local Government Code and that of immovable
property under Article 415(5) of the Civil Code, ―the controlling interpretation of Section 199(o) of [the Local Government Code] is
the interpretation of Article 415(5) of the Civil Code.‖

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 While the Local Government Code still does not provide for a specific definition of ―real property,‖ Sections 199(o) and 232
of the said Code, respectively, gives an extensive definition of what constitutes ―machinery‖ and unequivocally subjects such
machinery to real property tax. The Court reiterates that the machinery subject to real property tax under the Local Government
Code ―may or may not be attached, permanently or temporarily to the real property‖; and the physical facilities for production,
installations, and appurtenant service facilities, those which are mobile, self-powered or self-propelled, or are not permanently
attached must (a) be actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity; and
(b) by their very nature and purpose, be designed for, or necessary for manufacturing, mining, logging, commercial, industrial, or
agricultural purposes.
Article 415, paragraph (5) of the Civil Code considers as immovables or real properties ―[m]achinery, receptacles,
instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or
on a piece of land, and which tend directly to meet the needs of the said industry or works.‖ The Civil Code, however, does not
define ―machinery.‖
The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or ―those which are
essentially movables, but by the purpose for which they have been placed in an immovable, partake of the nature of the latter
because of the added utility derived therefrom.‖ These properties, including machinery, become immobilized if the following
requisites concur: (a) they are placed in the tenement by the owner of such tenement; (b) they are destined for use in the industry or
work in the tenement; and (c) they tend to directly meet the needs of said industry or works. The first two requisites are not found
anywhere in the Local Government Code. (Emphasis supplied, citations omitted) Section 199(o) of the Local Government prevails
over Article 415(5) of the Civil Code. In Manila Electric Company:
As between the Civil Code, a general law governing property and property relations, and the Local Government Code, a
special law granting local government units the power to impose real property tax, then the latter shall prevail. As the Court
pronounced in Disomangcop v. The Secretary of the Department of Public Works and Highways Simeon A. Datumanong:
It is a finely-imbedded principle in statutory construction that a special provision or law prevails over a general one. Lex
specialis derogant generali. As this Court expressed in the case of Leveriza v. Intermediate Appellate Court, ―another basic principle
of statutory construction mandates that general legislation must give way to special legislation on the same subject, and generally
be so interpreted as to embrace only cases in which the special provisions are not applicable, that specific statute prevails over a
general statute and that where two statutes are of equal theoretical application to a particular case, the one designed therefor
specially should prevail.‖
The circumstance that the special law is passed before or after the general act does not change the principle. Where the
special law is later, it will be regarded as an exception to, or a qualification of, the prior general act; and where the general act is
later, the special statute will be construed as remaining an exception to its terms, unless repealed expressly or by necessary
implication.
Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals, the Court acknowledged that ―[i]t is a
familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered
personal property[.]‖
Therefore, for determining whether machinery is real property subject to real property tax, the definition and requirements
under the Local Government Code are controlling.93 (Emphasis supplied, citations omitted) Respondent is engaged in palm oil
plantation. Thus, it harvests fruits from palm trees for oil conversion through its milling plant. By the nature of respondent‘s business,
transportation is indispensable for its operations.
Petitioner is correct in claiming that the phrase pertaining to physical facilities for production is comprehensive enough to
include the road equipment and mini haulers as actually, directly, and exclusively used by respondent to meet the needs of its
operations in palm oil production.96 Moreover, ―mini-haulers are farm tractors pulling attached trailers used in the hauling of
seedlings during planting season and in transferring fresh palm fruits from the farm [or] field to the processing plant within the
plantation area.‖ The indispensability of the road equipment and mini haulers in transportation makes it actually, directly, and
exclusively used in the operation of respondent‘s business.
In its Comment, respondent claims that the equipment is no longer vital to its operation because it is currently employing
equipment outside the company to do the task. However, respondent never raised this contention before the lower courts. Hence,
this is a factual issue of which this Court cannot take cognizance. This Court is not a trier of facts.

Capitol Wireless, Inc. v. Provincial Treasurer of Batangas

G.R. No. 180110, [May 30, 2016]
DOCTRINE: In disputes involving real property taxation, the GENERAL RULE is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment
itself is alleged to be illegal or is made without legal authority.
Under the Local Government Code, every person by or for whom real property is declared, who shall claim tax exemption
for such property from real property taxation "shall file with the provincial, city or municipal assessor within thirty (30) days from the
date of the declaration of real property sufficient documentary evidence in support of such claim."

FACTS:

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  Capitol Wireless Inc (Capwire) is a Philippine corporation in the business of providing international telecommunications
services.
 Capwire has signed agreements with other local and foreign telecommunications companies covering an international
network of submarine cable systems (including the Asia Pacific Cable Network System or APCN). The agreements
provide for ownership and other rights among the parties over the network
 Capwire claims that it is co-owner only of the so-called ―Wet Segment‖ of the APCN, while the landing stations or
terminals and segments of APCN located in Nasugbu,Batangas are allegedly owned by the Philippine Long Distance
Telephone Corporation (PLDT). Capwire also alleges that the Wet Segment is laid in international, and not Philippine,
waters.
 As co-owner, it does not own any particular physical part of the cable system, but consistent with its financial
contributions, it owns the right to use a certain capacity of the said system. This property right is allegedly reported in its
financial books as ―Indefeasible Rights in Cable Systems.‖
 However, for loan restructuring purposes, Capwire claims that ―it was required to register the value of its right.‖
 It engaged an appraiser to ―assess the market value of the international submarine cable system and the cost of
Capwire.‖
 Capwise then submitted a Sworn Statement of True Value of Real Properties at the Provincial Treasurer‘s Office,
Batangas City, Batangas Province, for the Wet Segment of the System.
 Capwire also claims that it also reported that the system ―interconnects at the PLDT Landing Station in Nasugbu,
Batangas,‖ which is covered by a TCT and tax declarations in the name of PLDT.
 As a result, the Provincial Assessor of Batangas issued Assessments of Real Property (ARP) against Capwire which has
a total assessed value of P222,632,800.00 (see notes).
 In essence, the Provincial Assessor had determined that the submarine cable systems described in Capwire's Sworn
Statement of True Value of Real Properties are taxable real property.
 This was contested by Capwire in an exchange of letters becausethe cable system lies outside of Philippine territory, i.e.,
on international waters.
 Capwire received a Warrant of Levy and a Notice of Auction Sale from Provincial Treasurer.
 Capwire then filed a Petition for Prohibition and Declaration of Nullity of Warrant of Levy, Notice of Auction Sale and/or
Auction Sale with RTC.

RTC dismissed the petition because Capwire:

 failed to follow the requisite of payment under protest
 failed to appeal to the Local Board of Assessment Appeals (LBAA), as provided for in Sections 206 and 226 of RA No
7160 (LGC)

CA affirmed RTC. Dismissed petition because of Capwire‘s failure to comply with the requirements set in Sections 226
and 229 of LGC (failed to avail of remedies before administrative bodies like the LBAA and the Central Board of Assessment
Appeals (CBAA).
Although Capwire claims that it saw no need to undergo administrative proceedings because its petition raises purely
legal questions, CA noted that the case raises questions of fact (i.e. extent to which parts of the submarine cable system lie within
the territorial jurisdiction of the taxing authorities). Capwire also failed to pay the tax assessed against it under protest, another strict
requirement under Sec 252 of LGC

ISSUE: Whether the case is cognizable by the administrative agencies and covered by the requirements in Sections 226 and 229 of
the Local Government Code (which makes the dismissal of Capwire's petition by the RTC proper)? –

RULING: YES. The petition is DENIED. CA decision AFFIRMED

In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of administrative
remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment itself is alleged
to be illegal or is made without legal authority.
For example, prior resort to administrative action is required when among the issues raised is an allegedly erroneous
assessment, like when the reasonableness of the amount is challenged, while direct court action is permitted when only the legality,
power, validity or authority of the assessment itself is in question.
Stated differently, the general rule of a prerequisite recourse to administrative remedies applies when questions of fact are
raised, but the exception of direct court action is allowed when purely questions of law are involved.
Difference between a question of fact and a question of law: In Cosmos Bottling Corporation v. Nagrama, Jr., citing
Ramos v. Pepsi-Cola Bottling Co. of the P.I.: There is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts. We shall label this the doubt dichotomy.
Also citing Republic v. Sandiganbayan, the Court ruled: x xx A question of law exists when the doubt or controversy
concerns the correct application of law or jurisprudence to a certain set of facts; or when the issue docs not call for an examination

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of the probative value of the evidence presented, the truth or falsehood of facts being admitted. In contrast, a question of fact exists
when the doubt or difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole evidence
considering mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances as well as
their relation to each other and to the whole, and the probability of the situation.
For the sake of brevity, We shall label this the law application and calibration dichotomy. In contrast, the dynamic legal
scholarship in the United States has birthed many commentaries on the question of law and question of fact dichotomy. As early as
1944, the law was described as growing downward toward "roots of fact" which grew upward to meet it. In 1950, the late Professor
Louis Jaffe saw fact and law as a spectrum, with one shade blending imperceptibly into the other. Others have defined questions of
law as those that deal with the general body of legal principles; questions of fact deal with "all other phenomena x xx." Kenneth Gulp
Davis also weighed in and noted that the difference between fact and law has been characterized as that between "ought" questions
and "is" questions.
CA is correct. Petitioner‘s case is one replete with questions of fact (instead of pure questions of law)
Since it is a case raising questions of fact, Capwire‘s filing in a judicial forum is improper because it is instead cognizable by local
administrative bodies like the Board of Assessment Appeals, which are the proper venues for trying these factual issues.
Rather, it raises factual issues as the extent and status of Capwire‘s ownership of the system, the actual length of the
cable/s that lie in Philippine territory, and the corresponding assessment and taxes due because the assessors and treasurers
imposed and collected the assailed real property tax on the finding that at least a portion or some portions of the submarine cable
system that Capwire owns or co-owns lies inside Philippine territory. Capwire‘s disagreement with such findings of the administrative
body presents little to no legal question that only the SC may directly resolve.
Capwire argues based on mere legal conclusions which are not yet supported by facts that should have been threshed
out quasi-judicially before the administrative agencies. It has been held that "a bare characterization in a petition of unlawfulness is
merely a legal conclusion and a wish of the pleader, and such a legal conclusion unsubstantiated by facts which could give it life,
has no standing in any court where issues must be presented and determined by facts in ordinary and concise language."
Therefore, Capwire's resort to judicial action, premised on its legal conclusion that its cables (the equipment being taxed)
lie entirely on international waters, without first administratively substantiating such a factual premise, is improper and was rightly
denied. Its proposition that the cables lie entirely beyond Philippine territory, and therefore, outside of Philippine sovereignty, is a
fact that is not subject to judicial notice since.
Jurisprudence on the Local Government Code is clear that facts such as these must be threshed out administratively, as
the courts in these types of cases step in at the first instance only when pure questions of law are involved.

3. Notification of New or Revised Assessment

a. Sec. 223 of the LGC

Section 223. Notification of New or Revised Assessment. - When real property is assessed for the first time or when an existing
assessment is increased or decreased, the provincial, city or municipal assessor shall within thirty (30) days give written notice of
such new or revised assessment to the person in whose name the property is declared. The notice may be delivered personally or
by registered mail or through the assistance of the punong barangay to the last known address of the person to be served.

b. Manila Electric Company vs. The City of Assessor and City Treasurer of Lucena City, GR
No. 166102 dated August 5, 2015  DELFIN

Manila Electric Co. v. City Assessor

G.R. No. 166102, [August 5, 2015]
DOCTRINE: A notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax
liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax.
The Local Government Code further mandates that the taxpayer be given a notice of the assessment of real
property in the following manner: See Sec. 223 above!

FACTS: MERALCO is a private corporation organized and existing under Philippine laws to operate as a public utility engaged in
electric distribution. MERALCO has been successively granted franchises to operate in Lucena City beginning 1922 until present
time. On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No. 019-6500
covering the following electric facilities, classified as capital investment, of the company: (a) transformer and electric post; (b)
transmission line; (c) insulator; and (d) electric meter, located in Quezon Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under Tax
Declaration No. 019-6500, these electric facilities had a market value of P81,811,000.00 and an assessed value of P65,448,800.00,
and were subjected to real property tax as of 1985.
MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City. MERALCO claimed that its capital
investment consisted only of its substation facilities, the true and correct value of which was only P9,454,400.00; and that
MERALCO was exempted from payment of real property tax on said substation facilities.

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 The LBAA rendered a Decision in LBAA-89-2 on July 5, 1989, finding that under its franchise, MERALCO was required to
pay the City Government of Lucena a tax equal to 5% of its gross earnings, and "[s]aid tax shall be due and payable quarterly and
shall be in lieu of any and all taxes of any kind, nature, or description levied, established, or collected x x x, on its poles, wires,
insulators, transformers and structures, installations, conductors, and accessories, x x x, from which taxes the grantee (MERALCO)
is hereby expressly exempted." As regards the issue of whether or not the poles, wires, insulators, transformers, and electric meters
of MERALCO were real properties, the LBAA cited the 1964 case of Board of Assessment Appeals v. Manila Electric Company
(1964 MERALCO case) in which the Court held that: (1) the steel towers fell within the term "poles" expressly exempted from taxes
under the franchise of MERALCO; and (2) the steel towers were personal properties under the provisions of the Civil Code and,
hence, not subject to real property tax. The LBAA lastly ordered that Tax Declaration No. 019-6500 would remain and the poles,
wires, insulators, transformers, and electric meters of MERALCO would be continuously assessed, but the City Assessor would
stamp on the said Tax Declaration the word "exempt."
Six years later, on October 29, 1997, MERALCO received a letter from the City Treasurer of Lucena, which stated that the
company was being assessed real property tax delinquency on its machineries beginning 1990.
The City Treasurer of Lucena requested that MERALCO settle the payable amount soon to avoid accumulation of
penalties. Attached to the letter were the following documents: (a) Notice of Assessment issued by the City Assessor of Lucena,
pertaining to Tax Declaration No. 019-7394, which increased the market value and assessed value of the machinery; (b) Property
Record Form;21 and (c) Tax Declaration No. 019-6500.
MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of Lucena City and posted a surety
bond to guarantee payment of its real property tax delinquency. MERALCO asked the LBAA to cancel and nullify the Notice of
Assessment and declare the properties covered by Tax Declaration Nos. 019-6500 and 019-7394 exempt from real property tax.
LBAA declared that Sections 234 and 534(f) of the Local Government Code repealed the provisions in the franchise of
MERALCO and Presidential Decree No. 551 pertaining to the exemption of MERALCO from payment of real property tax on its
poles, wires, insulators, transformers, and meters.

ISSUE: Whether or not a valid notice of assessment of the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO.

HELD: The Local Government Code further mandates that the taxpayer be given a notice of the assessment of real property in the
following manner: See Sec. 223 above!
A notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability,
should be sufficiently informative to apprise the taxpayer the legal basis of the tax. In Manila Electric Company v. Barlis the Court
described the contents of a valid notice of assessment of real property and differentiated the same from a notice of collection:
A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value
of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties.
The September 3, 1986 and October 31, 1989 notices do not contain the essential information that a notice of assessment must
specify, namely, the value of a specific property or proportion thereof which is being taxed, nor does it state the discovery, listing,
classification and appraisal of the property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect
unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall authorize the government to auction off the
properties subject to taxes x x x.
Although the ruling quoted above was rendered under the Real Property Tax Code, the requirement of a notice of
assessment has not changed under the Local Government Code.
A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of them constitutes a valid
notice of assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO.
The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes the purported Notice of
Assessment dated October 20, 1997 of the City Assessor of Lucena) is a notice of collection, ending with the request for MERALCO
to settle the payable amount soon in order to avoid accumulation of penalties. It only presented in table form the tax declarations
covering the machinery, assessed values in the tax declarations in lump sums for all the machinery, the periods covered, and the
taxes and penalties due again in lump sums for all the machinery.
The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a summary of the new/revised
assessment of the "machinery" located in "Quezon Avenue Ext., Brgy. Gulang-Gulang, Lucena City," covered by Tax Declaration
No. 019-7394, with total market value of P98,173,200.00 and total assessed value of P78,538,560.00. The Property Record Form
basically contained the same information. Without specific description or identification of the machinery covered by said tax
declaration, said Notice of Assessment and Property Record Form give the false impression that there is only one piece of
machinery covered.
In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building and Improvements" and not
"Machinery." Said tax declaration covered "capital investment-commercial," specifically: (a) Transformer and Electric Post; (b)
Transmission Line, (c) Insulator, and (d) Electric Meter, with a total market value of P81,811,000.00, assessment level of 80%, and
assessed value of £65,448,800.00. Conspicuously, the table for "Machinery" - requiring the description, date of operation,
replacement cost, depreciation, and market value of the machinery - is totally blank.

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 MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute at all, that MERALCO has not
been furnished the Owner's Copy of Tax Declaration No. 019-7394, in which the total market value of the machinery of MERALCO
was increased by PI6,632,200.00, compared to that in Tax Declaration No. 019-6500.
The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack of a valid appraisal and
assessment conducted by the City Assessor of Lucena in the first place. It appears that the City Assessor of Lucena simply lumped
together all the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO located in Lucena City
under Tax Declaration Nos. 019-6500 and 019-7394, contrary to the specificity demanded under Sections 224 and 225 of the Local
Government Code for appraisal and assessment of machinery. The City Assessor and the City Treasurer of Lucena did not even
provide the most basic information such as the number of transformers, electric posts, insulators, and electric meters or the length of
the transmission lines appraised and assessed under Tax Declaration Nos. 019-6500 and 019-7394. There is utter lack of factual
basis for the assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO.
It is true that tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having
the burden of proving otherwise. In this case, MERALCO was able to overcome the presumption because it has clearly shown that
the assessment of its properties by the City Assessor was baselessly and arbitrarily done, without regard for the requirements of the
Local Government Code.
The exercise of the power of taxation constitutes a deprivation of property under the due process clause, and the
taxpayer's right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes. The
Court applies by analogy its pronouncements in Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.,
concerning an assessment that did not comply with the requirements of the National Internal Revenue Code:
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in balancing the scales between the
power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional
rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen's right is amply protected by the Bill of Rights under the Constitution." Thus, while "taxes are the lifeblood of
the government," the power to tax has its limits, in spite of all its plenitude. Even as we concede the inevitability and indispensability
of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. (Citations omitted.)
The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not being in compliance with the Local Government Code, are
attempts at deprivation of property without due process of law and, therefore, null and void.

W. Exemption from Real Property Taxation

1. Sec. 234 of the LGC
2. Sec. 28, Art. VI of the 1987 Constitution
3. Sec. 4(3), Art. XIV of the 1987 Constitution

Section 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;
b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government
owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of
electric power;
d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed
by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon
the effectivity of this Code.

Section 28.
1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government.
3) Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation.

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 4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the
Congress.

Section 4. (3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such
institutions, their assets shall be disposed of in the manner provided by law.

4. MIAA vs. CA, GR No. 155650 dated July 20, 2006  GARCIA
5. GSIS vs. City Treasurer and Assessor of Manila, GR No. 186242December 23, 2009  GONZALES
6. City of Pasig vs. Republic, GR No. 185023 dated August 24, 2011  PALMIANO
7. Lung Center of the Philippines vs. Quezon City, GR No. 144104 dated June 29, 2004  QUILANG
8. NPC vs. Province of Quezon, GR No. 171586 dated July 15, 2009  SIMBAJON
9. NPC vs. Province of Quezon, GR No. 171586 dated January 25, 2010. (Resolution)  TABABA
10. Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil, GR No. 183416 dated
October 5, 2016  TATOY

Manila International Airport Authority v. Court of Appeals

G.R. No. 155650, [July 20, 2006], 528 PHIL 181-309
DOCTRINE: We rule that MIAA‘s Airport Lands and Buildings are exempt from real estate tax imposed by local governments. First,
MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from
local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate
tax.

FACTS: Petitioner Manila International Airport Authority (MIAA) operated the Ninoy Aquino International Airport (NAIA) Complex in
Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport
Authority (―MIAA Charter‖). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 909 and 298 amended the MIAA Charter.
As operator of the international airport, MIAA administered the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, including the runways and buildings (―Airport
Lands and Buildings‖) then under the Bureau of Air Transportation. The MIAA Charter further provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the
Philippines. On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC
opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of
the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA
then paid some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable
years 1992 to 2001.
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC
opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate
tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP
No. 66878. On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary
period. The Court of Appeals also denied on 27 September 2002 MIAA‘s motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque
City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a
newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents—the City of
Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City
Assessor of Parañaque (―respondents‖)—from auctioning the Airport Lands and Buildings.

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 On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on
the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion
of the public auction.On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.
MIAA admitted that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA.
However, MIAA pointed out that it could not claim ownership over these properties since the real owner of the Airport Lands and
Buildings was the Republic of the Philippines. The MIAA Charter mandated MIAA to devote the Airport Lands and Buildings for the
benefit of the general public. Since the Airport Lands and Buildings were devoted to public use and public service, the ownership of
these properties remained with the State. The Airport Lands and Buildings were thus inalienable and were not subject to real estate
tax by local governments.
MIAA also pointed out that Section 21 of the MIAA Charter specifically exempted MIAA from the payment of real estate
tax. MIAA insisted that it was also exempt from real estate tax under Section 234 of the Local Government Code because the
Airport Lands and Buildings were owned by the Republic. To justify the exemption, MIAA invoked the principle that the government
could not tax itself. MIAA pointed out that the reason for tax exemption of public property was that its taxation would not inure to any
public advantage, since in such a case the tax debtor was also the tax creditor. Respondents invoked Section 193 of the Local
Government Code, which expressly withdrew the tax exemption privileges of ―govern-ment-owned and-controlled corporations‖
upon the effectivity of the Local Government Code.
Respondents also argued that a basic rule of statutory construction was that the express mention of one person, thing, or
act excludes all others. An international airport was not among the exceptions mentioned in Section 193 of the Local Government
Code. Thus, respondents asserted that MIAA could not claim that the Airport Lands and Buildings were exempt from real estate tax.
It also cited the ruling of this Court in Mactan International Airport v. Marcos where we held that the Local Government Code has
withdrawn the exemption from real estate tax granted to international airports. Respondents further argued that since MIAA has
already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax, hence, this review.

ISSUE: Whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then
the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are
void.

HELD: YES. We rule that MIAA‘s Airport Lands and Buildings are exempt from real estate tax imposed by local governments.
MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA are owned by the Republicof the Philippines and thus exempt from
real estate tax.

MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase ―any government-owned or controlled so exempt by its charter‖ in Section 234(e)
of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted
phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a
government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines
a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined.—x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x.

A government-owned or controlled corporation must be ―organized as a stock or non-stock corporation.‖ MIAA is not organized as a
stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA Charter provides:
SECTION 10. Capital.—The capital of the Authority to be contributed by the National Government shall be
increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos
to consist of:
1. (a)The value of fixed assets including airport facilities, runways and equipment and such other
properties, movable and immovable[,] which may be contributed by the National Government or transferred by it
from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and

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 Management and the Commission on Audit on the date of such contribution or transfer after making due
allowances for depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;
2. (b)That the amount of P605 million as of December 31, 1986 representing about seventy per centum
(70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National
Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the
National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority
shall be provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose ―capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends x x x.‖ MIAA has capital but it is not divided into shares of stock.
MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-
stock corporation as ―one where no part of its income is distributable as dividends to its members, trustees or officers.‖ A non-stock
corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not
make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11
of the MIAA Charter man dates MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are ―organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade,
industry, agriculture and like chambers.‖ MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of
the Introductory Provisions of the Administrative Code defines a government ―instrumentality‖ as follows:
SEC. 2. General Terms Defined.
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,
police authority and the levying of fees and charges. At the same time, MIAA exercises ―all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order.‖
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of
the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states
that transforming MIAA into a ―separate and autonomous body‖ will make its operation more ―financially viable.‖
Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as
stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-
owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
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:
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities
and local government units.

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely
delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power ―subject to such guidelines and limitations as the Congress may
provide.‖

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 When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the
tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when
local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in
favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that ―unless otherwise provided‖ in the Code, local governments
cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (Mc Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the ―supremacy‖ of the National Government over local governments.
―Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them.‖ (Antieau, Modern
Constitutional Law, Vol. 2, p. 140.
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as ―a tool for regulation‖ (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the ―power to destroy‖ (Mc Culloch v. Maryland, supra) cannot
be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.

Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any ―[r]eal property owned by the Republic of
the Philippines.‖ Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing ―[t]axes, fees or charges of any kind on the National Government, its agencies and
instrumentalities x x x.‖ The real properties owned by the Republic are titled either in the name of the Republic
itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code
allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and continue to be exempt from real
estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government.
This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if the ―beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.‖ MIAA, as a government instrumentality, is not a taxable person under Section
133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a
case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is
subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

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 "Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. 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.‖

Government Service Insurance System v. City Treasurer of the City of Manila

G.R. No. 186242, [December 23, 2009], 623 PHIL 964-985
FROM THE WEDNESDAY CLASS

DOCTRINE:
1. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and
benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall
continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act
are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence
contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and
without legal force and effect.
2. 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.
Thus, the real estate tax assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is
valid insofar as said tax delinquency is concerned as assessed over said property.

FACTS: Petitioner GSIS owns or used to own two (2) parcels of land, one located at Katigbak 25th St., Bonifacio Drive, Manila
(Katigbak property), and the other, at Concepcion cor. Arroceros Sts., also in Manila (Concepcion-Arroceros property). Title to the
Concepcion-Arroceros property was transferred to this Court in 2005 pursuant to Proclamation No. 835 dated April 27, 2005. Both
the GSIS and the Metropolitan Trial Court (MeTC) of Manila occupy the Concepcion-Arroceros property, while the Katigbak property
was under lease.
The controversy started when the City Treasurer of Manila addressed a letter dated to GSIS President and General
Manager Winston F. Garcia informing him of the unpaid real property taxes due on the aforementioned properties for years 1992 to
2002. The letter warned of the inclusion of the subject properties in the scheduled October 30, 2002 public auction of all delinquent
properties in Manila should the unpaid taxes remain unsettled before that date.
On September 16, 2002, the City Treasurer of Manila issued separate Notices of Realty Tax Delinquency for the subject
properties, with the usual warning of seizure and/or sale. On October 8, 2002, GSIS, through its legal counsel, wrote back
emphasizing the GSIS‘ exemption from all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291.
Two days after, GSIS filed a petition for certiorari and prohibition with prayer for a restraining and injunctive relief before
the Manila RTC. In it, GSIS prayed for the nullification of the assessments thus made and that respondents City of Manila officials
be permanently enjoined from proceedings against GSIS‘ property. GSIS would later amend its petition to include the fact that: (a)
the Katigbak property, covered by TCT Nos. 117685 and 119465 in the name of GSIS, has, since November 1991, been leased to
and occupied by the Manila Hotel Corporation (MHC), which has contractually bound itself to pay any realty taxes that may be
imposed on the subject property; and (b) the Concepcion-Arroceros property is partly occupied by GSIS and partly occupied by the
MeTC of Manila. The RTC dismissed the petition for lack of merit, and declaring the assessment conducted by the respondents City
of Manila on the subject real properties of GSIS as valid pursuant to law. GSIS sought but was denied reconsideration, hence, this
review.

ISSUES:
1) Whether GSIS under its charter is exempt from real property taxation.
2) Whether petitioner is exempt from the payment of real property taxes on the property it leased to a taxable entity.

RULINGS:

(1) YES. In 1936, Commonwealth Act No. (CA) 186 was enacted abolishing the then pension systems under Act No.
1638, as amended, and establishing the GSIS to manage the pension system, life and retirement insurance, and other benefits of all
government employees. Under what may be considered as its first charter, the GSIS was set up as a non-stock corporation
managed by a board of trustees. Notably, Section 26 of CA 186 provided exemption from any legal process and liens but only for
insurance policies and their proceeds, thus:

―Section 26. Exemption from legal process and liens.—No policy of life insurance issued under this Act, or
the proceeds thereof, when paid to any member thereunder, nor any other benefit granted under this Act, shall
be liable to attachment, garnishment, or other process, or to be seized, taken, appropriated, or applied by any
legal or equitable process or operation of law to pay any debt or liability of such member, or his beneficiary, or

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 any other person who may have a right thereunder, either before or after payment; nor shall the proceeds
thereof, when not made payable to a named beneficiary, constitute a part of the estate of the member for
payment of his debt. x x x‖ In 1977, PD 1146,12 otherwise known as the Revised Government Service
Insurance Act of 1977, was issued, providing for an expanded insurance system for government employees.
Sec. 33 of PD 1146 provided for a new tax treatment for GSIS, thus:

―Section 33. Exemption from Tax, Legal Process and Lien.—It is hereby declared to be the policy of the
State that the actuarial solvency of the funds of the System shall be preserved and maintained at all times and
that the contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in
order not to burden the members of the System and/or their employees. Taxes imposed on the System tend to
impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits
under this Act. Accordingly, notwithstanding any laws to the contrary, the System, its assets, revenues including
all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of
all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment
against the System as of the approval of this Act are hereby considered paid.

The benefits granted under this Act shall not be subject, among others, to attachment, garnishment, levy or other
processes. This, however, shall not apply to obligations of the member to the System, or to the employer, or when the benefits
granted herein are assigned by the member with the authority of the System.‖ (Emphasis ours.)
A scrutiny of PD 1146 reveals that the non-stock corporate structure of GSIS, as established under CA 186, re- mained
unchanged. Sec. 3413 of PD 1146 pertinently provides that the GSIS, as created by CA 186, shall implement the provisions of PD
1146.

RA 7160 lifted GSIS tax exemption

Then came the enactment in 1991 of the LGC or RA 7160, providing the exercise of local government units (LGUs) of
their power to tax, the scope and limitations thereof,14 and the exemptions from taxations. Of particular pertinence is the general
provision on withdrawal of tax exemption privileges in Sec. 193 of the LGC, and the special provision on withdrawal of exemption
from payment of real property taxes in the last paragraph of the succeeding Sec. 234, thus:
―SEC. 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or -controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.

SEC. 234. Exemption from Real Property Tax.—x x x Except as provided herein, any exemption from
payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporation are hereby withdrawn upon the effectivity of
this Code.‖

From the foregoing provisos, there can be no serious doubt about the Congress‘ intention to withdraw, subject to certain
defined exceptions, tax exemptions granted prior to the passage of RA 7160. The question that easily comes to mind then is
whether or not the full tax exemption heretofore granted to GSIS under PD 1146, particular insofar as realty tax is concerned, was
deemed withdrawn. We answer in the affirmative.
In Mactan Cebu International Airport Authority v. Marcos,15 the Court held that the express withdrawal by the LGC of
previously granted exemptions from realty taxes applied to instrumentalities and government-owned and controlled corporations
(GOCCs), such as the Mactan-Cebu International Airport Authority. In City of Davao v. RTC, Branch XII, Davao City,16 the Court,
citing Mactan Cebu International Airport Authority, declared the GSIS liable for real property taxes for the years 1992 to 1994
(contested real estate tax assessment therein), its previous exemption under PD 1146 being considered withdrawn with the
enactment of the LGC in 1991.
Significantly, the Court, in City of Davao, stated the observation that the GSIS‘ tax-exempt status withdrawn in 1992 by
the LGC was restored in 1997 by RA 8291.

Full tax exemption reenacted through RA 8291

Indeed, almost 20 years to the day after the issuance of the GSIS charter, i.e., PD 1146, it was further amended and
expanded by RA 8291 which took effect on June 24, 1997.18 Under it, the full tax exemption privilege of GSIS was restored, the
operative provision being Sec. 39 thereof, a virtual replication of the earlier quoted Sec. 33 of PD 1146. Sec. 39 of RA 8291 reads:
―SEC. 39. Exemption from Tax, Legal Process and Lien.—It is hereby declared to be the policy of the
State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and

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 that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order
not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the
actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act.
Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals
thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds.
These exemptions shall continue unless expressly and specifically revoked and any assessment against the
GSIS as of the approval of this Act are hereby considered paid.Consequently, all laws, ordinances, regulations,
issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed,
superseded and rendered ineffective and without legal force and effect.

Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this section is expressly,
specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemption referred
to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding and independently of the guaranty of
the national government to secure such solvency or liability.
The funds and/or the properties referred to herein as well as the benefits, sums or monies corresponding to the benefits
under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial
agencies or administrative bodiesincluding Commission on Audit (COA) disallowances and from all financial obligations of the
members, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official
functions or duties, or incurred relative to or in connection with his position or work except when his monetary liability, contractual or
otherwise, is in favor of the GSIS.‖
The foregoing exempting proviso, couched as it were in an encompassing manner, brooks no other construction but that
GSIS is exempt from all forms of taxes. While not determinative of this case, it is to be noted that prominently added in GSIS‘
present charter is a paragraph precluding any implied repeal of the tax-exempt clause so as to protect the solvency of GSIS funds.
Moreover, an express repeal by a subsequent law would not suffice to affect the full exemption benefits granted the GSIS, unless
the following conditionalities are met: (1) The repealing clause must expressly, specifically, and categorically revoke or repeal Sec.
39; and (2) a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or
protect the solvency of the fund. These restrictions for a future express repeal, notwithstanding, do not make the proviso an
irrepealable law, for such restrictions do not impinge or limit the carte blanche legislative authority of the legislature to so amend it.
The restrictions merely enhance other provisos in the law ensuring the solvency of the GSIS fund.
Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec. 33 of PD 1146, GSIS enjoyed tax
exemption from real estate taxes, among other tax burdens, until January 1, 1992 when the LGC took effect and withdrew
exemptions from payment of real estate taxes privileges granted under PD 1146; (2) RA 8291 restored in 1997 the tax exempt
status of GSIS by reenacting under its Sec. 39 what was once Sec. 33 of P.D. 1146; and (3) If any real estate tax is due to the City
of Manila, it is, following City of Davao, only for the interim period, or from 1992 to 1996, to be precise.

Real property taxes assessed and due from GSIS considered paid

While recognizing the exempt status of GSIS owing to the reenactment of the full tax exemption clause under Sec. 39 of
RA 8291 in 1997, the ponencia in City of Davao appeared to have failed to take stock of and fully appreciate the all-embracing
condoning proviso in the very same Sec. 39 which, for all intents and purposes, considered as paid ―any assessment against the
GSIS as of the approval of this Act.‖ If only to stress the point, we hereby reproduce the pertinent portion of said Sec. 39:
―SEC. 39. Exemption from Tax, Legal Process and Lien.—x x x Taxes imposed on the GSIS tend to impair
the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this
Act. Accordingly, notwithstanding, any laws to the contrary, the GSIS, its assets, revenues including all accruals
thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds.
These exemptions shall continue unless expressly and specifically revoked and any assessment against the
GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations,
issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed,
superseded and rendered ineffective and without legal force and effect.‖

(2) NO. The foregoing notwithstanding, the leased Katigbak property shall be taxable pursuant to the ―beneficial use‖
principle under Sec. 234(a) of the LGC.
It is true that said Sec. 234(a), quoted below, exempts from real estate taxes real property owned by the Republic, unless
the beneficial use of the property is, for consideration, transferred to a taxable person.
―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.‖

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 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:
(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. Thus, the real estate tax
assessment of PhP 54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency
is concerned as assessed over said property.

Taxable entity having beneficial use of leased property liable for real property taxes thereon

The next query as to which between GSIS, as the owner of the Katigbak property, or MHC, as the lessee thereof, is liable
to pay the accrued real estate tax, need not detain us long. MHC ought to pay.
As we declared in Testate Estate of Concordia T. Lim, ―the unpaid tax attaches to the property and is chargeable against
the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner.‖ Of the same
tenor is the Court‘s holding in the subsequent Manila Electric Company v. Barlis and later in Republic v. City of Kidapawan.26 Actual
use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.
Being in possession and having actual use of the Katigbak property since November 1991, MHC is liable for the realty
taxes assessed over the Katigbak property from 1992 to 2002.
The foregoing is not all. As it were, MHC has obligated itself under the GSIS-MHC Contract of Lease to shoulder such
assessment. Stipulation 18 of the contract pertinently reads:
―18. By law, the Lessor, [GSIS], is exempt from taxes, assessments and levies. Should there be any
change in the law or the interpretation thereof or any other circumstances which would subject the Leased
Property to any kind of tax, assessment or levy which would constitute a charge against the Lessor or create a
lien against the Leased Property, the Lessee agrees and obligates itself to shoulder and pay such tax,
assessment or levy as it becomes due.‖

City of Pasig v. Republic

G.R. No. 185023, [August 24, 2011], 671 PHIL 791-810
DOCTRINE: Properties owned by the RP are exempt from RPT ―except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.‖ Thus, the portions of the properties not leased to taxable entities are exempt from
real estate tax while the portions of the properties leased to taxable entities are subject to real estate tax.
Properties of public dominion are not only exempt from real estate tax, they are exempt from sale at public auction

FACTS: Mid-Pasig Land Development Corporation (MPLDC) owned 2 parcels of land in Pasig City portions of which are leased to
different business establishments.
In 1986, MPLDC was voluntarily surrendered to the Republic of the Philippines (RP). In 2002, the Pasig City Assessor‘s
Office sent MPLDC 2 notices of tax delinquency for its failure to pay real property tax (RPT) on the properties for the period 1979 to
2001. Independent Realty Corporation (IRC) thru letters, informed the Pasig City Treasurer that the tax for the period 1979 to 1986
had been paid, and that the properties were exempt from tax beginning 1987. The Pasig City Assessor‘s Office sent MPLDC a
notice of final demand for payment of tax for the period 1987 to 2005. On the same day, MPLDC paid partial payment under protest.
MPLDC received 2 warrants of levy on the properties. RP, through the PCGG, filed with the RTC a petition for prohibition to enjoin
Pasig City from auctioning the properties and from collecting RPT. The Pasig City Treasurer offered the properties for sale at public
auction and since there was no other bidder, Pasig City bought the properties and was issued the corresponding certificates of sale.
PCGG filed with the RTC an amended petition for certiorari, prohibition and mandamus against Pasig City praying that the
assessments for the payment of RPT and the public auction be declared void. The RTC granted the petition for certiorari, prohibition
and mandamus. It held that, the "payanig" properties, being part of the recovered ill-gotten wealth of Pres. Marcos, and therefore
are owned by the State itself, are exempt from payment of RPT. The CA affirmed the RTC‘s Decision. It held that the subject
properties were voluntarily surrendered to the State which makes a judicial declaration that the same were ill-gotten unnecessary.
Indubitably, the subject properties, being ill-gotten wealth, belong to the State. Hence, the present petition. Pasig City raises as

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issues that the lower courts erred in granting PCGG‘s petition for certiorari, prohibition and mandamus and in ordering Pasig City to
assess and collect RPT from the lessees of the properties.

ISSUE: /N the properties are exempt from RPT & from sale at public auction.

HELD: As correctly found by the RTC and the CA, the RP owns the properties.
Section 234(a) of RA 7160 states that properties owned by the RP are exempt from RPT ―except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person.‖ Thus, the portions of the properties not leased to
taxable entities are exempt from real estate tax while the portions of the properties leased to taxable entities are subject to real
estate tax. The law imposes the liability to pay real estate tax on the RP for the portions of the properties leased to taxable entities. It
is, of course, assumed that the RP passes on the real estate tax as part of the rent to the lessees.
In the present case, the parcels of land are not properties of public dominion because they are not ―intended for public
use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads.‖ Neither are they
―intended for some public service or for the development of the national wealth.‖ MPLDC leases portions of the properties to
different business establishments. Thus, the portions of the properties leased to taxable entities are not only subject to real estate
tax, they can also be sold at public auction to satisfy the tax delinquency. In sum, only those portions of the properties leased to
taxable entities are subject to real estate tax for the period of such leases. Pasig City must, therefore, issue to respondent new RPT
assessments covering the portions of the properties leased to taxable entities. If the RP fails to pay the RPT on the portions of the
properties leased to taxable entities, then such portions may be sold at public auction to satisfy the tax delinquency.
Article 420 of the Civil Code classifies as properties of public dominion 1) those that are ―intended for public use, such as
roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads‖ and 2) those that ―are
intended for some public service or for the development of the national wealth.‖ Properties of public dominion are not only exempt
from real estate tax, they are exempt from sale at public auction. In Heirs of Mario Malabanan v. Republic, 587 SCRA 172 (2009),
the Court held that, ―It is clear that property of public dominion, which generally includes property belonging to the State, cannot be x
x x subject of the commerce of man.‖
The petition is PARTIALLY GRANTED. The Court SETS ASIDE the Decision of the CA and declares VOID the RPT
assessment issued by Pasig City on the subject properties of MPLDC, the warrants of levy on the properties, and the auction sale.
Pasig City is DIRECTED to issue to respondent new RPT assessments covering only the portions of the properties actually leased
to taxable entities, and only for the period of such leases.

Lung Center of the Philippines v. Quezon City

G.R. No. 144104, [June 29, 2004], 477 PHIL 141-160
FACTS: Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks exemption from real property taxes
when the City Assessor issued Tax Declarations for the land and the hospital building. Petitioner predicted on its claim that it is a
charitable institution. The request was denied, and a petition hereafter filed before the Local Board of Assessment Appeals of
Quezon City (QC-LBAA) for reversal of the resolution of the City Assessor. Petitioner alleged that as a charitable institution, is
exempted from real property taxes under Sec 28(3) Art VI of the Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment Appeals of Quezon City. The Court of Appeals affirmed the
judgment of the CBAA.

ISSUES:
1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and 1987 Constitution and
Section 234(b) of RA 7160.
2. Whether or not petitioner is exempted from real property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitution.
Under PD 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is
to be administered by the Office of the President with the Ministry of Health and the Ministry of Human Settlements. The
purpose for which it was created was to render medical services to the public in general including those who are poor and
also the rich, and become a subject of charity. Under PD 1823, petitioner is entitled to receive donations, even if the gift or
donation is in the form of subsidies granted by the government.
2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real properties as
well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only. This provision
was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung center
must be able to prove that: it is a charitable institution and; its real properties are actually, directly and exclusively used for
charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt from real property
taxes while those leased to private entities are not exempt from such taxes.

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Provincial Assessor of Agusan Del Sur v. Filipinas Palm Oil Plantation, Inc.
G.R. No. 183416, [October 5, 2016]
DOCTRINE: The exemption from real property taxes given to cooperatives applies regardless of whether or not the land owned is
leased. This exemption benefits the cooperative‘s lessee. The characterization of machinery as real property is governed by the
Local Government Code and not the Civil Code.

FACTS:
 Filipinas Palm Oil Plantation, Inc. (Filipinas) is a private organization engaged in palm oil plantation5 with a total land area
of more than 7,000 hectares of National Development Company (NDC) lands in Agusan del Sur.6 Harvested fruits from oil
palm trees are converted into oil through Filipinas‘ milling plant in the middle of the plantation area. Within the plantation,
there are also three (3) plantation roads and a number of residential homes constructed by Filipinas for its employees.
 After the Comprehensive Agrarian Reform Law9 was passed, NDC lands were transferred to Comprehensive Agrarian
Reform Law beneficiaries who formed themselves as the merged NDC Guthrie Plantations, Inc.-NDC-Guthrie Estates,
Inc. (NGPI-NGEI) Cooperatives. Filipinas entered into a lease contract agreement with NGPI-NGEI.
 The Provincial Assessor of Agusan del Sur (Provincial Assessor) is a government agency in charge with the assessment
of lands under the public domain.12 It assessed Filipinas‘ properties found within the plantation area,13 which Filipinas
assailed before the Local Board of Assessment Appeals (LBAA) on the following grounds:
o The [petitioner] Provincial Assessors of Agusan del Sur ERRED in finding that the Market Value of a single fruit
bearing oil palm tree is P207.00 when it should only be P42.00 pesos per tree;
o The [petitioner] ERRED in finding that the total number of standing and fruit bearing oil palm tree is P110 [sic]
trees per hectare when it should be only 92 trees;
o The [petitioner] ERRED in finding that the Market Value[s] of the plantation roads are: A.) P270,000.00 per
kilometer for primary roads; B.) P135,000.00 for secondary roads; C.) P67,567.00 for tertiary roads constructed
by the company.
 It should only be: A.) P105,000.00 for primary roads; B.) P52,300.00 for secondary roads; C.) P26,250.00 for tertiary
roads.
 Likewise, bridges, culverts, canals and pipes should not be assessed separately from plantation roads, the same being
components of the roads thereof;
o The [petitioner] ERRED in imposing real property taxes against the petitioner for roads, bridges, culverts, pipes
and canals as these belonged to the cooperatives;
 ([5].) The [petitioner] ERRED in finding that the Market Value of NDC service area is P11,000.00 per hectare when it
should only be P6,000.00 per hectare;
 ([6].) The [petitioner] ERRED in imposing realty taxes on Residential areas built by [respondent] except for three of them;
 ([7].) The [petitioner] ERRED when it included haulers and other equipments [sic] which are unmovable as taxable real
properties. (Emphasis supplied)
 In its Decision15 dated June 8, 1999, the LBAA found that the P207.00 market value declared in the assessment by the
Provincial Assessor was unreasonable. It found that the market value should not have been more than P85.00 per oil
palm tree. The sudden increase of realty tax assessment level from P42.00 for each oil palm tree in 1993 to P207.00 was
confiscatory.
 The LBAA adopted Filipinas‘ claim that the basis for assessment should only be 98 trees. Although one (1) hectare of land
can accommodate 124 oil palm trees, the mountainous terrain of the plantation should be considered.20 Because of the
terrain, not every meter of land can be fully planted with trees. The LBAA found that roads of any kind, as well as all their
improvements, should not be taxed since these roads were intermittently used by the public. It resolved that the market
valuation should be based on the laws of the Department of Agrarian Reform since the area is owned by the NDC, a
quasi-governmental body of the Philippines.
 The LBAA exempted the low-cost housing units from taxation except those with a market value of more than P150,000.00
under the Local Government Code. Finally, the LBAA considered the road equipment and mini haulers as movables that
are vital to Filipinas‘ business.
 Filipinas appealed before the CBAA on July 16, 1999. On November 21, 2001, the CBAA rendered a decision, the
dispositive portion of which reads:
 WHEREFORE, this Board has decided to set aside, as it does hereby set aside, the decision rendered by the Local Board
of Assessment Appeals of the Province of Agusan del Sur on June 8, 1999 in an unnumbered case entitled ―[F]ilipinas
Palm Oil Co., Inc., Petitioner, versus the Provincial Assessors Office of Agusan del Sur, Respondent‖ and hereby orders a
follows:
 The market value for each oil palm tree should be FIFTY-SEVEN & 55/100 PESOS (57.55), effective
January 1, 1991. The assessment for each municipality shall be based on the corresponding number
of trees as listed in Petitioner-Appellee‘s ―Hectarage Statement‖ discussed hereinabove;

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  Petitioner-Appellee should not be made to pay for the real property taxes due on the roads starting
from January 1, 1991;
 Petitioner-Appellee is not liable to the Government for real property taxes on the lands owned by the
Multi-purpose Cooperative;
 The housing units with a market value of P175,000.00 or less each shall be subjected to 0%
assessment level, starting 1994;
 Road Equipment and haulers are not real properties and, accordingly, Petitioner-Appellee is not liable
for real property tax thereon;
 Any real property taxes already paid by Petitioner-Appellee which, by virtue ―of this decision, were not
due, shall be applied to future taxes rightfully due from PetitionerAppellee. SO ORDERED.27
(Emphasis supplied)
 The CBAA denied the Motion for Reconsideration filed by the Provincial Assessor. The Provincial Assessor filed a Petition
for Review before the Court of Appeals, which, in turn, sustained the CBAA‘s Decision.
 The Court of Appeals held that the land owned by NGPI-NGEI, which Filipinas has been leasing, cannot be subjected to
real property tax since these are owned by cooperatives that are tax-exempt. Section 133(n) of the Local Government
Code provides:
 SECTION 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: . . . . (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise
known as the ―Cooperative Code of the Philippines.‖ (Emphasis supplied)
 Section 234(d) of the Local Government Code exempts duly registered cooperatives, like NGPI-NGEI, from payment of
real property taxes:
 SECTION 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real property tax: .
...
 (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938[.] (Emphasis supplied)
 The Court of Appeals held that the pertinent provisions ―neither distinguishes nor specifies‖ that the exemption only
applies to real properties used by the cooperatives. It ruled that ―[t]he clear absence of any restriction or limitation in the
provision could only mean that the exemption applies to wherever the properties are situated and to whoever uses them.‖
Therefore, the exemption privilege extends to Filipinas as the cooperatives‘ lessee.
 On the roads constructed by Filipinas, the Court of Appeals held that although it is undisputed that the roads were built
primarily for Filipinas‘ benefit, the roads should be tax-exempt since these roads were also being used by the
cooperatives and the public. It applied, by analogy, Bislig Bay Lumber Company, Inc. v. Provincial Government of
Surigao:
 We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that the ownership of the road
that was constructed by appellee belongs to the government by right accession not only because it is inherently
incorporated or attached to the timber land leased to appellee but also because upon the expiration of the concession,
said road would ultimately pass to the national government. In the second place, while the road was constructed by
appellee primarily for its use and benefit, the privilege is not exclusive, for, under the lease contract entered into by the
appellee and the government and by public in by the general. Thus, under said lease contract, appellee cannot prevent
the use of portions, of the concession for homesteading purposes. It is also in duty-bound to allow the free use of forest
products within the concession for the personal use of individuals residing in or within the vicinity of the land. . . . In other
words, the government has practically reserved the rights to use the road to promote its varied activities. Since, as above
shown, the road in question cannot be considered as an improvement which belongs to appellee, although in part is for its
benefit, it is clear that the same cannot be the subject of assessment within the meaning of Section 2 of Commonwealth
Act No. 470.36 (Citations omitted)
 Furthermore, the Court of Appeals agreed with the CBAA that the roads constructed by Filipinas had become permanent
improvements on the land owned by NGPI-NGEI. Articles 440 and 445 of the Civil Code provide that these improvements
redound to the benefit of the land owner under the right of accession:
 Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is
incorporated or attached thereto, either naturally or artificially. . . . .
 Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon,
belong to the owner of the land, subject to the provisions of the following articles.
 On the road equipment and mini haulers as real properties subject to tax, the Court of Appeals affirmed the CBAA‘s
Decision that these are only movables.39 Section 199(o) of the Local Government Code provides a definition of
machinery subject to real property taxation:
 SECTION 199. Definition of Terms.—When used in this Title, the term: . . . . (o) ―Machinery‖ embraces machines,
equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and
appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached

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 to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business
or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining.
 The Court of Appeals held that Section 199(o) of the Local Government Code should be construed to include machineries
covered by the meaning of real properties provided for under Article 415(5) of the Civil Code:
 Article 415. The following are immovable property: . . . .
 (5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry
or works[.]
 The Court of Appeals cited Davao Saw Mill Company v. Castillo,41 where it has been held that machinery that is movable
by nature becomes immobilized only when placed by the owner of the tenement, but not so when placed by a tenant or
any other person having a temporary right unless this person acts as an agent of the owner. Thus, the mini haulers and
other road equipment retain their nature as movables.
 The Provincial Assessor filed before this Court a Petition for Review raising the following issues:

ISSUES:
1. W/N the exemption privilege of NGPI-NGEI from payment of real property tax extends to respondent Filipinas Palm Oil
Plantation, Inc. as lessee of the parcel of land owned by cooperatives.
2. W/N the respondent‘s road equipment and mini haulers are movable properties and have not been immobilized by
destination for real property taxation.

HELD:
1. Under Section 133(n) of the Local Government Code, the taxing power of local government units shall not extend to the
levy of taxes, fees, or charges on duly registered cooperatives under the Cooperative Code. Section 234(d) of the Local
Government Code specifically provides for real property tax exemption to cooperatives:
SECTION 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real
property tax: . . . . (d) All real property owned by duly registered cooperatives as provided for under [Republic Act] No.
6938[.] (Emphasis supplied)
NGPI-NGEI, as the owner of the land being leased by respondent, falls within the purview of the law. Section
234 of the Local Government Code exempts all real property owned by cooperatives without distinction. Nothing in the law
suggests that the real property tax exemption only applies when the property is used by the cooperative itself. Similarly,
the instance that the real property is leased to either an individual or corporation is not a ground for withdrawal of tax
exemption.
2. The roads that respondent constructed within the leased area should not be assessed with real property taxes. Bislig Bay
finds application here. Bislig Bay Lumber Company, Inc. (Bislig Bay) was a timber concessionaire of a portion of public
forest in the provinces of Agusan and Surigao. To aid in developing its concession, Bislig Bay built a road at its expense
from a barrio leading towards its area. The Provincial Assessor of Surigao assessed Bislig Bay with real property tax on
the constructed road, which was paid by the company under protest. It claimed that even if the road was constructed on
public land, it should be subjected to real property tax because it was built by the company for its own benefit. On the
other hand, Bislig Bay asserted that the road should be exempted from real property tax because it belonged to national
government by right of accession. Moreover, the road constructed already became an inseparable part of the land. The
records also showed that the road was not only built for the benefit of Bislig Bay, but also of the public. This Court ruled
for Bislig Bay, thus: We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that the
ownership of the road that was constructed by appellee belongs to the government by right accession not only because it
is inherently incorporated or attached to the timber land leased to appellee but also because upon the expiration of the
concession, said road would ultimately pass to the national government. . . . In the second place, while the road was
constructed by appellee primarily for its use and benefit, the privilege is not exclusive, for, under the lease contract
entered into by the appellee and the government and by public in by the general. Thus, under said lease contract,
appellee cannot prevent the use of portions, of the concession for homesteading purposes. . . . It is also in duty-bound to
allow the free use of forest products within the concession for the personal use of individuals residing in or within the
vicinity of the land. . . . In other words, the government has practically reserved the rights to use the road to promote its
varied activities. Since, as above shown, the road in question cannot be considered as an improvement which belongs to
appellee, although in part is for its benefit, it is clear that the same cannot be the subject of assessment within the
meaning of section 2 of Commonwealth Act No. 470.
Section 199(o) of the Local Government Code defines ―machinery‖ as real property subject to real property tax,
thus: SECTION 199. Definition of Terms.—When used in this Title, the term: . . . . (o) ―Machinery‖ embraces machines,
equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and
appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached
to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business
or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes[.]

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 168
 X. Remedies on Real Property Taxation
1. Secs. 226, 229, 252 and 267 of the LGC

Section 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the property who is not satisfied
with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the provincial or city by filing a
petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.

Section 229. Action by the Local Board of Assessment Appeals. -

a) The Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The
Board, after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a
reasonable mind might accept as adequate to support the conclusion.
b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths,
conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the
Board shall be conducted solely for the purpose of ascertaining the facts without necessarily adhering to technical rules
applicable in judicial proceedings.
c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein and the
provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor concurs in the
revision or the assessment, it shall be his duty to notify the owner of the property or the person having legal interest
therein of such fact using the form prescribed for the purpose. The owner of the property or the person having legal
interest therein or the assessor who is not satisfied with the decision of the Board, may, within thirty (30) days after receipt
of the decision of said Board, appeal to the Central Board of Assessment Appeals, as herein provided. The decision of the
Central Board shall be final and executory.

Section 252. Payment Under Protest. -

a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the
words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the tax to the
provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall
decide the protest within sixty (60) days from receipt.
b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.
c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be
refunded to the protestant, or applied as tax credit against his existing or future tax liability.
d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a), the
taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code.

Section 267. Action Assailing Validity of Tax Sale. - No court shall entertain any action assailing the validity or any sale at public
auction of real property or rights therein under this Title until the taxpayer shall have deposited with the court the amount for which
the real property was sold, together with interest of two percent (2%) per month from the date of sale to the time of the institution of
the action. The amount so deposited shall be paid to the purchaser at the auction sale if the deed is declared invalid but it shall be
returned to the depositor if the action fails.
Neither shall any court declare a sale at public auction invalid by reason or irregularities or informalities in the proceedings
unless the substantive rights of the delinquent owner of the real property or the person having legal interest therein have been
impaired.

2. Manila Electric Company vs. The City of Assessor and City Treasurer of Lucena City, GR No.
166102 dated August 5, 2015  VALDEZ
3. NPC vs. Province of Quezon, GR No. 171586 dated July 15, 2009  BAGALANON
4. NPC vs. Province of Quezon, GR No. 171586 dated January 25, 2010. (Resolution)  BESA
5. Camp John Hay Development Corp. vs. CBAA, GR No. 169234 dated October 2, 2013. (include
concurring opinion of Justice Carpio)  BUENO
6. NPC vs. Municipal Government of Navotas, GR No. 192300 dated November 24, 2014  GIBA
7. City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November 26, 2014  OBNIAL
8. CE Casecnan Water and Energy Company, Inc. vs. The Province of Nueva Ecija, GR No.
196278 dated June 17, 2015  VENGCO
9. NPC v. Provincial Treasurer of Benguet, GR No. 209303, 11/14/2016  VILLABLAGON
10. Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, GR No. 180110 dated May
30, 2016  ALANZALON

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 169
Manila Electric Co. v. City Assessor
G.R. No. 166102, [August 5, 2015]
FACTS: MERALCO has been successively granted franchises to operate in Lucena City beginning 1922 until present time. When it
received from the City Assessor of Lucena a copy of Tax Declaration No. 019-6500 covering the following electric facilities, classified
as capital investment, of the company: transformer and electric post; transmission line; insulator; and electric meter. It claimed
exemption from payment of real property tax on said substation facilities. The LBAA held that the tax declaration would remain and
the poles, wires, insulators, transformers, and electric meters of MERALCO would be continuously assessed, but the City Assessor
would stamp on the said Tax Declaration the word "exempt." On appeal, the CBAA affirmed the assailed LBAA judgment, which
later became final and executory.
Six years later, MERALCO was assessed by the City Treasurer of Lucena for real property tax delinquency on its
machineries beginning 1990. MERALCO appealed the tax declarations before the LBAA of Lucena City and posted a surety bond to
guarantee payment of its real property tax delinquency. It asked the LBAA to cancel and nullify the Notice of Assessment and
declare the properties exempt from real property tax.
The LBAA refused to apply as res judicata its earlier judgment, as affirmed by the CBAA, because it involved collection of
taxes from 1985 to 1989, while the present case concerned the collection of taxes from 1989 to 1997.

ISSUE: Whether or not MERALCO‘s transformers, electric posts, transmission lines, insulators, and electric meters are exempt from
real property tax?

HELD: No. The Court finds that the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO are
no longer exempted from real property tax and may qualify as "machinery" subject to real property tax under the Local Government
Code. Nevertheless, the Court declares null and void the appraisal and assessment of said properties of MERALCO by the City
Assessor in 1997 for failure to comply with the requirements of the Local Government Code and, thus, violating the right of
MERALCO to due process.
By posting a surety bond before filing its appeal of the assessment with the LBAA, MERALCO substantially complied with
the requirement of payment under protest in Section 252 of the Local Government Code.
Section 252 of the Local Government Code mandates that ―no protest shall be entertained unless the taxpayer first pays
the tax.‖ It is settled that the requirement of ―payment under protest‖ is a condition sine qua non before an appeal may be
entertained. Section 231 of the same Code also dictates that "appeal on assessments of real property x x x shall, in no case,
suspend the collection of the corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.‖ Clearly, under the Local Government
Code, even when the assessment of the real property is appealed, the real property tax due on the basis thereof should be paid to
and/or collected by the local government unit concerned.
MERALCO, a private corporation engaged in electric distribution, and its transformers, electric posts, transmission lines,
insulators, and electric meters used commercially do not qualify under any of the ownership, character, and usage exemptions
enumerated in Section 234 of the Local Government Code. It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.
Not being among the recognized exemptions from real property tax in Section 234 of the Local Government Code, then the
exemption of the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO from real property tax
granted under its franchise was among the exemptions withdrawn upon the effectivity of the Local Government Code on January 1,
1998.
The transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO may qualify
as "machinery" under the Local Government Code subject to real property tax.
Through the years, the relevant laws have consistently considered "machinery" as real property subject to real property
tax. It is the definition of "machinery" that has been changing and expanding, as the following table will show:

Real Property
Incidence of Real Property Tax
Tax Law
The Assessment Law Section 2. Incidence of real property tax.- Except in
(Commonwealth Act No. chartered cities, there shall be levied, assessed,
470) and collected, an annual ad valorem tax on real
property, including land, buildings, machinery, and
Effectivity: January 1, other improvements not hereinafter specifically
1940 exempted.
Real Property Section 38. Incidence of Real Property Tax. - There
Tax Code shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad
Effectivity: June 1, 1974 valorem tax on real property, such as land,
buildings, machinery and other improvements
affixed or attached to real property not hereinafter
specifically exempted.
Definition of Machinery
Section 3. Property exempt from tax. - The
exemptions shall be as follows:
xxxx
(f) Machinery, which term shall embrace machines,
mechanical contrivances, instruments, appliances,
and apparatus attached to the real estate, used for
industrial agricultural or manufacturing purposes,
during the first five years of the operation of the
machinery.
Section 3. Definition of Terms. -
When used in this Code -
xxxx
(m) Machinery - shall embrace machines,
mechanical contrivances, instruments, appliances
and apparatus attached to the real estate. It

2019 Taxation Law Reviewer (Part 2) | Atty. Bobby Lock | Locky 18 | Fri 5:30-8:30pm Page 170

Real Property Section 38. Incidence of Real Property Tax. - There
Tax Code, as amended shall be levied, assessed and collected in all
by provinces, cities and municipalities an annual ad
Presidential valorem tax on real property, such as land,
Decree No. 1383 buildings, machinery and other improvements
affixed or attached to real property not hereinafter
Effectivity: May 25, 1978 specifically exempted.
Local Section 232. Power to Levy Real Property Tax. — A
Government province or city or a municipality within the
Code Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land,
Effectivity: building, machinery, and other improvement not
January 1, 1992 hereinafter specifically exempted.
includes the physical facilities available for
production, as well as the installations and
appurtenant service facilities, together with all other
equipment designed for or essential to its
manufacturing, industrial or agricultural purposes.
Section 3. Definition of Terms.
When used in this Code -
xxxx
(m) Machinery - shall embrace machines,
equipment, mechanical contrivances, instruments,
appliances and apparatus attached to the real
estate. It shall include the physical facilities
available for production, as well as the installations
and appurtenant service facilities, together with all
those not permanently attached to the real estate
but are actually, directly and essentially used to
meet the needs of the particular industry, business,
or works, which by their very nature and purpose
are designed for, or essential to manufacturing,
commercial, mining, industrial or agricultural
purposes.
Section 199. Definitions. - When used in this Title:
xxxx
(o) "Machinery" embraces machines, equipment,
mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached,
permanently or temporarily, to the real property.
It includes the physical facilities for production, the
installations and appurtenant service
facilities, those which are mobile, self-powered
or self- propelled, and those not permanently
attached to the real property which are actually,
directly, and exclusively used to meet the needs of
the particular industry, business or activity and
which by their very nature and purpose are
designed for, or necessary to its manufacturing,
mining, logging, commercial, industrial or
agricultural purposes[.]

National Power Corp. v. Province of Quezon

G.R. No. 171586, [July 15, 2009], 610 PHIL 456-475
DOCTRINE: Exemption from Real Property Tax under Section 234
The government-owned or controlled corporation claiming exemption must be the entity actually, directly, and exclusively using the
real properties, and the use must be devoted to the generation and transmission of electric power.
The test of exemption is the use, not the ownership of the machineries devoted to generation and transmission of electric power.

FACTS:
- NPC is a GOCC that entered into a Built Operate Transfer under an Energy Conversion Agreement (ECA) agreement with
Mirant for a powerplant on NPCs lot in Pagbilao, Quezon.
- NPC had the obligation to pay all taxes that government may impose on Mirant under the ECA.
- The Municipality of Pagbilao assessed real property taxes on the power plant and machineries 1.5B for 1997 – 2007.
- NPC filed a petition before the Local Board of Assessment Appeals - asking them to declare them exempt from payment
of property tax on equipment used for power generation under section 234 of the LGC.
- NPC also objected to the assessment against Mirant and claims exemption under Sec 234 c and e of the LGC.
- They further state that should they not be entitled to claim the exemptions then they are entitled to a lower assesment
level and and allowance for deprecation LBAA dismissed the NPCs petition.
- NPC appealed to the CBAA which affirmed the LBAA decision
- MR to NPC was also denied
- NPC then appealed to the CTA but the CTA en banc resolved to dismiss NPCs petition
- Hence this case filed by NPC

ISSUE/ HELD:
1) Is NPC exempt from payment of the real property taxes?
NPC not exempt. NPC sought jurisdiction of the CBAA hence estopped from questioning such jurisdiction.

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 NPC claims CBAA had no authority to exercise jurisdiction on appeal of LBAAs decision since there was no
finding of fact – such decision is null and void CTA claims that NPC was not the proper party to protest the real property
tax assessment. While NPC says that they have legal interest due to their beneficial ownership of the plant and
machineries. Further they claim that machineries also include ANTI POLLUTION DEVICES wc should have been
excluded from assessment (Sec 234e) The Court held that NPC is estopped from questioning the CBAAs jurisdiction
since it was NPC itself which sought the jurisdiction of the CBAA and even participated in the proceedings.
NPCs claim of tax exemption without merit since they failed to prove the 2 elements in Sec 234 of the LGC:
(a) the machineries and equipment are actually, directly, and exclusively used by local water districts and
government-owned or controlled corporations; and
(b) the local water districts and government-owned and controlled corporations claiming exemption must be
engaged in the supply and distribution of water and/or the generation and transmission of electric power.
Neither NPC and Mirant failed to satisfy both requirements. Here Mirant, a private corporation, was the one who
used/ operated the machineries. NPCs claim of beneficial ownership is unavailing. The test of exemption is the
use, not the ownership of the machineries devoted to generation and transmission of electric power.

2) Does NPC have the right to protest the assessment?

No. NPC is neither the owner or possessor /user of the subject machineries. Their claim of ownership is merely
contingent. Hence, they do not have the personality to protest the tax imposed by law to Mirant.
Section 226 of the LGC lists down the entities vested with the personality to contest and assessment. – (1) The
OWNER and (2)THE PERSON LEGAL INTEREST OVER THE PROPERTY. The ECA terms clearly vest ownership with
Mirant. NPC claims that it will own the machineries at the end of 25 years, hence it is the beneficial owner of the plant.
However jurisprudence states that legal interest should be an interest that is actual and material, direct and immediate,
not simply contingent or expectant.
NB: GOCC and LGU: No privity between such even if both are public corporations
SC: Petition by NPC denied.

National Power Corp. v. Provincial Treasurer of Benguet

G.R. No. 209303, [November 14, 2016]
DOCTRINE: At the outset, settled is the rule that should the taxpayer/real property owner question the excessiveness or
reasonableness of the assessment, Section 252 of the LGC of 1991 directs that the taxpayer should first pay the tax due before his
protest can be entertained.
It is only after the taxpayer has paid the tax due that he may file a protest in writing within 30 days from payment of the tax
to the Provincial, City or Municipal Treasurer, who shall decide the protest within sixty days from receipt. In no case is the local
treasurer obliged to entertain the protest unless the tax due has been paid.
Chapter 3, Title Two, Book II of the LGC of 1991, Sections 226 to 231, provides for the administrative remedies available
to a taxpayer or real property owner who does not agree with the assessment of the real property tax sought to be collected,
particularly, the procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on the payment of real
property taxes.
As settled in jurisprudence, a claim for exemption from the payment of real property taxes does not actually question the
assessor‘s authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the assessment by the
local assessor, a question of fact which should be resolved, at the very first instance, by the LBAA. The same may be inferred in
Section 206 of the LGC of 1991.
Section 206 of the LGC categorically provides that every person by or for whom real property is declared, who shall claim
exemption from payment of real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. The burden of proving exemption from local taxation is upon
whom the subject real property is declared.
While it is evident in jurisprudence that the filing of motion for reconsideration before the LBAA is allowed, this Court finds
that, inevitably, the filing of the appeal before the CBAA through registered mail on November 16, 2006 was already late. It is settled
that the ―fresh period rule‖ in the case of Domingo Neypes, et al. v. Court of Appeals, et al., 469 SCRA 633 (2005), applies only to
judicial appeals and not to administrative appeals.

FACTS: Sometime in May 2000, the Municipal Assessor of Itogon, Benguet assessed the National Power Corporation (NPC) the
amount of ₱62,645,668.80 real property tax for several properties located within the Binga Hydro-Electric Power Plant.
On March 17, 2006, NPC received a letter dated February 16, 2006 from OIC- Provincial Treasurer of Benguet demanding the
payment of real property tax delinquency in the amount of ₱62,645,668.80.
On April 20, 2006, NPC challenged before the Local Board of Assessment Appeals (LBAA) the legality of the assessment
and the authority of the respondents to assess and collect real property taxes from it when its properties are exempt pursuant to
Section 234 (b) and (c) of Republic Act (R.A.) No. 7160, otherwise known as the Local Government Code (LGC) of 1991. In the
letters dated September 3, 2000 and April 19, 2001, NPC filed its requests for exemption, which the respondent Municipal Treasurer
of Itogon, Benguet has not acted upon.
In an Order dated July 28, 2006, the LBAA deferred the proceedings upon NPC‘s payment under protest of the assessed
amount, or upon filing of a surety bond to cover the disputed amount of tax. NPC moved to reconsider the Order on the ground of
lack of legal basis, but the same was denied in a Resolution dated October 3, 2006.
NPC filed a petition for review before the Central Board of Assessment Appeals (CBAA) claiming that payment under
protest was not required before it could challenge the authority of respondents to assess tax on tax exempt properties before the
LBAA.
In their Answer, respondents pursuant to Section 252 of the LGC, payment under protest was a necessary condition to a
protest against the assessment issued by respondents.

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 On July 28, 2011, the CBAA dismissed the appeal for being filed out of time.
The CBAA, in an Order dated February 23, 2012, denied NPC‘s motion for reconsideration. It ruled that it is incumbent
upon NPC to pay under protest before the LBAA could entertain its appeal as provided under Section 252 of the LGC.
Undaunted, NPC appealed to the CTA En Banc by filing a Petition for Review dated April 13, 2012. The CTA En Banc
denied the same for lack of merit. It ruled that as expressly provided in Section 252 of the LGC, a written protest against the
assessment may be filed before the LBAA within thirty (30) days from payment under protest. NPC failed to pay under protest the
contested assessment, a condition sine qua non for invocation of LBAA‘s appellate authority.

ISSUE: Whether payment under protest of the assessed real property taxes is required before the LBAA could entertain the protest
filed by NPC.

HELD: Settled is the rule that should the taxpayer/real property owner question the excessiveness or reasonableness of the
assessment, Section 252 of the LGC of 1991 directs that the taxpayer should first pay the tax due before his protest can be
entertained, thus:
SEC. 252. Payment Under Protest. —
a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words ―paid under protest‖. The protest in writing must be
filed within thirty (30) days from payment of the tax to the provincial, city treasurer, or
municipal treasurer, in the case of a municipality within Metropolitan Area, who shall decide
the protest within sixty (60) days from receipt.
b) The tax or a portion thereof paid under protest shall be held in trust by the treasurer
concerned.
c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion
of the tax protested shall be refunded to the protestant, or applied as tax credits against his
existing or future tax liability.
d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed
in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3,
Title Two, Book II of this Code.

It is only after the taxpayer has paid the tax due that he may file a protest in writing within 30 days from payment of the tax
to the Provincial, City or Municipal Treasurer, who shall decide the protest within sixty days from receipt. In no case is the local
treasurer obliged to entertain the protest unless the tax due has been paid.to assess and collect such taxes, but pertains to the
reasonableness or correctness of the assessment by NPC alleges that payment under protest under Section 252 of the LGC is
required when the reasonableness of the amount assessed is being questioned. Challenging the very authority and power of the
assessor to impose the assessment and of the treasurer to collect the tax is an attack on the very validity on any increase and not
merely on the amounts of increase in tax. Thus, such payment is not a condition sine qua non for the LBAA to entertain the NPC‘s
challenge on the validity of the tax imposed on its tax-exempt properties.
As settled in jurisprudence, a claim for exemption from the payment of real property taxes does not actually question the
assessor‘s authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the assessment by the
local assessor, a question of fact which should be resolved, at the very first instance, by the LBAA. The same may be inferred in
Section 206 of the LGC of 1991, to wit:
SEC. 206. Proof of Exemption of Real Properly from Taxation. — Every person by or for whom
real property is declared, who shall claim tax exemption for such propertyunder this Title shall file with
the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of real
prpperty sufficient documentary evidence in support of such claim including corporate charters, title of
ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds,
and similar documents. If the required evidence is not submitted within the period herein prescribed,
the property shall be listed as taxable in the assessment roll. However, if the property shall be proven
to be tax exempt, the same shall be dropped from the assessment roll exemption from taxation is
insisted upon...

Section 206 of the LGC categorically provides that every person by or for whom real property is declared, who shall claim
exemption from payment of real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. The burden of proving exemption from local taxation is upon
whom the subject real property is declared. By providing that real property not declared and proved as tax-exempt shall be included
in the assessment roll, the above quoted provision implies that the local assessor has the authority to assess the property for realty
taxes, and any subsequent claim for exemption shall be allowed only when sufficient proof has been adduced supporting the claim.
Thus, if the property being taxed has not been dropped from the assessment roll, taxes must be paid under protest if the
exemption from taxation is insisted upon.
Records reveal that the petitioner sent a letter dated September 5, 2000 to the respondent Municipal Treasurer seeking
clarification on the assessment levels used by the Assessor in the billing taxes, as well as claiming tax exemption on certain
properties. It reiterated its claim of exemption in its letter dated April 19, 2001. NPC received the final demand for payment of tax
delinquency issued by the Provincial Treasurer in a letter dated February 16, 2006. Thereafter, petitioner filed a petition purportedly
questioning the authority of the respondents to assess and to collect taxes against some of its properties before the LBAA, without
payment under protest of the assessed real property taxes.
Nothing in the said petition before the LBAA supports petitioner‘s claim regarding the respondents‘ alleged lack of
authority. Instead, it raises the following issues, which involve a question of fact: 1.) the properties such as reservoir, machineries
and equipment which are actually, directly and exclusively used by NPC in the generation and transmission of electricity, and the
school buildings are exempt from taxation; and 2.) regarding the escape revision which was made retroactive from 1994, said taxes
could no longer be assessed and collected since they should have been assessed within five (5) years from the date they became

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due. Though couched in terms which challenge the validity of the assessment and authority of the respondents, NPC, as a
government-owned and controlled corporation engaged in the generation and transmission of electric power, essentially anchors its
petition based on a claim of exemption from real property tax.
Records are bereft of evidence which proves that, within 30 days from the filing of its Tax Declaration, NPC filed with the
Municipal Assessor of Itogon, Benguet an application for exemption or any documentary evidence of the exempt status of its
properties. Respondent Municipal Assessor assessed petitioner‘s properties for real property tax since they were not dropped from
the assessment roll upon failure of NPC to comply with the requirements of the law. As found by the CTA En Banc:
x x x Evidently, the two letters requesting exemption from payment of realty tax dated September 3,
2000 and April 19, 2001 addressed to respondent Municipal Assessor were filed beyond the
required thirty (30)-day period from the declaration of the subject properties for realty tax purposes
in May 2000. There is also no showing that petitioner submitted together with the said formal
requests sufficient documents in support of such claim. Significantly, in the proceedings below,
respondents categorically stated that petitioner failed to prove its claimed tax exemption. This
declaration remains undisputed to date. Precisely, the subject properties were listed as taxable in
the assessment roll giving respondents the authority to issue the assailed assessment.

Hence, payment under protest of the assessed real property tax is required before the LBAA can entertain the
protest filed by NPC.

City of Lapu-Lapu v. Phil. Economic Zone Authority

G.R. Nos. 184203 & 187583, [November 26, 2014]
FROM THE WEDNESDAY CLASS

DOCTRINE: At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer or operator of special
economic zones. The PEZA is an instrumentality of the national government exempt from payment of real property taxes under
Section 133(o) of the Local Government Code. As this court said in Manila International Airport Authority v. Court of Appeals, 495
SCRA 591 (2006), ―there must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.‖
Even the PEZA‘s lands and buildings whose beneficial use have been granted to other persons may not be taxed with
real property taxes. The PEZA may only lease its lands and buildings to PEZA-registered economic zone enterprises and entities.
These PEZA-registered enterprises and entities, which operate within economic zones, are not subject to real property taxes. Under
Section 24 of the Special Economic Zone Act of 1995, no taxes, whether local or national, shall be imposed on all business
establishments operating within the economic zones.

FACTS: City of Lapu-Lapu, through the Office of the Treasurer, demanded from the PEZA P32,912,350.08 in real property taxes for
the period from 1992 to 1998 on the PEZA‘s properties located in the Mactan Economic Zone.
The City reiterated its demand in the letter dated May 21, 1998. It cited Sections 193 and 234 of the Local Government
Code of 1991 that withdrew the real property tax exemptions previously granted to or presently enjoyed by all persons. The City
pointed out that no provision in the Special Economic Zone Act of 1995 specifically exempted the PEZA from payment of real
property taxes, unlike Section 21 of Presidential Decree No. 66 that explicitly provided for EPZA‘s exemption. Since no legal
provision explicitly exempted the PEZA from payment of real property taxes, the City argued that it can tax the PEZA.
The City made subsequent demands on the PEZA. City assessed the PEZA P86,843,503.48 as real property taxes for the
period from 1992 to 2002.
PEZA filed a petition for declaratory relief25 with the Regional Trial Court of Pasay City, praying that the trial court declare
it exempt from payment of real property taxes.
Characterizing the PEZA as an agency of the National Government, the trial court ruled that the City had no authority to
tax the PEZA under Sections 133(o) and 234(a) of the Local Government Code of 1991.
In the resolution dated June 14, 2006, the trial court granted the PEZA‘s petition for declaratory relief and declared it
exempt from payment of real property taxes. The City filed a motion for reconsideration, which the trial court denied in its resolution
dated September 26, 2006. The City then appealedto the Court of Appeals.

ISSUE: Whether the PEZA is exempt from payment of real property taxes.

HELD: Yes. Real property taxes are annual taxes levied on real property such as lands, buildings, machinery, and other
improvements not otherwise specifically exempted under the Local Government Code.236 Real property taxes are ad valorem, with
the amount charged based on a fixed proportion of the value of the property.237 Under the law, provinces, cities, and municipalities
within the Metropolitan Manila Area have the power to levy real property taxes within their respective territories.238
The general rule is that real properties are subject to real property taxes. This is true especially since the Local
Government Code has withdrawn exemptions from real property taxes of all persons, whether natural or juridical:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of 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;
b. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
c. All machineries and equipment that are actually, directly and exclusively used by local water districts
and government-owned or -controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;

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 d. All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and
e. Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property taxes previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

The person liable for real property taxes is the ―taxable person who had actual or beneficial use and possession [of the
real property for the taxable period,] whether or not [the person owned the property for the period he or she is being taxed].‖
The exceptions to the rule are provided in the Local Government Code. Under Section 133(o), local government units
have no power to levy taxes of any kind on the national government, its agencies and instrumentalities and local government units:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless otherwise
provided herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
....
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and
local government units.

Specifically on real property taxes, Section 234 enumerates the persons and real property exempt from real property
taxes:
SEC. 234. Exemptions from Real Property Tax.— The following are exempted from payment of real
property tax:
b) 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;
c) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands, buildings, and improvements actually,
directly, and exclusively used for religious, charitable or educational purposes;
d) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or -controlled corporations engaged in the supply
and distribution of water and/or generation and transmission of electric power;
e) All real property owned by duly registered cooperatives as provided under R.A. No. 6938;
and
f) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

For persons granted tax exemptions or incentives before the effectivity of the Local Government Code, Section 193
withdrew these tax exemption privileges. These persons consist of both natural and juridical persons, including government-owned
or -controlled corporations:
SEC. 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this code, tax
exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon effectivity
of this Code.

As discussed, Section 234 withdrew all tax privileges with respect to real property taxes.
Nevertheless, local government units may grant tax exemptions under such terms and conditions as they may deem
necessary:
SEC. 192. Authority to Grant Tax Exemption Privileges.—Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they
may deem necessary.

In Mactan Cebu International Airport Authority v. Hon. Marcos, this court classified the exemptions from real property
taxes into ownership, character, and usage exemptions.
Ownership exemptions are exemptions based on the ownership of the real property. The exemptions of real property
owned by the Republic of the Philippines, provinces, cities, municipalities, barangays, and registered cooperatives fall under this
classification.
Character exemptions are exemptions based on the character of the real property. Thus, no real property taxes may be
levied on charitable institutions, houses and temples of prayer like churches, parsonages, or convents appurtenant thereto,
mosques, and nonprofit or religious cemeteries.
Usage exemptions are exemptions based on the use of the real property. Thus, no real property taxes may be levied on
real property such as: (1) lands and buildings actually, directly, and exclusively used for religious, charitable or educational purpose;
(2) machineries and equipment actually, directly and exclusively used by local water districts or by government-owned or -controlled
corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and (3)
machinery and equipment used for pollution control and environmental protection.

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 Persons may likewise be exempt from payment of real properties if their charters, which were enacted or reenacted after
the effectivity of the Local Government Code, exempt them payment of real property taxes.

The PEZA is an instrumentality of the national government

An instrumentality is ―any agency of the National Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter.‖245
Examples of instrumentalities of the national government are the Manila International Airport Authority,246 the Philippine
Fisheries Development Authority,247 the Government Service Insurance System,248and the Philippine Reclamation Authority.249
These entities are not integrated within the department framework but are nevertheless vested with special functions to carry out a
declared policy of the national government.
Similarly, the PEZA is an instrumentality of the national government. It is not integrated within the department framework
but is an agency attached to the Department of Trade and Industry.250 Book IV, Chapter 7, Section 38(3)(a) of the Administrative
Code of 1987 defines ―attachment‖:
SEC. 38. Definition of Administrative Relationship.—Unless otherwise expressly stated in the Code or in
other laws defining the special relationships of particular agencies, administrative relationships shall be
categorized and defined as follows:
....
(3) Attachment.—(a) This refers to the lateral relationship between the department or its equivalent and the
attached agency or corporation for purposes of policy and program coordination. The coordination may be
accomplished by having the department represented in the governing board of the attached agency or
corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter;
having the attached corporation or agency comply with a system of periodic reporting which shall reflect the
progress of the programs and projects; and having the department or its equivalent provide general policies
through its representative in the board, which shall serve as the framework for the internal policies of the
attached corporation or agency[.]

Attachment, which enjoys ―a larger measure of independence‖ compared with other administrative relationships such as
supervision and control, is further explained in Beja, Sr. v. Court of Appeals:
An attached agency has a larger measure of independence from the Department to which it is attached than one which is
under departmental supervision and control or administrative supervision. This is borne out by the ―lateral relationship‖ between the
Department and the attached agency. The attachment is merely for ―policy and program coordination.‖ With respect to
administrative matters, the independence of an attached agency from Departmental control and supervision is further reinforced by
the fact that even an agency under a Department‘s administrative supervision is free from Departmental interference with respect to
appointments and other personnel actions ―in accordance with the decentralization of personnel functions‖ under the Administrative
Code of 1987. Moreover, the Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and control shall not
apply to chartered institutions attached to a Department.
With the PEZA as an attached agency to the Department of Trade and Industry, the 13-person PEZA Board is chaired by
the Department Secretary. Among the powers and functions of the PEZA is its ability to coordinate with the Department of Trade
and Industry for policy and program formulation and implementation. In strategizing and prioritizing the development of special
economic zones, the PEZA coordinates with the Department of Trade and Industry.
The PEZA also administers its own funds and operates autonomously, with the PEZA Board formulating and approving
the PEZA‘s annual budget. Appointments and other personnel actions in the PEZA are also free from departmental interference,
with the PEZA Board having the exclusive and final authority to promote, transfer, assign and reassign officers of the PEZA.
As an instrumentality of the national government, the PEZA is vested with special functions or jurisdiction by law.
Congress created the PEZA to operate, administer, manage and develop special economic zones in the Philippines. Special
economic zones are areas with highly developed or which have the potential to be developed into agro-industrial, industrial
tourist/recreational, commercial, banking, investment and financial centers.
PEZA is an instrumentality of the national government. Furthermore, the lands owned by the PEZA are real properties
owned by the Republic of the Philippines. The City of Lapu-Lapu and the Province of Bataan cannot collect real property taxes from
the PEZA.

CE Casecnan Water & Energy Co., Inc. v. Province of Nueva Ecija

G.R. No. 196278, [June 17, 2015]
FROM THE WEDNESDAY CLASS

DOCTRINE: No doubt, the injunction case before the RTC is a local tax case. And as earlier discussed, a certiorari petition
questioning an interlocutory order issued in a local tax case falls under the jurisdiction of the CTA. Thus, the CA correctly dismissed
the Petition for Certiorari before it for lack of jurisdiction.

FACTS: On June 26, 1995, petitioner and the National Irrigation Administration (NIA) entered into a build-operate-transfer (BOT)
contract known as the "Amended and Restated Casecnan Project Agreement" (Casecnan Contract) relative to the construction and
development of theCasecnan Multi-Purpose Irrigation and Power Project (Casecnan Project) in Pantabangan, Nueva Ecija and
Alfonso Castaneda, Nueva Vizcaya. The Casecnan Project is a combined irrigation and hydroelectric power generation facility using
the Pantabangan Dam in Nueva Ecija. On September 29, 2003, petitioner and NIA executed a Supplemental Agreement amending
Article II of the Casecnan Contract which pertains to payment of taxes. Article 2.2 thereof states that NIA must reimburse petitioner
for real property taxes (RPT) provided the same was paid upon NIA‘s directive and with the concurrence of the Department of
Finance. On September 6, 2005, petitioner received from the Office of the Provincial Assessor a Notice of Assessment of Real

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Property dated August 2, 2005, which indicates that for the years2002 to 2005, its RPT due was 248,676,349.60. Petitioner assailed
the assessment with the Nueva Ecija Local Board of Assessment Appeals (Nueva Ecija LBAA) which dismissed it onJanuary 26,
2006. Undeterred, petitioner filed a Notice of Appeal with the Nueva Ecija Central Board of Assessment Appeals (Nueva Ecija
CBAA). During the pendency thereof, respondents collected from petitioner the RPT due under the said assessment as well as
those pertaining to the years 2006 up to the second quarter of 2008, totalling ₱363,703,606.88. Petitioner paid the assessed RPT
under protest; it also initiated proceedings questioning the validity of the collection with respect to the years 2006 up to the second
quarter of 2008. Thereafter, petitioner received aletter dated July 9, 2008 from the Office of the Provincial Treasurer stating that it
has RPT in arrears for the years 2002 up to the second quarter of 2008 amounting to ₱1,277,474,342.10. Petitioner received
another letter dated August 29, 2008 from the same office clarifying that its arrearages in RPT actually amounted to
₱1,279,997,722.70 (2008 RPT Reassessment).
Again, petitioner questioned this assessment through an appeal before the Nueva Ecija LBA. While the same was
pending, petitioner received from respondents a letter dated September 10, 2008demanding payment for its alleged RPT
arrearages. Hence, on September 23, 2008, petitioner filed with the RTC of San Jose City, Nueva Ecija a Complaint for injunction
and damages with application for temporary restraining order(TRO) and preliminary injunction praying to restrain the collection of
the 2008 RPTReassessment. Petitioner emphasized, among others, that it was not the one which should pay the taxes but NIA.

ISSUE: Whether the CTA has the power to rule on a Petition for Certiorari assailing an interlocutory order of the RTC relating to a
local tax case.

HELD: Yes. With respect to the CTA, its jurisdiction was expanded and its rank elevated to that of a collegiate court with special
jurisdiction by virtue of Republic Act No. 9282.25This expanded jurisdiction of the CTA includes its exclusive appellate jurisdiction to
review by appeal the decisions, orders or resolutions of the RTC in local tax cases originally decided or resolved by the RTC in the
exercise of its original or appellate jurisdiction.26 In the recent case of City of Manila v. Grecia-Cuerdo,27the Court ruled that the
CTA likewise has the jurisdiction to issue writs of certiorari or to determine whether 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 CTA‘s
exclusive appellate jurisdiction.
If this Court were to sustain petitioners‘ contention that jurisdiction over their certiorari petition lies with the CA, this Court
would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically the same subject matter
— precisely the split-jurisdiction situation which is anathema to the orderly administration of justice. The Court cannot accept that
such was the legislative motive, especially considering that the law expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role of ju dicial review over local tax cases without mention of any
other court that may exercise such power. Thus, the Court agrees with the ruling of the CA that since appellate jurisdiction over
private respondents‘ complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same court. To rule otherwise would lead to an absurd
situation where one court decides an appeal in the main case while another court rules on an incident in the very same case.
A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to make all
orders that will preserve the subject of the action, and to give effect to the final determination of the appeal. It carries with it the
power to protect that jurisdiction and to make the decisions of the court thereunder effective. The court, in aid of its appellate
jurisdiction, has authority to control all auxiliary and incidental matters necessary to the efficient and proper exercise of that
jurisdiction. For this purpose, it may, when necessary, prohibit or restrain the performance of any act which might interfere with the
proper exercise of its rightful jurisdiction in cases pending before it.34 (Citations omitted and emphasis supplied)
Given these, it is settled that it is the CTA which has exclusive jurisdiction over a special civil action for certiorari assailing
an interlocutory order issued by the RTC in a local tax case.

The RTC injunction case is a local tax case.

In maintaining that it is the CA that has jurisdiction over petitioner‘s certiorari petition, the latter argues that the in junction
case it filed with the RTC is not a local tax case but an ordinary civil action. It insists that it is not protesting the assessment of RPT
against it but only prays that respondents be enjoined from collecting the same.
The Court finds, however, that in praying to restrain the collection of RPT, petitioner also implicitly questions the propriety
of the assessment of such RPT. This is because in ruling as to whether to restrain the collection, the RTC must first necessarily rule
on the propriety of the assessment. In other words, in filing an action for injunction to restrain collection, petitioner was in effect also
challenging the validity of the RPT assessment.

Capitol Wireless, Inc. v. Provincial Treasurer of Batangas

G.R. No. 180110, [May 30, 2016]
DOCTRINE: In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of administrative
remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment itself is alleged
to be illegal or is made without legal authority.—In disputes involving real property taxation, the general rule is to require the
taxpayer to first avail of administrative remedies and pay the tax under protest before allowing any resort to a judicial action, except
when the assessment itself is alleged to be illegal or is made without legal authority. For example, prior resort to administrative
action is required when among the issues raised is an allegedly erroneous assessment, like when the reasonableness of the
amount is challenged, while direct court action is permitted when only the legality, power, validity or authority of the assessment
itself is in question. Stated differently, the general rule of a prerequisite recourse to administrative remedies applies when questions
of fact are raised, but the exception of direct court action is allowed when purely questions of law are involved.

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FACTS: Capwire is a Philippine corporation engaged in the business of providing international telecommunications services. It
signed agreements with local and foreign telecommunication companies covering an international network of cable submarines.
These agreements provide for co-ownership and other rights among the parties over the network. Capwire claims that as co-owner,
it does not own any particular physical part of the cable system but, consistent with its financial contributions, it owns the right to use
a certain capacity of the said system. This property right is allegedly reported in its financial books as ―Indefeasible Rights in Cable
Systems.‖
However, for loan restructuring purposes, Capwire claims that ―it was required to register the value of its right,‖ hence, it
engaged an appraiser to ―assess the market value of the international submarine cable system and the cost to Capwire." Capwire
then submitted a Sworn Statement of True Value of Real Properties at the Provincial Treasurer‘s Office, Batangas City, Batangas
Province, for the Wet Segment of the system.
Capwire then received a warrant of levy and notice of auction sale from the Provincial Treasurer of Batangas. Capwire
filed a Petition for Prohibition and Declaration of Nullity of Warrant off Levy, Notice of Auction Sale with RTC Batangas City. RTC
dismissed the case for failure to follow payment under protest as well as for failure to appeal before Local Board of Assessment
Appeals as provided for in Sec. 206 and 226 of the Local Government Code. Motion for Reconsideration of Capwire was also
dismissed by RTC. CA also dismissed Capwire's appeal. Hence the present case.

ISSUE: Whether or not the case is cognizable by the administrative agencies and covered by the requirements in Sections 226 and
229 of the Local Government Code.

HELD: The case is cognizable by the administrative agency.

No error attended the ruling of the appellate court that the case involves factual questions that should have been resolved
before the appropriate administrative bodies.
In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of administrative
remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment itself is alleged
to be illegal or is made without legal authority.30 For example, prior resort to administrative action is required when among the
issues raised is an allegedly erroneous assessment, like when the reasonableness of the amount is challenged, while direct court
action is permitted when only the legality, power, validity or authority of the assessment itself is in question.31 Stated differently, the
general rule of a prerequisite recourse to administrative remedies applies when questions of fact are raised, but the exception of
direct court action is allowed when purely questions of law are involved.
Guided by the quoted pronouncement, the Court sustains the CA‘s finding that petitioner‘s case is one replete with
questions of fact instead of pure questions of law, which renders its filing in a judicial forum improper because it is instead
cognizable by local administrative bodies like the Board of Assessment Appeals, which are the proper venues for trying these
factual issues. Verily, what is alleged by Capwire in its petition as ―the crux of the controversy,‖ that is, ―whether or not an
indefeasible right over a submarine cable system that lies in international waters can be subject to real property tax in the
Philippines,‖ is not the genuine issue that the case presents — as it is already obvious and fundamental that real property that lies
outside of Philippine territorial jurisdiction cannot be subjected to its domestic and sovereign power of real property taxation — but,
rather, such factual issues as the extent and status of Capwire‘s ownership of the system, the actual length of the cable/s that lie in
Philippine territory, and the corresponding assessment and taxes due on the same, because the public respondents imposed and
collected the assailed real property tax on the finding that at least a portion or some portions of the submarine cable system that
Capwire owns or co-owns lies inside Philippine territory. Capwire‘s disagreement with such findings of the administrative bodies
presents little to no legal question that only the courts may directly resolve.
Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they have been already admitted or
established, when they have not, since no evidence of such have yet been presented in the proper agencies and even in the current
petition. As such, it remains unsettled whether Capwire is a mere co-owner, not full owner, of the subject submarine cable and, if the
former, as to what extent; whether all or certain portions of the cable are indeed submerged in water; and whether the waters
wherein the cable/s is/are laid are entirely outside of Philippine territorial or inland waters, i.e., in international waters. More simply,
Capwire argues based on mere legal conclusions, culminating on its claim of illegality of respondents‘ acts, but the conclusions are
yet unsupported by facts that should have been threshed out quasi-judicially before the administrative agencies. It has been held
that ―a bare characterization in a petition of unlawfulness, is merely a legal conclusion and a wish of the pleader, and such a legal
conclusion unsubstantiated by facts which could give it life, has no standing in any court where issues must be presented and
determined by facts in ordinary and concise language.‖ Therefore, Capwire‘s resort to judicial action, premised on its legal
conclusion that its cables (the equipment being taxed) lie entirely on international waters, without first administratively substantiating
such a factual premise, is improper and was rightly denied. Its proposition that the cables lie entirely beyond Philippine territory, and
therefore, outside of Philippine sovereignty, is a fact that is not subject to judicial notice since, on the contrary, and as will be
explained later, it is in fact certain that portions of the cable would definitely lie within Philippine waters. Jurisprudence on the Local
Government Code is clear that facts such as these must be threshed out administratively, as the courts in these types of cases step
in at the first instance only when pure questions of law are involved.

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