TAXATION LAW Reviewer (Sources:

2012 Bar Examination Syllabus, De

Leon 2011, Aban 2009, Dean
Quibod Lecture Notes, Callanta
Notes, UST Golden Notes 2011)

I. GENERAL PRINCIPLES OF TAXATION

A. Definition and concept of taxation
Taxation is the inherent power of the sovereign, exercised through the legislature, to
impose burdens upon the subjects and objects within its jurisdiction, for the purpose
of raising revenues to carry out the legitimate objects of the government.
It is the power of the sovereign to impose burdens or charges upon persons,
property or property rights for the use and support of the government to be able to
discharge its functions.
It is one of the inherent powers of the state.

B. Nature of taxation
1 Inherent in sovereignty - There is no need to enact a law to exercise that
power as this power springs from the moment a state comes into existence.
2 Legislative in character - Even in the absence of any constitutional provision,
the power falls to the legislature as part of the more general power of lawmaking.
3 It is subject to constitutional and inherent limitations To a certain extent,
Congress will abuse that power. To a certain extent, you have that principle
also that the power to tax involves the power to destroy. Congress may abuse
that power given to it by the people through the electoral process.

C. Characteristics of taxation
1) An enforced contribution, for its imposition is in no way dependent upon
the will or assent of the person taxed;
2) It is generally payable in the form of money, although the law may provide
payment in kind;
3) It is laid by some rule of apportionment, which, in case of income taxes, is
usually based on ability to pay;
4) Levied upon persons, property or business, acts, transactions, right or
privileges, In each case, however it is only a person who pays the tax;
5) It is levied by the State which has jurisdiction over the object taxed. It is
necessary that the State has jurisdiction or control over the objects to be
taxed in order that the tax can be enforced;
6) Levied by the lawmaking body of the State. The power to tax is a legislative
power that only the legislature can exercise. Except:
a) Delegated power of the LGUs pursuant to Art. X, Sec. 5 of the
Consitution;

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b) The President pursuant to Art. VI Section 28 (2) on tariff rates, import

an export quotas, tonnage and wharfage dues, and other duties and
imposts;
c) c)Delegation to administrative agencies of the executive branch such
as the BIR, Bureau of Customs and the Department of Finance; and
d) Peoples initiative and referendum under RA 6735 where the people is
granted power to take back the legislatives authority in enacting tax
laws.
7) Levied for public purpose. A tax levied for private purpose is
unconstitutional and, therefore, void; it constitutes taking of property
without due process of law.

D. Power of taxation compared with other powers

A. TAXATION vs. POLICE POWER vs. EMINENT DOMAIN
1 As to purpose:
Taxation for the support of the government
Eminent Domain_- for public use
Police Power to promote general welfare, public health, public morals, and
public safety.
2 As to compensation:
Taxation Protection and benefits received from the government.
Eminent Domain just compensation, not to exceed the market value declared
by the owner or administrator or anyone having legal interest in the property,
or as determined by the assessor, whichever is lower.
Police Power The maintenance of a healthy economic standard of society.

3 As to persons affected:
Taxation and Police Power operate upon a community or a class of
individuals
Eminent Domain operates on the individual property owner.

4 As to authority which exercises the power:

Taxation and Police Power Exercised only by the government or its political
subdivisions.
Eminent Domain may be exercised by public services corporation or public
utilities if granted by law.

5 As to amount of imposition:
Taxation Generally no limit to the amount of tax that may be imposed.
Police Power Limited to the cost of regulation
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Eminent Domain There is no imposition; rather, it is the owner of the

property taken who is just paid compensation.

6 As to the relationship to the Constitution:

Taxation and Eminent Domain Subject to certain constitutional limitations,
including the prohibition against impairment of the obligation of contracts.
Police Power Relatively free from constitutional limitations and superior to
the non-impairment provisions thereof.

B. TAX vs. LICENSE FEE:

1) As to purpose: Tax imposed for revenue WHILE license fee for regulation. Tax
for general purposes WHILE license fee for regulatory purposes only.
2) As to basis: Tax imposed under power of taxation WHILE license fee under
police power.
3) As to amount: In taxation, no limit as to amount WHILE license fee limited to
cost of the license and expenses of police surveillance and regulation.
4) As to the time of payment: Taxes normally paid after commencement of
business WHILE license fee before.
5) As to the effect of payment: Failure to pay a tax does not make the business
illegal WHILE failure to pay license fee makes business illegal.
6) as to surrender: Taxes, being lifeblood of the state, cannot be surrendered
except for lawful consideration WHILE a license fee may be surrendered with
or without consideration.
C. IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.
It is necessary to determine whether a particular imposition is a tax or a
license fee, because some limitations apply only to one and not to the other.
Furthermore, exemption from taxes does not include exemption from license
fees

D. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:

1 toll amount charged for the cost and maintenance of property used;
2 compromise penalty amount collected in lieu of criminal prosecution in cases
of tax violations;

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3 special assessment levied only on land based wholly on the benefit accruing
thereon as a result of improvements of public works undertaken by
government within the vicinity.
4 license fee regulatory imposition in the exercise of the police power of the
State;
5 margin fee exaction designed to stabilize the currency
6 custom duties and fees duties charged upon commodities on their being
imported into or exported from a country;
7 debt a tax is not a debt but is an obligation imposed by law.
E. SPECIAL ASSESSMENT vs. TAX
1

A special assessment tax is an enforced proportional contribution from

owners of lands especially benefited by public improvements.

A special assessment is levied only on land.

A special assessment is not a personal liability of the person assessed; it is

limited to the land.

A special assessment is based wholly on benefits, not necessity.

A special assessment is exceptional both as to time and place; a tax has

general application.

Republic v. Bacolod, 17 SCRA 632

A special assessment is a levy on property which derives some special benefit

from the improvement. Its purpose is to finance such improvement. It is not a
tax measure intended to raise revenues for the government. The proceeds
thereof may be devoted to the specific purpose for which the assessment was
authorized, thus accruing only to the owners thereof who, after all, pay the
assessment.

Some Rules:

An exemption from taxation does not include exemption from a special

treatment.

The power to tax carries with it a power to levy a special assessment.

F. TOLL vs. TAX

1 Toll is a sum of money for the use of something. It is the consideration which is
paid for the use of a road, bridge, or the like, of a public nature. Taxes, on the
other hand, are enforced proportional contributions from persons and property

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levied by the State by virtue of its sovereignty for the support of the
government and all public needs.
2 Toll is a demand of proprietorship; tax is a demand of sovereignty.
3 Toll is paid for the used of anothers property; tax is paid for the support of
government.
4 The amount paid as toll depends upon the cost of construction or maintenance
of the public improvements used; while there is no limit on the amount
collected as tax as long as it is not excessive, unreasonable, or confiscatory.
5 Toll may be imposed by the government or by private individuals or entities;
tax may be imposed only by the government.
G. TAX vs. PENALTY
1

Penalty is any sanction imposed as a punishment for violation of law or for

acts deemed injurious; taxes are enforced proportional contributions from
persons and property levied by the State by virtue of its sovereignty for
the support of the government and all public needs.

Penalty is designed to regulate conduct; taxes are generally intended to

generate revenue.

Penalty may be imposed by the government or by private individuals or

entities; taxes only by the government.

H. OBLIGATION TO PAY DEBT vs. OBLIGATION TO PAY TAX

1

A debt is generally based on contract, express or implied, while a tax is based

on laws.

A debt is assignable, while a tax cannot generally be assigned.

A debt may be paid in kind, while a tax is generally paid in money.

A debt may be the subject of set off or compensation, a tax cannot.

A person cannot be imprisoned for non-payment of tax, except poll tax.

A debt is governed by the ordinary periods of prescription, while a tax is

governed by the special prescriptive periods provided for in the NIRC.

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A debt draws interest when it is so stipulated or where there is default, while a

tax does not draw interest except only when delinquent.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot be extinguished by legal

compensation. This is so because the government and the tax delinquent are
not mutually creditors and debtors. Neither is a tax obligation an ordinary act.
Moreover, the collection of a tax cannot await the results of a lawsuit against
the government. Finally, taxes are not in the nature of contracts but grow out
of the duty to, and are the positive acts of the government to the making and
enforcing of which the personal consent of the taxpayer is not required.
(Francia v. IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4 SCRA 622)

Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443]
re: claim for payment of unpaid services of a government employee vis--vis
the estate taxes due from his estate. The fact that the court having jurisdiction
of the estate had found that the claim of the estate against the government
has been appropriated for the purpose by a corresponding law shows that both
the claim of the government for inheritance taxes and the claim of the
intestate for services rendered have already become overdue and demandable
as well as fully liquidated. Compensation therefore takes place by operation of
law.
Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)
Philex Mining Corporation was to set off its claims for VAT input credit/refund
for the excise taxes due from it. The Supreme Court disallowed such set off or
compensation.

E. Purpose of taxation
PRIMARY
To raise revenue in order to support the government
SECONDARY
1
2
3
4

Used to reduce social inequality

Utilized to implement the police power of the State
Used to protect our local industries against unfair competition
Utilized by the government to encourage the growth of local industries

PAL vs. EDU

It is possible for an exaction to be both a tax and a regulation. License fees

and charges, looked to as a source of revenue as well as a means regulation.
The fees may properly regarded as taxes even though they also serve as an
instrument of regulation. If the purpose is primarily revenue, or if revenue is at
least one of the real and substantial purposes, then the exaction is properly
called a tax.

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CALTEX vs. CIR

Taxation is no longer a measure merely to raise revenue to support the

existence of the government. Taxes may be levied with a regulatory purpose
to provide means for rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the
State.

F. Principles of sound tax system

1) FISCAL ADEQUACY

VIOLATION VALID
Sources of revenue should be sufficient to meet the demands of public
expenditure
Revenues should be elastic or capable of expanding or contracting annually in
response to variations in public expenditure
Elasticity may be obtained without creating annually any new taxes or any
new tax machinery but merely by changes in the rates applicable to existing
taxes
Even if a tax law violates the principle of Fiscal Adequacy , in other words, the
proceeds may not be sufficient to satisfy the needs of the government, still the
tax law is valid

2) ADMINISTRATIVE FEASIBILITY

VIOLATION VALID
The tax law must be capable of effective or efficient enforcement
Tax laws should be capable of convenient, just and effective administration
Tax laws should close-up the loopholes for tax evasion and deter unscrupulous
officials from committing fraud
There is no law that requires compliance with this principle, so even if the tax
law violates this principle; such tax law is valid.

3) THEORETICAL JUSTICE

VIOLATION INVALID
This principle mandates that taxes must be just, reasonable and fair
Taxation shall be uniform and equitable
Equitable taxation has been mandated by our constitution, as if taxes are
unjust and unreasonable then they are not equitable, thus invalid.
The tax burden should be in proportion to the taxpayers ability to pay (ABILITY
TO PAY PRINCIPLE)

G. Theory and basis of taxation

1. Lifeblood theory
Taxes are the lifeblood of the nation.
Without revenue raised from taxation, the government will not survive,
resulting in detriment to society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it. (CIR vs. ALGUE)
Taxes are the lifeblood of the government and there prompt and certain
availability is an imperious need.

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Taxes are the lifeblood of the nation through which the agencies of the
government continue to operate and with which the state effects its functions
for the benefit of its constituents

Illustrations of the lifeblood theory

Collection of the taxes may not be enjoined by injunction

Taxes could not be the subject of compensation or set off
A valid tax may result in destruction of the taxpayers property
Taxation is an unlimited and plenary power

2. Necessity theory

Existence of a government is a necessity and cannot continue without any

means to pay for expenses

3. Benefits-protection theory (Symbiotic relationship)

Reciprocal duties of protection and support between State and inhabitants.

Inhabitants pay taxes and in return receive benefits and protection from the
State

H. Doctrines in taxation
Imprescriptibility of taxes
GENERAL RULE: Taxes are imprescriptible
EXCEPTION: They are prescriptible if the tax laws provide for statute of limitations
PRESCRIPTIVE PERIODS:
1) Prescriptive periods for the assessment and collection of taxes

10 years if return is tainted with falsity or fraud

3 years if there is no fraud

2) TARIFF AND CUSTOMS CODE

After the expiration of 1 year from the payment of final duties.

You should impose those custom duties that are supposed to be imposed on
the imported articles within the 1 year period, except if it is in the nature of
partial liquidation, if there is fraud or protest

3) LOCAL GOVERNMENT CODE

Prescriptive periods for local taxes and real property tax

5 years
10 years if fraud has been employed

Progressive system of taxation vs. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal
criterion.
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A regressive system of taxation exists when there are more indirect taxes
imposed than direct taxes.

No regressive taxes in the Philippine jurisdiction

I. Classification of Taxes
As to subject matter or object

Personal, poll or capitation tax

o Tax of a fixed amount imposed on persons residing within a specified
territory, whether citizens or not, without regard to their property or the
occupation or business in which they may be engaged, i.e. community
tax.
Property tax
o Tax imposed on property, real or personal, in proportion to its value or in
accordance with some other reasonable method of apportionment.
Excise tax
o A charge imposes upon the performance of an act, the enjoyment of
privilege, or the engaging in an occupation.

As to purpose
General/fiscal revenue tax is that imposed for the purpose of raising public funds
for the service of the government.
A special or regulatory tax is imposed primarily for the regulation of useful or
non-useful occupation or enterprises and secondarily only for the purpose of raising
public funds.
As to who bears the burden
1

Direct tax

A direct tax is demanded from the person who also shoul,ders the burden of the
tax. It is a tax which the taxpayer is directly or primarily liable and which he or she
cannot shift to another.
2

Indirect tax

An indirect tax is demanded from a person in the expectation and intention that
he or she shall indemnify himself or herself at the expense of another, falling finally
upon the ultimate purchaser or consumer. A tax which the taxpayer can shift to
another.
As to the scope of the tax

National tax
o A national tax is imposed by the national government.
Local tax
o A local tax is imposed by the municipal corporations or local government
units (LGUs).

As to the determination of amount

1 Specific tax
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A specific tax is a tax of a fixed amount imposed by the head or number or by

some other standard of weight or measurement. It requires no assessment other
than the listing or classification of the objects to be taxed.
2 Ad valorem tax
An ad valorem tax is a fixed proportion of the value of the property with
respect to which the tax is assessed. It requires the intervention of assessors or
appraisers to estimate the value of such property before due from each taxpayer
can be determined.
As to graduation or rate

Proportional tax
o Tax based on a fixed percentage of the amount of the property receipts
or other basis to be taxed. Example: real estate tax.
Progressive or graduated tax
o Tax the rate of which increases as the tax base or bracket increases.
Digressive tax rate: progressive rate stops at a certain point. Progression halts
at a particular stage.
Regressive tax
o Tax the rate of which decreases as the tax base or bracket increases.
There is no such tax in the Philippines.

J. Tax systems
Constitutional mandate

The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation. [Section 28 (1), Article VI, Constitution]

Regressivity is not a negative standard for courts to enforce. What Congress is

required by the Constitution to do is to evolve a progressive system of
taxation. This is a directive to Congress, just like the directive to it to give
priority of the enactment of law for the enhancement of human dignity. The
provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights. (Tolentino v. Secretary of Finance.)

Progressive system of taxation vs. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal
criterion.

A regressive system of taxation exists when there are more indirect taxes
imposed than direct taxes.

No regressive taxes in the Philippine jurisdiction

Summary of classification of taxes:

personal tax also known as capitalization or poll tax;

property tax assessed on property of a certain class;
direct tax incidence and impact of taxation falls on one person and cannot
be shifted to another;

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indirect tax incidence and liability for the tax falls on one person but the
burden thereof can be passed on to another;
excise tax imposed on the exercise of a privilege;
general taxes taxes levied for ordinary or general purpose of the
government;
special tax levied for a special purpose;
specific taxes imposed on a specific sum by the head or number or by some
standards of weight or measurement;
ad valorem tax tax imposed upon the value of the article;
local taxes taxes levied by local government units pursuant to validly
delegated power to tax;
progressive taxes rate increases as the tax base increases; and
regressive taxes rate increases as tax base decreases.

GENERAL RULE:
-

Taxes are personal to the taxpayer. Corporations tax delinquency cannot be

enforced on the stockholder or transfer taxes on the estate be assessed on the
heirs.

EXCEPTIONS:
1

stockholders may be held liable for unpaid taxes of a dissolved corporation

if the corporate assets have passed into their hands; and
heirs may be held liable for the transfer taxes on the estate, if prior to the
payment of the same, the properties of the decedent have been distributed
to the heirs.

K. Limitations on the power of taxation

Inherent limitations
It must be imposed for a public purpose.
If delegated either to the President or to a L.G.U., it should be validly
delegated.
It is limited to the territorial jurisdiction of the taxing authority.
Government entities are exempted.
International comity is recognized i.e. property of foreign sovereigns are not
subject to tax.
Constitutional limitations
Indirect
a) Due process clause
b) Equal protection clause
c) Freedom of the press
d) Religious freedom
e) Non-impairment clause
f) Law-making process

One-subject One-title Rule

3 readings on 3 separate days Rule except when there is a Certificate of
Emergency
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Distribution of copies 3 days before the 3rd reading.

g) Presidential power to grant reprieves, commutations and pardons, and remit fines
and forfeitures after conviction by final judgment.
Direct
a) Revenue bill must originate exclusively in H.R. but the Senate may propose with
amendments.
b) Non-imprisonment for non-payment of poll tax.
c) Taxation shall be uniform and equitable.
d) Congress shall evolve a progressive system of taxation.
e) Tax exemption of charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and
improvements ADE (actually, directly , exclusively) used for charitable, religious, and
educational purposes.
f) Tax exemption of all revenues and assets used actually directly and exclusively for
educational purposes of:

Non-profit non-stock educational institutions.

Proprietary or cooperative educational institutions subject to limitations

provided by law including:
o restriction on dividends
o provisions for re-investments.

g) Tax exemption of grants, endowments, donations or contributions ADE for

educational purposes, subject to conditions prescribed by law.
h) No tax exemption without the concurrence of a majority of all members of
Congress.
i) SC power to review judgments or orders of lower courts in all cases involving
Legality of any tax. Impost or toll, Legality of any penalty imposed in relation
thereto.

L. SITUS OF TAXATION

Place of taxation
The State where the subject to be taxed has a situs may rightfully levy and
collect the tax
In determining the situs of taxation, you have to consider the nature of the
taxes

Example:
1 Poll tax, capitation tax, community tax
Residence of the taxpayer

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2 Real property tax or property tax

Location of the property

We can only impose property tax on the properties of a person whose

residence is in the Philippines.

EXCEPTIONS TO THE TERRITORIALITY RULE

A

Where the tax laws operate outside territorial jurisdiction

1) TAXATION of resident citizens on their incomes derived from abroad

B) Where tax laws do not operate within the territorial jurisdiction of the State
1 When exempted by treaty obligations
2 When exempted by international comity
Situs of tax on real property

LEX REI SITUS or where the property is located

REASON:
The place where the real property is located gives protection to the real
property, hence the property or its owner should support the government of
that place
Situs of property tax on personal property

MOBILIA SEQUNTUR PERSONAM

movables follow the owner
movables follow the domicile of the owner
RULES:
1 TANGIBLE PERSONAL PROPERTY
Where located, usually the owners domicile
2 INTANGIBLLE PERSONAL PROPERTY
G. R. Domicile of the owner
EXCEPTION: The situs location not domicile: Where the intangible
personal property has acquired a business situs in another jurisdiction

The principle of MobiliaSequnturPersonam is only for purposes of

convenience. It must yield to the actual situs of such property.
Personal intangible properties which acquires business situs here in the
Philippines:
1) Franchise which is exercised within the Philippines
2) Shares, obligations, bonds issued by a domestic corporation
3) Shares, obligations, bonds issued by a foreign corporation, 85% of its
business is conducted in the Philippines
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4) Shares, obligations, bonds issued by a foreign corporation which

shares of stock or bonds acquire situs here
5) Rights, interest in a partnership, business or industry established in
the Philippines

These intangible properties acquire business situs here in the Philippines, you
cannot apply the principle of MobiliaSequnturPersonam because the
properties have acquired situs here.

Situs of income tax

1. Domicillary theory
The location where the income earner resides in the situs of taxation
NATIONALITY THEORY
The country where the income earner is a citizen is the situs of taxation
i SOURCE RULE
The country which is the source of the income or where the
activity that produced the income took place is the situs of taxation.
Situs of sale of personal property
The place where the sale is consummated and perfected
Situs of tax on interest income
The residence of the borrower who pays the interest irrespective of the place
where the obligation was contracted
CIR vs. BOAC

Revenue derived by an of-line international carrier without any flight from the
Philippines, from ticket sales through its local agent are subject to tax on gross
Philippine billings

Situs of excise tax

Where the transaction performed
HOPEWELL vs. COM. OF CUSTOMS

The power to levy an excise upon the performance of an act or the engaging
in an occupation does not depend upon the domicile of the person subject to
the exercise, nor upon the physical location of the property or in connection
with the act or occupation taxed, but depends upon the place on which the act
is performed or occupation engaged in.
Thus, the gauge of taxability does not depend on the location of the office, but
attaches upon the place where the respective transaction is perfected and
consummated

M. Double taxation
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Taxing same property twice when it should be taxed but once. Taxing the same
person twice by the same jurisdiction over the same thing.

Also known as duplicate taxation

PEPSI COLA vs. CITY OF BUTUAN

There is no constitutional prohibition against double taxation in the

Philippines. It is something not favored but is permissible, provided that the
other constitutional requirements is not thereby violated

KINDS OF DOUBLE TAXATION

1) DIRECT DOUBLE TAXATION

Double taxation in the objectionable or prohibited sense

Same property is taxed twice

REQUISITES:
A) The same property is taxed twice when it should only be taxed once;
B) Both taxes are imposed on the same property or subject matter for the
same purpose;
C) Imposed by the same taxing authority;
D) Within the same jurisdiction;
E) During the same period; and
F) Covering the same kind or character of tax
2) INDIRECT DOUBLE TAXATION

Not legally objectionable

If taxes are not of the same kind, or the imposition are imposed for different
taxing authority and this may involve the same subject matter

EXAMPLES:
A) The taxpayers warehousing business although carried on in relation to the
operation of its sugar central is a distinct and separate taxable business
B) A license tax may be levied upon a business or occupation although the
land or property used in connection therewith is subject to property tax
C) Both a license fee and a tax may be imposed on the same business or
occupation for selling the same article and this is not in violation of the rules
against double taxation
D) When every bottle or container of intoxicating beverages is subject to local
tax and at the same time the business of selling such product is also subject to
liquors license

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E) A tax imposed on both on the occupation of fishing and of the fishpond

itself
F) A local ordinance imposes a tax on the storage of copra where it appears
that the finished products manufactured out of the copra are subject to VAT
Means employed to avoid double taxation
1) Tax deductions
2) Tax credits
o An amount allowed as a deduction of the Philippine Income tax on
account of income taxes paid or incurred to foreign countries. It is given
to a taxpayer in order to provide a relief from too onerous a burden of
taxation in case where the same income is subject to a foreign income
tax and the Philippine Income tax.
o WHO CAN CLAIM TAX CREDIT
1) Citizens of the Philippines
2) Domestic corporations
CITY OF BAGUIO vs. DE LEON

The argument against double taxation may not be invoked where one tax is
imposed by the state and the other imposed by the city, it being widely
recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling
or activity by both the state and a political subdivision thereof. And where the
statute or ordinance in question applies equally to all persons, firms and
corporations placed in a similar situation, there is no infringement of the rule
on equality.

VILLANUEVA vs. CITY OF ILOILO

An ordinance imposing a municipal tax on tenement houses was challenged

because the owners already pay real estate taxes and also income taxes
under the NIRC. The Supreme Court held that there was no double taxation.
The same tax may be imposed by the National Government as well as the
local government. There is nothing inherently obnoxious in the exaction of
license fees or taxes with respect to the same occupation, calling or activity by
both the state and a political subdivision thereof. Further, a license tax may be
levied upon a business or occupation although the land used in connection
therewith is subject to property tax.
3) Provide for exemption
4) Enter into treatise with other states
5) Allowance on the principle of reciprocity

DOCTRINES ON DOUBLE TAXATION

1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of
property without due process of law

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2) You can question the validity of double taxation if there is a violation of the Equal
protection clause or Equality or Uniformity of Taxation
3) All doubts as to whether double taxation has been imposed should be resolved in
favor of the taxpayer
Escape from taxation
I. SHIFTING

Shifting is the transfer of the burden of a tax by the original payer or the one
on whom the tax was assessed or imposed to someone else

Process by which such tax burden is transferred from statutory taxpayer to

another without violating the law

It should be borne in mind that what is transferred is not the payment of the
tax, but the burden of the tax

Only indirect taxes may be shifted; direct taxes cannot be shifted

Ways of shifting the tax burden

1) FORWARD SHIFTING
When the burden of the tax is transferred from a factor of production through the
factors of distribution until it finally settles on the ultimate purchaser or
consumer.
Example:
-

Manufacturer or producer may shift tax assessed to wholesaler, who in turn

shifts it to the retailer, who also shifts it to the final purchaser or consumer

2) BACKWARD SHIFTING
When the burden of the tax is transferred from the consumer or purchaser
through the factors of distribution to the factors of production
Example:
-

Consumer or purchaser may shift tax imposed on him to retailer by purchasing

only after the price is reduced, and from the latter to the wholesaler, or finally
to the manufacturer or producer

2) ONWARD SHIFTING
When the tax is shifted two or more times either forward or backward
Example:
-

Thus, a transfer from the seller to the purchaser involves one shift; from the
producer to the wholesaler, then to retailer, we have two shifts; and if the tax
is transferred again to the purchaser by the retailer, we have three shifts in all.

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Impact and Incidence of Taxation

Impact of taxation is the point on which a tax is originally imposed. In so far as

the law is concerned, the taxpayer is the person who must pay the tax to the
government. He is also termed as the statutory taxpayer-the one on whom the
tax is formally assessed. He is the subject of the tax

Incidence of taxation is that point on which the tax burden finally rests or
settle down. It takes place when shifting has been effected from the statutory
taxpayer to another.

Statutory Taxpayer

The Statutory taxpayer is the person required by law to pay the tax or the one
on whom the tax is formally assessed. In short, he or she is the subject of the
tax.

In direct taxes, the statutory taxpayer is the one who shoulders the burden of
the tax while in indirect taxes, the statutory taxpayer is the one who pay the
tax to the government but the burden can be passed to another person or
entity.

Relationship between impact, shifting, and incidence of a tax

The impact is the initial phenomenon, the shifting is the intermediate process,
and the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on
the seller (manufacturer) who shifts the burden to the customer who finally
bears the incidence of the tax.

Impact is the imposition of the tax; shifting is the transfer of the tax; while
incidence is the setting or coming to rest of the tax.

II. CAPITALIZATION

Reduction is the price of the taxed object equal to the capitalized value of
future taxes on the property sold

This is a special form of backward shifting, where the burden of future taxes
which the buyer may have to pay is shifted back to the seller in the form of
reduction in the selling price

III. TRANSFORMATION
The manufacturer in an effort to avoid losing his customers, maintains the
same selling price and margin of profit, not by shifting the tax burden to his
customers, but by improving his method of production and cutting down or
other production cost, thereby transforming the tax into or earn through the
medium of production.
IV. TAX AVOIDANCE

Also known as tax minimization

not punished by law
Tax avoidance is the exploitation of the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or income in
order to avoid or reduce tax liability
Page 18

DELPHERS TRADERS CORP vs. IAC (157 SCRA 349)

The Supreme Court upheld the estate planning scheme resorted to by the
Pacheco family in converting their property to shares of stock in a corporation
which they themselves owned and controlled. By virtue of the deed of
exchange, the Pacheco co-owners saved on inheritance taxes. The Supreme
Court said the records do not point anything wrong and objectionable about
this estate planning scheme resorted to. The legal right of the taxpayer to
decrease the amount of what otherwise could be his taxes or altogether avoid
them by means which the law permits cannot be doubted.
Example:
Following the holding period rule in capital gains transaction, by postponing
the sale of the capital asset until after twelve months from date of acquisition
you can reduce the tax on the capital gains by 50%

V. TAX EXEMPTION

It is the grant of immunity to particular persons or corporations or to persons

or corporations of a particular class from a tax which persons and corporations
generally within the same state or taxing district are obliged to pay. It is an
immunity or privilege; it is freedom from a financial charge or burden to which
others are subjected.

Exemption is allowed only if there is a clear provision there for.

It is not necessarily discriminatory as long as there is a reasonable foundation

or rational basis.

Exemptions are not presumed, but when public property is involved,

exemption is the rule and taxation is the exemption.

Rationale for granting tax exemptions

Its avowed purpose is some public benefit or interests which the lawmaking
body considers sufficient to offset the monetary loss entailed in the grant of
the exemption.

The theory behind the grant of tax exemptions is that such act will benefit the
body of the people. It is not based on the idea of lessening the burden of the
individual owners of property.

Grounds for granting tax exemptions

May be based on contract. In such a case, the public, which is represented by

the government is supposed to receive a full equivalent therefor, i.e. charter of
a corporation.
May be based on some ground of public policy, i.e., to encourage new
industries or to foster charitable institutions. Here, the government need not
receive any consideration in return for the tax exemption.
May be based on grounds of reciprocity or to lessen the rigors of international
double or multiple taxation

Page 19

Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is
a clear provision therefor.
Nature of tax exemption

It is a mere personal privilege of the grantee.

It is generally revocable by the government unless the exemption is founded
on a contract which is contract which is protected from impairment.
It implies a waiver on the part of the government of its right to collect what
otherwise would be due to it, and so is prejudicial thereto.
It is not necessarily discriminatory so long as the exemption has a reasonable
foundation or rational basis.
It is not transferable except if the law expressly provides so.

Kinds of tax exemption according to manner of creation

1) Express or affirmative exemption
When certain persons, property or transactions are, by express provision,
exempted from all certain taxes, either entirely or in part.
2) Implied exemption or exemption by omission
When a tax is levied on certain classes of persons, properties, or transactions
without mentioning the other classes.
TN: Every tax statute makes exemptions because of omissions.

No tax exemption by implication

It must be expressed in clear and unmistakable language

CALTEX vs. COA

In claiming tax exemption, the burden of proof lies upon the claimant
It cannot be created by mere implication
It cannot be presumed that you are entitled to tax exemption
You must prove it

RULE:
Taxation is the rule and exemption is the exception
PROPERTY TAX GOVERNMENT PROPERTY

Properties owned by the government whether in their proprietary or

governmental capacity are exempt from real estate tax

TEST:
- OWNERSHIP

Once established that it belongs to the government, the nature of the use of
the property whether proprietary or sovereign becomes immaterial.

Exemption of public property from taxation does not extend to improvements

therein made by occupants or claimants at their own expense.

Page 20

Kinds of tax exemptions according to scope or extent

1) TOTAL
When certain persons, property or transactions are exempted, expressly or
impliedly from all taxes
2) PARTIAL
When certain persons, property or transactions are exempted, expressly or
impliedly from certain taxes, either entirely or in part.
3) There can be no simultaneous exemptions under two laws, when one grants
partial exemption while other grants total exemption.
Does provision in a statute granting exemption from all taxes include indirect
taxes?

NO. As a general rule, indirect taxes are not included in the grant of such
exemption unless it is expressly stated.

VI. TAX REMISSION OR TAX CONDONATION

The word remit means to desist or refrain from exacting, inflicting or

enforcing something as well as to restore what has already been taken. The
remission of taxes due and payable to the exclusion of taxes already collected
does not constitute unfair discrimination. Such a set of taxes is a class by itself
and the law would be open to attack as class legislation only if all taxpayers
belonging to one class were not treated alike. [Juan Luna Subd. V. Sarmiento,
91 Phil 370]

The condition of a tax liability is equivalent to and is in the nature of a tax

exemption. Thus, it should be sustained only when expressly provided in the
law. [Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9
SCRA 728]

VII. TAX AMNESTY

Tax amnesty, being a general pardon or intentional overlooking by the State of

its authority to impose penalties on persons otherwise guilty of evasion or
violation of a revenue to collect what otherwise would be due it and, in this
sense, prejudicial thereto. It is granted particularly to tax evaders who wish to
relent and are willing to reform, thus giving them a chance to do so and
thereby become a part of the new society with a clean slate. [Republic v.
Intermediate Appellate Court, 196 SCRA 335]

Like tax exemption, tax amnesty is never favored nor presumed in law. It is
granted by statute. The terms of the amnesty must also be construed against
the taxpayer and liberally in favor of the government.

Tax amnesty v. tax condonation v. tax exemption

A tax amnesty, being a general pardon or intentional overlooking by the

Statute of its authority to impose penalties on persons otherwise guilty of
evasion or violation of a revenue or tax law, partakes of an absolute

Page 21

forgiveness or waiver by the Government of its right to collect what otherwise

would be due it and, in this sense, prejudicial thereto, particularly to tax
evaders who wish to relent and are willing to reform are given a chance to do
so and therefore become a part of the society with a clean slate.

Like a tax exemption, a tax amnesty is never favorednor presumed in law, and
is granted by statute. The terms of the amnesty must be strictly construed
against the taxpayer and literally in favor of the government. Unlike a tax
exemption, however, a tax amnesty has limited applicability as to cover a
particular taxing period or transaction only.

There is a tax condonation or remission when the State desists or refrains from
exacting, inflicting or enforcing something as well as to reduce what has
already been taken. The condonation of a tax liability is equivalent to and is in
the nature of a tax exemption. Thus, it should be sustained only when
expressed in the law.

Tax exemption, on the other hand, is the grant of immunity to particular

persons or corporations of a particular class from a tax of which persons and
corporations generally within the same state or taxing district are obliged to
pay. Tax exemptions are not favored and are construed strictissimijurisagainst
the taxpayer.

CIR vs. RIO TUBA

> Law granting partial refund partakes the nature of a tax exemption and
therefore must be strictly construed against the taxpayer

CIR vs. TOUR SPECIALIST

> Gross receipts subject to tax under the tax code do not include monies or
receipts entrusted to the taxpayer which do not belong to it and does not
redound to the taxpayers benefit, and it is not necessary that there must be a
law or regulation which would exempt such monies and receipts within the
meaning of gross receipts.

VIII. TAX EVASION

It is also known as tax dodging

It is punishable by law
Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat
or lessen the payment of tax.

YUTIVO vs. CTA

Tax evasion is a term that connotes fraud through the use of pretenses or
forbidden devices to lessen or defeat taxes
ELEMENTS OF TAX EVASION
Tax evasion connotes the integration of three (3) factors:
1) The end to be achieved, i.e. payment of less than that known by the taxpayer to
be legally due, or paying no tax when it is shown that tax is due
2) An accompanying state of mind which is described as being evil, in bad faith,
willful, or deliberate and not accidental
Page 22

3) A course of action (or failure of action) which is unlawful

INDICIA of FRAUD IN TAX EVASION
1) Failure to declare for taxation purposes true and actual income derived from
business for two (2) consecutive years; or
2) Substantial underdeclaration of income tax returns of the taxpayer for four (4)
consecutive years coupled with unintentional overstatement of deductions
EVIDENCE TO PROVE TAX EVASION
Since fraud is a state of mind, it need not be proved by direct evidence but
may be proved from the circumstances of the case.
REPUBLIC vs. GONZALES (13 SCRA 638)
Failure of the taxpayer to declare for taxation purposes his true and actual
income derived from his business for two (2) consecutive years is an indication
of his fraudulent intent to cheat the government of its due taxes.

N. Construction and interpretation

a) Tax laws
1. Legislative intent Tax statutes are to receive reasonably construction with
the view to carry out their purpose and intent. If there is some issue on
construction and interpretation, we determine what was the intent of the
legislators. We go back to the deliberations, debates, arguments.
2. When there is doubt In case of doubt, they are construed strictly against the
government and liberally in favor of the taxpayer. Tax laws are, therefore,
given liberal construction for the reason that taxes are burdens.
3. Where the language is plain - But when the language of the tax law is plain
and clear, which does not require independent interpretation or construction,
the rule of strict construction against the government is not applicable where
the language of the tax statute is plain and there is not doubt as to its
legislative intent.
b) Tax exemption and exclusion

General rule:
o In the construction of tax statutes, exemptions are not favored and are
construed strictissimijurisagainst the taxpayer. The fundamental theory
is that all taxable property should bear its share in the cost and expense
of the government.
o Taxation is the rule and exemption is the exemption.
o He who claims exemption must be able to justify his claim or right
thereto by a grant express in terms too plain to be mistaken and too
categorical to be misinterpreted. If not expressly mentioned in the law,
it must be at least within its purview by clear legislative intent.

Exceptions
Page 23

1) When the law itself expressly provides for a liberal construction thereof.
2) In cases of exemptions granted to religious, charitable and educational
institutions or to the government or its agencies or to public property because the
general rule is that they are exempt from tax.
Strict interpretation does not apply to the government and its agencies

Petitioner cannot invoke the rule on stritissimijuris with respect to the

interpretation of statutes granting tax exemptions to the NPC. The rule on
strict interpretation does not apply in the case of exemptions in favor of a
political subdivision or instrumentality of the government. [Maceda v.
Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998)

A tax cannot be imposed unless it is supported by the clear and express

language of a statute; on the other hand, once the tax is unquestionably
imposed, a claim of exemption from tax payers must be clearly shown and
based on language in the law too plain to be mistaken. Since the partial
refund authorized under Section 5, RA 1435, is in the nature of a tax
exemption, it must be construedstrictissimijurisagainst the grantee. Hence,
petitioners claim of refund on the basis of the specific taxes it actually paid
must expressly be granted in a statute stated in a language too clear to be
mistaken.

Exemption of the buyer does not extend to the seller

Exemption of the principal does not extend to the accessory

SURIGAO vs. COLLECTOR of CUSTOMS

Tax refunds, condonations and amnesties, they being in the nature of tax
exemptions must be strictly construed against the taxpayer and liberally in
favor of the government.

II. National Internal Revenue Code of 1997, as amended (NIRC)

A. Income taxation
Income is the flow of wealth which goes into the hands of the taxpayer other than
the return of capital.
1. Income tax systems
a) Global tax system
This is also known as the totality or the aggregate approach.The Global
System of Taxation of Income follows the principle that all income are one and
the same. There is no variance as to the type, the purpose, the character and
the kind of income.
b) Schedular tax system
This is also known as differentiated or segregated approach. The Schedular
System of Taxation recognizes that income are different from each other.
Page 24

There is a distinction and differentiation on tax treatment and character. A

type of income is to be differentiated from another type of income. All income
are not one and the same.Also includes the system of pay-as-you-go
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law
a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax
a) Citizenship principle
b) Residence principle
c) Source principle
4. Types of Philippine income tax
a) Compensation income
b) Business/Trade/Professional Income
c) Passive Income
One which the taxpayer merely waits for the amount/income to come in.
Examples: Royalties, Interests, Prizes.
d) Capital Gains
Derived from sale of capital assets (Sec. 22, NIRC) or properties
5. Taxable period
a) Calendar period
b) Fiscal period
c) Short period
6. Kinds of taxpayers and taxes imposed (Sec. 23, NIRC)
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
Taxable on all income derived from sources within and without the
Philippines.
(b) Non-resident citizens
Taxable only on income derived from sources within the
Philippines. But if working abroad, taxable only on income derived
from sources within. TN: Seamen who receives compensation for
services rendered abroad as a member of the complement of a
vessel engaged exclusively in international trade shall be treated
as an overseas contract worker.
(ii) Aliens
(a) Resident aliens
One who permanently stays in the Philippines or goes out less
than 183 days.
(b) Non-resident aliens
(1) Engaged in trade or business
Page 25

One who stays in the Philippines for more than 180

days.
(2) Not engaged in trade or business
TN: These persons are taxable only on income derived from
sources within.
(iii) Special class of individual employees
(a) Minimum wage earner
The statutory minimum wage earners are no longer taxable.
They are exempted from payment of income tax.
The
determination of statutory wages is determined on a regular
basis by the RTWPB. (R.A. 9504, July 2008)
b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
(a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint Venture and Consortium
c) Partnerships
In the case of business partnerships, they are taxed like corporations.
d) General professional partnerships
e) Estates and trusts
In the case of estates and trusts, they are taxable like individuals.
f) Co-ownerships
7. GROSS INCOME
A. (Sec. 32, NIRC) Sources of income but not limited to the following:
(1) Compensation for services in whatever form paid, including, but not limited
to fees, salaries, wages,
commissions, and similar items;
(2) Gross income derived from the conduct of trade or
of a profession;

business or the exercise

(3) Gains derived from dealings in property;

(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional
partnership.

Page 26

B) Exclusions from Gross Income (Exempt from Tax):

(1) Life Insurance.- When you are indemnified for such loss or insurance
proceeds are paid for such loss, what you have is a return of capital. That is
excluded and not subject to income tax.
But if such amounts are held by the insurer under an agreement to pay
interest, then, income is earned by way of the interest but not on the principal
amount covering the proceeds of the policy.
(2) Amount Received by Insured as Return of Premium. - These are return of
premiums. They represent return of capital. They are not income.
(3) Gifts, Bequests, and Devises. - The value of property acquired by gift,
bequest, devise, or descent: Provided, however, That income from such property,
as well as gift, bequest, devise or descent of income from any property, in cases
of transfers of divided interest, shall be included in gross income.
(4) Compensation for Injuries or Sickness. - These are forms of indemnity.
These are return of capital. Actual damages in payment for hospitalization and
other medical expenses are not income. Moral damages are not income. But if
they are damages for payment of loss of income or loss of earning capacity, then,
they are taxable income.
(5) Income Exempt under Treaty. - Income of any kind, to the extent required
by any treaty obligation binding upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc.

Retirement benefits received under Republic Act No. 7641 (Labor Code) and
those received by officials and employees of private firms, whether individual
or corporate, in accordance with a reasonable private benefit plan maintained
by the employer

REQUIREMENTS FOR EXCLUSION:

(1) The private benefit plan must be registered by the employer of with the BIR.
(2)
Length of service the retiring official or employee has
of the same employer for at least ten (10) years

been in the service

(3)
Age the retiring official or employee is not less than
age at the time of his retirement

fifty (50) years of

(4)

That the benefits shall be availed of by an official or employee only once.

Absence of one, the said retirement benefits are taxable.

Suppose there is a higher standard of retirement, which will prevail? If the employer
sets up a higher standard than the one set up by your tax code, it will be standards
of the employer that will be prevail. If you retire lower than the standards set up
required by the tax code, your retirement it will be taxable.

Any amount received by an official or employee or by his heirs from the

employer as a consequence of separation of such official or employee from the

Page 27

service of the employer because of death, sickness or other physical disability

or for any cause beyond the control of the said official or employee.
This refers to separation pay.As a rule, separation pay is taxable. It becomes
excluded when it is payment by reason of death, sickness or other physical disability
or for any cause beyond the control of the said official or employee.
If you resign and you are given a separation pay, that is taxable because that is a
cause within the control of the employee.
There are resignations which are beyond the control of the employee such as in
the case of mergers or consolidations.
The separation pay given in such
circumstances is excluded because despite the resignation, it is a cause beyond the
control of the employee.

The provisions of any existing law to the contrary notwithstanding, social

security benefits, retirement gratuities, pensions and other similar benefits
received by resident or nonresident citizens of the Philippines or aliens who
come to reside permanently in the Philippines from foreign government
agencies and other institutions, private or public.
Payments of benefits due or to become due to any person residing in the
Philippines under the laws of the United States administered by the United
States Veterans Administration.
Benefits received from or enjoyed under the Social Security System in
accordance with the provisions of Republic Act No. 8282.
Benefits received from the GSIS under Republic Act No. 8291, including
retirement gratuity received by government officials and employees.

As a rule, prizes and awards are taxable.

provided.

They are excluded in the instances

(7) Prizes and Awards in Sports Competition. - All prizes and awards granted to
athletes in local and international sports competitions and tournaments whether
held in the Philippines or abroad and sanctioned by their national sports
associations.As a rule, prizes and awards in sports competition are taxable. They
are excluded under the conditions aforementioned.
(8) 13th Month Pay and Other Benefits. - Gross benefits received by officials and
employees of public and private entities: Provided, however, That the total exclusion
under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which
shall cover:
(i) Benefits received by officials and employees of the national
government pursuant to Republic Act No. 6686;

and

local

(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as

amended by Memorandum Order No. 28, dated August 13, 1986;
(iii) Benefits received by officials and employees not covered by
Presidential
decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986;
and
(iv) Other benefits such as productivity incentives and Christmas
bonus:
Provided, further, That the ceiling of Thirty thousand pesos
(P30,000)
may
Page 28

be

increased through rules and regulations issued by the Secretary of Finance, upon
recommendation of the
Commissioner, after considering among others, the
effect on the
same of the inflation rate at the end of the taxable year.
(9) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pagibig contributions, and union dues of individuals.
(10) Gains from the Sale of Bonds, Debentures or other Certificate of
Indebtedness. - Gains realized from the same or exchange or retirement of bonds,
debentures or other certificate of indebtedness with a maturity of more than five (5)
years.
(11) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the
investor upon redemption of shares of stock in a mutual fund company as defined in
Section 22 (BB) of this Code.
8. Optional Standard Deduction:
Before, only individuals engaged in business or practice their profession, who are
citizens and resident aliens (excluding non-resident aliens) can avail of OSD. The
availment of the OSD is also now allowed to corporations.
It used to be 10% of the gross income. It is now 40% of the gross income.
9. Personal Exemptions:
Before, we used to have the scaling of the status of the individual single, head
of the family or married. Now, regardless of your status, you have a personal
exemption of P 50,000.

Additional Exemptions:

It used to be P 8,000, maximum of 4. It is now increased to P 25,000, maximum

of 4.
10. Resident Citizens income from outside the Philippines:
The foreign income of the resident citizen is not anymore treated as schedular. It
will be treated as global. All income from foreign source is taxed at 5% to 32%.
There is no distinction as to the kind of income, as long as they are from a foreign
source.
11. Corporate income tax
Income in general the rate is 35%. Beginning January 1, 2009), the corporate
income tax will be reduced to 30%.
The rate of 30% of non-resident foreign corporations is at gross (without the
benefit of deductions). For the domestic and resident foreign corporations, the 30%
tax is based on taxable income, with the benefit of deductions.
The treatment of the foreign source income of a domestic corporation, regardless
of the nature of that income, is at a global rate of 30%.

Page 29

In the case of GOCCs, the rule is that they are taxable. Those which are not
taxable are GSIS, SSS, PhilHealth and PCSO. PAGCOR has been removed under RA
9337 as being exempted. So, PAGCOR is already taxable.
In the case of proprietary educational institutions and hospitals, they are subject,
as a rule, to the regular corporate income tax. Unless, under the predominance
test, where they are entitled to a 10% tax on their taxable income provided that the
predominant income is the educational or hospital income. If the predominant
income (more than 50%) of the proprietary educational or hospital is from unrelated
income or unrelated business, then, it will be subject to regular rates.
12. MINIMUM CORPORATE INCOME TAX or MCIT
Minimum Corporate Income Tax on Domestic Corporations. (Sec. 27, NIRC)
A minimum corporate income tax of two percent (2%) of the gross income as of the
end of the taxable year, as defined herein, is hereby imposed on a corporation
taxable under this Title, beginning on the fourth taxable year immediately following
the year in which such corporation commenced its business operations, when the
minimum income tax is greater than the tax computed under Subsection (A) of this
Section for the taxable year.
Minimum Corporate Income Tax on Resident Foreign Corporations. (Sec. 28, NIRC)
A minimum corporate income tax of two percent (2%) of gross income, as
prescribed under Section 27(E) of this Code, shall be imposed, under the same
conditions, on a resident foreign corporation taxable under paragraph (1) of this
Subsection.

The MCIT applies to both domestic corporations and to the resident foreign
corporations.
In its application, the tax due computed during the tax year at 35% is
compared to the 2% of gross income. The tax due payable is whichever is
higher.
When we say that the MCIT applies beginning on the 4 th taxable year
immediately following the year in which the corporation commenced business,
it means that newly established corporations will not yet be subject to the
MCIT. When the corporation has been in the business and operating for 4
years or more at the time this tax became effective, then, that provision is
covered.
Prior to RA 9337, the MCIT was annualized you determine the tax to be paid,
whether MCIT or 35%, at the end of the year. When RA 9337 took effect in
2005, the application of the MCIT is now on a quarterly basis.
Corporations are required to file quarterly returns. In the case of corporations
subject to MCIT, they have to determine at the end of the quarter the taxable
income computed under the MCIT and under the 35% rate.
There is no 4th quarter return for you will have the annual return.

13. Imposition of Improperly Accumulated Earnings Tax. (Sec. 29, NIRC)

The improperly accumulated earnings tax is in addition to your income tax.
This actually operates more as a penalty tax or a surtax. It is imposed on the
improperly accumulated taxable income of the corporation. For improperly
Page 30

accumulating earnings beyond the reasonable needs of the business, the

corporation will be subject to 10% on the improperly accumulated taxable
income.
When corporations are set up and it continues to accumulate profits
beyond the reasonable means of the business, the tax code penalizes these
corporations because corporations should not accumulate beyond its business
needs. It should distribute their earnings to the stockholders, to the owners of
the corporations, whether individuals or corporations. Otherwise, if they
would accumulate earnings beyond the reasonable means of the business,
then, it would be penalized and subject at 10% improper accumulated
earnings tax on the basis of improperly accumulated taxable income. This is
in addition to the regular corporate income tax that it will pay.
The improperly accumulated earnings tax shall apply to every corporation
formed or availed for the purpose of avoiding the income tax with respect to
its shareholders or the shareholders of any other corporation by permitting
earnings and profits to accumulate instead of being divided or distributed.
So as not to be penalized, the corporation has to declare dividends. If the
corporation accumulates earnings, there must be a business purpose for it not
to be penalized.
This penalty tax will not apply to:
1 Publicly-held corporations; (corporations which are traded in the stock
exchange)
2 Banks and other non-bank financial intermediaries
3 Insurance companies
Remember that the distribution of dividends to the individual taxholders is
a taxable distribution, except when the distribution is made to another
corporation where it is tax-free distribution of dividends.

14. DEDUCTIONS (See Sec. 34, 35, 37, and 61)

Prior to RA 9504, corporate taxpayers were only entitled to avail of the

itemized deductions. Now, under RA 9504, both the individual and corporate
taxpayers may avail the itemized or the optional standard deduction (OSD).

15. ESTATE TAX

1. Basic principles
Transfer taxes - imposed upon the privilege of disposing gratuitously private
properties. These are levied on the transmission of properties from a decedent to his
heirs or from a donor to a donee.
2. Definition

Page 31

It is an excise tax imposed upon the privilege of transmitting property at the time of
death and on the privilege that a person is given in controlling to a certain extent
the disposition of his property to take effect upon death.
The tax should not be construed as a direct tax on the property of the decedent
although the tax is based thereon.
Estate Tax vs. Inheritance Tax
Inheritance tax - It is the tax on the privilege to receive property from a deceased
person. This has been abolished by P.D. 69 passed on November 24, 1972, effective
January 1, 1973 due to administrative difficulty in its collection.
Note: Presently, there is no inheritance tax imposed by law. Only estate taxes are
imposed.
3. Nature
They are excise taxes; not property taxes.
Note: They are not property taxes because their imposition does not rest upon
general ownershipbut rather they are privilege tax since they are i
4. Purpose or object
1. Generate additional revenue for the government
2. Reduce the concentration of wealth
3. Provide for an equal distribution of wealth
4. Compensate the government for the protection given to the decedent that
enabled him to prosper and accumulate wealth
Note: Generally, the purpose of the estate tax is to tax the shifting of economic
benefits and enjoyment of property from the dead to the living
5. Time and transfer of properties
Q: When are the properties and rights transferred to successors?
A: The properties and rights are transferred to the successors at the time of death.
(Art. 777, Civil Code)
Q: What law governs the imposition of the estate tax?
A: The statute in force at the time of death of the decedent.
Q: When does estate tax accrue?
A: The estate tax accrues as of the death of the decedent. The accrual of the tax is
distinct from the obligation to pay the same which is 6 months after the death of the
decedent.
6. Classification of decedent
Q: Who are the taxpayers liable to pay estate tax?
A: Only individuals 1. Resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien
Note: Domestic and foreign corporations are subject only to donors tax and not to
estate tax because it is not capable of death but may enter into a contract of
donation.
7. Gross estate vis--vis net estate
Q: What is the estate tax formula?
Gross estate(Sec. 85)
Less: (1) Deductions (Sec 86)
(2) Net share of the surviving spouse___
Page 32

Net Estate
x Tax rate(Sec. 84)
Estate tax due
Less: Tax credit (if any) (Sec. 86(E) or 110(B))
Estate Tax Due, if any
8. Determination of gross estate and net estate
Q: How is the gross estate determined?
1. If the decedent is a resident or non-resident citizen, or a resident alien All
properties, real or personal, tangible or intangible, wherever situated.
2. If the decedent is a non-resident alien Only properties situated in the Philippines
provided that, intangible personal property is subject to the rule of reciprocity
provided for under Section 104 of the NIRC. (Section 85, NIRC)
9. Composition of gross estate
1. Decedent's interest
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under general power of appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers of insufficient consideration
Note: Nos. 2, 3, 4 and 7- properties not physically in the estate (these have already
been transferred during the lifetime of the decedent but are still subject to payment
of estate tax) - are transfers inter-vivoswhich are considered part of gross estate.
A: If the decedent is a resident
citizen, non-resident citizen, or
resident alien
Value at the time of death of all:
1. Real property wherever situated
2. Personal property, tangible or
intangible, wherever situated
3. To the extent of the interest
therein of the decedent at the time
of his death.

If the decedent is a non-resident

alien
Value at the time of death of all:
1. Tangible personal property situated in
the Philippines
2. Intangible personal property with situs
in the Philippines unless exempted on
the basis of reciprocity

10. Items to be included in gross estate

F. Tax remedies under the NIRC
What are the remedies available to the taxpayer?
1. Administrative
Before payment of taxes:
a. Dispute Assessment (Protest)
i. Request for reconsideration
ii. Request for reinvestigation
b. Entering a compromise agreement
After payment of taxes:
a. Claim for Tax Refund
2. Judicial
a. Civil
b. Criminal
3. Substantive
a. Question validity of tax statute/ regulation
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b. Non-retroactivity of rulings
c. Must be informed of the legal and factual bases of assessment
d. Preservation of books of accounts and examination once a year
Importance of tax remedies:
1. To the government - For the regular collection of revenue necessary for the
existence of the government.
2. To the taxpayer - They are safeguards of the taxpayers rights against arbitrary
action.
Subjects of tax remedies in internal revenue taxation
They include the action of the BIR where there may be controversy between the
taxpayer and the State such as:
1. Assessment of internal revenue taxes
2. Collection of internal revenue taxes
3. Refund of internal revenue taxes
4. Imposition of administrative or civil fines, penalties, interests or surcharges;
promulgation and/or enforcement of administrative rules and regulations for the
effective and efficient enforcement of internal revenue laws
5. Prosecution of criminal violations of internal revenue laws.
Q: State the No injunction to restrain tax collection rule.
A: GR: Under this rule, No court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue, tax, fee or charge. (Sec.
219, R.A. 8424)
XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its opinion
the same may jeopardize the interest of the government and/or the taxpayer. In this
instance, the court may require the taxpayer either to deposit the amount claimed
or file a surety bond for not more than double the amount with the court. (RA 1125
as amended by RA 9282)
Note: The Lifeblood doctrine requires that the collection of taxes cannot be enjoined,
without taxation, a government can neither exist nor endure.
Assessment
It is a written notice to a taxpayer to the effect that the amount stated therein
is due as tax and containing a demand for the payment. It is a finding by the taxing
agency that the taxpayer has not paid his correct taxes.
Note: A notice of assessment contains not only a computation of tax liabilities but
also a demand for the payment within a prescribed period. It also signals the time
when penalties and interests begin to accrue.
Importance of a tax assessment
AS TO THE GOVERNMENT
1.
In the proper pursuit of judicial and extrajudicial remedies
2.
To enforce taxpayer liabilities and certain matters that relate
to it, such as the imposition of surcharges and interests;
3.
To inform the taxpayer of his liabilities;
4.
In the establishment of tax liens; and
5.
In estimating the revenues that may be collected by the
government.
AS TO THE TAXPAYER
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1.
2.
3.
4.

In the proper pursuit of judicial and extrajudicial remedies

In the application of the Statute of Limitations;
To determine the period within which to protest.
To determine prescription of government claim.

Nature of an assessment
It is merely a notice to the effect that the amount stated therein is due as tax and
containing a demand for the payment. (Alhambra Cigar Mfg. Co. v. CIR, GR L-23226,
Nov. 28, 1967)
Q: Who has the burden of proof in pre-assessment proceedings?
A: The burden of proof is on the taxpayer for there is a presumption of correctness
on the part of the CIR. Otherwise, the finding of the CIR will be conclusive and the
CIR will assess the taxpayer. If the taxpayer does not controvert, such finding is
conclusive, even if the CIR is wrong.
Principles governing tax assessments (PAD3)
Assessments are:
a. Prima facie presumed correct and made in good faith;
b. Should be based on actual facts; (estimates can also be a basis given that it is not
arrived at arbitrarily or capriciously)
c. Discretionary on the part of the Commissioner;
d. Must be directed to the right party;
e. Authority to assess maybe delegated.
Q: Is the assessment made by the CIR subject to judicial review?
A: No, for such power is discretionary. What may be the subject of a judicial review is
the decision of the CIR on the protest against the assessment, not the assessment
itself.
Q: Are taxes self-assessing?
A: GR: Taxes are generally self-assessing and do not require the issuance of an
assessment notice in order to establish the tax liability of a taxpayer.
XPNs:
1. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)
2. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)
3. In case of deficiency tax liability arising from a tax audit conducted by the BIR
(Sec. 56 [B], NIRC)
4. Tax lien (Sec. 219, NIRC)
5. Dissolving corporation (Sec. 52 [c], NIRC)
Requisites for Valid Assessment
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1. Be in writing and signed by the BIR;

2. Contain the law and the facts on which the assessment is made; and
3. Contain a demand for payment within the prescribed period. (Sec. 228, NIRC)
Different kinds of assessments
1. Pre-Assessment informs the taxpayer of the findings of the examiner who
recommends a deficiency assessment. The taxpayer is usually given 10 days from
notice within which to explain his side.
2. Self-Assessment one in which the tax is assessed by the taxpayer himself.
3. Official Assessment issued by the BIR in case the taxpayer fails to respond to
the pre-assessment, or his explanation is not satisfactory to the CIR.
4. Illegal and Void Assessment tax assessor has no power to assess at all.
5. Erroneous Assessment assessor has power to assess but errs in the exercise
thereof.
6. Jeopardy Assessment a delinquency tax assessment made without the benefit of
a complete or partial investigation by a belief that the assessment and collection of
a deficiency tax will be jeopardized by delay caused by the taxpayers failure to:
a. Comply with audit and investigation requirements to present his books of
accounts and/or pertinent records, or
b. Substantiate all or any of the deductions, exemptions or credits claimed in his
return.
Note: This is issued when the revenue officer finds himself without enough time to
conduct an appropriate or thorough examination in view of the impending expiration
of the prescriptive period for assessment. To prevent the issuance of a jeopardy
assessment, the taxpayer may be required to execute a waiver of the statute of
limitations.
Powers of the Commissioner in the assessment of taxes
The CIR or his duly authorized representative is authorized to use the following
powers: (Sec. 6, NIRC)
1. Examination of return and determination of tax due
2. Use of the best evidence available
3. Authority to conduct inventory taking, surveillance and prescribe gross sales and
receipts if there is reason to believe that the taxpayer is not declaring his correct
income, sales or receipts for internal revenue purposes
4. Authority to terminate taxable period in the following instances:
a. Taxpayer is retiring from business subject to tax;
b. Taxpayer is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property and
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c. Taxpayer is performing any act tending to obstruct the proceedings for the
collection of taxes.
5. Authority to prescribe real property values
6. Authority to inquire into bank deposits accounts in the following instances:
a. A decedent to determine his gross estate;
b. Any taxpayter who has filed an application for compromise of his tax
liability by reason of financial incapability to pay;
c. A specific taxpayer/s is subject of a request for the supply of tax information
a foreign tax authority pursuant to an intentional convention or agreement on tax
matters to which the Philippines is a signatory or a party of. Provided that the
requesting foreign tax authority is able to demonstrate the foreseeable relevance of
certain information required to be given to the request. (Sec. 3 & 8, RA 10021)
d. Where the taxpayer has signed a waiver authorizing the Commissioner or
his duly authorized representative to inquire into the bank deposits.
7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or documentary requirements.
When is Assessment Made
When it is released, mailed or sent by the collector of internal revenueto the
taxpayer within the three-year or ten-year period, as the case may be. (CIR v.
Pascor, GR 128315, June 29, 1999)
Q: A notice of assessment was mailed within the period prescribed by law but the
same was received by the taxpayer beyond the period. Was there a valid
assessment?
A: Yes. There was an assessment made within the period. If the notice is sent
through registered mail, the running of the prescriptive period is stopped. What
matters is the sending of the notice is made within the period of prescription. It is
the sending of the notice and not the receipt that tolls the prescriptive period.
(Basilan v. CIR, GR L-22492, Sept. 5, 1967)
Prescriptive Periods
Rationale
To secure the taxpayers against unreasonable investigation after the lapse of the
period prescribed. They are beneficial to the government because tax officers will be
obliged to act promptly in the assessment and collection of the taxes, for when such
period have lapsed their right to assess and collect would be barred by the statute
of limitations.
Rules on prescription
1. When the tax law itself is silent on prescription, the tax is imprescriptible;

Page 37

2. When no return is required, tax is imprescriptible and tax may be assessed at any
time as the prescriptive periods provided in Sec. 203 and 222, NIRC are not
applicable. Remedy of the taxpayer is to file a return for the prescriptive period to
commence.
Note: Limitation on the right of the government to assess and collect taxes will
not be presumed in the absence of a clear legislation to the contrary.
3. Prescription is a matter of defense, and it must be proved or established by the
party (taxpayer) relying upon it.
4. Defense of prescription is waivable, such defense is not jurisdictional and must be
raised seasonably, otherwise it is deemed waived.
5. The law on prescription, being a remedial measure, should be interpreted liberally
in order to protect the taxpayer.
6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in the
place where the Court sits, the time shall not run until the next working day. (Sec. 1,
Rule 22, Rules of Court)
Note: Assessment and collection by the government of the tax due must be made
within the prescribed period as provided by the Tax Code; otherwise, the right of the
government to collect will be barred.
Computation of prescriptive period
It is computed based on the Administrative Code. Sec. 31 of the Administrative Code
of 1987 provides that a year shall be understood to be 12 calendar months. Both
Article 13 of the Civil Code and Sec. 31 of the Administrative Code of 1987 deal with
the same subject matter the computation of legal periods. Under the Civil Code, a
year is equivalent to 365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar months
and the number of days is irrelevant. There obviously exists a manifest
incompatibility in the manner of computing legal periods under the Civil Code and
the Administrative Code of 1987. For this reason, Sec. 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law governs the computation of
legal periods. (CIR v. Primetown Property Group, Inc., GR 162155, Aug. 28, 2007)
Prescriptive Period for Assessment
1. Where a return was filed:
GR: The period for assessment is within 3 years after the date the return was due or
if the return is filed after the due date prescription will start on the date the return
was filed.
XPNS:
a. If there is failure to file the required return, the period is within 10 years
after the date of discovery of the omission to file the return.

Page 38

Note: Date of discovery must be made within the three-year period following
the general rule.
b. If the return is filed but it is false or fraudulent and made with intent to
evade the tax, the period is 10 years from the date of discovery of the falsity
or fraud.
Note: Nothing in Sec. 222 (A) 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.
c. Where the CIR and taxpayer, before the expiration of the 3-year period have
agreed in writing to the extension of the period, the period so agreed upon
may thereafter be extended by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
d. Where there is a written waiver or renunciation of the original 3-year
limitation signed by the taxpayer.
Note: Requests for reconsideration of tax assessments, as required by the BIR,
must be accompanied by a waiver of statute of limitations accomplished by
the taxpayer.
2. The return was amended substantially The prescriptive period shall be counted
from the filing of the amended return.
Q: What is the effect of filing a defective return?
A: If the return was defective, it is as if no return was filed. The corollary prescription
will be 10 years from and after the discovery of the failure or omission and not the 3
year prescriptive period. There is an omission when the taxpayer failed to file a
return for the particular tax required by law. (Butuan Sawmill v. CTA, GR L-20601,
Feb. 28, 1966)
False, Fraudulent and Non-filing of Returns
Prescriptive period where the return was false, fraudulent or there was no return
filed - The prescription period is 10 years from the discovery of the falsity, fraud or
from the omission to file the return. (Sec. 222, NIRC)
Q: When is a return considered fraudulent?
A: Fraud is never presumed and the circumstances constituting it must be alleged
and proved to exist by clear and convincing evidence. It may be established by the:
1. Intentional and substantial understatement of tax liability by the taxpayer;
2. Intentional and substantial overstatement of deductions of exemptions; and/or
3. Recurrence of the above circumstances
Q: When is a return considered false?
A: When there is a deviation from the truth due to mistake, carelessness or
ignorance.
Q: Distinguish a false return from a fraudulent return.
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A: False Return is a deviation from the truth or fact whether intentional or not; while
fraudulent return is intentional and deceitful with the sole aim of evading the correct
tax due
(Aznar v. CIR, GR L-20569, Aug. 23, 1974)
Substantial Amendments
1. There is under declaration (exceeding 30% of that declared) of taxable sales,
receipts or income;
2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)
Q: Is it necessary that the notice of assessment be received by the taxpayer within
the prescriptive period?
A: No, notice of the assessment must be released, mailed or sent to the taxpayer
within the 3 year period. It is not required that the notice be received by the
taxpayer within the prescribed period, but the sending of the notice must clearly be
proven. (Basilan Estate, Inc. v. CIR, GR L-22492, Sept. 5, 1967)
Suspension of Running of Statute of Limitations
Grounds
When taxpayer cannot be Located in the address given by him in the return, unless
he informs the CIR of any change in his address thru a written notice to the BIR;
2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC)
3. 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 is located (proper only for suspension of the period to collect);
4. Where the CIR is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court for 60 days thereafter, such as where there is a
Pending petition for review in the CTA from the decision on the protested
assessment (Republic v. Ker & Co., GR L-21609);
5. Where CIR and the taxpayer Agreed in writing for the extension of the
assessment, the tax may be assessed within the period so agreed upon (Sec. 222
[b], NIRC);
6. When the taxpayer Requests for reinvestigation which is granted by the
Commissioner (Collector v. Suyoc Consolidated Mining Co., GR L-11527, Nov. 25,
1958);
Note: A request for reconsideration alone does not suspend the period to
assess/collect.
7. When there is an Answer filed by the BIR to the petition for review in the CTA
(Hermanos v. CIR, GR. No. L-24972.Sept. 30, 1969) where the court justified this by
saying that in the answer filed by the BIR, it prayed for the collection of taxes.
Waiver of the Satute of Limitations

Page 40

Requisites:
1. Entered before the expiration of the 3 year period for assessment of the tax;
2. In writing;
3. Signed by the taxpayer;
4. Must specify a definite date agreed upon between the parties within which to
assess and collect taxes;
5. Signed and accepted by the CIR or his duly authorized representative; and
6. Date of acceptance must be indicated. (RMC 06-05)
Pre-assessment Notice
It is a communication issued by the Regional Assessment Division, or any other
concerned BIR Office, informing a taxpayer who has been audited of the findings of
the RO, following the review of these findings.
If the taxpayer disagrees with the findings stated in the PAN, he have 15 days from
receipt of the PAN, to file a written reply contesting the proposed assessment. (Sec.
3.1.2, RR 12-99)
Otherwise, the taxpayer shall be considered in default, in which case a formal letter
of demand and assessment notice shall be issued by the BIR. (Sec. 3.1.2, RR 12-99)
Requisites:
1. In writing; and
2. Should inform the taxpayer of the law and the facts on which the assessment is
made (Sec. 228, NIRC)
Note: This is to give the taxpayer the opportunity to refute the findings of the
examiner and give a more accurate and detailed explanation regarding the
assessments. The absence of any of the requirements shall render the assessment
void.
Exceptions to Issuance of PAN
1. 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
2. When the Excise tax due on excisable articles has not been paid; or
3. When a Discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
4. 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; or
5. 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
Page 41

automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year. (Sec 3.1.3, RR 1299)
Notice of Assessment/Formal Letter of Demand (FAN)

It is a declaration of deficiency taxes issued to a taxpayer who fails to respond

to a PAN within the prescribed period of time, or whose reply to the PAN was
found to be without merit.
It shall be issued by the Commissioner or his duly authorized representative.
It must be:
1. In writing; and
2. Shall state the facts, the law, rules and regulations, or jurisprudence
on which the assessment is based, otherwise, the FANshall be void. (Sec.
228, NIRC; Sec. 3.1.4 RR 12-99)

The taxpayer may protest the assessment within 30 days from receipt
otherwise the assessment becomes final, executory, demandable and not
appealable to the CTA.

Protesting Assessment
It is the act by the taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as shown in the
notice of assessment and letter of demand.
Prescriptive period provided by law to make collection by distraint or levy or
by a proceeding in court is interrupted once a taxpayer protests the assessment and
requests for its cancellation.
Kinds of protest to an assessment
1. Request for reconsideration - a claim for re-evaluation of the assessment based
on existing records without need of additional evidence. It may involve a question of
fact or law or both. It does not toll the statute of limitations.
2. Request for reinvestigation - a claim for re-evaluation of the assessment based on
newly-discovered or additional evidence. It may also involve a question of fact or law
or both. It tolls the the statute of limitations.
Note: Under Sec. 223, NIRC, the running of the prescriptive period can only be
suspended by a request for reinvestigation, not a request for reconsideration.
Requisites of a protest
1. In writing;
2. Addressed to the CIR;
3. Accompanied by a waiver of the Statute of Limitations in favor of the
Government. Without the waiver the prescriptive period will not be tolled; (BPI v.
CIR, GR 139736, Oct. 17, 2005)

Page 42

4. State the facts, applicable law, rules and regulations or jurisprudence on which
the protest is based otherwise the protest would be void; and
5. Must contain the following:
a. Name of the taxpayer and address for the immediate past 3 taxable years;
b. Nature of the request, specifying the newly discovered evidence to be
presented;
c. Taxable periods covered by the assessment;
d. Amount and kind of tax involved and the assessment notice number;
e. Date of receipt of the assessment notice or letter of demand;
f. Itemized statement of the finding to which the taxpayer agrees (if any) as
basis for the computation of the tax due, which must be paid upon filing of the
protest;
g. Itemized schedule of the adjustments to which the taxpayer does not agree;
h. Statements of facts or law in support of the protest; and
i. Documentary evidence as it may deem necessary and relevant to support its
protest to be submitted 60 days from the filing thereof.
Procedure
1. BIR issues assessment notice.
2. The taxpayer files an administrative protest against the assessment. Such protest
may either be a request for reconsideration or for reinvestigation. The protest must
be filed within 30 days from receipt of assessment.
3. All relevant documents must be submitted within 60 days from filing of protest;
otherwise, the assessment shall become final and unappealable.
4. In case the CIR decides adversely or if no decision yet at the lapse of 180 days,
the taxpayer may appeal to the CTA Division, 30 days from the receipt of the
decision or from the lapse of the 180 days otherwise the decision shall become final,
executory and demandable. (RCBC v. CIR, GR 168498, Apr. 24, 2007)
5. If the decision is adverse to the taxpayer, he may file a motion for reconsideration
or new trial before the same Division of the CTA within 15 days from notice thereof.
6. In case the resolution of a Division of the CTA on a motion for reconsideration or
new trial is adverse to the taxpayer, he may file a petition for review with the CTA en
banc.
7. The ruling or decision of the CTA en banc may be appealed with the Supreme
Court through a verified petition for review on certiorari pursuant to Rule 45 of the
1997 Rules of Civil Procedure.
In Case of Inaction by Commissioner within 180 days from Submission of
Documents

Page 43

The taxpayer has two alternative options:

1. File a petition for review with the CTA within 30 days after the expiration of the
180-day period; or
2. Wait for the final decision of the CIR on the disputed assessment and appeal the
final decision to the CTA within 30 days from the receipt of the decision.
What are the administrative remedies of the government for collection of
delinquent taxes under the NIRC? (CELCED)
1.
2.
3.
4.
5.
6.

Distraint of personal property

Levy of real property
Enforcement of forfeiture
Enforcement of tax lien
Compromise and Abatement
Civil penalties

Distraint
It is a summary remedy whereby the collection of tax is enforced on the goods,
chattels or effects of the taxpayer (including other personal property of whatever
character as well as stocks and other securities, debts, credits, bank accounts and
interest in or rights to personal property.) The property may be offered in a public
sale, if taxes are not voluntarily paid.
Requisites (DeFDeP)
1.
2.
3.
4.

Taxpayer is Delinquent in payment of tax;

There must be subsequent Demand to pay;
Taxpayer Failed to pay delinquent tax on time; and
Period within which to assess and collect the tax due has not yet prescribed.

Kinds
1. Actual resorted to when there is actual delinquency in tax payment.
2. Constructive a preventive remedy which aims at forestalling a possible
dissipation of the taxpayers assets when delinquency sets in. Hence, no actual
delinquency in payment is necessary.
Procedure:
1. Commencement of distraint proceedings by the CIR or his duly authorized
representatives or by the revenue district officer as the case may be
2. Service of warrant of distraintupon taxpayer or upon any person in possession of
the property
3. Posting of notice in not less than 2 public places in the municipality or city and
notice to taxpayer specifying the time and place of sale and the articles distrained
4. Sale at public auction to be held not less than 20 days after notice to the owner or
possessor of the property and publication or posting of such notice
5. Disposition of proceeds of the sale
6. Residue over and above what is required to pay the entire claim, including
expenses, shall be returned to the owner of the property sold
Levy

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It is the seizure of real property and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent taxpayer.
How made:
It may be effected by serving upon the taxpayer a written notice of levy in the form
of a duly authenticated certificate prepared by Revenue District Officer containing:
[DNA]
1. Description of the property upon which levy is made;
2. Name of the taxpayer;
3. Amount of tax and penalty due.
TN: Its timely service suspends the running of the prescriptive 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
collections. 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. Thus, the
enforcement of tax collection through summary proceedings may still be carried out
as the service of warrant of distraint or levy suspends the prescriptive period for
collection. (RP v. Hizon, GR 130430, Dec. 13, 1999)
Procedure:
1. Preparation of a duly authenticated certificate which shall operate with force of a
legal execution throughout the Philippines.
2. Service of the written notice to the:
a. Delinquent taxpayer, or
b. If he is absent from the Philippines, to his agent or the manager of the
business in respect to which the liability arose, or
c. If there be none, the occupant of the property.
d. The Registry of Deeds of the place where the property is located shall also
be notified;
3. Advertisement of the time and place of sale within 20 days after the levy by
posting of notice and by publication for three consecutive weeks.
4. Sale at a public auction.
5. Disposition of proceeds of sale.
6. Residue to be returned to the owner.
Possession of the property levied
The owner shall not be deprived of the property until the expiration of the
redemption period and shall be entitled to rents and other income until the
expiration of the period for redemption. (Sec. 214, NIRC)
Redemption by the taxpayer
It shall entitle the taxpayer, the delivery of the certificate issued to the purchaser
and a certificate from the Revenue District Officer that he has redeemed the
property. The Revenue District Officer shall pay the purchaser the amount by which
such property has been redeemed and said property shall be free from lien of such
taxes and penalties. (Sec. 214, NIRC)
Similarities of Distraint and Levy
1. Summary in nature
2. Requires notice of sale
3. May not be resorted to if the amount involved is less than P100
Distinctions among warrants of distraint, levy and garnishment
Page 45

DISTRAINT

LEVY
GARNISHMENT
Subject matter
Personal property owned Real property owned
Personal property owned by
by and in possession of
and in the possession of the taxpayer but in the
the taxpayer
the taxpayer
possession of the third
party
Acquisition by the Government
Personal property
Real property subject to Personal property
distrained are purchased levy is forfeited to the
garnished are purchased
by the Government and
Government then sold
by the Government and
resold to meet
to meet the deficiency.
resold to meet deficiency
deficiency
Advertisement of Sale
No newspaper
The sale of realty
No newspaper publication
publication required
subject to levy is
required
required to be
published once a week
for 3 consecutive weeks
in a newspaper of
general circulation in
the municipality or city
where the property is
located.
Forfeiture

It is the divestiture of property without compensation, in consequence of a

default or offense.

Property forfeited is transferred to another without consent of the defaulting

taxpayer or wrongdoer.

Forfeiture transfers the title to the specific thing from the owner to the
government. Also there would no longer be any further levy for such would be
for the total satisfaction of the tax due. (Sec 215, NIRC)

Procedure
1. In case of personal property By seizure and sale or destruction of property
(Secs. 224 and 225, NIRC)
2. In case of real property By judgment of condemnation and sale in a legal action
or proceeding (Sec. 224, NIRC)
Difference between forfeiture and seizure to enforce a tax lien
FORFEITURE

SEIZURE

Ownership
Ownership is transferred to the
Taxpayer retains ownership of
Government
property seized
Disposition of the proceeds of sale
Excess not returned to the taxpayer Excess returned to taxpayer
Rules on forfeiture

Page 46

1. If there is no bidder in the public sale or if the amount of the highest bid is
insufficient to pay the taxes, penalties and costs, the real property shall be forfeited
to the government.
2. The Register of Deeds shall transfer the title of forfeited property to the
Government without necessity of a court order.
3. Within 1 year from the date of sale, the property may be redeemed by the
delinquent taxpayer or any one for him, upon payment of taxes, penalties and
interest thereon and cost of sale; if not redeemed within said period, the forfeiture
shall become absolute. (Sec. 215, NIRC)
Enforcement of Tax Lien
Tax Lien

It is a legal claim or charge on property, personal or real, established by law as

a sort of security for the payment of tax obligations.

It is enforced as payment of tax, interest, penalties, costs upon the entire

property and rights to property of the taxpayer. However, to be valid against
any mortgagee, purchaser or judgment creditor, notice of such lien has to be
filed by CIR with the Registry of Deeds. (Sec. 219, NIRC)

It is applied when:

With respect to personal property Tax lien attaches when

the taxpayer neglects or refuses to pay tax after demand
and not from the time the warrant is served (Sec. 219, NIRC)
With respect to real property from time of registration with
the register of deeds.

Note: A valid assessment is required to be issued before a tax lien shall be

annotated at the proper registry of property.
Extinguishment
1.
2.
3.
4.
5.

Bypayment orremissionof the tax

Byprescription of the right of government to assess or collect
Byfailure to file notice of such tax lien in the office of Register of Deeds
Bydestruction of property subject to tax lien
By replacing it with a bond

Note: A buyer in an execution sale acquires only the rights of the judgment creditor.
Lien vs. Distraint
LIEN
DISTRAINT
Directed against what?
The property subject to Need not be directed
the tax
against the property
subject to tax
To whom directed?
The property itself
The property should
regardless of the
be presently owned by
present owner of the
the taxpayer
property

Page 47

Compromise and Abatement

Compromise

It is an agreement between two or more persons who,amicably settle their

differences on such terms and conditions as they may agree on to avoid any
lawsuit between them. It implies the mutual agreement by the parties in
regard to the thing or subject matter which is to be compromised.
It is a contract whereby the parties, by reciprocal concessions avoid litigation
or put an end to one already commenced
Made when:
o Criminal cases Compromise must be made prior to the filing of the
information in court.
o Civil cases Before litigation or at any stage of the litigation, even
during appeal, although legal propriety demands that prior leave of
court should be obtained.

Requisites
1. Tax liability of the taxpayer;
2. An offer of the taxpayer of an amount to be paid by him; and
3. The acceptance (the CIR or the taxpayer) of the offer in the settlement of the
claim
Note: If the offer to compromise was rejected by the taxpayer, the compromise
penalty cannot be enforced thru an action in court, or by distraint or levy. If the CIR
wants to enforce a penalty he must file a criminal action in the courts. (CIR v. Abad
GR L-19627, June 27, 1968)
Cases which may be compromised
1. Delinquent accounts
2. Cases under Administrative protest after issuance of the Final Assessment Notice
to the taxpayer which are still pending in the RO, RDO, Legal Service, Large
Taxpayer Service, Collection Service, Enforcement Service, and other offices in the
National Office
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts
5. Criminal violations except:
a. Those already filed in courts; and
b. Those involving criminal tax fraud. (Sec.3, RR 30-2002)
Cases which cannot be compromised
1 Criminal tax Fraud cases, confirmed as such by the CIR or his duly
authorized representative.
2 Cases where Final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and the taxpayer is
agreeable to such decision by signing the required agreement form for the
purpose.
3 Cases which become Final and executory after final judgment of a court,
where compromise is requested on the ground of doubtful validity of the
assessment.
4 Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.

Page 48

5 Withholding tax cases, unless the applicant taxpayer invokes provisions of

law that cast doubt on the taxpayers obligation to withhold.
6 Criminal violations already filed in courts.
7 Delinquent accounts with duly approved schedule of instalment payments.
Note: The CTA may issue an injunction to prevent the government from collecting
taxes under a compromise agreement when such would be prejudicial to the
government.
Grounds
1 Doubtful validity of assessment;
2 Financial incapacity
Requisites
1. Clear inability to pay the tax; and
2. The taxpayer must waive in writing his privilege of the secrecy of bank deposit
under RA 1405 or other general or special laws, which shall constitute as the CIRs
authority to inquire into said bank deposits (Sec. 6 [F], NIRC)
Who may compromise

The CIR may compromise with respect to criminal and civil cases arising from
violations of the NIRC as well as the payment of any internal revenue tax
when:
o A reasonable doubt as to the validity of the claim against the taxpayer
exists provided that the minimum compromise entered into is equivalent
to 40% of the basic tax; or
o The financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax provided that the minimum compromise entered
into is equivalent to 10% of the basic assessed tax.

Note: In these instances, the CIR is allowed to enter into a compromise only if the
basic tax involved does not exceed P1M and the settlement offered is not less than
the prescribed percentages. (Sec. 204 [A], NIRC) If the basic tax involves exceeds P1
million or when the settlement offered is less than the prescribed minimum rates the
approval of the Evaluation Board is needed.
A preliminary compromise may be entered into by subordinate officials subject to
review by the CIR.

The Regional Evaluation Board (REB) may compromise:

o Tax assessments by revenue officers involving basic deficiency taxes of
P500,000 or less; and
o For minor criminal violations (RR 7-2001)

Note: The REB shall becomposed of:

a. The Regional Director as Chairman;
b. The Assistant Regional Director;
c. Chief, Legal Division;
d. Chief, Assessment Division;
e. Chief, Collection Division; and
f. Revenue District Officer having jurisdiction over the taxpayer-applicant
Prescription

Page 49

As a rule, the obligation to pay tax is based on law. But when, for instance, a
taxpayer enters into a compromise with the BIR, the obligation of the taxpayer
becomes one based on contract.
Compromise is a contract whereby the parties, by reciprocal concessions, avoid
litigation or put an end to one already commenced. (Art. 2028 NCC) Since it is a
contract, the prescriptive period to enforce the same is 10 years based on Art. 1144
NCC reckoned from the time the cause of action accrued.
Abatement

Cancellation of a tax liability.

It is made when:
o The tax or any portion thereof appears to be unjustly or excessively
assessed; or
o
The administration and collection costs involved do not justify the
collection of the amount due. (Sec. 204[B], NIRC)

Abatement vs. Compromise

Compromise
Involves a reduction of the
taxpayers liability.
Officers authorized to
compromise: CIR and Regional
Evaluation Board
Grounds:
2. Reasonable doubt as to the
validity of assessment;
3. Financial incapacity of the
taxpayer

Abatement
Involves the cancellation of the
entire tax liability of a taxpayer.
Officer authorized to abate or
cancel tax, penalties and/or
interest: CIR
Grounds:
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

JUDICIAL REMEDIES
GOVERNMENT

TAXPAYER
If express

Page 50

1. Must follow and observe the legal

parameters set forth in the law.
(e.g. An action for collection by the
BIR (Sec. 205, NIRC) must be filed
within the prescriptive period (Sec.
222, NIRC);

Judicial remedies are exclusive.

Thus, the CIR decision must be
appealed to the CTA and the CTA en
banc decision must be appealed to
the SC.

2. Must be approved by the CIR

(Sec. 220, NIRC)
If implied
May avail of the usual judicial
May resort to the laws of general
remedies for convenience and
application. Thus, a declaratory
expediency.
relief may be availed of if the law
does not provide for judicial
remedies.

Civil Action
For tax remedy purposes, these are actions instituted by the government to collect
internal revenue taxes in the regular courts after assessment by CIR has become
final and executory.
It includes, however, the filing by the government of claims against the deceased
taxpayer with the probate court.
Once an action is filed with the regular courts, the taxpayer can no longer assail the
validity or legality of assessment.
Form and Procedure
1. Civil actions shall be brought in the name of the Government of the Philippines.
2. It shall be conducted by legal officers of the BIR.
3. The approval by the Solicitor General together with the approval of the CIR for
civil actions for collection of delinquent taxes is required before they are filed. (Sec.
220 NIRC)
Note: BIR legal officers deputized as Special Attorneys who are stationed outside
Metro Manila may file verified complaints with the approval of the Solicitor General.
Provided that a copy of the complaint is furnished to the Solicitor General. The
Solicitor General must file a notice of appearance in the court where it was filed.
Court Jursidiction
COURTS
Municipal Trial Courts outside Metro
Manila
Municipal Trial Courts within Metro
Manila
Regional Trial Courts outside Metro
Page 51

AMOUNT OF TAXES
INVOLVED
Amount does not exceed
300,000
Amount does not exceed
400,000
300,001 to 999,999

Manila
Regional Trial Courts within Metro
Manila

400,001 to 999,999

Criminal Action
Criminal complaint is instituted not to demand payment but to penalize taxpayer for
the violation of the NIRC.
Criminal action is resorted to not only for collection of taxes but also for enforcement
of statutory penalties of all sorts.
Crimes Punishable
1. Willful attempt to evade or defeat tax (Sec. 254, NIRC)
2. Failure to file return, supply correct and accurate information, pay tax, withhold
and remit tax and refund excess taxes withheld on compensation (Sec. 255, NIRC)
Filing of the Information
1. CTA - on criminal offenses arising from violations of the NIRC or Tariff and Customs
Code and other laws administered by the BIR and the BOC where the principal
amount of taxes and fees, exclusive of charges and penalties claimed is P1 million
and above.
2. RTC, MTC, MeTC- on criminal offenses arising from violations of the NIRC or
Tariff and Customs Code and other laws administered by the BIR and the BOC where
the principal amount of taxes and fees, exclusive of charges and penalties claimed is
less than P1 million. (Sec. 7, RA 9282)
Prescriptive Period
The period is 5 years from commission or discovery of the violation, whichever is
later. (Sec. 281, NIRC)
The cause of action for willful failure to pay deficiency tax occurs when the final
notice and demand for the payment thereof is served upon the taxpayer.
The 5-year prescriptive period commences to run only after receipt of the final
notice and demand and the taxpayer refuses to pay.
Note: In addition to the fact of discovery of the filing of a fraudulent return, there
must be a judicial proceeding for the investigation and punishment of the tax
offense before the 5-year limiting period to institute a criminal action for filing a
fraudulent return begins to run. The crime of filing false returns can be considered
"discovered" only after the manner of commission, and the nature and extent of the
fraud have been definitely ascertained. Note the conjunctive word and between
the phrases the discovery thereof and the institution of judicial proceedings for
its investigation and proceedings. (Lim, Sr. v. CA, GR 48134-37, Oct. 18, 1990)

IV. Jurisdiction of the Court of Tax Appeals

Page 52

The CTA was originally created under RA 1125. The law creating the Court of Tax
Appeals was under RA 1125 way back in 1954. The objectives of the creation of the
court are:
1) to entrust tax cases to a specialize court composed of men technically qualified
in the field of taxation and to develop expertise on the subject;
2) to expedite the disposition of tax cases and collection of taxes and provide
adequate and speedy remedy to the taxpayers.
The objective was addressed to enforce collection of taxes and to provide
protection also and remedy to the taxpayers.
The Court under RA 1125 was sitting like the RTC. And the adjudicator sitting in
the court was called a judge. Since it was then like the RTC, the adjudicators then
were called judges. The RTC was then was only exercising what we call exclusive
appellate jurisdiction. And the cases that are decided by the CTA are decisions of
the Commissioner of the Internal Revenue and the decisions of the Commissioner of
Customs.
While it used to include the Central Board of Assessment Appeals, but when the
Real Property Tax Code took effect, it changed the jurisdiction where the decisions of
the Central Board of Assessment Appeals were no longer brought to the CTA but to
the Court of Appeals.
The taxes then that were handled by the Court of Tax Appeals were the decisions
of the Commissioner of the Internal Revenue and of the Commissioner of Customs.
Such that from the CIR or the Commissioner of Customs, it is brought to the CTA, to
the CA and then, the Supreme Court. This was the flow of the remedies on the tax
cases.
The local tax cases have their own separate remedies. The venue was not the
CTA. It had a separate venue. Likewise, on the decisions of the Central Board on
the Real Property Tax, also provided a different avenue where to pursue the cases,
but not to the CTA under RA 1125.
In March 2004, the entire picture of the CTA was completely changed. RA 9282
expanded the jurisdiction of the CTA. The CTA was treated as an equivalent of the
CA. As an effect, the tax cases will no longer pass through the CA because the CTA
now was sitting as an equivalent of the CA.
While you have here (RA 1125) the adjudicators called judges equivalent to the
RTC, you have now here (RA 9282) justices. And its jurisdiction, by reason of that
expansion of its jurisdiction, was now exclusive appellate and original jurisdiction. It
has an exclusive original jurisdiction as well as an exclusive appellate jurisdiction.
So, under the new law, the CTA now sits as an equivalent of the Court of Appeals.
So, you have justices there, no longer called judges. The jurisdiction has been
expanded, not only exclusive appellate jurisdiction but also exclusive original
jurisdiction. Such that when cases are brought to the CTA, it is CTA by division, then,
CTA en banc then, you have the Supreme Court. The mode of appeal, we will follow
Rule 43 in the petition brought before the CTA. And when it is brought to the
Supreme Court, we follow Rule 45 a petition or appeal by way of certiorari.
Page 53

Rule 43
CTA (division)

Rule 45
CTA (en banc)

SC

Under RA 9282, the law here provides that:

SECTION 1.Court; Justices; Qualifications; Salary; Tenure. There is hereby
created a Court of Tax Appeals (CTA) which shall be of the same level as the Court of
Appeals, possessing all the inherent powers of a Court of Justice, and shall consist of
a Presiding Justice and five (5) Associate Justices. xxx
This court sits in 2 divisions. It sits en banc and in 2 divisions, consisting of 3
justices per division.
For en banc purposes, 4 justices shall constitute a quorum and 2 justices for
session by division.
SECTION. 2. Sitting En Banc or Division; Quorum; Proceedings. The CTA
may sit en banc or in two (2) Divisions, each Division consisting of three (3) Justices.
Four (4) Justices shall constitute a quorum for sessions en banc and two (2)
Justices for sessions of a Division: Provided, That when the required quorum cannot
be constituted due to any vacancy, disqualification, inhibition, disability, or any
other lawful cause, the Presiding Justice shall designate any Justice of other Divisions
of the Court to sit temporarily therein.
The affirmative votes of four (4) members of the Court en banc or two (2)
members of a Division, as the case may be, shall be necessary for the rendition of a
decision or resolution.
The place of office for the CTA will be based in Metro Manila.
SEC. 6.
Place of Office. The CTA shall have its principal office in Metro
Manila and shall hold hearings at such time and place as it may, by order in writing,
designate
In cases brought to the CTA en banc:
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.
A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
So, from the CTA by division, it is brought again to the CTA en banc. From the
decision of the CTA en banc, any adverse party, whether you are government or the
taxpayer, your last resort will be the Supreme Court and the mode is under Rule 45.
Under RA 9282:

Page 54

SEC. 19. Review by Certiorari. A party adversely affected by a decision or

ruling of the CTA en banc may file with the Supreme Court a verified petition for
review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Then, we have this jurisdiction of the Court of Tax Appeals. What are the cases
brought to the CTA?
One, you have the exclusive appellate jurisdiction of the CTA to review by appeal:
1.
Decisions of the Commissioner of Internal Revenue involving disputed
assessment, refunds and all other matters arising under the NIRC or other laws
administered by the BIR
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 Revenuein 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;

Remember that in Section 228 (NIRC), when the taxpayer protests the
assessment, it is filed with the Commissioner of Internal Revenue. From the decision
of the Commissioner of Internal Revenue, you have 30 days to appeal to the CTA.
Protest
Assessment,

CIR

CTA

Refunds
You also have cases of refunds. It is as well filed with the Commissioner of Internal
Revenue and from the decision of the Commissioner, it is filed with the CTA. This
includes all other matters in the NIRC which are decided by the Commissioner. So,
they are all appealed to the CTA, including all other laws administered by the BIR.
So, you have these controversies to be resolved by the Commissioner. The decision
of the Commissioner is appealed also to the CTA.
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds, etc.
(2)Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relations thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which
case the inaction shall be deemed a denial;
What are these? Inaction by the Commissioner of Internal Revenue.
Remember in the assessment cases, the protest is filed with the CIR and the CIR
has 180 days to decide. In Section 228 (NIRC), the period within which the
Commissioner has to decide is 180 days. If there is no decision within 180 days, the
Page 55

taxpayer should appeal to the CTA within 30 days from the lapse of the 180-day
period to decide.
In case of inaction by the Commissioner, you are given 30 days from the lapse of
the 180-day period to go now to the CTA.
Assessment

CIR (180 days to decide)

CTA (w/n 30 days from lapse)

In the case also of refunds in the NIRC, you have the date of payment where you
file your claim for refund with the CIR and finally to the CTA, it is required that from
the date of payment and up to the time the case will reach the CTA, it should be
within the 2-year period from payment.
Remember that in Section 229 (NIRC):
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, 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 other words, the claim for refund is lodged, at the outset, administratively
before the Commissioner. And then, from that claim, it is converted into a judicial
action when you bring now the case to the CTA. And you bring the case to the CTA
when it will be denied by the Commissioner.
In the event that the denial is still forthcoming, your claim is pending with the
Commissioner and the 2-year period from payment is about to lapse, do not wait for
the 2-year period to expire. You must now bring the action within reasonable time to
the CTA because of the inaction of the Commissioner on your claim for refund.
So, the law provides a prescriptive period. You have now inaction by the
Commissioner on these refund cases, when the 2-year period is about to prescribe
and the Commissioner has not yet decided and you believe that his decision is that
it will be denied. So, you can appeal to the CTA.
Refunds

Date of Payment

CIR

CTA

Then, on other matters where the law provides that there is a period within which
to bring the action and to decide and when there is no decision, then, you now go
and appeal to the CTA from the lapse of the period.
In the claim for refund, do not wait for the lapse of the period, unlike in the other
cases meronkang waiting time for the decision. Kung walang decision, you are given
generally 30 days to appeal to the CTA. In the claim for refund, do not wait for the
2-year period to expire, otherwise, your petition to the CTA will be barred or
dismissed.
You have that jurisdiction inaction by the CIR.

Page 56

3. Decisions, orders, or resolutions of the RTC in local tax cases originally decided
or resolved in its appellate jurisdiction.
(3)Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original or
appellate jurisdiction;
Take note, dati 2 langiyong jurisdiction.
Now, it includes local tax cases.

Now, it has expanded its jurisdiction.

What are the local taxes where it will fall or pass through the RTC?
i. issue on the legality of the ordinance
When you have a case involving the legality of the ordinance, it is filed with the
DOJ. From the DOJ, the action is brought to the regular courts since this involves a
case not subject to pecuniary estimation, the jurisdiction is with the RTC. From the
RTC, it is brought to the CTA.
DOJ

RTC

CTA

So, you have local tax cases where the RTC decides in its original jurisdiction.
ii. protest local tax assessments.
You also have the protest. In protesting local tax assessments, the action is
initiated with the local treasurer. So, you file your protest with your local treasurer.
From the local treasurer, it is filed either to the RTC or to the MTC, depending on the
jurisdictional amount. If the assessment involves within such amount falling within
the RTC, it is filed with the RTC. If the amount is less, it is filed with the MTC.
From the RTC, in its original jurisdiction, it is filed with the CTA. From the MTC, it
will not go directly to the CTA but it will pass through the regular procedures. From
MTC to RTC, deciding now in its appellate jurisdiction.Then, to the CTA.
So, you have the case of protesting tax assessments. You file your protest with
the local treasurer. The local treasurer will decide or there is a lapse or inaction. But
nevertheless, the flow of the remedy is to bring it to the next level, whether to the
RTC or MTC, depending on the jurisdictional amount.
RTC
Protesting Local

Local

Tax Assessments

Treasurer

CTA

MTC

RTC

CTA

iii. local tax refunds

You also have the local tax refunds. With the local tax refunds, again, it is
initiated with the local treasurer, your claim for refund. When there is a denial or
inaction, depending on the jurisdictional amount, it shall be filed with the RTC then
to the CTA; MTC to the RTC then to the CTA.
RTC
Local Tax

CTA

Local

Page 57

Refunds

Treasurer

MTC

RTC

CTA

You have this flow chart or flow of the remedies.

These are the local tax cases where the RTC will decide either in its original
jurisdiction or decide in its appellate jurisdiction. But nevertheless, the decision of
the RTC is appealed to the CTA, whether the RTC is deciding in its original or
appellate jurisdiction.
4. Decisions of the Commissioner of Customs on protest cases, seizure and
forfeiture, and other matters arising under the Tariff and Customs Code and other
laws administered by the Bureau of Customs
(4)Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau of
Customs;
So, you have the decisions of the Commissioner of Customs on protest cases
involving liability for customs duties, seizure and forfeiture cases or other matters
under the Tariff and Customs Code and all other laws administered by the Bureau of
Customs.
Whether it involves seizure or protest cases, the action is originally initiated with
the collector. From the Collector of Customs, it is brought to the Commissioner of
Customs. From the Commissioner of Customs, to the CTA.
Collector of Customs

Commissioner of Customs

CTA

5. Decisions of the Central Board of Assessment Appeals (CBAA)

(5)Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board1 of assessment appeals;
What are the decisions of the Central Board of Assessment Appeals?
i. You have the property assessments; issues involving property assessments
When the issue involves property assessment on the valuation of real properties,
the issue is lodged with the Local Board of Assessment Appeals. From the Local
Board of Assessment Appeals, you have the Central Board of Assessment Appeals,
then, to the CTA.
ii. Issues involving special levy
In the case of a special levy ,it is also brought to the Local Board of Assessment
Appeals, to the Central Board and then, to the CTA.
Special levy

LBAA

CBAA

ii. Protesting payments of the real property tax

1Or what we call the local board of assessment appeals

Page 58

CTA

You have to pay under protest, indicating in your receipt that you are paying
under protest. Where do you lodge your protest? You lodge that with the local
treasurer. From the local treasurer, it is appealed to the Local Board of Assessment
Appeals, to the Central Board, and then, to the CTA.
Protesting
Payments of RPT

LocalLBAA CBAA
Treasurer

CTA

iii. Refunds on Real Property Tax

Again, claim for refunds is filed with the Local Treasurer. From the Local
Treasurer, you file with the Local Board of Assessment Appeals, to the Central Board
and then, to the CTA.
Refunds
on RPT

Local
LBAA CBAA CTA
Treasurer

These are the decisions in real property taxation made by the Central Board of
Assessment Appeals. From the decision of the Central Board, it is appealed to the
Court of Tax Appeals
6. Decisions of the Secretary of Finance on customs cases elevated by automatic
review from the decisions of the Commissioner of Customs adverse to the
government.
(6)Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs
which are adverse to the Government under Section 2315 of the Tariff and
Customs Code;
There are decisions rendered by the Collector of Customs which are adverse to
the government in customs cases. The decision of the Collector of Customs is
elevated to automatic review to the Commissioner of Customs.
When the
Commissioner of Customs decides adverse to the government, it is elevated to the
Secretary of Finance for automatic review. The decision of the Secretary of Finance
is appealed now to the CTA.
Here, at the outset, you have the collector, the Commissioner of Customs, the
DOF and the CTA. These are in cases where the decisions are adverse to the
government.
In customs cases, when decisions are adverse to the government, it still passes
through the regular procedure. Sa next rank of the administrative officer who will
decide.
Collector

CoC

DoF

CTA

If it is not adverse to the government, etoang proceedings, from CoC, to the CTA,
if it is adverse to the taxpayer.
But since it is adverse to the government, it will pass first through the DOF. From
the DOF to the Court of Tax Appeals.

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7. Decisions of the DTI or DA on cases involving dumping duty and countervailing or

safeguard measure
(7)Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures under
Republic Act No. 8800, where either party may appeal the decision to impose or not
to impose said duties.
The DTI or the DA on cases involving dumping duty, countervailing or safeguard
measure will come in depending on the product.
If it involves non-agri products, cases involving dumping duty, countervailing or
safeguard measure, the protest is filed with DTI.
Non-agri products

DTI

CTA

If it involves agri products, where the dumping duty, countervailing or safeguard

measure is imposed, the remedy or the protest is lodged with the Department of
Agriculture.
Agri products

DA

CTA

Such that the decision of the DTI or the DA is appealed to the CTA. Depending on
what is the product, whether agricultural or non-agricultural, you file that with the
DA or DTI. When government imposes a dumping duty and there is an importer who
would protest that imposition or the imposition of a countervailing or a safeguard
measure, the importer may bring that action to the proper office, whether DTI if nonagri and DA if it involves agri products.
From that decision of the Secretary of the DTI or DA, it is appealed to the Court of
Tax Appeals.
The other one is the exclusive original jurisdiction.
The CTA has exclusive original jurisdiction on:
1. criminal offenses for violation of the NIRC or the Tariff and Customs Code and
other laws administered by the BIR/BoC where the principal amount of taxes and
fees is more than P1 Million or more
Take note that the amount is insofar as the taxes and fees. Therefore, it excludes
penalties, interests and other surcharges.
(b)Jurisdiction over cases involving criminal offenses as herein provided:
(1)Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or
the Bureau of Customs: Provided, however, That offenses or felonies mentioned in
this paragraph where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One million pesos
(P1,000,000.00) or where there is no specified amount claimed shall be tried
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by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision
of law or the Rules of Court to the contrary notwithstanding, the criminal action and
the corresponding civil action for the recovery of civil liability for taxes and penalties
shall at all times be simultaneously instituted with, and jointly determined in the
same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the
filling of such civil action separately from the criminal action will be recognized.
(2)Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them, in their respected territorial
jurisdiction.
(b)Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in their respective jurisdiction.
The criminal offense is filed directly with the Court of Tax Appeals in its exclusive
original jurisdiction.
2. Tax collection cases on final and executory assessments where the principal
amount of taxes and fees is P 1 Million or more.
This is a collection proceeding initiated when the assessment has become final
and executory.
So, the original jurisdiction is with the CTA.
(c) Jurisdiction over tax collection cases as herein provided:
(1)Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provided,
however, That collection cases where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) shall be tried by the proper Municipal Trial Court,
Metropolitan Trial Court and Regional Trial Court.
(2)Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
(b)Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction."
Less than P 1 Million on the criminal offenses or tax collection cases
It is filed with the RTC or MTC, depending on the amount therein. From RTC, CTA.
From MTC, RTC, CTA in the exercise of its appellate jurisdiction. (gi-number 3 itosa
original jurisdiction sa board, pero appellate man siya)
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RTC

CTA

Criminal Offenses/
Tax Collection Cases

MTC

RTC

CTA

So, you have that exclusive original jurisdiction of the Court of Tax Appeals.
Another matter is that there are cases where when it is processed with the CTA, it
is filed originally by division.
However, there are cases when it is brought to the CTA, en banc na.
nadadaansa division.

Hindi

What are the cases when it will be directly brought to the CTA, en bancna
and not passing thru the division? We have only 2.
1. Decision of the Central Board of Assessment Appeals
In the case of the decision of the Central Board of Assessment Appeals, from the
Central Board of Assessment Appeals, it is now with the CTA en banc, not by
division. And then, to the Supreme Court.
2. RTC deciding in its appellate jurisdiction of the local tax cases
In the local tax cases, where it is brought to the MTC, then to the RTC and then,
the CTA. The CTA here is en banc. Then, to the Supreme Court.
In local tax cases where the decision of the RTC is in its appellate jurisdiction, the
appeal to the CTA is not by division. It is CTA by en banc na. But when it is in the
RTC in its original jurisdiction, dadaanmunasa division bago mag-en banc.
Only when the RTC decides in its appellate jurisdiction where the appeal to the
CTA is already en banc. As to the rest, except for the two, it will have to pass
through the CTA by division, and then, en banc and then, Supreme Court, including
in the original action.
In the original action, ganun pa rin CTA by division, CTA by en banc and then,
Supreme Court.
Local Taxes

MTC

RTC

CTA

SCen banc

So, you have this exclusive appellate and original jurisdiction of the Court of Tax
Appeals.
Appeal
The Commissioner of Customs or the Commissioner of Internal Revenue shall
appeal to the Court of Tax Appeals. The matter that is brought on appeal is the
party adversely affected by the decision or ruling.

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This same provision is carried under the new law, under the amended provision of
Section 11 of RA 125, as amended by RA 8292. Under this provision:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party
adversely affected by a decision, ruling or inaction 2 of the Commissioner of Internal
Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of
Trade and Industry or the Secretary of Agriculture or the Central Board of
Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA
within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2)
herein.
Appeal shall be made by filing a petition for review under a procedure analogous to
that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA
within thirty (30) days from the receipt of the decision or ruling or in the case of
inaction as herein provided, from the expiration of the period fixed by law to act
thereon. A Division of the CTA shall hear the appeal: Provided, however, That with
respect to decisions or rulings of the Central Board of Assessment Appeals and the
Regional Trial Court in the exercise of its appellate jurisdiction, appeal shall be made
by filing a petition for review under a procedure analogous to that provided for
under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the
case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as
provided for in Section 7 shall be raffled to its Divisions. A party adversely affected
by a ruling, order or decision of a Division of the CTA may file a motion for
reconsideration of new trial before the same Division of the CTA within fifteen (15)
days from notice thereof: Provide, however, That in criminal cases, the general rule
applicable in regular Courts on matters of prosecution and appeal shall likewise
apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city
or municipal treasurer or the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture, as the case may be, shall suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law: Provided, however, That
when in the opinion of the Court the collection by the aforementioned government
agencies may jeopardize the interest of the Government and/or the taxpayer the
Court any stage of the proceeding may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a surety bond for not more
than double the amount with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of
this Act, the Government may directly file the said cases with the CTA covering
amounts within its exclusive and original jurisdiction.
In other words, the CTA has this exclusive appellate jurisdiction and exclusive
original jurisdiction.

2Inaction is now a matter which upon the lapse of that period, it will now be brought on appeal before the Court of Tax Appeals

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You have the criminal offenses involving taxes and fees involving the amount of P
1 Million or more or the tax collection cases or assessments which have become
final and executory in the amount of P 1 Million or more, the filing should be made
directly to the CTA in its exclusive original jurisdiction.
From the decision of the CTA by division, the next mode is to appeal that to the
CTA en banc.
A party adversely affected by the decision or the resolution of the division of the
CTA on a motion for reconsideration or new trial may file a petition for review with
the CTA en banc.
What do we have in these provisions?
In other words, decisions, rulings and inactions of the Commissioner of Internal
Revenue, Commissioner of Customs, Department of Finance, DTI, DA and the RTC in
its original jurisdiction, the appeal is to the CTA by division. And the mode is Rule
42, file a petition for review.

Decisions/
Rulings/
Inaction
w/ original
jurisdiction

CIR/COC
DOF/DTI
DA & RTC

Appeal
to CTA
division
Review

Rule 42
CTA
Petition
en
for
banc
Review

Rule 43
Petition
for

SC

But the decisions and rulings of the Central Board of Assessment Appeals and the
RTC in its appellate jurisdiction, the appeal is to the CTA en banc by way of petition
for review under Rule 43.

Decisions/Rulings
of CBAA & RTC in
its appellate
jurisdiction

Appeal to
CTA
en banc

Rule 43
Petition for Review

From the division, you are not precluded to file a motion for reconsideration.
From the denial of the motion for reconsideration, you can now go to the CTA en
banc. Here, the mode is Rule 43. From the en banc, to the Supreme Court under
Rule 45.
Here, from the en banc to the Supreme Court, Rule 45 appeal by certiorari.
Now, take note that the appeal that is brought to the CTA are not only decisions
but you also have rulings.
You have cases like taxpayer confronted with a tax problem. So, he writes to the
BIR for a particular tax query and asks for a ruling. So, he writes to the
Commissioner for a tax query asking for a tax ruling in particular transaction,
whether you will be taxable or not, exempted or not. The ruling or the reply of the
CIR may either be to grant the query or not. The reply of the Commissioner may
involve to have the transaction, either it will be taxable or not exempted or it may
be not taxable or exempted.

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Tax
Query

writes CIR
for tax ruling

Taxable/
Adverse Ruling
CTA
Reply
Not Exempted
Appeal
of CIR
Non-Taxable/
Exempted

If it is not taxable or you are exempted, there is no problem. The taxpayer will
not pursue anymore kasi he will not be taxable. He will be declared exempted from
the tax transaction.
What if he receives an adverse ruling, wherein there will be a ruling from the
Commissioner that in that transaction he will be taxable or that he will not be
exempted? Can you appeal the ruling? If it is yes, where will you appeal the ruling?
Remember that this is (not ?) a tax case, which is not an ordinary tax case when
you compare it to assessments or refunds.
In this situation, when the taxpayer is confronted with a tax problem and lodged
it with the BIR regarding his query of his taxability or exemption in a transaction and
he gets an adverse ruling, the law allows the taxpayer to appeal the ruling.
Where will he appeal the ruling? The appeal is with the CTA, not with any other
courts or even the regional trial courts because the provision in the law is not only
the decisions but also rulings. So, the rulings therefore include tax queries asked by
the taxpayer asking for a ruling, kung taxable basiya or exempted basiya in a
transaction.
In the event that he gets an adverse ruling, his remedy is to appeal that ruling to
the Court of Tax Appeals.
Again, the basis is found under the law. And this provision is found not only in the
old law but it is carried over in the amended law.
The decided case here is the LEAL vs. COMMISSIONER. (Not sure but I think it
is
the
Commissioner
vs.
Leal
November
18,
2002
case,
walakasingbinigaynacitation .. check it out ) Josefina Leal was the operator of a
pawnshop and wrote to the BIR with regard to the business of her pawnshop,
whether she would be subject to the VAT or the percentage tax or to this type of
business tax.
The BIR made a reply that the business is taxable and she should pay the
percentage tax or now, the VAT (not sure if tama pagdinigko)
With that adverse ruling, she went to the RTC to question the ruling of the
Commissioner. With the denial, she went to the Court of Appeals and then, finally to
the Supreme Court.
Of course, the petition was dismissed because it was the wrong remedy.
While the taxpayer is allowed to question a tax ruling made by the Commissioner,
the mode of where to pursue the action is not with the regular courts. It should be,
as in the case of Leal, it should be brought to the CTA or the Court of Tax Appeals,
In the case of Leal, it cited the statutory provision. Even under the old law, under
RA 1125, the matter that is brought on appeal to the CTA, any party adversely
affected by a decision or ruling. So, it includes therefore, the rulings of the

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Commissioner of Internal Revenue or his administrative officers.

appeal the ruling therefore to the CTA.

So, you could

And under the jurisdiction of the Court of Tax Appeals, its exclusive appellate
jurisdiction, involves the decisions of the CIR in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, then, you have, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue.
That provision is allowing the taxpayer to appeal that to the CTA and not to any
other courts.
You have that legal basis to pursue your appeal for that ruling, not to the regular
courts, but to the CTA.

-0o0-

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