Chapter I
GENERAL PRINCIPLES
I.
TAXATION DEFINED
Taxation is a mode of raising revenue for public
purposes.
1
Taxes, on the other hand, are enforced proportional
contributions from persons and property, levied by the state
by virtue of its sovereignty for the support of the government
and for all its public needs. ("Cooley's definition," 1 Cooley 62)
They are not arbitrary exactions but contributions
levied by authority of law, and by some rule of proportion
which is intended to insure uniformity of contribution and
a just apportionment of the burdens of government.
2
Thus:
a.
Taxes are enforced contributions.
Taxes are obligations created by law. (Vera
v. Fernandez, L-31364, March 30, 1979) Taxes are
never founded on contract or agreement, and
are not dependent for their validity upon the
individual consent of the persons taxed. (1 Cooley
68)
b.
Taxes are proportional in character, since taxes are
based on one's ability to pay.
c.
Taxes are levied by authority of the law.
'1 Cooley Taxation, 4th Ed., p. 72.
l Cooley 64; Question No. 1(A), 2004 Bar Examination.
J
1
TAX PRINCIPLES AND REMEDIES
The power to impose taxes is a legislative
power; it cannot be imposed by the executive
department nor by the courts.
1
d.
Taxes are for the support of the government and
all its public needs.
BASIS OF TAXATION
A. Taxation and the Lifeblood Doctrine
4
Taxation has been defined as the power by which
the sovereign raises revenue to defray the necessary
expenses of government. It is a way of apportioning
the cost of government among those who in some
measure are privileged to enjoy the benefits and must
therefore bear its burdens. (51 Am. Jur. 34)
The power of taxation is essential because the
government can neither exist nor endure without
taxation. Taxes are the lifeblood of the government and
their prompt and certain availability is an imperious
need. (Bull v. United States, 295 U.S. 247,15 APTR 1069,
1073) The collection of taxes must be made without
hindrance if the state is to maintain its orderly existence.
Government projects and infrastructures are
made possible through the availability of funds
provided through taxation. The government's ability
to serve and protect the people depends largely upon
taxes. Taxes are what we pay for a civilized society.
5
CASES FOR STUDY
CIR v. BPI
521 SCRA 373,387-388
x x x (T)he public will suffer if taxpayers will not be
held liable for the proper taxes assessed against them:
"Taxes are the lifeblood of the government, for without
'1 Cooley 69.
•Question No. 2,1991 Bar Examination.
KZommissioner v. Algue, Inc., 158 SCRA 9.
CHAPTER I
G E N E R A L PRINCIPLES
3
taxes, the government can neither exist nor endure." A
principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the
state whose social contract with its citizens obliges it to
promote public interest and common good. The theory
behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and wellbeing of the people.
CIR v. PINEDA
21 SCRA 105*
The Government resorted to the administrative
remedy of enforcement of tax lien in trying to collect
deficiency income tax of the estate of Atanasio Pineda.
Manuel B. Pineda, the eldest son of the deceased, who
was made to pay the full amount of the taxes assessed
questioned the assessment on the ground that as an
heir he is liable for unpaid income tax due the estate
only up to the extent of and in proportion to any share
he received.
HELD:
The Government can require Manuel B. Pineda to
pay the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and
as a holder-transferee of property belonging to the
estate/taxpayer.
As an heir, he is individually answerable for the
part of the tax proportionate to the share he received
from the inheritance. His liability, however, cannot
exceed the amount of his share.
As a holder of property belonging to the estate,
Pineda is liable for the tax up to the amount of the
property in his possession. The reason is that the
'Question No. 4 , 1 9 9 9 Bar Examination.
TAX PRINCIPLES A N D REMEDIES
4
Government has a lien on the P2,500 received by him
from the estate as his share in the inheritance for unpaid
taxes for which the estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code (now Section
219, NIRC). By virtue of such lien, the Government has
the right to subject the property in Pineda's possession,
i.e., the P2,500 to satisfy the income tax assessment in
the amount of P760.28.
XXX
The second remedy (tax lien) is the very avenue
the Government took in this case to collect the tax.
The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion
to avail itself of the most expeditious way to collect the
tax as may be envisioned in the particular provision
of the Tax Code above-quoted, because TAXES ARE
THE LIFEBLOOD OF THE GOVERNMENT AND
THEIR PROMPT AND CERTAIN AVAILABILITY IS AN
IMPERIOUS NEED.
MISAEL P. VERA, et al. v. HON. JOSE F.
FERNANDEZ, et al.
89 SCRA 199
The Government of the Republic of the Philippines claimed deficiency income taxes against the
Estate of the late Luis D. Tongoy. The Administrator
argued that the claim was barred under Section 5,
Rule 86 of the Rules of Court. Hence, the issue as to
whether or not the Statute of Non-Claims — Sec. 5,
Rule 86 of the New Rules of Court — barred the claim
of the government for unpaid taxes, though it was filed
within the period of limitation prescribed in Sections
331 and 332 of the NIRC.
HELD:
The Supreme Court ruled in the negative, citing
the case of Pineda v. CFI ofTayabas which gave exception
7
7
5 2 Phil. 803.
CHAPTER I
GENERAL PRINCIPLES
5
to the claim for taxes from being filed as other claims.
The reason for the more liberal treatment of claims for
taxes against a decedent's estate is because (T)axes
are the lifeblood of the Government and their prompt
and certain availability are an imperious need."Upon
taxation depends the Government's ability to serve
the people for whose benefit taxes are collected."
(Commissioner of Internal Revenue v. Pineda, G.R. No.
L-22734, September 15,1967, 21 SCRA 105)
Furthermore, as held in CIR v. Pineda, supra,
payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the
assessment was made by the Commissioner of Internal
Revenue until paid with interests, penalties, etc. By
virtue of such lien, the SC held that the property of the
estate already in the hands of an heir or transferee may
be subject to the payment of the tax due the estate.
CIR v. CTA"
234 SCRA 348
A petition for review of the decision of the BIR
denying the tax refund of Citytrust was filed with the
CTA. It was submitted for decision based solely on
the pleadings and evidence submitted by Citytrust.
CIR could not present any evidence by reason of the
repeated failure of the Tax Credit/Refund Division of
the BIR to transmit the records of the case, as well as the
investigation report thereon, to the Solicitor General.
The CTA rendered its decision ordering BIR to grant
a refund to Citytrust in the amount of PI3,314,506.14.
The CA affirmed the judgment of the CTA.
HELD:
It is a long and firmly settled rule of law that the
Government is not bound by the errors committed
"Question 1(d), 2005 Bar Examination.
6
TAX PRINCIPLES AND REMEDIES
by its agents. In the performance of its government
functions, the State cannot be estopped by the neglect
of its agents and officers. Although the Government
may generally be estopped through the affirmative acts
of public officers acting within their authority, their
neglect or omission of public duties as exemplified in
this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in
the field of taxation. It is axiomatic that the Government
cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of
the nation through which the government agencies
continue to operate and with which the State effects
its functions for the welfare of its constituents. The
errors of certain administrative officers should never
be allowed to jeopardize the Government's financial
position, especially in the case at bar where the amount
involves millions of pesos the collection whereof,
if justified, stands to be prejudiced just because of
bureaucratic lethargy.
Judgment of CA is SET ASIDE and the case is
REMANDED to the CTA for further proceedings and
appropriate action.
COMMISSIONER v. ALGUE, INC.
158 SCRA 9
The Commissioner of Internal Revenue contends that the claimed deduction was properly disallowed because it was not an ordinary, reasonable or
necessary business expense. The Court of Tax Appeals,
however, agreed with Algue, Inc. in holding that the
said amount had been legitimately paid by Algue, Inc.
as promotional fees for their work in the formation of
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties
of the Philippine Sugar Estate Development Corporation.
CHAPTER I
G E N E R A L PRINCIPLES
7
HELD:
Ruling in favor of Algue, Inc., the Supreme Court
held that Algue, Inc. has proved that the payment
of fees was necessary and reasonable in the light of
efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed.
Taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance.
On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate
the very reason for government itself. It is, therefore,
necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion
of the common good, may be achieved. (See also 'The
Doctrine of Symbiotic Relationship')
YMCA v. CIR'
298 SCRA 83
YMCA, a welfare, educational and charitable
non-profit corporation, leased its facilities to small
shop owners, restaurants and canteen operators, and
collected parking fees. YMCA contends that its rental
income is not subject to tax.
The contention is not tenable. Since taxes are the
lifeblood of the nation, a claim of statutory exemption
from taxation should be manifest and unmistakable
from the language of the law on which it is based.
The claimed exemption must expressly be granted in a
statute stated in a language too clear to be mistaken.
'Question No. 6(A), 2002 Bar Examination.
TAX PRINCIPLES AND REMEDIES
DAVAO GULF LUMBER CORP. v. CIR
293 SCRA 77
Because taxes are the lifeblood of the nation,
statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language
of the law; it cannot be merely implied therefrom.
FERDINAND R. MARCOS II v. CA, et al
273 SCRA 47"
Ferdinand R. Marcos II assailed the decision of
the Court of Appeals declaring the deficiency income
tax assessments and estate tax assessments upon the
estate and properties of his late father final despite the
pendency of the probate proceedings of the will of the
late President. On the other hand, the BIR argued that
the State's authority to collect internal revenue taxes is
paramount.
HELD:
The approval of the court, sitting in probate or
as a settlement tribunal over the deceased's estate, is
not a mandatory requirement in the collection of estate
taxes.
The enforcement of tax laws and the collection of
taxes are of paramount importance for the sustenance
of government. Taxes are the lifeblood of the government and should be collected without unnecessary
hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate
the very reason for government itself. It is, therefore,
necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
"•Question No. 1(c), 2005 Bar Examination; Question No. 9(A), 2004 Bar Examina-
CHAPTER I
G E N E R A L PRINCIPLES
purpose of taxation, which is the promotion of common good, may be achieved.
JOSE REYES v. PEDRO ALMANZOR
196 SCRA 322
Verily, taxes are the lifeblood of the government
and so should be collected without unnecessary
hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of
the common good, may be achieved. (CIR v. Algue, Inc.,
158 SCRA 9 [1988])
Consequently, it stands to reason that petitioners
who are burdened by the government by its Rental
Freezing Laws (R.A. No. 6359 and P.D. No. 20) under
the same principle of social justice should not now be
penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually
result in the forfeiture of their properties.
PHILIPPINE BANK OF
COMMUNICATIONS v. CIR
302 SCRA 250
Basic is the principle that "taxes are the lifeblood
of the nation." The primary purpose is to generate
funds for the State to finance the needs of the citizenry
and to advance the common weal. Due process of
law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so
because it is upon taxation that the government chiefly
relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted
to enforce the collection of taxes levied should be
summary and interfered with as little as possible.
10
TAX PRINCIPLES AND REMEDIES
From the same perspective, claims for refund or
tax credit should be exercised within the time fixed
by law because the BIR being an administrative body
enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
PHILIPPINE GUARANTY CO., INC. v. CIR
13 SCRA 775
The defense of reliance in good faith on rulings
of the CIR requiring no withholding of the tax due
on reinsurance premiums may free the taxpayer from
the payment of surcharge or penalties imposed for
failure to pay the corresponding withholding tax, but
it certainly would not exculpate it from liability to pay
such withholding tax. The Government is not estopped
from collecting taxes by the mistakes or errors of its
agents.
PHILEX MINING CORPORATION v. CIR
294 SCRA 687
Philex posits the theory that it had no obligation
to pay the excise tax liabilities within the prescribed
period since, after all, it still has pending claims for
VAT input credit/refund with BIR.
We fail to see the logic of Philex's claim for this is
an outright disregard of the basic principle in tax law
that taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance.
Evidently, to countenance Philex's whimsical reason
would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in jurisprudence.
NORTH CAMARINES LUMBER CO. v. CIR
109 Phil. 511
As the petitioner had consumed thirty-three
days, its appeal was clearly filed out of time. It is
argued, however, that in computing the 30-day period
CHAPTER I
GENERAL PRINCIPLES
11
fixed in Section 11 of Republic Act No. 1125, the letter
of the respondent Collector dated January 30, 1956,
denying the second request for reconsideration, should
be considered as the final decision contemplated in
Section 7, and not the letter of demand dated August
30,1955.
This contention is untenable. We cannot countenance the theory that would make the commencement
of the statutory 30-day period solely dependent on the
will of the taxpayer and place the latter in a position to
put off indefinitely and at his convenience the finality
of the tax assessment. Such an absurd procedure would
be detrimental to the interest of the Government, for
'taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need.'
(Bull v. U.S. 295, U.S. 247)
B.
Theories on Taxation
Taxation, as stated in the case of Phil. Guaranty
Co., Inc. v. Commissioner, is a power predicated upon
necessity (Necessity Theory). It is a necessary burden
to preserve the State's sovereignty and a means to
give the citizenry an army to resist aggression, a
navy to defend its shores from invasion, a corps of
civil servants to serve, public improvements for the
enjoyment of the citizenry, and those which come
within the State's territory and facilities and protection
which a government is supposed to provide.
11
The Benefits-Protection Theory, on the other
hand, bases the power of the State to demand and
receive taxes on the reciprocal duties of support and
protection. The citizen supports the State by paying
the portion from his property that is demanded in
order that he may, by means thereof, be secured in the
enjoyment of the benefits of an organized society. Thus,
the taxpayer cannot question the validity of the tax law
" 1 3 S C R A 775.
TAX PRINCIPLES AND REMEDIES
12
on the ground that payment of such tax will render him
impoverished, or lessen his financial or social standing,
because the obligation to pay taxes is involuntary and
compulsory, in exchange for the protection and benefits
one receives from the government.
This theory spawned the DOCTRINE OF
SYMBIOTIC RELATIONSHIP, a term culled from the
ruling of the Supreme Court in the celebrated case of
Commissioner of Internal Revenue v. Algue, Inc., supra,"
which stressed that:
'Taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part
of one's hard-earned income to the taxing authorities,
every person who is able to must contribute his
share in the burden of running the government. The
government, for its part, is expected to respond in
the form of tangible and intangible benefits intended
to improve the lives of the people and enhance their
material and moral values."
C.
Liabilities Involved
TAXES ARE PERSONAL TO THE TAXPAYER.
A corporation's tax delinquency cannot, for instance,
be enforced against its stockholders because not only
would this run counter to the principle that taxes are
personal, but it would also not be in accord with the rule
that a corporation is vested by law with a personality
that is separate and distinct from those of the persons
composing it as well as from that of any other legal
entity to which it may be related.
13
Nevertheless, stockholders may be held liable for
the unpaid taxes of a dissolved corporation if it appears
,3
Sunio v. NLRC, L-57767, January 31, 1984.
13
CHAPTER I
GENERAL PRINCIPLES
that the corporate assets have passed into their hands.
(Doctrine of Piercing the Corporate Veil)'*
A tax creates CIVIL LIABILITY on the part of the
delinquent taxpayer although the non-payment thereof
(due to failure or refusal to pay) creates a CRIMINAL
LIABILITY which could be the subject of criminal
prosecution under existing laws. To sum, in taxation, it
is one's failure to comply with the civil liability to pay
taxes which gives rise to the criminal liability.
15
III.
NATURE OF THE TAXING POWER
A.
Taxation as an Inherent Attribute of Sovereignty
16
The power of taxation is an incident of sovereignty
as it is inherent in the State, belonging as a matter of right
to every independent government. It does not need of
constitutional conferment. Constitutional provisions
do not give rise to the power to tax but merely impose
limitations on what would otherwise be an invincible
power. No attribute of sovereignty is more pervading
and at no point does the power of government affect
more constantly and intimately all the relations of life
than through the exactions made under it.
17
Taxation being an attribute of sovereignty, its
relinquishment is never presumed.
18
It is considered inherent in a sovereign State because it is a necessary attribute of sovereignty. Without
this power, no sovereign State can exist nor endure.
The power to tax proceeds upon the theory that the
existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty.
14
Tan v. Commissioner, L-15778, April 23, 1962.
"Republic v. Patanao, L-22356, July 2 1 , 1 9 6 7 .
"Question No. 1(2), 1996 Bar Examination.
"Churchill and Tail v. Concepcion, 34 Phil. 9 6 9 .
" L u z o n Stevedoring Co. v. CTA, L-30232, July 2 9 , 1 9 8 8 .
TAX PRINCIPLES A N D REMEDIES
belonging as a matter of right to every independent
State or government. No sovereign State can continue
to exist without the means to pay its expenses; and that
for those means, it has the right to compel all citizens
and property within its limits to contribute, hence, the
emergence of the power to tax."
B.
Taxation as Legislative in Character
The power to tax is inherent in the State, and the
State is free to select the object of taxation, such power
being exclusively vested in the legislature, EXCEPT where
the Constitution provides otherwise. (Art. VI, Sec. 28[2];
Art. X, Sec. 5) This is based upon the principle that
"taxes are a grant of the people who are taxed, and the
grant must be made by the immediate representatives
of the people. And where the people have laid the
power, there it must remain and be exercised."
20
ASPECTS, PROCESSES, PHASES OF TAXATION"
A. Levy/Imposition
The term "levy" or "imposition" refers to the
enactment of tax laws or statutes.
In the case of Tolentino, et al. v. Secretary of Finance,
the Supreme Court emphasized that:
22
Courts have no power to inquire into or interfere in
the wisdom, objective, motive or expediency in the passage
of a tax law, as this is purely legislative in character. To
do so would be tantamount to a violation of both the letter
and the spirit of the organic laws by which the Philippine
Government was brought into existence to invade a
coordinate and independent department of the Government,
and to interfere with the legitimate powers and functions of
the Legislature.
"51 Am. Jur. 42; Question No. 1, 2003 Bar Examination.
"1 Cooley Taxation, 3rd Ed., p. 43.
"Question No. 1(1), 2006 Bar Examination.
" 2 3 5 SCRA 630.
15
CHAPTER I
G E N E R A L PRINCIPLES
Scope of the legislative power to tax
(1) Discretion as to purposes for which taxes shall be levied
The sole arbiter of the purposes for which
taxes shall be levied is the legislature, provided the
purposes are public. The courts may review the
levy of the tax to determine whether the purpose
is a public one but once that is determined, the
courts can make no other inquiry as to the purpose
of the tax, as it affects the power to impose it.
23
CASES FOR STUDY
WALTER LUTZ v. J. ANTONIO ARANETA
98 Phil. 148
Plaintiff Lutz assailed the constitutionality of
Sections 2 and 3, C.A. 567, which provided for an
increase of the existing tax on the manufacture of
sugar, alleging such tax as unconstitutional and void
for not being levied for a public purpose but for the aid
and support of the sugar industry exclusively.
As the protection and promotion of the sugar
industry is a matter of public concern, the Legislature
may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here,
the legislative discretion must be allowed full play, subject
only to the test of reasonableness; and it is not contended
that the means provided in Section 6 of C.A. 567 bear
no relation to the objective pursued or are oppressive
in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement
of the State's police power.
u
l Cooley Taxation, 4th Ed., 171.
TAX PRINCIPLES AND REMEDIES
16
(2)
Discretion as to subjects of taxation
The legislature has unlimited scope as to
the persons, property or occupation to be taxed,
where there are no constitutional restrictions,
provided the property is within the territorial
jurisdiction of the taxing state.
24
In the case of Walter Lutz v. J. Antonio Araneta,
supra, ' plaintiff Lutz assailed the constitutionality
of Sections 2 and 3, C.A. No. 567 which provided for
an increase of the existing tax on the manufacture
of sugar. The Supreme Court ruled that: "It is
inherent in the power to tax that a state be free
to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result
from a singling out of one particular class for
taxation or exemption infringe no constitutional
limitation.'"
1
BENJAMIN GOMEZ v. ENRICO
PALOMAR, et al.
25 SCRA 827
Petitioner questions the constitutionality of
the statute, claiming that R.A. No. 1635, otherwise
known as the Anti-TB Stamp Law, is violative of the
equal protection clause of the Constitution because it
constitutes mail users into a class for the purpose of the
tax while leaving untaxed the rest of the population
and that even among postal patrons the statute
discriminatorily grants exemptions.
HELD:
It is settled that the legislature has the inherent
power to select the subject of taxation and to grant
exemptions. The classification of mail users is based
"1 Cooley Taxation, 4th Ed., 176-178.
" 9 8 Phil. 148.
CHAPTER I
G E N E R A L PRINCIPLES
17
on the ability to pay, the enjoyment of a privilege and
on administrative convenience. Tax exemptions have
never been thought of as raising issues under the equal
protection clause.
SILVESTRE PUNSALAN v. THE MUN.
BOARD OF THE CITY OF MANILA
95 Phil. 46
Plaintiffs sought the annulment of Ordinance No.
3398 of the City of Manila which imposes a municipal
occupation tax on persons exercising various professions in the city and penalizes non-payment of
the tax, enacted pursuant to Sec. 18(1) of the Revised
Charter of the City of Manila which empowers the Mun.
Board of said city to impose a municipal occupation
tax, not to exceed P50 per annum, on persons engaged
in various professions.
The burden of plaintiffs' complaint is not that the
professions to which they respectively belong have
been singled out for the imposition of this municipal
occupation tax; and in any event, the Legislature may,
in its discretion, select what occupations shall be
taxed, and in the exercise of that discretion it may tax
all. Or it may select for taxation certain classes and
leave the others untaxed. (Cooley on Taxation, Vol. 4,4th
Ed., pp. 3393-3395) Plaintiffs' complaint is that while
the law has authorized the City of Manila to impose
the said tax, it has withheld that authority from other
chartered cities, not to mention municipalities.
HELD:
It is not for the courts to judge what particular
cities or municipalities should be empowered to
impose occupation taxes in addition to those imposed
by the National Government. That matter is peculiarly
within the domain of the political departments and the
courts would do well not to encroach upon it.
TAX PRINCIPLES AND REMEDIES
18
(3)
Discretion as to amount or rate of tax
The legislature has the right to finally determine the amount or rate of a tax, in the absence
of constitutional prohibitions. It may levy a tax of
any amount it sees fit. Not only is the power to
tax unlimited in its reach as to subjects, but in its
very nature, it acknowledges no limits and may
be carried even to the extent of exhaustion and
destruction, thus becoming in its exercise a power
to destroy.
(4)
Discretion as to the manner, means and agencies of
collection of taxes
The discretion of the legislature in imposing
taxes extends to the mode, method or kind of tax.
As to the kind of taxes which may be imposed,
the legislature has power to levy one or more
of the following: Property tax, excise, license or
occupation tax, a poll or capitation tax, franchise
tax, income tax, inheritance tax, stock transfer tax,
etc.
16
Is the Power to Tax the Power to Destroy?
Justice Malcolm believed that the power to tax
"is an attribute of sovereignty. It is the strongest of
all the powers of government." This led Chief Justice
Marshall of the U.S. Supreme Court, in the celebrated
case of McCulloch v. Maryland, to declare: "The power
to tax involves the power to destroy." This might well
be construed to mean that the power to tax includes
the power to regulate even to the extent of prohibition
or destruction, (1 Cooley on Taxation, 4th Ed., p. 67) since
the inherent power to tax vested in the legislature
includes the power to determine who to tax, what to
tax and how much tax is to be imposed. "
27
2
^W&l Bar Examination; Question No. 1, 2000 Bar Examination.
U.S. 4 Wheat, 316, 4 I / E d . 579.
^Tolentino, et al. v. Secretary of Finance, 235 SCRA 630.
27
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G E N E R A L PRINCIPLES
19
However, instead of being regarded as a blanket
authorization of the unrestrained use of the taxing
power for any and all purposes, it is more reasonable
to say that the maxim "the power to tax is the power to
destroy" is to describe not the purposes for which the
taxing power may be used but the degree of vigor with
which the taxing power may be employed in order to
raise revenue. (1 Cooley, 179-181)
The power to tax includes the power to destroy if
it is used validly as an implement of the police power
in discouraging and in effect, ultimately prohibiting
certain things or enterprises inimical to the public
welfare, x x x But where the power to tax is used solely
for the purpose of raising revenues, the modem view
is that it cannot be allowed to confiscate or destroy. If
this is sought to be done, the tax may be successfully
attacked as an inordinate and unconstitutional exercise
of the discretion that is usually vested exclusively in
the legislature in ascertaining the amount of the tax.
(Cruz, Constitutional Law, 2000 Ed., p. 87)
It is not the purpose of the government to throttle
private business. On the contrary, the government
ought to encourage private enterprise. Taxpayer, just
like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business.
As aptly held in Roxas, et al. v. CTA, et al.:
"The power of taxation is sometimes called
also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the
propriety rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector
kill the 'hen that lays the golden egg.'"
Legitimate enterprises enjoy the constitutional
protection not to be taxed out of existence. Incurring
losses because of a tax imposition may be an acceptable
consequence but killing the business of an entity is
another matter and should not be allowed. It is counter-
20
TAX PRINCIPLES AND REMEDIES
productive and ultimately subversive of the nation's
thrust towards a better economy which will ultimately
benefit the majority of our people. (Philippine Health
Care Providers, Inc. v. Commissioner of Internal Revenue,
600 SCRA 413, 442-444, [2009])
Judicial Review
of Taxation
While taxation is said to be the power to destroy,
it is by no means unlimited. When a legislative body
having the power to tax a certain subject matter
actually imposes such a burdensome tax as effectually
to destroy the right to perform the act or to use the
property subject to the tax, the validity of the enactment
depends upon the nature and character of the right
destroyed. If so great an abuse is manifested as to
destroy natural and fundamental rights which no free
government could consistently violate, it is the duty
of the judiciary to hold such an act unconstitutional.
(Ibid.) Hence, the modification: "The power to tax is not
the power to destroy while the Supreme Court sits." So
it is in the Philippines.
The Constitution as the fundamental law overrides any legislative or executive act that runs counter to
it. In any case, therefore, where it can be demonstrated
that the challenged statutory provision fails to abide
by its command, then the court must so declare and
adjudge it null. "
2
In the exercise of such a delicate power, however,
the admonition of Cooley on inferior tribunals is wellworth remembering. Thus: "It must be evident to any
one that the power to declare a legislative enactment
void is one which the judge, conscious of the fallibility
of the human judgment, will shrink from exercising
in any case where he can conscientiously and with
due regard to . duty and official oath decline the
"Antero Sison, Jr. v. Ancheta, et al., 130 SCRA 654.
21
CHAPTER I
G E N E R A L PRINCIPLES
responsibility." (Cooley on Constitutional Limitations, Vol.
1,8th Ed., 332,11927]) While it remains undoubted that
such a power to pass on the validity of the ordinance
alleged to infringe certain constitutional rights of
a litigant exists, still it should be exercised with due
care and circumspection, considering not only the
presumption of validity but also the relatively modest
rank of a city court in the judicial hierarchy.
30
B.
Assessment and Collection
The act of assessing and collecting taxes is administrative in character, and therefore can be delegated.
Nonetheless, the legislative body has laid down certain rules governing the assessment and collection of
taxes in order to prevent its abuse.
First, the tax law must designate which agency
will collect the taxes. Usually, the Bureau of Internal
Revenue and/or the Secretary of Finance wield this
power.
Second, the circulars or regulations issued by the
Secretary of Finance or the Commissioner of the Internal Revenue must be in accordance with the tax measures imposed by Congress.
Note that the power of taxation should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the
"hen that lays the golden egg." (Antonio Roxas, et al. v.
Court of Tax Appeals, L-25043, April 26, 1968, 23 SCRA
276)
C.
Payment
This signifies an act of compliance by the taxpayer.
" C i t y of Baguio v. De Leon, 25 S C R A 938.
TAX PRINCIPLES AND REMEDIES
PURPOSES OF TAXATION
A.
The primary purpose of taxation is to raise revenues.
"For the support of government and for all public
needs," is according to Judge Cooley, the purpose
of taxes." And so it has been widely believed that
the primary purpose of taxation is to raise funds or
property to enable the State to promote the general
welfare and protection of its citizens. (52 Am. Jur. 34)
This was emphasized anew in the renowned case
of Hon. Ramon Bagatsing, et al. v. Hon. Pedro Ramirez,*
where the tax ordinance enacted by the Municipal Board
of Manila was assailed as not being a "tax ordinance,"
because the imposition of rentals, permit fees, tolls and
other fees is not strictly a taxing power but a revenue
raising function. The Supreme Court observed that the
pretense bore its own marks of fallacy. Precisely, the
raising of revenues is the principal object of taxation.
B.
Secondary or non-revenue purposes
33
But, must an imposition, in order to be a tax, be
levied solely for the purposes of revenue? The answer
is a resounding NO.
Other than to answer the ever-present need
for revenues, taxation also seeks to: (1) reduce
social inequality, (2) encourage the growth of local
industries, (3) protect our local industries against
unfair competition, (4) implement the police power of
the state (regulatory purpose).
(1) Reduction of Social Inequality
34
Our present tax system has adopted the
progressive system of taxation, i.e., the tax rate
increases as the tax base increases. This system
"1 Cooley 66.
" 7 4 SCRA 306.
"Question No. 1,1991 Bar Examination.
1 9 7 6 Bar Examination.
M
23
CHAPTER I
G E N E R A L PRINCIPLES
aims at reducing the inequality in the distribution
of wealth by preventing its undue concentration
in the hands of a few individuals.
To illustrate: An estate tax is imposed upon
the property left by the decedent. The proceeds of
that tax will be used to finance the projects of the
government such as building low-cost houses for
the less privileged.
(2) Encourage the Growth of Local Industries
It is a settled rule that the power to tax carries
with it the power to grant tax exemptions. Tax
exemptions and tax reliefs serve as incentives to
encourage investment in our local industry and
thereby promote economic growth.
(3) Protect our
Competition
Local
Industry
Against
Unfair
The Tariff and Customs Code allows the
imposition of certain taxes (countervailing and
dumping duties) upon imported goods or articles
to further protect our local industry. R.A. 8752
(Anti-Dumping Act) imposes stricter conditions.
(4) As an Implement of the Police Power of the State
(Regulatory Measure)
The power of taxation may be used as
an implement of the police rJbwer of the State
through the imposition of taxes with the end in
view of regulating a particular activity.
In the case of Tio v. Videogram Regulatory
Board* the Supreme Court maintained the validity of the challenged statute (P.D. 1987 entitled
"An Act Creating the Videogram Regulatory
Board"), seeing the need to impose taxes upon
the video industry as a regulatory measure,
" 1 5 1 S C R A 208.
24
TAX PRINCIPLES AND REMEDIES
considering "the unfair competition posed by
rampant film piracy; the erosion of the moral
fiber of the viewing public brought about by
the availability of unclassified and unreviewed
video tapes containing pornographic films and
films with brutally violent sequences; and losses
in government due to the drop in theatrical
attendance."
Likewise, in the case of Manila Race Horse
Trainers Association v. De La Fuente* the Court
upheld the validity of an ordinance taxing
boarding stables of race horses because "(R)ace
horses are devoted to gambling, if legalized, their
owners derive fat income and the public hardly
any profit from horse racing, and this business
demands relatively heavy police supervision."
37
Still, in the celebrated case of Lutz v. Araneta
which challenges the constitutionality of Sees. 2
and 3, C.A. 567, providing for an increase in the
existing tax on the manufacture of sugar in issue,
it was held that:
the tax is levied with a regulatory purpose
— to provide means for the rehabilitation
and stabilization of the threatened sugar
industry. As the protection and promotion
of the sugar industry is a matter of public
concern, the Legislature may determine
within reasonable bounds what is necessary
for its protection and expedient for its
promotion. Here, the legislative discretion
must be allowed full play, subject only to the
test of reasonableness; and it is not contended
that the means provided in Section 6 of C.A.
567 bear no relation to the objective pursued
" 8 8 Phil. 60.
"Supra.
CHAPTER I
G E N E R A L PRINCIPLES
25
or are oppressive in character. If objective
and methods are alike constitutionally valid,
no reason is seen why the state may not levy
taxes to raise funds for their prosecution
and attainment. Taxation may be made the
implement of the State's police power.
But it must be stressed that the power of taxation,
sometimes also called the "power to destroy," should
be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg." (Antonio Roxas, et al.
v. Court of Tax Appeals, L-25043, April 26,1968, 23 SCRA
276)
May the power of taxation be used as an implement
of the power of eminent domain?
YES. The Supreme Court in the case of CIR v.
Central Luzon Drug Corp. [456 SCRA 414, 445] held: Tax
measures are but "enforced contributions exacted on
pain of penal sanctions" and "clearly imposed for a
public purpose. In recent years, the power to tax has
indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution
of wealth.
While it is declared commitment under Section 1
of R.A. No. 7432, social justice "cannot be invoked to
trample on the rights of property owners who under
our Constitution and laws are also entitled to protection. The social justice consecrated in our [CJonstitution [is] not intended to take away rights from a person
and give them to another who is not entitled thereto.
For this reason, a just compensation for income that
is taken away from respondent (Central Luzon Drug
Corp.) becomes necessary. It is in the tax credit that our
legislators find support to realize social justice, and no
administrative body can alter the fact."
TAX PRINCIPLES AND REMEDIES
. EXTENT OF THE TAXING POWER*
The power of taxation reaches to every trade or occupation; to every object of industry, use, enjoyment; to every
species of possession, and it imposes a burden which in case
of failure to discharge the same may be followed by seizure,
confiscation or forfeiture of the property.
Taxation is said to be —
—
COMPREHENSIVE, as it covers persons, businesses,
activities, professions, rights and privileges.
—
UNLIMITED.
The taxing power's reign is illustrated in the case of
Tio v. Videogram Regulatory Board, where the Supreme Court
upheld the constitutionality of a law, ruling that a tax does
not cease to be valid merely because it regulates, discourages,
or even definitely deters the activities taxed. The power to
impose taxes is one so unlimited in force and so searching
in extent that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in
the discretion of the authority which exercises it.
39
—
PLENARY, as it is complete. Under the NIRC, the BIR
may avail of certain remedies to ensure the collection
of taxes. (This shall be discussed in a separate chapter
on Remedies.)
—
SUPREME.
Taxation, although referred to as the strongest of all
the powers of the government, cannot be interpreted to
mean that it is superior to the other inherent powers of the
government. It is supreme insofar as the selection of the
subject of taxation is concerned.
40
"Question 1(a), 2005 Bar Examination; Question No. 1, 2000 Bar Examination.
"Supra.
"Supra.
CHAPTER I
G E N E R A L PRINCIPLES
27
VII. PRINCIPLES OF A SOUND TAX SYSTEM"
1.
Fiscal Adequacy
Sources of revenues must be adequate to meet
government expenditures (Chavez v. Ongpin, 186 SCRA
331), and other public needs. This is in consonance
with the doctrine that taxes are the lifeblood of the
government.
2.
Theoretical Justice
A sound tax system must take into consideration
the taxpayers' ability to pay. Our laws mandate that
taxes must be reasonable, just, fair, conscionable.
Under Art. VI, Section 28(1) of the Constitution, the
rule of taxation must be uniform and equitable. The
State must evolve a progressive system of taxation.
Taxation is said to be equitable when its burden
falls on those better able to pay; taxation is progressive
when its rate goes up depending on the resources of
the person affected.
42
3.
Administrative Feasibility
Tax laws must be capable of effective and efficient
enforcement. They must not obstruct business growth
and economic development.
In Kapatiran Ng Mga Naglilingkod sa Pamahalaan v.
Tan,° the Supreme Court, in upholding the validity of
the VAT law, held that the law "is principally aimed to
rationalize the system of taxes on goods and services;
simplify tax administration, and make the system more
equitable to enable the country to attain economic
recovery."
The principle requires that each tax should be clear
and plain to the taxpayers, capable of enforcement by
4,
1 9 7 3 Bar Examination.
^Fernando, The Constitution of the Philippines, 2nd Ed., p. 221.
*»163 S C R A 3 7 1 .
TAX PRINCIPLES AND REMEDIES
an adequate and well-trained staff of public officials,
convenient as to time and manner of payment, and not
duly burdensome upon or discouraging to business
activity. (Report of the Tax Commission of the Philippines,
February 1939, Vol. 1, pp. 23-31)
Q. Will a violation of these principles invalidate a
tax law?
IT DEPENDS. A tax law will retain its validity
even if it is not in consonance with the principles of
fiscal adequacy and administrative feasibility because
the Constitution does not expressly require so. These
principles are only designed to make our tax system
sound. However, if a tax law runs contrary to the
principle of theoretical justice, such violation will
render the law unconstitutional considering that under
the Constitution, the rule of taxation should be uniform
and equitable. (Sec. 28[1], Art. VI, 1987 Constitution)
VIII. TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND IMPOSITIONS
A.
Taxation distinguished from Police Power
(1)
As to PURPOSE
Taxation is levied for the purpose of raising
revenues; Police power is exercised to promote
public welfare through regulation.
(2) As to AMOUNT OF EXACTION
The amount gathered in the exercise of
Taxation contemplates of no limits; in Police
power, the exaction is limited to the cost of
regulation, issuance of the license, or surveillance.
(3)
As to the BENEFITS RECEIVED BY THE
TAXPAYER
In Taxation, no special or direct benefit is
received by the taxpayer other than the fact that
the government secures to the citizen that general
CHAPTER I
G E N E R A L PRINCIPLES
29
benefit resulting from the protection of his person
and property and the welfare of all. (51 Am. Jur.
42-43)
Similarly, no direct benefits are received
through the exercise of Police power, yet a healthy
economic standard of society is maintained.
(4)
As to SUPERIORITY OF CONTRACTS
Taxation recognizes the obligations imposed
by contracts. (Art. Ill, Sec. 10, Constitution) This
limitation does not apply to Police power.
(5)
As to TRANSFER OF PROPERTY RIGHTS
In Taxation, the taxes paid form part of the
public funds, whereas Police power allows merely
the restraint on the exercise of property rights.
B.
Taxation and the Power of Eminent Domain
(1)
As to PURPOSE
Taxation is exercised in order to raise public
revenue; Eminent domain or expropriation is the
taking of property for public use.
(2)
As to COMPENSATION
Payment of taxes accrue to the general benefit
of the citizens of the taxing state; in Eminent
domain, just compensation is given the owner of
the expropriated property.
(3)
As to PERSONS AFFECTED
Taxation applies to all persons, property
and excises that may be subject thereto; in
Eminent domain, only particular property is
comprehended.
C.
Taxes Distinguished from Other Impositions
1.
Tax and Special Assessment
A special assessment is in the nature of a
tax upon property levied according to benefits
TAX PRINCIPLES AND REMEDIES
conferred on the property. The whole theory of a
special assessment is based on the doctrine that
the property against which it is levied derives
some special benefit from the improvement.
The distinctions between a special assessment
and a tax are:
a)
a special assessment can be levied only on
land;
b)
a special assessment cannot, as a rule, be
made a personal liability of the persons
assessed;
c)
a special assessment is based wholly on benefits; and
d)
a special assessment is exceptional both
as to time and locality. The imposition of a
charge on all property, real and personal, in
a prescribed area, is a tax, not an assessment,
although the purpose is to make a local improvement on a street or highway. A charge
imposed only on property owners benefited
is a special assessment rather than a tax.
The power to levy such assessments is
undoubtedly an exercise of the taxing power,
but the exercise of the taxing power in imposing an assessment does not necessarily
make the assessment a tax. (1 Cooley, 106107)
Tax and License
a)
A Tax is levied in the exercise of the taxing
power; License fees emanate from the police
power of the state;
b)
The purpose of the tax is to generate revenues; License fees are imposed for regulatory
purposes. (Victorias Milling Co. v. Municipality of Victorias, L-21183, September 27,1968)
CHAPTER I
G E N E R A L PRINCIPLES
3.
31
c)
The amount of the exaction or charge if it is
to be a license fee must only be of sufficient
amount to include expenses of issuing a license; cost of necessary inspection or police
surveillance. (Cu Unjeng v. Patstone, 42 Phil.
818; City oflloilo v. Villanueva, 105 Phil. 337)
d)
The imposition is a tax, if its primary purpose is to generate revenue, and regulation
is merely incidental; but if regulation is the
primary purpose, the fact that incidental
revenue is also obtained does not make the
imposition a tax. (PDC v. Quezon City, 172
SCRA 629)
e)
In Gerochi v. Department of Energy [527 SCRA
696, 715-717], the Supreme Court held that
in exacting the Universal Charge through
Section 34 of the Electric Power Industry Reform Act of 2001 (EPIRA), the State's police
power, particularly its regulatory dimension
is invoked. Such can be deduced from Section 34 which enumerates the purposes for
which the Universal Charge is imposed and
which can be amply discerned as regulatory
in character. From the said purposes, it can be
gleaned that the assailed Universal Charge is
not a tax, but an exaction in the exercise of
the State's police power.
Tax and Toll
Toll is a demand of proprietorship, an
amount charged for the cost and maintenance of
the property used; Tax is a demand of sovereignty
for the purpose of raising public revenues.
4.
Tax and Penalty
Tax is a civil liability. A person is criminally
liable in taxation only when he fails to satisfy his
civil obligation to pay taxes. (Republic v. Patanao,
L-22356, July 21, 1967)
TAX PRINCIPLES AND REMEDIES
32
A Penalty is a punishment for the commission
of a crime.
5.
Tax and Debt
A tax is not a debt for the reason that a tax
does not depend upon the consent of the taxpayer
and there is no express or implied contract to pay
taxes. Taxes:
(1) are not contracts between the parties, either
expressed or implied; but they are the
positive acts of the government through its
various agents, binding upon the inhabitants,
and to the making and enforcing of which
their personal consent individually is not
required;
(2) cannot be assigned as debts, or be proved in
bankruptcy as such; nor, if uncollected, are
the assets which can be seized by attachment
or other judicial processes, and subjected to
the payment of municipal indebtedness;
(3) are not the subject of set-off either on behalf
of the state or the municipality for which
they are imposed, or of the collector, or on
behalf of the person taxed, as against such
state, municipality or collector;
44
(4) do not draw interest, as do sums of money
owing upon a contract.
45
According to Judge Cooley, the proceedings to collect taxes are not barred by
the ordinary statutes of limitation; the law
abolishing imprisonment for debt has no
application to taxes and the remedies for
their collection may include an arrest if the
legislature so provides.
"Question 1(b), 2005 Bar Examination.
"1 Cooley 88-92.
CHAPTER I
G E N E R A L PRINCIPLES
33
CASES FOR STUDY
(On Tax and Debt)
FRANCIA v. INTERMEDIATE
APPELLATE COURT, et al
162 SCRA 753"
Francia contends that his tax delinquency of
P2,400.00 has been extinguished by legal compensation.
He claims that the government owed him P4,116.00
when a portion of his land was expropriated on
October 15, 1977. Hence, his tax obligation had been
set-off by operation of law as of October 15,1977.
There is no legal basis for the contention. We
have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay
a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a
lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co.
(4 SCRA 622), this Court ruled that Internal Revenue
Taxes can not be the subject of set-off or compensation.
We stated that:
"A claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude
the remedy in an action or any indebtedness of
the state or municipality to one who is liable to
the state or municipality for taxes. Neither are
they a proper subject of recoupment since they do
not arise «»t of the contract or transaction sued on
...(80 C.J.S. 73-74).
'•Question 3(b), 1996 Bar Examination.
34
TAX PRINCIPLES AND REMEDIES
"The general rule based on grounds of public
policy is well-settled that no set-off is admissible
against demands for taxes levied for general
or local governmental purposes. The reason on
which the general rule is based, is that taxes are
not in the nature of contracts between the party
but grow out of duty to, and are the positive acts
of the government to the making and enforcing
of which, the personal consent of individual
taxpayers is not required..."'
This rule was reiterated in the case of Cordero v.
Gonda (18 SCRA 331) where we stated that: " . . . internal
revenue taxes can not be the subject of compensation."
REASON:
Government and taxpayer 'are not mutually
creditors and debtors of each other' under Article 1278
of the Civil Code and a "claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be
set-off."
MELECIO R. DOMINGO v.
LORENZO C. GARLITOS
8 SCRA 443
The court having jurisdiction of the estate
had found that the claim of the estate against the
Government has been recognized and an amount
of P262,200 has already been appropriated for the
purpose by a corresponding law. (R.A. 2700) Under
the above circumstances, 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, in accordance with the provisions of Articles
1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount.
CHAPTER I
G E N E R A L PRINCIPLES
35
PHILEX MINING CORP. v. CIR
294 SCRA 687"
There is a material distinction between a tax and a
debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its
sovereign capacity.
xxx
In the instant case, the claim of Philex for VAT
refund is still pending litigation, and still has to be
determined by the CTA. A fortiori, the liquidated debt
of Philex to the government cannot, therefore, be set-off
against the unliquidated claim which Philex conceived
to exist in its favor.
DC.
LIMITATIONS ON THE TAXING POWER
As the areas which "used to be left to private enterprise
and initiative and which the government was called upon to
enter optionally, and only 'because it was better equipped to
administer for the public welfare than any private individual
or group of individuals' continue to lose their well-defined
boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is
to meet the increasing social challenges of the times," there
arises a need for more revenues in order to meet the needs
of an ever-widening scope of state activity.
48
And with this pervasive power comes the realization
that taxation may mean the ruin or the prosperity of a nation,
if no limitation for its use is exercised. Thus the power of
taxation, for all its plenitude, is not without restrictions.
These limitations are classified as Inherent Limitations and
Constitutional Limitations.
"Question No. 1, 2001 Bar Examination.
"Chief Justice Makalintal, quoted from the case of Antero M. Sison, jr. v. Ruben
Ancheta, et al., supra, p. 660.
4
TAX PRINCIPLES AND REMEDIES
36
A.
Inherent Limitations on the Power to Tax
These limitations proceed from the very nature of the
taxing power itself. These are: public purpose, international
comity, territoriality, non-delegation of the power to tax, and
the various tax exemptions granted government agencies or
instrumentalities.
1.
PUBLIC PURPOSE
Taxes are exacted only for a public purpose
An inherent limitation on the power of taxation
is public purpose. Taxes are exacted only for a public
purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.
The reason for this is simple. The power to tax exists
for the general welfare; hence, implicit in its power is
the limitation that it should be used only for a public
purpose. It would be a robbery for the State to tax
its citizens and use the funds generated for a private
purpose. As an old United States case bluntly put it: "To
lay with one hand, the power of the government on the
property of the citizen, and with the other to bestow
it upon favored individuals to aid private enterprises
and build up private fortunes, is nonetheless a robbery
because it is done under the forms of law and is called
taxation."
The term "public purpose" is not defined. It is
an elastic concept that can be hammered to fit modern
standards. Jurisprudence states that "public purpose"
should be given a broad interpretation. It does not
only pertain to those purposes which are traditionally
viewed as essentially government functions, such
as building roads and delivery of basic services, but
also includes those purposes designed to promote
social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing
and urban or agrarian reform. [Planters Products, Inc. v.
Fertiphil Corporation, 548 SCRA 485 (2008)]
CHAPTER I
G E N E R A L PRINCIPLES
37
A revenue measure must stand the first requisite
of a lawful taxation — that the purpose for which it
is laid be a public purpose. The legislature is bereft
of power to appropriate revenues for anything other
than a public purpose. Where an assailed tax measure
is not for a public purpose, such an act is tantamount
to confiscation of property, though done in the guise of
law, and the taxpayer may rightly invoke the law for
his protection. This appeal to the law for the protection
of the individual's property would then place the issue
within the ambit of the judiciary.
Justice Isagani Cruz defines 'public purpose' as
embracing not merely direct public benefit or advantage but also indirect public benefit.
Who may determine 'public purpose'
This is a legislative prerogative. The power to
determine whether the purpose of taxation is public
or private resides in Congress. The independence
of die Legislature is an axiom in government; to be
independent, it must act on its own good time, on its
own judgment, influenced by its own reason, restrained
only as the people may have seen fit to restrain the
grant of legislative power in making it.*"
However, this will not prevent the court from
questioning the propriety of such a statute on the
ground that the law enacted is not for a public purpose;
but once it is settled that the law is for a public purpose,
the court may no longer inquire into the wisdom,
expediency or necessity of such tax measure.
Purpose when deemed 'public'
It is the purpose which determines the public
character of the tax law, not the number of persons
benefited. As long as the ultimate result favors the
*1 Cooley Taxation, 395-398.
TAX PRINCIPLES A N D REMEDIES
38
welfare of the public in general, the appropriation of a
public revenue is deemed done for a public purpose.
Upon this point, the 20% discount privilege
(mandated by R.A. 7432, as amended by R.A. 9257) to
which senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens
belong. (CIR v. Central Luzon Drug Corporation, 456
SCRA 414, 444)
Cases of "Public Purpose"
a.
Public Improvement
b.
Unemployment relief
c.
Buildings and roads / Infrastructure
d.
Local police forces (subsidies) under R.A.
6141
e.
Industries classified as indispensable under
P.D. 1987
f.
Construction of home sites
g.
Promotion of science and invention
h.
Upliftment of the underprivileged
i.
Rehabilitation of the sugar industry
j.
Pensions to deserving retirees
k.
Oil industry's protection
1.
Socialized housing
m.
Educational subsidy
CASES FOR STUDY
BENJAMIN GOMEZ v. ENRICO
PALOMAR, et al.
25 SCRA 827
Petitioner questions the constitutionality of R.A.
1635 mandating the bearing of Anti-TB stamps on
CHAPTER I
G E N E R A L PRINCIPLES
39
envelopes, as well as its implementing administrative
orders, contending that it is not for a public purpose.
HELD:
R.A. 1635 is valid.
The eradication of a dreaded disease is a public
purpose, but if by public purpose the petitioner means
benefit to a taxpayer as a return for what he pays, then
it is sufficient answer to say that the only benefit to
which the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of living
in an organized society, established and safeguarded
by the devotion of taxes to public purposes.
The money raised from the sale of the Anti-TB
stamps is spent for the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General points
out, the society is not really the beneficiary but only
the agency through which the State acts in carrying
out what is essentially a public function. The money is
treated as a special fund and as such need not be appropriated by law.
WALTER LUTZ v. J. ANTONIO ARANETA
98 Phil. 148
Plaintiff Lutz assailed the constitutionality of
Sections 2 and 3, C.A. 567 which provided for an increase of the existing tax on the manufacture of sugar,
alleging such tax as unconstitutional and void for not
being levied for a public purpose but for the aid and
support of the sugar industry exclusively.
HELD:
The protection and promotion of the sugar industry is a matter of public concern the Legislature may
determine within reasonable bounds what is necessary for its protection and expedient for its promotion.
TAX PRINCIPLES AND REMEDIES
40
Here, the legislative discretion must be allowed full
play, subject only to the test of reasonableness; and it
is not contended that the means provided in Section 6
of C.A. 567 bear no relation to the objective pursued or
are oppressive in character. If objective and methods
are alike constitutionally valid, no reason is seen why
the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the
implement of the State's police power.
VALENTIN TIO v. VIDEOGRAM
REGULATORY BOARD
151 SCRA 208
The Supreme Court held the levy of 30% tax
under P.D. 1987 as for a public purpose, and therefore
a valid imposition. The law, according to the Court,
was imposed primarily for answering the need for
regulating the video industry, particularly because
of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of
pornographic video tapes. Hence, while the direct
beneficiaries of the said decree is the movie industry,
the citizens are held to be its indirect beneficiaries.
CITY OF BAGUIO v. FORTUNATO
DE LEON
25 SCRA 938
Defendant-appellant De Leon, a real estate dealer, assailed the validity of an ordinance of the City of
Baguio imposing a license fee on any person, firm,
entity, or corporation doing business in the City of
Baguio.
HELD:
Republic Act No. 329 was enacted amending
Section 2553 of the Revised Administrative Code,
empowering the City Council not only to impose
a license fee but also to levy a tax for purposes of
CHAPTER I
G E N E R A L PRINCIPLES
41
revenue. Thus, the City Council of Baguio now has the
power to tax, to license, and to regulate all businesses,
trades, and occupations therein. The ordinance under
consideration, therefore, cannot be considered ultra
vires.
HON. RAMON BAGATSING, et al. v.
HON. PEDRO RAMIREZ, et al.
74 SCRA 306
The delegation of the collection of market stall
fees to a private corporation affect the public purpose
of the imposition. In upholding the validity of the tax
ordinance, the Supreme Court held that, "The fees
collected do not go direct to the private coffers of
the corporation. Ordinance No. 7522 was not made
for the corporation but for the purpose of raising
revenues for the city. That is the object that it serves.
The entrusting of the collection of the fees does not
destroy the public purpose of the ordinance. So long
as the purpose is public, it does not matter whether
the agency through which the money is dispensed is
public or private. The right to tax depends upon the
ultimate use, purpose and object for which the fund is
raised. It is not dependent on the nature or character of
the person or corporation whose intermediate agency
is to be used in applying it. The people may be taxed
for a public purpose, although it be under the direction
of an individual or private corporation."
PASCUAL v. SECRETARY OF PUBLIC WORKS
110 Phil. 331
Nevertheless, in the case of Pascual v. Secretary of
Public Works which challenges the law appropriating a
certain amount for the construction of a feeder road on
a land owned by a private individual, the Court held
the law to be an invalid imposition since it results in
the promotion of a private enterprise, it benefits the
property of a particular individual. The provision that
TAX PRINCIPLES AND REMEDIES
42
the land shall thereafter be donated to the government
does not cure this defect. The rule is that, if the public
advantage or benefit is merely incidental in the
promotion of a particular enterprise, such defect shall
render the law invalid. On the other hand, if what is
incidental is the promotion of a private enterprise, the
tax law shall be deemed "for a public purpose."
2.
INTERNATIONAL COMITY
Basis of this Rule
Under Section 2, Article II of our Constitution, the
Philippines "adopts the generally accepted principles
of international law as part of the law of the land,
and adheres to the policy of peace, equality, justice,
freedom, cooperation, and amity with all nations."
One principle of international law which has attained
wide recognition is the principle of Sovereign Equality
Among States. According to this principle, "states are
juridically equal, enjoy the same rights, and have equal
capacity in their exercise. The rights of each one do not
depend upon the power which it possesses to assure
its exercise, but upon the simple fact of its existence
as a person under international law." This principle,
in turn, finds its roots in the rule of par in parem non
habet imperium, where even the strongest state cannot
assume jurisdiction over another state, no matter how
weak, or question the validity of its acts in so far as
they are made to take effect within its own territory. All
states, including the smallest and least influential, are
also entitled to their dignity and the protection of their
honor and reputation.
50
To illustrate: If a tax law is passed imposing taxes
on the income of foreign ambassadors or imposing
real property tax upon foreign embassies, this is NOT
" A provision from the Montevideo Convention of 1933, as culled from the book
of Justice Isagani Cruz, International Law, 1993 Edition (Quezon City; Central Lawbook
Publishing Co., Inc.), p. 106.
CHAPTER I
G E N E R A L PRINCIPLES
43
a valid law because the imposition is in violation of
the universal principles of international law. Under
international laws, foreign embassies are considered
extensions of the territoriality of the foreign states; to
impose taxes upon them would be tantamount to an
exercise of jurisdiction over these foreign states.
3.
TERRITORIALITY
Since laws cease to operate beyond a country's
jurisdictional limits, the taxing power of a country is
likewise limited to person and property within and
subject to its jurisdiction. This same rule applies to the
taxing power of a territory.
Rules Observed in Fixing Tax Situs
1.
POLL/CAPITATION/COMMUNITY TAX
Poll or capitation, or community taxes are
based upon the residence of the taxpayer, regardless of the source of income or location of the
property of the taxpayer.
2.
PROPERTY TAX
Real Property, where taxable
Real estate is subject to taxation in the state or
country where it is located, regardless of whether
the owner is a resident or a non-resident. (First
National Bank v. Maine, 284 U.S. 312. 77 ALR 401)
Personal property, where taxable
On the other hand, the situs of personal property, wherever it was actually kept or located, was
held to be at the domicile of its owner, following
the age-old doctrine of mobilia sequuntur personam.
Domicile
The domicile of a person is the place which
constitutes the principal seat of his residence,
44
TAX PRINCIPLES AND REMEDIES
his business, his pursuits, his connections, his
attachments and his political relations. It embraces
the fact of residence at a place with the intent to
regard it and make it a home and live there for
an indefinite time. To establish a domicile, the act
and the intent must concur. There must be the fact
of living in a place with the intent to make it one's
home. (26 R.C.L., pp. 274-275)
Mobilia Sequuntur Personam"
Movables follow the person. Although a mere
fiction of law, without any constitutional foundation,
it is nevertheless applied when convenient, provided
it is not inconsistent with express provisions of the
law, or when its application would result in injustice,
or unless such property has acquired an actual situs
elsewhere. To acquire a situs in a state other than the
domicile of the owner, tangible property must have a
definite location there, accompanied by some degree of
permanency; mere temporary or transient presence in
the state is not sufficient. (26 R.C.L. pp. 278-279; 51 Am.
Jur. 466-468; Union Trust v. Collector)
Thus, in cases of shares of stock, its situs for
the purposes of taxation is the state in which they
are permanently kept regardless of the domicile of
the owner or the state in which the corporation was
organized. (51 Am. Jur. 502) This is best illustrated
in the case of Wells Fargo Bank v. Collector- where the
Supreme Court ruled that the shares of stock left
by a non-resident alien decedent in an anonymous
partnership in the Philippines are subject to Philippine
inheritance tax notwithstanding the mobilia rule.
According to the Court, the mobilia rule should yield to
reason. The shares of stock are also taxable in the situs
of their actual location, i.e., the Philippines.
1
"Question No. 2, 1994 Bar Examination.
°70 Phil. 235.
CHAPTER I
G E N E R A L PRINCIPLES
45
NOTE:
Section 104, Republic Act 8424 enumerates certain
properties which have acquired actual situs in the
Philippines, viz.:
a.
franchise exercised in the Philippines;
b.
shares of stock, obligations, bonds issued by
domestic corporations organized and constituted
in accordance with Philippine laws;
c.
shares, obligations, bonds issued by a foreign
corporation where 85% of its business is located
in the Philippines. It is subject to donor's tax and
estate tax;
d.
Shares, obligations, bonds issued by foreign
corporations which has acquired business situs,
when such have been used in the furtherance of
the business of the foreign corporation;
e.
Shares/rights in a partnership business or industry established in the Philippines.
These properties are considered as situated, thus
taxed, in the Philippines; the residence of their owners
is immaterial.
Thus, the RULE: Irrespective of the owner,
donor's tax or estate tax can be imposed upon these
properties.
EXCEPT where the foreign country grants
exemption or does not impose taxes on intangible properties of Filipino citizens.
TO ILLUSTRATE:
As a general rule, donation of shares of stocks
made by a foreign corporation are not subject to tax.
However, if the transaction falls under paragraph c
or d (see enumeration above), the donation shall be
subject to tax."
" Q u e s t i o n No. 5 , 1 9 % Bar Examination.
TAX PRINCIPLES AND REMEDIES
The income of intangible properties like royalties
and dividends are subject to taxes. (Sees. 24[c], 25, 27,
28, Republic Act 8424)
EXCISE TAX
Excise taxes are taxes imposed on the exercise of
a right or privilege.
A.
Income Tax (Section 23, R.A. 8424)
(CRITERIA:
DENCE)
•
—
•
—
•
—
PLACE,
NATIONALITY,
RESI-
Place — applied to
a.
Non-resident alien
b.
Non-resident foreign corporations
c.
Non-resident citizen
taxed upon sources of income derived from
within the Philippines.
Nationality — applied to
a.
Resident citizen
b.
Domestic corporation
taxed upon sources of income derived from
within and without the Philippines
Residence — applied to
a.
Resident alien
b.
Resident Foreign Corporation
taxed upon income derived from sources
within the Philippines
COMMISSIONER v. BOAC
149 SCRA 395
"The source of an income is the property, activity or service that produces the income. For the source
of income to be considered as coming from the Philip-
CHAPTER I
G E N E R A L PRINCIPLES
47
pines, it is sufficient that the income is derived from
activity within the Philippines, x x x"
B.
Donor's Tax (Sections 98,104, RA.. 8424)
(CRITERIA:
DENCE)
•
Non-resident alien — tax based upon
properties situated within the Philippines
Resident and non-resident citizen — tax
based upon properties wherever situated
Residence
a.
C.
RESI-
Nationality
a.
•
NATIONALITY,
Place
a.
•
PLACE,
Resident alien — tax based upon properties wherever situated
Estate tax (Sections 85,104, RA. 8424)
(CRITERIA:
DENCE)
•
PLACE,
NATIONALITY,
RESI-
Place
a.
•
Non-resident aliens — are taxed on
properties situated within the Philippines
Nationality
a.
•
Residence
a.
D.
Resident and non-resident citizen — are
taxed upon their properties wherever
situated
Resident alien — taxes imposed upon
properties wherever situated
Value Added Tax (Section 105, R J \ . 8424)
Its tax situs is the place where the transaction
is made. If the transaction is made (perfected and
TAX PRINCIPLES AND REMEDIES
consummated) outside of the Philippines, we can
no longer tax such a transaction.
CASE FOR STUDY
ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION v.
COMMISSIONER OF INTERNAL REVENUE
524 SCRA 73,103 (2007)
x x x According to the Destination Principle,
goods and services are taxed only in the country
where these are consumed. In connection with the said
principle, the Cross Border Doctrine mandates that no
VAT shall be imposed to form part of the cost of the
goods destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of
goods and services from the Philippines to a foreign
country must be free of VAT while those destined for
use or consumption within the Philippines shall be
imposed with 10% VAT (Now 12% under R.A. No.
9337). Export processing zones are to be managed
as a separate customs territory from the rest of the
Philippines and, thus, for tax purposes, are effectively
considered as foreign territory. For this reason, sales by
persons from the Philippine customs territory to those
inside the export processing zones are already taxed as
exports.
NON-DELEGATION OF THE POWER TO TAX
The power to tax is exclusively vested in the
legislative body.
Exceptions
A. Article VI, Section 28(2) of the Constitution
The Congress may, by law, authorize the
President to impose tariff rates, import and
export quotas, etc. [custom duties], subject to the
limitations and guidelines as the Congress may
CHAPTER I
G E N E R A L PRINCIPLES
49
impose, consistent with the national development
program of the government.
B.
Article X, Section 5 of the Constitution
Each local government unit shall have the
power to create its own sources of revenue, fees,
charges, subject to such guidelines and limitations
as the Congress may provide consistent with the
basic policy of local autonomy. Such taxes, fees
and other charges shall accrue exclusively to the
local government. (See Sec. 133, R.A. 7160)
In Abakada Guro Party List v. Ermita [469 SCRA 1,
122,123-124], the Supreme Court sustained the constitutionality of R.A. 9337 authorizing the President to
increase the VAT rate from 10% to 12% effective January 1, 2006 upon recommendation of the Secretary of
Finance on the existence of either of the two conditions.
It ruled that the law leaves the entire operation or nonoperation of the 12% rate upon factual matters outside
of the control of the executive. No discretion would be
exercised by the President. Highlighting the absence of
discretion is the fact that the word shall is used in the
common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of
discretion, x x x In making his recommendation to the
President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter
ego of the President or even her subordinate. In such
instance, he is not subject to the power of control and
direction of the President. He is acting as the agent of
the legislative department, to determine and declare
the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means or
tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them.
TAX PRINCIPLES AND REMEDIES
50
CASES FOR STUDY
BOARD OF ASSESSMENT APPEALS
OF LAGUNA v. CTA
8 SCRA 224
In the absence of constitutional provision, the
power to tax may be delegated to local government
units in accordance with the well-settled doctrine
that the power to create local government units by
implication confers upon it the power to tax. So even
if no constitutional provision exists, local government
units still possess the power to tax.
PEPSI-COLA BOTTLING CO. OF THE PHILS,
v. CITY OF BUTUAN
24 SCRA 789
Petitioners assail the constitutionality of Municipal Ordinance No. 110, as amended by Mun. Ord. No.
122, on the ground that Sec. 2 of R.A. 2264, upon the
authority of which it is delegated, is an unconstitutional delegation of legislative powers.
HELD:
The general principle against delegation of
legislative powers, in consequence of the theory of
separation of powers (U.S. v. Bull, 15 Phil. 7,27; Kilbourn
v. Thompson, 103 U.S. 168, 26 I. ed. 377) is subject to one
well-established exception, namely: legislative powers
may be delegated to local governments.
PEPSI-COLA BOTTLING CO. OF THE
PHILS., INC. v. MUNICIPALITY
OF TANAUAN, LEYTE
69 SCRA 460
Pepsi-Cola challenges the power of taxation delegated to municipalities under the Local Autonomy Act.
HELD:
The power of taxation granted to municipalities
under the Local Autonomy Act is constitutional.
CHAPTER 1
G E N E R A L PRINCIPLES
51
The power of taxation is an essential and inherent
attribute of sovereignty, belonging as a matter of right
to every independent government, without being
expressly conferred by the people. (Cooley, The Law
of Taxation, Vol. I, 4th Ed.) It is a power that is purely
legislative and which the central legislative body
cannot delegate either to the executive or judicial power
of the government without infringing upon the theory
of separation of powers. The exception, however, lies
in the case of municipal corporations, to which said
theory does not apply. Legislative powers may be
delegated to local governments in respect of matters
of local concern. (Pepsi-Cola Bottling Co. of the Phils.,
Inc. v. City of Butuan, 24 SCRA 793) This is sanctioned
by immemorial practice. By necessary implication, the
legislative power to create political corporations for
purposes of self-government carries with it the power
to confer on such local government agencies the power
to tax. (Cooley, 190) x x x The plenary nature of the taxing
power thus delegated, contrary to plaintiff-appellanf s
pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. 'In delegating the authority,
the State is not limited to the exact measure of that which is
exercised by itself. When it is said that the taxing power may
be delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient.' Thus,
municipalities may be permitted to tax subjects which
for reasons of public policy the State has not deemed
wise to tax for more general purposes.
JOHN H. OSMENA v. OSCAR ORBOS
220 SCRA 703
The Supreme Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides a sufficient
standard by which the authority must be exercised.
TAX PRINCIPLES AND REMEDIES
For a valid delegation of power, it is essential that
the law delegating the power must be (1) complete in
itself, that is, it must set forth the policy to be executed
by the delegate and, (2) it must fix a standard — limits
of which are sufficiently determinate or determinable
— to which the delegate must conform.
. . . As pointed out in Edu v. Ericta: To avoid the
taint of unlawful delegation, there must be a standard,
which implies at the very least that the legislature
itself determines matters of principle and lays down
fundamental policy. Otherwise, the charge of complete
abdication may be hard to repel. A standard, thus,
defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply
it. It indicates the circumstances under which the
legislative command is to be effected. It is the criterion
by which the legislative purpose may be carried out.
Thereafter, the executive or administrative office
designated may in pursuance of the above guidelines
promulgate supplemental rules and regulations. The
standard may either be express or implied. If the
former, the non-delegation objection is easily met.
The standard though does not have to be spelled out
specifically. It could be implied from the policy and
purpose of the act considered as a whole.
Where the standards set up for the guidance of an
administrative officer and the action taken are in fact
recorded in the orders of such officer, so that Congress,
the courts and the public are assured that the orders in
the judgment of such officer conform to the legislative
standard, there is no failure in the performance of the
legislative functions.
MAYOR ANTONIO J. VILLEGAS v. HIU
CHIONG TSAl PAO HO and JUDGE ARCA
86 SCRA 270 (1978)
Respondent Hui Chiong Tsai Pao Ho challenged
the validity of Ordinance No. 6537 passed by the Mu-
CHAPTER I
G E N E R A L PRINCIPLES
53
nicipal Board of Manila. The said ordinance prohibited
aliens from being employed or to engage or participate in any position, occupation or business enumerated therein, whether permanent, temporary or casual,
without first securing an employment permit from the
Mayor of Manila and paying the permit fee. Respondent judge declared the ordinance null and void.
HELD:
Ordinance No. 6537 is VOID because it does not
contain or suggest any standard or criterion to guide
the mayor in the exercise of the power which has been
granted to him in the ordinance.
Ordinance No. 6537 does not lay down any
criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where
an ordinance of a municipality fails to state any policy
or to set up any standard to guide or limit the mayor's
action, expresses no purpose to be attained by requiring
a permit, enumerates no conditions for its grant or
refusal, and entirely lacks standard, thus conferring
upon the Mayor arbitrary and unrestricted power to
grant or deny the issuance of building permits, such
ordinance is invalid, being an undefined and unlimited
delegation of power to allow or prevent an activity per
se lawful.
BENJAMIN GOMEZ v. ENRICO
PALOMAR, et al.
25 SCRA 827
Petitioner's letter was returned because it did
not bear the special Anti-TB stamp required by R.A.
1635 as implemented by several administrative orders.
Petitioner questions the constitutionality of the statute
as well as the implementing administrative orders
issued.
The Supreme Court held that administrative
orders are not undue delegation of legislative powers.
TAX PRINCIPLES AND REMEDIES
Although the law does not expressly authorize the
collection of five centavos except through the sale of
Anti-TB stamps, such authority may be implied in
so far as may be necessary to prevent a failure of the
undertaking. The authority given to the Postmaster
General to raise funds through the mails must be
liberally construed, consistent with the principle that
where the end is required the appropriate means is
given.
HON. RAMON BAGATSING, et al v.
HON. PEDRO RAMIREZ, et al
74 SCRA 306
Nor does the delegation of the collection of market stall fees to a private corporation affect the public
purpose of the imposition. The entrusting of the collection of the fees does not destroy the public purpose
of the ordinance. So long as the purpose is public, it
does not matter whether the agency through which the
money is dispensed is public or private. The right to
tax depends upon the ultimate use, purpose and object
for which the fund is raised. It is not dependent on the
nature or character of the person of corporation whose
intermediate agency is to be used in applying it. The
people may be taxed for a public purpose, although it
be under the direction of an individual or private corporation.
EXEMPTION FROM TAXATION OF GOVERNMENT AGENCIES/INSTRUMENTALITIES
Properties of the national government as well as
those of the local government units are not subject to
tax, otherwise it will result in the absurd situation of
the government "taking money from one pocket and
putting it in another." (Cooley on Taxation, Sec. 621, 4th
Ed., as cited in Board of Assessment Appeals ofhaguna v.
Court of Tax Appeals, 8 Phil. 227)
CHAPTER I
G E N E R A L PRINCIPLES
May the government tax itself?
The Constitution is silent on whether Congress is
prohibited from taxing the properties of the agencies
of the government. However, Chief Justice Hilario G.
Davide, Jr. has stated that "nothing can prevent Congress
from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be
subject to tax."'*
Agencies performing governmental functions and
proprietary functions distinguished
A distinction has been made between agencies
performing governmental functions and those
performing proprietary functions. As a rule, agencies
performing governmental functions are tax-exempt unless
expressly taxed. On the other hand, agencies performing
proprietary functions are subject to tax unless expressly
exempted.
Government-owned and -controlled corporations
perform proprietary functions; hence, they are subject
to taxation. However, certain corporations have been
granted exemption under Section 27(C) of R.A. 8424 as
amended by R.A. 9337 which took effect on 1 July 2005,
to wit:
1.
Government Service Insurance System (GSIS)
2.
Social Security System (SSS)
3.
Philippine Health Insurance Corporation (PHIC)
4.
Philippine Charity Sweepstakes Office (PCSO)
Instrumentality of the National Government is
exempt from local taxation
In Manila International Airport Authority v. Court of
Appeals [495 SCRA 591, 615], the Supreme Court held
" M C I A A v. Marcos, 261 S C R A 667.
56
TAX PRINCIPLES AND REMEDIES
that the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real
estate tax. A government instrumentality like MIAA
falls under Section 133(o) of the Local Government
Code, which states — xxx, the exercise of the taxing
powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxx (o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities and
local government units.
This has been echoed in the recent case of Philippine
Fisheries Development Authority v. The Municipality of
Navotas [G.R. No. 150301, October 2, 2007, 534 SCRA
490] wherein the Supreme Court ruled that PFDA,
being an instrumentality of the national government,
is exempt from real property tax but the exemption
does not extend to the portions of the Navotas Fishing
Port Complex (NFPC) that were leased to taxable or
private persons and entities for their beneficial use.
The Pasay properties of MIAA are exempt from real
property tax
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Adrninistrative Code of 1987 uses the phrase "includes x x x
government-owned or controlled corporations" which
means that a government "instrumentality" may or
may not be a "government-owned or controlled corporation." Obviously, the term government "instrumentality" is broader than the term "government-owned
or controlled corporation." Section 2(10) provides:
SEC. 2. General Terms Defined. — x x x
(10) Instrumentality refers to any agency of
the national Government, not integrated within the
department framework, vested with special functions
or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and
CHAPTER I
G E N E R A L PRINCIPLES
57
enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled
corporations.
The term "government-owned or controlled corporation" has a separate definition under Section 2(13)
of the Introductory Provisions of the Administrative
Code of 1987:
SEC. 2. General Terms Defined.- x x x
(13) Government-owned orcontrolled corporation
refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public
needs whether governmental or proprietary in nature,
and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: Provided, That
government-owned or controlled corporations may
further be categorized by the Department of Budget,
the Civil Service Commission, and the Commission on
Audit for the purpose of the exercise and discharge of
their respective powers, functions and responsibilities
with respect to such corporations.
The fact that two terms have separate definitions
means that while a government "instrumentality" may
include a "government-owned or controlled corporation," there may be a government "instrumentality"
that will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "governmentowned or controlled corporation" in Section 2(13) will
show that MIAA would not fall under such definition.
MIAA is a government "instrumentality" that does
not qualify as a "government-owned or controlled
corporation." (Manila International Airport Authority v.
City ofPasay, Sangguniang Panglungsod ng Pasay, et al,
583 SCRA 234 [2009])
58
TAX PRINCIPLES AND REMEDIES
CASES FOR STUDY
STANDARD OIL COMPANY OF NEW
YORK v. JUAN POSADAS, JR.
55 Phil. 715
The Standard Oil Company of New York sold
and delivered in the Philippines fuel oil and asphalt, to
the Quartermaster Dept. of the US Army, for the use of
the said Army. The CIR of the Philippine government
imposed taxes of about 1 1/2% of the value of the
merchandise.
At the same time, the Standard Oil Company
delivered fuel oil in the Philippines for the use of the
US Navy, which was likewise taxed by the CIR.
The Standard Oil Company paid the taxes assessed under protest and sued to recover the corresponding refunds.
HELD:
The assessment and collection by the Philippine
Government of the tax on sales of merchandise made
in the Philippines to the US Army and the US Navy is
illegal. Sales made in the Philippines to the US Army
and the US Navy are made to instrumentalities of the
US Government, and therefore, are not subject to tax
by the Philippine Government.
BOARD OF ASSESSMENT APPEALS,
PROVINCE OF LAGUNA v. COURT OF TAX
APPEALS and NATIONAL WATERWORKS
AND SEWERAGE AUTHORITY
8 Phil. 227
The question involved in this case is whether the
water pipes, reservoir, intake and buildings used in the
operation of its waterworks system in the province of
Laguna are subject to real estate tax.
It is submitted that the law — Sec. 3 of Republic
Act 470 — exempting from taxation "property owned
CHAPTER I
G E N E R A L PRINCIPLES
59
by the Republic of the Philippines, any province,
city, municipality or municipal district . . ." makes
no distinction between property held in a sovereign,
government or political capacity and those possessed
in a private, proprietary and patrimonial character.
And where the law does not distinguish, neither may
we. x x x
Moreover, taxes are financial burdens imposed for
the purpose of raising revenues with which to defray
the cost of the operation of the Government, and a tax
on the property of the government, whether national
or local, would merely have the effect of taking money
from one pocket to put it in another pocket. (Cooley on
Taxation, Sec. 621,4th Ed.) Hence, it would not serve, in
the final analysis, the main purpose of taxation.
NATIONAL DEVELOPMENT COMPANY v.
CEBU CITY and AUGUSTO PACIS
215 SCRA 382
Is a public land reserved by the President for
warehousing purposes in favor of a governmentowned or -controlled corporation, as well as the warehouse subsequently erected thereon, exempt from real
property tax?
RE: The land
The Supreme Court answered in the affirmative.
The Republic, like any individual, may form a corporation with personality and existence distinct from its
own. The separate personality allows a governmentowned and -controlled corporation to hold and possess properties in its own name and thus permit greater
independence and flexibility in its operations. It may,
therefore, be stated that tax exemption of "property
owned by the Republic of the Philippines" refers to
properties owned by the Government and by its agencies which do not have separate and distinct personalities (unincorporated entities).
60
TAX PRINCIPLES AND REMEDIES
In this case, what appears to have been ceded to
NDC was merely the administration of the property
while the government retains ownership of what has
been declared for warehousing purposes. The land
remains "absolute property of the government. The
government does not part with its title by reserving
them (lands), but simply gives notice to all the world
that it desires them for a certain purpose." As its title
remains with the Republic, the reserved land is clearly
covered by tax exemption.
RE: The warehouse
As regards the warehouse constructed on a public
reservation, a different rule should apply because
"(t)he exemption of public property from taxation
does not extend to improvements on the public land
made by preemptioners, homesteaders and other
claimants, or occupants, at their own expense, and
these are taxable by the State x x x." Consequently, the
warehouse constructed on the reserved land by NDC
should properly be assessed real estate tax as such
improvement does not appear to belong to the public.
ESSO STANDARD EASTERN, INC. v. ACTING
COMMISSIONER OF CUSTOMS
18 SCRA 488
Petitioner is engaged in the industry of processing
gasoline, and manufacturing lubricating oil, grease
and tin containers. Petitioner owns gasoline stations
with pumps, which are leased to and operated by
gasoline dealers. It sells gasoline to these dealers.
The pump parts imported by petitioner in 1956 were
intended, installed and actually used by gasoline
dealers in pumping gasoline from underground tanks
into customers' motor vehicles. These pump parts, in
other words, are used in the sale at retail of gasoline —
not by petitioner but by lessees of gasoline stations.
In this factual environment, it is quite evident that
the pump parts are not used in petitioner's industry of
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G E N E R A L PRINCIPLES
61
processing gasoline, or manufacturing lubricating oil,
grease and tin containers, hence taxable. Since the law
(R.A. 1394) states that, to be tax exempt, equipment
and spare parts should be "for the use of industries,"
the coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing
gasoline at retail. In comparable factual backdrop, this
Court has held that tax exemption in connection with
the manufacture of asbestos roof does not extend to the
installation thereof. (Collector v. Eternit Corporations, 57
Off. Gaz., No. 6, pp. 1043,1045)
Exemption from taxation is not favored and
exemptions in tax statutes are never presumed.
Exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the
taxing authority. Where the State has granted in express
terms certain exemptions, those are the exemptions to
be considered, and no more.
B.
Constitutional Limitations on the Power to Tax
The Constitution provides for certain restrictions
on the power of taxation, among them:
(1) due process of law;
(2) equal protection of laws;
(3)
uniformity;
(4) progressive system of taxation;
(5) non-impairment of contracts;
(6) non-imprisonment for non-payment of poll tax;
(7) appropriation, revenue and tariff bills must originate exclusively in the House of Representatives;
(8) presidential veto;
(9) presidential power to fix tariff rates;
(10)
freedom of the press;
62
TAX PRINCIPLES AND REMEDIES
(11) freedom of religion;
(12) exemption from property tax of properties of
religious, educational, charitable institutions;
(13) tax exemptions granted to non-stock, non-profit
educational institutions;
(14) no public money or property used for a particular
sect, priest, religious minister, etc.;
(15) grant of tax exemptions;
(16) grant of power of taxation to local government
units;
(17) money collected for a special purpose shall be
considered a special fund;
(18) exclusive appellate jurisdiction of the Supreme
Court over judgments of lower courts involving
the legality of taxes, imports, assessment, fees,
penalty.
1.
DUE PROCESS OF LAW
"No person shall be deprived of life, liberty
or property without due process of law . . . " (Art.
Ill, Sec. 1)
Due process mandates that no person shall
be deprived of life, liberty, or property without
due process. The implication is that one may be
deprived of property as long as the requirement
of due process — notice and hearing — have been
complied with.
To illustrate, in the case of Mayor Antonio Villegas
v. Hiu Chiong Tsai Pao Ho, the Court held:
55
Requiring a person before he can be employed to
get a permit from the City Mayor of Manila who may
withhold or refuse it at will is tantamount to denying
" 8 6 SCRA 270.
63
CHAPTER I
G E N E R A L PRINCIPLES
him the basic right to engage in a means of livelihood.
While it is true that the Philippines as a state is not
obliged to admit aliens within its territory, once an
alien is admitted, he cannot be deprived of life without
due process of law. This guarantee includes the means
of livelihood. The shelter of protection under the due
process and equal protection clause is given to all
persons, both aliens and citizens.
Due process is usually violated where the tax
imposed is for a private purpose as distinguished
from a public purpose; a tax is imposed on property
outside the State, i.e., extra-territorial taxation; and
arbitrary or oppressive methods are used in assessing
and collecting taxes. But, a tax does not violate the
due process clause, as applied to a particular taxpayer,
although the purpose of the tax will result in injury
rather than a benefit to such taxpayer.
Due process does not require that the property
subject to the tax or the amount to be raised should
be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner
in which it shall be apportioned are generally not
necessary to due process of law. (Cooley, 334) *
1
The due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in
the Constitution, as where it can be shown to amount
to a confiscation of property. (Reyes v. Almanzor, 196
SCRA 322) However, to justify the nullification of a
tax law, mere allegation is not enough. There must be
a clear and unequivocal breach of the Constitution;
there must be proof of arbitrariness. The law must
be unreasonable and unjust, not merely hypothetical,
argumentative or of doubtful implication.
*As cited in Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan. Leyte, 6 9 S C R A 460.
64
TAX PRINCIPLES AND REMEDIES
The following situations are illustrative of violations of the due process clause:
a.
If the tax amounts to a confiscation of property;
b.
If the subject of confiscation is outside the
jurisdiction of the taxing authority;
c.
If the law is imposed for a purpose other than a
public purpose;
d.
If the law which is applied retroactively imposes
unjust and oppressive taxes;
e.
Where the law is in violation of inherent limitations.
The Classification Freeze Provision under R.A. 9334
does not violate due process clause
British American Tobacco (BAT) did not clearly
demonstrate the exact extent of such impact. It has
not been shown that the net retail prices of other older
brands previously classified under this classification
system have already pierced their tax brackets, and,
if so, how this has affected the overall competition in
the market. Further, it does not necessarily follow the
newer brands cannot compete against older brands
because price is not the only factor in the market as
there are other factors like consumer preference, brand
loyalty, etc. In other words, even if the newer brands
are priced higher due to the differential tax treatment,
it does not mean that they cannot compete in the
market especially since cigarettes contain addictive
ingredients so that a consumer may be willing to pay
a higher price for a particular brand solely due to its
unique formulation. It may also be noted that in 2003,
the BIR surveyed 29 new brands that were introduced in
the market after the effectivity of R.A. 8240 on January
1, 1997, thus negating the sweeping generalization of
BAT that the classification freeze provision has become
an insurmountable barrier to the entry of new brands.
Verily, where there is a claim of breach of the due
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65
process and equal protection clauses, considering that
they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character
as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.
It is clear that Revenue Regulations No. 1-97,
as amended by Section 2 of Revenue Regulations
9-2003, and Revenue Memorandum Order No. 6-2003
unjustifiably emasculate the operation of Section 145
of the NIRC because they authorize the Commissioner
of Internal Revenue to update the tax classification of
new brands every two years or earlier subject only to
its issuance of the appropriate Revenue Regulations,
when nowhere in Section 145 is such authority granted
to the Bureau. Unless expressly granted to the BIR,
the power to reclassify cigarette brands remains a
prerogative of the legislature which cannot be usurped
by the former. (British American Tobacco v. Camacho, 562
SCRA 511, 517-518 [2008])
MCIT Is Not Violative of Due Process
CREBA contends that the MCIT under Section
27(E) of R.A. 8424 is unconstitutional because it is
highly oppressive, arbitrary and confiscatory which
amounts to deprivation of property without due process of law. It explains that gross income as defined
under said provision only considers the cost of goods
sold and other direct expenses; other major expenditures, such as administrative and interest expenses
which are equally necessary to produce gross income,
were not taken into account. Thus, pegging the tax
base of the MCIT to a corporation's gross income is
tantamount to a confiscation of capital because gross
income, unlike net income, is not "realized gain."
The contention holds no water.
Taxes are the lifeblood of the government. Without
taxes, the government can neither exist nor endure.
66
TAX PRINCIPLES AND REMEDIES
The exercise of taxing power derives its source from
the very existence of the State whose social contract
with its citizens obliges it to promote public interest
and the common good.
Taxation is an inherent attribute of sovereignty.
It is a power that is purely legislative. Essentially, this
means that in the legislature primarily lies the discretion
to determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation.
It has the authority to prescribe a certain tax at a
specific rate for a particular public purpose on persons
or things within its jurisdiction. It other words, the
legislature wields the power to define what tax shall
be imposed, why it should be imposed, how much tax
shall be imposed, against whom (or what) it shall be
imposed and where it shall be imposed.
As a general rule, the power to tax is plenary and
unlimited in its range, acknowledging in its very nature
no limits, so that the principal check against its abuse is
to be found only in the responsibility of the legislature
(which imposes tax) to its constituency who are to pay
it. Nevertheless, it is circumscribed by constitutional
limitations. At the same time, like any other statute, tax
legislation carries a presumption of constitutionality.
The constitutional safeguard of due process is
embodied in the fiat "[no] person shall be deprived of
life, liberty or property without due process of law."
In Sison, Jr. v. Ancheta, et al., the Supreme Court held
that the due process clause may properly be invoked
to invalidate, in appropriate cases, a revenue measure
when it amounts to a confiscation of property. But in
the same case, the SC also explained that it will not
strike down a revenue measure as unconstitutional
(for being violative of the due process clause) on the
mere allegation of arbitrariness by the taxpayer. There
must be a factual foundation to such an unconstitutional taint. This merely adheres to the authoritative
CHAPTER I
G E N E R A L PRINCIPLES
67
doctrine that, where the due process clause is invoked,
considering that it is not a fixed rule but rather a broad
standard, mere is a need for proof of such persuasive
character.
CREBA is correct in saying that income is distinct
from capital. Income means all the wealth which flows
into the taxpayer other than a mere return of capital.
Capital is a fund or property existing at one distinct
point in time while income denotes a flow of wealth
during a definite period of time. Income is gain derived
and severed from capital. For income to be taxable, the
following requisites must exist:
(1) there must be gain;
(2) the gain must be realized or received; and
(3) the gain must not be excluded by law or
treaty from taxation.
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income.
In other words, it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on
capital.
The MCIT is imposed on gross income which
is arrived at by deducting the capital spent by a
corporation in the sale of its goods, i.e., the cost of goods
and other direct expenses from gross sales. Clearly, the
capital is not being taxed.
Furthermore, the MCIT is not an additional
tax imposition. It is imposed in lieu of the normal
net income tax, and only if the normal income tax is
suspiciously low. The MCIT merely approximates the
amount of net income tax due from a corporation,
pegging the rate at a very much reduced 2% and uses
as the base the corporation's gross income.
Besides, there is no legal objection to a broader tax
base or taxable income by eliminating all deductible
68
TAX PRINCIPLES AND REMEDIES
items and at the same time reducing the applicable tax
rate.
Statutes taxing the gross "receipts," earnings," or
"income" or particular corporations are found in many
jurisdictions. Tax thereon is generally held to be within
the power of a state to impose; or constitutional, unless
it interferes with interstate commerce or violates the
requirements as to uniformity of taxation. (CREBA v.
Romulo, 614 SCRA 605 625-628)
CASES FOR STUDY
CARLOS SUPERDRUG CORP.
v. DEPARTMENT OF SOCIAL WELFARE
AND DEVELOPMENT (DSWD)
526 SCRA 130,140,143-145 (2007)
Petitioners assert that Section 4(a) of the Expanded
Senior Citizens Act (R.A. 9257) is unconstitutional
because it constitutes deprivation of private property.
Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit and
capital because (1) drugstores impose mark up only
5% to 10% on branded medicines; and (2) the law failed
to provide a scheme whereby drugstores will be justly
compensated for the discount.
HELD:
R.A. 9257 is constitutional.
The law is a legitimate exercise of police power
which, similar to the power of eminent domain,
has general welfare for its object. Police power is
not capable of an exact definition, but has been
purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide
enough room for an efficient and flexible response
to conditions and circumstances, thus assuring the
greatest benefits. Accordingly, it has been described
as "the most essential, insistent and the least limitable
CHAPTER I
G E N E R A L PRINCIPLES
69
of powers, extending as it does to all the great public
needs." It is "[t]he power vested in the legislature
by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes,
and ordinances, either with penalties or without, not
repugnant to the constitution, as they shall judge to be
for the good and welfare of the commonwealth, and of
the subjects of the same."
For this reason, when the conditions so demand
as determined by the legislature, property rights must
bow to the primacy of police power because property
rights, though sheltered by due process, must yield to
general welfare.
Police power as an attribute to promote the
common good would be diluted considerably if on
the mere plea of petitioners that they will suffer loss
of earnings and capital, the questioned provision is
invalidated. Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of
the provision in question, there is no basis for its
nullification in view of the presumption of validity
which every law has in its favor.
Given these, it is incorrect for petitioners to insist
that the grant of the senior citizen discount is unduly
oppressive to their business, because petitioners have
not taken time to calculate correctly and come up with
a financial report, so that they have not been able to
show properly whether or not the tax deduction
scheme really works greatly to their disadvantage.
JOSE REYES v. PEDRO ALMANZOR
196 SCRA 322
Petitioner questions the method of tax assessment,
citing violation of the due process clause. The Court
ruled thus:
The due process clause may be invoked
where a taxing statute is so arbitrary that it finds
70
TAX PRINCIPLES A N D REMEDIES
no support in the Constitution, as where it can be
shown to amount to a confiscation of property.
The taxing power has the authority to make
reasonable and natural classification for purposes
of taxation but the government's act must not be
prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason.
It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner,
the conditions not being different both in the privileges
conferred and the liabilities imposed. (Sison v. Ancheta,
supra)
COMMISSIONER OF INTERNAL
REVENUE v. HON. COURT OF APPEALS,
HON. COURT OF TAX APPEALS
and FORTUNE TOBACCO CORPORATION
261 SCRA 236
Prior to the effectivity of R.A. 7654, cigarette
brands Hope Luxury, Premium More and Champion
were considered local brands subjected to an ad valorem
tax at the rate of 20-45%. However, on 1 July 1993 or
two (2) days before R.A. 7654 took effect, petitioner
Commissioner of Internal Revenue issued RMC 3793 reclassifying "Hope, More and Champion being
manufactured by Fortune Tobacco Corporation . . .
(as) locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes."
A copy of RMC 37-93 was sent to Fortune Tobacco via
telefax, but it was addressed to no one in particular.
On 15 July 1993, Fortune Tobacco received, by
ordinary mail, a certified xerox copy of RMC 37-93.
Respondent corporation sought a review,
reconsideration and recall of RMC 37-93 but was
forthwith denied by the Appellate Division of the
Bureau of Internal Revenue. As a consequence, on
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30 July 1993, private respondent was assessed an ad
valorem tax deficiency. Respondent corporation went
to the Court of Tax Appeals (CTA) on a petition for
review.
The CTA held that petitioner Commissioner of
Internal Revenue failed to observe due process of law
in issuing RMC 37-93 as there was no prior notice and
hearing.
The Supreme Court upheld the CTA, holding that
when an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its
bare issuance for it gives no real consequence more than
what the law itself has already prescribed. When, upon
the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or
render least cumbersome the implementation of the
law but substantially adds to or increases the burden
of those governed, as in the case at bar, it behooves the
agency to accord at least to those directly affected a
chance to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect of
law.
2.
EQUAL PROTECTION OF THE LAW
57
" . . . nor shall any person be denied the equal
protection of the law." (Art. Ill, Section 1)
Our Constitution requires uniformity, not equality, in taxation.
Equality of taxation is accomplished when the
burden of the tax falls equally and impartially upon
all persons and property subject to it, so that no higher
rate or greater levy in proportion to value is imposed
upon one person or species or property than upon
others similarly situated or of like character. Whereas,
"Question No. 2, 2000 Bar Examination; Question Nos. 2 & 10, 2004 Bar Examination.
72
TAX PRINCIPLES AND REMEDIES
uniformity requires that all taxable property subjected
to the tax, shall be alike and this requirement is violated
if particular kinds, species, or items of property are
selected to bear the whole burden of the tax, while
others, which should be equally subject to it, are left
untaxed. Further, it is implied that each tax shall be
uniform throughout the taxing district involved. A
state tax must be apportioned uniformly throughout a
state, a country tax throughout the country, and a city
tax throughout the city. (Vol. 37, Encyclopedia of Law and
Procedure, pp. 735-736)
"EQUAL PROTECTION OF THE LAW" CLAUSE,
as applied to Taxation.
"Equal protection" does not require equal
rates of taxation on different classes of property, nor
prohibit unequal taxation so long as the inequality is
not based upon arbitrary classification. Legislation
which, in carrying out a public purpose, is limited
in its application, does not violate the provisions if,
within the sphere of its operation, it affects alike all
persons similarly situated. It does not prohibit special
legislation or legislation that is limited either in the
objects to which it is directed, or by the territory within
which it is to operate. It merely requires that all persons
subjected to such legislation shall be treated alike, under
like circumstances and conditions, both in the privileges
conferred and in the liabilities imposed*
ABSOLUTE EQUALITY IMPOSSIBLE
Inequality of taxes means substantial differences.
Practical equality is constitutional equality. There is no
imperative requirement that taxation shall be absolutely
equal, only that tax laws be framed with a view to
apportioning the burdens of government so that each
person enjoying government protection shall be required to
w
l Cooley Taxation, 534-535.
73
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G E N E R A L PRINCIPLES
contribute so much as is his reasonable proportion, and no
more.
"Perfect equality in taxation," it has been said, "will
remain an unattainable goal as long as laws and government
and man are imperfect."
On the other hand, while perfect equality is impossible,
yet there are cases where there are such glaring inequality,
either intentional or otherwise, as to clearly violate the
uniformity and equality rule. Let it reach all of a class, either
of persons or things, it matters not whether those included
in it be one or many, or whether they reside in any particular
locality or are scattered all over the state. But when for any
reason, it becomes discriminative between individuals of a
class taxed, and selects some for an exceptional burden, the
tax is deprived of the necessary element of legal equality,
and becomes inadmissible.
59
UNIVERSAL APPLICATION IS NOT REQUIRED
The equal protection clause does not require the
universal application of the laws on all persons or
things without distinction. This might in fact sometimes
result in unequal protection. What the clause requires is
equality among equals as determined according to a valid
classification. By classification is meant the grouping of
persons or things similar to each other in certain particulars
and different from all others in these same particulars.
{Abakada Guro Party List v. Ermita, 469 SCRA 1,140)
CLASSIFICATION, WHEN PROPER
The power to select the subjects of taxation and
apportion the public burden among them includes the
power to make classifications. The inequalities which result
from the singling out of one particular class for taxation or
exemption infringe no constitutional limitation.
60
" 1 Cooley 558-562.
•"Lutz v. Araneta, G.R. No. L-7859, December 2 2 , 1 9 5 5 , 98 Phil. 148.
74
TAX PRINCIPLES AND REMEDIES
However, for classification to be valid, the following
requisites must concur:
a.
it must be based on substantial distinction;
b.
it must apply both to present and future conditions;
c.
it must be germane to the purposes of the law;
d.
it must apply equally to all members of the same
class. (Ormoc Sugar Company, Inc. v. The Treasurer
ofOrmoc City, et al., 22 SCRA 603)
The principle of equality admits of classification or distinction as long as they are based upon real and substantial
differences between the persons, property, or privileges and
those not taxed must bear some reasonable relation to the
object of purpose of legislation, or to some permissible governmental policy or legitimate end of government. (Matic,
Jr., Taxation in the Philippines, Vol. 1, pp. 79-80)
Classification freeze provision under R.A. 9334 does not violate
the equal protection and uniformity of taxation clauses under
the Constitution
A legislative classification that is reasonable does not
offend the constitutional guaranty of the equal protection of
the laws. The classification is considered valid and reasonable
provided that: (1) it rests on substantial distinctions; (2) it is
germane to the purpose of the law; (3) it applies, all things
being equal, to both present and future conditions; and (4)
it applies equally to all those belonging to the same class.
The first, third and fourth requisites are satisfied. The
classification freeze provision was inserted in the law for
reasons of practicality and expediency. That is, since a new
brand was not yet in existence at the time of the passage
of R.A. 8240, then Congress needed a uniform mechanism
to fix the tax bracket of a new brand. The current net retail
price, similar to what was used to classify the brands under
Annex "D" as of October 1, 1996, was thus the logical and
practical choice. Further, with the amendments introduced
by R.A. 9334, the freezing of the tax classifications now
CHAPTER I
G E N E R A L PRINCIPLES
75
expressly applies not just to Annex "D" brands but to newer
brands introduced after the effectivity of R.A. 8240 on
January 1, 1997 and any new brand that will be introduced
in the future.
xxx
xxx
The classification freeze provision uniformly applies
to all newly introduced brands in the market, whether
imported or locally manufactured. It does not purport to
single out imported cigarettes in order to unduly favor
locally produced ones. Further, BAT's evidence was
anchored on the alleged unequal tax treatment between
old and new brands which involves a different frame of
reference vis-a-vis local and imported products. BAT has,
therefore, failed to clearly prove its case, both factually and
legally, within the parameters of the GATT.
At any rate, even assuming arguendo that BAT was able
to prove that the classification freeze provision violates the
GATT, the outcome would still be the same. The GATT is
a treaty duly ratified by the Philippine Senate and under
Article VII, Section 21 of the Constitution, it merely acquired
the status of a statute. Applying the basic principles of
statutory construction in case of irreconcilable conflict
between statutes, R.A. 8240, as amended by R.A. 9334,
would prevail over the GATT either as a later enactment by
Congress or as a special law dealing with the taxation of sin
products. [British American Tobacco v. Camacho, 562 SCRA 511
(2008)]
CASES FOR STUDY
BENJAMIN GOMEZ v. ENRICO PALOMAR, et al.
25 SCRA 827
Petitioner questions the constitutionality of the
statute as well as the implementing administrative
orders issued implementing the special Anti-TB stamp
required by R.A. 1635, contending that it violates the
equal protection clause of the Constitution as well as
the rule of uniformity and equality in taxation.
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TAX PRINCIPLES AND REMEDIES
HELD:
R.A. 1635 is valid.
It is claimed that R.A. 1635, otherwise known as
the Anti-TB Stamp Law, is violative of the equal protection clause of the Constitution because it constitutes
mail users into a class for the purpose of the tax while
leaving untaxed the rest of the population and that
even among postal patrons the statute discrirninatorily
grants exemptions.
HELD:
It is settled that the legislature has the inherent
power to select the subject of taxation and to grant
exemptions. The classification of mail users is based
on the ability to pay, the enjoyment of a privilege and
on administrative convenience. Tax exemptions have
never been thought of as raising issues under the equal
protection clause.
Moreover, the imposition of a flat rate rather
than a graduated tax does not infringe the rule of
uniformity and equality of taxation. A tax need not be
measured by the weight of the mail or the extent of
the service rendered. Considerations of administrative
convenience and cost afford an adequate ground for
classification. The same considerations may induce
the legislature to impose a flat tax which in effect is
a charge for the transaction, operating equally on all
persons within the class regardless of the amount
involved.
EASTERN THEATRICAL CO. v.
VICTOR ALFONSO
83 Phil. 852
Twelve corporations, engaged in the motion picture business, contest the validity of Ord. No. 2958 of
the City of Manila, which reads as follows: "An ordi-
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77
nance imposing a fee on the price of every admission ticket
sold by Cinematographers, etc."
Appellants point out to the fact that the ordinance in question does not tax "many more kinds of
amusements" than those therein specified, such as
"race tracks, cockpits, cabarets, concert halls, circuses,
and other places of amusement."
HELD:
The argument has absolutely no merit. The fact
that some places of amusement are not taxed while
others, such as cinematographs, theaters, etc. are
taxed, is no argument at all against the equality and
uniformity of tax imposition. Equality and uniformity
means that all taxable articles or kinds of property
of the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable and
natural classifications for purposes of taxation; and the
appellants cannot point out what places of amusement
taxed by the ordinance do not constitute a class by
themselves and which can be confused with those not
included in the ordinance.
MANILA RACE HORSE TRAINERS
ASSN., INC. v. DE LA FUENTE
88 Phil. 60
The Manila Race Horses Trainers Association,
Inc., a non-stock corporation maintaining boarding
stables for horses, challenges the validity of Ordinance
No. 3065 of the City of Manila.
Plaintiffs maintain that the ordinance under
consideration is a tax on race horses as distinct from
boarding stables.
HELD:
From the viewpoint of economics and public
policy the taxing of boarding stables for race horses to
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TAX PRINCIPLES AND REMEDIES
the exclusion of boarding stables for horses dedicated
to other purposes is not indefensible. The owners of
boarding stables for race horses and, for that matter,
the race horse owners themselves, who in the scheme
of shifting may carry the taxation burden, are a
class by themselves and appropriately taxed where
owners of other kinds of horses are taxed less or not
at all, considering that equity in taxation is generally
conceived in terms of ability to pay in relation to the
benefits received by the taxpayer and by the public
from the business or property taxed.
Race horses are devoted to gambling if legalized,
their owners derive fat income and the public hardly
any profit from horse racing, and this business
demands relatively heavy police supervision. Taking
eveiything into account, the differentiation against
which the plaintiffs complain conforms to the practical
dictates of justice and equity and is not discriminatory
within the meaning of the Constitution.
SILVESTRE PUNSALAN v. THE MUN.
BOARD OF THE CITY OF MANILA
95 Phil. 46
Plaintiffs sought the annulment of Ordinance No.
3398 of the City of Manila which imposes a municipal
occupation tax on persons exercising various professions.
In upholding the validity of the tax law, the
Supreme Court held that there is no discrimination or
class legislation if a statute authorizes the City of Manila to levy occupation taxes while that same authority
is withheld from other cities and municipalities. It is
not for the court to decide what cities or municipalities
should be so authorized for such is a matter of judicial
determination.
There was a substantial distinction between them
and other professionals as practitioners in Manila
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could expect a more lucrative income than those in
other parts of the country.
CITY OF BAGUIO v. FORTUNATO DE LEON
25 SCRA 938 (1968)
Defendant-appellant De Leon, a real estate
dealer, assailed the validity of an ordinance of the City
of Baguio imposing a license fee on any person, firm,
entity, or corporation doing business in the City of
Baguio.
The ordinance is valid. Equality and uniformity
in taxation means that all taxable articles or kind of
property of the same class be taxed at the same rate.
A tax is considered uniform when it operates with
the same force and effect in every place where the
subject may be found. Where the statute or ordinance
in question applies equally to all persons, firms and
corporations placed in similar situation, there is no
infringement of the rule on equality. Inequalities which
result from the singling out of one particular class
for taxation or exemption infringe no constitutional
limitation.
ANTERO SISON v. ANCHETA
130 SCRA 654
The State has the inherent power to select the
subjects of taxation, and inequalities which result from
the singling out of one particular class for taxation or
tax exemption infringe no constitutional limitation.
Consequently, the Supreme Court ruled that the
schedular income tax which imposes graduated taxes
of 0% to 35% without deductions on compensation
income of individuals and a rate scheme of 5% to 60%
on business and other income with deductions does
not violate the rule on equal protection since there is
no infirmity if classifications are based on substantial
distinctions.
80
TAX PRINCIPLES AND REMEDIES
JUAN LUNA SUBDIVISION, INC. v.
SARMIENTO, et al.
91 Phil. 371
Juan Luna Subdivision, Inc. brought a suit against
the City Treasurer and the Philippine Trust Company
as defendants in the alternative to determine which
of the two defendants is liable for plaintiff's check. It
appears that plaintiff issued to the City Treasurer of
Manila a check to be applied to plaintiff's land tax for
the second semester of 1941, the exact amount of which
was yet undetermined. On February 20,1942, after the
amount had been verified, which was P341.60, the
balance of Pl,868.92, covered by voucher no. 1487 of
the City Treasurer's Office, was noted in the ledger as a
credit to the Juan Luna Subdivision, Inc. Thereafter, the
books of the Philippine Trust Company revealed that
plaintiff's check was deposited by the City Treasurer
with the Philippine National Bank, and the latter was
paid the cash equivalent thereof by the Philippine
Trust Company which debited the amount against
Juan Luna Subd., Inc. However, the City Treasurer
refused after liberation to refund the plaintiff's deposit
or apply it to such future taxes as might be found due.
The plaintiff claims the whole amount of the
check contending that taxes for the last semester of
1941 had been remitted by C.A. No. 703.
HELD:
The remission of taxes due and payable to the
exclusion of taxes already collected does not constitute
unfair discrimination. Each 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. They are not.
As to the justification of the measure, the
confinement of the condonation to delinquent taxes
was not without good reason. The property owners
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81
who had paid their taxes before liberation and those
who had not were not on the same footing on the
need of material relief. It is true that the ravages and
devastations brought by war operations had rendered
the bulk of the people destitute or impoverished and
that it was this situation which prompted the passage
of C.A. 703. But it is also true that the taxpayers who
had been in arrears in their obligation would have to
satisfy their liability with genuine currency, while the
taxes paid during the occupation had been satisfied in
Japanese military notes, many of them at a time when
those notes were well-nigh worthless. To refund those
taxes with the restored currency, even if the government
could afford to do so, would be to unduly enrich many
of the payers at a greater expense of the people at large.
What is more, the process of refunding would entail
a tremendous amount of work and difficulties, what
with the destruction of the tax records and the great
number of claimants who would take advantage of
such grace.
It is said that the plaintiff's check was in the nature
of a deposit, held in trust by the City Treasurer, and
that, for this reason, plaintiff's taxes are to be regarded
as still due and payable. The argument is well-taken,
but only to the extent of Pl,868.92. The amount of
P341.60 as early as February 20,1942, had been applied
to the second half of plaintiff's 1941 tax and become
part of the general fund of the city treasury. From
that date that tax was legally and actually paid and
settled.
ASSOCIATION OF CUSTOM BROKERS, INC. v.
MUN. BOARD, CITY OF MANILA, et al.
93 Phil. 107
Plaintiffs Association of Customs Brokers, Inc.
challenge the validity of Ord. No. 3379 which confers
upon the municipal board the power to tax motor and
other vehicles operating within the City of Manila on
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TAX PRINCIPLES AND REMEDIES
the ground that said ordinance offends against the rule
of uniformity of taxation.
HELD:
The ordinance infringes upon the rule of uniformity. The ordinance exacts the tax upon all motor
vehicles operating within the City of Manila. It does
not distinguish between a motor vehicle for hire and
one which is purely for private use. Neither does it
distinguish between a motor vehicle registered in the
City of Manila and one registered in another place
but occasionally comes to Manila and uses its streets
and public highways. There is no pretense that the
ordinance equally applies to motor vehicles which
come to Manila for a temporary stay or for short
errands, and it cannot be denied that they contribute in
no small degree to the deterioration of the streets and
public highways. As they are benefited by their use
they should also be made to share the corresponding
burden. This inequality renders the ordinance in
question offensive to the Constitution.
ORMOC SUGAR COMPANY, INC. v.
THE TREASURER OF ORMOC CITY, et al.
22 SCRA 603
Ormoc Sugar Company alleged that Ordinance
No. 4, Series of 1964, imposing "on any and all
productions of centrifugal sugar milled at the Ormoc
Sugar Co., Inc., in Ormoc City a municipal tax equivalent
to one per centum (1%) per export sale to the USA and
other foreign countries" is unconstitutional for being
violative of the equal protection clause (Sec. Ill], Art.
Ill, Constitution) and the rule on uniformity of taxation.
(Sec. 28111 Art. VI, Constitution)
HELD:
Ord. No. 4 is declared unconstitutional.
The Bill of Rights in the Constitution provides:
"x x x nor shall any person be denied the equal
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83
protection of the laws." (Sec.
Art. Ill) In Felwa
v. Salas, L-26511, October 29, 1966, the SC ruled that
the equal protection clause applies only to persons
or things identically situated and does not bar a
reasonable classification of the subject of taxation, and
a classification is reasonable where: (1) it is based on
substantial distinctions which make real differences;
(2) these are germane to the purposes of the law; (3)
the classification applies not only to present conditions
but also to future conditions which are substantially
identical to those of the present; (4) the classification
applies only to those who belong to the same class.
A perusal of the requisites instantly shows that
the questioned ordinance does not meet them, for it
taxes only centrifugal sugar produced and exported by
the Ormoc Sugar Co., Inc. and none other. At the time
of the taxing Ordinance's enactment, Ormoc Sugar
Company, it is true, was the only sugar central in the
City of Ormoc. Still, the classification, to be reasonable,
should be in terms applicable to future conditions as
well. The taxing ordinance should not be singular and
exclusive as to exclude any substantially established
sugar central, of the same class as plaintiff, from the
coverage of the tax.
JOSE REYES v. PEDRO ALMANZOR
196 SCRA 322
Petitioners question the method used in the assessment of the properties.
HELD:
Under Art. VIII, Sec. 17(1) of the 1973 Constitution,
then enforced, the Rule of Taxation must not only be
uniform but must also be equitable and progressive.
Uniformity has been defined as that principle by
which all taxable articles or kinds of property of the
same class shall be taxed at the same rate. (Churchill v.
Conception. 34 Phil. 96911916])
84
TAX PRINCIPLES AND REMEDIES
Taxation is said to be equitable when its burden
falls on those better able to pay; taxation is progressive
when its rate goes up depending on the resources of
the person affected. (Fernando, "The Constitution of the
Phils.," 2nd Ed., p . 221)
VILLEGAS v. HSIU CHIONG CHAI PAO
86 SCRA 270
The imposition of license fee on all aliens desiring
to seek employment in Manila, regardless of the nature
of employment (whether casual, permanent, parttime or full-time, lowly paid employee or highly paid
executive), was declared unconstitutional. The tax
ordinance is discriminatory because it fails to consider
valid substantial differences in situation among aliens
required to pay it. Classification should be based on
real and substantial differences having a reasonable
relation to the subject of legislation.
MISAMIS ORIENTAL ASSOCIATION OF COCO
TRADERS, INC. v. DEPARTMENT
OF FINANCE SECRETARY, et al.
238 SCRA 63
Petitioner Misamis Oriental Association of Coco
Traders, Inc., engaged in the buying and selling of
copra in Misamis Oriental, questions the validity of
Revenue Memorandum Circular 47-91 which classified
copra as an agricultural non-food product and declared
it "exempt from VAT only if the sale is made by the
primary producer pursuant to Section 103(a) of the
Tax Code, as amended." Petitioner claims that RMC
No. 47-91 is discriminatory and violative of the equal
protection clause of the Constitution because while
coconut farmers and copra producers are exempt,
traders and dealers are not, although both sell copra in
its original state.
HELD:
The argument has no merit. There is a material
or substantial difference between coconut farmers and
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85
copra producers, on the one hand, and copra traders
and dealers, on the other. The former produce and sell
copra, the latter merely sell copra. The Constitution does
not forbid the differential treatment of persons so long as
there is a reasonable basis for classifying them differently.
TOLENTINO, et al. v. SECRETARY OF FINANCE
235 SCRA 630
The PPI contends that by withdrawing the
exemption previously granted to print media transactions involving printing, publication, importation or
sale of newspapers, Republic Act No. 7716 has singled out the press for discriminatory treatment and
that within the class of mass media the law discriminates against print media by giving broadcast media
favored treatment.
HELD:
We are unable to find a differential treatment of the
press by the law, much less any censorial motivation for
its enactment. If the press is now required to pay a valueadded tax on its transactions, it is not because it is being
singled out, much less targeted, for special treatment but
only because of the removal of the exemption previously
granted to it by law. The withdrawal of exemption is all
that is involved in these cases.
The law would perhaps be open to the charge
of discriminatory treatment if the only privilege
withdrawn had been that granted to the press. But that
is not the case.
In Grosjean v. American Press Co., 297 U.S. at 250,80
L. Ed. at 669, the law imposed a license tax equivalent
to 2% of the gross receipts derived from advertisements
only on newspapers which had a circulation of more
than 20,000 copies per week. Because the tax was not
based on the volume of advertisement alone but was
measured by the extent of its circulation as well, the
law applied only to the thirteen large newspapers in
86
TAX PRINCIPLES AND REMEDIES
Louisiana, leaving untaxed four papers with circulation
of only slightly less than 20,000 copies a week and 120
weekly newspapers which were in serious competition
with the thirteen newspapers in question. It was well
known that the thirteen newspapers had been critical
of Senator Huey Long, and the Long-dominated
legislature of Louisiana responded by taxing what
Long described as the "lying newspapers" by imposing
on them "a tax on lying." The effect of the tax was to
curtail both their revenue and their circulation. As the
U.S. Supreme Court noted, the tax was "a deliberate
and calculated device in the guise of a tax to limit the
circulation of information to which the public is entitled
in virtue of the constitutional guaranties." The case is a
classic illustration of the warning that the power to tax
is the power to destroy.
In Minneapolis Star v. Minnesota Commissioner
of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983), the
press was also found to have been singled out because
everything was exempt from the "use tax" on ink and
paper, except the press. Minnesota imposed a tax on
the sales of goods in that state. To protect the sales
tax, it enacted a complementary tax on the privilege
of "using, storing or consuming in that state tangible
personal property" by eliminating the residents'
incentive to get goods from outside states where the
sales tax might be lower. The Minnesota Star Tribune
was exempted from both taxes from 1967 to 1971. In
1971, however, the state legislature amended the tax
scheme by imposing the "use tax" on the cost of paper
and ink used for publication. The law was held to
have singled out the press because (1) there was no
reason for imposing the "use tax" since the press was
exempt from the sales tax and (2) the "use tax" was
laid on an "intermediate transaction rather than the
ultimate retail sale." Minnesota had a heavy burden of
justifying the differential treatment and it failed to do
so. In addition, the U.S. Supreme Court found the law
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87
to be discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of
paper and ink used, further narrowed the coverage of
the tax so that "only a handful of publishers pay any
tax at all and even fewer pay any significant amount of
tax." The discriminatory purpose was thus very clear.
In Arkansas Writers' Project, Inc. v. Ragland, it was
held that a law which taxed general interest magazines
but not newspapers and religious, professional, trade
and sports journals was discriminatory because while
the tax did not single out the press as a whole, it
targeted a small group within the press. What is more,
by differentiating on the basis of contents (i.e., between
general interest and special interests such as religion or
sports) the law became "entirely incompatible with the
First Amendment's guarantee of freedom of the press."
These cases come down to this: That unless
justified, the differential treatment of the press creates
risks of suppression of expression. In contrast, in the
cases at bar, the statute applies to a wide range of
goods and services. The argument that, by imposing
the VAT only on print media whose gross sales
exceeds P480,000 but not more than P750,000, the law
discriminates it without merit since it has not been
shown that as a result the class subject to tax has been
unreasonably narrowed. The fact is that this limitation
does not apply to the press alone but to all sales. Nor
is impermissible motive shown by the fact that print
media and broadcast media are treated differently. The
press is taxed on its transactions involving printing and
publication, which are different from the transactions
of broadcast media. There is thus a reasonable basis for
the classification.
The cases canvassed, it must be stressed, eschew
any suggestion that "owners of newspapers are
immune from any forms of ordinary taxation." The
license tax in the Grosjean case was declared invalid
because it was "one single in kind, with a long history
88
TAX PRINCIPLES AND REMEDIES
of hostile misuse against the freedom of the press." On
the other hand, Minneapolis Star acknowledged that
"The First Amendment does not prohibit all regulation
of the press [and that] the States and the Federal
Government can subject newspapers to generally
applicable economic regulations without creating
constitutional problems."
3.
UNIFORMITY OF TAXATION"
The rule of taxation shall be uniform and equitable. (Art. VI, Sec. 28[1] of the Constitution)
Uniformity in taxation — says Black on Constitutional Law — means that all taxable articles or kinds
of property of the same class shall be taxed at the same
rate. It does not mean that lands, chattels, securities,
occupations, franchises, privileges, necessities and
luxuries shall all be taxed or assessed at the same rate.
Different articles may be taxed at different amounts
provided that the rate is uniform on the same class everywhere, with all people and at all times.
A tax is uniform when it operates with the same
form and effect in every place where the subject of it
is found. (State Railroad Tax Case, 92 U.S. 575; Patton v.
Brady, 184 U.S. 608)"
UNIFORMITY, NOT EQUALITY
The Constitution requires uniformity, not equality in
taxation. The reason is obvious. The imposition of a single
tax upon all persons, properties or transactions would
result in inequality. It is manifestly impractical. It was held
that "a system which imposes the same taxation upon every
species of property, irrespective of its nature or condition
or class," is well said to be "destructive of the principle of
uniformity and equality of taxation, and of a just adaptation
"Question No. 1,1998 Bar Examination.
"Churchill and Tait v. Concepcion, 34 Phil. 69.
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89
of property to its burdens." (Pacific Exp. Co. v. Seibert, 142
U.S. 339, 351; 35 L. Ed. 1035,12 Sup. Ct. 250; 1 Cooley 610)
EQUALITY AND UNIFORMITY DISTINGUISHED
Equality in taxation is accomplished when the burden
of the tax falls equally and impartially upon all the persons
and property subject to it, so that no higher rate or greater
levy in proportion to value is imposed upon one person or
species or property than upon others similarly situated or of
like character.
Uniformity requires that all taxable property shall be
alike subjected to the tax, and this requirement is violated
if particular kinds, species or items of property are selected
to bear the whole burden of the tax, while others, which
should be equally subject to it, are left untaxed. (Vol. 37,
Encyclopedia of Law and Procedure, pp. 735-736)
CASE FOR STUDY
KAPATIRAN NG MGA NAGLILINGKOD
SA PAMAHALAAN NG PILIPINAS v. TAN
163 SCRA 371
Petitioners seek to nullify E.0.273 which adopted
the Value Added Tax (VAT) for being unconstitutional,
claiming that it is oppressive, discriminatory, unjust
and regressive, in violation of the provisions of Art.
VI, Sec. 28(1) of the 1987 Constitution: "Sec. 28(1).
The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of
taxation."
HELD:
E.O. 273 satisfies all the requirements of a valid
tax law. It is uniform.
"A tax is considered uniform when it operates
with the same force and effect in every place where
the subject may be found." (Philippine Trust Company v.
Yatco, 69 Phil. 420)
TAX PRINCIPLES AND REMEDIES
"Equality and uniformity in taxation means that
all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural
classifications for purposes of taxation." (Eastern
Theatrical Company v. Alfonso, 83 Phil. 852, 862)
"Taking everything into account, the differentiation against which plaintiffs complain conforms to the
practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution."
(Manila Race Horses Trainers Assn. v. De la Fuente, 88
Phil. 60, 65)
"The statute or ordinance in question 'applies
equally to all persons, firms and corporations placed
in similar situation.'" (Uy Matias v. City ofCebu, 93 Phil.
300)
"Inequalities which result from the singling out of
one particular class for taxation or exemption infringe
no constitutional limitation." (Carmichael v. Southern
Coal and Coke Co., 301 U.S. 495)
4.
PROGRESSIVE TAXATION
Congress shall evolve a progressive system of
taxation. (Art. VI, Sec. 2811])
Taxation is said to be equitable when its burden
falls on those better able to pay; taxation is progressive
when its rate goes up depending on the resources of
the person affected. (Fernando, "The Constitution of the
Phils.," 2nd Ed., p. 221)
Is a tax law adopting a regressive system of taxation valid?
The Constitution does not really prohibit the imposition of regressive taxes. What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional provision should be construed to mean simply
that "direct taxes are to be preferred and indirect taxes, as
much as possible, should be minimized." (E. Fernando, Con-
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91
stitution of the Philippines, 221 [Second Ed., 1977]) Indeed, the
mandate to Congress is not to prescribe, but to evolve progressive tax system. This is a mere directive upon Congress,
not a justiciable right or a legally enforceable one. We cannot avoid regressive taxes but only minimize them. (EVAT
En Banc Resolution, Tolentino, et al. v. Secretary of Finance, October 30,1995)
[EJxrise tax on cigarettes which is a form of indirect
tax, and thus, regressive in character. While there was an
attempt to make the imposition of the excise tax more
equitable by creating a four-tiered taxation system where
higher priced cigarettes are taxed at a higher rate, still,
every consumer, whether rich or poor, of a cigarette brand
within a specific tax bracket pays the same tax rate. To this
extent, the tax does not take into account the person's ability
to pay. Nevertheless, this does not mean that the assailed
law may be declared unconstitutional for being regressive
in character because the Constitution does not prohibit
the imposition of indirect taxes but merely provides that
Congress shall evolve a progressive system of taxation.
Tolentino v. Secretary of Finance instructs:
"[Regressive 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 to the enactment of
laws for the enhancement of human dignity and the
reduction of social, economic and political inequalities
[Art. XIII, Section 1] or for the promotion of the right
to "quality education" [Art. XIV, Section 1]. These
provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable
rights." [British American Tobacco v. Camacho, 585 SCRA
36,51-52 (2009)]
5.
NON-IMPAIRMENT CLAUSE
No law shall be passed impairing the obligations
of contracts. (Art. Ill, Section 10, Constitution)
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TAX PRINCIPLES AND REMEDIES
A contract is the law between the contracting
parties. The obligation of a contract is the law which
binds the parties to perform their agreement. This law
must govern and control the contract in every shape in
which it is intended to bear upon it, whether it affects
its validity, construction or discharge. Any law which
enlarges, or in any manner changes the intention of
the parties discoverable in it, necessarily impairs the
contract itself. The manner or the degree in which
this change is effected can in no respect influence this
conclusion; for, whether the law affects the validity, the
construction, the duration, the mode of discharge or
the evidence of the agreement, it impairs the contract,
though it may not do so to the same extent in all the
supposed cases.
There is no room for any stipulation, therefore,
that when the state has stipulated by contract to
give exemption from taxation, or has commuted the
uncertain taxes for a definite and fixed sum or sums,
and afterwards undertakes to tax, in the same manner
as it taxes other subjects, the persons, corporations or
property which were the subject of the exemption or
commutation, the obligation of the contract is impaired.
(2 Cooley 1494)
The constitutional prohibition against the impairment of the obligation of contracts only applies,
however, where it is claimed that the obligation of a
contract is impaired by a law of the state — a statute or
constitutional provision of the state. It does not apply
to mere decisions of courts construing a contract.
(2 Cooley 1496)
IS A TAX EXEMPTION REVOCABLE?"
IT DEPENDS.
If the grant of an exemption does not constitute a
contract, but is merely "a spontaneous concession by the
"Question No. 3,1997 Bar Examination; Question No. 2(B), 2004 Bar Examination.
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93
legislature, not connected with any service or duty imposed"
it is REVOCABLE by the power which made the grant. A
state may, at its pleasure, withdraw an exemption which is
a mere gratuity possessing no element of a contract, even
though the corporation may have incurred expense on the
faith thereof.
Thus, a statute passed after a corporation has been
created, and exempting it wholly or partially from taxation,
without the payment of any consideration or the assumption
of any new burden by the corporation, is a mere gratuity
on the part of the state, and the exemption may be revoked
at any time. An exemption from taxation does not confer
a vested right, and hence, it may be modified or repealed
by the legislature unless such modification or repeal would
impair the obligation of a contract. (2 Cooley 1469-1473)
Similarly, if the basis of the tax exemption is by virtue
of a franchise granted by Congress, the exemption may be
revoked. (Art. Xll, Sec. 11)
On the other hand, if the tax exemption constitutes
a binding contract and for valuable consideration, the
government cannot unilaterally revoke the tax exemption.
The charter of a private corporation is a contract between the corporation and the state, based on a consideration and accepted by a corporation. However, the grant
of a franchise to a corporation does not imply a contract
exempting the property from taxation or from increased
taxation; and there is no contract created by a provision in a
charter or franchise that the corporation shall pay annually
a certain tax.
When the government enters into a contract, it descends
to the level of an ordinary individual. It cannot invoke state
immunity.
While the Court has too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying
on the franchise, these exemptions, nevertheless, are far
94
TAX PRINCIPLES AND REMEDIES
from being contractual in nature. Contractual tax exemptions,
in the real sense of the term and where the non-impairment clause
of the Constitution can rightly be invoked, are those agreed to
by the taxing authority in contracts, such as those contained
in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in
its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind
may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are
not to be confused with tax exemptions granted under
franchises. A franchise partakes of the nature of a grant
which is beyond the purview of the non-impairment
clause of the Constitution. Indeed, Article XII, Section 11 of
the 1987 Constitution, like its precursor provisions in the
1935 and 1973 Constitutions, is explicit that no franchise
for the operation of a public utility shall be granted except
under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as when the
common good so requires.
64
WITHDRAWAL OF TAX EXEMPTIONS UNDER THE
LOCAL GOVERNMENT CODE; EXCEPTIONS
In Mactan Cebu International Airport Authority v.
Marcos, the Supreme Court held that Section 193 of the
LGC prescribes the general rule, viz., the tax exemptions
or incentives granted to or presently enjoyed by natural
or juridical persons are withdrawn upon the effectivity
of the LGC except with respect to those entities expressly
enumerated. In the same vein, the Court must hold that
the express withdrawal upon effectivity of the LGC of all
exemptions except only as provided therein, can no longer
be invoked by MERALCO to disclaim liability for the local
tax.
65
"Manila Electric Company v. City Government of San Pablo, Laguna, 306 SCRA
750.
"City Government of San Pablo Laguna v. Reyes, 305 SCRA 353.
CHAPTER I
G E N E R A L PRINCIPLES
95
CASES FOR STUDY
CASANOVAS v. HORD
8 Phil. 125
In January 1897, the Spanish government, pursuant to the Royal Decree of May 14,1867, granted the
plaintiff certain mining claims in Ambos, Camarines.
The Royal Decree provided that plaintiff shall pay 40
escudos (about P40.00), on each mining claim referred
to in the first paragraph of Art. 13 thereof, and 20
escudos (about P10.00) on claims described in the
second paragraph thereof. The grantee shall also pay
an ad valorem tax equal to 8 per centum of his gross
earnings. Article 81 of said Royal Decree, however,
provides that no other taxes shall be imposed on these
mining claims.
Thereafter, the Internal Revenue Act (Act No.
1189) was passed and Sec. 134 thereof provides an
annual tax of PI 00 on each mining claim containing
an area of 60,000 square meters, and at the same rate
proportionally for claims in excess of, or less than, said
area. The grantee shall further pay an ad valorem tax
equal to 3 per centum of the actual market value of its
gross output.
Plaintiff paid the tax demanded by defendant
CIR, pursuant to the Revenue Act, under protest and
filed this suit for recovery.
HELD:
The grant by the Spanish Government to the
plaintiff constituted a contract the obligation of which
declares that no other taxes be imposed on those mining claims.
TOLENTINO, et al. v. SECRETARY
OF FINANCE
235 SCRA 630
CREBA contends that the imposition of the VAT
on the sales and leases of real estate by virtue of con-
%
TAX PRINCIPLES AND REMEDIES
tracts entered into prior to the effectivity of the law
would violate the constitutional provision that "No
law impairing the obligation of contracts shall be
passed."
HELD:
It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment,
fetter the exercise of the taxing power of the State.
For not only are existing laws read into contracts
in order to fix obligations as between parties, but
the reservation of essential attributes of sovereign
power is also read into contracts as a basic postulate
of the legal order. The policy of protecting contracts
against impairment presupposes the maintenance of
a government which retains adequate authority to
secure the peace and good order of society.
The Contract Clause has never been thought
as a limitation on the exercise of the State's power of
taxation save only where a tax exemption has been
granted for a valid consideration.
EXCEPTION:
CAGAYAN ELECTRIC POWER AND LIGHT
CO., INC. v. COMMISSIONER
G.R. No. 60126, September 25,1985
The non-impairment clause does not apply to
public utility franchises. Art. XII, Sec. 11 of the 1987
Constitution mandates that no public utility franchise
or right shall be granted "except under the condition
that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so
requires."
PHIL. POWER AND DEVELOPMENT
CO. v. COMMISSIONER
CTA Case No. 1152, October 31,1965
The Court of Tax Appeals held that the rule on
non-impairment is not disregarded with the impo-
CHAPTER I
G E N E R A L PRINCIPLES
97
sition of a higher tax rate on an existing franchise, it
appearing that said franchise was granted with the
express understanding and upon the condition that it
shall be subject to amendment, alteration and repeal.
6.
NON-IMPRISONMENT FOR NON-PAYMENT OF
POLL TAX
No person shall be imprisoned for non-payment
of a debt or poll tax. (Art. Ill, Section 20, Constitution)
While a person may not be imprisoned for nonpayment of a cedula or poll tax (People v. Linsangan,
62 Phil. 646), he may be imprisoned for non-payment
of other kinds of taxes where the law so expressly
provides.
7.
BILLS TO ORIGINATE FROM THE HOUSE OF
REPRESENTATIVES
All appropriation, revenue or tariff bills, bills
authorizing the increase of the public debt, bills of local
application and private bills, shall originate exclusively
in the House of Representatives, but the Senate may
propose or concur with amendments. (Art. Ill, Section
24, Constitution)
Both Houses of Congress may initiate bills, but
only the Lower House may propose tax measures.
CASE FOR STUDY
ARTURO M. TOLENTINO v. SECRETARY
OF FINANCE, et al.
235 SCRA 630"
Petitioners assail the constitutionality of R.A.
7716 imposing a value-added tax (VAT) on the sale,
barter or exchange of goods and properties as well as
on the sale or exchange of services. It is equivalent to
" Q u e s t i o n No. 2 , 1 9 9 7 Bar Examination.
TAX PRINCIPLES AND REMEDIES
10% of the gross selling price or gross value in money
of goods or properties sold, bartered or exchanged
or of the gross receipts from the sale or exchange of
services. Republic Act No. 7716 seeks to widen the
tax base of the existing VAT system and enhance its
administration by amending the National Internal
Revenue Code.
The contention of petitioners is that in enacting
R.A. 7716, or the Expanded Valued-Added Tax
Law, Congress violated the Constitution because,
although H. No. 11197 had originated in the House of
Representatives, it was not passed by the Senate but
was simply consolidated with the Senate version (S.
No. 1630) in the Conference Committee to produce the
bill which the President signed into law. In support of
this theory, petitioners cited:
Art. VI, Sec. 24: All appropriation, revenue
or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private
bills shall originate exclusively in the House of
Representatives, but the Senate may propose or
concur with amendments.
Id., Sec. 26(2): No bill passed by either House
shall become a law unless it has passed three
readings on separate days, and printed copies
thereof in its final form have been distributed to
its Members three days before its passage, except
when the President certifies to the necessity of its
immediate enactment to meet a public calamity
or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
It appears that on various dates between July
22, 1992 and August 31, 1993, several bills were
introduced in the House of Representatives seeking
to amend certain provisions of the National Internal
CHAPTER I
G E N E R A L PRINCIPLES
99
Revenue Code relative to the value-added tax or
VAT. These bills were referred to the House Ways and
Means Committee which recommended for approval a
substitute measure, H. No. 11197, entitled:
AN ACT RESTRUCTURING THE VALUEADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX
BASE AND ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES SECTIONS
99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110 OF
TITLE IV, 112,115 AND 116 OF TITLE V, AND 236, 237
AND 238 OF TITLE IX, AND REPEALING SECTIONS
113 AND 114 OF TITLE V, ALL OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED.
The bill (H. No. 11197) was considered on
second reading starting November 6, 1993 and, on
November 17, 1993, it was approved by the House of
Representatives after third and final reading.
It was sent to the Senate on November 23, 1993
and later referred by that body to its Committee on
Ways and Means.
On February 7, 1994, the Senate Committee
submitted its report recommending approval of S. No.
1630, entitled:
AN ACT RESTRUCTURING THE VALUEADDED TAX (VAT) SYSTEM TO WIDEN ITS TAX
BASE AND ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES SECTIONS 99,
100, 102, 103, 104, 105, 107, 108, AND 110 OF TITLE
IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE
IX, AND REPEALING SECTIONS 113, 114 and 116
OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.
It was stated that the bill was being submitted
"in substitution of Senate Bill No. 1129, taking into
consideration PS. Res. No. 734 and H.B. No. 11197."
100
TAX PRINCIPLES AND REMEDIES
On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It finished debates on the
bill and approved it on second reading on March 24,
1994. On the same day, it approved the bill on third
reading by the affirmative votes of 13 of its members,
with one abstention.
House Bill No. 11197 and its Senate version (S.
No. 1630) were then referred to a conference committee
which, after meeting four times (April 13, 19, 21 and
25,1994), recommended that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved
in accordance with the attached copy of the bill as
reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN
ACT RESTRUCTURING THE VALUE-ADDED TAX
(VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION AND FOR
THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES," was thereafter approved
by the House of Representatives on April 27, 1994 and
by the Senate on May 2, 1994. The enrolled bill was
then presented to the President of the Philippines who,
on May 5, 1994, signed it. It became Republic Act No.
7716.
Petitioners' contention is that R.A. 7716 did not
"originate exclusively" in the House of Representatives
as required by Art. VI, Sec. 24 of the Constitution,
because it is in fact the result of the consolidation of
two distinct bills, H. No. 11197 and S. No. 1630.
HELD:
This argument will not bear analysis. To begin
with, it is not the law — but the revenue bill — which is
required by the Constitution to "originate exclusively"
in the House of Representatives. A bill originating in
CHAPTER I
G E N E R A L PRINCIPLES
101
the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole.
To insist that a revenue statute — and not only the bill
which initiated the legislative process culminating in the
enactment of the law — must substantially be the same as
the House bill would be to deny the Senate's power not
only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in
fact make the House superior to the Senate.
Indeed, what the Constitution simply means is
that the initiative for filing revenue, tariff, or tax bills,
bills authorizing an increase of the public debt, private
bills and bills of local application must come from the
House of Representatives on the theory that, elected as
they are from the districts, the members of the House
can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who
are elected at large, are expected to approach the same
problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing
in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by
the Senate as a body is withheld pending receipt of the
House Bill.
8.
VETO POWER OF THE PRESIDENT
The President shall have the power to veto any
particular item or items in an appropriation, revenue
or tariff bill but the veto shall not affect the item or
items to which he does not object. (Article VI, Section
27[2], Constitution)
The item or items vetoed shall be returned to the
Lower House of Congress together with the objections
of the President. If after a reconsideration 2 / 3 of all the
members of such House shall agree to pass the bill, it
102
TAX PRINCIPLES AND REMEDIES
shall be sent, together with the objection, to the other
House by which it shall likewise be reconsidered, and
if approved by 2 / 3 of all the Members of that House, it
shall become a law.
9.
PRESIDENT'S POWER TO TAX
The Congress may, by law, authorize the
President to fix within specified limits and subject to
such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and
wharfage dues and other duties or imposts within the
framework of the national development program of the
Government. (Article VIII, Section 2812], Constitution)
The President is vested with authority by law to
increase tariff rates, even for revenue purposes only.
Article VI, Section 8(2) of the Constitution expressly
grants permission to Congress to authorize the
President "to fix within specified limits and subject to such
limitations and restrictions as it may impose, tariff rates xxx
and other duties and imposts xxx." Custom duties which
are assessed at the prescribed tariff rates are very much
like taxes which are imposed for both revenue raising
and regulatory purpose. (Garcia v. Executive Secretary,
211 SCRA 219)
However, it bears stressing that the statutory
power of the President to fix tariff rates, import or
export quotas, and tonnage or wharfage dues must
be subject to limitations and restrictions indicated
within the law itself. Furthermore, such delegation
must be in accord with the framework of the national
development program of the government.
67
The term "flexible tariff clause" refers to the
authority given to the President to adjust tariff rates
under Section 401 of the Tariff and Customs Code,
which is the enabling law that made effective the
•'Question No. 18, 2000 Bar Examination.
CHAPTER I
G E N E R A L PRINCIPLES
103
delegation of the taxing power to the President under
the Constitution.
TAXATION AND THE FREEDOM OF THE PRESS
No law shall be passed abridging the freedom
of speech, of expression, or of the press... (Article III,
Section 4, Constitution)
CASE FOR STUDY
TOLENTINO, et al. v. SECRETARY
OF FINANCE
235 SCRA 630
The Philippine Press Institute (PPI), petitioner
in G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement
of journalism in the Philippines. On the other hand,
petitioner in G.R. No. 115781, the Philippine Bible
Society (PBS), is a nonprofit organization engaged
in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of
their rights under Sections 4 and 5 of the Bill of Rights
as a result of the enactment of the VAT Law.
The PPI questions the law insofar as it has
withdrawn the exemption previously granted to the
press under Section 103(f) of the NIRC. Although the
exemption was subsequently restored by administrative
regulation with respect to the circulation income of
newspapers, the PPI presses its claim because of the
possibility that the exemption may still be removed
by mere revocation of the regulation of the Secretary
of Finance. On the other hand, the PBS goes so far as
to question the Secretary's power to grant exemption
for two reasons: (1) The Secretary of Finance has no
power to grant tax exemption because this is vested
in Congress and requires for its exercise the vote of
a majority of all its members, and (2) the Secretary's
duty is to execute the law.
104
TAX PRINCIPLES AND REMEDIES
HELD:
We find no violation of press freedom in these
cases.
The PPI's claim is simply that, as applied to
newspapers, the law abridges press freedom. Even with
due recognition of its high estate and its importance in
a democratic society, however, the press is not immune
from general regulation by the State. It has been held
that the publisher of a newspaper has no immunity
from the application of general laws. He has no special
privilege to invade the rights and liberties of others.
He must answer for libel. He may be punished for
contempt of court. Like others, he must pay equitable
and nondiscriminatory taxes on his business.
11.
TAXATION AND FREEDOM OF RELIGION
No law shall be made respecting an establishment
of religion or prohibiting the free exercise thereof. The
free exercise and enjoyment of religious profession and
worship without discrimination or preference shall
forever be allowed. No religious test shall be required
for the exercise of civil or political rights. (Article III,
Section 5, Constitution)
In the case of American Bible Society v. City of
Manila,"' the Supreme Court ruled that a municipal
license tax on the sale of bibles and religious articles
by a non-stock, non-profit missionary organization at
minimal profit constitutes a curtailment of religious
freedom and worship which is guaranteed by the
Constitution.
However, the income of such organizations from
any activity conducted for profit or from any of their
property, real or personal, regardless of the disposition
made of such income, is taxable. (See Notes under
Exemption)
"101 Phil. 386.
CHAPTER I
G E N E R A L PRINCIPLES
12.
105
TAX EXEMPTION OF PROPERTIES ACTUALLY,
DIRECTLY AND EXCLUSIVELY USED FOR
RELIGIOUS, CHARITABLE AND EDUCATIONAL
PURPOSES
Charitable institutions, churches and parsonages
or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings and improvements
actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt
from taxation. (Article VI, Section 28[3], Constitution)
REASON FOR THE RULE:
Cemeteries are exempt from the payment of taxes
because of the difficulty of collecting a tax thereon
and the obvious impropriety of selling the graves of
the dead to defray the expenses of carrying on the
government of the living.
Churches and parsonages or convents appurtenant thereto, etc., are exempt from taxation because
such institutions perform work which would otherwise have to be carried on by the public at the expense
of the taxpayers and that the expenses of such institutions from taxation lessens rather than increases the
burden upon other taxpayers. (26 R.C.L. 316)
"ACTUALLY, DIRECTLY AND EXCLUSIVELY USED"
It would seem, however, that to be entitled to
the exemption, lands, buildings and improvements
of religious and charitable institutions should be
"actually, directly and exclusively used" for religious
and charitable purposes. In the case of Province of Abra
v. Harold Hernando and the Roman Catholic Archbishop
of Bangued, Abrar the Court ruled that it was not in
accordance with the Constitution for the lower court to
declare in a declaratory relief action that the properties
of the Roman Catholic Church in Bangued, Abra are
w
1 0 7 S C R A 104.
TAX PRINCIPLES AND REMEDIES
tax-exempt without first conducting a hearing thereon
to determine whether it was actually, directly and
exclusively used for religious purposes.
The test of exemption from taxation is the use
of the property for the purposes mentioned in the
Constitution. (Abra Valley College v. Hon. Juan Aquino,
L-39086, June 15,1988,162 SCRA 106)
EXCLUSIVE BUT NOT ABSOLUTE USE
The term "exclusively used" does not necessarily
mean total or absolute use for religious, charitable and
educational purposes. Even if the property is incidentally
used for said purposes, the tax exemption will apply.
Corollarily, if a property, although actually owned
by a religious, charitable and educational institution is
used for a non-exempt purpose, the exemption from
tax shall not attach.
CONTROLLING DOCTRINE ON EXEMPTION
FROM TAXATION OF REAL PROPERTY OF
RELIGIOUS, CHARITABLE AND EDUCATIONAL
INSTITUTIONS
70
However, in the recent case of Lung Center of the
Philippines v. Quezon City and Constantino P. Rosas, City
Assessor of Quezon City, G.R. No. 144104, June 29, 2004,
433 SCRA 119, the prevailing rule on the application
of tax exemption to properties incidentally used for
religious, charitable and educational purposes, as
enunciated in the case of Herrera v. QC-BAA, 3 SCRA
187, has now been abandoned. In resolving the issue
of whether or not the portions of the real property
of Lung Center that are leased to private entities are
exempt from real property taxes, the Supreme Court
reexamined the intent of the constitutional provision
granting tax exemption of properties ACTUALLY,
DIRECTLY AND EXCLUSIVELY USED FOR RELI""Quesrion No. 10, 2005 Bar Examination.
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G E N E R A L PRINCIPLES
107
GIOUS, CHARITABLE AND EDUCATIONAL PURPOSES.
Thus, the records of the Constitutional Commission reveal that what is exempted is not the institution
itself; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively used for religious, charitable or educational
purposes.
Citing the case of St. Louis Young Men's Christian
Association v. Gehner, 47 S.W.2d 776 which held that
if real property is used for one or more commercial
purposes, it is not exclusively used for the exempted
purposes but is subject to taxation, the Supreme Court
concluded that "What is meant by actual, direct
and exclusive use of the property for charitable
institutions is the direct and immediate and actual
application of the property itself to the purposes for
which the charitable institution is organized. It is not
the use of the income from the real property that is
determinative of whether the property is used for
tax-exempt purposes."
In sum, the Court ruled that the portions of the
land leased to private entities as well as those parts
of the hospital leased to private individuals are not
exempt from taxes.
Meaning of actually, directly and exclusively
"Actually is opposed to seemingly, pretendedly, or
feignedly, as actually engaged in farming means, truly in
fact."
"Directly. In a direct way without anything intervening;
not by secondary, but by direct means."
"Exclusively. Apart from all others; without admission
of others to participation; in a manner to exclude."
[Black's Law Dictionary, Third Edition, cited in National
Power Corporation v. Central Board of Assessment Appeals
(CBAA), 577 SCRA 418, 424-425 (2009)]
108
TAX PRINCIPLES AND REMEDIES
CASES FOR STUDY
ABRA VALLEY COLLEGE, INC.
represented by PEDRO V. BORGONIA
v. HON. JUAN P. AQUINO
162 SCRA 106
For non-payment of real estate taxes, the properties of the Abra Valley Junior College, Inc. was sold at
public auction for the satisfaction of the unpaid real
property taxes thereon. At issue is whether or not the
lot and building in question are used exclusively for
educational purposes.
"used exclusively for educational purposes."
Petitioner contends that the primary use of the
lot and building for educational purposes, and not
the incidental use thereof, determines the exemption
from property taxes under Section 22(3), Article VI of
the 1935 Constitution. Hence, the seizure and sale of
subject college lot and building, which are contrary
thereto as well as to the provision of Commonwealth
Act No. 470, otherwise known as the Assessment Law,
are without legal basis and therefore void.
On the other hand, private respondents maintain
that the college lot and building in question which were
subjected to seizure and sale to answer for the unpaid
tax are used: (1) for the educational purposes of the
college; (2) as the permanent residence of the President
and Director thereof, Mr. Pedro V. Borgonia, and his
family including the in-laws and grandchildren; and
(3) for commercial purposes because the ground floor
of the college building is being used and rented by a
commercial establishment.
Section 22, paragraph 3, Article VI, of the then 1935
Philippine Constitution, expressly grants exemption
from realty taxes for "cemeteries, churches and parsonages or convents appurtenant thereto, and all lands,
109
CHAPTER I
G E N E R A L PRINCIPLES
buildings, and improvements used exclusively for
religious, charitable or educational purposes . . . "
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act
No. 409, otherwise known as the Assessment Law,
provides:
"The following are exempted from real
property tax under the Assessment Law:
xxx
xxx
xxx
(c) churches and parsonages or convents
appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious,
charitable, scientific or educational purposes.
xxx
xxx
xxx"
In this regard petitioner argues that the primary
use of the school lot and building is the basic and
controlling guide, norm and standard to determine tax
exemption, and not the mere incidental use thereof.
HELD:
The test of exemption from taxation is the use of
the property for purposes mentioned in the Constitution. (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil.
54711941])
It must be stressed however, that the exemption
extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the
main purposes. The use of the school building or lot
for commercial purposes is neither contemplated by
law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar
for residential purposes of the Director and his family,
may find justification under the concept of incidental
use, which is complimentary to the main or primary
purpose — educational, the lease of the first floor
110
TAX PRINCIPLES AND REMEDIES
thereof to the Northern Marketing Corporation cannot
by any stretch of imagination be considered incidental
to the purpose of education.
However, since only a portion is used for purposes
of commerce, it is only fair that half of the assessed tax
be returned to the school involved.
REV. FR. CASIMIRO LLADOC v.
The CIR and The CTA
14 Phil. 292
M.B. Estate donated P10,000.00 to Rev. Fr. Ruiz,
parish priest of Victorias, Negros Occidental, for the
construction of a new Catholic Church in the locality.
Respondent CIR issued an assessment for donee's gift
tax against the Catholic Parish of Victorias, of which
petitioner was then the priest. Petitioner lodged a
protest and requested the withdrawal thereof, asserting
that the assessment of the gift tax, even against the
Roman Catholic Church, is a clear violation of the
Constitution.
HELD:
Section 22(3), Art. VI of the Constitution exempts
from taxation cemeteries, churches and parsonages or
convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious
purposes. The exemption is only from the payment
of taxes assessed on such properties enumerated, as
property taxes, as contra-distinguished from excise
taxes. In the present case, what the Collector assessed
was a donee's gift tax; the assessment was not on the
properties themselves.
A gift tax is not a property tax, but an excise tax
imposed on the transfer of the property by way of gift
inter vivos, the imposition of which on property used
exclusively for religious purposes does not constitute
an impairment of the Constitution.
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G E N E R A L PRINCIPLES
111
YMCA OF MANILA v. COLLECTOR
OF INTERNAL REVENUE
33 Phil. 217 [1916]
The Supreme Court ruled that while it may be
true that the YMCA keeps a lodging and a boarding
house and maintains a restaurant for its members, still,
these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively
for religious, charitable and educational purposes, and
as such, it is entitled to be exempted from taxation.
BISHOP OF NUEVA SEGOVIA v. PROVINCIAL
BOARD OF ILOCOS NORTE
51 Phil. 352 [1972]
The Supreme Court included in the exemption
a vegetable garden in an adjacent lot and another lot
formerly used as a cemetery. It was clarified that the
term "used exclusively" considers incidental use also.
Thus, the exemption from payment of land tax in favor
of the convent includes, not only the land actually
occupied by the building but also the adjacent garden
devoted to the incidental use of the parish priest. The
lot which is not used for commercial purposes but
serves solely as a sort of lodging place, also qualifies
for exemption because this constitutes incidental use
in religious functions.
HERRERA v. QUEZON CITY BOARD
OF ASSESSMENT APPEALS,
3 SCRA 186" [1961] and COMMISSIONER
OF INTERNAL REVENUE v. BISHOP
OF THE MISSIONARY DISTRICT
14 SCRA 991 [1965]
The Supreme Court ruled thus —
"Moreover, the exemption in favor of property used exclusively for charitable or educational
1
Question No. 8 , 1 9 9 6 Bar Examination.
112
TAX PRINCIPLES AND REMEDIES
purposes is 'not limited to property actually indispensable' therefore (Cooley on Taxation, Vol. 2,
p . 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of
hospitals, 'a school for training nurses, a nurses'
home, property use to provide housing facilities
for interns, resident doctors, superintendents,
and other members of the hospital staff, and recreational facilities for student nurses, interns, and
residents' (84 C.J.S. 6621), such as 'Athletic fields'
including 'a firm used for the inmates of the institution.' (Cooley on Taxation, Vol. 2, p. 1430)
PROVINCE OF ABRA v. HERNANDO
107 SCRA 104*
To be exempt from realty taxation, there must
be proof of the actual and direct USE of the lands,
buildings, and improvement for religious or charitable
purposes.
13. TAX EXEMPTIONS GRANTED TO NON-STOCK,
NON-PROFIT EDUCATIONAL INSTITUTIONS"
Section 4. (3) All revenues and assets of nonstock, non-profit educational institutions used actually,
directly and exclusively for educational purposes shall
be exempt from taxes and duties. Upon the dissolution
and cessation of the corporate existence of such
institutions, their assets shall be disposed of in the
manner provided by law.
Proprietary educational institutions, including
those cooperatively owned may likewise be entitled to
such exemptions, subject to the limitations provided by
law, including restrictions on dividends and provisions
for reinvestments.
72
Question No. 3(b), 2000 Bar Examination.
"Question No. 9,2000 Bar Examination; Question No. 3(A), 2004 Bar Examination.
113
CHAPTER I
G E N E R A L PRINCIPLES
(4) Subject to the conditions prescribed by law,
all grants, endowments, donations or contributions
used actually, directly and exclusively for educational
purposes shall be exempt from tax. (Article XIV, Section
413] and [4], Constitution)
"ACTUALLY, DIRECTLY AND EXCLUSIVELY USED"
The use of the term "actually, directly and exclusively
used" referring to religious institutions cannot be applied
to this above article. The provision of Article VI, Section
28(3) applies to three institutions — religious, charitable
and educational institutions — while Article XIV applies
solely to non-stock, non-profit educational institutions.
Hence, in this case, we should apply its literal interpretation —"solely"— in consonance with the principle of
strictissimi juris. The word "exclusively" is an "exclusive
word," which is indicative of an intent that the provision is
mandatory. (SeeMcGee v. Republic, 94 Phil. 821 [1954])
Article XIV and Article VI compared
GRANTEE:
TAXES
COVERED:
Art. XIV, Sec. 4(3)
Art. VI, Sec. 28(3)
non-stock, nonprofit educational
institution
religious, educational, charitable
income tax
property tax
Custom Duties
Property tax (DECS
Order No. 137-87)
DECS ORDER No. 137-87
The implementing regulations of DECS Order No. 13787 dated December 16, 1987 underscored the following:
(1) The exemption granted refers to internal revenue
taxes and custom duties imposed by the National
Government on all revenues and assets of nonstock, non-profit educational institutions.
TAX PRINCIPLES A N D REMEDIES
(2) The exemption is not only limited to revenues
and assets derived from strictly school operations
like income from tuition and other miscellaneous
fees such as matriculation, library, ROTC, etc., but
also extends to incidental income derived from
canteen, bookstore and dormitory facilities.
(3) In the case, however, of incidental income, the
facilities mentioned must not only be owned and
operated by the school itself but such facilities
must be located inside the school campus. Canteens operated by mere concessionaires are
taxable.
(4) Income which is unrelated to school operations
like income from money market placements, time
and other bank deposits are taxable.
(5) The use of the school's income or assets must be in
consonance with the purposes for which the school
is created; in short, the use must be school-related
like the grant of scholarships, faculty equipment,
establishment of professorial chairs, etc.
Under the Old Tax Code, educational institutions were
not considered among tax-exempt corporations. Under
Section 30(h) of Republic Act 8424, non-stock, non-profit
educational institutions are now included among taxexempt corporations.
A careful analysis of the last paragraph of Section 30
of the NIRC, as amended by Republic Act 8424, would reveal
that the income of whatever kind or character derived by
non-stock and non-profit educational institutions from any
of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition
thereof, shall be subject to tax.
However, under Article XIV, Section 4(3) of the Constitution, revenues and assets actually, directly and exclusively USED for educational purposes shall be exempt
from taxes and duties. Last paragraph of Section 30 of the
CHAPTER I
G E N E R A L PRINCIPLES
115
NIRC disregarded this requisite of use and instead used the
phrase: "regardless of the disposition."
Ergo, Section 30(h) in relation to the last paragraph
of the NIRC appears to be unconstitutional. R.A. 8424
(NIRC) must yield to the provision of the 1987 Constitution
granting tax exemption to non-stock, non-profit educational
institutions. The Constitution is the basic and paramount
law to which all other laws must conform.
DONOR'S TAX
Article XIV, Section 4(4) provides:
Subject
endowments,
directly and
exempt from
to conditions prescribed by law, all grants,
donations or contributions used actually,
exclusively for educational purposes shall be
tax.
The foregoing Constitutional provision is not
self-executing as it requires a legislative enactment
providing certain conditions for exemption. However,
Section 101(a)[3] of R.A. 8424, has declared these
donations TAX EXEMPT.
ESTATE TAX
Non-stock, non-profit educational institutions
are not included under the coverage of Section 87 of
R.A. 8424; hence, they are NOT TAX EXEMPT. Only
transfers to social welfare, cultural and charitable
institutions are exempt from estate tax.
VALUE ADDED TAX
Under Rev. Reg. No. 6-97, once non-stock, nonprofit educational institutions engage in business, they
are subject to value added tax.
Pursuant to Section 109(m) of the Tax Code of
1987, private educational institutions shall be exempt
from value-added tax provided they are accredited as
such either by the Department of Education, Culture
116
TAX PRINCIPLES AND REMEDIES
and Sports or by the Commission on Higher Education.
However, this exemption does not extend to their other
activities involving the sale of goods and services.
However, they shall be subject to internal revenue taxes on income from trade, business or other
activity, the conduct of which is not related to the
exercise or performance by such educational institutions of their educational purposes or functions (Sec.
2, Finance Department Order No. 137-87 as amended
by Finance Department Order No. 92-88) i.e., rental
payment from their building/premises.
Unlike non-stock, non-profit corporations, their
interest income from currency bank deposits and yield
from deposit substitute instruments used actually,
directly and exclusively in pursuance of their purposes
as an educational institution, are exempt from the 20%
final tax and 7 1/2% tax on interest income under the
expanded foreign currency deposit system imposed
under Section 27(D)[1] of the Tax Code of 1997, subject
to compliance with the conditions that as a tax-exempt
educational institution, they shall on an annual basis
submit to the Revenue District Office concerned an
annual information return and duly audited financial
statement together with the following:
(a) Certification from their depository banks as to
the amount of interest income earned from passive
investment not subject to the 20% final withholding
tax and 7 1/2% tax on interest income under the
expanded foreign currency deposit system imposed
by Section 27(D)[1] of the Tax Code of 1997;
(b) Certification of actual utilization of the said
income; and
(c) Board Resolution by the school administration
on proposed projects (i.e., construction and/or
improvement of school buildings and facilities,
acquisition of equipment, books and the like) to
CHAPTER I
G E N E R A L PRINCIPLES
117
be funded out of the money deposited in banks
or placed in money markets, on or before the 14th
day of the fourth month following the end of its
taxable year. (Sec. 3, Finance Department Order No.
137-87)
Finally, the exemption does not cover withholding taxes. As an educational institution, they are constituted as withholding agents for the government
required to withhold the tax on compensation income
of their employees, or the withholding tax on income
payments to persons subject to tax pursuant to Section
57 of the Tax Code of 1997.
In both cases, in order to monitor the activities
being conducted by these institutions, it is mandatory
that they should maintain their respective set of books
of accounts as prescribed in Section 235 of the Tax Code
of 1997.
Furthermore, both institutions are subject to the
payment of the annual registration fee of P500.00 as
prescribed in Section 236(B) of the Tax Code of 1997.
They are also required under Section 6(C) in relation to
Section 237 of the same Code to issue duly registered
receipts or sales or commercial invoices for each sale or
transfer of merchandise or for services rendered which
are not directly related to the activities for which they
are registered.
74
14.
APPROPRIATION OF PUBLIC MONEY
No public money or property shall be appropriated, applied, paid or employed directly or indirectly for the use, benefit or support of any sect, church,
denomination, sectarian institution, or system of religion or of any priest, preacher, minister, or other religious teacher or dignitary as such EXCEPT when such
priest, preacher, minister or dignitary is assigned to the
4
' R e v e n u e Memorandum Circular No. 76-2003.
118
TAX PRINCIPLES AND REMEDIES
armed forces or to any penal institution or government
orphanage or leprosarium. (Article VI, Section 29[l]
Constitution)
This is in consonance with the inviolable principle
of separation of the Church and State.
The rule is subject to an exception. A particular
money may be set aside for a particular sect, priest or
religious minister or dignitaries if they are assigned
to the following institutions: leprosarium, orphanage,
penal institution and the armed forces.
15.
GRANT OF TAX EXEMPTIONS
75
The inherent power of the state to impose
taxes naturally carries with it the power to grant tax
exemptions. The power to exempt from taxation, as
well as the power to tax, is an essential attribute of
sovereignty, and may be exercised in the constitution,
or in a statute, unless the Constitution expressly or by
implication prohibits action by the legislature on the
subject.
Exemptions from taxation may be created
directly by the Constitution, e.g., Art. VI, Sec. 28(3) of
the Constitution granting tax exemptions to properties
actually, directly and exclusively used for religious,
charitable and educational purposes, or by an act
of the legislature, subject to the limitations as the
constitution may place, expressly or by implication,
upon the power of the legislature.
LEGAL BASIS OF THE GRANT OF EXEMPTIONS
Art. VI, Section 28(4) of the Constitution provides that:
No law granting any tax exemption shall be passed
without the concurrence of a.majority of all the members of
Congress.
''Question No. 6, 2004 Bar Examination.
CHAPTER I
G E N E R A L PRINCIPLES
119
Note that in granting tax exemptions, an absolute
majority vote of the Members of Congress is required,
while in cases of withdrawal of such tax exemption, a
relative majority vote is sufficient.
Tax amnesties, tax condonations, and tax refunds
are in the nature of tax exemptions. Such being the case,
a law granting tax amnesties, tax condonations, and
tax refunds requires the vote of an absolute majority of
the Members of Congress.
GENERAL RULE: NO EXEMPTION
A constitutional grant of exemption may be selfexecuting or may require an act of Congress for its
operation. Where a constitutional provision granting
tax exemption is self-executing, the legislature can
neither add nor detract from it; it may however,
prescribe a procedure to determine whether a claimant
is entitled to the constitutional exemption.
The intent to grant tax exemption must be
clear, otherwise the rule of construction applies that
exemption from taxation are to be strictly construed
against exemption and in favor of the right to tax.
STATUTORY EXEMPTIONS, WHEN VALID
Where the Constitution confers upon the legislature authority to grant exemptions within certain
limits, statutes granting such exemptions shall be
VALID if they do not exceed the constitutional limits,
and VOID if they do.
THE RULE ON CONSTRUCTION OF EXEMPTIONS
The intention of the legislature to grant tax
exemptions must be expressed in clear and unmistakable terms, it can never be implied from language
that will admit of any other reasonable construction.
Exemptions are never presumed, the burden is upon
the claimant to establish his right to exemption beyond
reasonable doubt.
120
TAX PRINCIPLES AND REMEDIES
Since taxation is the rule and exemption the
exception, the intention to make an exception ought
to be expressed in clear and unambiguous terms;
it cannot be taken to have been intended when the
language of the statute on which it depends is doubtful
or uncertain; and the burden of establishing it is upon
him who claims it. Moreover, if an exemption is found
to exist, it must not be enlarged by the construction,
since the reasonable presumption is that the state
has granted in express terms all it intended to grant
at all, and that unless the privilege is limited to the
very terms of the statute, the favor would be extended
beyond dispute in ordinary cases. It applies not only to
the power to grant exemptions, which must be strictly
construed, but also to the exemption's construction as
irrevocable, to the period of duration of the exemption,
to the amount of the exemption, to the scope of the
exemption, to charter or contract exemptions as well as
other exemptions, and to a statute exempting property
from retroactive assessments. Since an exemption
will never be presumed, the fact that the charter of a
corporation contains no provision at all for taxation,
and that there is no reservation of the power to alter,
amend or repeal the same, does not prevent the state
from afterwards taxing the corporation. (2 Cooley
Taxation, 1403-U14)
However, there are exceptions to the strict construction rule, to wit:
(1) The rule of strict construction does not apply
where the statute granting the exemption
expressly provides for a liberal interpretation;
(2) The rule of strict construction does not apply to
special taxes relating to special cases and affecting
only special classes of persons;
(3) While in some cases it is held that the strict
construction rule applies equally well to alleged
exemptions of municipal property, the better rule
CHAPTER I
G E N E R A L PRINCIPLES
121
is that strict construction of exemption statutes
applies to exemptions of property held in private
ownership but not to exemptions of public
property. In case of property owned by the state
or the city or other public corporation, an express
exemption should not be construed with the same
degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such
property "exemption is the rule and taxation the
exemption;" (2 Cooley Taxation, 1414-1415)
(4) Exemptions to traditional exemptees, such as
those in favor of religious and charitable institutions; (Ibid.)
(5) Exemptions in favor of the government, its political subdivisions or instrumentalities. In Maceda
v. Macaraig, Jr., 197 SCRA 771, the Supreme Court
held: "it is a recognized principle that the rule
on strict interpretation does not apply in the
case of exemptions in favor of a governmental
political subdivision or instrumentality." The
basis for applying the rule of strict construction
granting exemptions or deductions, even more
obvious than with reference to the affirmative or
levying provisions of tax statutes, is to minimize
differential treatment and foster impartiality,
fairness, and equality of treatment among
taxpayers. The reason for the rule does not apply
in the case of exemptions running to the benefit
of the government itself or its agencies. In such
a case, the practical effect of an exemption is
merely to reduce the amount of money that has
to be handled by government in the course of its
operations;
(6) If the taxpayer falls within the purview of
exemption by clear legislative intent. (CIR v.
Arnoldus Carpentry Shop, G.R. No. 71122, March 25,
1988)
122
TAX PRINCIPLES A N D REMEDIES
MEANING OF STRICT CONSTRUCTION RULE
When it is said that exemptions must be strictly
construed in favor of the taxing power, this does not mean
that if there is a possibility of a doubt it is to be at once
resolved against the exemption. It simply means that if,
after the application of all rules of interpretation for the
purpose of ascertaining the intention of the legislature, a
well founded doubt exists, then the ambiguity occurs which
may be settled by the rule of strict construction. (2 Cooley,
1415-1418)
Tax exemption and tax amnesty distinguished:
76
Tax amnesty is an immunity from all criminal and
civil obligations arising from non-payment of taxes. It is
a general pardon given to all taxpayers. It applies only to
past tax periods, hence of retroactive application. (People v.
Castaneda, G.R. No. L-46881, 1988) On the other hand, tax
exemption is an immunity from the civil liability only. It
is an immunity or privilege, a freedom from a charge or
burden of which others are subjected. (Florer v. Sheridan, 137
Ind. 28, 36 NE 365) It is generally prospective in application.
CASES FOR STUDY
ESSO STANDARD EASTERN, INC. v.
ACTING COMMISSIONER OF CUSTOMS
18 SCRA 488
Exemption from taxation is not favored and
exemptions in tax statutes are never presumed.
Exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the
taxing authority. Where the State has granted in express
terms certain exemptions, those are the exemptions to
be considered, and no more.
Since the law (R.A.1394) states that, to be tax
exempt, equipment and spare parts should be "for the
'"Question No. 2(a), 2001 Bar Examination.
CHAPTER I
G E N E R A L PRINCIPLES
123
use of industries," the coverage herein should not be
enlarged to include equipment and spare parts for use
in dispensing gasoline at retail. In comparable factual
backdrop, this Court has held that tax exemption in
connection with the manufacture of asbestos roof
does not extend to the installation thereof. (Collector v.
Eternity Corporations, 57 Off. Gaz., No. 6, pp. 1043,1045)
MISAMIS ORIENTAL ASSOCIATION
OF COCO TRADERS, INC. v.
DEPARTMENT OF FINANCE SECRETARY, et al.
238 SCRA 63
Petitioner contends that the Bureau of Food and
Drug of the Department of Health and not the BIR is
the competent government agency to determine the
proper classification of food products. On the other
hand, the respondents argue that the opinion of the
BIR, as the government agency charged with the
implementation and interpretation of the tax laws, is
entitled to great respect.
HELD:
The SC agreed with respondents. In interpreting
Section 103(a) and (b) of the NIRC, the Commissioner
of Internal Revenue gave it a strict construction
consistent with the rule that tax exemptions must be
strictly construed against the taxpayer and liberally
in favor of the state. Moreover, as the government
agency charged with the enforcement of the law, the
opinion of the Commissioner of Internal Revenue, in
the absence of any showing that it is plainly wrong,
is entitled to great weight. Indeed, the ruling was
made by the Commissioner of Internal Revenue in the
exercise of his power under Section 245 of the NIRC
to "make rulings or opinions in connection with the
implementation of the provisions of internal revenue
laws, including rulings on the classification of articles
for sales tax and similar purposes."
124
TAX PRINCIPLES AND REMEDIES
16. LOCAL TAXATION
Each local government unit shall have the power
to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local
governments. (Article X, Section 5, Constitution)
The general principle against the delegation of
legislative powers as a consequence of the principle of
separation of powers is subject to one well-established
exception: legislative powers may be delegated to local
government units. (Pepsi Cola v. City ofButuan, L-22814,
August 28,1968) Included in this grant of legislative power
is the grant of local taxing power.
Delegation of legislative taxing power to local governments is justified by the necessary implication that the
power to create political corporations for purposes of local
self-government carries with it the power to confer on such
local government agencies the authority to tax. (Pepsi-Cola v.
Municipality ofTanauan, Leyte, L-31156, February 27,1976)
However, despite the grant of taxing power to local
governments, judicial admonition is given to the effect that
the tax so levied must be for a public purpose, uniform,
and must not transgress any constitutional provision nor
repugnant to a controlling statute. (Villanueva v. City oflloilo,
L-26521, December 28, 1968)
Nevertheless, Congress cannot abolish the local government's power to tax as it cannot abrogate what is
expressly granted by the fundamental law. The only authority conferred to Congress is to provide the guidelines and
limitations on the local government's exercise of the power
to tax.
77
"Question No. 2, 2003 Bar Examination.
CHAPTER I
G E N E R A L PRINCIPLES
125
R.A. 7160 (Local Government Code) gives flesh to
the guidelines and limitations mentioned in the aforesaid
constitutional provision as follows:
SECTION 130. Fundamental Principles. — The
following fundamental principles shall govern the
exercise of the taxing and other revenue-raising powers
of local government units:
(a) Taxation shall be uniform in each local
government unit;
(b) Taxes, fees, charges and other impositions
shall:
(1) be equitable and based as far as practicable on the taxpayer's ability to pay;
(2) be levied and collected only for public
purposes;
(3) not be unjust, excessive, oppressive, or
confiscatory;
(4) not be contrary to law, public policy,
national economic policy, or in restraint of trade;
(c) The collection of local taxes, fees, charges
and other impositions shall in no case be let to any
private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of,
and be subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and
(e) Each local government unit shall, as far as
practicable, evolve a progressive system of taxation.
SECTION 133. Common Limitations on the
Taxing Powers of Local Government Units. — Unless
otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
126
TAX PRINCIPLES AND REMEDIES
(a) Income tax, except when levied on banks
and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies
and other acquisitions mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel
and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by
the local government unit concerned;
(e) Taxes, fees, and charges and other impositions
upon goods carried into or out of, or passing through,
the territorial jurisdictions of local government units
in the guise of charges of wharfage, tolls for bridges or
otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and
aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by
the Board of Investments as pioneer or non-pioneer
for a period of six (6) months and four (4) years,
respectively from the date of registration;
(h) Excise taxes on articles enumerated under
the National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on
sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the transportation
of passengers or freight by hire and common carriers
by air, land or water, except as provided in this Code;
CHAPTER I
G E N E R A L PRINCIPLES
127
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(I) Taxes, fees or charges for the registration
of motor vehicles and for the issuance of all kinds
of licenses or permits for the driving thereof, except
tricycles;
(m) Taxes, fees, or other charges on Philippine
products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and R.A. No. 6938
otherwise known as the "Cooperatives Code of the
Philippines" respectively; and
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units.
SECTION 198. Fundamental Principles. — The
appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental
principles:
(a) Real property shall be appraised at its current
and fair market value;
(b) Real property shall be classified for assessment purposes on the basis of its actual use;
(c) Real property shall be assessed on the basis of
a uniform classification within each local government
unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private
person; and
(e) The appraisal and assessment of real property shall be equitable.
128
TAX PRINCIPLES AND REMEDIES
The local government's power to tax is the most
effective instrument to raise the needed revenues
The right of local government units to collect taxes due
must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee
the autonomy of local governments and the objective of
the Local Government Code that they enjoy genuine and
meaningful local autonomy to empower them to achieve
their fullest development as self-reliant communities and
make them effective partners in the attainment of national
goals.
The power to tax is the most potent instrument to raise
the needed revenues to finance and support myriad activities
of the local government units for the delivery of basic
services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of
the people. (National Power Corporation v. Central Board of
Assessment Appeal [CBAA], 577 SCRA 418, 440 [2009])
CASES FOR STUDY
EUSEBIO VILLANUEVA, et al. v.
CITY OF ILOILO,
26 SCRA 578
Section 2 of the Local Autonomy Act confers
on local governments broad taxing authority which
extends to almost "everything, excepting those which
are mentioned therein" provided that the tax so levied
is "for public purposes, just and uniform," and does
not transgress any constitutional provision or is not
repugnant to a controlling statute. Thus, when a tax,
levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations,
the same comes within'rhe ambit of the general rule
pursuant to the rules of expressio unius est exclusio
alterius and exception format regulum in casibus non
except.
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G E N E R A L PRINCIPLES
129
PEPSI-COLA BOTTLING CO. OF THE
PHILIPPINES, INC. v. MUNICIPALITY
OF TANAUAN, LEYTE
69 SCRA 460
Pepsi-Cola challenges the power of taxation
delegated to municipalities under the Local Autonomy
Act.
HELD:
The power of taxation granted municipalities
under the Local Autonomy Act is constitutional.
The power of taxation is an essential and inherent
attribute of sovereignty, belonging as a matter of right
to every independent government, without being
expressly conferred by the people. (Cooley, The Law
of Taxation, Vol. I, 4th Ed.) It is a power that is purely
legislative and which the central legislative body
cannot delegate either to the executive or judicial
power of the government without infringing upon
the theory of separation of powers. The exception,
however, lies in the case of municipal corporations, to
which said theory does not apply. Legislative powers
may be delegated to local governments in respect of
matters of local concern. (Pepsi-Cola Bottling Co. of
the Phils., Inc. v. City of Butuan, 24 SCRA 793) This is
sanctioned by immemorial practice. By necessary
implication, the legislative power to create political
corporations for purposes of self-government carries
with it the power to confer on such local government
agencies the power to tax. (Cooley, 190) x x x The
plenary nature of the taxing power thus delegated,
contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not
limited to the exact measure of that which is exercised
by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant
that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem
TAX PRINCIPLES A N D REMEDIES
expedient. Thus, municipalities may be permitted to
tax subjects which for reasons of public policy the State
has not deemed wise to tax for more general purposes.
PEPSI-COLA BOTTLING CO. OF THE PHILS,
v. CITY OF BUTUAN
24 SCRA 789
Petitioners assail the constitutionality of Municipal Ordinance No. 110, as amended by Mun. Ord. No.
122, on the ground that Sec. 2 of R.A. 2264, upon the
authority of which it is delegated, is an unconstitutional
delegation of legislative powers.
HELD:
Independently of whether or not a tax imposed
pursuant to Sec. 2 of R.A. 2264 amounts to a double
taxation — double taxation, in general, is not forbidden
by our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found
in the US Constitution and of some states of the Union.
Then again, the general principle against delegation
of legislative powers, in consequence of the theory of
separation of powers (U.S. v. Bull, 15 Phil. 7,27; Kilbourn
v. Thompson, 103 U.S. 168,26 L. Ed. 377) is subject to one
well-established exception, namely: legislative powers
may be delegated to local governments.
SPECIAL FUND
All money collected on any tax levied for a special
purpose shall be treated as a special fund and paid out
for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the
balance, if any, shall be transferred to the general funds
of the government. (Art. VI, Section 2913], Constitution)
CASE FOR STUDY
JOHN H. OSMENA v. OSCAR ORBOS
220 SCRA 703
On October 10, 1984, a Special Account in the
General Fund, designated as the Oil Price Stabilization
CHAPTER I
G E N E R A L PRINCIPLES
131
Fund (OPSF), was created to reimburse oil companies
for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments
and from increases in the world market prices of crude
oil.
Subsequently, the OPSF was reclassified into a
"trust liability account," by virtue of E.O. 1024, and
ordered released from the National Treasury to the
Ministry of Energy. The same Executive Order also
authorized the investment of the fund in government
securities, with the earnings from such placements
accruing to the fund.
The instant petition avers that the creation of
the trust fund violates Section 29(3), Article VI of the
Constitution.
The petitioner argues that "the monies collected
pursuant to P.D. 1956 as amended, must be treated as a
'SPECIAL FUND,' not as a 'trust account/ or a 'trust
fund,' and that "if a special tax is collected for a specific
purpose the revenue generated therefrom shall 'be
treated as a special fund' to be used only for the purpose
indicated, and not channeled to another government
objective." Petitioner further points out that since "a
'special fund' consists of monies collected through the
taxing power of a State, such amounts belong to the
State, although the use thereof is limited to the special
purpose/objective for which it was created."
He also contends that the "delegation of legislative
authority" to the ERB violates Section 28(2) Article VI
of the Constitution, and inasmuch as the delegation
relates to the exercise of the power of taxation, the
law must not only specify how to tax, who (shall)
be taxed (and) what the tax is for, but also impose a
specific limit on how much to tax. The petitioner does
not suggest that a "trust account" is illegal per se, but
maintains that the monies collected, which form part
of the OPSF should be maintained in a special account
132
TAX PRINCIPLES AND REMEDIES
of the general fund for the reason that the Constitution
so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund
is formed from a tax undoubtedly because a portion
thereof is taken from collections of ad valorem taxes and
the increases thereon.
HELD:
The petitioner's perceptions are, in the Court's
view, not quite correct.
The OPSF is a 'Trust Account' which was established "for the purpose of minimizing the frequent
price changes brought about by exchange rate adjustment and/or changes in world market prices of
crude oil and imported petroleum products." It was
established precisely to protect local consumers from
the adverse consequences that such frequent oil price
adjustments may have upon the economy. Thus, the
OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil and petroleum products paid by consumers as well as some tax revenues
are inputted and from which amounts are drawn from
time to time to reimburse oil companies, when appropriate situations arise, for increases in, as well as under
recovery of, costs of crude importation. The OPSF is
thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil
companies are allowed to recover those portions of
their costs which they would not otherwise recover
given the level of domestic prices existing at any given
time. To the extent that some tax revenues are also put
into it, the OPSF is in effect a device through which the
domestic prices of petroleum products are subsidized
in part.
It appears to the Court that the establishment
and maintenance of the OPSF is well within that
pervasive and non-waivable power and responsibility
CHAPTER I
G E N E R A L PRINCIPLES
133
of the government to secure the physical and economic
survival and well-being of the community, that
comprehensive sovereign authority we designate as
the police power of the State. The stabilization, and
subsidy of domestic prices of petroleum products and
fuel oil "— clearly critical in importance considering,
among other things, the continuing high level of
dependence of the country on imported crude oil —
are appropriately regarded as public purposes."
Hence, while the funds collected may be referred
to as taxes, they are exacted in the exercise of the
police power of the State. Moreover, that the OPSF is
a special fund is plain from the special treatment given
it by E.O. 137. It is segregated from the general fund;
and while it is placed in what the law refers to as a
"trust liability account," the fund nonetheless remains
subject to the scrutiny and review of the COA. The
Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed,
the practice is not without precedent.
SUPREME C O U R T S JURISDICTION OVER TAX
CASES
ART. VIII, SEC. 2:
The Congress shall have the power to define,
prescribe, and apportion the jurisdiction of the
various courts but may not deprive the Supreme
Court of its jurisdiction over cases enumerated in
Section 5 hereof.
ART. VIII, SEC. 5:
The Supreme Court shall have the following
powers:
Review, revise, reverse, modify or affirm on
appeal or certiorari as the law or the Rules of Court
may provide, final judgments or orders of lower
courts in:
TAX PRINCIPLES A N D REMEDIES
(b) All cases involving the legality of any
tax, impost, assessment or toll, or any penalty
imposed in relation thereto.
The Supreme Court exercises exclusive appellate
jurisdiction over certain judgments or orders of the
lower courts involving the legality of a tax impost,
assessment, fee, or penalty imposed in relation thereto.
Decisions of the Bureau of Internal Revenue are
appealable to the Court of Tax Appeals. The decisions
of the Court of Tax Appeals may be appealed to the
Court of Appeals. (DBP v. CA, 180 SCRA 609) Decisions
rendered by the Court of Appeals may be elevated to
the Supreme Court.
Congress may not pass a law declaring that
decisions of the Court of Appeals on tax cases shall be
final and executory. However, a law making decision
of the Court of Tax Appeals appealable directly to the
Supreme Court is valid. Congress cannot deprive the
Supreme Court of its power to review, revise, modify or
affirm the decisions of lower courts.
KINDS OF TAXES DIFFERENTIATED
(1)
78
Direct and Indirect — A direct tax is a tax for which a
taxpayer is directly liable on the transaction or business
it engages in. Examples are the custom duties and ad
valorem taxes paid by the oil companies to the Bureau
of Customs for their importation of crude oil, and the
specific and ad valorem taxes they pay to the Bureau
of Internal Revenue after converting the crude oil into
petroleum products. On the other hand, indirect tax
is a tax primarily paid by persons who can shift the
burden upon someone else. For example, the excise and
ad valorem taxes that oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products
from its refinery can be shifted to its buyer like the
'"Question 1(2), 2006 Bar Examination; Question No. 2, 2001 Bar Examination.
CHAPTER I
G E N E R A L PRINCIPLES
135
NPC, by adding them to the "cash" and/or "selling
price."
Based on the possibility of shifting the incidence
of taxation, or as to who shall bear the burden of
taxation, taxes may be classified into either direct tax
or indirect tax. In context, direct taxes are those that
are exacted from the very person who, it is intended or
desired, should pay them.
Indirect taxes are those that are demanded, in the
first instance, from, or are paid by, one person in the
expectation and intention that he can shift the burden
to someone else. Stated elsewise, indirect taxes are taxes
wherein the liability for the payment of the tax falls
on one person but the burden thereof can be shifted
or passed on to another person, such as when the tax
is imposed upon goods before reaching the consumer
who ultimately pays for it. When the seller passes on
the tax to his buyer, he, in effect, shifts the tax burden,
not the liability to pay it, to the purchaser as part of the
price of goods sold or services rendered.
It bears to stress that the liability for the payment
of the indirect taxes lies only with the seller of the
goods or services, not in the buyer thereof. Thus, one
cannot invoke one's exemption privilege to avoid the
passing on or the shifting of the VAT to him by the
manufacturers/suppliers of the goods he purchased.
Hence, it is important to determine if the tax exemption
granted to a taxpayer specifically includes the indirect
tax which is shifted to him as part of the purchase
price, otherwise it is presumed that the tax exemption
embraces only those taxes for which the buyer is
directly liable. (Commissioner of Internal Revenue v.
Philippine Long Distance Telephone Company, 478 SCRA
61 [2005])
(2)
Specific and ad valorem — A specific tax is imposed
and based on weight or volume capacity or any other
physical unit of measurement, whereas ad valorem
136
TAX PRINCIPLES A N D REMEDIES
tax is based on selling price or other specified value
of the goods. (Sec. 129, NIRC) Examples of specific tax
are excise taxes on distilled spirits, tobacco products
and petroleum products. Examples of ad valorem tax
include excise tax on automobiles and non-essential
goods.
(3) General and special — A general tax is imposed solely
to raise revenue for the government, such as: income
tax, donor's tax, estate tax and value-added tax. On
the other hand, special tax is imposed and collected to
achieve a particular legitimate object of government.
An example of special tax is oil price stabilization fund.
In Osmefia v. Orbos, supra, the Supreme Court held
that the contribution to OPSF is collected to protect
the local consumers by stabilizing and subsidizing
domestic pump rates.
(4) National and local — A national tax is imposed by
the national government (e.g., revenue taxes under the
NIRC and custom duties), while local tax is levied and
collected by the local government (e.g., real property
tax and business tax).
The Supreme Court ruling laid down in the case
of Meralco v. CBAA (L-46245, May 3, 1982) classifying
real property tax as national tax is deemed superseded
by the effectivity of R.A. 7160 on January 1,1992.
(5) Personal and property — A personal tax is of fixed
amount imposed on individuals, whether citizens or not,
residing within a specified territory, without regard to
their property or occupation (e.g., community tax), while
property tax is imposed on property, real or personal, in
proportion to its value (e.g., real estate tax).
A tax on the exercise of right or privilege or
performance of an act is generally regarded as excise
tax (e.g., income tax, estate tax, donor's tax and valueadded tax).
CHAPTER I
G E N E R A L PRINCIPLES
(6)
137
Progressive and regressive — A progressive tax is one
whereby the rate increases as the tax base (amount)
increases. Examples are income tax, estate and donor's
tax under the NIRC. On the other hand, regressive
tax is one where the tax rate decreases as the tax base
increases.
In Tolentino, et al. v. Secretary of Finance, EVAT En
Banc Resolution, October 30, 1995, the Supreme Court
ruled that value-added tax is a form of regressive tax.
CONCEPT OF DOUBLE TAXATION"
There is double taxation where one tax is imposed by
the State and the other is imposed by the city; it being widely
recognized that there is nothing inherently obnoxious in
the requirement that license fees or taxes be enacted with
respect to the same occupation, calling or activity by both
the state and the political subdivision thereof. (Cooley on
Taxation, 4th Ed. p. 492; and 51 Am. Jur. 341)
1)
Kinds of Double Taxation
a)
DIRECT — constitutes double taxation in the
objectionable or prohibited sense. This occurs
when the same property is taxed twice when
it should be taxed but once; both taxes must
be imposed on the same property or subject
matter, for the same purpose, by the same State,
Government, or taxing authori/tv, within the same
jurisdiction or taxing district, during the same
taxing period, and they must be of the same kind
or character of tax. (84 C.J.S. 131-132)
Local Business Tax Based on Gross Revenues amounts to
direct double taxation
The imposition of local business tax based on gross
revenue will inevitably result in the constitutionally pros-
7
*Queshon No. 1,1997 Bar Examination; Question No. 4(B), 2004 Bar Examination.
138
TAX PRINCIPLES A N D REMEDIES
cribed double taxation — taxing of the same person twice
by the same jurisdiction for the same thing — inasmuch as
petitioner's gross revenue or income for a taxable year will
definitely include its gross receipts already reported during
the previous year and for which local business tax has already been paid.
Gross revenue covers money or its equivalent actually
or constructively received, including the value of services
rendered or articles sold, exchanged or leased, the payment
of which is yet to be received. This is in consonance with the
International Financial Reporting Standards, which defines
revenue as the gross inflow of economic benefits (cash,
receivables, and other assets) arising from the ordinary
operating activities of an enterprise (such as sales of goods,
sales of services, interest, royalties, and dividends), which is
measured at the fair value of the consideration or receivable.
(Ericsson Telecommunications, Inc. v. City ofPasig, 538 SCRA
99,114-115 [2007])
b)
INDIRECT — is permissible double taxation.
This is allowed if the taxes are of different
nature or character, imposed by different taxing
authorities. It has been held that a real estate tax
and the tenement tax imposed by local ordinance
although imposed by the same taxing authority,
are not of the same kind or character. (Villanueva
v. Upilo City, 26 SCRA 578)
c)
DOMESTIC — this arises when the taxes are
imposed by the local or national government
(within the same state).
d)
INTERNATIONAL — refers to the imposition
of comparable taxes in two or more states on
the same taxpayer in respect of the same subject
matter and for identical periods. (CIR v. S.C.
Johnson and Sons, Inc., 309 SCRA 102)
The Supreme Court declared that double taxation, in
general, is not forbidden by our Constitution since we have
CHAPTER I
G E N E R A L PRINCIPLES
139
not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States
and some states of the Union. Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where
one tax is imposed by the State and the other by the city
or municipality. (Pepsi-Cola Bottling Co. v. Municipality of
Tanauan, Leyte, 69 SCRA 460)
Despite the lack of a specific prohibition, however,
double taxation will not be allowed if it results in a
violation of the equal protection clause. Hence, if certain
properties are subjected to an additional tax whereas others
similarly situated are not similarly taxed, the owners of
the first properties would have a right to complain. (Cruz,
Constitutional Law, 2000 Edition, p. 91)
TAX TREATY AS A MODE OF ELIMINATING DOUBLE
TAXATION
In order to eliminate double taxation, a tax treaty
resorts to two methods of relief, to wit:
1)
EXEMPTION METHOD — the income or capital
which is taxable in the state of source or situs is
exempted in the state of residence, although in some
instances it may be taken into account in determining
the rate of tax applicable to the taxpayer's remaining
income or capital.
2)
CREDIT METHOD — the tax paid in the state of
source is credited against the tax levied in the state of
residence.
The basic difference between the two methods,
is that in the exemption method, the focus is on the
income or capital itself, whereas the credit method
focuses upon the tax. (Baker, Double Taxation Conventions
and International Tax Law 11994], pp. 70-72)
140
TAX PRINCIPLES A N D REMEDIES
XII. TAX EVASION
GUISHED"
AND
TAX
AVOIDANCE
DISTIN-
Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. On
the other hand, tax avoidance is a legal means used by the
taxpayer to reduce taxes. (Benny v. Commr., 25 TCI. 78)
The intention to minimize taxes, when used in the
context of fraud, must be proven by clear and convincing
evidence amounting to more than mere preponderance.
Mere understatement of tax in itself does not prove fraud.
(Yutivo Sons Hardware Co. v. CTA, 1 SCRA 160)
A taxpayer has the legal right to decrease the amount
of what otherwise would be his taxes or altogether avoid
them by means which the law permits. Therefore, a man
may perform an act that he honestly believes to be sufficient
to exempt him from taxes. He does not incur fraud thereby
even if the act is thereafter found to be insufficient. (Court
Holding Co. v. Commr., 2 TCI. 531)
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than
that known by taxpayer to be legally due, or the nonpayment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being
"evil," in "bad faith," "willful," or "deliberate and not
accidental"; and (3) a course of action or failure of action
which is unlawful.
81
Did the tax planning scheme adopted by Cibeles
Insurance Corporation (CIC) constitute tax evasion that
would justify an assessment of deficiency income tax?
This was the query which the Supreme Court passed
upon in a recently promulgated decision entitled Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr.*
•Question No. 3,1996 Bar Examination.
"'De Leon, Fundamentals of Taxation 53 (1988 Ed.), citing Batter, Fraud under Federal
Tax Law 15 (1953 Ed.)
"G.R. No. 147188, September 14, 2004, 438 SCRA 290.
CHAPTER I
G E N E R A L PRINCIPLES
141
On March 2, 1989, CIC authorized Benigno P. Toda, Jr.,
President and owner of99.991% of its issued and outstanding
capital stock, to sell the Cibeles Building and the two
parcels of land on which the building stands for an amount
of not less than P90 million. On August 30,1989, Toda sold
the property for P100 million to Rafael A. Altonaga who
sold the same property on the same day to Royal Match,
Inc. (RMI) for P200 million. For the sale of the property to
RMI, Altonaga paid capital gains tax in the amount of P10
million. On April 16, 1990, CIC filed its corporate annual
income tax return for the year 1989, declaring its gain from
the sale of real property in the amount of P75,728.021.
On July 12, 1990, Toda sold his entire shares of stocks
in CIC to Le Hun T. Choa for PI 2.5 million. Three and half
years after the sale, Toda died.
Thereafter in 1994, the BIR sent an assessment notice
and demand letter to the CIC for deficiency income tax for
the year 1989 in the amount of P79,099,999.22. As the new
CIC is now owned by an entirely different set of stockholders, the Commissioner of Internal Revenue, on January 9,
1995, issued a Notice of Assessment to the Estate of Benigno
P. Toda, Jr. for the above-mentioned deficiency tax.
The Commissioner of Internal Revenue dismissed the
protest which the Estate of Toda subsequently filed stating
that a fraudulent scheme was deliberately perpetuated
by the CIC which was wholly owned and controlled by
Toda by covering up the additional gain of PI 00 million,
which resulted in the change in the income structure of
the proceeds of the sale of the two parcels of land and the
building thereon to an individual capital gains, thus evading
the higher corporate income tax rate of 35%.
To bolster his position, the Commissioner of Internal
Revenue, in an Answer and Amended Answer to the
petition for review filed before the Court of Tax Appeals by
the Estate of Toda argued thus:
1.
The two transactions actually constituted a single
sale of the property by CIC to RMI and that
142
TAX PRINCIPLES AND REMEDIES
Altonaga was neither the buyer of the property
from CIC nor the seller of the same property to
RMI;
2.
The additional gain of PI 00 million (the difference
between the second simulated sale for P100
million) realized by CIC was taxed at the rate
of only 5% purportedly as capital gains tax of
Altonaga, instead of at the rate of 35% as corporate
income tax of CIC;
3.
The income tax return filed by CIC for 1989 with
intent to evade payment of the tax was thus false
or fraudulent.
Holding that the Commissioner of Internal Revenue
failed to prove that CIC committed fraud to deprive the
government of taxes due it and that even assuming that
a preconceived scheme was adopted by CIC, the same
constituted mere tax avoidance and not tax evasion, the
Court of Tax Appeals denied the petition.
In its challenged Decision, the Court of Appeals
affirmed the decision of the of the CTA, reasoning that the
CTA, being more advantageously situated and having the
necessary expertise in matters of taxation, is "better situated
to deteirnine the correctness, propriety, and legality of the
income tax assessments assailed by the Toda Estate."
The Supreme Court reversed the decision of the Court
of Appeals on the following grounds:
1.
Tax avoidance is the tax saving device within the
means sanctioned by law while tax evasion, on
the other hand, is a scheme used outside of those
lawful means and when availed of, it subjects the
taxpayer to further or additional civil or criminal
liabilities.
2.
All the three factors of tax evasion are present
in this case. As early as May 4, 1989, prior to the
purported sale of the Cibeles property by CIC to
CHAPTER I
G E N E R A L PRINCIPLES
143
Altonaga on August 30, 1989, CIC received P40
million from RMI, and not from Altonaga. This
P40 million was debited by RMI and reflected in
its trial balance as "other inv. — Cibeles Bldg." In
addition, as of July 31, 1989, another P40 million
was reflected in RMI's trial balance as "other
inv. — Cibeles Bldg." These showed that the real
buyer of the properties was RMI, and not the
intermediary Altonaga.
3.
That Altonaga was a mere conduit finds support
in the admission of the Toda Estate that the sale to
him was part of the tax planning scheme of CIC.
4.
The scheme resorted to by CIC in making it appear
that there were two sales of the subject properties,
i.e., from CIC to Altonaga, and then from Altonaga
to RMI cannot be considered a legitimate tax
planning. Such scheme being tainted with fraud.
5.
The intermediary transaction — the sale of
Altonaga, which was prompted more on the
mitigation of tax liabilities than for legitimate
business purposes constitutes one of tax evasion.
6.
To allow a taxpayer to deny tax liability on the
ground that the sale was made through another
and distinct entity when it is proved that the
latter was merely a conduit is to sanction a
circumvention of the tax laws. Hence, the sale to
Altonaga should be disregarded for income tax
purposes and the two sale transactions should be
treated as a single direct sale by CIC to RMI.
7.
The tax liability of CIC is governed by then Section
24 of the NIRC of 1986, as amended [now 27(A)
of the Tax Reform Act of 1997]. CIC is therefore
liable to pay a 35% corporate tax for its taxable net
income in 1989. The 5%; individual capital gains
tax provided for in Section 34(h) of the NIRC of
1986 (now 6% under Section 24(D)[1] of the Tax
144
TAX PRINCIPLES A N D REMEDIES
Reform Act of 1997) is inapplicable. Thus, the
assessment for the deficiency income tax issued
by the BIR must be upheld.
CASE FOR STUDY
UNGAB DOCTRINE" SUSTAINED
IN CIR v. PASCOR
309 SCRA 402
In Ungab v. Cusi, 97 SCRA 877, the Supreme Court
held that while there can be no civil action to enforce
collection before the assessment procedures provided
in the Code have been followed, there is no requirement
for the precise computation and assessment of the tax
before there can be a criminal prosecution under the
Tax Code.
In the subsequent case of CIR v. CA, 257 SCRA
200, it was held that before one is prosecuted for willful
attempt to evade or defeat any tax under Sections 253
and 255 of the Tax Code, the fact that a tax due must
first be proved.
However, in the recent case of CIR v. PASCOR,
309 SCRA 402, the Court ruled that an assessment is
not necessary before a criminal charge can be filed.
First — Section 205 of the Tax Code clearly
mandates that the civil and criminal aspects of the case
may be pursued simultaneously.
Second — A criminal complaint is instituted not
to demand payment, but to penalize the taxpayer for
violation of the Tax Code.
Third — The crime is complete when the violator
has knowingly and willfully filed a fraudulent return
with intent to evade and defeat a part of all of the tax.
(Guzikv. U.S. 54 F 2d. 618)
•"Question 14(2), 2005 Bar Examination; Question No. 2 0 , 1 9 9 8 Bar Examination.
CHAPTER I
G E N E R A L PRINCIPLES
XIII.
145
DOCTRINE OF IMPRESCRIPTIBILITY"
As a rule, taxes are imprescriptible as they are the
lifeblood of the government. However, tax statutes may
provide for statute of limitations.
The rules that have been adopted are as follows:
a)
National Internal Revenue Code — The statute of limitation for assessment of tax if a return is filed is within
three (3) years from the last day prescribed by law for
the filing of the return or if filed after the last day, within three years from date of actual filing. If no return is
filed or the return filed is false or fraudulent, the period to assess is within ten years from discovery of the
omission, fraud or falsity.
Any internal revenue tax which has been assessed
within the period of limitation as prescribed in
paragraph (a) of Sec. 222 may be collected by distraint
or levy or by a proceeding in court within five (5) years
following the assessment of the tax.
b)
Tariff and Customs Code — It does not express any
general statute of limitation; it provides, however,
that "when articles have been entered and passed
free of duty of final adjustments of duties made, with
subsequent delivery, such entry and passage free of
duty or settlements of duties will, after the expiration
of three (3) years from the date of the final payment of
duties, in the absence of fraud or protest or compliance
audit pursuant to the provisions of this Code, be final
and conclusive upon all parties, unless the liquidation
of the import entry was merely tentative." (Sec. 4, R.A.
9135)
c)
Local Government Code — Local taxes, fees, or charges
shall be assessed within five (5) years from the date
they became due. In case of fraud or intent to evade
the payment of taxes, fees or charges the same may be
"Question No. 4 , 1 9 9 7 Bar Examination.
146
TAX PRINCIPLES AND REMEDIES
assessed within ten (10) years from discovery of the fraud
or intent to evade payment. They shall also be collected
either by administrative or judicial action within five (5)
years from date of assessment. (Sec. 194, LGC)
XIV. NATURE AND PROSPECTTVITY OF TAX LAWS
Tax laws are civil in nature. Under Article 5 of the
Civil Code, acts executed against the mandatory provisions
of law are void, except when the law itself authorizes
the validity of those acts. In CIR v. Reyes [480 SCRA 382,
397], the Supreme Court ruled that failure to comply
with Section 228 (of the NIRC, as amended by R.A. 8424,
requiring that "The taxpayers shall be informed in writing
of the laws and the facts on which the assessment is made;
otherwise, the assessment shall be void") does not only
render the assessment void, but also finds no validation in
any provision in the Tax Code. The Court cannot condone
errant or enterprising tax officials, as they are expected to be
vigilant and law-abiding.
The general rule under the Civil Code that laws shall
have prospective application applies to tax laws. Retroactive
application of revenue laws may be allowed if it will not
amount to denial of due process. There is violation of due
process when the tax law imposes harsh and oppressive tax.
It has been held that the retroactive application of
War Profits Tax Law may not be considered harsh and
oppressive because the force of its impact fell on those who
had amassed wealth or increased their wealth during the
war, but did not touch the less fortunate. (Republic v. Oasan
Vela. De Fernandez, 99 Phil. 934)
Strict construction of tax laws
Statutes levying taxes or duties are to be construed
strongly against the Government and in favor of the subject
or citizens, because burdens are not to be imposed or
presumed to be imposed beyond what statutes expressly
and clearly declare. No person or property is subject to
CHAPTER I
G E N E R A L PRINCIPLES
147
taxation unless they fall within the terms or plain import of
a taxing statute. (Commissioner of Internal Revenue v. Court of
Appeals, 204 SCRA 182,189 [1991])
XV. TAXPAYER'S SUIT, REQUISITES*
Taxpayer's suit requires illegal expenditure of public
money. In Maceda v. Macaraig, Jr. [197 SCRA 771], the
Supreme Court sustained the right of Senator Maceda as
taxpayer to file a petition questioning the legality of the tax
refund to NPC by way of tax credit certificates and use of
said assigned tax certificate by oil companies to pay for their
tax and duty liabilities to the BIR and Bureau of Customs.
However, in the case of Gonzales v. Marcos [65 SCRA
624], the Supreme Court held that the taxpayer has no legal
personality to assail the validity of Executive Order No. 30
creating the Cultural Center of the Philippines. Assailed
order does not involve the use of public funds. There was
finding to the effect that the funds came from donations and
contributions and not by taxation. Accordingly, there was
that absence of the requisite pecuniary or monetary interest.
In the recent case of Abaya v. Ebdane, Jr. [515 SCRA 720,
757-758], the Supreme Court stressed that the prevailing
doctrine in the taxpayer's suits is to allow taxpayers to
question contracts entered into by the national government
or government-owned and controlled corporations
allegedly in contravention of law. A taxpayer is allowed
to sue where there is a claim that public funds are illegally
disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds
through the enforcement of an invalid or unconstitutional
law. Significantly, a taxpayer need not be a party to the
contract to challenge its validity.
"Question No. 4(b), 1996 Bar Examination.
Chapter II
TAX REMEDIES
I.
REMEDIES
OF THE
GOVERNMENT
Remedies have been allowed, in every age and country, for the collection by the government of its revenues.
They have been considered a matter of state necessity. The
existence of the government depending on the regular
collection of revenue must, as an object of primary importance, be insured. With this objective in mind, promptness
in collection is always desirable, if not imperative.
A.
Assessment and Collection
Assessment precedes collection except when
the unpaid tax is a tax due per return as in the case
of a self-assessed income tax under the pay-as-youfile system in which case collection may be instituted
without need of assessment pursuant to Section 56 of
the NIRC.
Sec. 56. Payment and Assessment of Income Tax for
Individuals and Corporations. —
(A) Payment of Tax. —
(1) In General. — The total amount of tax imposed
by this Title shall be paid by the person
subject thereto at the time the return is filed.
In the case of tramp vessels, the shipping
agents and/or the husbanding agents, and
in their absence, the captains thereof are
required to file the return herein provided
and pay the tax due thereon before their
departure. Upon failure of the said agents or
148
CHAPTER II
TAX REMEDIES
149
captains to hie the return and pay the tax, the
Bureau of Customs is hereby authorized to
hold vessel and prevent its departure until
proof of payment of the tax is presented or a
sufficient bond is filed to answer for the tax
due.
(2)
Installment Payment — When the tax due is in
excess of Two Thousand Pesos (P2,000.00), the
taxpayer other than a corporation may elect
to pay the tax in two (2) equal installments
in which case, the first installment shall be
paid at the time the return is filed and the
second installment, on or before July 15
following the close of the calendar year. If
any installment is not paid on or before the
date fixed for its payment, the whole amount
of the tax unpaid becomes due and payable,
together with the delinquency penalties.
In cases where assessment is necessary, the
primordial consideration is its final and unappealable
nature. Collectibility of the tax liability attaches only
when the assessment becomes final and unappealable.
An assessment contains not only a computation
of tax liabilities but also a demand for payment
within a prescribed period. It also signals the time
when penalties and interests begin to accrue against
the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be
served on and received by taxpayer. (CIR v. PASCOR,
309 SCRA 402)
Commissioner's recommendation letter cannot be
considered as formal assessment of tax liability
In the context in which it is used in the NIRC, an
assessment is a written notice and demand made by
the BIR on the taxpayer for the settlement of a due tax
liability that is there definitely set and fixed. A written
communication containing a computation by a rev-
TAX PRINCIPLES AND REMEDIES
enue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR
examiner's findings is not an assessment since it is yet
indefinite. The recommendation letter of the Commissioner cannot be considered a formal assessment. Even
a cursory perusal of the said letter would reveal three
key points: 1. It was not addressed to the taxpayers. 2.
There was no demand made on the taxpayers to pay
the tax liability nor a period for payment set therein. 3.
The letter was never mailed or sent to the taxpayers by
the Commissioner. In fine, the said recommendation
letter served merely as the prima facie basis for filing
criminal informations that the taxpayers had violated
Section 45 (a) and (d), and 110, in relation to Section
100, as penalized under Section 255, and for violation
of Section 253, in relation to Section 252 9(b) and (d) of
the Tax Code. (Adamson v. Court of Appeals, 588 SCRA
27 [2009])
Presumption of Regularity of Assessment
CASES FOR STUDY
COMMISSIONER OF INTERNAL REVENUE
v. HON. COURT OF APPEALS, ATLAS
CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION AND COURT OF TAX APPEALS
G.R. No. 104151
and
ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION v. COURT
OF APPEALS, COMMISSIONER
OF INTERNAL REVENUE AND COURT
OF TAX APPEALS
242 SCRA 289
FACTS:
On April 9, 1980, the Commissioner of Internal
Revenue, acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused
CHAPTER II
TAX REMEDIES
151
the service of an assessment notice and demand for
payment of the amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes,
including increments, for the taxable year 1975 against
Atlas Consolidated Mining and Development Corporation (ACMDC). Likewise, on the basis of the BIR
examiner's report in another investigation separately
conducted, the Commissioner had another assessment
notice, with a demand for the payment of the amount
of P13,531,466.80 representing the 1976 deficiency ad
valorem and business taxes with P5,000.00 compromise
penalty, served on ACMDC on September 23,1980.
ACMDC protested both assessments but the same
were denied. Assailing the tax liability imposed by
the BIR, ACMDC elevated the matter to the Supreme
Court, where one of the issues raised was the assessed
contractor's tax. ACMDC claimed that the leasing out of
its personal properties was a mere isolated transaction,
hence should not be subjected to contractor's tax.
HELD:
ACMDC cannot validly claim that the leasing
out of its personal properties was merely an isolated
transaction. Its book of accounts shows that several
distinct payments were made for the use of its personal
properties such as its plane, motorboat and dump
truck. The series of transactions engaged in by ACMDC
for the lease of its aforesaid properties could also be
deduced from the fact that for the tax years 1975 and
1976 there were profits earned and reported therefor.
It received a rental income of P630,171.56 for tax year
1975 and P2,450,218.62 for tax year 1976.
The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal
properties, since its income therefrom covered only the
costs of operation such as salaries and fuel, is not supported by any documentary or substantial evidence.
We are not, therefore, convinced by such disavowal.
152
TAX PRINCIPLES A N D REMEDIES
Assessments are prima facie presumed correct
and made in good faith. Contrary to the theory of
ACMDC, it is the taxpayer and not the BIR who has
the duty of proving otherwise. It is an elementary rule
that in the absence of proof of any irregularities in the
performance of official duties, an assessment will not
be disturbed. Verily, failure to present proof of error
in assessments will justify judicial affirmance of said
assessment.
Follow-up Letter Reiterating Demand for Payment
Con-sidered Notice of Assessment
REPUBLIC OF THE PHILIPPINES v. COURT
OF APPEALS, and NIELSON & COMPANY, INC
149 SCRA 351
FACTS:
In a demand letter dated 16 July 1955, the
Commissioner of Internal Revenue assessed Nielson
& Company deficiency taxes for the years 1949 to
1952, totaling P14,449.00. This demand was reiterated
in three (3) more letters dated 24 April 1956, 19
September 1956, and 9 February 1960. On the theory
that the assessment had become final and executory,
the Commissioner filed a complaint for collection of
the said amount with the then Court of First Instance.
The court a quo rendered a decision against Nielson
& Company. On appeal to the Court of Appeals, the
decision was reversed, on the ground that there was
no proof of receipt by Nielson & Co. of the 16 July
1955 assessment. The BIR filed a petition for review
on certiorari, asserting that the assessment letter must
be presumed to have been received by Nielson in the
ordinary course of mail.
HELD:
[W]hile the contention of the petitioner (BIR)
is correct that a mailed letter is deemed received by
153
C H A P T E R II
TAX REMEDIES
the addressee in the ordinary course of mail, still,
this is merely a disputable presumption, subject to
the controversy, and a direct denial of the receipt
thereof shifts the burden upon the party favored by
the presumption to prove that the mailed letter was
indeed received by the addressee, x x x
Since the petitioner has not adduced proof
that private respondent (Nielson & Co.) had in fact
received the demand letter of 16 July 1955, it cannot be
assumed that private respondent received said letter.
Records, however, show that petitioner wrote private
respondent a follow-up letter dated 19 September
1956, reiterating its demand for the payment of taxes
as originally demanded in petitioner's letter dated 16
July 1955. This follow-up letter is considered a notice of
assessment in itself which was duly received by private
respondent in accordance with its own admission.
Under Section 7 of R.A. 1125, the assessment is
appealable to the Court of Tax Appeals within thirty
(30) days from receipt of the letter. The taxpayer's
failure to appeal in due time, as in the case at bar,
makes the assessment in question final, executory and
demandable. Thus, private respondent is now barred
from disputing the correctness of the assessment or
from invoking any defense that would reopen the
question of its liability on the merits.
Assessment Deemed Made
An assessment is deemed made only when the collector
of internal revenue releases, mails or sends such notice to
the taxpayer. A revenue officer's Affidavit merely contained
a computation of respondents' tax liability. It did not state a
demand or a period for payment. Worse, it was addressed
to the justice secretary, not to the taxpayers.
1
'CIR v. Pascor, 309 SCRA 402.
154
TAX PRINCIPLES A N D REMEDIES
Meaning of best evidence
The "best evidence" envisaged in Section 16 of
the 1977 NIRC (now Section 6 of the present NIRC), as
amended, includes the corporate and accounting records of
the taxpayer who is the subject of the assessment process,
the accounting records of other taxpayers engaged in the
same line of business, including their gross profit and net
profit sales. Such evidence also includes data, record, paper,
document or any evidence gathered by internal revenue
officers from other taxpayers who had personal transactions
or from whom the subject taxpayer received any income;
and record, data, document and information secured from
government offices or agencies, such as the SEC, the Central
Bank of the Philippines, the Bureau of Customs, and the
Tariff and Customs Commission.
The law allows the BIR access to all relevant or material
records and data in the person of the taxpayer. It places no
limit or condition on the type or form of the medium by
which the record subject to the order of the BIR is kept. The
purpose of the law is to enable the BIR to get at the taxpayer's
records in whatever form they may be kept. Such records
include computer tapes of the said records prepared by the
taxpayer in the course of business. In this era of developing
information-storage technology, there is no valid reason to
immunize companies with computer-based, record-keeping
capabilities from BIR scrutiny. The standard is not the form
of the record but where it might shed light on the accuracy
of the taxpayer's return.
In Campbell, Jr. v. Guetersloh, the United States (U.S.)
Court of Appeals (5th Circuit) declared that it is the duty
of the Commissioner of Internal Revenue to investigate any
circumstance which led him to believe that the taxpayer
had taxable income larger than reported. Necessarily, this
inquiry would have to be outside of the books because they
supported the return as filed. He may take the sworn testimony of the taxpayer; he may take the testimony of third
parties; he may examine and subpoena, if necessary, trad-
CHAPTER 0
TAX REMEDIES
155
ere' and brokers' accounts and books and the taxpayer's
book accounts. The Commissioner is not bound to follow
any set of patterns. The existence of unreported income may
be shown by any practicable proof that is available in the
circumstances of the particular situation. Citing its ruling
in Kenny v. Commissioner, the U.S. Appellate Court declared
that where the records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to other
sources of information to establish income made by the taxpayer during the years in question. (Commissioner of Internal
Revenue v. Hantex Trading Co., Inc., 454 SCRA 301, 325-327
[2005])
Existing Revenue Procedures and Jurisprudence Governing Assessment Based on the Best Evidence Obtainable
In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been
arrived at arbitrarily or capriciously. The burden of proof
is upon the complaining party to show clearly that the
assessment is erroneous. Failure to present proof of error
in the assessment will justify the judicial affirmance of said
assessment.
2
Section 6(B) of the National Internal Revenue Code
provides:
Failure to Submit Required Returns, Statements,
Reports and other Documents. — When a report required
by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed
by laws or rules and regulations or when there is reason to
believe that any such report is false, incomplete or erroneous,
the Commissioner shall assess the proper tax on the best
evidence obtainable.
'Revenue Memorandum Circular No. 23-2000.
156
TAX PRINCIPLES AND REMEDIES
In case a person fails to file a required return or other
document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document,
the Commissioner shall make or amend the return from his
own knowledge and from such information as he can obtain
through testimony or otherwise, which shall be prima facie
correct and sufficient for all legal purposes.
However, the best evidence obtainable does not include
mere photocopies of records/documents. The BIR, in making
a preliminary and final tax deficiency assessment against a
taxpayer, cannot anchor the assessment on mere machine
copies of records/documents. Mere photocopies of the
Consumption Entries have no probative weight if offered as
proof of the contents thereof. The reason for this is that such
copies are mere scraps of paper and are of no probative value
as basis for any deficiency income or business taxes against
a taxpayer. Indeed, in United States v. Davey, the U.S. Court
of Appeals (2nd Circuit) ruled that where the accuracy of a
taxpayer's return is being checked, the government is entitled
to use the original records rather than be forced to accept
purported copies which present the risk of error or tampering.
(CIR v. Hantex Trading, Co., Inc., 454 SCRA 301,327)
Assessment Based on Estimate: 50% Rule, In the Absence
of Receipts to Prove Actual Amount of Expense Deduction
If there is showing that expenses have been incurred
but the exact amount thereof cannot be ascertained due to
absence of documentary evidence, it is the duty of the BIR
to make an estimate of deduction that may be allowable in
computing the taxpayer's taxable income bearing heavily
against the taxpayer whose inexactitude is of his own
making. That disallowance of 50% of the taxpayer's claimed
deduction is valid.
3
^Supra.
157
CHAPTER II
TAX REMEDIES
Networth Method of Investigation
Determination of the taxpayer's taxable income
through the networth method of investigation is valid. This
is authorized under Section 43 of the NIRC which provides:
The taxable income shall be computed upon the basis
of the taxpayer's annual accounting period (fiscal year or
calendar year, as the case may be) in accordance with the
method of accounting regularly employed in keeping the
books of such taxpayer; but if no such method of accounting
has been so employed, or if the method employed does not
clearly reflect the income, the computation shall be made
in accordance with such method as in the opinion of the
Commissioner clearly reflects the income. If the taxpayer's
annual accounting period is other than a fiscal year, as
defined in Section 22(Q), or if the taxpayer is an individual,
the taxable income shall be computed on the basis of the
calendar year.
If a taxpayer commits a violation of the law, hiding
his income to evade payment of taxes, the Government
must be permitted to resort to all evidence or sources
available to detemune his said income, so that the tax may
be collected for public purposes. There is and there should
be a presumption of regularity accorded this action of the
Collector of Internal Revenue in assessing the tax on the
best evidence obtainable otherwise, it would be impossible
to assess taxes due from a dishonest taxpayer.
4
B.
Remedies for Collection of Delinquent Taxes
Some of the important remedies of the government
in collecting taxes under the National Internal Revenue
Code are the following:
1.
Distraint of personal property such as
goods, chattels, or effects, including stocks
and other securities, debts, credits, bank ac-
101 DaLmatians
*Supra.
101 tax collectible, Distraint and Levy, can already apply.
158
TAX PRINCIPLES A N D REMEDIES
counts and interest in and rights to personal
property, and levy upon real property and
interest in or rights to real property (Sec. 205);
1.
2.
Civil or criminal action (Sec. 205);
3.
Compromise (Sec. 204);
4.
Tax lien (Sec. 219);
5.
Forfeiture (Sec. 224);
6.
Civil penalties (Sec. 248).
Distraint and Levy
Distraint is a remedy whereby the collection of
the 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
and rights to personal property.
On the other hand, levy refers to the seizure of real
properties and interest in or rights to such properties
for the satisfaction of taxes due from the delinquent
taxpayer. Levy can be made before, simultaneously, or
after the distraint of personal property.
Both remedies are summary in nature and either
may be pursued in the discretion of the authorities
charged with the collection of tax independently, or
simultaneously with civil and criminal action once the
assessment becomes final and demandable. (Central
Cement Corp. v. Commissioner, CTA Case No. 4312,
December 21,1988)
It bears to stress, however, that the remedy
of distraint and levy shall not be availed of where
the amount of the tax involved is not more than one
hundred pesos (P100).
(a)
Actual and Constructive Distraint. —
Under Section 206, the Commissioner, to safeguard
CHAPTER D
TAX REMEDIES
159
the interest of the Government, may place under
constructive distraint the property of a delinquent
taxpayer or any taxpayer who, in his opinion, is:
1.
retiring from any business subject to the tax;
2.
intending to leave the Philippines or to remove
his property therefrom or to hide or conceal his
property;
3.
intending to perform any act tending to obstruct
the proceedings for collecting the tax due or which
may be due from him.
Specific Cases When a Notice or Warrant of Constructive
Distraint over the Property/ies of a Taxpayer may be Issued
a)
When a taxpayer who applies for retirement
from business has a huge amount of assessment
pending with the Bureau of Internal Revenue
(BIR). An assessment is huge if the amount thereof
is equal to or bigger than the networth or equity
of the taxpayer;
b)
When a taxpayer who is under tax investigation
has a record of leaving the Philippines at least
twice a year unless such trips are justified and/
or connected with his business, profession or
employment;
c)
When a taxpayer, other than a banking institution,
who is under tax investigation has a record of
transferring his bank deposits and other valuable
personal property/ies from the Philippines to any
foreign country;
d)
When the taxpayer uses aliases in bank accounts,
other than the name for which he is legally and/
or popularly known;
e)
When the taxpayer keeps bank deposits and
owns other property/ies under the name of other
persons, whether or not related to him, and the
160
TAX PRINCIPLES A N D REMEDIES
same are not under any lawful fiduciary or trust
capacity;
f)
When a taxpayer's big amount of undeclared
income is known to the public or to the BIR by
credible means and there is a strong reason to
believe that the taxpayer, in the natural course
of events, will have a great tendency to hide or
conceal his property/ies. For this purpose, the
term "big amount of undeclared income" means
an amount exceeding thirty percent (30%) of
the gross sales, gross receipts or gross revenue
declared per return;
g)
When the BIR receives information or complaint
pertaining to undeclared income in an amount
exceeding 30% of gross sales, gross receipts or
gross revenue declared per return of a particular
taxpayer and there is enough reason to believe
that the said information is correct as when
the complaint or information is supported by
substantial and credible evidence.
5
The constructive distraint of personal property
shall be effected by requiring the taxpayer or any person having possession or control of such property to
sign a receipt covering the property distrained and
obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner
whatever without the express authority of the Commissioner. (Ibid.)
In case the taxpayer or the person having the
possession and control of the property sought to be
placed under constructive distraint refuses or fails to
sign the receipt referred to, the revenue officer effecting
the constructive distraint shall proceed to prepare a
list of such property and, in the presence of two (2)
witnesses, leave a copy thereof in the premises where
^Revenue Memorandum Circular No. 5-2001.
CHAPTER II
TAX REMEDIES
161
the property distrained is located, after which the said
property shall be deemed to have been placed under
constructive distraint. (Ibid.)
Actual distraint, upon the other hand, is resorted
to upon the failure of the person owing any delinquent
tax or delinquent revenue to pay the same at the time
required. It consists of the seizure of the goods, chattels,
or effects, and the personal property, including stocks
and other securities, debts, credits, bank accounts, and
interests in and rights to personal property of such
persons in sufficient quantity to satisfy the tax, or
charge, together with any increment thereto incident
to delinquency, and the expenses of the distraint and
the cost of the subsequent sale. [Section 207(A)]
Distraint shall be instituted by the Commissioner
or his duly authorized representative if the amount
involved is in excess of one million pesos (PI ,000,000.00),
or the Revenue District Officer if the amount involved
is one million pesos (PI,000,000.00) or less. (Ibid.)
A report on the distraint shall, within ten (10)
days from receipt of the warrant, be submitted by the
distraining officer to the Revenue District Officer, and
to the Revenue Regional Director: Provided, That the
Commissioner or his duly authorized representative
shall, subject to rules and regulations promulgated
by the Secretary of Finance, upon recommendation of
the Commissioner, have the power to lift such order of
distraint: Provided, further, That a consolidated report
by the Revenue Regional Director may be required by
the Commissioner as often as necessary. (Ibid.)
PROCEDURE FOR ACTUAL DISTRAINT
The steps or procedure for actual distraint are
outlined under Sections 208 to 212 of the NIRC, viz.:
Sec. 208. Procedure for Distraint and Garnishment. — The officer serving the warrant of distraint
162
TAX PRINCIPLES AND REMEDIES
shall make or cause to be made an account of the goods,
chattels, effects or other personal property distrained,
a copy of which, signed by himself, shall be left either
with the owner or person from whose possession such
goods, chattels, or effects or other personal property
were taken, or at the dwelling or place of business of
such person and with someone of suitable age and discretion, to which list shall be added a statement of the
sum demanded and note of the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and
upon the president, manager, treasurer or other responsible
officer of the corporation, company or association, which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with
the person owing the debts or having in his possession or
under his control such credits, or with his agent, a copy of
the warrant of distraint. The warrant of distraint shall be
sufficient authority to the person owning the debts or having
in his possession or under his control any credits belonging
to the taxpayer to pay to the Commissioner the amount of
such debts or credits.
Bank accounts shall be garnished by serving a warrant
of garnishment upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the bank.
Upon receipt of the warrant of garnishment, the bank shall
turn over to the Commissioner so much of the bank accounts
as may be sufficient to satisfy the claim of the Government.
(208)
Sec. 209. Sale of Property Distrained and Disposition
of Proceeds. — The Revenue District Officer or his duly
authorized representative, other than the officer referred to
in Section 208 of this Code shall, according to rules and
regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, forthwith cause a
notification to be exhibited in not less than two (2) public
places in the municipality or city where the distraint is
CHAPTER n
TAX R E M E D I E S
163
made, specifying the time and place of sale and the articles
distrained. The time of sale shall not be less than twenty (20)
days after notice to the owner or possessor of the property
as above specified and the publication or posting of such
notice. One place for the posting of such notice shall be at
the Office of the Mayor of the city or municipality in which
the property is distrained.
At the time and place fixed in such notice the said
revenue officer shall sell all the goods, chattels, or effects, or
other personal property, including stocks and other securities
so distrained, at public auction, to the highest bidder for
cash, or with the approval of the commissioner, through duly
licensed commodity or stock exchanges.
In the case of stocks and other securities, the officer
making the sale shall execute a bill of sale which he shall
deliver to the buyer, and the copy thereof furnished the
corporation, company or association which issued the stocks
or other securities. Upon receipt of the copy of the bill of
sale, the corporation, company or association shall make
the corresponding entry in its books, transfer the stocks or
other securities sold in the name of the buyer, and issue, if
required to do so, the corresponding certificates of stock or
other securities.
Any residue over and above what is required to pay
the entire claim, including expenses, shall be returned to the
owner of the property sold. The expenses chargeable upon
each seizure and sale shall embrace only the actual expenses
of seizure and preservation of the property pending the sale,
and no charge shall be imposed for the services of the local
internal revenue officer or his deputy.
Sec. 210. Release of Distrained Propety Upon Payment
Prior to Sale. — If at any time prior to the consummation of
the sale all proper charges are paid to the officer conducting
the sale, the goods or effects distrained shall be restored to the
owner.
Sec. 211. Report of Sale to Bureau of Internal Revenue.
—Within two (2) days after the sale, the officer making the
164
TAX PRINCIPLES AND REMEDIES
same shall make a report of his proceedings in writing to
the Commissioner and shall himself preserve a copy of such
report as an official record.
Sec. 212. Purchase by Government at Sale Upon
Distraint. — When the amount bid for the property under
distraint is not equal to the amount of the tax or is very
much less than the actual market value of the articles offered
for sale, the Commissioner or his deputy may purchase the
same in behalf of the National Government for the amount
of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations
prescribed by the Secretary of Finance, the net proceeds
therefrom shall be remitted to the National Treasury and accounted for as internal revenue.
CASE FOR STUDY
COLLECTOR OF INTERNAL REVENUE v.
ROBERTA FLORES VDA. DE CODINERA,
WENCESLAO CODINERA, PIO CODINERA
AND COURT OF TAX APPEALS
102 Phil. 1165
FACTS:
Appeal from the decision of the Court of Tax
Appeals. The case hinges on whether the attachment
levied upon in Civil Case No. 4862 barred the enforcement of the warrant of distraint issued by the Collector
of Internal Revenue.
HELD:
Property levied upon by the order of a competent
court may, with the consent thereof, be subsequently
distrained, subject to the prior lien of the attachment
creditor. The attachment merely deprives the Collector
of Internal Revenue or his agents of the power to divest
the Court of its jurisdiction over said property. It does
CHAPTER n
TAX REMEDIES
165
not impair such rights as the Government may have
for the collection of taxes. While the lien for taxes must
be recognized and enforced, the orderly administration
of justice requires this to be done by and under the
sanction of the court.
PROCEDURE ON LEVY OF REAL PROPERTY
Sec. 207(B). Levy on Real Property. — After the
expiration of the time required to pay the delinquent tax
or delinquent revenue as prescribed in this Section, real
property may be levied upon, before, simultaneously, or after
the distraint of personal property belonging to the delinquent.
To his end, any internal revenue officer designated by the
Commissioner or his duly authorized representative shall
prepare a duly authenticated certificate showing the name
of the taxpayer and the amounts of the tax and penalty due
from him. Said certificate shall operate with the force of a
legal execution throughout the Philippines.
Levy shall be effected by writing upon said certificate
a description of the property upon which levy is made. At
the same time, written notice of the levy shall be mailed to
or served upon the Register of Deeds of the province or the
city where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent
or the manager of the business in respect to which the liability
arose, or if there be none, to the occupant of the property in
question.
Sec. 213. Advertisement and Sale. — Within twenty
(20) days after the levy, the officer conducting the proceedings
shall proceed to advertise the property or a usable portion
thereof as may be necessary to satisfy the claim and cost of
sale; and such advertisement shall cover a period of at least
thirty (30) days. It shall be effectuated by posting a notice at
the main entrance of the municipal building or city hall and
in a public and conspicuous place in the barrio or district
in which the real estate lies and by publication once a week
for three (3) consecutive weeks in a newspaper of general
circulation in the municipality or city where the property
166
TAX PRINCIPLES AND REMEDIES
is located. The advertisement shall contain a statement of
the amount of taxes and penalties so due and the time and
place of sale, the name of the taxpayer against whom taxes
are levied, and a short description of the property to be sold.
At any time before the day fixed for the sale, the taxpayer
may discontinue all the proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale shall
proceed and shall be held either at the main entrance of the
municipal building or city hall, or on the premises to be sold,
as the officer conducting the proceedings shall determine and
as the notice of sale shall specify.
Within five (5) days after the sale, a return by the distraining or levying officer shall be entered upon the records of
the Revenue Collection Officer, the Revenue District Officer
and the Regional Director. The Revenue Collection Officer,
in consultation with the Revenue District Officer, shall then
make out and deliver to the purchaser a certificate from his
records, showing the proceedings of the sale, describing the
property sold, stating the name of the purchaser and setting
out the exact amount of all taxes, penalties and interest:
Provided, however, That in case the proceeds of the sale
exceeds the claim and cost of sale, the excess shall be turned
over to the owner of the property.
The Revenue Collection Officer, upon approval by the
Revenue District Officer may, out of his collection advance
an amount sufficient to defray the costs of collection by
means of the summary remedies provided for in this Code,
including the preservation or transportation in case of
personal property, and the advertisement and subsequent
sale, both in cases of personal and real property including the
improvements found on the latter. In his monthly collection
reports, such advances shall be reflected and supported by
receipts.
Sec. 214. Redemption of Property Sold. — Within one
(1) year from the date of sale, the delinquent taxpayer, or any
one for him, shall have the right of paying to the Revenue
District Officer the amount of the public taxes, penalties and
interest thereon from the date of delinquency to the date of
CHAPTER 0
TAX REMEDIES
167
sale, together with interest on said purchase price at the rate
of fifteen percent (15%) per annum from the date of purchase
to the date of redemption, and such payment shall entitle
the person paying to the delivery of the certificate issued
to the purchaser and a certificate from the said Revenue
District Officer that he has thus redeemed the property, and
the Revenue District Officer shall forthwith pay over to the
purchaser the amount by which such property has thus been
redeemed, and said property thereafter shall be free from the
lien of such taxes and penalties.
The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents
and other income thereof until the expiration of the time
allowed for its redemption.
Sec. 215. Forfeiture to Government for want of Bidder.
— In case there is no bidder for real property exposed for sale
as hereinabove provided or if the highest bid is for an amount
insufficient to pay the taxes, penalties and costs, the Internal
Revenue Officer conducting the sale shall declare the property
forfeited to the Government in satisfaction of the claim in
question and within two (2) days thereafter, shall make a
return of his proceedings and the forfeiture which shall be
spread upon the record of his office. It shall be the duty of
the Register of Deeds concerned, upon registration with his
office of any such declaration of forfeiture, to transfer the
title of the property forfeited to the Government without the
necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture,
the taxpayer, or any one for him, may redeem said property
by paying to the Commissioner or the latter's Revenue
Collection Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of sale, but if the
property be not thus redeemed, the forfeiture shall become
absolute.
It must be noted that in one case, it was held that
as an improvement attached to the land, by express
provision of law (Section 9, Act 4166), though not
168
TAX PRINCIPLES AND REMEDIES
physically so united, sugar quotas are inseparable
therefrom, just like servitudes and other real rights
over an immovable, and should be considered as
immovable or real property. (Presbitero v. Fernandez,
7 SCRA 627) By implication, the procedure for levy,
not distraint, must be followed.
In the case of notices of levy issued to satisfy
the delinquent estate tax, the delinquent taxpayer is
the Estate of the decedent, and not necessarily, and
exclusively, the heir of the decedent. Thus, it follows
that the services of the notices of levy in satisfaction of
the tax delinquencies upon the heir is not required by
law. (Marcos II v. Court of Appeals, G.R. No. 120880, June
5, 1997)
CASES FOR STUDY
BASILIA CABRERA v. THE PROVINCIAL
TREASURER OF TAYABAS AND PEDRO J.
CATIGBAC
C.A. No. 502, January 29,1946
FACTS:
The Provincial Treasurer of Tayabas issued a
notice for the sale at public auction of numerous real
properties forfeited for tax delinquency "on December
15, 1940 at 9 a.m. and everyday thereafter, at the same
place and hour until all the properties shall have been
sold to the highest bidder." Copy of the notice was
sent by registered mail to Nemesio Cabrera, but the
envelope containing the same was returned with the
remark "Unclaimed," undoubtedly because Nemesio
Cabrera had died in 1935. The sale of the land involved
herein was executed on May 12, 1941.
Thereafter, Basilia Cabrera filed a complaint in
the then Court of First Instance of Tayabas attacking
the validity of the sale on the grounds that she was
not notified thereof, and that although the land had
C H A P T E R II
TAX REMEDIES
169
remained in the assessment booking the name of
Nemesio Cabrera, a former owner, she has become the
registered owner since 1934 when a Torrens title was
issued to her by the register of deeds of Tayabas.
HELD:
Under Commonwealth Act No. 470, Section 35,
the Provincial Treasurer is enjoined to set forth in
the notice, among other particulars, the date of the
tax sale. We are of the opinion that this mandatory
requirement was not satisfied in the present case,
because the announcement that the sale would take
place on December 15,1940 and everyday thereafter, is
as general and indefinite as a notice for the sale "within
this or next year" or "some time within the month of
December." In order to enable a taxpayer to protect his
rights, he should at least be apprised of the exact date
of the proceeding by which he is to lose his property.
When we consider the fact that the sale in favor of the
appellant was executed on May 12, 1941, or nearly five
months after December 15, 1940, the violation of the
mandatory requirement becomes more obvious.
Likewise, the appellee was admittedly not notified of the auction sale, and this also vitiates the
proceeding. She is the registered owner of the land,
and since 1934, has become liable for taxes thereon. For
all purposes, she is the delinquent taxpayer "against
whom the taxes were assessed," referred to in Section
34 of Commonwealth Act No. 470. It cannot be Nemesio
Cabrera for the latter's obligation to pay ended where
the appellee's liability began.
ANTONIA VALENCIA y ORUS v. JUAN JIMENEZ
y MIJARES AND GABRIEL FUSTER y FUSTER
No. 4406, October 23,1908
FACTS:
An action to set aside a sale of real estate to
defendant Jimenez for unpaid taxes and the transfer of
170
TAX PRINCIPLES AND REMEDIES
a one-half interest therein by him to defendant Fuster
was brought before the then Court of First Instance
of Manila on the ground that the tax sale was invalid
by reason of defects in the proceedings to impose the
tax. The most serious of these irregularities are the
following: 1) the error in the name of the owner in
the assessment; and 2) defect in the description of the
property.
HELD:
1) In Marx v. Hanthorn (148 U.S., 172), where it
does not even appear that under the law of the State
of Oregon the tax was a personal one, the tax sale was
held bad because the owner's name had been written
in the roll as "Ida F. Hawthorn" instead of "Ida J.
Hanthorn."
Under the Municipal Law of the Philippines,
Sections 74 to 78, the tax is primarily a personal one
and is enforceable against realty only in the event of a
deficiency of personalty, whereas in the City of Manila
its character is somewhat qualified by the provision
in Section 47 of the charter making the levy on
personalty a cumulative remedy only. Nevertheless,
the requirement of the statute is so imperative that the
rule of the Hanthom case is manifestly applicable here.
2) The most vital requisite of an assessment
that the property shall be so described as to be easily
identified both by the owner and by the persons
desiring to bid therefore. The description prior to those
in the deed are all more or less defective, but those in
the assessment roll for 1902 and in the final notice of
the tax sale are so confused and inadequate as not only
to fail to give notice to a stranger of the location of the
property, but as to be incapable of verification by a
person familiar with it. This is especially true of the
description in the notice of sale, which of all the steps
in the procedure is the one calling for a most definite
and intelligible description. It is settled doctrine that
CHAPTER n
TAX REMEDIES
171
where one sale embraces two different taxes, a vital
defect in either tax invalidates the whole sale, so that,
considered apart from the notice of sale, the rather
understandable description in the roll of 1901 does
not cure the vice in that of 1902. We are satisfied that
the failure to adequately describe the property both in
the tax roll and in the notice of sale amounted to an
"irregularity, informality and failure that impaired the
substantial rights of the taxpayer," within the meaning
of Sections 84 and 86 of the Municipal Code, and
upon this failure we are content to rest our judgment,
affirming that part of the judgment of the Court of First
Instance declaring the sale and deed of the assessor
and collector of the City of Manila to Juan Jimenez y
Mijares, and the deed of the latter to Gabriel Fuster y
Fuster invalid and awarding to plaintiff the possession
of the property described in the complaint.
Similarly, it was held in Velayo v. Ordoreza, et al,
G.R. No. L-9061, November 18, 1957 that the owner of
property registered under the Torrens System is justified
in relying upon the description given in his certificate
of title as the one officially identifying the property.
The sale for non-payment of tax of the property with
a description distinct and different from that which
appears in its certificate of tide cannot be sanctioned
without impairing the full faith and credence which
the title is meant to command and, hence, affects the
essence of the Torrens System.
SOME PRINCIPLES GOVERNING DISTRAINT AND
LEVY
(a) The distraint and levy shall be effected anytime
the situation so demands but only after reasonable
efforts have been exerted to collect the tax by
ordinary methods of collection.
(b) Distraint and levy should be resorted to before
court action although it may be done simultaneously.
TAX PRINCIPLES A N D REMEDIES
(c)
If there is already a court action, a warrant of
distraint and levy should be issued simultaneously
with such filing.
(d) Warrant of distraint and levy shall not be issued
for the collection only of a compromise penalty
for the violation of internal revenue laws and
regulations.
(e)
A notice of tax lien should be filed with the Office
of the Register of Deeds before or simultaneously
with the issuance of a warrant of distraint and
levy.
(See Revenue Memo. Order No. 20-68 dated
Feb. 18,1966)
(f)
Any taxpayer whose property has been placed
under constructive distraint, who sells, transfers,
encumbers or in any way disposes of said property, or any part thereof, without the knowledge
and consent of the Commissioner, shall, upon
conviction for each act or omission, be punished
by a fine not less than twice the value of the property so sold, encumbered, or disposed of, but not
less than five thousand pesos (P5,000.00), or suffer
imprisonment of not less than two (2) years and
one (1) day but not more than four (4) years or
both. (Sec. 276)
(g)
Any person who fails or refuses to surrender
property placed under distraint and levy shall
be liable in his own person and estate to the
Government in a sum equal to the value of the
property or rights not so surrendered but not
exceeding the amount of the taxes (including
penalties and interest) for the collection of which
such warrant had been issued, together with the
costs and interest if any, from the date of such
warrant. In addition, such person shall, upon
conviction for each act or omission, be punished
by a fine of not less than five thousand pesos
CHAPTER II
TAX REMEDIES
173
(P5,000.00), or suffer imprisonment of not less
than six (6) months and one (1) day but not more
than two (2) years, or both. (Sec. 277)
(h) The remedy by distraint of personal property and
levy on realty may be repeated if necessary until
the full amount due, including all expenses, is
collected. (Sec. 217)
2.
Civil Action
A civil action is resorted to when a tax liability
becomes collectible, that is, the assessment
becomes final and unappealable, or the decision
of the Commissioner has become final, executory,
and demandable. This occurs when:
1.
A tax is assessed and the taxpayer fails to file
an administrative protest by filing a request
for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment
(Sec. 228, NIRC);
2.
A protest against the assessment is filed
by the taxpayer but the Commissioner's
decision denying in whole or in part the said
protest, was not appealed to the Court of Tax
Appeals within thirty (30) days from receipt
of such decision.
It must be stressed that within sixty (60) days
from filing of the protest, all relevant supporting
documents should be submitted, otherwise, the
assessment shall become final. Failure on the
part of the Commissioner to act upon a protest
within one hundred eighty (180) days from the
submission of the documents shall be considered
a denial of the protest; the taxpayer must appeal
to the Court of Tax Appeals within thirty (30)
days from the lapse of the 180 days; otherwise, the
assessment shall become final and demandable.
(Ibid.)
174
TAX PRINCIPLES A N D REMEDIES
In this connection, the ruling of the Supreme Court
in Republic v. Lim Tian Feng Sons, Inc., L-21731, March
31, 1966, 16 SCRA 584, bears significance. In that case,
the High Court held that when the Commissioner did
not reply to the taxpayer's request for reconsideration
and instead referred the case to the Solicitor General for
judicial collection, this was indicative of his decision
against reinvestigation. This is therefore another
instance where the Commissioner's action is in effect
a decision of denial which is appealable to the Court of
Tax Appeals. Also, in a similar case, it was ruled that
the filing of a civil action in court to collect a tax which
was the subject of a pending protest in the BIR was a
justifiable basis for the taxpayer to appeal to the Court
of Tax Appeals and to move for the dismissal in the
trial court of the Government's action to collect the tax
under dispute. (Yabes v. Flop, 115 SCRA 278>
But once an action for collection is filed with
the regular court, the taxpayer can no longer assail
the legality or validity of the assessment. A disputed
assessment falls within the exclusive jurisdiction of
the Court of Tax Appeals. (Commissioner v. Lilia Yusay
Gonzales, L-19495, November 24, 1966) Likewise, the
prescription of the Government's right to assess is
no longer available as a defense in a civil action for
collection; the same should have been ventilated
before the Court of Tax Appeals. (Augusto Basa v.
Republic, L-45277, August 5, 1985) But the right of the
Government to object to the defense of prescription
may be waived if it litigated the issue of prescription
and submitted said issue for the resolution of the court.
(Republic v. Ker & Co., 1-21609, September 29,1966)
A proceeding in court after the collection of tax may
be begun without assessment
The law is clear. When fraudulent tax returns are
involved a proceeding in court after the collection of
'Question No. 4(2), 1999 Bar Examination.
CHAPTER II
TAX REMEDIES
175
such tax may be begun without assessment. In the case
of Adamson v. Court of Appeals, 588 SCRA 27 (2009), the
private respondents filed the capital gains tax return
and the VAT returns, and paid the taxes they have
declared due therefrom. Upon investigation of the
examiners of the BIR, there was a preliminary finding
of gross discrepancy in the computation of the capital
gains taxes due from the sale of two lots of AAI shares,
first to APAC and then to APAC Philippines, Limited.
The examiners also found that the VAT had not been
paid for VAT-liable sale of services for the third and
fourth quarters of 1990. Arguably, the gross disparity
in the taxes due and the amounts actually declared by
the private respondents constitutes badges of fraud.
Thus, the applicability of Ungab v. Cusi (97 SCRA 877
[1980]) is evident to the cases at bar. In this seminal
case, this Court ruled that there was no need for precise
computation and formal assessment in order for
criminal complaints to be filed against him. It quoted
Merten's Law of Federal Income Taxation, Vol. 10, Sec.
55A.05, p. 21, thus: An assessment of a deficiency is not
necessary to a criminal prosecution for willful attempt
to defeat and evade the income tax. A crime is complete
when the violator has knowingly and willfully filed
a fraudulent return, with intent to evade and defeat
the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he
has made an inaccurate return, and the government's
failure to discover the error and promptly to assess has
no connections with the commission of the crime.
It should be noted that a civil action for tax
collection filed with the regular courts cannot be
instituted without the approval of the Commissioner.
(Sec. 220, NIRC) But in one case, it was held that the
approval by the Commissioner of Internal Revenue
of a civil action for the collection of taxes is not
jurisdictional, but one relating to capacity to sue or
affecting the cause of action only. The High Court
176
TAX PRINCIPLES A N D REMEDIES
went on saying further that there was no grave abuse
of discretion on the part of the municipal court in
ruling that the express approval of the Revenue
Commissioner himself was not necessary. The court
relied upon Memorandum Order No. V-634 of the
Revenue Commissioner, approved by the Finance
Secretary, wherein the former's functions regarding
the administration and enforcement of revenue laws
and regulations'— powers broad enough to cover the
approval of court actions — were expressly delegated
to the Regional Directors. (Arches v. Bellosillo, 20 SCRA
33)
As amended by R.A. 8424, the NIRC is now
even more categorical. Section 7 of the present Code
authorizes the BIR Commissioner to delegate the
powers vested in him under the pertinent provisions
of the Code to any subordinate official with the rank
equivalent to a division chief or higher, except the
following:
a.
The power to recommend the promulgation
of rules and regulations by the Secretary of
Finance;
b.
The power to issue rulings of first impression
or to reverse, revoke or modify any existing
ruling of the Bureau;
c.
The power to compromise or abate under
Section 204 (A) and (B) of this Code, any
tax deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred
thousand pesos (P500,000.00) or less, and
minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon
the recommendation of the Commissioner,
discovered by regional and district officials,
may be compromised by a regional evalua-
who represents the govt.
CHAPTER U
TAX REMEDIES
177
original action = legal officer of bir
appelate jurisdiction = solicitor general.
tion board which shall be composed of the
Regional Director as Chairman, the Assistant
Regional Director, heads of the Legal, Assessment and Collection Divisions and the
Revenue District Officer having jurisdiction
over the taxpayer, as members; and
d.
The power to assign or re-assign internal
revenue officers to establishments where
articles subject to excise tax are produced or
kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax collection
cases. (Republic of the Philippines v. Salud Hizon, 320
SCRA 574)
In the recent case of Oceanic Wireless Network, Inc.
v. CIR [477 SCRA 205, 214], the Supreme Court upheld
the validity of the demand letter dated January 24,
1991 signed and issued by the Chief of the Accounts
Receivable and Billing Division ratiocinating that
the issuance thereof does not fall under any of the
exceptions that have been mentioned as non-delegable.
3.
Criminal Action
already delegated.
Like in the institution of civil action for collection,
a criminal action cannot be instituted without the
approval of the Commissioner of Internal Revenue.
The remedy of criminal action is resorted to not
only for collection of taxes but also for enforcement
of statutory penalties of all sorts. (Sec. 221, NIRC) The
judgment in the criminal case shall not only impose the
penalty but shall also order the payment of the taxes
subject of the criminal case as finally decided by the
Commissioner. (Sec. 205, ibid.) This civil liability arises
not as a consequence of a felonious act but because of
the taxpayer's failure to pay taxes. Hence, the extinction
of one's criminal liability does not necessarily result in
the extinguishment of his civil liability, thus:
178
TAX PRINCIPLES AND REMEDIES
"In applying the principle underlying the
civil liability of an offender under the Penal Code to
a case involving the collection of taxes, the court a
quo fell into error. The two cases are circumscribed
by factual premises which are diametrically
opposed to each other, and are founded on
entirely different philosophies. Under the Penal
Code, the civil liability is incurred by reason of
the offender's criminal act, stated differently, the
criminal liability gives birth to the civil obligation
such that generally, if one is not criminally liable
under the Penal Code, he cannot become civilly
liable thereunder. The situation under x x x the
tax law is the exact opposite. Civil liability to pay
taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of
any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the factual
premises and foundation principles of the two
cases is one of the reasons for not imposing civil
indemnity on the criminal infraction of the tax
law. (Republic v. Patanao, 20 SCRA 712)
In the same manner, the subsequent satisfaction
of a tax liability will not operate to extinguish the
criminal liability. (People v. Jldefonso Tierra, L-17177-80,
December 28, 1964)
Moreover, subsidiary imprisonment for failure to
pay the tax in case of insolvency cannot be imposed in
criminal cases involving violations of the provisions of
the Tax Code. (People v. Gregorio Balagtas, L-10210, July
29,1959)
Criminal Complaint for Tax Evasion Distinguished
from Assessment
The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assess-
179
CHAPTER II
TAX REMEDIES
ment notice sent to the taxpayer. The taxpayer is then
given a chance to submit position papers and documents to prove that the assessment is unwarranted. If
the commissioner is unsatisfied, an assessment signed
by him or her is then sent to the taxpayer informing the
latter specifically and clearly that an assessment has
been made against him or her. In contrast, the criminal charge need not go through all these. The criminal
charge is filed directly with the DOJ. Thereafter, the
taxpayer is notified that a criminal case had been filed
against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to demand payment but to penalize the taxpayer for violation of the Tax Code.
7
CASE FOR STUDY
QUIRICO UNGAB v. HON. VICENTE CUSI, JR.
97 SCRA 877
FACTS:
Six informations were filed with the then Court
of First Instance of Davao City against Quirico Ungab
for violation of the National Internal Revenue Code.
Ungab filed a Motion to Quash on the ground that
the trial court has no jurisdiction to take cognizance
of the cases in view of his pending protest against the
assessment made by the BIR examiner.
HELD:
The contention is without merit. What is involved
here is not the collection of taxes where the assessment
of the Commissioner of Internal Revenue may be
reviewed by the Court of Tax Appeals but a criminal
prosecution for violation of the National Internal
Revenue Code, which is within the cognizance of the
Court of First Instance. While there can be no civil
7
C I R v. Pascor, supra.
180
TAX PRINCIPLES A N D REMEDIES
action to enforce collection before the assessment
procedures provided in the Code have been followed,
there is no requirement for the precise computation
and assessment of the tax before there can be a criminal
prosecution under the Code. Besides, it has been ruled
that a petition for reconsideration of an assessment may
affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of
a criminal action for violation of a law. Obviously, the
protest of the petitioner against the assessment of the
Revenue District Officer cannot stop his prosecution
for violation of the National Internal Revenue Code.
4.
Compromise
A compromise is an agreement between two or
more persons who, to avoid a lawsuit, amicably settle
their differences on such terms as they can agree on.
A compromise by its very nature implies mutual
agreement by the parties in regard to the thing or
subject matter which is to be compromised. An offer of
compromise does not, therefore, assume the category
of a compromise until it is voluntarily accepted by the
other party, and no obligation arises or is created by
a simple offer or suggestion coming from one of the
parties without acceptance by the other. (Ben L. Chuy,
et al. v. Collector of Internal Revenue, C.T.A. Case, July 16,
1958)
A compromise penalty, on the other hand, is a
certain amount of money which the taxpayer pays to
compromise a tax violation. Compromise penalties
are paid in lieu of criminal prosecution, and cannot be
imposed in the absence of a showing that the taxpayer
consented thereto. If an offer of compromise is rejected
by the taxpayer, the compromise penalty cannot be
enforced thru an action in court or by distraint and
levy. The Commissioner of Internal Revenue should
file a criminal action if he believes that the taxpayer is
criminally liable for violation of the tax law as the only
CHAPTER II
TAX REMEDIES
181
way to enforce a penalty. (See Commissioner v. Armando
L. Abad, etc., L-19627, June 27,1968)
Cases Which May Be Compromised
The following cases may upon taxpayer's compliance with the basis set forth under Section 3 of
Revenue Regulations No. 7-2001 (as amended by Rev.
Reg. No. 30-2002), be the subject matter of compromise
settlement, viz.:
1.
Delinquent accounts;
2.
Cases under administrative protest after
issuance of the final assessment notice to
the taxpayer which are still pending in the
Regional Offices, Revenue District Offices,
Legal Service, Large Taxpayer Service (LTS),
Collection Service, Enforcement Service and
other offices in the National Office;
3.
Civil tax cases being disputed before the
courts, e.g., MTC, RTC, CTA, CA, SC;
4.
Collection cases filed in courts;
5.
Criminal violations other than those already
filed in court or those involving criminal tax
fraud; and
excemption?
6.
Cases covered by pre-assessment notices but
taxpayer is not agreeable to the findings of
the audit office as confirmed by the review
office.
The Commissioner may compromise any internal
revenue tax when:
1.
A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
2.
The financial position of the taxpayer demonstrates
a clear inability to pay the assessed tax. (Sec. 204,
N1RC)>
"Question No. 16,2000 Bar Examination; Question No. 7(B), 2004 Bar Examination.
182
TAX PRINCIPLES A N D REMEDIES
Basis for Acceptance of Compromise Settlement
The Commissioner may compromise the payment of
any internal revenue tax on the following grounds:
1.
Doubtful validity of the assessment. — The offer to
compromise a delinquent account of disputed
assessment under these Regulations on the
ground of reasonable doubt as to the validity of
the assessment may be accepted when it is shown
that:
(a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment. (For this purpose, "jeopardy assessment" shall refer to a tax assessment which
was assessed without the benefit of complete
or partial audit by an authorized revenue
officer, who has reason to believe that the
assessment and collection of a deficiency tax
will be jeopardized by delay because of the
taxpayer's failure to comply with the audit
and investigation requirements to present
his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in
his return); or
(b) The assessment seems to be arbitrary in nature
appearing to be based on presumptions and
there is reason to believe that it is lacking in
legal and/or factual basis; or
(c)
The taxpayer failed to file an administrative
protest on account of the alleged failure to
receive notice of assessment or preliminary
assessment and there is reason to believe
that the assessment is lacking in legal and/
or factual basis; or
(d) The taxpayer failed to file a request for reinvestigation/reconsideration within 30 days
183
CHAPTER II
TAX REMEDIES
from receipt of final assessment notice and
there is reason to believe that the assessment
is lacking in legal and/or factual basis; or
(e)
The taxpayer failed to elevate to the Court
of Tax Appeals (CTA) an adverse decision
of the Commissioner, or his authorized
representative, in some cases, within 30 days
from receipt thereof and there is reason to
believe that the assessment is lacking in legal
and / or factual basis; or
(f)
The assessment were issued on or after January 1, 1998, where the demand notice allegedly failed to comply with the formalities
prescribed under Sec. 228 of the Tax Code of
1997; or
(g)
Assessments made based on the "Best Evidence Obtainable Rule" and there is reason
to believe that the same can be disputed by
sufficient and competent evidence,"
(h) The assessment was issued within the prescriptive period for assessment as extended
by the tax-payer's execution of Waiver of the
Statute of Limitations the validity or authenticity of which is being questioned or at issue
and there is strong reason to believe and evidence to prove that it is not authentic;
10
(i)
The assessment is based on an issue where
a court of competent jurisdiction made an
adverse decision against the bureau, but for
which the Supreme Court has not decided
upon with finality.
11
^Revenue Regulations No. 7-2001.
•"Revenue Regulations No. 7-2001 amended by Revenue Regulations No. 30-2002.
"Revenue Regulations No. 8-2004, May 19,2004.
184
TAX PRINCIPLES A N D REMEDIES
2.
Financial incapacity. — The offer to compromise
based on financial incapacity may be accepted
upon showing that:
(a) The corporation ceased operation or is
already dissolved; or
(b) The taxpayer is suffering from surplus or
earnings deficit resulting to impairment in
the original capital by at least 50%; or
(c) The taxpayer is suffering from a networth
deficit computed by deducting total liabilities
(net of deferred credits) from total assets
(net of pre-paid expenses, deferred charges,
pre-operaring expenses, as well as appraisal
increases in fixed assets), taken from the
latest audited financial statements; or
(d) The taxpayer is a compensation income
earner with no other source of income and
the family's gross monthly compensation
income does not exceed the levels of
compensation income provided for under
Sec. 4.1.1 of Revenue Regulations 7-2001 and
it appears that the taxpayer possesses no
other leviable/distrainable assets, other than
his family home; or
(e)
The taxpayer has been granted by the
Securities and Exchange Commission (SEC)
or by any competent tribunal a moratorium
or suspension of payments to creditors, or
otherwise declared bankrupt or insolvent.
The Commissioner shall not consider any offer
for compromise settlement by reason of financial
incapacity unless and until the taxpayer waives in
writing his privilege of the secrecy of bank deposits
under R.A. 1405 or under other general or special laws,
and such waiver shall constitute as the authority of the
C H A P T E R II
TAX REMEDIES
185
Cornmissioner to inquire into the bank deposits of the
taxpayer.
The compromise settlement is subject to the
following minimum amounts:
1.
For cases of financial incapacity, a minimum
compromise rate of ten percent (10%) of the
basic assessed tax;
2.
For other cases, a minimum compromise rate
equivalent to forty percent (40%) of the basic
tax assessed.
Where the basic tax involved exceeds P1,000,000
or the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to
the approval of the Evaluation Board composed of the
Commissioner and the four (4) Deputy Commissioners.
Prescribed Minimum Percentages of Compromise
Settlement
The compromise settlement of the internal revenue
tax liabilities of taxpayers, reckoned on a per tax type
assessment basis, shall be subject to the following
minimum rates based on the basic assessed tax:
1.
For cases of "financial incapacity" —
1.1
If taxpayer is an individual whose
only source of income is from
employment and whose monthly
salary, if single is PI0,500 or less, or
if married, whose salary together
with his spouse is P21,000 per
month, or less and it appears that
the taxpayer possesses no other
laviable distiainable assets other
than his family home
- 10%
1.2
If taxpayer is an individual without any source of income
- 10%
TAX PRINCIPLES A N D REMEDIES
1.3
Where the taxpayer is under any
of the following conditions:
1.3.1 Zero networth computed in accordance with Sec. 3.2(c) hereof
-10%
1.3.2 Negative networth computed in
accordance with Sec. 3.2(c) hereof
-10%
1.3.3 Dissolved corporations
-20%
1.3.4 Already non-operating companies for a period of:
(a) three (3) years or more as of
the date of application for
compromise settlement
-10%
(b) Less than 3 years
-20%
1.3.5 Surplus or earnings deficit resulting to impairment in the original
capital by at least 50%
- 40%
1.3.6 Declared insolvent or bankrupt
unless taxpayer falls squarely
under any situation as discussed
above, thus resulting to the application of the appropriate rate
-10%
For cases of "doubtful validity"— A minimum
compromise rate equivalent to forty percent (40%)
of the basic assessed tax.
The taxpayer may, nevertheless request for a
compromise rate lower than forty percent (40%);
Provided, however, that he shall be required to
submit his request in writing stating therein the
reasons, legal and / or factual why he should be
entitled to such lower rate; Provided, further, that
for applications of compromise settlement based
on doubtful validity of the assessment involving
an offer lower than the minimum forty percent
(40%) compromise rate, the same shall be subject
to the prior approval by the NEB.
C H A P T E R II
TAX REMEDIES
187
The herein prescribed minimum percentages
shall likewise apply in compromise settlement of
assessments consisting solely of increments, i.e.,
surcharge, interest, etc., based on the total amount
assessed.
The power to compromise is vested in the
Commissioner of Internal Revenue. This power is
discretionary and once exercised by the Commissioner cannot be reviewed or interfered with by
the courts. In other words, it is an exclusive power of the Commissioner. He cannot be compelled
to exercise such discretion in one way or another.
(See People v. Ignacio Desiderio, L-20805, November
29, 1965) But the Commissioner may delegate
his power to the Deputy Commissioners and the
Regional Directors subject to such restrictions as
may be imposed under rules and regulations to
be promulgated for the purpose. (Revenue Regulations 7-2001)
A compromise validly entered into between
the Commissioner and the taxpayer prior to the
institution of the corresponding criminal action
arising out of a violation of the provisions of the
Tax Code is a bar to such criminal action. (People
v. Magdaluyo, L-16235, April 20,1961)
Abatement. Compromise is different from
abatement which is a cancellation of the entire
tax liability. Abatement is authorized when: 1) the
tax or any portion thereof appears to be unjustly
or excessively assessed; 2) the administration
and collection costs involved do not justify the
collection of the amount due. (Ibid.)
When may violations of tax laws/cases be compromised. — In criminal violations, the compromise
must be made prior to the filing of the information in court. Under Section 204, NIRC, criminal
violations already filed in court or those involving
fraud cannot be compromised.
188
TAX PRINCIPLES AND REMEDIES
In civil cases, compromise may be entered
into before litigation or at any stage of the litigation, even during appeal, although legal propriety demands that prior leave of court should be
obtained. But a compromise can never be entered
into after final judgment, because by virtue of
such final judgment, the Government had already
acquired a vested right. (Roviro v. Amparo, L-5482,
May 5, 1952)
Cases Which Cannot Be Compromised
1.
exception =
reasonable doubt
as to whether to
withhold.
Withholding tax cases, unless the applicanttaxpayer invokes provisions of law that
cast doubt on the taxpayer's obligation to
withhold;
2.
Criminal tax fraud cases confirmed as such
by the Commissioner of Internal Revenue
or his duly authorized representative;
3.
Criminal violation already filed in court;
4.
Delinquent accounts with duly approved
schedule of installment payments;
5.
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. On the other hand,
other protested cases shall be handled by the
Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to
case basis;
6.
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; and
7.
Estate tax cases where compromise is
requested on the ground of financial inca-
CHAPTER II
TAX REMEDIES
189
parity of the taxpayer. (Rev. Regs. No. 302002)
5.
Tax Liens
"Sec. 219. If any person, corporation, partnership,
joint account (cuentas en participation), association or
insurance company liable to pay any internal revenue
tax, neglects or refuses to pay the same after demand,
the amount shall be a lien in favor of the Government of
the Philippines from the time when the assessment was
made by the Commissioner until paid, with interests,
penalties, and costs that may accrue in addition thereto
upon all property and rights to property belonging
to the taxpayer: Provided, That his lien shall not be
valid against any mortgagee, purchaser or judgment
creditor until notice of such lien shall be filed by the
Commissioner in the office of the Register of Deeds of
the province or city where the property of the taxpayer
is situated or located."
A tax lien is a legal claim or charge on property
(whether real or personal) established by law as a
sort of security for the payment of tax obligations.
(Hongkong and Shanghai Banking Corp. v. Rafferty, 39
Phil. 145) It is more extensive in scope than the jus
retentionis in Civil Law. (Ibid.) A tax lien created in
favor of the government is superior to all other claims
or preferences, (see Corazon Velos de Torres v. Collector,
No. 48602, February 26,1943; Republic v. Peralta, G.R. No.
56568, May 20,1987)
An unpaid internal revenue tax, together with
related interest, penalties and costs, constitutes a lien in
favor of the government from the time an assessment
therefor is made and until paid, upon all property and
rights to property belonging to the taxpayer. Under
the aforequoted Sec. 219, however, the lien is not
valid against any mortgagee, purchaser, or judgment
creditor until notice of such lien shall have been filed
in the register of deeds of the province or city where
190
TAX PRINCIPLES A N D REMEDIES
the property of the taxpayer is located. It has been held
however that a buyer in an execution sale acquires the
rights of the judgment creditor subject to a NIRC tax
lien (which did not appear to have been registered)
not only from the moment the warrant of distraint is
served but upon the accrual of the tax.
12
Government's Claim Predicated on a Tax Lien is
Superior to Claim Based on Judgment"
It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a
private litigant predicated on a judgment. The tax lien
attaches not only from the service of the warrant of
distraint of personal property but from the time the
tax became due and payable. Besides, the distraint on
the subject properties of Maritime Company of the
Philippines as well as the notice of their seizure were
made by petitioner, through the Commissioner of
Internal Revenue, long before the writ of execution was
issued by the Regional Trial Court of Manila, Branch
31. There is no question then that the time the writ of
execution was issued, the two (2) barges, MCP-1 and
MCP-4, were no longer properties of the Maritime
Company of the Philippines. The power of the court
in execution of judgments extends only to properties
unquestionably belonging to the judgment debtor.
Execution sales affect the rights of the judgment debtor
only, and the purchaser in an auction sale acquires
only such rights as the judgment debtor has at the
time of sale. It is also well-settled that the sheriff is not
authorized to attach or levy on property not belonging
to the judgment debtor.
14
6.
Forfeiture
The forfeiture of chattels and removable fixtures
of any sort shall be enforced by the seizure and sale,
,2
C I R v. NLRC, G.R. No. 74965, November 9,1994.
"Question No. 5, 1995 Bar Examination. .
C I R v. N L R C 238 SCRA 42.
,4
CHAPTER II
TAX REMEDIES
191
or destruction, of the specific forfeited property. The
forfeiture of real property shall be enforced by a
judgment of condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may require.
(Sec. 224, NIRC)
The forfeiture need not be for the whole tax
liability which could merely be for the amount
equivalent to the fair market value of the property.
(Castro v. Collector, 4 SCRA 1193)
Forfeiture and seizure distinguished." — In seizure
for the enforcement of tax lien, the residue, after
deducting the tax liability and expenses, will go to
the taxpayer. (Bank of P.I. v. Trinidad, 42 Phil. 220) In
forfeiture, all the proceeds of the sale will go to the
coffers of the government. (U.S. v. Suria, 20 Phil. 163)
A taxpayer in forfeiture or seizure cases to enforce
tax lien may still be subject to criminal action even if
his property has been forfeited. (Garcia v. Collector, 66
Phil. 441)
7.
Civil Penalties
"Sec. 248. Civil Penalties. -
(A) There shall he imposed, in addition to the tax
required to he paid, a penalty equivalent to twenty-five
percent (25%) of the amount due in the following cases:
(1) Failure to file any return and pay the tax
due thereon as required under the provisions of this
Code or rules and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required
to be filed; or
(3) Failure to pay the deficiency tax within
the time prescribed for its payment in the notice of
assessment; or
"1968 Bar Examination.
TAX PRINCIPLES AND REMEDIES
(4) Failure to pay the full or part of the amount
of tax shown on any return required to be filed under
the provisions of this Code or rules and regulations,
or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for
its payment.
(B) In case of willful neglect to file the return within
the period prescribed by this Code or by rules and regulations,
or in case a false or fraudulent return is willfully made, the
penalty to be imposed shall be fifty percent (50%) of the tax
or of the deficiency tax, in case any payment has been made
on the basis of such return before the discovery of the falsity
or fraud; Provided, That a substantial underdeclaration of
taxable sales, receipt or income, or a substantial overstatement of deductions as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the
Secretary of Finance, shall constitute prima facie evidence
of a false or fraudulent return; Provided further, that failure
to report sales, receipts or income in an amount exceeding
thirty percent (30%) of that declared per return, and a claim
of deductions in an amount exceeding thirty percent (30%)
of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein."
C.
No Injunction to Restrain Tax Collection
16
An injunction is not available to restrain collection
of tax. No court shall have the authority to grant an
injunction to restrain the collection of any national
internal revenue tax, fee, or charge imposed by the
NIRC. (Sec. 218)
Rationale of the no injunction rule
It is a wise and reasonable precaution for the
security of the government. No government could
exist that permitted its collection to be delayed by
every litigious man or very embarrassed man, to
"Question No. 3(b), 2001 Bar Examination.
193
CHAPTER II
TAX REMEDIES
whom delay was more important than the payment of
taxes." (See State of Tennessee v. Sneed 11877], 6 Otto, 69.
See also 37 Cyc, 1267,1268)
This general rule admits one exception, i.e., when
the decision of the Commissioner is pending appeal
before the Court of Tax Appeals, the said court may
enjoin the collection of taxes if such collection will
jeopardize the interest of the government and/or
the taxpayer. In such case, the Court at any stage of
the proceeding may suspend the collection of the tax
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. The posting of a
bond is not an absolute requirement, its imposition lies
within the sound discretion of the Tax Court.
17
II. STATUTE OF LIMITATIONS"
The right of the government to assess and collect
internal revenue taxes is subject to the statute of limitation
provided under the Tax Code, as follows:
Sec. 203. Period of Limitation Upon Assessment and
Collection. — Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after
the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration
of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed.
For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered
as filed on such last day.
Sec. 222. Exceptions as to Period of Limitation of Assessment
and Collection of Taxes. —
"Question No. 1 2 . 1 9 % Bar Examination.
"Question No. 4 , 1 9 9 7 Bar Examination.
TAX PRINCIPLES AND REMEDIES
(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return,
the tax may be assessed or a proceeding in court
for the collection of such tax may be filed without
assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in
Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax
may be assessed within the period agreed upon.
The period so agreed upon may be extended by
subsequent written agreement made before the
expiration of the period previously agreed upon.
(c)
Any internal revenue tax which has been assessed
within the period of limitation as prescribed in
paragraph (a) hereof above, may be collected
by distraint or levy or by a proceeding in court
within five (5) years following the assessment of
the tax.
(d) Any internal revenue tax, which has been assessed
within the period agreed upon, as provided in
paragraph (b) hereinabove, may be collected by
distraint or levy or by a proceeding in court within
the period agreed upon in writing before the
expiration of the five (5) year period. The period
so agreed upon may be extended by subsequent
written agreement made before the expiration of
the period previously agreed upon.
(e)
Provided, however, That nothing in the immediately
preceding Section and paragraph (a) hereof shall
be construed to authorize the examination and
investigation or inquiry into any tax return filed
C H A P T E R II
TAX R E M E D I E S
195
in accordance with the provisions of any tax
amnesty law or decree.
The defense of prescription is not jurisdictional and
must be raised seasonably, otherwise it is deemed waived.
(Arches v. Bellosillo, 20 SCRA 32)
The prescriptive periods for assessment and collection
may be outlined as follows:
A. Assessment of the tax liability
a)
Three (3) years — commences to run after the
last day prescribed by law for the filing of the
return. This means that if the return is filed before
the due date, the prescriptive period begins to
run only after said due date, but if the return is
filed beyond the period fixed by law or beyond
the due date, the three (3)-year period shall be
counted from the day the return was filed.
But if the return was amended substantially,
the period starts from the filing of the amended
return. (Commissioner v. Phoenix Assurance Co.,
Ltd., L-19127, May 20,1965, 14 SCRA 52)»
b)
Ten (10) years — when 1) no return is filed, or 2)
the return is false or fraudulent with intent to
evade the tax, the prescriptive period commences
from the date of discovery.
When the assessment notice or the demand letter
of the BIR is sent by mail, the date when the demand
letter or notice of assessment is mailed, released or sent
to the taxpayer is considered the date of actual assessment (Basilan Estates v. Commissioner, 21 SCRA 17), and
as long as the same is released within the prescriptive period, assessment is deemed made on time even
though the same is actually received by the taxpayer
after the expiration of the prescriptive period. (Ibid.)
It was held in one case that since prescription is an
affirmative defense, it is incumbent upon the taxpayer
"Question No. 1,1999 Bar Examination.
196
TAX PRINCIPLES A N D REMEDIES
to prove that a return had been filed by him, otherwise,
there is a basis for the BIR to assess the tax within the
ten (lO)-year period on the ground that no return was
filed by him. (Republic v. Marsman Dev't. Co., L-18986,
April 27,1972; see also Taligaman Lumber Co. v. Collector,
4 SCRA 842) If what was filed was a wrong return, the
ten (lO)-year prescriptive period will still apply. This
is true even if the information embodied in the wrong
return could enable the BIR to assess the tax liability of
the taxpayer. (Butuan Sawmill, Inc. v. CTA, L-20601, 16
SCRA 277)
Demand letter issued by the Bureau of Forestry not an
assessment
MAMBULAO LUMBER COMPANY v.
REPUBLIC OF THE PHILIPPINES
132 SCRA 1
FACTS:
On January 15,1949, the Bureau of Forestry demanded
from Mambulao Lumber Company the payment of assessed
forest charges and surcharges. The company protested the
assessment. On August 29, 1958, the Acting Commissioner
of Internal Revenue likewise wrote a letter to the company
demanding payment, which subsequently requested reinvestigation. The BIR gave the company twenty (20) days
within which to submit its verification of payments. For
failure of the company to comply, the BIR, on August 25,
1961, filed a complaint for collection with the then Court of
First Instance. The company raised the defense of prescription, arguing that from January 15, 1949, when the Bureau
of Forestry made an assessment and demand for payment
up to the filing of the complaint for collection on August 25,
1961, more than five (5) years had elapsed.
HELD:
The action for collection is not barred by prescription.
The demand letter of the Acting Commissioner of Internal
CHAPTER n
TAX REMEDIES
197
Revenue dated August 29, 1958, was the basis of the
complaint filed in the case and not the demand letter of the
Bureau of Forestry dated January 15, 1949. This must be so
because forest charges are internal revenue taxes and the sole
power and duty to collect the same is lodged with the Bureau
of Internal Revenue and not with the Bureau of Forestry.
B.
Collection of the Tax
a)
Five (5) years — from assessment;
b)
Ten (10) years — without assessment, and in case
of false or fraudulent returns with intent to evade
the tax or failure to file a return.
Under paragraph (c) of Section 222, an internal
revenue tax which has been assessed within the
prescribed period may be collected by distraint or
levy or by a proceeding in court within five (5) years
following the assessment of the tax. This is likewise true
in case of self-assessed taxes like income tax, wherein
the date of the actual filing of the return is considered
as the date when the tax is said to have been assessed.
Collection by judicial action is deemed instituted upon
filing of the corresponding complaint in the court of
competent jurisdiction, and in the case of summary
remedies, upon service of the distraint and levy on the
taxpayer or persons or entity authorized to receive the
same. CSee Clara Diluangco v. Commissioner, 4 SCRA 263)
Filing of answer to taxpayer's petition for review
considered as institution of judicial action
FERNANDEZ HERMANOS, INC. v.
COMMISSIONER OF INTERNAL REVENUE
29 SCRA 552
FACTS:
Upon verification of the taxpayer's income tax returns
for the years 1950 to 1954 and for the year 1957, the Commissioner of Internal Revenue assessed against the taxpayer
alleged deficiency income taxes for the said period. The as-
198
TAX PRINCIPLES A N D REMEDIES
sessment was assailed before the Court of Tax Appeals, and
was eventually elevated to the Supreme Court. One of the
main issues raised was whether or not the government's
right to collect the deficiency income taxes in question has
already prescribed. The taxpayer contented that the prescription has set in for failure on the part of the Commissioner to file a complaint for collection against it in an appropriate civil action.
HELD:
[This] Court has consistently held that "a judicial
action for the collection of a tax is begun by the filing of the
complaint with the proper Court of First Instance or where
the assessment is appealed to the Court of Tax Appeals,
by filing an answer to the taxpayer's petition for review
wherein the payment of the tax is prayed for." This is but
logical for where the taxpayer avails of the right to appeal
the tax assessment to the Court of Tax Appeals, the said
court is vested with authority to pronounce judgment as to
the taxpayer's liability to the exclusion of any other court.
Where the tax obligation is secured by a bond, the
prescriptive period for the action for the forfeiture of the
bond is governed by the Civil Code
REPUBLIC OF THE PHILIPPINES v.
AMADO ARANETA, et al.
2 SCRA 144
FACTS:
On February 22, 1957, the Republic filed before the
then Court of First Instance of Manila an action against J.
Amado Araneta and J. Amado Araneta & Company, Inc.,
as principals, and the Manila Surety & Fidelity Company,
Inc., as surety to recover from them internal revenue taxes
including surcharge, the payment of which was guaranteed
by a bond executed on March 18, 1949, including interest
from December 6,1951, when the first extrajudicial demand
CHAPTER D
TAX REMEDIES
199
was made. Defendants argued that the five-year period
of limitation provided for in Section 332, paragraph (now
Section 222) of the National Internal Revenue Code already
had elapsed, hence the Government's action was barred; and
that granting that the said bond was valid, the enforcement
of the principal obligation having been barred, it follows
that the enforcement of the obligation undertaken in the
said bond was also barred.
HELD:
Defendants cannot invoke prescription under the
provisions of Section 331 of the NIRC because the Government is suing on the bond executed and filed by them to
guarantee payment in six (6) monthly installments of the
tax liability due from 1946 to 1948, which is a separate and
distinct obligation of the parties thereto. The action to enforce the obligation on the bond executed on March 18,
1949, having been filed in court on February 22, 1957, was
within the ten-year prescriptive period to enforce a written
contractual obligation.
But in a case where the government sought to recover
erroneously refunded revenue taxes, the Supreme Court
said that the prescriptive period for tax assessments should
apply because the demand of the Government on the
taxpayer to pay the erroneously refunded tax is in effect an
assessment for deficiency tax. (Guagua Electric Co., Inc. v.
Commissioner, 19 SCRA 790)
Approval of the court sitting in probate not a mandatory
requirement in the collection of estate taxes.
FERDINAND E. MARCOS II v. COURT OF APPEALS
273 SCRA 47
FACTS:
After the death of the former president Ferdinand
Marcos in Honolulu, Hawaii, U.S.A. on September 29,
1989, a Special Tax Audit Team was created to conduct
TAX PRINCIPLES AND REMEDIES
investigations and examinations of the tax liabilities and
obligations of the late president, as well as his family,
associates and cronies. The investigation disclosed that the
Marcoses failed to file a written notice of the death of the
decedent, an estate tax return, as well as several income tax
returns covering the years 1982 to 1986.
The BIR thereby caused the issuance of deficiency
income tax assessments against the Spouses Marcos and
Ferdinand Marcos II, and deficiency estate tax assessment
against the estate of the decedent on July 26, 1991. Despite
personal and constructive notice, the heirs of the decedent
did not protest these deficiency tax assessments.
In 1993, the BIR Commissioner caused the collection
of the deficiency estate and income tax delinquencies by
resorting to the summary remedy of levy on real properties.
Ferdinand R. Marcos II questioned the actuations of the
Commissioner in assessing and collecting through the
summary remedy of levy upon the estate and properties of
his father, despite the pendency of the proceeding on probate
of his will. He asserted that the summary tax remedy is
precluded by the pendency of the special proceeding for the
allowance of the will, which placed all properties forming
part of the decedent's estate in custodia legis to the exclusion
of all other courts and administrative agencies. He further
argued that the Notices of Levy were issued beyond the
allowed period, and are therefore null and void.
HELD:
The nature of the process of estate tax collection has
been described as follows:
Strictly speaking, the assessment of an inheritance
tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an
incident to the complete settlement of an estate, and,
under some statutes, it is made the duty of the probate
court to make the amount of the inheritance tax a part
of the final decree of distribution of the estate. It is
CHAPTER n
TAX REMEDIES
201
not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest
or property right which the heir, legatee, devisee, etc.
has in the property formerly held by the decedent.
Further, under some statutes, it has been held that it
is not a suit or controversy between the parties, nor is
it an adversary proceeding between the state and the
person who owes the tax on the inheritance. However,
under other statutes it has been held that the hearing
and determination of the cash value of the assets and
the determination of the tax are adversary proceedings.
The proceeding has been held to be necessarily a
proceeding in rem. (85 C.J.S. 1191, pp. 1056-1057)
In the Philippine experience, the enforcement and
collection of estate tax, is exclusive in character, as the
legislature has seen it fit to ascribe this task to the Bureau of
Internal Revenue, x x x
Thus it was in Vera v. Fernandez that the court
recognized the liberal treatment of claims for taxes charged
against the estate of the decedent. Such taxes, we said, were
exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the life blood of
the government. Vectigalia nervi sunt rei publicae — taxes are
the sinews of the state, x x x
Such liberal treatment of internal revenue taxes in the
probate proceedings extends so far, even to allowing the
enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties, x x x
From the foregoing, it is discernible that the approval
of the court, sitting in probate, or as a settlement tribunal
over the deceased is not a mandatory requirement in the
collection of estate taxes. It cannot therefore be argued that
the Tax Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late President,
on the ground that it was required to seek first the probate
court's sanction. There is nothing in the Tax Code, and in
the pertinent remedial laws, that implies the necessity of the
202
TAX PRINCIPLES A N D REMEDIES
probate or estate settlement court's approval of the state's
claim for estate taxes, before the same can be enforced and
collected.
On the issue of prescription, the omission to file an
estate tax return, and the subsequent failure to contest
or appeal the assessment made by the BIR is fatal to the
petitioner's cause, as under Section 223, NIRC, (now Sec.
222) in case of failure to file a return, the tax may be assessed
at anytime within ten (10) years after the omission, and any
tax so assessed may be collected by levy upon real property
within three (3) years (now within five [5] years) following
the assessment of the tax. Since the estate tax assessment had
become final and unappealable by the petitioner's default
as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with
the collection of the said tax.
Fraudulent or False Return. — The difference between a
"false" return and a "fraudulent" return is that a false return
merely implies a deviation from the truth or fact whether
intentional or not, whereas a fraudulent return is intentional and
deceitful with the aim of evading the correct tax due. (Aznar v.
Commissioner, L-20569, 58 SCRA 529)*'
As earlier discussed, when what was filed was a false or
fraudulent return, the ten (lO)-year prescriptive period applies.
The ten (10-year period is counted from the discovery of fraud or
falsity, not from the filing of the return. Within this prescriptive
period, the Government has two options: either to assess the
correct tax liability, and later on collect the same within the period
of five (5) years by distraint, levy, or by a proceeding in court
(Section 222[c]), or to file a proceeding in court for the collection
of such tax without assessment. (Section 222[a))
What constitutes fraud. — Fraud is a question of fact that
cannot be presumed but must be sufficiently established. Mere
understatement of the income in itself does not constitute fraud.
"Question No. 7 , 1 9 % Bar Examination.
CHAPTER D
TAX REMEDIES
203
(Gomez v. Domingo, CTA Case No. 1168, February 15, 1964) It must
be proven as a fact that there was intentional and substantial
understatement of tax liability.
Fraud was likewise found to exist in a case where there
was substantial and intentional overstatement of deductions or
exemptions, like the presence of fictitious expenses which were
claimed by the taxpayer as deductions from gross income. (Tan
Guan v. CTA, L-23676, April 27,1967)
Fraud is a question of fact and the circumstances constituting
fraud must be alleged and proved in the court below. The finding
of the trial court as to its existence and non-existence is final and
cannot be reviewed by the Supreme Court unless clearly shown
to be erroneous. Fraud is never lightly to be presumed because
it is a serious charge. (Commissioner of Internal Revenue v. Ayala
Securities Corporation, L-29485, March 31,1976)
The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the
sole object of avoiding the tax. (Aznar v. Collector, 8 SCRA 519) It
necessarily follows that a mere mistake cannot be considered as
fraudulent intent and if both the taxpayer and the Commissioner
of Internal Revenue committed mistakes in making the entries
in the returns and in the assessment respectively under the
inventory method of determining tax liability (the Commissioner
upon reinvestigation concluded that the tax liability should be
reduced), it would be unfair to treat the mistakes of the taxpayer
as tainted with fraud. (Ibid.)
C.
Criminal Liability
a)
Five (5) years — from commission or discovery
of the violation, whichever is later. (Section 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 on the taxpayer.
The five (5)-year prescriptive period commences to
run only after receipt of the final notice and demand
and the taxpayer refuses to pay. In case of a protested
204
TAX PRINCIPLES A N D REMEDIES
assessment, the five (5)-year period starts from the
receipt of the final notice and demand disposing of the
protest.
SUSPENSION OF PRESCRIPTIVE PERIODS
a)
If before the expiration of the time prescribed for the
assessment of the tax, both the Commisssioner and
the taxpayer have agreed in writing to its assessment
after such time, the tax maybe assessed within the
period agreed upon. The period so agreed upon may
be extended by subsequent written agreement made
before the expiration of the period previously agreed
upon. (Section 222[b]) Note that the waiver must be
executed within the three (3)-year prescriptive period
prescribed under Section 203, otherwise said waiver
shall be ineffectual. (Republic v. Felix Acebedo, L-204207,
March 29,1968)
A taxpayer's renunciation of the right to invoke prescription
as a defense, although executed beyond the prescriptive
period, is binding upon the taxpayer. (Sinforoso Alca v. CTA and
Commissioner, L-24624, November 27,1968)
b)
The mnning of the prescriptive period on the making
of an assessment and collection of taxes is likewise
suspended:
i)
when the Commissioner of Internal Revenue
is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court
and for sixty (60) days thereafter, such as when
there is a pending petition for review in the CTA
from the decision on the protested assessment,
the filing of such petition interrupts the ranning
of the prescriptive period for collection. (Republic
v. Ker & Co., 25 SCRA 208)
But the filing of a criminal case against
the taxpayer does not suspend the prescriptive
period; the criminal actions for the tax violation is
entirely separate and distinct from the civil action.
CHAPTER n
T A X REMEDIES
ii)
205
when the taxpayer requests for a reinvestigation
which is granted by the Commissioner. (Collector
v. Suyoc Consolidated Mining Co., 104 Phil. 819)
Generally the prayer for reinvestigation must be favorably
acted upon (Republic v. Acebedo, supra), but in one case, the Court's
ruling was to the effect that the prescriptive period is interrupted
once a taxpayer requests for reinvestigation or reconsideration
of the assessment. (Commissioner v. Wyeth Suaco Laboratories, Inc.,
202 SCRA 125)
iii)
when the taxpayer cannot be located in the
address given by him in the return.
iv)
when the warrant of distraint and levy is duly
served and no property could be located.
v)
when the taxpayer is out of the Philippines.
Prescription: Suspension of the Statutory Period for Collection
REPUBLIC OF THE PHILIPPINES v. SALUD H. HIZON
320 SCRA 574
FACTS:
On July 18, 1986, the BIR issued to Salud Hizon a
deficiency income tax assessment covering the fiscal year
1981-1982. Hizon not having contested the assessment,
the BIR, on January 12, 1989, served warrants of distraint
and levy to collect the tax deficiency. However, it did not
proceed to dispose of the attached properties.
More than three (3) years later, or on November 3,1992,
Hizon wrote the BIR requesting a reconsideration of her tax
deficiency assessment. The BIR, in a letter dated August 11,
1994, denied the request. On January 1, 1997, it filed a case
with the RTC to collect the tax deficiency. The complaint
was dismissed on the ground of prescription.
HELD:
The BIR's contention that respondent's request for
reinvestigation of her tax deficiency assessment on Novem-
206
TAX PRINCIPLES A N D REMEDIES
ber 3, 1992 effectively suspended the running of the period
of prescription has no merit. Section 229 (now 228) of the
Code mandates that a request for reconsideration must be
made within 30 days from the taxpayer's receipt of the tax
deficiency assessment, otherwise the assessment becomes
final, unappealable and therefore demandable. The notice
of assessment for tax deficiency was issued on July 18,1986.
On the other hand, respondent made her request for reconsideration only on November 3,1992, without stating when
she received the notice of tax assessment, x x x Hence, her
request for reconsideration did not suspend the running of
the prescriptive period provided under Section 223(c). Although the Commissioner acted on her request by eventually denying it on August 11,1994, this is of no moment and
does not detract from the fact that the assessment had long
become demandable.
Nonetheless, it is contended that the mnning of the
prescriptive period under Section 223 was suspended when
the BIR timely served the warrants of distraint and levy
on respondent on January 12, 1989. Petitioner cites for this
purpose our ruling in Advertising Associates, Inc. v. Court of
Appeals. Because of the suspension, it is argued that the BIR
could still avail of the other remedy under Section 223(c) of
filing a case in court for collection of the tax deficiency, as
the BIR in fact did on January 1, 1997.
Petitioner's reliance on the Court's ruling in Advertising
Associates, Inc. v. Court of Appeals, 133 SCRA 765, is misplaced.
What the Court stated in that case and, indeed, in the earlier
case of Palanca v. Commissioner of Internal Revenue, 114 Phil.
203, is that the timely service of a warrant of distraint or
levy suspends the running of the period to collect the tax
deficiency in the sense that the disposition of the attached
properties might well take time to accomplish, extending
even after the lapse of the statutory period for collection.
In those cases, the BIR did not file any collection case but
merely relied on the summary remedy of distraint and levy
to collect the tax deficiency.
Petition DENIED.
reply of the taxpayer on the pre assessment notice is not indispensable.
CHAPTER D
207
TAX REMEDIES
III. TAXPAYER'S REMEDIES
There are two remedies accorded to the taxpayer under
the Tax Code: 1) administrative protest which is a protest
against the assessment and is filed before payment; and 2)
claim for refund filed with the Commissioner of Internal
Revenue after payment.
A.
Protest Against Assessment
"Sec. 228. Protesting of Assessment. — When the
Commissioner or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases:
(a)
When the finding for any deficiency tax is the
result of mathematical error in the computation
of the tax as appearing on the face of the return; or
(b)
When a discrepancy has been determined between
the tax withheld and the amount actually remitted
by the withholding agent; or
(c)
When the taxpayer who opted to claim a refund or
tax credit of excess creditable withholding tax for
a taxable period was determined to have carried
over and automatically applied the same amount
claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding
taxable year; or
id)
When the excise tax due on excisable articles has
not been paid; or
(e)
When an article locally purchased or imported
by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and
spare parts, has been sold, traded or transferred
to non-exempt persons.
The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made; otherwise the
assessment shall be void.
208
TAX PRINCIPLES A N D REMEDIES
Within a period to be prescribed by implementing rules
and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form
and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission
of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within
thirty (30) days from receipt of the said decision, or from the
lapse of the one hundred eighty (180)-day period; otherwise,
the decision shall become final, executory and demandable."
Request for reconsideration distinguished from request
for reinvestigation
The main difference between these two types of
protests lies in the records or evidence to be examined by
internal revenue officers, whether these are existing records
or newly discovered or additional evidence. A re-evaluation
of existing records which results from a request for
reconsideration does not toll the running of the prescriptive
period for the collection of an assessed tax. Section 271 (now
Section 223) distinctly limits the suspension of the running of
the statute of limitations to instances when reinvestigation
is requested by a taxpayer and is granted by the CIR. x x x
The distinction between a request for reconsideration and a
request for reinvestigation is significant. It bears repetition
that a request for reconsideration, unlike a request for
reinvestigation, cannot suspend the statute of limitations
on the collection of an assessed tax. If both types of protest
can effectively interrupt the running of the statute of
CHAPTER n
TAX REMEDIES
209
limitations, an erroneous assessment may never prescribe.
If the taxpayer fails to file a protest, then the erroneous
assessment would become final and unappealable. On the
other hand, if the taxpayer does file the protest on a patently
erroneous assessment, the statute of limitations would
automatically be suspended and the tax thereon may be
collected long after it was assessed. (CIR v. Philippine Global
Communication, Inc., 506 SCRA 427, 442, 446-447 [2006])
The procedural steps in protesting an assessment may
be outlined as follows:
1.
Issuance of a pre-assessment notice by the BIR
informing the taxpayer that taxes ought to be assessed against him, except under the circumstances enumerated in paragraphs [a] to [e] of Section
228. The taxpayer is given fifteen (15) days from
receipt of the pre-assessment notice, extendible
for not more than ten (10) days, within which to
respond to the pre-assessment notice.
2.
If the taxpayer fails to respond, or despite the
response, the BIR still opines that the taxpayer
ought to be assessed for deficiency taxes, the BIR
will issue the assessment notice.
3.
The taxpayer may file an administrative protest
against the assessment within thirty (30) days
from receipt of the assessment. Within sixty
(60) days from filing the protest, all the relevant
documents should be submitted; otherwise, the
assessment shall become final and unappealable.
4.
From the receipt of the adverse decision of the
Commissioner, or from the lapse of the one
hundred eighty (180) days from the submission
of the documents, the taxpayer may appeal to
the Court of Tax Appeals within thirty (30) days;
otherwise, the decision or the assessment shall
become final.
(See Rev. Reg. No. 12-99)
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TAX PRINCIPLES A N D REMEDIES
What may be the subject of a judicial review is the decision
of the Commissioner on the protest against assessment,
not the assessment itself
COMMISSIONER OF INTERNAL REVENUE v. VILLA
22 SCRA 3
FACTS:
The spouses Villa filed joint income tax returns for the
years of 1951,1952,1953,1954,1955 and 1956 on April 2,1952,
March 30, 1953, February 26, 1954, March 31, 1955, April 2,
1956 and March 23, 1957, respectively. Using the networth
method, the Bureau of Internal Revenue determined the
income of the Villa spouses and accordingly issued on
February 23, 1961 assessments for deficiency income tax for
the years 1951 to 1956 and residence tax for 1951 to 1957. The
husband received the assessments on April 7,1961. Without
contesting the said assessments in the Bureau of Internal
Revenue, he filed on May 4,1961 a petition for review in the
Court of Tax Appeals.
The CTA took cognizance of the appeal, tried the case
on the merits and rendered judgment holding the spouses
liable only for residence taxes. From this judgment, the BIR
appealed to the Supreme Court.
HELD:
The word "decisions" in paragraph 1, Section 7 of
Republic Act 1125 has been interpreted to mean the decision
of the Commissioner of Internal Revenue on the protest of
the taxpayer against the assessments. Definitely, said word
does not signify the assessment itself, x x x
Since in the instant case the taxpayer appealed from
the assessment of the Commissioner of Internal Revenue
without previously contesting the same, the appeal was
premature and the Court of Tax Appeals had no jurisdiction
to entertain said appeal. For as stated, the jurisdiction of
the Tax Court is to review by appeal the decisions of the
Commissioner of Internal Revenue on disputed assessments.
CHAPTER II
TAX REMEDIES
211
The tax court is a court of special jurisdiction. As such, it can
take cognizance only of such matters as are clearly within
its jurisdiction.
The assessment notice and the demand letter should state
the facts and the law on which they are based; otherwise,
they are deemed void
While administrative agencies, like the BIR, were not
bound by procedural requirements, they were still required
by law and equity to observe substantive due process. On
this score, the assessment should state the facts and the law
on which it is based. The rationale behind this requirement
was to ensure that taxpayers would be duly apprised of —
and could effectively protest — the basis of tax assessments
against them. A void assessment renders any subsequent
proceedings invalid and any order emanating from it could
never attain finality. (CIR v. Reyes, 480 SCRA 382,390-391)
Presumption of correctness in case of taxpayer's failure to
protest the assessments
Tax assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to prove
otherwise. In the absence of proof of any irregularities in
the performance of duties, an assessment duly made by a
Bureau of Internal Revenue examiner and approved by his
superior officers will not be disturbed. All presumptions are
in favor of the correctness of tax assessments. (CIR v. BPI,
521 SCRA 373, 386)
In one case, the Supreme Court held that where a
taxpayer questions an assessment, and asks the Collector
to reconsider or cancel the same because he believes he is
not liable therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the taxpayer
can appeal to the Court of Tax Appeals only upon receipt of
the decision of the Collector on the disputed assessment.
(St. Stephen's Association and St. Stephen's Chinese Girl's School
v. Collector of Internal Revenue, No. L-11238, August 21,1958)
212
TAX PRINCIPLES A N D REMEDIES
The act of the Commissioner in filing an action for
allowance of the claim for estate and inheritance taxes
may be considered an outright denial of the request for
reconsideration. The taxpayer's remedy is to appeal to the
Court of Tax Appeals within thirty (30) days from the date
he is notified thereof. (Dayrit v. Cruz, 165 SCRA 571)
As a rule, the warrant of distraint and levy is proof of
the finality of the assessment and renders hopeless a request
for reconsideration, being tantamount to an outright denial
thereof and makes the said request deemed rejected. The
receipt of the warrant therefore commences the running of
the thirty (30)-day period to appeal. The case of Commissioner
of Internal Revenue v. Algue, Inc., No. L-28896, February
17, 1988, takes exception to this rule. In the said case, the
proven fact is that four days after the private respondent
received the BIR's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before
the warrant of distraint and levy was issued. It could not
be located in the office of the Commissioner and it was
only after the taxpayer's counsel gave the BIR a copy of the
protest that it was considered by the authorities. The protest
not being pro forma, it had the effect of suspending the 30-day
reglementary period, which started to run again when the
taxpayer was definitely informed of the implied rejection
(in this case an information that the BIR was not taking any
action on the protest) of the protest and the warrant was
finally served.
In the same vein, the Supreme Court held that the
reviewable decision of the BIR Commissioner is that letter
where he clearly directed the taxpayer to appeal to the
Court of Tax Appeals, and not the warrant of distraint and
levy. The directive is in consonance with the dictum that
the Commissioner should always indicate to the taxpayer
in clear and unequivocal language what constitutes his final
determination of the disputed assessment. That procedure is
demanded by the pressing need for fair play, regularity and
orderliness in administrative action. (Advertising Associates,
Inc. v. Court of Appeals, 133 SCRA 766)
CHATTER n
TAX REMEDIES
213
The Collector of Internal Revenue, after appeal from
his decision to the Court of Tax Appeals has been perfected,
and after the Tax Court has acquired jurisdiction over
the appeal, but before the answer is filed with the court,
may still modify his assessment, subject of the appeal, by
increasing the same. (Collector of Internal Revenue v. Batangas
Trans. Co., et al., No. L-9692, January 6,1958) In a much recent
case however, the Supreme Court ruled that an amended
assessment would no longer be proper before the Court of
Tax Appeals, not being the "disputed assessment" appealed
from. (Commissioner v. Guerrero, 19 SCRA 205) The former
appears to be a much better view as it avoids multiplicity of
suits.
Mandamus does not lie to compel the Commissioner
of Internal Revenue to impose a tax assessment not found
by him to be proper. A judge of a regular court has no
jurisdiction to take cognizance of a mandamus case raising
the question of whether or not to impose a deficiency tax
assessment. This undoubtedly comes within the purview
of the words "disputed assessment" or "of other matters
arising under the National Internal Revenue Code," thus
belonging to the jurisdiction of the Court of Tax Appeals.
(Meralco Securities Corporation v. Savellano, 117 SCRA 805)
B.
Claim for Refund
"Sec. 229. Recovery of Tax Erroneously or Illegally
Collected. — No suit or proceeding shall be maintained
in any court for the recovery of any national revenue tax
hereafter alleged to have been erroneously or illegally
assessed or collected, or of a 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 any case, no such suit or proceeding shall be filed
after the expiration oftiuo (2) years from the date of payment
214
TAX PRINCIPLES A N D REMEDIES
of the tax or penalty, regardless of an supervening cause
that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to
have been erroneously paid."
Two-fold purpose of tax refund
The law clearly stipulates that after paying the tax, the
taxpayer must submit a claim for refund before resorting to
the courts. The idea probably, is first, to afford the collector
an opportunity to correct the action of subordinate officers;
and second, to notify the Government that such taxes have
been questioned, and the notice should then be borne in
mind in estimating the revenue available for expenditure.
Previous objections to the tax may not take the place of
that claim for refund, because there may be some reason
to believe that, in paying, the taxpayer has finally come
to realize the validity of the assessment. Anyway, strict
compliance with the conditions imposed for the return of
revenue collected is a doctrine consistently applied here and
in the United States. [Bermejo v. Collector of Internal Revenue,
87 Phil. 96, 97 (1950)]
Tax refunds are not founded principally on legislative
grace
Tax refunds (or tax credits) are not founded principally
on legislative grace but on the legal principle which
underlies all quasi-contracts abhorring a person's unjust
enrichment at the expense of another. The dynamic of
erroneous payment of tax fits to a tee the prototypic quasicontract, solutio indebiti, which covers not only mistake in
fact but also mistake in law.
Under the Tax Code itself, apparently in recognition of
the pervasive quasi-contract principle, a claim for tax refund
may be based on the following: (a) erroneously or illegally
assessed or collected internal revenue taxes; (b) penalties
imposed without authority; and (c) any sum alleged to have
CHAPTER II
TAX REMEDIES
215
been excessive or in any manner wrongfully collected. ICIR
v. Fortune Tobacco Corporation, 559 SCRA 160 (2008)]
Tax Refund and Tax Credit Distinguished. — In tax
refund, there is actual reimbursement of the tax while in tax
credit, the reimbursable amount is applied against the sum
that may be due or collectible from the taxpayer.
Under the aforecited provision, tax refund covers: 1)
erroneously or illegally assessed or collected internal
revenue taxes; 2) penalties imposed without authority; and
3) any sum alleged to have been excessive or in any manner
wrongfully collected.
A. Requirements for Refund Claims. — A claim for refund
partakes of the nature of an exemption which cannot
be allowed unless granted in the most categorical
language. This being so, a claim for refund must
be strictly construed against the claimant and such
claimant has the burden of proving that the following
requirements were met:
1.
There must be a written claim for refund filed by
the taxpayer with the Commissioner. — This is
a mandatory requirement; in the absence of this
requirement, the Commissioner is without any
authority to refund. (Andrea Vda. de Aguinaldo v.
Commissioner, 13 SCRA 269)
As regards indirect taxes, recent jurisprudence holds that the proper party to question, or
seek a refund of, the tax is the statutory taxpayer,
the person on whom the tax is imposed by law and
paid the same even if he shifts the burden thereof to another. Even if Perron Corporation passed
on to Silkair the burden of the tax, the additional
amount billed to Silkair for jet fuel is not a tax but
part of the price which Silkair had to pay as a purchaser. (Silkair [Singapore] PTE, LTD. v. CIR, G.R.
No. 173594, February 6,2008) This revoked the ruling in CIR v. American Rubber Co. [18 SCRA 842],
216
TAX PRINCIPLES A N D REMEDIES
insofar as it held that the refunded taxes should
constitute a trust fund in favor of the paying customers who advanced payment thereof.
In the recent case of Contex Corporation v.
CIR, 433 SCRA 376, the Supreme Court held
that petitioner (Contex), a NON-VAT registered
taxpayer is not the proper party to claim VAT
refund. However, in Seagate Technology (Phils.),
451 SCRA 132, the Court ruled that respondent
(Seagate), a VAT registered enterprise is entitled
to VAT refund. As pointed out by the Court,
the distinction between the two cases (Contex
and Seagate) is that "Contex was registered as a
NON-VAT taxpayer while Seagate was a VATregistered."
In case the taxpayer is a foreign company,
may its withholding agent file a written claim
for refund? Interestingly, the Supreme Court answered this question differently in two cases promulgated on the same day, April 15,1988.
In Commissioner of Internal Revenue v. Procter
and Gamble PMC, No. L-66838, April 15,1988, PMCPhil., as a wholly-owned subsidiary of Procter &
Gamble, U.S.A. filed for a refund or tax credit
representing the alleged overpaid withholding
tax on the dividend it declared in favor of its
parent corporation for the taxable years 1974
and 1975. The Second Division of the Supreme
Court held that PMC-Phil, is but a withholding
agent of the government and therefore cannot
claim reimbursement of the alleged overpaid
taxes, the real party-in-interest being the mother
corporation in the United States, and should have
been the claimant of the tax refund.
In Commissioner of Internal Revenue v. Wander
Philippines, Inc., No, L-68375, April 15, 1988,
which presented almost the same factual milieu
CHAPTER II
TAX REMEDIES
217
and raised the same issue, the Third Division of
the Supreme Court ruled otherwise. It said that
Wander Philippines is first and foremost a wholly
owned subsidiary of the parent foreign company,
and the fact that it became a withholding agent
of the government which was not by choice but
by compulsion under the Tax Code, cannot by
any stretch of imagination, be considered as
an abdication of its responsibility to its mother
company. It went on to say that Wander may in
fact be assessed for deficiency withholding tax
at source. As the Philippine counterpart, it is
therefore the proper entity who should claim for
the refund.
It is believed that the ruling in Wander case
is the better view. It reiterates the ruling in Phil.
Guaranty Co., Inc. v. Commissioner, 15 SCRA 5, "the
withholding agent is constituted the agent of both
the Government and the taxpayer." With respect
to the collection and/or withholding of the tax,
he is the Government's agent, and in regard to
the filing of the necessary income tax and the
payment of the tax to the Government, he is the
agent of the taxpayer.
The claim for refund must be a categorical demand
for reimbursement. — While payment under
protest is not necessary, the claim for refund must
categorically demand for the reimbursement of
the overpaid amount.
The claim for refund must be filed within two (2)
years from date of payment of the tax or penalty
regardless of any supervening cause.
The ruling of the Supreme Court in Commissioner v. Insular Lumber Lumber Co., No. L-24221,
December 11, 1967 that if the tax sought to be recovered was paid legally but becomes refundable
upon the happening of a supervening cause, the
218
TAX PRINCIPLES A N D REMEDIES
reckoning of the two (2)-year period commences
from the happening of the supervening cause, no
longer finds application under the present law.
The two (2)-year period is always to be reckoned
from the date of the payment regardless of any
supervening cause.
The two (2)-year period applies only to
suits or proceedings for the recovery of taxes or
penalties erroneously, excessively, illegally or
wrongfully collected. Accordingly, an ordinary
claim for tax credit would prescribe in ten (10)
years under Article 1144 of the Civil Code.
In claims for refund, it is necessary that the
tax be paid in full, and that the claim for refund
in the Bureau of Internal Revenue as well as
the proceeding in the Court of Tax Appeals be
commenced within two (2) years counted from
the payment of the tax. Unlike in administrative
protest cases under Section 228 where from the
lapse of one hundred eighty (180) days of inaction
on the part of the BIR, the taxpayer is given a
period of thirty (30) days within which to appeal
to the CTA, in claims for refund, the thirty (30)day period to appeal should be within the two
(2)-year prescriptive period. As elucidated by the
High Court in Gibbs v. Collector of Internal Revenue
and Court of Tax Appeals, No. L-13453, February 29,
1960:
"A taxpayer who has paid the tax, whether
under protest or not, and who is claiming a refund
of the same, must comply with the requirements
of both Section 306 (now Section 229) of the
National Internal Revenue Code and Section 11
of Republic Act No. 1125; that is, he must file
a written claim for refund with the Collector of
Internal Revenue within 2 years from the date of
his payment of the tax, as required under Section
(306) of the National Internal Revenue Code, and
CHAPTER II
TAX REMEDIES
219
appeal to the Court of Tax Appeals within 30 days
from receipt of the Collector's decision or ruling
denying his claim for refund, as required by said
Section 11 of Republic Act No. 1125. If, however,
the Collector takes time in deciding the claim,
and the period of two years is about to end, the
suit or proceeding must be started in the Court of
Tax Appeals before the end of the two-year period
without awaiting the decision of the Collector.
This is so because of the positive requirement of
Section (306) and the doctrine that delay of the
Collector in rendering decision does not extend
the peremptory period fixed by the statute."
Computation of the two-year period
When a tax is paid in installments, the prescriptive
period of two (2) years should be counted from the date of
the final payment. (Collector of Internal Revenue v. Prieto, No.
L-11976, August 29,1961)
In case of payments effected through the withholding
tax system, the tax liability is deemed paid when the
same falls due at the end of the tax year. This is because
a taxpayer, resident or non-resident, who contributes to
the withholding tax system, does not really deposit an
amount to the Commissioner of Internal Revenue, but, in
truth, performs and extinguishes his tax obligation for the
year concerned. It is from the end of the taxable year then,
or when the tax liability falls due, that the two (2)-year
prescriptive period starts to run. (Gibbs v. Commissioner of
Internal Revenue, No. L-17406, November 29,1965)
This ruling has been explained in a case involving
corporate quarterly income tax (ACCRA Investment
Corporation v. Court of Appeals, 204 SCRA 957), in this wise:
"The (aforequoted ruling) presents two alternative
reckoning dates, i.e., (1) the end of the tax year; and (2) when
the tax liability falls due. In the instant case, it is undisputed
that the petitioner corporation's withholding agents had paid
220
TAX PRINCIPLES AND REMEDIES
the corresponding taxes withheld at source to the Bureau
of Internal Revenue from February to December 1981. In
having applied the first alternative date — "the end of the
tax year" in order to determine whether or not the petitioner
corporation's claim for refund had been seasonably filed, the
respondent appellate court failed to appreciate properly the
attending circumstances of this case.
The petitioner corporation is not claiming a refund of
overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable
amount determined upon the petitioner corporation's filing
of its final adjustment tax return on or before 15 April 1982
when its tax liability for the 1981 fell due. The distinction is
essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement
to a refund.
xxx
The petitioner corporation's taxable year is on a
calendar year basis, hence, with respect to the 1981 taxable
year, ACCRAIN had until 15 April 1982 within which to
file its final adjustment return, xxx
Clearly, there is a need to file a return first before a
claim for refund can prosper inasmuch as the respondent
Commissioner by his own rules and regulations mandates
that the corporate taxpayer opting to ask for a refund must
show in its final adjustment return the income it received
from all sources and the amount of withholding taxes remitted
by its withholding agents to the Bureau of Internal Revenue.
The petitioner corporation filed its final adjustment return
for its 1981 taxable year on April 15,1982. In our Resolution
dated April 10,1989 in the case of Commissioner of Internal
Revenue v. Asia Australia Express. Ltd. (G.R. No. 85956),
we ruled that the two-year prescriptive period within which
to claim a refund commences to run, at the earliest, on the
date of the filing of the adjusted final tax return."
Therefore, the filing of quarterly income tax returns
required in Section 85 (now Section 75, NIRC) and imple-
CHAPTER n
TAX REMEDIES
221
merited per BIR Form 1702-Q and payment of quarterly
income tax should only be considered mere installments
of the annual tax due. These quarterly tax payments which
are computed based on the cumulative figures of gross
receipts and deductions in order to arrive at a net taxable
income, should be treated as advances or portions of the
annual income tax due, to be adjusted at the end of the
calendar or fiscal year. (Commissioner of Internal Revenue v.
TMX Sales, Inc., G.R. No. 83736, January 15, 1992, reiterated
in Commissioner of Internal Revenue v. Court of Appeals, G.R.
No. 117254, January 21,1999)
In CIR v. CA, 301 SCRA 435, the Supreme Court held
that private respondent BPI's claim for refund was barred by
prescription. It having filed its corporate annual tax return
on April 2, 1986, the two (2)-year period of prescription for
filing tax refund should be counted from the payment of
tax. Hence, the written claim for refund filed on April 14,
1988 was considered filed out of time.
In the recent case of BPI v. CIR, G.R. No. 144653, August
28, 2001, 363 SCRA 840, the Court held that in corporate
dissolution, the two (2)-year prescriptive period should be
counted thirty (30) days from the approval by the SEC of its
plan for dissolution. Since the FBTC's plan for dissolution
was approved by SEC on July 30, 1985 (the two [2]-year
period of prescription ended on July 30, 1987), the BPI's
claim for tax refund filed on December 29, 1987 was barred
by prescription.
As regards income subject to withholding tax system, a
taxpayer will be deemed to have paid his tax liability when
the same falls due at the end of the taxable year. It is from
this latter date then or when the tax liability falls due that
the two (2)-year period in Section 292 (now 229 of the NIRC,
as amended) starts to run. (Fibbs v. CIR, L-17406, November 29,
1965) This settled rule was reiterated in the recent case of
Citibank, N.A. v. CA, 280 SCRA 459, wherein the Court held
that creditable withholding taxes are subject to adjustment
upon detennination of the correct income tax liability after
222
TAX PRINCIPLES A N D REMEDIES
the filing of the corporate tax return, as at the end of the
taxable year.
In the recent case of Banco Filipino Savings and Mortgage
Bank v. CA [519 SCRA 93, 96], the Supreme Court ruled that
there are three conditions for the grant of a claim for refund
of creditable withholding tax: 1) the claim is filed with the
Commissioner of Internal Revenue within the two (2)-year
period from the date of payment of the tax; 2) it is shown on
the return of the recipient that the income payment received
was declared as part of the gross income; and 3) the fact of
withholding is established by a copy of a statement duly
issued by the payor to the payee showing the amount paid
and the amount of the tax withheld therefrom.
The two-year prescriptive period for the filing of tax
refund is reckoned from the filing of the final adjusted
return. How should the two-year period be computed?
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with
the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days
whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of
12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There
obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of
1987, being the more recent law, governs the computation of
legal periods. Lex posteriori derogat priori. (CIR v. Primetown
Property Group, Inc., 531 SCRA 436 12007])
Claim for refund for unutilized input VAT payments
must be made within two years from the close of the
taxable quarter
Section 112(A), NIRC clearly provides in no uncertain
terms that unutilized input VAT payments not otherwise
CHAPTER n
TAX REMEDIES
223
used for any internal revenue tax due the taxpayer must
be claimed within two years reckoned from the close of
the taxable quarter when the relevant sales were made
pertaining to the input VAT regardless of whether said tax
was paid or not. x x x "[Prescriptive period commences
from the close of the taxable quarter when the sales were
made and not from the time the input VAT was paid nor
from the time the official receipt was issued." Thus, when a
zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file
a claim for refund or tax credit of the unutilized creditable
input VAT. The reckoning frame would always be the end
of the quarter when the pertinent sales or transaction was
made, regardless when the input VAT was paid.
MPC cannot avail itself of the provisions of either
Sec. 204(C) or 229 of the NIRC which, for the purpose of
refund, prescribes a different starting point for the two-year
prescriptive limit for the filing of a claim therefor. Notably,
the said provisions also set a two-year prescriptive period,
reckoned from date of payment of the tax or penalty, for the
filing of a claim of refund or tax credit. Notably too, both
provisions apply only to instances of erroneous payment or
illegal collection of internal revenue taxes. [Commissioner of
Internal Revenue v. Mirant Pagbilao Corporation, 565 SCRA 164
(2008)]
Application for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to
zero-rated sales must be filed with the Commissioner of
Internal Revenue within two years after the close of the
taxable quarter.
Subsection (A) of Section 112 of the NIRC states that
"any VAT-registered person, whose sales are zero-rated or
effectivety zero-rated may, within two years after the close
of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales." The phrase
224
TAX PRINCIPLES AND REMEDIES
"within two (2) years x x x apply for the issuance of a
tax credit certificate or refund" refers to applications for
refund/credit filed with the CIR and not to appeals made
to the CTA. This is of the same provision, which states that
the CIR has "120 days from the submission of complete
documents in support of the application filed in accordance
with Subsections (A) and (B)" within which to decide on the
claim.
In fact, applying the two-year period to judicial claims
would render nugatory Section 112(D) (now Section 112
(C)) of the NIRC), which already provides for a specific
period within which a taxpayer should appeal the decision
or inaction of the CIR. The second paragraph of Section
112(C) of the NIRC, as amended, envisions two scenarios:
(1) when a decision is issued by the CIR before the lapse of
the 120-day period; and (2) when no decision is made after
the 120-day period. In both instances, the taxpayer has 30
days within which to file an appeal with the CTA. Indeed,
the 120-day period is crucial in filing an appeal with the
CTA. (See Commissioner of Internal Revenue v. AICHI Forging
Company of Asia, Inc., G.R. No. 184823, 6 October 2010)
Corporate taxpayer has two alternative options
Section 76 offers two options: (1) filing for tax refund
and (2) availing of tax credit. The two options are alternative
and the choice of one precludes the other. However, in
Philam Asset Management, Inc. v. Commissioner of Internal
Revenue, 447 SCRA 772 (2005), the Court ruled that failure
to indicate a choice, however, will not bar a valid request
for a refund, should this option be chosen by the taxpayer
later on. The requirement is only for the purpose of
easing tax administration particularly the self-assessment
and collection aspects. "Section 76 remains clear and
unequivocal. Once the carry-over option is taken, actually
or constructively, it becomes irrevocable." It mentioned no
exception or qualification to the irrevocability rule. The last
sentence of Section 76 of the NIRC of 1997 reads: "Once
the option to carry-over and apply the excess quarterly
CHAPTER II
TAX REMEDIES
225
income tax against income tax due for the taxaole quarters
of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and
no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor." The phrase "for that
taxable period" merely identifies the excess income tax,
subject of the option, by referring to the taxable period
when it was acquired by the taxpayer. (CIR v. PERF Realty
Corporation, 557 SCRA 165 [2008])
The proper parry to seek a refund of indirect tax is the
statutory taxpayer
The proper party to question, or seek a refund of, an
indirect tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same even if
he shifts the burden thereof to another. Section 130(A)(2)
of the NIRC provides that "[u]nless otherwise specifically
allowed, the return shall be filed and the excise tax paid
by the manufacturer or producer before removal of
domestic products from place of production. Thus, Petron
Corporation, not Silkair, is the statutory taxpayer which is
entitled to claim a refund based on Section 135 of the NIRC
of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore.
Silkair nevertheless argues that it is exempt from
indirect taxes because the Air Transport Agreement between
RP and Singapore grants exemption "from the same customs
duties, inspection fees and other duties or taxes imposed
in the territory of the first Contracting Party." It invokes
Maceda v. Macaraig, Jr. which upheld the claim for tax credit
or refund by the National Power Corporation (NPC) on
the ground that the NPC is exempt even from the payment
of indirect taxes. Silkair's argument does not persuade. In
Commissioner of Internal Revenue v. PLOT, the Court clarified
that xxx an exemption from "all taxes" excludes indirect
taxes unless the exempting statute, like the NPC's charter,
is so couched as to include indirect tax from the exemption.
The exemption granted under Section 135(b) of the NIRC
226
TAX PRINCIPLES A N D REMEDIES
of the 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore cannot, without a clear showing
of legislative intent, be construed as including indirect
taxes. Statutes granting tax exemptions must be construed
in strictissimi juris against the taxpayer and liberally in favor
of the taxing authority, and if an exemption is found to exist,
it must not be enlarged by construction. (Silkair [Singapore)
PTE, Ltd. v. Commissioner of Internal Revenue, 544 SCRA 100
[2008])
Perron Corporation is the proper party to seek a refund
even if it passed on the indirect tax to Silkair
When Petron removes its petroleum products from its
refinery in Limay, Bataan, it pays the excise tax due on the
petroleum products thus removed. Petron, as manufacturer
or producer, is the person liable for the payment of the
excise tax as shown in the Excise Tax Returns filed with
the BIR. Stated otherwise, Petron is the taxpayer that is
primarily, directly and legally liable for the payment of the
excise taxes. However, since an excise tax is an indirect tax,
Petron can transfer to its customers the amount of the excise
tax paid by treating it as part of the cost of the goods and
tacking it on to the selling price.
Even if the consumers or purchasers ultimately pay
for the tax, they are not considered the taxpayers. The fact
that Petron, on whom the excise tax is imposed, can shift
the tax burden to its purchasers does not make the latter the
taxpayers and the former the withholding agent. Silkair, as
the purchaser and end-consumer, ultimately bears the tax
burden, but this does not transform its status into a statutory
taxpayer.
The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a taxpayer
as "any person subject to tax." In Commissioner of Internal
Revenue v. Procter and Gamble Phil. Mfg. Corp., 204 SCRA 377
(1991), the Court ruled that: A "person liable for tax" has
been held to be a "person subject to tax" and properly con-
CHAPTER II
TAX REMEDIES
227
sidered a "taxpayer." The terms "liable for tax" and "subject
to tax" both connote a legal obligation or duty to pay a tax.
Even if the tax is shifted by Petron to its customers and
even if the tax is billed as a separate item in the aviation
delivery receipts and invoices issued to its customers, Petron
remains the taxpayer because the excise tax is imposed
directly on Petron as the manufacturer. Hence, Petron, as
the statutory taxpayer, is the proper party that can claim the
refund of the excise taxes paid to the BIR. [Silkair (Singapore)
Pte. Ltd. v. Commissioner of Internal Revenue, 571 SCRA 141
(2008)]
Creditable value-added tax (VAT) withheld from a taxpayer in excess of its output VAT liability may be the
subject of a tax refund in place of a tax credit
Excess creditable VAT withheld is much unlike excess
income taxes withheld. In the latter case, Section 76 and
58(D) of the NIRC specifically make the option to seek a
refund available to the taxpayer, x x x
The ruling in Citibank N.A. v. Court of Appeals, while
dealing with excessive income taxes withheld, is also
applicable to this case: "Consequently and clearly, the
tax withheld during the course of the taxable year, while
collected legally under the aforesaid revenue regulation,
became untenable and took on the nature of erroneously
collected taxes at the end of the taxable year."
Even if the law does not expressly state that Ironcon's
excess creditable VAT withheld is refundable, it may be the
subject of a claim for refund as an erroneously collected tax
under Sections 204(C) and 229. It should be clarified that
this ruling only refers to creditable VAT withheld pursuant
to Section 114 prior to its amendment. After its amendment
by R.A. 9337, the amount withheld under Section 114 is
now treated as a final VAT, no longer under the creditable
withholding tax system. (Commissioner of Internal Revenue v.
Ironcon Builders and Development Corporation, 612 SCRA 39,
43-44 [2010])
TAX PRINCIPLES A N D REMEDIES
The two-year period is not jurisdictional
In Commissioner of Internal Revenue v. Philamlife, 244
SCRA 446, 453 (1995), the Supreme Court held that even
if the two-year period had already lapsed, the same is not
jurisdictional and may be suspended for reasons of equity
and other special circumstances. This has been echoed in
the case of Commissioner of Internal Revenue v. PNB, 474
SCRA 303, 319. Founded on moral and equitable grounds,
the following circumstances may stay the two-year period:
1.
Assurance on the part of the BIR that steps were
being taken to credit taxpayer with the amount
sought to be refunded.
2.
An agreement or understanding with the BIR that
they await the result of a pending case involving
similar issue raised in the claim for refund. (See
Panay Electric Co., Inc. v. The Collector of Internal
Revenue, 103 Phil. 819, 828)
Chapter III
THE NEW COURT OF TAX APPEALS
Created under Republic Act 1125, the Court of Tax Appeals
is a highly specialized body which reviews tax cases. The
proceedings therein are judicial in nature although it is not bound
by the technical rules of evidence. (Perez v. Araneta, 103 Phil. 1167)
SALIENT FEATURES OF R.A. 9282 ["AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS
(CTA), ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE CERTAIN SECTIONS OF R.A. 1125, AS AMENDED,
OTHERWISE KNOWN AS THE LAW CREATING THE COURT
OF TAX APPEALS, AND FOR OTHER PURPOSES"]:
EXPANDED JURISDICTION OF THE CTA
1.
Exclusive original jurisdiction over criminal cases
arising from violations of the NIRC or the Tariff and
Customs Code and other laws administered by the
BIR and the BOC where the principal amount of taxes
and penalties involved is PI million or more and
appellate jurisdiction in lieu of the Court of Appeals
over decisions of the Regional Trial Court where the
amount is less than PI million;
2.
Exclusive original Jurisdiction over tax collection cases
where the principal amount of taxes and penalties
involved is PI million or more and the appellate
jurisdiction over decisions of the Regional Trial Court
where the amount is less than PI million;
229
230
TAX PRINCIPLES A N D REMEDIES
3.
Appellate jurisdiction over decisions of the Regional
Trial Courts in local tax cases; and
4.
Appellate jurisdiction over decisions of the Central
Board of Assessment Appeals over cases involving the
assessment of taxation of real property.
COMPOSITION
To complement its expanded jurisdiction, the CTA's
membership is increased from one (1) division of three (3) Judges
comprised of the Presiding Judge and Associate Judges to three
(3) divisions of nine (9) Justices composed of a Presiding Justice
and eight (8) Associate Justices (R.A. 9503) The law expanded the
organization and, most importantly, its level is raised to that of
the Court of Appeals.
APPEALS
Another significant feature of R.A. 9282 is that decisions of
the Court of Tax Appeals are no longer appealable to the Court
of Appeals. Under the modified appeal procedure, the decision
of a division of the CTA may be appealed to the CTA en banc. The
decision of the CTA en banc may in turn be directly appealed to
the Supreme Court only on a question of law. This is expected
to facilitate court proceedings in tax cases since the CTA has the
necessary expertise in tax matters. In addition, there will be less
divisive rulings on tax matters since the appeal shall be made
only to the CTA en banc instead of the Court of Appeals with its
many divisions.
ASSUMPTION TO OFFICE
Corollary to the reorganization of the CTA is a provision
providing for the automatic assumption of the incumbent Presiding Judge and Associate Judges to the positions of Presiding
Justice and Associate Justices respectively without the need for
new appointments.
CTA PROCEEDINGS
The CTA may sit en banc or in three (3) Divisions, each
Division consisting of three (3) Justices.
CHAPTER III
THE NEW COURT OF TAX APPEALS
231
"Five (5) Justices shall constitute a quorum for sessions en
banc and two (2) Justices for sessions of a Division. 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 five (5) members of the Court en
banc shall be necessary to reverse a decision of a Division but a
simple majority of the Justices present necessary to promulgate a
resolution or decision in all other cases or two (2) members of a
Division, as the case may be, shall be necessary for the rendition
of a decision or resolution in the Division Level." (R.A. 9503)
JURISDICTION OVER BOTH CIVIL AND
CRIMINAL ASPECTS
The vesting of jurisdiction over both the civil and criminal
aspects of a tax case in one court will likewise effectively enhance
and maximize the development of jurisprudence and judicial
precedence on tax matters which is of vital importance to revenue
administration. The concentration of tax cases in one court will
enhance the disposition of these cases since it will take them out
of the jurisdiction of regular courts which, admittedly, do not
have expertise in the field of taxation.
CTA shall not be Governed by the Technical Rules of Evidence
Strict procedural rules generally frown upon the submission
of the Return after the trial. The law creating the Court of Tax
Appeals, however, specifically provides that proceedings
before it "shall not be governed strictly by the technical rules
of evidence." The paramount consideration remains the
ascertainment of truth. Verily, the quest for orderly presentation
of issues is not an absolute. It should not bar courts from
considering undisputed facts to arrive at a just determination
of a controversy. In the present case, the Return attached to
the Motion for Reconsideration clearly showed that petitioner
suffered a net loss in 1990. Contrary to the holding of the CA and
the CTA, petitioner could not have applied the amount as a tax
232
TAX PRINCIPLES A N D REMEDIES
credit. In failing to consider the said Return, as well as the other
documentary evidence presented during the trial, the appellate
court committed a reversible error.
1
The findings of fact of the Court of Tax Appeals are entitled to the
highest respect. The language used by the Court of Tax Appeals
as to the existence of fraud must be given its due weight and
force. It found such nefarious intent on the part of the vendor
from whom petitioner obtained this vehicle not merely proved
by preponderance of evidence but "without any shadow of
doubt." Time and again, the Supreme Court had made clear in
categorical language that the findings of fact of the Court of Tax
Appeals are entitled to the highest respect."(Raymundo v. De Joya,
101 SCRA 495)
As a court of record, CTA is bound by the rules on documentary
evidence
Under Section 8 of R.A. 1125, the CTA is described as
a court of record. As cases filed before it are litigated de novo,
party litigants should prove every minute aspect of their cases.
No evidentiary value can be given to the purchase invoices
or receipts submitted to the BIR as the rules on documentary
evidence require that these documents must be formally offered
before the CTA. In the case of Commissioner of Internal Revenue
v. Manila Mining Corporation, 468 SCRA 571 (2005), the Supreme
Court thus notes with approval the following findings of the
CTA: [S]ale of gold to the Central Bank should not be subject to
the 10% VAT-output tax but this does not ipso facto mean that [the
seller] is entitled to the amount of refund sought as it is required
by law to present evidence showing the input taxes it paid during
the year in question. What is being claimed in the instant petition
is the refund of the input taxes paid by the herein petitioner on
its purchase of goods and services. Hence, it is necessary for the
Petitioner to show proof that it had indeed paid the said input
taxes during the year 1991. In the case at bar, Petitioner failed
to discharge this duty. It did not adduce in evidence the sales
•BPI-Family Savings Bank, Inc. v. Court of Appeals, 330 SCRA 507, 515-516.
CHAPTER ID
THE NEW COURT O F TAX APPEALS
233
invoice, receipts or other documents showing the input value
added tax on the purchase of goods and services, x x x Section 8
ot R.A. 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of
record and as such it is required to conduct a formal trial (trial de
novo) where the parties must present their evidence accordingly
if they desire the Court to take such evidence into consideration.
While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves but are
primarily intended as tools in the administration of justice, the
presentation of the purchase receipts and / or invoices is not mere
procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and
verify the truth of respondent's claims.
OUTLINE OF JURISDICTION (Sec. 7, R.A. 9282)
I.
Exclusive appellate jurisdiction to review by appeal —
(1)
Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the NIRC or other
laws administered by the BIR (via a petition for review
under Rule 42).
(2)
Inaction by the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the NIRC or other
laws administered by the BIR, where the NIRC provides a
specific period for action, in which case the inaction shall
be deemed a denial (via a petition for review under
Rule 42).
(3)
Decisions, orders or resolutions of the RTC in local
tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction (via a
petition for review under Rule 43).
234
TAX PRINCIPLES A N D REMEDIES
(4) Decisions of the Commissioner of Customs in cases
involving liability of custom 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 (via a
petition for review under Rule 42).
(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 board of
assessment appeals (via a petition for review under
Rule 43).
(6)
Decisions of the Secretary of Finance on customs cases
elevated to them 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 (via a petition for review under Rule
42).
Purpose and rationale of the automatic review
in customs cases. The Commissioner of Customs in his
Customs Memorandum Order No. 20-87, enjoined all
collectors to follow strictly Section 12 of the Integrated
Reorganization Plan (P.D. No. 1) which is intended to
protect the interest of the Government in the collection
of taxes and customs duties in those seizure and protest
cases which, without the automatic review provided
therein, neither the Commissioner of Customs nor the
Secretary of Finance would probably ever know about.
Without the automatic review by the Commissioner
of Customs and the Secretary of Finance, a collector
in any of our country's far-flung ports, would have
absolute and unbridled discretion to determine
whether goods seized by him are locally produced,
hence, not dutiable, or of foreign origin, and therefore
subject to payment of customs duties and taxes. His
decision, unless appealed by the aggrieved party (the
owner of the goods), would become final with no one
CHAPTER III
THE NEW COURT OF TAX APPEALS
235
the wiser except himself a n d the owner of the goods.
The owner of the goods cannot be expected to appeal
the collector's decision when it is favorable to him.
A decision that is favorable to the taxpayer would
correspondingly be unfavorable to the Government,
but who will appeal the collector's decision in that
case? Certainly not the collector.
Evidently, it was to cure this anomalous situation
(which may have already defrauded our government
of huge amounts of uncollected taxes), that the provision for automatic review by the Commissioner of
Customs and the Secretary of Finance of unappealed
seizure and protest cases was conceived to protect the
government against corrupt and conniving customs
collectors. (Yaokasin v. Commissioner of Customs, 180
SCRA 591 [1989])
(7)
II.
Decisions of the Secretary of Trade and Industry, in
cases of nonagricultural product, commodity or article,
and the Secretary of Agriculture in cases of agricultural
product, commodity or article involving dumping and
countervailing duties under Sections 301 and 302,
respectively, of the Tariff and Customs Code, and
safeguard measures under R.A. 8808, where either party
may appeal the decision to impose or not to impose
said duties (via a petition for review under Rule 42).
Criminal and Civil cases —
The criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all
time be simultaneously instituted with and jointly deteiTriined in
the proceeding before the CTA. The filing of the criminal action
being deemed to necessarily carry with it the filing of the civil
action, no right to reserve the filing of such civil action separately
from the criminal action will be recognized.
(1) Exclusive ORIGINAL jurisdiction
(a)
violations of NIRC, Tariff and Customs Code and
other laws administered by the BIR or the Bureau
of Customs, where the principal amount of taxes
236
TAX PRINCIPLES A N D REMEDIES
and fees, exclusive of charges and penalties
claimed is PI million and above.
xxx
(2) Exclusive APPELLATE jurisdiction;
(a) violations of NIRC, Tariff and Customs Code
and other laws administered by the BIR and the
Bureau of Customs originally decided by the regular
court where the principal amount of taxes and fees
is less than PI million or u& specified amount
claimed.
(b) judgments, resolutions or orders of the RTC in tax
cases originally decided by them.
(c) judgments, resolutions or orders of the RTC in
the exercise of their appellate jurisdiction over tax
cases originally decided by the MeTC, MTC and
MCTC via a petition for review.
(d) tax collection cases —
a.
from judgments, resolutions or orders of the RTC
originally decided by them, via an appeal.
b.
from judgments, resolutions or orders of the RTC
in the exercise of its appellate jurisdiction in tax
collection cases originally decided by the MeTC,
MTC and MCTC, via a petition for review.
Who may appeal?
Any party adversely affected by a decision, ruling or inaction
of the Commissioner of Internal Revenue, the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Regional Trial"
Court, may file an appeal with the CTA:
n
a.
within thirty (30) days after receipt of such decision or
ruling; OR
b.
after the expiration of the period fixed by law for action
referred to in Section 7(a)[l\ of R.A. 9282, in which case
the inaction shall be deemed a denial.
CHAPTER ID
T H E NEW COURT OF TAX APPEALS
237
What is the mode of appeal?
1.
Appeal may 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,
within thirty (30) days from the receipt of the decision
or ruling or from the expiration of the period fixed by
law for the official concerned to act, in cases of inaction,
before the CTA. A Division of the CTA shall hear the
appeal.
All other cases involving rulings, orders or
decisions filed with the CTA as provided for in Section
7 of R.A. 9282 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 or new trial
before the same Division.
2.
Appeals 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,
may 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.
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.
3.
Petition for Review on Certiorari may be filed by a
party adversely affected by a decision or ruling of the
CTA en banc, through a verified petition before the
Supreme Court, pursuant to Rule 45 of the 1997 Rules
of Civil Procedure.
When distraint of personal property/levy on real property shall
issue?
Upon the issuance of any ruling, order or decision by the
CTA favorable to the national government, the CTA shall issue an
order authorizing the BIR, through the Commissioner to seize and
238
TAX PRINCIPLES A N D REMEDIES
distraint any goods, chattels, or effects, and the personal property,
including stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal property and/
or levy the real property of such persons in sufficient quantity
to satisfy the tax or charge together with any increment thereto
incident to delinquency. This remedy shall not be exclusive and
shall not preclude the Court from availing of other means under
the Rules of Court.
Appeal to the CTA shall not suspend the payment, levy,
distraint and sale of taxpayer's property
No appeal taken to the CTA from the decision of the
Commissioner of Internal Revenue or the Commissioner of
Customs or the RTC, 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. When in the opinion of the Court, the collection by
the aforementioned government agencies may jeopardize the
interest of the Government and /or taxpayer, the Court at any
stage of the proceeding, may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the amount with the
court.
Final Notice Before Seizure constitutes as a decision on a
disputed or protested assessment, hence, appealable to the
CTA
In Commissioner of Internal Revenue v. Isabela Cultural Corporation, the Supreme Court defined the nature of the Final
Notice Before Seizure. It held that a final demand letter from
the Bureau of Internal Revenue, reiterating to the taxpayer the
immediate payment of a tax deficiency assessment previously
made, is tantamount to a denial of the taxpayer's request for
reconsideration. Such letter amounts to a final decision on a
2
'361SCRA71.
CHAPTER FII
THE NEW COURT OF TAX APPEALS
239
disputed assessment and is thus appealable to the Court of Tax
Appeals.
In so holding, the Court ratiocinated that in the normal
course, the revenue district officer sends the taxpayer a notice
of delinquent taxes, indicating the period covered, the amount
due including interest and the reason for the delinquency. If the
taxpayer intends to protest the assessment, it sends a letter to
the BIR indicating its protest, stating the reasons therefor, and
submitting such proof as may be necessary. This letter is now
considered as the taxpayer's request for reconsideration of the
delinquent assessment. After the request is filed and received by
the BIR, the assessment becomes a disputed assessment on which
it must render a decision. That decision is appealable to the Court
of Tax Appeals for review. Based on the facts, the Final Notice
Before Seizure should be considered as the Commissioner's
decision disposing of the request for reconsideration. The very
title expressly indicated that it was the final notice prior to
the seizure of the property. The letter itself clearly stated that
respondent was being given "this LAST OPPORTUNITY" TO
PAY; otherwise, its properties would be subjected to distraint and
levy. In addition, jurisprudence dictates that a final demand letter
for payment of delinquent taxes may be considered a decision on
a disputed or protested assessment.
In Commissioner of Internal Revenue v. Ayala Securities Corporation,' the Court ruled that the letter of February 18, 1963 is
tantamount to a denial of the reconsideration or respondent
corporation's protest of the assessment made by the petitioner
since the said letter was in itself a reiteration of the demand by
the BIR for the settlement of the assessment already made. This
being so, the said letter amounted to a decision on a disputed or
protested assessment.
In Surigao Electric Co., Inc. v. Court of Tax Appeals,* the
Supreme Court held that the letter of demand constitutes the
final action taken by the Commissioner on the petitioner's several
7 0 S C R A 204.
*57 SCRA 523.
240
TAX PRINCIPLES A N D REMEDIES
requests for reconsideration and recomputation. In this letter,
the Commissioner not only demanded that the petitioner pay
the delinquent tax but also gave warning that if it failed to pay,
the Commissioner would be constrained to enforce the collection
thereof by means of the remedies provided by law. The tenor of
the letter, specifically the statement regarding the resort to legal
remedies, indicates the final nature of the determination made
by the Commissioner of the petitioner's deficiency franchise tax
liability.
In the same vein, in CIR v. Union Shipping,* the Supreme
Court reiterated the dictum that the BIR should always indicate
to the taxpayer, in clear and unequivocal language, what
constitutes final action on a disputed assessment. The object of
this policy, the Court explained, is to avoid repeated requests for
reconsideration by the taxpayer, thereby delaying the finality of
the assessment and, consequently, the collection of the taxes due.
A demand letter for tax deficiency assessments issued and
signed by the Chief of the BIR Accounts Receivable and
Billing Division is deemed final and executory and subject to
an appeal to the Court of Tax Appeals
In Oceanic Wireless Network, Inc. v. CIR [477 SCRA 205, 212],
the Supreme Court held that the letter of demand dated January
24, 1991, unquestionably constitutes the final action taken by
the Bureau of Internal Revenue on petitioner's request for
reconsideration when it reiterated the tax deficiency assessments
due from petitioner, and requested its payment. Failure to do so
would result in the "issuance of a warrant of distraint and levy
to enforce its collection without further notice." In addition, the
letter contained a notation indicating that petitioner's request
for reconsideration had been denied for lack of supporting
documents.
Anent the propriety of the subject assessment, the Supreme
Court rulecl that the act of issuance of the demand letter by the
Chief of the Accounts Receivable and Billing Division does not
5
185 SCRA 547.
CHAPTER III
THE NEW COURT OF TAX APPEALS
241
fall under any of the exceptions that have been mentioned in
Section 7 of R.A. 8424 as non-delegable.
A formal Letter of Demand with Assessment Notices stating
that it is BIR's final decision based on investigation is appealable to the CTA
Allied Banking Corporation received the Formal Letter of
Demand with Assessment Notices, which partly reads:
"It is requested that the above deficiency tax be paid
immediately upon receipt hereof, inclusive of penalties
incident to delinquency. This is our final decision based
on investigation. If you disagree, you may appeal the
final decision within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment shall become final,
executory and demandable."
A careful reading of the Formal Letter of Demand with
Assessment Notices leads us to agree with Allied Banking
Corporation that the instant case is an exception to the rule on
exhaustion of administrative remedies, i.e., estoppel on the part
of the administrative agency concerned.
In this case, records show that Allied Banking Corporation
disputed the PAN but not the Formal Letter of Demand with
Assessment Notices. Nevertheless, we cannot blame petitioner
for not filing a protest against the Formal Letter of Demand
with Assessment Notices since the language used and the tenor
of the demand letter indicate that it is the final decision of the
respondent on the matter. We have time and again reminded
the CIR to indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his
final determination thereon in order for the taxpayer concerned
to determine when his or her right to appeal to the tax court
accrues. Viewed in the light of the foregoing, respondent is now
estopped from claiming that he did not intend the Formal Letter
of Demand with Assessment Notices to be a final decision. (Allied
Banking Corporation v. Commissioner of Internal Revenue, 611 SCRA
692, 695, 700, 702 [2010])
242
TAX PRINCIPLES A N D REMEDIES
The jurisdiction of the Court of Tax Appeals has been expanded
to include not only decisions or rulings but inaction as well of
the Commissioner of Internal Revenue
In Rizal Commercial Banking Corporation v. CIR [522 SCRA
144, 152-153], the Supreme Court emphasized that it is clear that
the jurisdiction of the Court of Tax Appeals has been expanded
to include not only decisions or rulings but inaction as well of
the Commissioner of Internal Revenue. The decisions, rulings or
inaction of the Commissioner are necessary in order to vest the
Court of Tax Appeals with jurisdiction to entertain the appeal,
provided it is filed within 30 days after the receipt of such decision
or ruling, or within 30 days after the expiration of the 180-day
period fixed by law for the Commissioner to act on the disputed
assessments. This 30-day period within which to file an appeal
is jurisdictional and failure to comply therewith would bar the
appeal and deprive the Court of Tax Appeals of its jurisdiction to
entertain and determine the correctness of the assessments. Such
period is not merely directory but mandatory and it is beyond
the power of the courts to extend the same.
In case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission
of documents, a taxpayer can either: 1) file a petition for review
with the Court of Tax Appeals within 30 days after the expiration
of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt
of a copy of such decision. However, these options are mutually
exclusive, and resort to one bars the application of the other.
The CTA has jurisdiction over dispute between PNB and BIR
relative to deficiency withholding tax assessment
PNB sought the suspension of the proceedings in CTA
Case No. 4249, after it contested the deficiency withholding tax
assessment against it and the demand for payment thereof before
the DOJ, pursuant to P.D. No. 242. The CTA, however, correctly
sustained its jurisdiction and continued the proceedings in CTA
Case No. 4249; and, in effect, rejected DOJ's claim of jurisdiction
CHAPTER m
THE NEW COURT OF TAX APPEALS
243
to administratively settle or adjudicate BIR's assessment against
PNB.
The CTA assumed jurisdiction over the Petition for Review
hied by private respondent Savellano based on the following
provision of R.A. 1125, the Act Creating the Court of Tax Appeals:
Section 7. Jurisdiction. — The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by appeal,
as herein provided —
(1) Decisions of the Collector of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National
Internal Revenue Code or other law or part of law administered
by the Bureau of Internal Revenue;. .. (Italics ours.)
In his Petition before the CTA, private respondent Savellano
requested a review of the decisions of then BIR Commissioner
Tan to enter into a compromise agreement with PNOC and to
reject his claim for additional informer's reward. He submitted
before the CTA questions of law involving the interpretation
and application of (1) E.O. No. 44, and its implementing rules
and regulations, which authorized the BIR Commissioner to
compromise delinquent accounts and disputed assessments
pending as of 31 December 1985; and (2) Section 316(1) of the
National Internal Revenue Code of 1977 (NIRC of 1977), as
amended, which granted to the informer a reward equivalent
to 15% of the actual amount recovered or collected by the BIR.
These should undoubtedly be considered as matters arising from
the NIRC and other laws being administered by the BIR, thus,
appealable to the CTA under Section 7(1) of R.A. 1125.
PNB, however, insists on the jurisdiction of the DOJ over its
appeal of the deficiency withholding tax assessment by virtue of
P.D. No. 242.
The PNB and DOJ are of the same position that P.D. No. 242,
the more recent law, repealed Section 7(1) of R.A. 1125, based on
the pronouncement of the Supreme Court in Development Bank of
the Philippines v. Court of Appeals [180 SCRA 609, 617].
244
TAX PRINCIPLES A N D REMEDIES
In the said case, it was expressly declared that P.D. No.
242 repealed Section 7(2) of R.A. 1125, which provides for the
exclusive appellate jurisdiction of the CTA over decisions of
the Commissioner of Customs. PNB contends that P.D. No. 242
should be deemed to have likewise repealed Section 7(1) of R.A.
1125, which provides for the exclusive appellate jurisdiction of
the CTA over decisions of the BIR Commissioner.
After re-examining the provisions on jurisdiction of
R.A. 1125 and P.D. No. 242, the Supreme Court finds itself in
disagreement with the pronouncement made in Development
Bank of the Philippines v. Court of Appeals, et al., and refers to the
earlier case of Lichauco & Company, Inc. v. Apostol, et al, [44 Phil.
138,149], for the guidelines in determining the relation between
the two statutes in questions.
Sustained herein is the contention of private respondent
Savellano that P.D. No. 242 is a general law that deals with
administrative settlement or adjudication of disputes, claims
and controversies between or among government offices,
agencies and instrumentalities, including government-owned
or controlled corporations. Its coverage is broad and sweeping,
encompassing all disputes, claims and controversies. It has been
incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise
known as the Revised Administrative Code of the Philippines.
On the other hand, R.A. 1125 is a special law dealing with a
specific subject matter — the creation of the CTA, which shall
exercise exclusive appellate jurisdiction over the tax disputes
and controversies enumerated therein.
Following the rule on statutory construction involving a
general and a special law previously discussed, then P.D. No.
242 should not affect R.A. 1125. R.A. 1125, specifically Section 7
thereof on the jurisdiction of the CTA, constitutes an exception
to P.D. No. 242. Disputes, claims and controversies, falling under
Section 7 of R.A. 1125, even though solely among government
offices, agencies, and instrumentalities, including governmentowned and controlled corporations, remain in the exclusive
appellate jurisdiction of the CTA. Such a construction resolves
the alleged inconsistency or conflict between the two statutes,
CHAPTER III
THE NEW COURT OF TAX APPEALS
245
and the fact that P.D. No. 242 is the more recent law is no longer
significant. (Philippine National Oil Company v. Court of Appeals,
457 SCRA 32, 76-81)
CTA has jurisdiction to review rulings of the Commissioner of
Internal Revenue set forth in RMO
The jurisdiction to review the rulings of the Commissioner
of Internal Revenue pertains to the Court of Tax Appeals, not to
the RTC.
The questioned RMO No. 15-91 and RMC No. 43-91 are
actually rulings or opinions of the Commissioner implementing
the Tax Code on the taxability of pawnshops. This is clear from
petitioner's RMO No. 15-91, pertinent portion of which reads:
"A restudy of P.D. 114 (the Pawnshop Regulation Act)
shows that the principal activity of pawnshops is lending
money at interest and incidentally accepting a 'pawn' of
personal property delivered by the pawner to the pawnee
as security for the loan (Sec. 3, ibid.). Clearly, this makes
pawnshop business akin to lending investor's business
activity which is broad enough to encompass the business
of lending money at interest by any person whether natural
or juridical. Such being the case, pawnshops shall be subject
to the 5% lending investor's tax based on their gross income
pursuant to Section 116 of the Tax Code, as amended."
Such revenue orders were issued pursuant to Commissioner's powers under Section 245 of the Tax Code, which states:
SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. - The Secretary of Finance, upon
recommendation of the Commissioner, shall promulgate all
needful rules and regulations for the effective enforcement
of the provisions of this Code.
"The authority of the Secretary of Finance to determine
articles similar or analogous to those subject to a rate of
sales tax under certain category enumerated in Sections 163
and 165 of this Code shall be without prejudice to the power
of the Commissioner of Internal Revenue to make rulings
246
TAX PRINCIPLES A N D REMEDIES
or opinions in connection with the implementation of the
provisions of internal revenue laws, including ruling on
the classification of articles of sales and similar purposes."
(emphasis added)
Under R.A. 1125 (An Act Creating the Court of Tax Appeals
[CTA for brevity]), as amended, such rulings of the Commissioner
of Internal Revenue are appealable to the CTA. (See Commissioner
of Internal Revenue v. Leal, 392 SCRA 9,15 [2002])
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND
DOCTRINES IN TAXATION
1
QUESTION:
For S.C. Johnson (Phils.) to use the trademark and technology of S.C. Johnson and Sons, USA, it was obliged to pay the
U.S. counterpart royalties based on a percentage of net sales and
subjected the same to 25% withholding tax on royalty payments.
Subsequently, it filed a claim for refund of overpaid
withholding tax on royalties arguing that it is entitled to the
concessional rate of 10% withholding tax pursuant to the MostFavored-Nation Clause of the RP-US Tax Treaty in relation to the
RP-West Germany Tax Treaty.
Petitioner CIR contends that S.C. Johnson (Phils.) is not
entitled to avail of the concessional rate of 10% tax on royalties
under Art. 13(2)(b)(iii) of the RP-US Tax Treaty since the taxes
upon royalties under the RP-US Tax Treaty are not paid under
circumstances similar to those in the RP-West Germany Tax
treaty since there is no provision for a 20% matching credit in the
former convention.
DECIDE.
ANSWER:
S.C. Johnson (Phils.) is not entitled to the concessional rate
of 10%.
Tax conventions, such as the RP-US Tax Treaty, are drafted
with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable
taxes in two or more states on the same taxpayer in respect to the
same subject matter and for identical periods.
247
248
TAX PRINCIPLES A N D REMEDIES
Given the purpose underlying tax treaties and the rationale
for the most-favored-nation clause, the concessional rate of 10%
provided for in the RP-Germany Tax Treaty should apply only
if the taxes imposed upon royalties in the RP-US Tax Treaty
and in the RP-West Germany Tax Treaty are paid under similar
circumstances. However, since the RP-US Tax Treaty does not
give a matching credit of 20% for the taxes paid to the Philippines
on royalties as allowed under the RP-West Germany Tax Treaty
S.C. Johnson (Phils.) cannot be deemed entitled to the 10% rate
granted under the latter treaty for the reason that there is no
payment of taxes on royalties under similar circumstances. (CIR
v. S.C. Johnson and Sons, Inc., 309 SCRA 87)
2.
QUESTION:
What is double taxation? How does a Tax Treaty eliminate
double taxation?
ANSWER:
Double taxation usually takes place when a person is a
resident of a contracting state and derives income from, or owns
capital in, the other contracting state and both states impose tax
on that income or capital.
In order to eliminate double taxation, a tax treaty resorts to
several methods. FIRST, it sets out the respective rights to tax
of the state of source or situs and of the state of residence with
regard to certain classes of income or capital. In some cases,
an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states
are given the right to tax, although the amount of tax that may be
imposed by the state of source is limited.
The SECOND method for the elimination of double
taxation applies whenever the state of source is given a full
or limited right to tax together with the state of residence.
In this case, the treaties make it incumbent upon the state of
residence to allow relief in order to avoid double taxation.
There are two methods of relief — the exemption method and
the credit method. In the exemption method, the income or capital
which is taxable in the state of source or situs is exempted in the
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
249
state of residence, although in some instances it may be taken
into account in determining the rate of tax applicable to the
taxpayer's remaining income or capital. On the other hand, in
the credit method, although the income or capital which is taxed
in the state of source is still taxable in the state of residence, the
tax paid in the former is credited against the tax levied in the
latter. The basic difference between the two methods is that in the
exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax. (Ibid.)
3
QUESTION:
Petitioner CIR contends that an exchange transaction is
tantamount to "cancellation" under Section 73(b), making the
proceeds thereof taxable. Further, CIR claims that under the "net
effect test," it is the duty of ANSCOR to withhold the tax-atsource arising from the said transaction.
ANSCOR, however, avers that it has no duty to withhold
any tax on the transactions involving the redemption of shares
of stock and exchange of common with preferred shares because
the same were done for legitimate business purposes.
DECIDE.
ANSWER:
Redemption and cancellation are generally considered capital transactions, and as such, they are not subject to tax. However,
it does not necessarily mean that a shareholder may not realize a
taxable gain from such transactions. Having realized gain from
the redemption, the income earner cannot escape income tax.
Simply put, depending on the circumstances, the proceeds of the
redemption of stock dividends are essentially equivalent to the
distribution of taxable dividends, making the proceeds thereof
"taxable income" "to the extent it represents profits."
ANSCOR invoked the existence of legitimate business
purposes in support of the redemption. However, the existence
of legitimate business purposes in support of the redemption
of stock dividends is immaterial in income taxation. The test
of taxability is whether the redemption resulted into a flow of
wealth. The redemption converts into money the stock dividends
250
TAX PRINCIPLES A N D REMEDIES
which become a realized profit or gain and consequently the
stockholder's separate property.
Profits derived from the capital invested cannot escape
income tax. As realized income, the proceeds of the redeemed
stock dividends can be reached by income taxation regardless
of the existence of any business purpose for the redemption.
Otherwise, to rule that the said proceeds are exempt from
income tax when the redemption is supported by legitimate
business reasons would defeat the very purpose of imposing tax
on income.
HENCE, as income, the proceeds from the redemption of
stock dividends are subject to income tax which is required to be
withheld at source.
On the Exchange of Common With Preferred Shares
Exchange of shares, without more produces no realized
income to the subscriber. There is only a modification of the
subscriber's rights and privileges — which is not a flow of wealth
for tax purposes. The issue of taxable dividend may arise only
once a subscriber disposes of his entire interest and not when
there is still maintenance of proprietary interest. (CIR v. CA, CTA
and A. Soriano Corp., G.R. No. 108576, January 20,1999)
4
QUESTION:
The CIR sent an assessment letter to Cyanamid and
demanded payment of deficiency income-tax on accumulated
earnings. Cyanamid protested the assessment, claiming that the
said profits were retained to increase its working capital and that
it would be used for reasonable business needs of the company.
RESOLVE.
ANSWER:
In order to determine whether profits are accumulated for
the reasonable needs of the business to avoid the surtax upon
shareholders, it must be shown that the controlling intention
of the taxpayer is manifested at the time of accumulation, not
intentions declared subsequently, which are mere afterthoughts.
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE A N D DOCTRINES IN TAXATION
251
Furthermore, the accumulated profits must be used within a
reasonable time after the close of the taxable year. In the instant
case, Cyanamid did not establish, by clear and convincing
evidence, that such accumulation of profit was for the immediate
needs of the business (IMMEDIACY TEST).
In the present case, the Tax Court opted to determine the
working capital sufficiency by using the ratio between current
assets to current liabilities. The working capital needs of a business
depend upon the nature of the business, its credit policies,
the amount of inventories, the rate of turnover, the amount of
accounts receivable, the collection rate, the availability of credit
to the business, and similar factors. Petitioner, by adhering to
the "Bardahl" formula, failed to impress the tax court with the
required definiteness envisioned by the statute. The SC held that
the burden of proof to establish that the profits accumulated
were not beyond the reasonable needs of the company, remained
on the taxpayer.
NOTES:
"Bardahl" Formula
The "Bardahl" formula was developed to measure
corporate liquidity. The formula requires an examination of
whether the taxpayer has sufficient liquid assets to pay all of its
current liabilities and any extraordinary expenses reasonably
anticipated, plus enough to operate the business during one
operating cycle. Operating cycle is the period of time it takes to
convert cash into raw materials, raw materials into inventory,
and inventory into sales, including the time it takes to collect
payment for the sales... As stressed by American authorities,
although the "Bardahl" formula is well-established and routinely
applied by the courts, it is not a precise rule. It is used only for
administrative convenience. (Cyanamid Philippines, Inc. v. CA, 322
SCRA 639)
5.
QUESTION:
YMCA, a "welfare, educational and charitable non-profit
corporation," leased its facilities to small shop owners, restaurants
and canteen operators, and collected parking fees.
TAX PRINCIPLES AND REMEDIES
252
Is the rental income of YMCA from its real estate subject to
tax?
YMCA invokes exemption under the NIRC and the
Constitution.
ANSWER:
THE RENTAL INCOME IS SUBJECT TO TAX.
A.
Under the NIRC
A reading of the last paragraph of Section 27 ineludibly
shows that the income from any property of exempt organizations,
as well as that arising from any activity it conducts for profit, is
taxable.
Verba legis non est recedendum. Hence, the CA committed
reversible error when it allowed, on reconsideration, the tax
exemption claimed by YMCA on income it derived from renting
out its real property, on the solitary but unconvincing ground
that the said income is not collected for profit but is merely
incidental to its operation. The law does not make a distinction.
The rental income is taxable regardless of whence such income
is derived and how it is used or disposed of. Where the law does
not distinguish, neither should we.
Because taxes are the lifeblood of the nation, a claim of
statutory exemption from taxation should be manifest and
unmistakable from the language of the law on which it is based.
Thus, the claimed exemption "must expressly be granted in a
statute stated in a language too clear to be mistaken."
B.
Under the Constitution
YMCA submits that Article VI, Section 28(3) of the 1987
Constitution exempts "charitable institutions" from payment not
only of property taxes but also of income tax from any source.
Justice Vitug, in his treatise on taxation, states that "(t)he tax
exemption covers property taxes only." Hence, (the SC) reiterates
that YMCA is exempt from the payment of property tax, but not
income tax on the rentals from its property.
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
6.
253
QUESTION:
Is YMCA an educational institution within the purview of
Art. XIV, Sec. 4(3) of the Constitution?
ANSWER:
IT IS NOT.
It is settled that the term "educational institution," when
used in laws granting tax exemptions, refers to a "xxx school
seminary, college or educational establishment xxx." The YMCA
cannot be deemed one of the educational institutions covered by
the constitutional provision under consideration.
Moreover, the Court also notes that it did not submit proof
of the proportionate amount of the subject income that was
actually, directly and exclusively used for educational purposes.
7.
QUESTION:
Tokyo Shipping Co., Ltd., a foreign corporation engaged
in shipping cargoes, paid income and common carriers' taxes
amounting to P75,000 and P50,000, respectively, based on the
expected gross receipt of vessel M/V Gardenia which it owns
and operates under a Charter Agreement with NASUTRA.
NASUTRA chartered M/V Gardenia to unload 16,500 metric
tons of raw sugar in the Philippines.
The vessel found no sugar for loading upon arrival at the
Guimaras Port of Iloilo. Claiming that the prepayment of taxes
was erroneous since no receipt was realized from the charter
agreement, Tokyo Shipping instituted a claim for refund of the
taxes paid. The BIR having failed to act on the claim, Tokyo
Shipping filed a petition for review before the CTA. The BIR
contested the petition on the grounds that taxes are presumed to
have been collected in accordance with law, and that claims for
refund are construed strictly against the claimants.
Will the petition prosper?
ANSWER:
THE PETITION WILL PROSPER. A resident foreign corporation engaged in the transfer of cargo is liable for taxes
254
TAX PRINCIPLES A N D REMEDIES
depending on the amount of income which it derives from sources within the Philippines. Thus, before such tax liability can be
enforced, the taxpayer must [be shown to] have earned income
from sources within the Philippines. It appearing that the vessel
found no sugar to unload and returned to Japan without any
cargo laden on board, the Tokyo Shipping Co. derived no receipt
from its charter agreement with NASUTRA. Hence, refund is
proper. (CIR v. Tokyo Shipping Co., Ltd., May 26, 1995, 244 SCRA
333)
8.
QUESTION:
PICOP obtained loans from foreign creditors in order to
finance the purchase of machinery and equipment needed
for its operations. It claimed interest payments amounting to
P42,840,131.00 on these loans as deduction from its gross income.
CIR disallowed the deduction upon the ground that the interest
payment thereon should have been capitalized instead and
claimed as depreciation deduction therefor.
Is PICOP entitled to deduct interest payments on the said
loans from its gross income?
ANSWER:
YES. Interest payments on loans incurred by a taxpayer
(whether BOI registered or not) are allowed by the NIRC as
deductions against the taxpayer's gross income. Thus, the general
rule is that interest expenses are deductible against gross income,
and this certainly includes interest paid under loans incurred in
connection with the carrying-on of the business of the taxpayer.
In the instant case, the CIR does not dispute that the interest
payments were made by PICOP on loans incurred in connection
with the carrying-on of the registered operations of PICOP,
i.e., the financing of the purchase of machinery and equipment
actually used in the registered operations of PICOP. (PICOP v.
CA, 250 SCRA 434)
9.
QUESTION:
A.
What is meant by theoretical interest?
APPENDIX "A"
S I G N I F I C A N T JURISPRUDENCE A N D DOCTRINES I N T A X A T I O N
255
ANSWER:
It is an interest "calculated" or computed (and not incurred
or paid) for the purpose of determining the "opportunity cost" of
investing funds in a given business. Such theoretical or computed
interest does not arise from a legally demandable interest-bearing
obligation incurred by the taxpayer who, however, wishes to find
out, e.g., whether he would have been better off by lending out
his funds and earning interest rather than investing such funds
in his business. (Sec. 79, Rev. Reg. No. 2, cited in the PICOP case)
B.
Is theoretical interest on capital deductible?
ANSWER:
NO. It is not deductible as it does not represent a charge
arising under an interest-bearing obligation. (Sec. 79, Rev. Reg.
No. 2, as cited in the PICOP case)
10. QUESTION:
PICOP's Books of Accounts reflected higher amount of sales
and lower amount of cost of sales than the amount shown in its
income tax returns.
The CIR relied on the Book of Accounts in determining
PICOP's deficiency income tax. Is the CIR correct?
ANSWER:
THE CIR IS CORRECT. It has made out at least a prima facie
case that PICOP had understated its sales and overstated its cost
of sales as set out in its Income Tax Returns. The CIR has a right
to assume that PICOP's Book of Accounts speak the truth in
this case since they embody what must appear to be admissions
against PICOP's own interest. (Ibid.)
11. QUESTION:
Philippine Refining Co. (PRC) claimed bad debts as deductions from its gross income. In proving the worthlessness of said
debts, PRC relied solely on the testimony of its financial accountant without presenting a single documentary evidence to sub-
256
TAX PRINCIPLES A N D REMEDIES
stantiate the same. The BIR disallowed the deduction for failure
of the PRC to prove the worthlessness of the debts.
DECIDE.
HELD:
THE BIR IS CORRECT IN DISALLOWING THE CLAIM
FOR DEDUCTIONS. There was no iota of documentary evidence
(e.g., collection letters, reports from investigating fieldmen, police
report/affidavit, etc.) to support the allegation of worthlessness.
For debts to be considered "worthless" and thereby qualify as
"bad debts" making them deductible, the taxpayer should show
that:
a.
There is a valid and subsisting debt;
b. The debt must be actually ascertained as worthless
and uncollectible during the taxable year;
c.
year;
The debt must be charged off during the taxable
d. The debt must arise from the business or trade of
the taxpayer;
e.
The taxpayer must also show that it is indeed
uncollectible even in the future. (PRC v. CA, May 8, 1996,
256 SCRA 667)
12. QUESTION:
Carnation filed its Corporate Annual Income Tax Return
for taxable year ending September 30, 1981. Subsequently,
Carnation's Senior Vice President signed three separate waivers
of the Statute of Limitations under the NIRC wherein it waives
the running of the prescriptive period. The waivers were not
signed by the BIR Commissioner or any of his agents. On July 29,
1987, the BIR assessed and claimed deficiency income tax from
Carnation. Carnation disputed the assessments as having been
issued beyond the 5-year prescriptive period.
Whether or not the three (3) waivers signed by Carnation
are valid and binding as to toll the running of the prescriptive
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
257
period for assessment and not bar the Government trom issuing
the subject deficiency tax assessments.
HELD:
Subject assessment of July 29, 1987 were issued outside
the statutory prescriptive period. Carnation filed its annual
income tax and percentage tax returns for the fiscal year ending
September 30,1981 on January 15, 1982 and November 20, 1981,
respectively. In accordance with Section 318 (now Section 203) of
the NIRC, Carnation's income and sales taxes could have been
validly assessed only until January 14, 1987 and November 19,
1986, respectively. Hence, the disputed assessments were indeed
beyond the 5-year prescriptive period.
The waivers will not toll the running of the period as the
waivers in question reveal that they are in no wise unequivocal,
and therefore necessitates for its binding effect the concurrence
of the Commissioner of Internal Revenue. Neither implied
consent can be presumed nor can it be contended that the waiver
required under Section 319 of the Tax Code is one which is
unilateral nor can it be said that concurrence to such an agreement
is a mere formality because it is the very signatures of both the
Commissioner of Internal Revenue and the taxpayer which give
birth to such valid agreement. (CIR v. CA, et al., G.R. No. 115712,
February 25,1999)
13. QUESTION:
A.
Instead of an assessment, the Commissioner of Internal
Revenue filed a criminal complaint against PASCOR, alleging
evasion of taxes. PASCOR filed a request for reconsideration. The
CIR denied the request on the ground that no formal assessment
has as yet been issued by the Commissioner. PASCOR appealed
to the CTA, which held that the criminal complaint for tax
evasion is the assessment issued, and the denial of the request
a decision appealable to the CTA. The CA concurred with the
CTA's contention. Hence, this petition.
258
TAX PRINCIPLES A N D REMEDIES
HELD:
THE PETITION IS MERITORIOUS.
It is true that neither the NIRC nor the revenue regulations
governing the protests of assessments provide a specific
definition or form of assessment. However, the NIRC defines the
specific functions and effects of an assessment.
An assessment contains not only a computation of tax
liabilities, but also a demand for payment within a prescriptive
period. It also signals the time when penalties and interests
begin to accrue against the taxpayer. To enable the taxpayer to
determine his remedies thereon, due process requires that it
must be served on and received by the taxpayer.
Accordingly, an affidavit which was executed by revenue
officers stating the tax liabilities of a taxpayer and attached
to a criminal complaint for tax evasion, cannot be deemed an
assessment that can be questioned before the CTA. To consider
the affidavit attached to the complaint as a proper assessment is
to subvert the nature of an assessment and to set a bad precedent
that will prejudice innocent taxpayers.
B.
The BIR argues that the filing of the criminal complaint with
the DOJ cannot in any way be construed as a formal assessment
of PASCOR's tax liabilities, based on Section 205 of the NIRC
which provides that remedies for the collection of deficient taxes
may be by either civil or criminal action. Likewise, BIR cites
Section 223(a) which states that in case of failure to file a return,
the tax may be assessed or a proceeding in court may be begun
without assessment.
Whether an assessment is necessary before criminal charges
for tax evasion may be instituted.
HELD:
AN ASSESSMENT IS NOT NECESSARY BEFORE A
CRIMINAL CHARGE CAN BE FILED. (Section 222) PASCOR
failed to show that they are entitled to an exception.
APPENDIX "A"
S I G N I F I C A N T JURISPRUDENCE A N D DOCTRINES I N T A X A T I O N
259
It must be stressed that a criminal complaint is instituted not
to demand payment, but to penalize the taxpayer for violation of
the Tax Code. (CIR v. PASCOR Realty and Development Corp., G.R.
No. 128315, June 29,1999)
NOTE:
In UNGAB v. CUSI, Jr. (97 SCRA 877), the Supreme Court
in 1980 emphatically upheld the internationally-held doctrine
that an assessment of the tax need not be made before a criminal
prosecution for tax evasion may be filed. An assessment of
deficiency is not necessary to a criminal prosecution for a willful
attempt to defeat and evade the income tax. The crime is complete
when the violator has knowingly and willfully filed a fraudulent
return with the intent to evade and defeat tax.
There is a whale of difference between the UNGAB and
the FORTUNE case. There was a willful attempt to evade tax
payment in the Ungab because of the taxpayer's failure to
declare in his income tax return his income derived from banana
saplings. Fortune's situation is quite distinct since the registered
wholesale price of the goods, as approved by the BIR, is presumed
to be the actual wholesale price, therefore not fraudulent, and
unless and until the BIR has made a final determination of what
is supposed to be the correct tax assessment, the taxpayer should
not be placed in the crucible of criminal prosecution. (CIR v. CA,
257 SCRA 226, 227)
14. QUESTION:
A.
PBCom, relying in good faith on the formal assurances of
the BIR in Revenue Memorandum Circular No. 7-85, did not
immediately file its claims for refunds and tax credits of its 198586 excess quarterly income tax payments. Upon filing in 1988,
the request for tax refund was denied.
PBCom argues that its claims for refund and tax credits are
not yet barred by prescription, relying on the applicability of
RMC No. 7-85 issued on April 1, 1985. The Circular states that
260
TAX PRINCIPLES AND REMEDIES
overpaid income taxes are not covered by the 2-year prescriptive
period under the Tax Code and that taxpayers may claim refund
or tax credits for the excess quarterly income tax with the BIR
within 10 years under Art. 1144 of the Civil Code.
The CIR, however, stressed that PBCom's filing of the case
beyond the time fixed by law is fatal to its cause of action.
DECIDE.
HELD:
Section 230 of the NIRC of 1977 (now Section 229, NIRC of
1997) states that the taxpayer may file a claim for refund or credit
with the BIR within 2 years after payment of the tax, before any
suit in the CTA is commenced. The 2-year prescriptive period
should be computed from the time of filing the Adjustment
Return and final payment of the tax for the year.
When the Acting Commissioner issued RMC 7-85 changing
the prescriptive period of 2 years to 10 years on claims of excess
quarterly income tax payments, such circular created a clear
inconsistency with the provision of Section 230 of the 1977 NIRC.
In so doing, the BIR did not simply interpret the law; rather it
legislated guidelines contrary to the statute passed by Congress.
B.
PBCom argues that the government is barred from asserting
a petition contrary to its declared circular if it would result to
injustice to taxpayers.
HELD:
Fundamental is the rule that the State cannot be put in
estoppel by the mistake or errors of its officials or agents. As
pointed out by respondent courts, RMC 7-85 issued by the Acting
Commissioner is an administrative interpretation which is not in
harmony with Section 230 of the 1977 NIRC for being contrary
to the express provision of a statute. Hence, his interpretation
could not be given weight for to do so would, in effect, amend
the statute.
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
261
15. QUESTION:
On May 30,1983, PHILAMLIFE paid to the BIR its final quarterly corporate income tax for 1983 amounting to P3,246,141.00.
On August 29,1983, it paid P396,874.00 for the second quarter.
For its fourth and final quarter ending December 31, 1983
Philamlife suffered a loss, and thereby no income tax liability
was incurred. In 1984, it again suffered a loss and declared "no
income tax liability." On December 10, 1985, Philamlife filed a
claim for refund in the amount of P3,643,015.00 with the BIR.
In denying the claim for refund on the ground of prescription,
the BIR argued that the reckoning period of prescription is from
the date of payment of the tax regardless of financial loss (the
supervening cause).
On January 2, 1986, Philamlife filed a petition for review of
the denial with the CTA.
DECIDE.
HELD:
In the case of CIR v. PHILAMLIFE, 244 SCRA 446, the
Supreme Court held that the period of prescription should
commence to run only from the time that the refund is ascertained,
which can only be determined after a final adjustment return is
accomplished.
In the instant case, the date is April 16, 1984, and two years
from this date would be April 16, 1986. The facts show that the
claim for refund was filed on December 10,1985 and the petition
for review was brought before the CTA on January 2, 1986. Both
dates are within the two-year reglementary period.
Moreover, even if the two-year period had already lapsed,
the same is not jurisdictional, and may be suspended for reasons
of equity and other special circumstances. (Oral and Dental College
v. CTA, 102 Phil. 192; Panay Electric Co. v. Collector, 103 Phil. 819;
cited in CIR v. Philamlife, 244 SCRA 446)
16. QUESTION:
In 1979 and 1980, the tenants of Citibank withheld and paid
to the BIR 5% of the rentals due to Citibank by way of advance
262
TAX PRINCIPLES A N D REMEDIES
payment of the latter's income tax liability as mandated under
Section 1(c) of BIR Revenue Regulation No. 13-78. However,
Citibank's income tax returns filed at the end of the taxable year
showed that its annual operations resulted in a net loss and
hence, Citibank did not incur any tax liability at all.
Is Citibank entitled to a refund of such withheld amount?
ANSWER:
CITIBANK IS NOT LIABLE FOR ANY INCOME TAXES; IT
IS THEREFORE ENTITLED TO A REFUND OF THE TAX PAID.
The taxes withheld, as ruled in Gibbs v. CIR, November
29, 1965, 15 SCRA 318, 325, are in the nature of payment by a
taxpayer in order to extinguish his possible tax obligation. They
are installments on the annual tax which may be due at the end
of the year.
Like the corporate quarterly income tax, creditable withholding taxes are subject to adjustment upon deteiTnination of
the correct income tax liability after the filing of the corporate
income tax return, at the end of the taxable year.
In this case, the payment of withholding taxes for 1979
and 1980 were creditable to the income tax liability, if any, of
Citibank, determined after the filing of the corporate income tax
returns on April 15,1980 and April 15,1981. As Citibank posted
net losses in its 1979 and 1980 returns, it was not liable for any
income taxes. Consequently, the taxes withheld during the course
of the taxable year, while collected legally under the aforesaid
revenue regulation, became untenable and took on the nature of
erroneously collected taxes at the end of the taxable year.
Hence, under the principle of solutio indebiti provided in
Art. 2154 of the Civil Code, the BIR received something when
"there was no right to demand it," and thus "the obligation to
return arises." No one, not even the state, shall enrich himself
at the expense of another. (Citibank N.A. v. CA and CIR, G.R. No.
107434, October 10,1997)
17. QUESTION:
BPI, as liquidator of Paramount Acceptance Corporation,
filed Paramount s Corporate Annual Income Tax Return for 1985
7
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE A N D DOCTRINES IN TAXATION
263
on April 2, 1986. However, after deducting Paramounfs total
quarterly income tax payments from its income tax, the return
showed that Paramount is entitled to a refund. On April 14,1988,
BPI, as liquidator of Paramount, claimed refund for overpaid
income tax for the calendar year 1985.
ANSWER:
In the context of Section 230, which provides for a twoyear period of prescription counted "from the date of payment
of the tax" for actions for refund of corporate income tax, the
2-year period should be computed from the time of actual filing
of the Adjustment Return or Annual Income Tax Return. This is
so because at that point, it can already be determined whether
there has been an overpayment by the taxpayer. Moreover, under
Section 49(a) of the NIRC, payment is made at the time the return
is filed.
In the case at bar, Paramount filed its corporate annual
income tax return on April 2, 1986. However, BPI, as liquidator
of Paramount, filed a written claim for refund only on April 14,
1988, and a petition for refund only on April 15,1988. Both claim
and action for refund were thus barred by prescription.
Other pertinent cases on prescription of refund:
Commissioner of Internal Revenue v. TMX Sales, 205 SCRA 184
The 2-year prescriptive period provided in Section 292 (now
Section 230 of the Tax Code) should be computed from the time
of filing the Adjustment Return or Annual Income Tax Return
and final payment of income tax.
ACCRA Investments Corporation v. CA, 204 SCRA 957
The 2-year prescriptive period within which to claim
a refund commences to run, at the earliest, on the date of the
filing of the adjusted final tax return. . . The "date of payment,"
therefore, in ACCRAIN's case was when its tax liability, if any,
fell due upon its filing of its final adjustment return.
CIR v. Philippine American Life Insurance Co., 244 SCRA 446
264
TAX PRINCIPLES A N D REMEDIES
Clearly, the prescriptive period of two years should
commence to run only from the time that the refund is ascertained,
which can only be determined after a final adjustment return is
accomplished.
18. QUESTION:
When is smuggling committed?
ANSWER:
Smuggling is committed when a person — fraudulently
imports or brings into the Philippines or assists in transporting
or bringing into the Philippines any article contrary to law;
or receives, conceals, buys, sells, or in any manner facilitates
the transportation, concealment or sale of such article after
importation, knowing the same to have been imported contrary
to law. (Rodriguez, etal. v. CA, G.R. No. 115218, September 10,1995)
19. QUESTION (On Jurisdiction):
The Collector of Customs seized allegedly untaxed vehicles
and parts, prompting importers Narciso O. Jao and Bernardo
M. Empeynado to file a petition for certiorari, prohibition and
mandamus, with prayer for a temporary restraining order with
the RTC.
The RTC granted the injunction and prohibited the
respondent from seizing, detaining, transporting, and selling at
public auction the disputed articles.
Contending that the RTC had no jurisdiction over the subject
matter, the Bureau of Customs filed a petition for review with the
Court of Appeals.
DECIDE.
HELD:
THE PETITION IS IMPRESSED WITH MERIT.
The Regional Trial Courts are devoid of any competence to
pass upon the validity or regularity of the seizure and forfeiture
proceedings conducted by the Bureau of Customs or to enjoin
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
265
or otherwise interfere with these proceedings. The Collector
of Customs sitting in seizure and forfeiture proceedings has
exclusive jurisdiction to hear and determine all questions
touching upon seizure and forfeiture of dutiable goods. The
Regional Trial Courts are precluded from assuming cognizance
over said matters even through petitions of certiorari, prohibition
or mandamus. (Jao and Empeynado v. CA, G.R. Nos. 104604 and
111223, October 6,1995)
20. QUESTION:
The Office of the Treasurer of the City of Cebu, in its letter
dated October 11, 1994, demanded payment for realty taxes on
several parcels of land belonging to Mactan Cebu International
Airport Authority (MCIAA). MCI A A objected to such demand
for payment, pronouncing it baseless and without justification.
It claimed exemption under Section 14 of R.A. 6958 and cited
Section 133 of the Local Government Code of 1991 which puts a
limitation on the taxing power of local government units.
Its request for cancellation having been denied by Cebu
City, MCIAA filed a petition for declaratory relief with the RTC.
DECIDE.
HELD:
THE PETITION SHOULD BE DISMISSED.
MCIAA can no longer invoke the general rule in Section 133
— that the taxing power of the local government units cannot
extend to the levy of (a) taxes, fees or charges of any kind on the
National Government, its agencies or instrumentalities, and local
government units.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the Local Government Code,
exemptions from payment of real property taxes granted to
natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section,
and MCIAA is, undoubtedly, a government-owned corporation,
266
TAX PRINCIPLES A N D REMEDIES
it necessarily follows that its exemption from payment of such
tax as granted in Section 14 of its Charter, R.A. No. 6952, has
been withdrawn. Any claim to the contrary can only be justified
if MCIAA can seek refuge under any of the exceptions provided
in Section 234, but not under Section 133 as it asserts, since the
said section is now qualified by Sections 232 and 234. (MCIAA v.
City of Cebu, et al., G.R. No. 120082, September 11,1996, 261 SCRA
667)
21. QUESTION:
What real properties are exempted from real property tax?
ANSWER:
The following properties are exempt from payment of real
property tax:
a. Real property owned by the Republic of the
Philippines or any of its political subdivisions, except when
the beneficial use thereof had been granted, for consideration
or otherwise, to a taxable person;
b. Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit or religious cemeteries, and all lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes;
c.
All machineries and equipments actually,
directly and exclusively used by local water districts and
government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and
transmission of electric power;
d. All real property owned by duly registered cooperatives as provided under R.A. 6939; and
e.
Machinery and equipment used for pollution
control and environmental protection. (Section 234, Local
Government Code, as cited in the case of MCIAA v. City of
Cebu)
APPENDIX " A "
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
267
22. QUESTION (On Remedies)
In a petition for review on certiorari filed before the Supreme
Court, Ferdinand R. Marcos II assailed the decision of the CA
declaring the deficiency income tax assessments and estate tax
assessments upon the estate and properties of his late father
final despite the pendency of the probate proceedings of the
will of the late President. On the other hand, the BIR argued
that the pendency of the probate proceedings over the estate of
the deceased does not preclude the assessment and collection,
through summary remedies, of estate taxes over the same,
invoking the rule that the State's authority to collect internal
revenue taxes is paramount.
DECIDE.
HELD:
THE PETITION IS NOT MERITORIOUS.
The approval of the court, sitting in probate, or as a
settlement tribunal over the deceased's estate is not a mandatory
requirement in the collection of estate taxes. There is nothing in
the Tax Code and in pertinent remedial laws which implies the
necessity of a probate or estate settlement. The court's approval
of the state's claim for estate tax is not required before the same
can be enforced and collected.
It has been repeatedly observed, and not without merit, that
the agreement of the tax laws and the collection of taxes is of
paramount importance for the sustenance of the government.
Taxes are the lifeblood of the government and should be collected
without unnecessary hindrance. (Marcos II v. CA, June 5,1997,273
SCRA 47)
23. QUESTION:
Explain the symbiotic relationship theory.
ANSWER:
The Supreme Court emphasized the importance of taxation
in the following language:
TAX PRINCIPLES A N D R E M E D I E S
268
It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite
the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The
government, for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives
of the people and enhance their moral and material values. T T I I S
symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.
24. QUESTION:
In matters involving taxes, is the government bound by the
errors committed by its agents?
ANSWER:
NO. It is axiomatic that the government cannot and must
not be estopped particularly in matters involving taxes. Taxes
are the lifeblood of the nation through which the government
agencies continue to operate and with which the state effects its
function for the welfare of its constituents. The errors of certain
administrative officers should never be allowed to jeopardize the
government's financial position, x x x
25. QUESTION:
What are the fundamental principles of sound tax system?
ANSWER:
Fiscal Adequacy — the proceeds of a tax must be sufficient to
meet governmental expenditures.
Administrative Feasibility — tax law must be convenient of
effective enforcement.
Theoretical Justice/Equality — taxes must be just, fair and
reasonable.
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269
26. QUESTION:
Explain the dictum "The power to tax includes the power
to destroy."
ANSWER:
It includes the power to destroy if it is used validly as an
implement of the police power in discouraging and in effect
ultimately prohibiting certain things or enterprises inimical to
the public welfare. But where the power to tax is used solely
for the purpose of raising revenues, the modern view is that it
cannot be allowed to confiscate or destroy. If this is sought to be
done, the tax may be successfully attacked as an inordinate and
unconstitutional exercise of the discretion that is usually vested
exclusively in the legislature in ascertaining the amount of the
tax.
27. QUESTION:
State the Constitutional provisions granting exemptions.
ANSWER:
a) Art. VI, Sec. 28(3), 1987 Constitution provides:
"Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings and improvements actually, directly, and
exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation."
b) Art. XIV, Sec. 4(3), 1987 Constitution provides: All
revenues and assets of non-stock, non-profit educational
institutions used actually, directly and exclusively for
educational purposes shall be exempt from taxes and duties.
Upon the dissolution or cessation of the corporate existence of
such institutions, their assets shall be disposed of in the manner
provided by law.
28. QUESTION:
Proclamation No. 430 reserved certain parcel of land in
Cebu for warehousing purposes under the administration of the
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TAX PRINCIPLES A N D REMEDIES
National Warehousing Corporation (now NDC). A warehouse
was built thereon. Are the land and warehouse subject to real
estate taxes?
ANSWER:
As to the land, it is exempt from taxation because it was
simply reserved by the Republic. It is still owned by the Republic.
As to the warehouse, it is not exempt since it is owned by
NDC which is separate and distinct from the government which
is its stockholder.
29. QUESTION:
Is the 5% imposition on gross receipts derived from stall
rentals an income tax or license?
ANSWER:
The imposition is a tax, if its primary purpose is to generate
revenue, and regulation is merely incidental; but if regulation
is the primary purpose, the fact that incidentally revenue is
also obtained does not make the imposition a tax. It has been
ruled that the 5% tax imposed on gross receipts of stall rentals
constitutes license fee for the regulation of taxpayer's business
and not a tax on income.
30. QUESTION:
Are taxes subject to set-off?
ANSWER:
No. It is settled that a taxpayer may not set-off taxes due
from claims that he may have against the government. Taxes
cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such debt, demand, contract or
judgment as is allowed to be set-off.
31. QUESTION:
Are the tax exemptions strictly construed against government political subdivision or instrumentality?
APPENDIX "A"
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271
ANSWER:
No. It is a recognized principle that the rule on strict
interpretation does not apply in the case of exemptions in favor
of a government political subdivision or instrumentality. The
reason for the strict interpretation does not apply in the case of
exemptions running to the benefit of the government itself or its
agencies. In such case, the practical effect of an exemption is merely
to reduce the amount that has to be handled by government in the
course of its operations. For these reasons, provisions granting
exemptions to government agencies (including NPC) may be
construed liberally, in favor of non-taxability of such agencies.
(Maceda v. Macaraeg, 197 SCRA 771)
32. QUESTION:
An informer's confidential report covers tax delinquencies
of government agencies. Is the informer entitled to informer's
reward?
ANSWER:
Yes. The informer is entitled to informer's reward. The law
on the matter makes no distinction — whether private person or
corporation, public or quasi-public agencies. It being sufficient
for its operation that the person or entity concerned is subject to,
and violated, revenue laws, and the informer's report resulted in
the recovery of revenue. It is elementary that where the law does
not distinguish, none must be made.
33. QUESTION:
What are the requisites for valid BIR rules and regulations?
ANSWER:
They are as follows:
1.
Consistent and in harmony with law;
2.
Reasonable;
3.
Useful and necessary; and
4. Published in the Official Gazette, or a newspaper of
general circulation.
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TAX PRINCIPLES A N D R E M E D I E S
34. QUESTION:
State the general definition of gross income.
ANSWER:
Gross Income means all income derived from whatever
source, including (but not limited to) the following items:
1. Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages, cornmissions,
and similar items;
2.
Gross income derived from the conduct of trade or
business or the exercise of a profession;
3.
Gains derived from dealings in property;
4.
Interest;
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.
35. QUESTION:
Define self-employment income.
ANSWER:
It consists of the earnings derived by the individual from
the practice of profession or conduct of trade or business carried
on by him, as a sole proprietor or by partnership of which he is
a member.
36. QUESTION:
Distinguish global system of taxation from schedular system
of taxation.
APPENDIX "A"
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273
ANSWER:
A global system of taxation is one where the taxpayer is
required to report all income earned during a taxable period
in one income tax return, which income shall be taxed under
the same rule of income taxation; whereas, schedular system
of taxation requires a separate return for each type of income
and the tax is computed on a per return or per schedule basis.
Schedular system provides for different tax treatment of different
types of income.
37. QUESTION:
Is the interest on the promissory notes to be treated income
from the Philippines considering that all the elements of the
main transactions, i.e., payments, execution of the contracts,
construction of vessels, were all done in Japan?
ANSWER:
The interest is considered income from the Philippines.
Section 42 of R.A. 8424 provides that the following items of gross
income shall be treated as gross income from sources within the
Philippines.
1) Interest — interest derived from sources within the
Philippines, and interest on bonds, notes, or other interest
bearing obligations of residents, corporate or otherwise; x x x
The law does not speak of the "activity" which gave rise to the
obligation, but solely the residence of the obligor.
38. QUESTION:
What are the rules on the taxability of the capital gains from
sale of real property?
ANSWER:
A)
Individual taxpayers and estates and trusts.
A.1) IN GENERAL. A final tax of six percent (6%)
based on the gross selling price or current fair market value
(zonal value) as determined in accordance with Section 6(e)
274
TAX PRINCIPLES A N D REMEDIES
of the Code, whichever is HIGHER is hereby imposed on
capital gains presumed to have been realized from the sale,
exchange, or other disposition of real property located
in the Philippines, classified as capital assets, including
pacto de retro sales and other forms of conditional sales, by
individuals including estates and trusts: Provided, that the
tax liability, if any, on gains from sales or other dispositions
of real property to the government or any of its political
subdivisions or agencies or to government-owned or
controlled corporations shall be determined either under
Section 24(A) (5%-34%) or under this Subsection, at the
option of the taxpayer. (Sec. 24[D])
A.2) EXCEPTION. The provisions of paragraph (1)
of this Subsection to the contrary notwithstanding, capital
gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons,
the proceeds of which is fully utilized in acquiring or
constructing a new principal residence within eighteen (18)
calendar months from the date of sale or disposition, shall
be exempt from the capital gains tax imposed under this
Subsection: Provided, that the historical cost or adjusted basis
of the real property sold or disposed shall be carried over
to the new principal residence built or acquired: Provided
further, that the Commissioner shall have been duly notified
by the taxpayer within thirty (30) days from the date of sale
or disposition through a prescribed return of his intention
to avail of the tax exemption herein mentioned: Provided,
still further, that the said tax exemption can only be availed
of once every ten (10) years: Provided finally, that if there is
no full utilization of the proceeds of sale or disposition, the
portion of the gain presumed to have been realized from
the sale or disposition, subject to capital gains tax. For this
purpose, the gross selling price or fair market value at the
time of sale, whichever is higher, shall be multiplied by a
fraction which the unutilized amount bears to the gross
selling price in order to determine the taxable portion and
the tax prescribed under paragraph (1) of this Subsection
shall be imposed thereon.
APPENDIX "A"
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275
39. QUESTION:
Define capital asset.
ANSWER:
Capital asset means property held by the taxpayer (whether
or not connected with his trade or business), but does not include:
a) stock in trade of the taxpayer or other property of
a kind which would properly be included in the inventory
of the taxpayer;
b) property held by the taxpayer primarily for sale
to customers in the ordinary course of his trade or business;
c) property used in the trade or business and subject
to the allowance for depreciation; and
d) real property used in trade or business of the
taxpayer.
40. QUESTION:
Explain the meaning of MINIMUM CORPORATE INCOME
TAX (MCIT) under R.A. 8424.
ANSWER:
Minimum Corporate Income Tax on Domestic Corporations
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 Section 27 for the taxable
year. (Sec. 27[E])
Carry Forward of Excess Minimum Tax
Any excess of the minimum corporate income tax over the
normal income tax as computed under Subsection [A] of Section
27 shall be carried forward and credited against the normal
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TAX PRINCIPLES A N D REMEDIES
income tax for the three (3) immediately succeeding taxable
years. (Sec. 27[E][2J)
Relief from the Minimum Corporate Income Tax Under Certain
Conditions
The Secretary of Finance is hereby authorized to suspend
the imposition of minimum corporate income tax on any
corporation which suffers losses on account of prolonged labor
dispute, or because of force majeure, or because of legitimate
business reverses.
MCIT On Resident Foreign Corporation
A minimum corporate income tax of two percent (2%) of
gross income shall be imposed on a resident foreign corporation
taxable. (Sec. 28[A][2J)
41. QUESTION:
What is the taxable base for the 15% BRANCH PROFIT
REMITTANCE TAX (BPRT)?
ANSWER:
Any profit remitted by a branch to its head office shall be
subject to tax of fifteen percent (15%) which shall be based on
the total profits applied or earmarked for remittance without
any deduction for the tax component thereof (except those
activities which are registered with the Philippine Economic
Zone Authority [PEZA]). (Sec. 28[A][5])
42. QUESTION:
State the provision relative to TAX SPARING CREDIT (TSC)
under R.A. 8424, as amended by R.A. 9337.
ANSWER:
Intercorporate Dividends. — A final withholding tax at the rate
of fifteen percent (15%) is hereby imposed on the amount of cash
and / or property dividends received from a domestic corporation,
which shall be collected and paid as provided in Section 57(A) of
this Code, subject to the condition that the country in which the
APPENDIX "A"
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277
non-resident foreign corporation is domiciled, shall allow a credit
against the tax due from the nonresident foreign corporation
taxed deemed to have been paid in the Philippines equivalent
to twenty percent (20%) which represents the difference between
the regular income tax of thirty-five percent (35%) and the fifteen
percent (15%) tax on dividends as provided in this subparagraph:
Provided, That effective January 1, 2009, the credit against the tax
due shall be equivalent to fifteen percent (15%), which represents
the difference between the regular income tax of thirty percent
(30%) and the fifteen percent (15%) tax on dividends. (Sec. 28[B]
I5][b]) (As amended by R.A. 9337)
43. QUESTION:
When is the 10% improperly accumulated earnings tax
applicable?
ANSWER:
Tax on Corporations Subject to Improperly Accumulated
Earnings Tax
1. In General. — The improperly accumulated earnings
tax imposed in the preceding Section 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.
2. Exceptions. — The improperly accumulated earnings
tax as provided for under this section shall not apply to:
a.
Publicly-held corporations;
b.
Banks and other nonbank financial intermediaries;
c.
Insurance companies. (Sec. 29)
and
44. QUESTION:
What are the tax exempt retirement benefits, pensions and
gratuities?
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TAX PRINCIPLES A N D REMEDIES
ANSWER:
Retirement benefits received under R.A. 7641 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 provided that the retiring
official or employee has been in the service of the same employer
for at least ten (10) years and is not less than fifty (50) years of age
at the time of his retirement. Said benefits shall be availed of only
once.
45. QUESTION:
When is an amount received by an official or employee or
by his heirs from the employer as a consequence of separation
from service exempt?
ANSWER:
It is exempt if it is received on account of death, sickness or
other physical disability or for any cause beyond the control of the
said official or employee.
46. QUESTION:
Define FRINGE BENEFIT.
ANSWER:
FRINGE BENEFIT means any good, services or other benefit
furnished or granted in cash or kind by an employer, in addition
to basic salaries, to an individual employee (except rank and file
employees) such as, but not limited to the following:
1.
Housing;
2.
Expense account;
3.
Vehicle of any kind;
4.
others;
Household personnel, such as maid, driver and
5. Interest on loan at less than market rate to the
extent of the difference between the market rate and actual
rate granted;
APPENDIX "A"
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279
6. Membership fees, dues, and other expenses borne
by the employee in social and athletic clubs or other similar
organizations;
7.
Expenses for foreign travel;
8.
Holiday and vacation expenses;
9. Educational assistance to the employee or his
dependents; and
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the
law allows.
47. QUESTION:
What are tax exempt DE MINIMIS benefits?
ANSWER:
The term "DE MINIMIS" benefits which are exempt from
fringe benefit tax shall be limited to facilities or privileges
furnished or offered or furnished by the employer merely as
a means of promoting the health, goodwill, contentment, or
efficiency of his employees such as the following:
a) Monetized unused vacation leave credits of
PRIVATE employees not exceeding ten (10) days during the
year AND THE MONETIZED VALUE OF LEAVE CREDITS
PAID TO GOVERNMENT OFFICIALS AND EMPLOYEES;
b) Medical cash allowance to dependents of
employees not exceeding P750.00 per employee per semester
or P125.00 per month;
c) Rice subsidy of Pl,500.00 or one (1) sack of 50-kg.
rice per month amounting to not more than Pl,500.00;
d) Uniforms and clothing allowance not exceeding
P4,000.00 per annum;
e) Actual yearly medical benefits not exceeding
P10,000.00 per annum;
f)
month;
Laundry allowance not exceeding P300.00 per
280
TAX PRINCIPLES A N D REMEDIES
g) Employee achievement awards, e.g., for length of
service or safety achievement, which must be in a form of a
tangible personal property other than cash or gift certificate,
with an annual monetary value not exceeding P10,000.00
received by the employee under an established written
plan which does not discriminate in favor of highly paid
employees;
h) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per
annum;
i)
Flowers, fruits, books, or similar items given to
employees under special circumstances, e.g., on account of
illness, marriage, birth of a baby, etc.; and
j)
Daily meal allowance for overtime work not
exceeding twenty-five percent (25%) of the basic minimum
wage.
48. QUESTION:
Sanoy and Ana bought two parcels of land from Ponce and
three more from Amy. Thereafter, the first two were sold to Torres
Development Corporation at a profit of PI65,224.70 and the three
to Abungin and Calisin for a profit of P60,000.00. They divided
the profits between the two of them.
Was an unregistered partnership or joint venture formed
between Sanoy and Ana?
ANSWER:
No. The sharing of returns does not in itself form a
partnership whether or not the person sharing therein have a
joint or common right or interest in the property. There must be
a clear intent to form a partnership.
49. QUESTION:
What are exchanges of property/stock where no gain or
loss shall be recognized?
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE A N D DOCTRINES IN TAXATION
281
ANSWER:
If in pursuance of a plan of merger or consolidation:
a) A corporation, which is a party to a merger
or consolidation, exchanges property solely for stock in a
corporation, which is a party to the merger or consolidation;
or
b) A share holder exchanges stock in a corporation,
which is a party to the merger or consolidation, solely for
the stock of another corporation also a party to the merger
or consolidation;
c) A security holder of a corporation, which is a
party to the merger or consolidation, exchanges his securities
in such corporation, solely for stock or securities in another
corporation, a party to the merger or consolidation; or
d) If property is transferred to a corporation by
a person in exchange for stock or unit of participation in
such corporation of which as a result of such exchange said
person, alone or together with others, not exceeding four
(4) persons, gains control of said corporation; Provided, that
stocks issued for services shall not be considered as issued
in return for property.
50. QUESTION:
Is the income derived from rentals of real property owned
by welfare, educational and charitable non-profit corporations
subject to tax under R.A. 8424?
ANSWER:
It is subject to tax. Last paragraph of Section 30 of R.A. 8424
provides that x x x the income of whatever kind and character of
the tax exempt organizations from any of their properties, real
or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be
subject to tax imposed under this Code. This makes income from
the property of the tax exempt organization taxable, regardless
282
TAX PRINCIPLES A N D REMEDIES
of how that income is used — whether for profit or for lofty nonprofit purposes.
51. QUESTION:
What is meant by theoretical interest?
ANSWER:
It is an interest "calculated" or computed (and not incurred
or paid) for the purpose of determining the "opportunity cost" of
investing funds in a given business. Such theoretical or computed
interest does not arise from a legally demandable interestbearing obligation incurred by the taxpayer who wishes to find
out, e.g., whether he would have been better off by lending out
his funds and earning interest rather than investing such funds
in his business.
52. QUESTION:
Is theoretical interest on capital deductible?
ANSWER:
No. It is not deductible as it does not represent a charge
arising under an interest-bearing obligation.
53. QUESTION:
Philippine Refining Co. (PRC) claimed bad debts as
deductions from its gross income. In proving for the worthlessness
of said debts, PRC relied solely on the testimony of its financial
accountant without presenting a single documentary evidence
to substantiate the same. The BIR disallowed the deduction for
failure of the PRC to prove the worthlessness of the debts. Is the
disallowance correct?
ANSWER:
The BIR is correct in disallowing the deductions. There
was no iota of documentary evidence {e.g., collection letters,
reports from investigating fieldman, police report/affidavit, etc.)
to give support to the allegation of worthlessness. For debts to
be considered "worthless," and thereby qualify as "bad debts"
making them deductible, the taxpayer should show that:
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
a)
283
There is valid and subsisting debt;
b) The debt must be actually ascertained to be
worthless and uncollectible during the taxable year;
c)
year;
The debt must be charged off during the taxable
d) The debt must arise from the business or trade of
the taxpayer;
e) The taxpayer must also show that it is indeed
uncollectible even in the future.
54. QUESTION:
Explain the "BOAC Doctrine" as enunciated in the case of
Commissioner v. BOAC.
ANSWER:
It is one which laid down the rule that for the source of
income to be considered as coming from the Philippines, it is
sufficient that the income is derived from the activity within the
Philippines. In BOAC's case, the sale of tickets in the Philippines
is the activity that produces the income. However, under Sec.
28(A)[3], the test is the origin of passengers or cargo, respective
of the place of sale and the place of payment.
55. QUESTION:
Is stock dividend taxable?
ANSWER:
A stock dividend representing the transfer of surplus to
capital account is not subject to tax. However, if a corporation
cancels or redeems stock issued as dividend at such time and
in such manner as to make the distribution and cancellation or
redemption in whole or in part, essentially equivalent to the
distribution of taxable dividend, the amount so distributed
in redemption or cancellation of the stock shall be considered
taxable income to the extent that it represents a distribution of
earnings or profits.
284
TAX PRINCIPLES A N D REMEDIES
56. QUESTION:
What are the purposes of withholding tax system?
ANSWER:
a) To provide the taxpayer a convenient manner to
meet his probable income tax liability;
b) To ensure the collection of the income tax which
could otherwise be lost or substantially reduced through
failure to file the corresponding return; and
c)
To improve government's cash flow.
57. QUESTION:
Define "senior citizen" as dependent of a head of family.
ANSWER:
Senior citizen means any resident citizen of the Philippines
at least sixty (60) years old, including those who have retired
from both government offices and private enterprises, and has
an income of not more than sixty thousand pesos (P60,000) per
annum subject to review by the NEDA every three (3) years.
58. QUESTION:
Do funds deposited in a joint saving current account subject
of survivorship agreement form part of the gross estate of the
decedent (husband)?
ANSWER:
The funds are considered the exclusive property of the
surviving spouse. The survivorship agreement not having
executed for unlawful purpose, its "winner-take-all" feature is
permitted by the Civil Code which considers the same as a mere
obligation with a term. Being the separate property of the wife,
they form no part of estate of the deceased husband.
59. QUESTION:
What are the requisites of Vanishing Deduction?
APPENDIX "A"
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285
ANSWER:
a) The present decedent died within 5 years from the
date of death of the prior decedent or date of gift;
b) The property involved must have formed part
of the gross estate located in the Philippines of the prior
decedent, taxable gift of the donor;
c) The said property must be identified as the same
property received from the prior decedent or donor, or the
one received in exchange thereof;
d) The estate taxes on the prior succession or the
donor's tax thereon have been paid.
60. QUESTION:
When are proceeds of life insurance includible in the gross
estate of decedent?
ANSWER:
Includible to the extent of the amount received by the estate
of the deceased, his executor, or administrator, as insurance
under policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the power
of revocation, or the extent of the amount receivable by any
beneficiary designated in the policy of insurance, except when it
is expressly stipulated that the designation of the beneficiary is
irrevocable.
61. QUESTION:
What are intangible personal properties which should be
considered as situated in the Philippines for purposes of donor's
tax?
ANSWER:
a)
pines;
Franchise which must be exercised in the Philip-
b) Shares, obligations, or bonds issued by any
corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws;
TAX PRINCIPLES A N D REMEDIES
c) Shares, obligations, or bonds issued by any foreign
corporation, 85% of the business of which is located in the
Philippines;
d) Share, obligations, or bonds issued by any foreign
corporation if such shares or obligations or both have
acquired a business situs in the Philippines;
e) Shares or rights in any partnership, business or
industry established in the Philippines.
QUESTION:
What are tax exempt donations under R.A. 8424?
ANSWER:
(A) In the case of gifts made by a resident —
1) Dowries or gifts made on account of marriage
and before its celebration or within one year thereafter by
parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first Ten Thousand
Pesos (P10,000);
2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of
the said Government; and
3) Gifts in favor of an educational and /or charitable, religious, cultural or social welfare corporation,
institution, accredited non-government organization, trust
or philanthropic organization or research institution or
organization: Provided, however, that not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes. For purposes of this exemption, a
"non-profit educational and/or charitable corporation, institution,
accredited non-government organization and/or research institution or organization" is a school, college or university
and/or charitable corporation, accredited non-government
organization, trust or philanthropic organization and/or
research institution or organization, incorporated as non-
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE A N D DOCTRINES IN TAXATION
287
stock entity, paying no dividends,, governed by trustees
who receive no compensation, and devoting all its income,
whether student's fees or gifts, donations subsidies or
other forms of philanthropy, to the accomplishment and
promotion of the purposes enumerated in its Articles of
Incorporation.
(B) In the case of gift made by a nonresident not a citizen
of the Philippines. —
1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of
the said Government.
2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, that
no more than thirty percent (30%) of said gifts shall be used
by such donee for administration purposes.
63. QUESTION:
State the fundamental principles underlying local taxation
in the Philippines.
ANSWER:
a)
Taxation shall be uniform in each local government
b)
Taxes, fees, charges and other impositions shall:
unit;
1. be equitable and based as far as practicable on the
taxpayer's ability to pay;
2.
be levied and collected only for public purposes;
3.
not be unjust, excessive, oppressive, or confisca-
tory;
4. not be contrary to law, public policy, national
economic policy or in restraint of trade.
288
TAX PRINCIPLES A N D REMEDIES
c) The collection of local taxes, fees, charges and other
impositions shall in no case, be let to any private person;
d) The revenue collected pursuant to the provision of
R.A. 7160 shall inure solely to the benefit of, and be subject to
disposition by the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically provided
therein; and
e) Each local government unit shall, as far as practicable
evolve a progressive system of taxation.
64. QUESTION:
The Collector of Customs seized allegedly untaxed vehicles
and parts, prompting importers Narciso O. Jao and Bernardo
M. Empaynado to file a petition for certiorari, prohibition or
mandamus, with prayer for restraining order with the RTC.
The RTC granted the injunction and prohibited the
respondent from seizing, detaining, transporting and selling at
public auction the disputed articles.
Contending that the RTC had no jurisdiction over the subject
matter, the Bureau of Customs filed a petition for review with the
Court of Appeals.
DECIDE.
ANSWER:
The petition is impressed with merit.
The Regional Trial Court is devoid of any competence to
pass upon the validity or regularity of seizure and forfeiture
proceedings conducted by the Bureau of Customs and to enjoin
or otherwise interfere with its proceedings. The Collector of
Customs sitting in seizure and forfeiture proceedings has
exclusive jurisdiction to hear and determine all questions
touching on seizure and forfeiture of dutiable goods. The
Regional Trial Courts are precluded from assuming cognizance
over said matters even through petitions of certiorari, prohibition
or mandamus.
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
289
65. QUESTION:
Jose Pascual is the registered owner of M / B "Maria Victoria
P" a motor boat of 63.25 gross tonnage duly licensed by the
Bureau of Customs to engage in coastwide trade. Said vessel
was apprehended by the Philippine Navy five miles off the coast
of Naic, Cavite for carrying untaxed 105 cases and 90 packs of
Salem cigarettes and 414 cases of Union cigarettes in the vessels.
No one claimed the cigarettes. Consequently, they were
forfeited in favor of the government. Jose Pascual claimed his
vessel alleging that he did not know that his vessel was used for
smuggling.
Is the motor boat M / B "Maria Victoria P," subject to forfeiture
under the Tariff and Customs Code, particularly paragraphs (a)
and(b) of Sec. 2530?
ANSWER:
The vessel is clearly subject to forfeiture in favor of the
GOVERNMENT. Forfeiture proceedings are in the nature of
proceedings in rem and are directed against the res. The fact that
Jose Pascual has no actual knowledge that M / B "Maria P" was
used illegally does not render the vessel immune from forfeiture.
Jose Pascual's defense that he has no actual knowledge that the
vessel was used illegally was personal to him but cannot absolve
the vessel from liability of forfeiture.
66. QUESTION:
Explain briefly each of the following special customs duties
under the Tariff and Customs Code.
a.
Dumping duty
c.
Marketing duty
b.
Countervailing duty
d.
Discriminatory duty
ANSWER:
a)
Dumping duty — is levied on imported goods
where it appears that a specific kind or class of foreign
article is being imported into or sold or is likely to be sold in
the Philippines at a price less than its fair value;
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TAX PRINCIPLES A N D REMEDIES
b) Countervailing duty — is one equal to the
estimated amount of the subsidy or bounty or subvention;
manufacturing or exportation into the Philippines of any
article likely to injure an industry in the Philippines;
c) Marketing duty — is imposed for improperly
marked articles. Articles must be marked in any official
language of the Philippines and the name of the country of
origin of the article;
d) Discriminatory duty — is imposed on imported
goods whenever it is found as a fact that the country of origin
discriminates against the commerce of the Philippines at a
disadvantage compared with the commerce of any foreign
country.
67. QUESTION:
What is meant by jeopardy assessment?
ANSWER:
It is a tax assessment which was made without the benefit
of complete or partial audit by an authorized revenue officer
who has reason to believe that the assessment and collection
of a deficiency tax will be jeopardized by delay because of
the taxpayer's failure to comply with audit and investigation
requirements to present his book of accounts and/or pertinent
records or to substantiate all or any of the deductions, exemptions
or credits claimed in his return.
68. QUESTION:
The two (2)-year period for filing refund is mandatory.
However, it may be suspended under special circumstances.
State these exceptional cases.
ANSWER:
The two (2)-year prescriptive period may be suspended
under the following exceptional cases:
a) If the BIR made the taxpayer asking for refund
believe that he would be credited for the overpayment;
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
291
b) If there is an agreement between the taxpayer
and the agent of the Commissioner that they would wait
for a decision of the Supreme Court to guide them in the
settlement of the issue/question involved in the refund.
69. QUESTION:
Under the Local Government Code, protest is required
before a written claim for refund of real property tax may be
filed. State the exception to the rule.
ANSWER:
Protest is not required in order that a taxpayer, who paid
under mistaken belief that it is required by law, may claim for
refund. In this case, the taxpayer paid the tax through mistake
or error and had no knowledge of the fact that it was exempted
from payment thereof. The taxpayer should not be held to suffer
loss by his good intention to comply with what he believes is his
legal obligation, where such obligation does not really exist.
70. QUESTION:
Revocation, modification or reversal of BIR rules and
regulations shall be given retroactive effect if the same is favorable
to the taxpayer. State the exceptions thereto.
ANSWER:
The exceptions are as follows:
a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document required of
him by the Bureau of Internal Revenue;
b) Where the facts subsequently gathered by the BIR
are materially different from the facts on which the ruling is
based; or
c)
Where the taxpayer acted in bad faith.
71. QUESTION:
Explain the extent of the power of the BIR Commissioner a)
to compromise; b) to abate/cancel; c) to credit/refund tax.
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TAX PRINCIPLES A N D REMEDIES
ANSWER:
The Commissioner may —
A)
when:
Compromise the payment of any internal revenue tax
1. A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be
subject to the following minimum amounts:
For cases of financial incapacity a minimum compromise rate equivalent to ten percent (10%) of the basic
assessed tax; and
For other cases, a minimum compromise rate equivalent
to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds one million
pesos (1,000,000) or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall
be composed of the Commissioner and the four (4) Deputy
Commissioners.
B)
Abate or cancel a tax liability when:
1. The tax or any portion thereof appears to be
unjustly or excessively assessed; or
2. The administration or collection costs involved
do not justify the collection of the amount due.
All criminal violations may be compromised except:
(a)
fraud.
those already filed in court, or (b) those involving
C) Credit or refu nd taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by
APPENDIX "A"
SIGNIFICANT JURISPRUDENCE AND DOCTRINES IN TAXATION
293
the purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing
with Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided however,
that return filed showing an overpayment shall be considered as
written claim for credit or refund.
72. QUESTION:
Does a regular court have the power to restrain the collection
of a tax?
ANSWER:
NO. Section 218 of R.A. 8424 provides that no court shall
have the authority to grant an injunction to restrain the collection
of any national internal revenue tax, fee or charge imposed by
this Code. However, the CTA may issue injunctions against
administrative collection, i.e., by distraint and levy, when
collection could "jeopardize" the interest of the Government or
taxpayer but the Court may require the taxpayer to post a bond.
The bond requirement lies with the sound discretion of the Tax
Court.
73. QUESTION:
What constitutes decision appealable to CTA?
ANSWER:
It is the decision of the Commissioner of BIR on the protest
against an assessment but not the assessment itself.
APPENDIX "B"
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City
September 6,1999
REVENUE REGULATIONS NO. 12-99
SUBJECT :
Implementing the Provisions of the National
Internal Revenue Code of 1997 Governing the
Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the
Extrajudicial Settlement of a Taxpayer's Criminal Violation of the Code through Payment of a
Suggested Compromise Penalty.
TO
All Internal Revenue Officers and Others Concerned.
SECTION 1. Scope. — Pursuant to the provisions of Section
244, in relation to Section 245 of the National Internal Revenue
Code of 1997, these Regulations are hereby promulgated to
implement the provisions of Sections 6, 7, 204, 228, 247, 248 and
249 on assessment of national internal revenue taxes, fees and
charges and to provide the rules governing the extra-judicial
settlement of a taxpayer's criminal violation of the said Code
or any of its implementing Regulations through payment of a
suggested compromise penalty.
SECTION 2. General Principles. —
2.1 The surcharge and/or interest herein prescribed shall
apply to all taxes, fees and charges imposed under the Code
294
APPENDIX " B "
REVENUE REGULATIONS NO. 12-99
295
which shall be collected at the same time, in the same manner,
and as part of the tax.
2.2 In the case the tax due from the taxpayer is paid on a
partial or installment basis, the interest on the deficiency tax or
on the delinquency tax liability of the taxpayer shall be imposed
from due date of the tax until full payment thereof. The interest
shall be computed based on the diminishing balance of the tax,
inclusive of interests.
SECTION 3. Due process requirement in the issuance of a
deficiency tax assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax
assessment:
3.1.1 Notice for informal conference. — The Revenue
Officer who audited the taxpayer's records shall, among
others, state in his report whether or not the taxpayer agrees
with his findings that the taxpayer is liable for deficiency
tax or taxes. If the taxpayer is not amenable, based on
the said Officer's submitted report of investigation, the
taxpayer shall be informed, in writing, by the Revenue
District Office or by the Special Investigation Division, as
the case may be (in the case Revenue Regional Offices) or
by the Chief of Division concerned (in the case of the BIR
National Office) of the discrepancy or discrepancies in the
taxpayer's payment of his internal revenue taxes, for the
purpose of "Informal Conference," in order to afford the
taxpayer with an opportunity to present his side of the case.
If the taxpayer fails to respond within fifteen (15) days from
date of receipt of the notice for informal conference, he shall
be considered in default, in which case, the Revenue District
Officer or the Chief of the Special Investigation Division of
the Revenue Regional Office, or the Chief of Division in the
National Office, as the case may be, shall endorse the case
with the least possible delay to the Assessment Division
of the Revenue Regional Office or to the Commissioner
or his duly authorized representative, as the case may be,
for appropriate review and issuance of a deficiency tax
assessment, if warranted.
2%
TAX PRINCIPLES A N D REMEDIES
3.1.2 Preliminary Assessment Notice (PAN). — If
after review and evaluation by the Assessment Division or
by the Commissioner or his duly authorized representative,
as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency
tax or taxes, the said Office shall issue to the taxpayer, at
least by registered mail, a Preliminary Assessment Notice
(PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence
on which the proposed assessment is based. If the taxpayer
fails to respond within fifteen (15) days from date of receipt
of the PAN, he shall be considered in default, in which case,
a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment
of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment.
— The notice for informal conference and the preliminary
assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment
notice for the payment of the taxpayer's deficiency tax liability shall be sufficient:
(i) 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
(ii) When a discrepancy has been determined
between the tax withheld and the amount actually
remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund
or tax credit of excess creditable withholding tax for
a taxable period was determined to have carried over
and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles
has not been paid; or
APPENDIX " B "
REVENUE REGULATIONS NO. 12-99
297
(v) 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.
3.1.4 Formal Letter of Demand and Assessment
Notice. — The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for
payment of the taxpayer's deficiency tax or taxes shall state
the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the formal letter
of demand and assessment notice shall be void. The same
shall be sent to the taxpayer only by registered mail or by
personal delivery. If sent by personal delivery, the taxpayer
or his duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter of demand,
showing the following: (a) His name; (b) signature; (c)
designation and authority to act for and in behalf of the
taxpayer, if acknowledged received by a person other than
the taxpayer himself; and (d) date of receipt thereof.
3.1.5 Disputed Assessment. — The taxpayer or his
duly authorized representative may protest administratively
against the aforesaid formal letter of demand and assessment
notice within thirty (30) days from date of receipt thereof.
If there are several issues involved in the formal letter of
demand and assessment notice but the taxpayer only
disputes or protests against the validity of some of the issues
raised, the taxpayer shall be required to pay the deficiency
tax or taxes attributable to the undisputed issues, in which
case, a collection letter shall be issued to the taxpayer
calling for payment of the said deficiency tax, inclusive of
the applicable surcharge and /or interest. No action shall be
taken on the taxpayer's disputed issues until the taxpayer
has paid the deficiency tax or taxes attributable to the said
undisputed issues. The prescribed period for assessment
or collection of the tax or taxes attributable to the disputed
issues shall be suspended.
298
TAX PRINCIPLES A N D REMEDIES
The taxpayer shall state the facts, the applicable law,
rules and regulations, or jurisprudence on which his protest
is based, otherwise, his protest shall be considered void and
without force and effect. If there are several issues involved
in the disputed assessment and the taxpayer fails to state
the facts, the applicable law, rules and regulations, or
jurisprudence in support of his protest against some of the
several issues on which the assessment is based, the same
shall be considered undisputed issue or issues, in which
case, the taxpayer shall be required to pay the corresponding
deficiency tax or taxes attributable thereto.
The taxpayer shall submit the required documents
in support of his protest within sixty (60) days from date
of filing of his letter of protest, otherwise, the assessment
shall become final, executory and demandable. The phrase
"submit the required documents" includes submission or
presentation of the pertinent documents and scrutiny and
evaluation by the Revenue Officer conducting the audit.
The said Revenue Officer shall state this fact in his report of
investigation.
If the taxpayer fails to file a valid protest against the
formal letter of demand and assessment notice within thirty
(30) days from date or receipt thereof, the assessment shall
become final, executory and demandable.
If the protest is denied, in whole or in part, by the
Commissioner, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from date of receipt of the
said decision, otherwise, the assessment shall become final,
executory and demandable.
In general, if the protest is denied, in whole or in part,
by the Commissioner or his duly authorized representative,
the taxpayer may appeal to the Court of Tax Appeals within
thirty (30) days from date of receipt of the said decision,
otherwise, the assessment shall become final, executory and
demandable: Provided, however, That if the taxpayer elevates
his protest to the Commissioner within thirty (30) days from
date of receipt of the final decision of the Commissioner's
APPENDIX " B "
REVENUE REGULATIONS NO. 12-99
299
duly authorized representative, the latter's decision shall
not be considered final, executory and demandable, in which
case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest,
the taxpayer may appeal to the Court of Tax Appeals within
thirty (30) days from the lapse of the said 180-day period,
otherwise, the assessment shall become final, executory and
demandable.
3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the Commissioner or his duly
authorized representative shall: (a) state the facts, the
applicable law, rules and regulations, or jurisprudence on
which such decision is based, otherwise, the decision shall
be void, in which case, the same shall not be considered a
decision on a disputed assessment; and (b) that the same is
his final decision.
3.1.7 Constructive Service. — If the notice to the
taxpayer herein required is served by registered mail,
and no response is received from the taxpayer within the
prescribed period from date of the posting thereof in the
mail, the same shall be considered actually or constructively
received by the taxpayer. If the same is personally served
on the taxpayer or his duly authorized representative who,
however, refused to acknowledge receipt thereof, the same
shall be constructively served on the taxpayer. Constructive
service thereof shall be considered effected by leaving
the same in the premises of the taxpayer and this fact of
constructive service is attested to, witnessed and signed
by at least two (2) revenue officers other than the revenue
officer who constructively served the same. The revenue
officer who constructively served the same shall make a
written report of this matter which shall form part of the
docket of this case.
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TAX PRINCIPLES A N D REMEDIES
SECTION 4. Civil Penalties:
4.1 Twenty-Five Percent (25%) Surcharge. — There shall
be imposed, in addition to the basic tax required to be paid, a
penalty equivalent to twenty-five percent (25%) thereof, in any
of the following cases:
4.1.1 Failure to file any return and pay the tax due
thereon as required under the provisions of this Code or
rules and regulations on the date prescribed; or
4.1.2 Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than
those with whom the return is required to be filed; or
4.1.3 Failure to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment; or
4.1.4 Failure to pay the full or part of the amount of
tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full
amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment.
4.2 Fifty Percent (50%) Surcharge.
4.2.1 In case of willful neglect to file the return within
the period prescribed by the Code, or in case a false or
fraudulent return is willfully made, the penalty to be imposed
shall be fifty percent (50%) of the tax or of the deficiency
tax, in case any payment has been made on the basis of
such return before the discovery of the falsity or fraud:
Provided, That a substantial underdeclaration of taxable
sales, receipts or income, or a substantial over-statement
of deductions, as determined by the Commissioner or his
duly authorized representative, shall constitute prima facie
evidence of a false or fraudulent return: Provided, further,
That failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared per return,
and a claim of deductions in an amount exceeding thirty
(30) percent of actual deductions, shall render the taxpayer
liable for substantial underdeclaration of sales, receipts or
APPENDIX " B "
REVENUE REGULATIONS NO. 12-99
301
income or for over-statement of deductions, as mentioned
herein: Provided, further, That the term "willfull neglect to
file the return within the period prescribed by the Code" shall
not apply in case the taxpayer, without notice from the
Commissioner or his authorized representative, voluntarily
files the said return, in which case, only 25% surcharge shall
be imposed for late filing and late payment of the tax in lieu
of the above 50% surcharge. Conversely, the 50% surcharge
shall be imposed in case the taxpayer files the return only
after prior notice in writing from the Commissioner or his
duly authorized representative.
4.2.2 Section 6(A) of the Code provides that any
tax return filed by a taxpayer "may be modified, changed or
amended" by the taxpayer "within three (3) years from date of
such filing" provided, however, that "no notice for audit or
investigation of such return, statement or declaration has, in the
meantime, been actually served upon the taxpayer." Thus, if upon
investigation, it is determined that the taxpayer's originally
filed tax return is false or fraudulent, such taxpayer shall
remain liable to the 50% civil penalty regardless that
the taxpayer has filed his amended tax return, if the said
amended tax return, however, has been filed only after
issuance of the Letter of Authority for the investigation
of the taxpayer's tax return or such amendment has been
made in the course of the said investigation.
xxx
SECTION 7. Repealing Clause. — Any revenue issuance
which is inconsistent herewith shall be considered repealed,
amended, or modified accordingly.
SECTION 8. Effectivity. —
8.1 General Rule. — In general, the provisions of those
Regulations shall be effective beginning January 1,1998 pursuant
to the provisions of Section 8 of R.A. No. 8424, otherwise known
as the National Internal Revenue Code of 1997.
8.2 Computation of Surcharge and Interest on Deficiency
Tax Assessment. — Any deficiency tax assessment issued begin-
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TAX PRINCIPLES A N D R E M E D I E S
ning January 1,1998 shall be governed by the rules prescribed in
these Regulations.
8.3 Other Provisions. — Any provision of these Regulations not otherwise specifically provided in the National Internal
Revenue Code of 1997 shall take effect fifteen (15) days after publication in any newspaper of general circulation.
(Sgd.) EDGARDO B. ESPIRITU
Secretary of Finance
Recommending Approval:
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue
APPENDIX "C"
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City
27 November 2000
REVENUE MEMORANDUM CIRCULAR NO. 23-2000
SUBJECT :
Existing Revenue Procedures on the Assessment
of Deficiency Internal Revenue Taxes Based on
the "Best Evidence Obtainable."
TO
All Internal Revenue Officers and Others Concerned.
SECTION 1. Scope. — It has been observed that a very
significant number of taxpayers either refuse or fail to present
their respective accounting records when demanded for tax
audit purposes, thereby resulting to the delay in the submission
of the Revenue Officer's report of investigation as required by the
existing Audit Program and inconsistency in the determination
of the deficiency internal revenue tax that may properly be
assessed and demanded from the taxpayer, to the damage and
prejudice against the revenue.
In the absence of accounting records or other documents
necessary for the proper determination of the taxpayer's internal
revenue tax liability, Section 6(B) of the National Internal
Revenue Code of 1997 requires that the assessment of the tax be
determined based on the "Best Evidence Obtainable," as follows:
303
304
TAX PRINCIPLES A N D REMEDIES
"When a report required by law as a basis for the
assessment of any national internal revenue tax shall not
be forthcoming within the time fixed by laws or rules and
regulations or when there is reason to believe that any such
report is false, incomplete or erroneous, the Commissioner
shall assess the proper tax on the best evidence obtainable."
SECTION 2. Prescribed Revenue Procedures. —
2.1 Subpoena Duces Tecum. — All concerned shall
strictly implement the prescribed procedures under Revenue
Memorandum Order No. 35-90 on the issuance and enforcement
of the Subpoena Duces Tecum in order to compel the taxpayer
to present his tax records for tax audit purposes, impose the
corresponding suggested compromise penalty for his violation
of the Bookkeeping Regulations as may be warranted and/
or institute criminal action for the taxpayer's violation of the
Subpoena.
2.2 Criminal Action for Violation of Summons. — In
case the taxpayer violates the Subpoena Duces Tecum, the Legal
Division or the Prosecution Division, as the case may be, shall
institute criminal action against the taxpayer himself, or the
responsible officer, in the case of a corporation.
2.3 Assessment Based on Best Evidence Obtainable. —
An assessment based on best evidence obtainable is justified
when any of the grounds provided by law is clearly established,
viz.:
1. The report or records requested from the taxpayer
are not forthcoming, i.e., the records are lost; refusal of the
taxpayer to submit such records;
2. The reports submitted are false, incomplete or
erroneous.
In every case where a taxpayer is ordered to be examined
and he refuses or fails to submit his records giving rise to the
issuance of a subpoena duces tecum pursuant to RMO No. 35-90,
the assessment shall only be issued after a criminal case has been
instituted for failure to obey summons.
APPENDIX " C "
REVENUE MEMORANDUM CIRCULAR NO. 23-2000
305
After filing of the complaint against the taxpayer for
violation of the Subpoena Duces Tecum, the Legal Division/
Prosecution shall immediately return the docket o' the case to
the concerned Revenue Officer. The Revenue Officer shall, upon
receipt of the docket, immediately proceed to determine the
taxpayer's deficiency internal revenue tax liability in accordance
with the "Best Evidence Obtainable."
2.4 Existing Revenue Procedures and Jurisprudence
Governing Assessment Based on the Best Evidence Obtainable.
— Provided hereunder are the existing revenue procedures and
jurisprudence governing issuance of a deficiency tax assessment
based on the best evidence obtainable:
(a) Assessment Based on Estimate, When Valid. —"xxx
In the absence of proof of any irregularities in the performance
of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily
or capriciously. The burden of proof is upon the complaining
party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial
affirmance of said assessment. In this instance, petitioner has
not pointed out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned assessment,
which bears a trace of falsity. Indeed, the petitioner's attack on
the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric
cannot supply the basis for the charge of impropriety of the
assessment made, x x x"
(b) Assessment Based on Estimate. — Facts: The taxpayer-petitioner, a land transportation contractor, did not pay
documentary stamp taxes on freight tickets issued. Freight
tickets are taxable as "bill of lading." Actual amount per ticket
could not be determined because most of them were torn or
destroyed, hence, the revenue officer who conducted the audit
decided to assess the stamp tax based on estimate."Held: The
Court sustained the validity of the assessment based on estimate,
as follows:
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TAX PRINCIPLES A N D REMEDIES
"In support of its first assignment of error, the petitioner-appellant claims that the computation made by the
respondent is not based upon the best available evidence,
but on mere presumptions. This claim is devoid of merit. The
agent of the Bureau of Internal Revenue who investigated
the petitioner's books of accounts found it impossible
to count one by one the freight tickets contained in used
booklets dumped inside the petitioner's bodega, because the
booklets were so numerous most of them were either torn
or destroyed. The procedure followed by said agent, which
is the average method, in ascertaining the total number of
freight tickets used during the period under review cannot
be impugned because an actual count of the freight tickets is
practically impossible. The average method is the only way
by which the agent could determine the number of booklets
used during the period in question."
"The agent also correctly assumed that the value of the
goods covered by each freight ticket is not less than P5.00.
It is a common practice of passengers in the rural areas
not to secure receipts for cargoes of small value and to
demand receipts only for valuable cargo. (Inter-provincial
Autobus Co., Inc. v. Collector of Internal Revenue, G.R. No.
L-6741, January 31, 1956) If the freight tickets were issued,
the baggage carried must have been valuable enough."
"On the other hand, it was the duty of petitioner to
present evidence to show inaccuracy in the above method
of assessment (Inter-provincial Autobus Co., Inc. v. Collector,
supra; Perez v. C.T.A., G.R. No. 1-9193, May 29, 1957; Perez v.
C.T.A., et al., G.R. No. L-10507, May 30, 1958; Government of
P.l. v. Monte de Piedad, 35 Phil. 42) but it failed to do so. The
claim of petitioner that the freight tickets issued by it are
not bills of lading subject to documentary stamp tax must
also be dismissed in view of our ruling in the case of Interprovincial Autobus Co., Inc. v. Collector, supra, x x x."
(c) Assessment Based on Estimate: 50% Rule, In the
Absence of Receipts to Prove Actual Amount of Expense
Deduction. — The Court held in the Mariano Zamora case that,
APPENDIX " C "
REVENUE MEMORANDUM CIRCULAR NO. 23-2000
307
if there is a showing that expenses have been incurred but the
exact amount thereof cannot be ascertained due to absence of
documentary evidence, it is the duty of the BIR to make an
estimate of deduction that may be allowable in computing the
taxpayer's taxable income bearing heavily against the taxpayer
whose inexactitude is of his own making. That disallowance of
50% of the taxpayer of the taxpayer's claimed deduction is valid.
"It is alleged by Mariano Zamora that the CTA erred
in disallowing P10,478.50 as promotion expenses incurred
by his wife for the promotion of the Bay View Hotel and
Farmacia Zamora. He contends that the whole amount of
P20,957.00, as promotion expenses in his 1951 income tax
returns, should be allowed and not merely one-half of it or
PI0,478.50, on the ground that, while not all the itemized
expenses are supported by receipts, the absence of some
supporting receipts has been sufficiently and satisfactorily
established. For, as alleged, the said amount of P20,957.00
was spent by Mrs. Esperanza A. Zamora (wife of Mariano),
during her travel to Japan and the United States to purchase
machinery for the new Tiki Tiki plan, and to observe hotel
management in modern hotels. The CTA, however, found
that for said trip, Mrs. Zamora obtained only the sum of
P5,000.00 from the Central Bank and that in her application
for dollar allocation, she stated that she was going abroad
on a combined medical and business trip, which facts were
not denied by Mariano Zamora. No evidence had been
submitted as to where Mariano had obtained the amount
in excess of P5,000.00 given to his wife which she spent
abroad. No explanation had been made either that the
statement contained in Mrs. Zamora's application for dollar
allocation that she was going abroad on a combined medical
and business trip, was not correct. The alleged expenses
were not supported by receipts. Mrs. Zamora could not
even remember how much money she had when she left
abroad in 1951 and how the alleged amount of P20,957.00
was spent.
"Section 30 of the Tax Code provides that in computing
net income, there shall be allowed as deductions all the
308
TAX PRINCIPLES A N D REMEDIES
ordinary and necessary expenses paid or incurred during
the taxable year, in carrying on any trade or business.
(Vol. 4, Mertens, Law of Federal Income Taxation, Sec.
25.03, p. 307) Since promotion expenses constitute one
of the deductions in conducting a business, same must
satisfy these requirements. Claims for the deduction of
promotion expenses or entertainment expenses must also
be substantiated or supported by record showing in detail
the amount and nature of the expense incurred. (N.H. Van
Sicklen, Jr. v. Comm. of Int. Rev., 33 BTA 544) Considering, as
heretofore stated, that the application of Mrs. Zamora for
dollar allocation shows that she went abroad on a combined
medical and business trip, not all of her expenses came
under the category of ordinary and necessary expenses: part
thereof constituted her personal expenses. There having
been no means by which to ascertain which expense was
incurred by her in connection with the business of Mariano
Zamora and which was incurred for her personal benefit,
the Collector and the CTA in their decisions, considered
50% of the said amount of P20,957.00 as business expense
and the other 50%, as her personal expense. We hold that
said allocation is very fair to Mariano Zamora, there having
been no receipt whatsoever, submitted to explain the
alleged business expenses, or proof of the connection which
said expenses had to the business or the reasonableness
of the said amount of P20,957.00. While in situations like
the present, absolute certainty is usually not possible, the
CTA should make as close an approximate as it can, bearing
heavily, if it chooses, upon the taxpayer whose inexactness
is of his own making."
(d) BIR RULING. — Assessment Based on Estimate. —
In the absence of accounting records, the taxpayer's tax liability
may be determined by estimate under the best evidence rule
based on records of other taxpayers engaged in the same line of
business, as follows:
"In reply, please be informed that under Section 16 of
the Tax Code, the Commissioner is authorized to assess the
proper tax based on the best evidence obtainable. If the tax-
APPENDIX " C "
REVENUE MEMORANDUM CIRCULAR NO. 23-2000
309
payer fails to submit the required returns, statements, reports and other documents, the Commissioner shall assess
the proper tax, using the correct method of computation in
determining the taxpayer's liability; hence, complete and
outright disallowance of the taxpayer's claim for deduction
of legitimate, business expenses appears not warranted. If
no documents of any kind are available or presented by
the taxpayer, a comparative determination of reasonable
business expenses incurred by other taxpayers undertaking similar kind of business should be ascertained to arrive at a reasonable determination of the deductible business expenses.
"In the instant case, involving taxpayers in Ormoc
City who have lost all of their books of accounts and other
records during the great flood in 1991, greater leniency in
allowing their claims for deduction for reasonable business
expenses is justified. One way of manifesting this leniency
is to refer to the taxpayers' previous two (2) years deficiency
tax assessments, if any. The average of their deficiency tax
during the last two years may then be used as the best
evidence to impute their deficiency tax liability for 1991.
Otherwise, if there is none, then it can be concluded that
no deficiency tax is due for 1991."
Note. Under this procedure, the gross profit and net profit
ratios of other taxpayers engaged in the same line of business
may be used in estimating the taxpayer's gross profit from sales
and net taxable income.
(e) Networth Method Of Investigation. — Determination
of the taxpayer's taxable net income through the networth
method of investigation is valid.
"We next come to the question of the use of the inventory method in assessing the income taxes due from petitioner. The use of the inventory method is authorized under
Section 15 of the National Internal Revenue Code (Com.
Act No. 466), as amended, which authorizes the Collector
of Internal Revenue to assess taxes due a taxpayer from
any other available fact or evidence. If a taxpayer commits
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TAX PRINCIPLES A N D R E M E D I E S
a violation of the law, hiding his income to evade payment
of taxes, the Government must be permitted to resort to all
evidence or sources available to determine his said income,
so that the tax may be collected for public purposes. There
is and there should be a presumption of regularity accorded
this action of the Collector of Internal Revenue in assessing
the tax on the best evidence obtainable otherwise it would
be impossible to assess taxes due from a dishonest taxpayer.
"This form of assessment has also been adopted by
the Collector of Internal Revenue with the approval of this
Court in three cases, Perez v. Collector, G.R. No. L-10507,
May 30, 1958; Collector v. A.P. Reyes, G.R. Nos. L-11534 and
L-11558, Nov. 25, 1958; and Avelino v. Collector, G.R. No.
L-17715, July 31, 1963. In the case at bar, the existence of
assets or properties appearing in the name of the taxpayer
in the name of his dummies or friends, without the taxpayer
being able to give a definite reasonable explanation for their
existence justifies the Court of Tax Appeals and this Court
to resort to the inventory method of assessment, such being
necessary and at the same time just and equitable."
(f) Assessment Based on Best Evidence in Case of NonPresentation of Taxpayer's Books of Accounts. —
The disputed 1954 deficiency income tax assessment of
P73,636.50, even if it was based merely on adjusting entries
recorded in petitioner's general ledger, is justified and sanctioned
by Section 15 of the National Internal Revenue Code, the pertinent
portion of which reads as follows:
"SECTION 15. Power of Commissioner of Internal Revenue
to make assessments. — When a report required by laws as a basis
for the assessment of any national internal revenue tax shall not
be forthcoming within the time fixed by law or regulation, or when
there is reason to believe that any such report is false, incomplete,
or erroneous, the Commissioner of Internal Revenue shall assess
the proper tax on the best evidence obtainable."
Petitioner's willful and consistent neglect to file its corporate
income tax returns for a period of four (4) calendar years (1950 to
APPENDIX " C "
REVENUE MEMORANDUM CIRCULAR NO. 23-2000
311
1953) justifies the issuance of respondent's deficiency income tax
assessment and letter of demand. A taxpayer like the petitioner
cannot be permitted to hide its taxable income and evade the
payment of taxes with impunity by the simple expediency of
conveniently losing its books of accounts and paying the minimal
compromise penalty therefor; otherwise, it would be impossible
to collect income taxes due from a dishonest taxpayer. This
doctrine was enunciated by our Supreme Court in the disputed
income tax case of William Li Yao v. Collector of Internal Revenue,
G.R. No. L-11875, December 28, 1963, wherein the said Court
categorically stated as follows:
"Ifa taxpayer commits a violation ofthelaw, hidinghis income
to evade payment of taxes, the Government must be permitted to
resort to all evidence or sources available to determine his said
income so that the tax may be collected for public purposes. There
is and there should be a presumption of regularity accorded this
action of the Collector of Internal Revenue in assessing the tax on
the best evidence obtainable otherwise, it would be impossible to
assess taxes due from a dishonest taxpayer."
After sustaining the power of respondent to assess the
deficiency income tax, the question posed before us is whether
or not the disputed income tax assessment was based on the best
obtainable evidence. We uphold the affirmative view. In the first
place, petitioner conveniently lose its books of accounts to avoid
and prevent any investigation of its internal revenue tax liability.
Second, the reported loss of petitioner's books of accounts
covering the years 1950 to 1954 was only made on June 6, 1956,
thereby showing a deliberate intent to delay or cover up its tax
liabilities for prior years. Third, the recovery of the general ledger
undoubtedly belonging to petitioner and containing a summary of
its business transactions constitutes the best evidence obtainable
under the circumstances. Fourth, an analysis of the accounting
entries in petitioner's ledger indicates that the amount of
P220,389.72 debited to cash and credited to surplus on December
31,1954 is income to petitioner. And finally, petitioner's failure to
present any evidence to show the incorrectness of respondent's
assessment during the administrative hearing of the case on
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TAX PRINCIPLES A N D REMEDIES
the merits conducted by Legal Officer Teodolfo Yerro, Jr. of the
Appellate Division, Bureau of Internal Revenue, establishes a
presumption that the disputed assessment is prima facie correct.
Thus, in the case of Bohol Land Transportation Co. v. Collector of
Internal Revenue, G.R. Nos. L-13099 and L-13462, April 29, 1960,
107 Phil. 968, our Supreme Court held:
"At the hearing of the case on the merits, the company in
spite of the suggestion of the court did not present any evidence
to show the incorrectness of the deficiency income tax assessments
with respect to the years 1945 to 1950, inclusive, and so the
court considered such failure fatal in view of the theory that the
assessment made by the Collector is presumed to be prima facie
correct unless controverted. Hence, the Court of Tax Appeals held
the petitioner liable for deficiency income taxes for the years 1948,
1949 and 1950. (Emphasis supplied.)"
On the other hand, petitioner vigorously contends that
the deficiency income tax assessment issued by respondent is
inherently weak and not based on the best obtainable evidence
because the real facts of the case and not the bookkeeping
entries shall control the determination of the taxable income of
petitioner. In support thereof, petitioner cited as authority the
case of Collector v. Benipayo, G.R. No. L-13656, January 31, 1962,
wherein it was held quoting the Court of Tax Appeals, as follows:
"To our mind, the appealed decision has no factual basis
and must be reversed. An assessment fixes and determines the
tax liability of a taxpayer. As soon as it is served, an obligation
arises on the part of the taxpayer concerned to pay the amount
assessed and demanded. Hence, assessments should not be based
on mere presumptions no matter how reasonable or logical said
presumption may be. . ."
"In order to stand the test of judicial scrutiny, the assessment
must be based on actual facts. The presumption of correctness of
assessment being a mere presumption cannot be made to rest on
another presumption. . . In the case under consideration there
are no substantial facts to support the assessment in question.
(Emphasis ours.)
APPENDIX " C "
REVENUE MEMORANDUM CIRCULAR NO. 23-2000
313
Petitioner's legal defense is untenable. The real and actual
facts of the case cannot be ascertained or established by either the
respondent or the petitioner because the latter, through culpable
negligence, conveniently lost its books of accounts except the
general ledger which was subsequently recovered by the revenue
examiners from the Manila Police Department. The weakness of
petitioner's stand lies in the fact that it disregards the entries in
the ledger whenever it bolsters the assessment of respondent and
would want us to take them on their face value when it suits the
defense of petitioner.
(g) BIR may Resort to Assessment Based on Best Evidence if the Taxpayer's Accounting Records is not Understandable.—
"(1) Any bookkeeping system authorized under existing
laws or regulations on the matter may be adopted by taxpayers.
If any authorized bookkeeping system is not understandable to
the fieldmen of this Bureau, the taxpayer must necessarily have
to explain such system. If notwithstanding such explanation, the
fieldmen cannot understand its operations, they may disregard
such bookkeeping records so kept and resort to the best evidence
available reflecting the operations of the taxpayer. At any rate,
this Office will not countenance any system of bookkeeping
which is not generally understandable, x x x."
(h) BIR RULING: In the Absence of the Taxpayer's Books
of Accounts, Records of the Pertinent Government Agency
on the Industry's Revenue may be Used as Best Evidence in
Assessing the Tax.
"The investigation conducted in connection with this
case disclosed that many if not all of the fishpond owners and
operators concerned are not keeping and using books of accounts.
They did not pay the fixed and percentage (sales) taxes due on
their operations during the period in question. Neither did they
file the sales tax returns.
"Under the above circumstance, the sales tax in question
should, as you have correctly stated, be assessed on the best
evidence obtainable. The income tax return is the best evidence
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TAX PRINCIPLES A N D R E M E D I E S
for purposes of the sales tax although it may be admitted that the
same may be of some help in determining the true and correct
amount of sales tax due. This Office believes that the official
determination of the value of production of each class of fishpond
made by the provincial treasurer and assessor of your province
should be given more evidence in the absence of the books of
accounts and sales tax returns of said owners and operators.
"In view of the foregoing, we regret to inform you that we
find your contention untenable. As soon as the fishpond owners
and operator herein involved receive the demand for payment of
the taxes in question, this Office will appreciate it very much if
you will advise them to pay promptly."
(i) When Secondary Evidence Offered by the Taxpayer
is Admissible. — Where a taxpayer questions the correctness of
an assessment against him and is apparently not acting in bad
faith or merely attempting to delay payment, but is deprived of
the best means of proving his contention because "his books of
account were lost by the B.I.R. agent who examined them said
taxpayer must be given an opportunity to prove, by secondary
evidence, that the assessment is incorrect."
SECTION 3. Enforcement. — A uniform and strict enforcement of the foregoing prescribed revenue procedures is enjoined.
All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.
(Sgd.) DAKILA B. FONACIER
Commissioner of Internal Revenue
APPENDIX "D"
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
B U R E A U OF INTERNAL R E V E N U E
Quezon City
February 19, 2001
REVENUE MEMORANDUM CIRCULAR NO. 5-2001
SUBJECT :
Grounds and Procedures for the Implementation
of Section 206 of the Tax Code of 1997 on
Constructive Distraint.
TO
All Internal Revenue Officers and Others Concerned.
Pursuant to the provisions of Section 4, in relation to Section
246 of the Tax Code of 1997 (Code), this Circular is hereby issued
to clarify the grounds and procedures for the implementation of
Section 206 of the Code on constructive distraint.
SECTION 1. When to Issue Notice or Warrant of Constructive Distraint on the Property of a Taxpayer. — In order
to safeguard the interest of the government, the Commissioner
may place under constructive distraint the personal or movable
property/ies of:
a)
a delinquent taxpayer, or
b) any taxpayer who, in his opinion, is retiring from any
business subject to tax, or intending to leave the Philippines, or
intending to remove his property/ies from the Philippines, or
intending to hide or conceal his property/ies, or intending to
315
316
TAX PRINCIPLES AND REMEDIES
perform any act tending to obstruct the proceedings for collecting
tax due or which may be due from him.
SEC. 2. Specific Cases When a Notice or Warrant of Constructive Distraint over the Property/ies of a Taxpayer may be
Issued. —
a) When a taxpayer who applies for retirement from
business has a huge amount of assessment pending with the
Bureau of Internal Revenue (BIR). An assessment is huge if the
amount thereof is equal to or bigger than the networth or equity
of the taxpayer;
b) When a taxpayer who is under tax investigation has a
record of leaving the Philippines at least twice a year, unless such
trips are justified and / or connected with his business, profession
or employment;
c) When a taxpayer, other than a banking institution,
who is under tax investigation has a record of transferring his
bank deposits and other valuable personal property/ies from the
Philippines to any foreign country;
d) When the taxpayer uses aliases in bank accounts, other
than the name for which he is legally and/or popularly known;
e) When the taxpayer keeps bank deposits and owns
other property/ies under the name of other persons, whether
or not related to him, and the same are not under any lawful
fiduciary or trust capacity;
f)
When a taxpayer's big amount of undeclared income
is known to the public or to the BIR by credible means and there
is a strong reason to believe that the taxpayer, in the natural
course of events, will have a great tendency to hide or conceal
his property/ies. For this purpose, the term "big amount of
undeclared income" means an amount exceeding thirty percent
(30%) of the gross sales, gross receipts or gross revenue declared
per return;
g) When the BIR receives information or complaint
pertaining to undeclared income in an amount exceeding 30% of
gross sales, gross receipts or gross revenue declared per return
of a particular taxpayer and there is enough reason to believe
A P P E N D I X "D"
317
R E V E N U E M E M O R A N D U M C I R C U L A R N O . 5-2001
that the said information is correct as when the complaint or
information is supported by substantial and credible evidence.
SEC. 3. Persons Who May Conduct the Constructive Distraint. — In general, it is only the Commissioner who may decide
whether a notice of constructive distraint on the personal property
of any taxpayer may be issued. However, the Commissioner may
delegate this power by specific orders since this power is not one
of those which cannot be delegated as enunciated in Section 7 of
the Tax Code of 1997. Thus, pursuant to aforesaid section, this
power can be delegated to any subordinate official with the rank
equivalent to a Division Chief or higher.
SEC. 4. Procedures in Conducting Constructive Distraint.
— The constructive distraint of personal or movable property/
ies of a taxpayer shall be effected by requiring him or any person
having possession or control of such property / ies to sign a receipt
covering the property/ies distrained. He shall obligate himself
to preserve the same intact and unaltered and not to dispose of
the same in any manner whatever without the express authority
of the Commissioner. Provided, however, That if the subject of the
constructive distraint is a bank deposit, the mere service of the
notice is sufficient for this purpose.
In case the subject taxpayer or the person having the
possession and control of the property/ies sought to be placed
under constructive distraint refuses or fails to sign the receipt
herein referred to, the Revenue Officer effecting the constructive
distraint shall proceed to prepare a list of such property/ies.
He shall thereafter leave a copy of the Notice of Constructive
Distraint and the list of such property/ies distrained in the
premises where the said property/ies are located in the presence
of at least two (2) witnesses, who may or may not be revenue
officers, after which the subject personal or movable property /
ies shall be deemed to have been placed under constructive
distraint.
SEC. 5. Repealing Clause. — Any ruling inconsistent herewith is deemed revoked, amended or modified accordingly.
(Sgd.) RENE G. BANEZ
Commissioner of Internal Revenue
APPENDIX "E"
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City
July 31, 2001
REVENUE REGULATIONS NO. 7-2001
SUBJECT :
Further Implementing Sections 7(c), 204(A) and
290 of the Tax Code of 1997 on Compromise
Settlement of Internal Revenue Tax Liabilities
and Thereby Amending Revenue Regulations
No. 6-2000.
TO
All Internal
Concerned.
Revenue Officers and Others
SECTION 1. Scope and Objectives. — Pursuant to Section
244 of the Tax Code of 1997, these Regulations are hereby
promulgated for the purpose of further implementing Sections
7(c), 204(A) and 290 of the same Code, thereby amending
Revenue Regulations (RR) No. 6-2000 and giving an authority
to the Commissioner of Internal Revenue to compromise the
payment of internal revenue tax liabilities of certain taxpayers
with outstanding receivable and disputed assessments with the
Bureau.
SEC. 2. Cases which may be Compromised. —The following
cases may upon taxpayer's compliance with the basis set forth
under Section 3 of these Regulations, be the subject matter of
compromise settlement, viz.:
1.
Delinquent accounts;
318
APPENDIX " E "
REVENUE REGULATIONS NO. 7-2001
31V
2. Cases under administrative protest pending in the
Regional Offices, Revenue District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service, Enforcement Service
and other offices in the National Office;
3. Civil tax cases being disputed before the courts, e.g.,
MTC, RTC, CTA, CA, SC;
4.
Collection cases filed in courts;
5. Criminal violations other than those already filed in
court or those involving criminal tax fraud; and
6. Cases covered by pre-assessment notices but taxpayer
is not agreeable to the findings of the audit office as confirmed by
the review office.
EXCEPTIONS:
1.
Withholding tax cases;
2.
Criminal tax fraud cases;
3.
Criminal violation already filed in court;
4. Delinquent accounts with duly approved schedule of
installment payments;
5. 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. On
the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board
(BEB) on a case to case basis; and
6. Cases which become final and executory after final
judgment of a court.
SEC. 3. Basis for Acceptance of Compromise Settlement. —
The Commissioner may compromise the payment of any internal
revenue tax on the following grounds:
1. Doubtful validity of the assessment. — The offer to
compromise a delinquent account of disputed assessment under
these Regulations on the ground of reasonable doubt as to the
320
TAX PRINCIPLES A N D REMEDIES
validity of the assessment may be accepted when it is shown
that:
(a) The delinquent account or disputed assessment is
one resulting from a jeopardy assessment. (For this purpose,
"jeopardy assessment" shall refer to a tax assessment which
was assessed without the benefit of complete or partial audit
by an authorized revenue officer, who has reason to believe
that the assessment and collection of a deficiency tax will
be jeopardized by delay because of the taxpayer's failure
to comply with the audit and investigation requirements to
present his books of accounts and/or pertinent records, or
to substantiate all or any of the deductions, exemptions, or
credits claimed in his return); or
(b) The assessment seems to be arbitrary in nature,
appearing to be based on presumptions and there is reason
to believe that it is lacking in legal and/or factual basis; or
(c) The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of
assessment or preliminary assessment and there is reason to
believe that the assessment is lacking in legal and/or factual
basis; or
(d) The taxpayer failed to file a request for reinvestigation /reconsideration within 30 days from receipt of final
assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
(e) The taxpayer failed to elevate to the Court of Tax
Appeals (CTA) an adverse decision of the Commissioner, or
his authorized representative, in some cases, within 30 days
from receipt thereof and there is reason to believe that the
assessment is lacking in legal and /or factual basis; or
(f) The assessments were issued on or after January
1,1998, where the demand notice allegedly failed to comply
with the formalities prescribed under Sec. 228 of the Tax
Code of 1997; or
(g) Assessments made based on the "Best Evidence
Obtainable Rule" and there is reason to believe that the
same can be disputed by sufficient and competent evidence.
APPENDIX " E "
REVENUE REGULATIONS NO. 7-2001
321
2. Financial incapacity. — The offer to compromise based
on financial incapacity may be accepted upon showing that:
(a) The corporation ceased operation or is already
dissolved; or
(b) The taxpayer is suffering from surplus or earnings
deficit resulting to impairment in the original capital by at
least 50%; or
(c) The taxpayer is suffering from a networth deficit
computed by deducting total liabilities (net of deferred
credits) from total assets (net of prepaid expenses, deferred
charges, pre-operating expenses, as well as appraisal
increases in fixed assets), taken from the latest audited
financial statements; or
(d) The taxpayer is a compensation income earner
with no other source of income and the family's gross
monthly compensation income does not exceed the levels of
compensation income provided for under Sec. 4.1.1 of these
Regulations, and it appears that the taxpayer possesses no
other leviable/distiainable assets, other than his family
home; or
(e) The taxpayer has been granted by the Securities
and Exchange Commission (SEC) or by any competent
tribunal a moratorium or suspension of payments to
creditors, or otherwise declared bankrupt or insolvent.
The Commissioner shall not consider any offer for compromise settlement by reason of financial incapacity unless and
until the taxpayer waives in writing his privilege of the secrecy
of bank deposits under Republic Act No. 1405 or under other
general or special laws, and such waiver shall constitute as the
authority of the Commissioner to inquire into the bank deposits
of the taxpayer.
For purposes of these Regulations, the term "assessment"
includes the preliminary assessment notice (PAN) issued as of
June 30, 2001 by the appropriate "Review Office." In fine, it does
not include the post reporting notice issued by the head of the
investigating unit.
TAX PRINCIPLES A N D R E M E D I E S
322
SEC. 4. Prescribed Minimum Percentages of Compromise
Settlement.—The compromise settlement of the internal revenue
tax liabilities of taxpayers, reckoned on a per tax type assessment
basis, shall be subject to the following minimum rates based on
the basic assessed tax:
1.
For cases of "financial incapacity" —
1.1
If taxpayer is an individual whose only
source of income is from employment
and whose monthly salary, if single is
PI0,500 or less, or if married, whose
salary together with his spouse is P21,000
per month, or less
— 10 %
1.2 If taxpayer is an individual without any
source of income
—10 %
1.3 Where the taxpayer is under any of the
following conditions:
1.3.1 Zero networth computed in accordance with Sec. 3.2(c) hereof
—10 %
1.3.2 Negative networth computed in
accordance with Sec. 3.2(c) hereof
—10 %
1.3.3 Dissolved corporations
—20%
1.3.4 Already non-operating companies
for a period of:
(a) three (3) years or more as of
the date of application for
compromise settlement
—10 %
(b) Less than 3 years
— 20 %
1.3.5 Surplus or earnings deficit resulting to impairment in the original
capital by at least 50%
— 10 %
1.3.6 With moratorium/suspension of
payments; declared insolvent or
bankrupt
—10%
APPENDIX " E "
REVENUE REGULATIONS NO. 7-2001
2.
323
For cases of "doubtful validity" — A i T u r u m u m compromise rate equivalent to forty percent (40%) of the
basic assessed tax.
The taxpayer may nevertheless request for a compromise rate lower than forty percent (40%); Provided,
however, That he shall be required to submit his request in
writing stating therein the reasons, legal and /or factual why
he should be entitled to such lower rate; Provided, further,
That for applications of compromise settlement based on
doubtful validity of the assessment involving an offer lower
than the minimum forty percent (40%) compromise rate, the
same shall be subject to the prior approval by the NEB.
The herein prescribed minimum percentages shall likewise
apply in compromise settlement of assessments consisting solely
of increments, i.e., surcharge, interest, etc., based on the total
amount assessed.
SEC. 5. Documentary Requirements. —
1. If the application for compromise is premised under
Sec. 4.1.1 hereof, the taxpayer-applicant shall submit with
his application: (a) a certification from his employer on his
prevailing monthly salary, including allowances; and (b) a sworn
statement that he has no other source of income other than from
employment.
2. If the application is premised under Sec. 4.1.2 hereof,
the taxpayer-applicant shall submit with his application a sworn
statement that he derives no income from any source whatever.
3. If the application is premised under Sec. 4.1.3 hereof,
a copy of the applicant's latest audited financial statements or
audited Account Information Form filed with the BIR shall be
submitted with the application. Nonetheless, for situation under
Sec. 4.1.3.3 hereof, the "Notice of Dissolution" submitted to
SEC or other similar or equivalent document should likewise
be submitted. For situation under Sec. 4.1.3.6, a copy of the
order granting the moratorium or suspension of payments or of
bankruptcy or insolvency shall be submitted.
324
TAX PRINCIPLES A N D R E M E D I E S
SEC. 6. Approval of Offer of Compromise. — Except for
offers of compromise where the approval is delegated to the
REB pursuant to the succeeding paragraph all compromise
settlements within the jurisdiction of the National Office (NO)
shall be approved by the NEB composed of the Commissioner
and four (4) Deputy Commissioners. All decisions of the NEB,
whether favorable or otherwise, shall have the concurrence of
the Commissioner.
Offers of compromise of assessments issued by the Regional
Offices involving basic deficiency taxes of Five Hundred
Thousand Pesos (P500,000) or less and for minor criminal
violations discovered by the Regional and District Offices, shall
be subject to the approval by the Regional Evaluation Board
(REB) comprised of the following Officers of the Region:
Regional Director — Chairman
Members:
•
Assistant Regional Director
•
Chief, Legal Division
•
Chief, Assessment Division
•
Chief, Collection Division
•
Revenue District Officer having jurisdiction over
the taxpayer-applicant
Provided, however, That if the offer of compromise is less
than the prescribed rates set forth in Sec. 4 hereof, the same shall
always be subject to the approval of the NEB.
If the compromise offer meets the conditions for availment
set forth in Sections 3, 4 and 5 of these Regulations, the case is
considered provisionally closed on the day compromise amount
is fully paid and the approval of the compromise offer becomes a
matter of course on the part of the approving authority referred
to in this Section.
SEC. 7. Report of the Commissioner on the Exercise of his
Authority to Compromise to the Congressional Oversight Committee. — The Commissioner shall submit to the Congressional
APPENDIX
"E"
325
R E V E N U E R E G U L A T I O N S N O . 7-2001
Oversight Committee through the Chairmen of Committee on
Ways and Means of both the Senate and House of Representatives, every six (6) months of each calendar year, a report on the
exercise of his powers to compromise the tax liabilities of taxpayers. In this regard, the REB should submit to the Commissioner
all the necessary reports and data in due time for the latter to be
able to submit the required reports to the Congressional Oversight Committee.
SEC 8. Repealing Clause. — RR No. 6-2000 and all other
issuances implementing Section 204 of the Tax Code of 1997
or parts thereof which are contrary to or inconsistent with the
provisions of these Regulations are hereby amended, modified
or repealed accordingly.
SEC. 9. Effectivity. — The provisions of these Regulations
shall take effect fifteen (15) days after publication in any
newspaper of general circulation.
(Sgd.) JOSE ISIDRO N. CAMACHO
Secretary of Finance
Recommending Approval:
(Sgd.) RENE G. BANEZ
Commissioner of Internal Revenue
APPENDIX "F"
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City
May 19, 2004
REVENUE REGULATIONS NO. 8-2004
SUBJECT:
Revenue Regulations Implementing Sections
7(c), 204(A) and 290 of the National Internal
Revenue Code of 1997 on Compromise
Settlement of Internal Revenue Tax Liabilities
Superseding Revenue Regulations Nos. 7-2001
and 30-2002.
TO : All Internal Revenue Officers and Others Concerned.
SECTION 1. SCOPE AND OBJECTIVES. — Pursuant to
Section 244 of the National Internal Revenue Code of 1997 (Code),
these Regulations are hereby promulgated for the purpose of
implementing Sections 7(c), 204(A) and 290 of the same Code,
superseding Revenue Regulations (RR) Nos. 7-2001 and 30-2002
and giving an authority to the Commissioner of Internal Revenue
to compromise the payment of internal revenue tax liabilities
of certain taxpayers with outstanding receivable accounts and
disputed assessments with the Bureau of Internal Revenue and
the Courts.
SECTION 2. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. — Sec. 3 of Revenue Regulations No. 302002 is hereby amended to read as follows:
326
APPENDIX "F"
REVENUE REGULATIONS NO. 8-2004
327
"SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. — The Commissioner may compromise the payment of any internal revenue tax on the following grounds:
1.
Doubtful validity of the assessment. — x x x
(a)
xxx
(b)
xxx
(c)
xxx
(d)
xxx
(e)
xxx
(0
xxx
(g)
xxx
(h) The assessment was issued within the
prescriptive period for assessment as extended by
the taxpayer's execution of Waiver of the Statute of
Limitations the validity or authenticity of which is
being questioned or at issue and there is strong reason
to believe and evidence to prove that it is not authentic;
or
(i) The assessment is based on an issue where
a court of competent jurisdiction made an adverse
decision against the Bureau, but for which the
Supreme Court has not decided upon with finality.
2.
xxx
SECTION 3. REPEALING CLAUSE. — These Regulations
supersede Revenue Regulations Nos. 7-2001 and 30-2002. All other
issuances inconsistent with the provisions of these Regulations
are hereby amended, modified or repealed accordingly.
SECTION 4. EFFECTIViTY. — The provisions of these
Regulations shall take effect after fifteen (15) days following
publication in any newspaper of general circulation except for
cases the compromise of which have been confirmed by the
328
TAX PRINCIPLES A N D R E M E D I E S
Secretary of Finance in which case these Regulations shall take
effect immediately upon publication.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
APPENDIX "G"
AN ACT CREATING THE COURT OF TAX APPEALS
(R.A. No. 1125, as amended by R.A. No. 3457)
SECTION 1. Court; Judges; qualifications; salary; tenure.
— There is hereby created a Court of Tax Appeals which shall
consist of a Presiding Judge and two Associate Judges, each of
whom shall be appointed by the President, with the consent of
the Commission on Appointments.' The Presiding Judge shall be
so designated in the commission issued to him by the President,
and the Associate Judges shall have precedence according to the
date of their commissions. The Presiding Judge shall receive a
compensation of twenty thousand pesos per annum, and shall
have the same qualifications, rank, category and privileges as
the Presiding Judge of the Court of Industrial Relations. The
Associate Judges shall each receive a compensation of nineteen
thousand pesos per annum and shall have the same qualifications,
rank, category and privileges as a member of the Court of
Industrial Relations. The Presiding Judge and the Associate
Judges shall be appointed to hold office during good behavior,
until they reach the age of seventy, or become incapacitated to
discharge the duties of their office, unless sooner removed for
the same causes and in the same manner provided by law for
members of the judiciary of appellate rank.
2
,
SEC. 2. Quorum; temporary vacancy. — Any two Judges
of the Court of Tax Appeals shall constitute a quorum, and the
concurrence of two judges shall be necessary to promulgate
'Now appointed by the President from a list of nominees submitted by the Judicial
and Bar Council (JBC).
T h e compensation has been increased in accordance with B.P. No. 129, The Judicial Reorganization Act of 1980.
'Replaced by the National Labor Relations Commission (NLRC).
329
330
TAX PRINCIPLES A N D R E M E D I E S
any decision thereof. In case of temporary vacancy disability
or disqualification, for any reason, of any of the judges of the
said Court, the President may, upon the request of the Presiding
Judge, designate any Judge of First Instance to act in his place;
and such Judge of First Instance shall be duly qualified to act as
such.
4
SEC. 3. Clerk of court; appointment; qualifications; compensation. — The Court ofTax Appeals shall have a Clerk of Court
who shall be appointed by the President with the consent of the
Commission on Appointments. No person shall be appointed
Clerk of Court unless he is duly authorized to practice law in the
Philippines. The Clerk of Court shall exercise the same powers
and perform the same duties in regard to all matters within the
court's jurisdiction, as are exercised and performed by clerks of
Court of First Instance, in so far as the same may be applicable;
and in the exercise of those powers and the performance of those
duties, the clerk shall be under the direction of the said court.
The Clerk of Court shall receive a compensation of six thousand
pesos per annum.
5
SEC. 4. Other subordinate employees. — The Court of Tax
Appeals shall appoint, in accordance with the Civil Service Law,
rules and regulations, the necessary personnel to assist it in the
performance of its duties. The said Court shall fix their salaries
and prescribe their duties.
SEC. 5. Disqualifications. — No judge or other officer or
employee of the Court of Tax Appeals shall intervene, directly
or indirectly, in the management or control of any private
enterprise which in any way may be affected by the functions
of the Court. Judges of the said Court shall be disqualified from
sitting in any case on the same ground provided under Rule One
hundred twenty-six of the Rules of Court for the disqualification
of judicial officers. No person who has once served in the Court
in a permanent capacity, either as Presiding Judge or as Associate
Judge thereof, shall be qualified to practice as counsel before the
6
' N o w Regional Trial Court (RTC).
»See Art. VIII, Sec. 8(5), 1987 Philippine Constitution.
' N o w Rule 137.
APPENDIX " G "
AN ACT CREATING THE COURT OF TAX APPEALS
331
Court for a period of one year from his separation therefrom for
any cause.
SEC. 6. Place of office. — The Court of Tax Appeals shall
have its office in the City of Manila, and shall hold hearings at
such time and place as it may, by order in writing, designate
with a view to assuring a reasonable opportunity for taxpayers
to appear with as little inconvenience and expense as practicable.
SEC. 7. Jurisdiction. — The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by appeal, as
herein provided —
(1) Decisions of the Commissioner of Internal Revenue
in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue;
(2) Decisions of the Commissioner of Customs in cases
involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected; fines,
forfeitures or other penalties imposed in relation thereto; or other
matters arising under the Customs Law or other law or part of
law administered by the Bureau of Customs; and
(3) Decisions of provincial or city Board of Assessment
Appeals in cases involving the assessment and taxation of real
property or other matters arising under the Assessment Law,
including rules and regulations relative thereto.
SEC. 8. Court of record; seal; proceedings. — The Court of
Tax Appeals shall be a court of record and shall have a seal which
shall be judicially noticed. It shall prescribe the form of its writs
and other processes. It shall have the power to promulgate rules
and regulations for the conduct of the business of the Court,
and as may be needful for the uniformity of decisions within its
jurisdiction as conferred by law, but such proceedings shall not
be governed strictly by technical rules of evidence.
SEC. 9. Fees. - The Court shall fix reasonable fees for the
filing of an appeal, for certified copies of any transcript of record,
332
TAX PRINCIPLES A N D R E M E D I E S
entry or other document, and for other authorized services
rendered by the Court or its personnel.
SEC. 10. Power to administer oaths, issue subpoena, punish
for contempt. — The Court shall have the power to administer
oaths, receive evidence, summon witnesses by subpoena and
require the production of papers or documents by subpoena
duces tecum, subject in all respects to the same restriction and
qualifications as applied in judicial proceedings of a similar
nature. The Court shall, in accordance with Rule Sixty-four of
the Rules of Court, have the power to punish for contempt for
the same causes, under the same procedure and with the same
penalties provided therein.
7
SEC. 11. Who may appeal; effect of appeal. — Any person,
association or corporation adversely affected by a decision
or ruling of the Commissioner of Internal Revenue, or the
Commissioner of Customs or any provincial or city Board of
Assessment Appeals may file an appeal in the Court of Tax
Appeals within thirty days after the receipt of such decision or
ruling.
No appeal taken by the Court of Appeals from the decision
of the Commissioner of Internal Revenue or the Commissioner
of Customs shall suspend the payment, levy, distraint, and/or
sale of any property of the taxpayer for the satisfaction of his
tax liability as provided by existing law: Provided, however, That
when in the opinion of the Court the collection by the Bureau
of Internal Revenue or the Commissioner of Customs may
jeopardize the interest of the Government and/or the taxpayer,
the Court at any stage of the proceeding, may suspend the said
collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the
amount with the Court.
SEC. 12. Taking of evidence. — The Court may, upon proper
motion or on its initiative, direct that a case, or any issue thereof,
be assigned to one of its members for the taking of evidence,
when the determination of a question of fact arises upon motion
' N o w Rule 7 1 .
APPENDIX "G"
AN ACT CREATING T H E COURT OF TAX APPEALS
333
or otherwise in any stage of the proceedings, or when the taking
of an account is necessary, or when the determination of an issue
of fact requires the examination of a long account. The hearing
before such member shall proceed in all respects as though the
same had been made before the Court.
Upon completion of such hearing before such member, he
shall promptly submit to the Court his report in writing, stating
his findings and conclusions; and thereafter, the Court shall
render its decision on the case adopting, modifying, or rejecting
the report in whole or in part, as the case may be, or the Court
may in its discretion recommit it with instructions, or receive
further evidence.
SEC. 13. Decision. — Cases brought before the Court shall
be decided within thirty days after the submission thereof for
decision. Decisions of the Court shall be in writing, stating clearly
and distinctly the facts and the law on which they are based, and
signed by the judges concurring therein. The Court shall provide
for the publication of its decisions in the Official Gazette in such
form and manner as may be best adapted for public information
and use.
As in the case of judicial officers under Section one hundred
twenty-nine of the Administrative Code, the judges of the Court
shall each certify on their applications for leave, and upon
salary vouchers presented by them for payment, or upon the
payrolls under which their salaries are paid, that all proceedings,
petitions and motions which have been submitted to the Court
for determination or decision by the Court on or before the date
of making the certificate, and no leave shall be granted and no
salary shall be paid without such certificate.
SEC. 14. Effect of decision that tax is barred by statute of
limitations. — If the assessment or collection of any tax is barred
by any statute of limitations, the decision of the Court to that
effect shall be considered as its decision that there is no deficiency
in respect of such tax.
SEC. 15. Publicity of proceedings and publication of
decisions. — All decisions of, and all evidence received by the
334
TAX PRINCIPLES A N D R E M E D I E S
Court and its divisions, including transcript of stenographic
reports of the hearings, shall be public records open to the
inspection of the public, except that after the decision of the Court
in any proceeding has become final the Court may, upon motion
of the taxpayer or the Government, permit the withdrawal, by
the party entitled thereto of originals of books, documents and
records, and of models, diagrams, and other exhibits, introduced
in evidence before the Court or any division; or the Court may,
on its own motion, make such other disposition thereof as it
deems advisable. The Court shall provide for the publication of
its decisions in the Official Gazette in such form and manner as
may be best adapted for public information and use.
SEC. 16. Damages. — Where an appeal is found to be frivolous, or that proceedings have been instituted merely for delay,
the Court may assess damage against the appellant in an amount
not exceeding five hundred pesos, which shall be collected in the
same manner as fines or other penalties authorized by law.
SEC. 17. Violation of Penal Law. — When in the performance
of its functions, it should appear to the Court that a crime or other
violation of law has been committed, or that there are reasonable
grounds to believe that any official, employee or private person
is guilty of any crime, offense or other violation, the Court shall
refer the matter to the proper department, bureau or office for
investigation or the institution of such criminal or administrative
action as the facts and circumstances of the case may warrant.
SEC. 18. Appeal to the Supreme Court." - No judicial
proceedings against the Government involving matters arising
under the National Internal Revenue Code, the Customs Law
or the Assessment Law shall be maintained, except as herein
provided, until and unless an appeal has been previously filed
with the Court of Tax Appeals and disposed of in accordance
with the provisions of this Act.
Any party adversely affected by any ruling, order or
decision of the Court of Tax Appeals may appeal therefrom
T h e appeal shall now be taken by way of Petition for Review with the Court of
Appeals under Rule 43, Rules of Court.
APPENDIX " G "
AN ACT CREATING THE COURT OF TAX APPEALS
335
to the Supreme Court by filing with the said Court a notice of
appeal and with the Supreme Court a petition for review, within
thirty days from the date he receives notice of said ruling, order
or decision. If, within the aforesaid period, he fails to perfect his
appeal, the said ruling, order or decision shall become final and
conclusive upon him.
If no decision is rendered by the Court within thirty days
from the date a case is submitted for decision, the party adversely
affected by said ruling, order or decision, may file with said Court
a notice of his intention to appeal to the Supreme Court, and if,
within thirty days from the filing of said notice of intention to
appeal, no decision has as yet been rendered by the Court, the
aggrieved party may file directly with the Supreme Court an
appeal from said ruling, order or decision, notwithstanding the
foregoing provisions of this section.
If any ruling, order or decision of the Court of Tax Appeals
be adverse to the Government, the Commissioner of Internal
Revenue, the Commissioner of Customs, or the provincial or
city Board of Assessment Appeals concerned may likewise file
an appeal therefrom to the Supreme Court in the manner and
within the same period as above prescribed for private parties.
Any proceedings directly affecting any ruling, order or
decision of the Court of Tax Appeals shall have preference over
all other civil proceedings except habeas corpus, workmen's
compensation and election cases.
SEC. 19. Review by certiorari. — Any ruling, order or
decision of the Court of Tax Appeals may likewise be reviewed
by the Supreme Court upon a writ of certiorari in proper cases.
Proceedings in the Supreme Court upon a writ of certiorari or a
petition for review, as the case may be, shall be in accordance
with the provisions of the Rules of Court or such rules as the
Supreme Court may prescribe.
SEC. 20. Appropriation. — The sum of seventy thousand
pesos is hereby appropriated out of any funds in the National
Treasury not otherwise appropriated for the salaries and the
purchase of supplies and equipment necessary for the operation
336
TAX PRINCIPLES A N D R E M E D I E S
of the Court of Tax Appeals herein established during the current
fiscal year. Thereafter the funds necessary for the operation of the
Court shall be included in the regular Appropriations Act.
SEC. 21. General provisions. — Whenever the words "Board
of Tax Appeals" are used in Commonwealth Act Numbered Four
hundred and seventy, otherwise known as the Assessment Law,
or in other laws, rules and regulations relative thereto, the same
shall read "Board of Assessment Appeals."
The Central Board of Tax Appeals created under Section
two of Commonwealth Act Numbered Five hundred and thirty
is hereby abolished.
Executive Order Numbered Four hundred and One-A,
dated the fifth of January, nineteen hundred and fifty-one, is
repealed and the Board of Tax Appeals created therein abolished:
Provided, however, That all cases heretofore decided by the said
Board of Tax Appeals and thence appealed to the Supreme Court
pursuant to Executive Order Numbered Four hundred One-A
shall be decided by the Supreme Court on the merits to all intents
and purposes as if said Executive Order had been duly enacted by
the Congress: And, Provided, further, That all cases now pending
in the said Board of Tax Appeals shall be transferred to the Court
of Tax Appeals and shall be heard and decided by the latter to all
intents and purposes as if they had been originally filed therein.
Any law or part of law, or any executive order, rule or
regulation or part thereof, inconsistent with the provisions of this
Act is hereby repealed.
SEC. 22. Pending cases to be remanded to Court. - All cases
involving disputed assessments of internal revenue taxes or
customs duties pending determination before the Court of First
Instance shall be certified and remanded by the respective clerk
of court to the Court of Tax Appeals for final disposition thereof.
SEC. 23. Separability Clause. — If any clause, sentence,
paragraph or part of this Act shall be adjudged by any court of
competent jurisdiction to be invalid, such judgment shall not
affect, impair or invalidate the remainder of this Act, but shall be
APPENDIX " G "
AN ACT CREATING THE COURT OF TAX APPEALS
confined in its operations to the clause, sentence, paragraph
part thereof directly involved in the controversy
SEC. 24. This Act shall take effect upon its approval.
APPROVED: June 16,1954.
— oOo —
APPENDIX "H
REPUBLIC OF THE PHILIPPINES
CONGRESS OF THE PHILIPPINES
Metro Manila
Twelfth Congress
Third Regular Session
Begun and held in Metro Manila, on Monday, the twenty-eighth
day of July, two thousand and three.
—
0 O 0
—
REPUBLIC ACT NO. 9282
AN
ACT EXPANDING THE JURISDICTION OF THE
COURT OF TAX APPEALS (CTA), ELEVATING ITS
RANK TO THE LEVEL OF A COLLEGIATE COURT
WITH SPECIAL JURISDICTION AND ENLARGING
ITS MEMBERSHIP, AMENDING FOR THE PURPOSE
CERTAIN SECTIONS OF REPUBLIC ACT NO. 1125,
AS AMENDED, OTHERWISE KNOWN AS THE LAW
CREATING THE COURT OF TAX APPEALS, AND FOR
OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. Section 1 of Republic Act No. 1125, as amended
is hereby further amended to read as follows:
"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,
338
APPENDIX "H"
REPUBLIC ACT NO. 9282
339
possessing all the inherent powers of a Court of Justice, and
shall consist of a Presiding Justice and five (5) Associate Justices. The incumbent Presiding Judge and Associate Judges
shall continue in office and bear the new titles of Presiding Justice and Associate Justices. The Presiding Justice and
the most Senior Associate Justice shall serve as chairmen of
the two (2) Divisions. The additional three (3) Justices and
succeeding members of the Court shall be appointed by the
President upon nomination by the Judicial and Bar Council. The Presiding Justice shall be so designated in his appointment, and the Associate Justices shall have precedence
according to the date of their respective appointments, or
when the appointments of two (2) or more of them shall
bear the same date, according to the order in which their
appointments were issued by the President. They shall have
the same qualifications, rank, category, salary, emoluments
and other privileges, be subject to the same inhibitions and
disqualifications, and enjoy the same retirements and other
benefits as those provided for under existing laws for the
Presiding Justice and Associate Justices of the Court of Appeals.
"Whenever the salaries of the Presiding Justice and
the Associate Justices of the Court of Appeals are increased,
such increases in salaries shall be deemed correspondingly
extended to and enjoyed by the Presiding Justice and
Associate Justices of the CTA.
"The Presiding Justice and Associate Justices shall
hold office during good behavior, until they reach the age of
seventy (70), or become incapacitated to discharge the duties
of their office, unless sooner removed for the same causes
and in the same manner provided by law for members of
the judiciary of equivalent rank."
SEC. 2. Section 2 of the same Act is hereby amended to read
as follows:
"SEC. 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.
TAX PRINCIPLES A N D REMEDIES
"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."
SEC. 3. Section 3 of the same Act is hereby amended to read
follows:
"SEC. 3. Clerk of Court; Division Clerks of Court;
Appointment; Qualification; Compensation. — The CTA
shall have a Clerk of Court and three (3) Division Clerks
of Court who shall be appointed by the Supreme Court.
No person shall be appointed Clerk of Court or Division
Clerk of Court unless he is duly authorized to practice law
in the Philippines. The Clerk of Court and Division Clerks
of Court shall exercise the same powers and perform the
same duties in regard to all matters within the Court's
jurisdiction, as are exercised and performed by the Clerk of
Court and Division Clerks of Court of the Court of Appeals,
in so far as the same may be applicable or analogous; and in
the exercise of those powers and the performance of those
duties they shall be under the direction of the Court. The
Clerk of Court and the Division Clerks of Court shall have
the same rank, privileges, salary, emoluments, retirement
and other benefits as those provided for the Clerk of Court
and Division Clerks of Court of the Court of Appeals,
respectively."
SEC. 4. Section 4 of the same Act is hereby amended to read
follows:
"SEC. 4. Other Subordinate Employees. — The Supreme
Court shall appoint all officials and employees of the CTA,
APPENDIX "H"
REPUBLIC ACT NO. 9282
341
in accordance with the Civil Service Law. The Supreme
Court shall fix their salaries and prescribe their duties."
SEC. 5. Section 5 of the same Act is hereby amended to read
follows:
"SEC. 5. Disqualifications. — No Justice or other officer or
employee of the CTA shall intervene, directly or indirectly, in
the management or control of any private enterprise which
in any way may be affected by the functions of the Court.
Justices of the Court shall be disqualified from sitting in any
case on the same grounds provided under Rule one hundred
thirty-seven of the Rules of Court for the disqualification
of judicial officers. No person who has once served in the
Court in a permanent capacity, either as Presiding Justice or
as Associate Justice thereof, shall be qualified to practice as
counsel before the Court for a period of one (1) year from
his retirement or resignation."
SEC. 6. Section 6 of the same Act is hereby amended to read
follows:
"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."
SEC. 7. Section 7 of the same Act is hereby amended to read
follows:
"Sec. 7. Jurisdiction. — The CTA shall exercise:
"a. Exclusive appellate jurisdiction to review by
appeal, as herein provided:
"1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
"2. Inaction by the Commissioner of Internal
Revenue in cases involving disputed assessments,
342
TAX PRINCIPLES A N D R E M E D I E S
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;
"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;
"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;
"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 board of assessment appeals;
"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;
"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
Sections 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the de
cision to impose or not to impose said duties.
APPENDIX " H "
REPUBLIC ACT NO. 9282
343
"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 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.
"c. Jurisdiction over tax collection cases as herein provided:
TAX PRINCIPLES A N D R E M E D I E S
"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."
SEC. 8. Section 10 of the same Act is hereby amended to
ad as follows:
"SEC. 10. Power to Administer Oaths; Issue Subpoena;
Punish for Contempt. — The Court shall have the power to
administer oaths, receive evidence, summon witnesses by
subpoena duces tecum, subject in all respects to the same restrictions and qualifications as applied in judicial proceedings of a similar nature. The Court shall, in accordance with
Rule seventy-one of the Rules of Court, have the power to
punish for contempt for the same causes, under the same
procedure and with the same penalties provided therein."
SEC. 9. Section 11 of the same Act is hereby amended to read
follows:
"SEC. 11. Who May Appeal; Mode of Appeal; Effect of
Appeal. — Any party adversely affected by a decision,
ruling or inaction of the Commissioner of Internal Revenue,
APPENDIX "H"
REPUBLIC ACT NO. 9282
345
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: Provided, 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 and Secretary of Agriculture, as the
case may be shall suspend the payment, levy, distraint, and/
or sale of any property of the taxpayer for the satisfaction of
his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the
346
TAX PRINCIPLES A N D R E M E D I E S
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."
SEC. 10. Section 13 of the same Act is hereby amended to
read as follows:
"SEC. 13. Decision, Maximum Period for Termination of
Cases. — Cases brought before the Court shall be decided
in accordance with Section 15, paragraph (1), Article VIII
(Judicial Department) of the 1987 Constitution. Decisions of
the Court shall be in writing, stating clearly and distinctly
the facts and the law on which they are based, and signed
by the Justices concurring therein. The Court shall provide
for the publication of its decision in the Official Gazette in
such form and manner as may best be adopted for public
information and use.
"The Justices of the Court shall each certify on their
applications for leave, and upon salary vouchers presented
by them for payment, or upon the payrolls under which
their salaries are paid, that all proceedings, petitions and
motions which have been submitted to the Court for
determination or decision for a period required by the law or
the Constitution, as the case may be, have been determined
or decided by the Court on or before the date of making the
certificate, and no leave shall be granted and no salary shall
be paid without such certificate."
SEC. 11. Section 18 of the same Act is hereby amended as
follows:
"SEC. 18. Appeal to the Court of Tax Appeals En Banc.
— No civil proceeding involving matter arising under the
APPENDIX "H"
REPUBLIC ACT NO. 9282
347
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."
"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."
SEC. 13. Distraint of Personal Property and/or Levy on Real
Property. — Upon the issuance of any ruling, order or decision
by the CTA favorable to the national government, the CTA shall
issue an order authorizing the Bureau of Internal Revenue,
through the Commissioner to seize and distraint any goods,
chattels, or effects, and the personal property including stocks
and other securities, debts, credits, bank accounts, and interests
in and rights to personal property and /or levy the real property
of such persons in sufficient quantity to satisfy the tax or charge
together with any increment thereto incident to delinquency.
This remedy shall not be exclusive and shall not preclude the
Court from availing of other means under the Rujes of Court.
SEC. 14. Retention of Personnel; Security of Tenure; Upgrading
of Positions and Salaries. — All existing permanent personnel of
the CTA shall not be adversely affected by this Act. They shall
continue in office and shall not be removed or separated from the
service except for cause as provided for by existing laws. Further,
the present positions and salaries of personnel shall be upgraded
to the level of their counterparts in the Court of Appeals.
SEC. 15. Transitory Provisions. — In consonance with the
above provision, the incumbent Presiding Judge and Associate
Judges shall comprise a Division pending the constitution of the
entire Court.
348
TAX PRINCIPLES A N D R E M E D I E S
SEC. 16. Appropriations. — The amount necessary to cany
out the provisions of this Act shall be included in the General
Appropriations Act of the year following its enactment into law
and thereafter.
SEC. 17. Repealing Clause. — All laws, executive orders,
executive issuances or letter of instructions, or any part thereof,
inconsistent with or contrary to the provisions of this Act are
hereby deemed repealed, amended or modified accordingly.
SEC. 18. Separability Clause. — If for any reason, any section
or provision of this Act shall be declared unconstitutional or
invalid, the other parts thereof not affected thereby shall remain
valid.
SEC. 19. Effectivity Clause. - This Act shall take effect
after fifteen (15) days following its publication in at least (2)
newspapers of general circulation.
Approved,
(Sgd.) JOSE DE VENECIA, JR. (Sgd.) FRANKLIN M. DRILON
Speaker
of
the
House
President of the Senate
of the Representatives
This Act which is a consolidation of S. No. 2712 and H.
No. 6673 was finally passed by the Senate and the House of
Representatives on December 8, 2003 and February 2, 2004,
respectively.
(Sgd.) ROBERTO P. NAZARENO
Secretary General
House of Representatives
(Sgd.) OSCAR G. YABES
Secretary of the Senate
Approved: MARCH 30, 2004
(Sgd.) GLORIA MACAPAGAL-ARROYO
President of the Philippines
APPENDIX "I"
2011 BAR COVERAGE FOR TAXATION
I.
General Principles of Taxation
A.
Definition and Concept of Taxation
B.
Nature of Taxation
C.
Characteristics of Taxation
D.
Power of Taxation Compared With Other Powers
E.
F.
1.
Police Power
2.
Power of Eminent Domain
Purpose of Taxation
1.
Re venue-raising
2.
Non-revenue/special or regulatory
Principles of Sound Tax System
1.
G.
Fiscal Adequacy
2.
Administrative Feasibility
3.
Theoretical Justice
Theory and Basis of Taxation
1.
Lifeblood Theory
2.
Necessity Theory
3.
Benefits-Protection Theory (Symbiotic Relationship)
4.
Jurisdiction over subject and objects
349
TAX PRINCIPLES A N D R E M E D I E S
Doctrines in Taxation
1.
Prospectivity of tax laws
2.
Imprescriptibility
3.
Double taxation
a.
4.
Broad sense
c.
Constitutionality of double taxation
d.
Modes of eliminating double taxation
Escape from taxation
a.
5.
Strict sense
b.
Shifting of tax burden
1)
Ways of shifting the tax burden
2)
Taxes that can be shifted
3)
Meaning of impact and incidence of
taxation
b.
Tax avoidance
c.
Tax evasion
Exemption from taxation
a.
Meaning of exemption from taxation
b.
Nature of tax exemption
c.
Kinds of tax exemption
1)
2)
3)
Express
Implied
Contractual
d.
Rationale/grounds for exemption
e.
Revocation of tax exemption
6.
Compensation and Set-off
7.
Compromise
8.
Tax amnesty
a.
Definition
b.
Distinguished from tax exemption
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
9.
Construction and Interpretation of:
a.
b.
Tax laws
1)
General Rule
2)
Exception
Tax exemption and exclusion
1)
General Rule
2)
Exception
c.
Tax rules and regulations
d.
Penal provisions of tax laws
e.
Non-retroactive application to taxpayers
1)
1)
I.
351
General rule only
Exceptions
Scope and Limitation of Taxation
1.
Inherent Limitations
a.
Public Purpose
b.
Inherently Legislative
1)
2)
General Rule
Exceptions
a)
c.
Delegation to local governments
b)
Delegation to the President
c)
Delegation to administrative agencies
Territorial
1)
Situs of Taxation
a)
Meaning
b)
Situs of Income Tax
1)
From sources within the Philippines
2)
From sources without the
Philippines
TAX PRINCIPLES A N D R E M E D I E S
3)
c)
Income partly within and
partly without the Philippines
Situs of Property Taxes
(1) Taxes on Real Property
(2) Taxes on Personal Property
d)
Situs of Excise Tax
(1) Estate Tax
(2)
e)
Donor's Tax
Situs of Business Tax
(1)
Sale of Real Property
(2)
Sale of Personal Property
(3) VAT
d.
International Comity
e.
Exemption of Government Entities, Agencies, and Instrumentalities
Constitutional Limitations
a.
Provisions Directly Affecting Taxation
1)
Prohibition against imprisonment for
non-payment of poll tax
2)
Uniformity and equality of taxation
3)
Grant by Congress of authority to the
President to impose tariff rates
4)
Prohibition against taxation of religious,
charitable entities, and educational entities
5)
Prohibition against taxation of nonstock, non-profit institutions
6)
Majority vote of Congress for grant of
tax exemption
7)
Prohibition on use of tax levied for special purpose
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
8)
President's veto power on appropriation, revenue, tariff bills
9)
Non-impairment of jurisdiction of the
Supreme Court
10)
Grant of power to the local government
units to create its own sources of revenue
11)
Flexible tariff clause
12)
Exemption from real property taxes
13)
No appropriation or use of public money for religious purposes
b.
J.
K.
Provisions Indirectly Affecting Taxation
1)
Due process
2)
Equal protection
3)
Religious freedom
4)
Non-impairment of obligations of contracts
Stages of Taxation
1.
Levy
2.
Assessment and Collection
3.
Payment
4.
Refund
Definition, Nature, and Characteristics of Taxes
L.
Requisites of a valid tax
M.
Tax as distinguished from other forms of exactions
N.
353
1.
Tariff
2.
Toll
3.
License fee
4.
Special assessment
5.
Debt
Kinds of Taxes
354
TAX PRINCIPLES A N D R E M E D I E S
1.
2.
3.
4.
5.
6.
As to object
a.
Personal, capitation, or poll tax
b.
Property tax
c.
Privilege tax
As to burden or incidence
a.
Direct
b.
Indirect
As to tax rates
a.
Specific
b.
Ad valorem
c.
Mixed
As to purposes
a.
General or fiscal
b.
Special, regulatory, or sumptuary
As to scope or authority to impose
a.
National - internal revenue taxes
b.
Local - real property tax, municipal tax
As to graduation
a.
II.
Progressive
b.
Regressive
c.
Proportionate
National Internal Revenue Code of 1997 as amended (NIRC)
A.
Income Taxation
1.
2.
Income Tax Systems
a.
Global Tax System
b.
Schedular Tax System
c.
Semi-schedular or semi-global tax system
Features of the Philippine Income Tax Law
a.
Direct tax
b.
Progressive
•APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
3.
c.
Comprehensive
d.
Semi-schedular or semi-global tax system
Criteria in Imposing Philippine Income Tax
a.
Citizenship Principle
b.
Residence Principle
c.
Source Principle
4.
Types of Philippine Income Tax
5.
Taxable Period
6.
355
a.
Calendar Period
b.
Fiscal Period
c.
Short Period
Kinds of Taxpayers
a.
Individual Taxpayers
1)
2)
Citizens
a)
Resident citizens
b)
Non-resident citizens
Aliens
a)
Resident aliens
b)
Non-resident aliens
(1) Engaged in trade or business
(2) Not engaged in trade or business
3)
Special Class of Individual Employees
a)
b.
Minimum wage earner
Corporations
1)
Domestic corporations
2)
Foreign corporations
(1) Resident foreign corporations
c.
(2) Non-resident foreign corporations
Partnerships
TAX PRINCIPLES A N D R E M E D I E S
d.
7.
8.
General Professional Partnerships
e.
Estates and Trusts
f.
Co-ownerships
Income Taxation
a.
Definition
b.
Nature
c.
General principles
Income
a.
Definition
b.
Nature
c.
When income is taxable
d.
1)
Existence of income
2)
Realization of income
a)
Tests of Realization
b)
Actual vis-a-vis Constructive receipt
3)
Recognition of income
4)
Methods of accounting
a)
Cash method vis-a-vis Accrual
method
b)
Installment payment vis-a-vis
Deferred payment vis-a-vis
Percentage completion (in
long term contracts)
Tests in detenruning whether income is
earned for tax purposes
1)
Realization test
2)
Claim of right doctrine or Doctrine of
ownership, command, or control
3)
Economic benefit test. Doctrine of proprietary interest
4)
Severance test
357
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
9.
Gross Income
a. Definition
b. Concept of income from whatever source
derived
c.
Gross Income vis-a-vis Net Income vis-a-vis
Taxable Income
d.
Classification of Income as to Source
d.
1)
Gross income and taxable income from
sources within the Philippines
2)
Gross income and taxable income from
sources without the Philippines
3)
Income partly within or partly without
the Philippines
Sources of income subject to tax
1)
2)
Compensation Income
Fringe Benefits
a)
Special treatment of fringe benefits
b)
Definition
c)
Taxable and non-taxable fringe
benefits
3)
Professional Income
4)
Income from Business
5)
Income from Dealings in Property
a)
Types of Properties
(1) Ordinary assets
(2) Capital assets
b)
Types of Gains from dealings in
property
(1) Ordinary income
Capital gain
(2) Actual gain
sumed gain
vis-a-vis
vis-a-vis
Pre-
TAX PRINCIPLES A N D R E M E D I E S
(3)
Long term capital gain vis-avis Short term capital gain
(4)
Net capital gain, Net capital
loss
(5) Computation of the amount
of gain or loss
(a)
Cost or basis of the
property sold
(b) Cost or basis of the property exchanged in corporate readjustment
[1]
(c)
Merger
[2]
Consolidation
[3]
Transfer to a controlled corporation
(tax-free exchanges)
Recognition of gain or
loss in exchange of property
[1]
General rule
[a] Where no gain
or loss shall be
recognized
[2]
Exceptions
[a] Meaning
of
merger, consolidation, control securities
[b] Transfer of a
controlled corporation
(6)
Income tax treatment of capital loss
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
359
(a) Capital loss limitation
rule
(applicable
to
both corporations and
individuals)
(b) Net loss carry-over rule
(applicable only to individuals)
(7) Dealings in real property
situated in the Philippines
(8) Dealings in shares of stock of
Philippine corporations
(a) Shares listed and traded
in the stock exchange
(b) Shares not listed and
traded in the stock exchange
(9) Sale of principal residence
6)
Passive Investment Income
a)
Interest Income
b)
Dividend Income
(1) Cash dividend
(2) Stock dividend
(3) Property dividend
(4)
Liquidating dividend
c)
Royalty Income
d)
Rental Income
(1) Lease of personal property
(2) Lease of real property
(3) Tax treatment of
(a)
Leasehold improvements by lessee
(b) VAT added to rental/
paid by the lessee
360
TAX PRINCIPLES A N D R E M E D I E S
(c)
7)
Annuities, Proceeds from life insurance
or other types of insurance
8)
Prizes and awards
9)
Pensions, retirement benefit, or separation pay
10)
e.
Advance rental/long
term lease
Income from any source whatever
a)
Forgiveness of indebtedness
b)
Recovery of accounts previously
written off
c)
Receipt of tax refunds or credit
d)
Income from any source whatever
Source rules in detennining income from
within and without
1)
Interests
2)
Dividends
3)
Services
4)
Rentals
5)
Royalties
6)
Sale of real property
7)
Sale of personal property
8)
Shares of stock of domestic corporation
f.
Situs of Income Taxation (See page 2 under
Inherent Limitations, Territorial)
g.
Exclusions from Gross Income
1)
Rationale for the exclusions
2)
Taxpayers who may avail of the exclusions
3)
Exclusions distinguished from deductions and tax credit
4)
Under the Constitution
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
a)
5)
Income derived by the government or its political subdivisions
from the exercise of any essential
governmental function
Under the Tax Code
a)
h.
361
Proceeds of life insurance policies
b)
Return of premium paid
c)
Amounts received under life insurance, endowment or annuity
contracts
d)
Value of property acquired by gift,
bequest, devise or descent
e)
Amount received through accident
or health insurance
f)
Income exempt under tax treaty
g)
Retirement benefits, pensions, gratuities, etc.
h)
Winnings, prizes, and awards, including those in sports competition
6)
Under a Tax Treaty
7)
Under Special Laws
Deductions from Gross Income
1)
2)
General rules
a)
Deductions must be paid or incurred in connection with the taxpayer's trade, business or profession
b)
Deductions must be supported by
adequate receipts or invoices (except standard deduction)
Return of capital (cost of sales or services)
362
TAX PRINCIPLES A N D R E M E D I E S
3)
a)
Sale of inventory of goods by manufacturers and dealers of properties
b)
Sale of stock in trade by a real estate dealer and dealer in securities
c)
Sale of services
Itemized deductions
a)
Expenses
(1)
Requisites for deductibility
(a)
Nature: Ordinary and
necessary
(b)
Paid and incurred during taxable year
(2)
Salaries, wages and other
forms of compensation for
personal services actually
rendered,
including
the
grossed-up monetary value
of the fringe benefit subjected
to fringe benefit tax which tax
should have been paid
(3)
Traveling/Transportation
expenses
(4)
Cost of materials
(5)
Rentals and/or other payments for use or possession
of property
(6)
Repairs and maintenance
(7)
Expenses under lease agreements
(8)
Expenses for professionals
(9)
Entertainment expenses
(10)
Political campaign expenses
(11)
Training expenses
APPENDIX "I"
2011 BAR COVERAGE FOR TAXATION
b)
363
Interest
(1) Requisites for deductibility
(2) Non-deductible interest
expense
(3) Interest subject to special
rules
(a) Interest paid in advance
(b) Interest periodically amortized
(c) Interest expense incurred
to acquire property for
use in trade/business/
profession
c)
Taxes
(1) Requisites for deductibility
(2) Non-deductible taxes
(3) Treatments of surcharges /interests /fines for delinquency
(4) Treatment of special assessment
(5) Tax credit vis-a-vis deduction
d)
Losses
(1) Requisites for deductibility
(2) Other types of losses
(a) Capital losses
(b) Securities becoming
worthless
(c) Losses on wash sales of
stocks or securities
(d) Wagering losses
e)
(e) NOLCO
Bad debts
(1) Requisites for deductibility
364
TAX PRINCIPLES A N D R E M E D I E S
f)
g)
h)
Depreciation
(1)
Requisites for deductibility
(2)
Methods of computing depreciation allowance
(a)
Straight-line method
(b)
Declining-balance
method
(c)
Sum-of-the-years-digit
method
Charitable and other contributions
(1)
Requisites for deductibility
(2)
Amount that may be
deducted
Contributions to pension trusts
(1)
Requisites for deductibility
Optional standard deduction
a)
Individuals, except non-resident
aliens
b)
Corporations, except non-resident
foreign corporations
Personal and additional exemption (Republic Act 9504 Minimum Wage Earner
Law)
a)
Basic personal exemptions
b)
Additional exemptions for taxpayer with dependents
c)
Status-at-the-end-of-the-year rule
Items not deductible
a)
General rules
b)
Personal, living or family expenses
c)
Amount paid for new buildings
or for permanent improvements
(capital expenditures)
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
365
d)
Amount expended in restoring
property (major repairs)
e)
Premiums paid on life insurance
policy covering life or any other
officer or employee financially interested
f)
Interest expense, bad debts, and
losses from sales of property
between related parties
g)
Losses from sales or exchange or
property
h)
Non-deductible interest
i)
Non-deductible taxes
j)
Non-deductible losses
k)
Losses from wash sales of stock or
securities
i. Exempt Corporations
Taxation of Resident Citizens, Non-resident Citizens, and Resident Aliens
a.
General rule: Resident citizens - Taxable on
income from all sources within and without
the Philippines
b.
Taxation on Compensation Income
1)
Inclusions
a)
Monetary compensation
(1) Regular salary / wage
(2) Separation pay / retirement
benefit not otherwise exempt
(3) Bonuses, 13th month pay, and
other benefits not exempt
(4) Director's fees
b)
Non-monetary compensation
(1) Fringe benefit not subject tax
TAX PRINCIPLES A N D R E M E D I E S
2)
3)
Exclusions
a)
Fringe benefit subject to tax
b)
De minimis benefits
c)
13th month pay and other benefits
and payments specifically excluded from taxable compensation income
Deductions
a)
Personal exemptions and additional exemptions
b)
Health and hospitalization insurance
c)
Taxation of compensation income
of a minimum wage earner
(1)
Definition of Statutory Minimum Wage
(2)
Definition of Minimum Wage
Earner
(3)
Income also subject to tax exemption: holiday pay, overtime pay, night shift differential, and hazard pay
Taxation of Business Income/Income from
Practice of Profession
Taxation of Passive Income
1)
Passive income subject to final tax
a)
2)
Interest income
b)
Royalties
c)
Dividends from domestic corporation
d)
Prizes and other winnings
Passive income not subject to final tax
Taxation of capital gains
APPENDIX "V
2011 BAR COVERAGE FOR TAXATION
1)
11.
367
Income from sale of shares of stock of a
Philippine corporation
a)
Shares traded and listed in the
stock exchange
b)
Shares not listed and traded in the
stock exchange
2)
Income from the sale of real property
situated in the Philippines
3)
Income from the sale, exchange, or
other disposition of other capital assets
Taxation of Non-resident Aliens Engaged in Trade
or Business
a.
General rules
b.
Cash and/or property dividends
c.
Capital gains
12. Exclude Non-resident Aliens Not Engaged in
Trade or Business
13. Individual Taxpayers Exempt from Income Tax
a.
Senior citizens
b.
Exemptions granted under international
agreements
14. Taxation of Domestic Corporations
a.
Tax payable
1)
Regular tax
2)
Minimum corporate income tax (MCIT)
a)
Imposition of MCIT
b)
Carry forward of excess minimum
tax
c)
Relief from the MCIT under certain conditions
d)
Corporations exempt from the
MCIT
TAX PRINCIPLES A N D R E M E D I E S
e)
Applicability of the MCIT where a
corporation is governed both under the regular tax system and a
special income tax system
Allowable deductions
1)
Itemized deductions
2)
Optional standard deduction
Taxation of Passive Income
1)
2)
Passive income subject to tax
a)
Interest from deposits and yield or
any other monetary benefit from
deposit substitutes and from trust
funds and similar arrangements
and royalties
b)
Capital gains from the sale of
shares of stock not traded in the
stock exchange
c)
Income derived under the expanded foreign currency deposit system
d)
Intercorporate dividends
e)
Capital gains realized from the
sale, exchange, or disposition of
lands and /or buildings
Passive income not subject to tax
Taxation of Capital Gains
1)
Income from sale of shares of stock
2)
Income from the sale of real property
situated in the Philippine
3)
Income from the sale, exchange, or other disposition of other capital assets
Tax on proprietary educational institutions
and hospitals
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
f.
369
Tax on government-owned or controlled
corporations, agencies or instrumentalities
15. Taxation of Resident Foreign Corporations
a.
General rule
b.
With respect to their income from sources
within the Philippines
c.
Minimum corporate income tax
d.
Tax on certain income
(1)
Interest from deposits and yield or any
other monetary benefit from deposit
substitutes, trust funds and similar arrangements and royalties
(2) Income derived under the expanded
foreign currency deposit system
(3) Capital gain from sale of shares of stock
not traded in the stock exchange
(4) Intercorporate dividends
e.
Exclude:
(1) International carrier
(2) Offshore banking units
(3) Branch profits remittances
(4) Regional or area headquarters and
Regional operating headquarters of
multinational companies
16. Taxation of Non-resident Foreign Corporations
a.
General rule
b.
Tax on certain income
c.
(1)
Interest on foreign loans
(2)
Intercorporate dividends
(3) Capital gains from sale of shares of
stock not traded in the stock exchange
Exclude:
TAX PRINCIPLES A N D R E M E D I E S
370
(1)
Non-resident
cinematographic film
owner, lessor or distributor
(2)
Non-resident owner or lessor of vessels
chartered by Philippine nationals
(3)
Non-resident owner or lessor of aircraft
machineries and other equipment
17. Improperly Accumulated Earnings of Corporations
18. Exemption from tax on corporations
19. Taxation of Partnerships
20. Taxation of General Professional Partnerships
21. Taxation on Estates and Trusts
a)
Application
b)
Exception
c)
Determination of tax
1)
Consolidation of income of two or more
trusts
2)
Taxable income
3)
Revocable trusts
4)
Income for benefit of grantor
5)
Meaning of "in the discretion of the
grantor"
22. Withholding tax
a.
Concept
b.
Kinds
c.
1)
Withholding of final tax on certain incomes
2)
Withholding of creditable tax at source
Withholding on wages
1)
Requirement for withholding
2)
Tax paid by recipient
3)
Refunds or credits
APPENDIX "I"
2011 BAR COVERAGE FOR TAXATION
d.
e.
4)
Year-end adjustment
5)
Liability for tax
Withholding of VAT
Filing of return and payment of taxes
withheld
1) Return and payment in case of government employees
2)
Statements and returns
f.
Final withholding tax at source
g.
Creditable withholding tax
h.
B.
371
1)
Expanded withholding tax
2)
Withholding tax on compensation
Fringe benefit tax
Estate Tax
1.
Basic principles
2.
Definition
3.
Nature
4.
Purpose or object
5.
Time and transfer of properties
6.
Classification of decedent
7.
Gross estate vis-a-vis Net estate
8.
Determination of gross estate and net estate
9.
Composition of gross estate
10.
Items to be included in gross estate
11.
Deductions from estate
12.
Exclusions from estate
13.
Tax credit for estate taxes paid in a foreign country
14.
15.
Exemption of certain acquisitions and transmissions
Filing of notice of death
16.
Estate tax return
372
TAX PRINCIPLES A N D R E M E D I E S
C.
Donor's Tax
1.
Definition
3.
Nature
4.
Purpose or object
5.
Requisites of valid donation
6.
Transfers which may be constituted as donation
a.
Sale/exchange/transfer of
insufficient consideration
property
b.
Condonation/ remission of debt
for
7.
Transfer for less than adequate and full consideration
8.
Classification of donor
9.
D.
Basic principles
2.
Determination of gross gift
10.
Composition of gross gift
11.
Valuation of gifts made in property
12.
Tax credit for donor's taxes paid in a foreign
country
13.
Exemptions of gifts from donor's tax
14.
Person liable
15.
Tax basis
Value-Added Tax (VAT)
1.
Concept
2.
Characteristics
Impact of tax
3.
4.
5.
6.
7.
8.
Incidence of tax
Tax credit method
Destination principle
Persons liable
VAT on sale of goods or properties
a.
Requisites of taxability of sale of goods or
properties
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
9.
10.
373
Zero-rated sales of goods or properties, and
effectively zero rated sales of goods or properties
Transactions deemed sale
a.
Transfer, use or consumption not in the
course of business of goods/properties originally intended for sale or use in the course
of business
b.
Distribution or transfer to shareholders,
investors or creditors
c.
Consignment of goods if actual sale not made
within 60 days from date of consignment
d.
Retirement from or cessation of business
with respect to inventories on hand
11. Change or cessation of status as VAT-registered
person
a.
b.
Subject to VAT
1)
Change of business activity from VAT
taxable status to VAT-exempt status
2)
Approval of request for cancellation of a
registration due to reversion to exempt
status
3)
Approval of request for cancellation
of registration due to desire to revert
to exempt status after lapse of 3
consecutive years
Not subject to VAT
1)
Change of control of a corporation
2)
Change in the trade or corporate name
3) Merger or consolidation of corporations
12. VAT on importation of goods
a.
Transfer of goods by tax exempt persons
13. VAT on sale of service and use or lease of properties
a.
Requisites for taxability
374
TAX P R I N C I P L E S A N D R E M E D I E S
14. Zero-rated sale of services
15. VAT exempt transactions
a.
VAT exempt transactions, in general
b.
Exempt transaction, enumerated
16. Input tax and output tax, defined
17. Sources of input tax
a.
Purchase or importation of goods
b.
Purchase of real properties for which a VAT
has actually been paid
c.
Purchase of services in which VAT has
actually been paid
d.
Transactions deemed sale
e.
Transitional input tax
f.
Presumptive input tax
g.
Transitional input tax credits allowed under
the transitory and other provisions of the
regulations
18. Persons who can avail of input tax credit
19. Determination of output/input tax; VAT payable;
Excess input tax credits
a.
Determination of output tax
b.
Determination of input tax creditable
c.
Allocation of input tax on mixed transactions
d.
Determination of the output tax and VAT
payable and computation of VAT payable or
excess tax credits
20. Substantiation of input tax credits
21.
Refund or tax credit of excess input tax
a.
Who may claim for refund/apply for
issuance of tax credit certificate (TCC)
b.
Period to file claim/apply for issuance of
TCC
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
375
c.
Manner of giving refund
d.
Destination principle or Cross-border doctrine
22. Invoicing requirements
a.
Invoicing requirements in general
b.
Invoicing and recording deemed sale transactions
c.
Consequences of issuing erroneous VAT
invoice or VAT official receipt
23. Filing of return and payment
24. Withholding of final VAT on sales to government
E.
Compliance Requirements (Internal Revenue Taxes)
1.
Administrative requirements
a.
Registration requirements
1)
2)
b.
3)
Transfer of registration
4)
Other updates
5)
Cancellation of registration
6)
Power of the Commissioner to suspend
the business operations of any person
who fails to register
Persons required to register for VAT
1)
c.
Annual registration fee
Registration of each type of internal
revenue tax
Optional registration for VAT of exempt
person
2)
Cancellation of VAT registration
3)
Changes in or cessation of status of a
VAT-registered person
Supplying taxpayer identification number
(TIN)
TAX PRINCIPLES A N D R E M E D I E S
d.
Issuance of receipts or sales or commercial
invoices
1)
2)
Printing of receipts or sales or commercial invoices
Invoicing requirements for VAT
a)
Information contained in the VAT
invoice or VAT official receipt
b)
Consequences of issuing erroneous VAT invoice or official receipts
e.
Exhibition of certificate of payment at place
of business
f.
Continuation of business of deceased person
g.
Removal of business to other location
Tax returns
a.
Income Tax Returns
1)
Individual Tax Returns
a)
Filing of individual tax returns
(1)
(2)
2)
Who are required to file
(a)
Return of husband and
wife
(b)
Return of parent to include income of children
(c)
Return of persons under
disability
Who are not required to file
b)
Where to file
c)
When to file
Corporate Returns
a)
Requirement for filing returns
(1)
Declaration of quarterly corporate income tax
(a) Place of filing
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
377
(b) Time of filing
(2) Final adjustment return
(a) Place of filing
(b) Time of filing
3)
b.
(4)
Extension of time to file return
b)
Return of corporation contemplating dissolution or reorganization
c)
Return on capital gains realized
from sale of shares of stock not
traded in the local stock exchange
Returns of receivers, trustees in bankruptcy or assignees
Returns of general partnerships
5)
Fiduciary returns
Estate Tax Returns
1)
Notice of death to be filed
2)
Estate tax returns
a)
Requirements
b)
Time of filing and extension of
time
c)
Place of filing
Discharge of executor or administrator
from personal liability
a)
d.
Taxable year of corporations
4)
3)
c.
(3)
Definition of deficiency
Donor's Tax Returns
1)
Requirements
2)
Time and place of filing
VAT Returns
1)
In general
2)
Where to file the return
TAX PRINCIPLES A N D R E M E D I E S
e.
3.
Withholding Tax Returns
1)
Quarterly returns and payments of
taxes withheld
2)
Annual information return
Tax payments
a.
b.
Income Taxes
1)
Payment, in general; time of payment
2)
Installment payment
3)
Payment of capital gains tax
Estate Taxes
1)
Time of payment
2)
Liability for payment
a)
3)
Extension of time
a)
Discharge of executor or administrator from personal liability
b)
Definition of deficiency
Payment before delivery by executor or
administrator
a)
Payment of tax antecedent to the
transfer of shares, bonds or rights
4)
Duties of certain officers and debtors
5)
Restitution of tax upon satisfaction of
outstanding obligations
c.
Donor's Taxes
d.
VAT
1)
Time and place of payment
1)
Payment of VAT
2)
Where to pay the VAT
Tax Remedies under the NIRC
1.
Taxpayer's Remedies
a.
Assessment
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
1)
2)
Concept of assessment
a)
Requisites for valid assessment
b)
Constructive methods of income
determination
c)
Inventory method for income determination
d)
Jeopardy assessment
e)
Tax delinquency and tax deficiency
Power of the Commissioner to make
assessments and prescribe additional
requirements for tax administration
and enforcement
a)
3)
Power of the Commissioner to obtain information, and to summon/
examine, and take testimony of
persons
When assessment is made
a)
Prescriptive period for assessment
(1)
b)
4)
5)
379
False, fraudulent, and
non-filing of returns
Suspension of running
statute of limitations
of
General provisions on additions to the
tax
a)
Civil penalties
b)
Interest
Assessment process
a)
Tax audit
b)
Notice of informal conference
c)
Issuance of preliminary assessment notice (PAN)
TAX P R I N C I P L E S A N D R E M E D I E S
6)
d)
Notice of informal conference
e)
Issuance of preliminary assessment notice (PAN)
0
Exceptions to Issuance of PAN
g)
Reply to PAN
h)
Issuance of formal letter of demand and assessment notice /final
assessment notice
i)
Disputed assessment
j)
Administrative decision on a disputed assessment
Protesting assessment
a)
7)
Protest of assessment by taxpayer
(1)
Protested assessment
(2)
When to file a protest
(3)
Forms of protest
b)
Submission of documents within
60 days from filing of protest
c)
Effect of failure to protest
Rendition of decision by Commissioner
a)
Denial of protest
(1)
(2)
8)
CIR's actions equivalent to
denial of protest
(a)
Filing of criminal action
against taxpayer
(b)
Issuing a warrant of distraint and levy
Inaction by Commissioner
Remedies of taxpayer to action by Commissioner
a)
In case of denial of protest
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
b.
381
b)
In case of inaction by Commissioner within 180 days from submission of documents
c)
Effect of failure to appeal
Collection
1)
Requisites
2)
Prescriptive periods
3)
Distraint of personal property including garnishment
a)
Summary remedy of distraint of
personal property
(1) Procedure for distraint and
garnishment
(2) Sale of property distrained
and disposition of proceeds
(a) Release of distrained
property upon payment
prior to sale
(3) Purchase by the government
at sale upon distraint
(4) Report of sale to BIR
(5)
4)
Summary remedy of levy on real property
a)
5)
Constructive distraint to protect the interest of the government
Advertisement and sale
b)
Redemption of property sold
c)
Final deed of purchaser
Forfeiture to government for want of
bidder
a)
Remedy of enforcement of forfeitures
TAX PRINCIPLES A N D R E M E D I E S
(1)
Action to contest forfeiture of
chattel
b)
Resale of real estate taken for taxes
c)
When property to be sold or
destroyed
d)
Disposition of funds recovered
in legal proceedings or obtained
from forfeiture
6)
Further distraint or levy
7)
Tax lien
8)
Compromise
a)
9)
Authority of the Commissioner to
compromise and abate taxes
Civil and criminal actions
a)
Suit to recover tax based on false
or fraudulent returns
Refund
1)
Grounds and requisites for refund
2)
Requirements for refund as laid down
by cases
a)
Necessity of written claim for refund
b)
Claim containing a categorical demand for reimbursement
c)
Filing of administrative claim for
refund and the suit/proceeding
before the CTA within 2 years from
date of payment regardless of any
supervening cause
3)
Legal basis of tax refunds
4)
Statutory basis for tax refund under the
Tax Code
a)
Scope of claims for refund
APPENDIX "I"
2011 BAR COVERAGE FOR TAXATION
b)
c)
5)
Nature of erroneously paid tax / illegally assessed collected
e)
Tax refund vis-a-vis tax credit
f)
Essential requisites for claim of refund
Who may claim/apply for tax refund/
tax credit
Taxpayer/withholding agents of
non-resident foreign corporation
6)
Prescriptive period for recovery of tax
erroneously or illegally collected
7)
Other consideration affecting tax refunds
Government Remedies
a.
b.
3.
Necessity of proof for claim or refund
Burden of proof for claim of refund
d)
a)
2.
383
Administrative remedies
1)
Tax lien
2)
Levy and sale of real property
3)
Forfeiture of real property to the government for want of bidder
4)
Further distraint and levy
5)
Suspension of business operation
6)
Non-availability of injunction to restrain collection of tax
Judicial remedies
Statutory Offenses and Penalties
a.
Civil penalties
1)
Surcharge
2)
Interest
a)
In General
TAX PRINCIPLES A N D R E M E D I E S
4.
G.
Deficiency interest
c)
Delinquency interest
d)
Interest on extended payment
Compromise and Abatement of taxes
a.
Compromise
b.
Abatement
Organization and Function of the Bureau of Internal
Revenue
1.
2.
III.
b)
Rule-making authority of the Secretary of Finance
a.
Authority of secretary of finance
promulgate rules and regulations
to
b.
Specific provisions to be contained in rules
and regulations
c.
Non-retroactivity of rulings
Power of the Commissioner to suspend the
business operation of a taxpayer
Local Government Code of 1991, as amended
A.
Local Government Taxation
1.
Fundamental principles
2.
Nature and source of taxing power
3.
a.
Grant of local taxing power under the Local
Government Code
b.
Authority to prescribe penalties for tax
violations
c.
Authority to grant local tax exemptions
d.
Withdrawal of exemptions
e.
Authority to adjust local tax rates
f.
Residual taxing power of local governments
g.
Authority to issue local tax ordinances
Local taxing authority
a.
Power to create revenues exercised thru
LGUs
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
b.
385
Procedure for approval and errecnvity of tax
ordinances
Scope of taxing power
Specific taxing power of local government unit
(LGUs)
a. Taxing powers of provinces
1)
Tax on transfer of real property ownership
2)
Tax on business of printing and publication
3)
Franchise tax
4)
Tax on sand, gravel and other quarry
services
5)
Professional tax
6)
Amusement tax
7)
Tax on delivery truck/van
b.
Taxing powers of cities
c.
Taxing powers of municipalities
1)
Tax on various types of businesses
2)
Ceiling on business tax impossible on
municipalities within Metro Manila
3)
Tax on retirement on business
4)
Rules on payment of business tax
5)
Fees and charges for regulation & licensing
6)
Situs of tax collected
d.
Taxing powers of barangays
e.
Common revenue raising powers
1)
f.
Service fees and charges
2)
Public utility charges
3)
Toll fess or charges
Community tax
386
TAX PRINCIPLES A N D R E M E D I E S
6.
Common limitations on the taxing powers of
7.
Collection of business tax
LGUs
a.
8.
Accrual of tax
c.
Time of payment
d.
e.
Penalties on unpaid taxes, fees or charges
Authority of treasurer in collection and
inspection of books
Taxpayer's remedies
a.
9.
Tax period and manner of payment
b.
Periods of assessment and collection of local
taxes, fees or charges
b.
Protest of assessment
c.
Claim for refund of tax credit for erroneously
or illegally collected tax, fee or charge
Civil remedies by the LGU for collection of
revenues
a.
Local government's lien for delinquent taxes,
fees or charges
b.
Civil remedies, in general
c.
d.
1)
Administrative action
2)
Judicial action
Procedure for administrative action
1)
Distraint of personal property
2)
Levy of real property, procedure
3)
Further distraint or levy
4)
Exemption of personal property from
distraint or levy
5)
Penalty on local treasurer for failure to
issue and execute warrant of distraint
or levy
Procedure for judicial action
APPENDIX " I "
2011 BAR COVERAGE FOR TAXATION
B.
387
Real Property Taxation
1.
Fundamental principles
2.
Nature of real property tax
3.
4.
Imposition of real property tax
a.
Power to levy real property tax
b.
Exemption from real property tax
Appraisal and assessment of real property tax
a.
Rule on appraisal of real property at fair
market value
b.
Declaration of real property
c.
Listing of real property in assessment rolls
d.
Preparation of schedules of fair market value
e.
Authority of assessor to take evidence
Amendment of schedule of fair market
value
Classes of real property
f.
Actual use of property as basis of assessment
g.
Assessment of real property
h.
5.
1)
2)
1)
Assessment levels
2)
General revisions of assessments and
property classification
3)
Date of effectivity of assessment or reassessment
4)
Assessment of property subject to back
taxes
5)
Notification of new or revised assessment
Appraisal and assessment of machinery
Collection of real property tax
a.
Date of accrual of real property tax
b.
Collection of tax
TAX PRINCIPLES A N D R E M E D I E S
386
1)
Collecting authority
2)
Duty of assessor to furnish local treasurer with assessment rolls
3)
Notice of time for collection of tax
c.
Periods within which to collect real property
tax
d.
Special rules on payment
1)
e.
6.
7.
Payment of real property tax in installments
2)
Interests on unpaid real property tax
3)
Condonation of real property tax
Remedies of LGUs for collection of real
property tax
1)
Issuance of notice of delinquency for
real property tax payment
2)
Local government's lien
3)
Remedies in general
4)
Resale of real estate taken for taxes, fees
or charges
5)
Further levy until full payment of
amount due
Refund or credit of real property tax
a.
Payment under protest
b.
Repayment of excessive collections
Taxpayer's remedies
a.
Contesting an assessment of value of real
property
1)
Appeal to the Local Board of Assessment Appeals (LBAA)
2)
Appeal to the Central Board of Assessment Appeals (CBAA)
3)
Effect of payment of tax
APPENDIX T
2011 BAR COVERAGE FOR TAXATION
b.
389
Payment of real property under protest
1)
File protest with local treasurer
2)
Appeal to the LBSS
3)
Appeal to the CBAA
4)
Appeal to the CTA
5)
Appeal to the SC
Tariff and Customs Code of 1978, as amended (TCC)
A.
Tariff and duties, defined
B.
General rule: All imported articles are subject to duty.
Importation by the government taxable.
C.
Purpose for imposition
D.
Flexible tariff clause
E.
Requirements of importation
F.
G.
H.
1.
Beginning and ending of importation
2.
Obligations of importer
a.
Cargo manifest
b.
Import entry
c.
Declaration of correct weight or value
d.
Liability for payment of duties
e.
Liquidation of duties
f.
Keeping of records
Importation in violation of TCC
1.
Smuggling
2.
Other fraudulent practices
Classification of goods
1.
Taxable importation
2.
Prohibited importation
3.
Conditionally-free importation
Classification of duties
1.
Ordinary / Regular duties
390
TAX P R I N C I P L E S A N D R E M E D I E S
a.
Ad valorem; Methods of valuation
1)
b.
2.
I.
J.
Transaction value
2)
Transaction value of identical goods
3)
Transaction value of similar goods
4)
Deductive value
5)
Computed value
6)
Fallback value
Specific
Special duties
a.
Dumping duties
b.
Countervailing duties
c.
Marking duties
d.
Retaliatory/Discriminatory duties
e.
Safeguard
Drawbacks
Remedies
1.
Government
a.
Administrative / Extrajudicial
b.
Judicial
1)
1)
2.
Search, seizure, forfeiture, arrest
Rules on appeal including jurisdiction
Taxpayer
a.
V.
Protest
b.
Abandonment
c.
Abatement and refund
Judicial Remedies; Republic Act 1125-The Act that Created
the Court of Tax Appeals (CTA), as amended, and the
Revised Rules of the Court of Tax Appeals
A. Jurisdiction of the Court of Tax Appeals
1.
Exclusive appellate jurisdiction over civil tax
cases
APPENDIX "I"
2011 BAR COVERAGE FOR TAXATION
391
a.
2.
Cases within the jurisdiction of the Court en
banc
b. Cases within the jurisdiction of the Court in
divisions
Criminal cases
a. Exclusive original jurisdiction
b.
B.
Exclusive appellate jurisdiction in criminal
cases
Judicial Procedures
1.
Judicial action for collection of taxes
a.
Internal revenue taxes
b.
Local taxes
1)
2.
Prescriptive period
Civil cases
a.
Who may appeal, mode of appeal, effect of
appeal
1)
Suspension of collection of tax
a)
3.
Injunction not available to restrain
collection
2)
Taking of evidence
3)
Motion for reconsideration or New trial
b.
Appeal to the CTA, en banc,
a.
Petition for review on certiorari to the
Supreme Court
Criminal cases
a.
Institution and prosecution of criminal
actions
1)
b.
Institution on civil action in criminal action
Appeal and period to appeal
1)
Solicitor General as counsel for the People and government officials sued in
their official capacity
TAX PRINCIPLES A N D R E M E D I E S
c.
Petition for review on certiorari to the
Supreme Court
Taxpayer's suit impugning the validity of tax measures
or acts of taxing authorities
a.
Taxpayer's suit, defined
b.
Distinguished from citizen's suit
c.
Requisites for challenging the constitutionality of
a tax measure or act of taxing authority
1)
Concept of locus standi as applied in taxation
2)
Doctrine of transcendental importance
3)
Ripeness for judicial determination
APPENDIX "J"
B A R EXAMINATIONS Q U E S T I O N IN TAXATION
2010 B A R E X A M I N A T I O N Q U E S T I O N
PARTI
I
True or False.
A.
In civil cases involving the collection of internal revenue
taxes, prescription is construed strictly against the
government and liberally in favor of the taxpayer. (1%)
B.
In criminal cases involving tax offenses punishable under
the National Internal Revenue Code (NIRC), prescription is
construed strictly against the government. (1%)
C.
In criminal cases where the Court of Tax Appeals (CTA) has
exclusive original jurisdiction, the right to file a separate
civil action for the recovery of taxes may be reserved. (1%)
D.
Proceedings before the CTA in the exercise of its exclusive
original jurisdiction are in the nature of trial de novo. (1%)
E.
Judgments, resolutions or orders of the Regional Trial Court
in the exercise of its original jurisdiction involving criminal
offenses arising from violations of the NIRC are appealable
to the CTA, which shall hear the cases en banc. (1%)
A.
What is the "all events test?" Explain briefly. (2%)
II
B.
What is the "immediacy test?" Explain briefly. (2%)
C.
What is the "rational basis" test? Explain briefly. (2%)
393
394
TAX PRINCIPLES A N D R E M E D I E S
D.
What is the effect of the execution by a taxpayer of a "waiver
of the statute of limitations" on his defense of prescription?
(2%)
E.
What is the basis for the computation of business tax on
contractors under the Local Government Code? (2%)
F.
How are retiring businesses taxed under the Local
Government Code? (2%)
III
Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its taxable year 2008 on April 15,2009. In the
Return, it reflected an income tax overpayment of P1,000,000.00
and indicated its choice to carry-over the overpayment as an
automatic tax credit against its income tax liabilities in subsequent years.
On April 15, 2010, it filed its Annual Income Tax Return
for its taxable year 2009 reflecting a taxable loss and an income
tax overpayment for the current year 2009 in the amount of
P500,000.00 and its income tax overpayment for the prior year
2008 of P1,000,000.00.
In its 2009 Return, the corporation indicated its option to
claim for refund the total income tax overpayment of Pl,500,000.00
Choose which of the following statements is correct.
A.
Mirador, Inc. may claim as refund the total income tax
overpayment of Pl,500,000.00 reflected in its income tax
return for its taxable year 2009;
B.
It may claim as refund the amount of P500,000.00
representing its income tax overpayment for its taxable year
2009; or
C.
No amount may be claimed as refund.
Explain the basis of your answer. (5%)
IV
On March 10, 2010, Continental, Inc. received a preliminary
assessment notice (PAN) dated March 1, 2010 issued by the
APPENDIX "]"
BAR EXAMINATIONS QUESTIONS IN TAXATION
395
Commissioner of Internal Revenue (CIR) for deficiency income
tax for its taxable year 2008. It failed to protest the PAN. The
CIR thereupon issued a final assessment notice (FAN) with
letter of demand on April 30, 2010. The FAN was received by
the corporation on May 10, 2010, following which or on May 25,
2010, it filed its protest against it.
The CIR denied the protest on the ground that the assessment
had already become final and executory, the corporation having
failed to protest the PAN. Is the CIR correct? Explain. (5%)
V
Does the Court of Appeals have the power to review
compromise agreements forged by the Commissioner of Internal
Revenue and a taxpayer? Explain. (5%)
VI
Based on the Affidavit of the Commissioner of Internal
Revenue (CIR), an Information for failure to file income tax
return under Section 255 of the National Internal Revenue Code
(NIRC) was filed by the Department of Justice (DOJ) with the
Manila Regional Trial Court (RTC) against XX, a Manila resident.
XX moved to quash the Information on the ground that
the RTC has no jurisdiction in view of the absence of a formal
deficiency tax assessment issued by the CIR. Is a prior assessment
necessary before an Information for violation of Section 255 of
the NIRC could be filed in court? Explain. (4%)
VII
What are the conditions that must be complied with before
the Court of Tax Appeals may suspend the collection of national
internal revenue taxes? (3%)
VIII
What is the rule on appeal from decisions of the Collector
of Customs in protest and seizure cases? When is the decision of
the Collector of Customs appealable to the Court of Tax Appeals?
Explain. (5%)
TAX PRINCIPLES AND REMEDIES
IX
On May 15, 2009, La Manga Trading Corporation received
a deficiency business tax assessment of PI,500,000.00 from the
Pasay City Treasurer. On June 30,2009, the corporation contested
the assessment by filing a written protest with the City Treasurer.
On October 10, 2009, the corporation received a collection
letter from the City Treasurer, drawing it to file on October 25,
2009 an appeal against the assessment before the Pasay Regional
Trial Court (RTC).
A.
Was the protest of the corporation filed on time? Explain.
(3%)
B.
Was the appeal with the Pasay RTC filed on time? Explain.
(3%)
PART II
X
True or False. (1% each)
A.
Gains realized by the investor upon redemption of shares of
stock in a mutual fund company are exempt from income
tax.
B.
A corporation can claim the optional standard deduction
equivalent to 40% of its gross sales or receipts, as the case
may be.
C.
Premium payment for health insurance of an individual
who is an employee in an amount of P2,500 per year may be
deducted from gross income if his gross salary per year is
not more than P250,000.
D.
The Tax Code allows an individual taxpayer to pay in two
equal installments, the first installment to be paid at the
time the return is filed, and the second on or before July 15
of the same year, if his tax due exceeds P2,000.
E.
An individual taxpayer can adopt either the calendar or
fiscal period for purposes of filing his income tax return.
APPENDIX " J "
BAR EXAMINATIONS QUESTIONS IN TAXATION
397
F.
The capitalization rules may be resorted to by the BIR in
order to compel corporate taxpayers to declare dividends to
their stockholders regularly.
G.
Informer's reward is subject to a final withholding tax of
10%.
H.
A non-resident alien who stays in the Philippines for less
than 180 days during the calendar year shall be entitled
to personal exemption not to exceed the amount allowed
to citizens of the Philippines by the country of which he is
subject or citizen.
XI
Are the following transactions subject to VAT? If yes, what
is the applicable rate for each transaction. State the relevant
authority/ies for your answer.
A.
Construction by XYZ Construction Co. of concrete barriers
for the Asian Development Bank in Ortigas Center to
prevent car bombs from ramming the ADB gates along ADB
Avenue in Mandaluyong City. (3%)
B.
Call Center operated by a domestic enterprise in Makati that
handles exclusively the reservations of a hotel chain which
are all located in North America. The services are paid for
in US$ and duly accounted for with the Bangko Sentral ng
Pilipinas. (3%)
C.
Sale of orchids by a flower shop which raises its flowers in
Tagaytay. (3%)
XII
Ferremaro, Inc., a manufacturer of handcrafted shoes,
maintains its principal office in Cubao, Quezon City. It has
branches/sales offices in Cebu and Davao. Its factory is located
in Marikina City where most of its workers live. Its principal
office in Quezon City is also a sales office.
Sales of finished products for calendar year 2009 in the
amount of P10 million were made at the following locations:
398
TAX PRINCIPLES A N D R E M E D I E S
i)
Cebu branch
ii)
Davao branch
15%
iii)
Quezon City branch
60%
25%
Total
100%
Where should the applicable local taxes on the shoes be
paid? Explain. (3%)
XIII
XYZ Shipping Corporation is a branch of an international
shipping line with voyages between Manila and the West Coast
of the U.S. The company's vessels load and unload cargoes at
the Port of Manila, albeit it does not have a branch or sales office
in Manila. All the bills of lading and invoices are issued by the
branch office in Makati which is also the company's principal
office.
The City of Manila enacted an ordinance levying a 2% tax
on gross receipts of shipping lines using the Port of Manila.
Can the City Government of Manila legally impose said
levy on the corporation? Explain. (3%)
XIV
A inherited a two-storey building in Makati from his
father, a real estate broker in the '60s. A group of Tibetan monks
approached A and offered to lease the building in order to use it
as a venue for their Buddhist rituals and ceremonies. A accepted
the rental of PI million for the whole year.
The following year, the City Assessor issued an assessment
against A for non-payment of real property taxes.
Is the assessor justified in assessing A's deficiency real
property taxes? Explain. (3%)
XV
Don Sebastian, single but head of the family, Filipino, and
resident of Pasig City, died intestate on November 15, 2009. He
left the following properties and interests:
3
APPENDIX " J "
BAR EXAMINATIONS QUESTIONS IN TAXATION
House and lot (family home) in Pasig
P 800,000
Vacation house and lot in Florida, USA
1,500,000
Agricultural land in Naic, Cavite which
he inherited from his father
2,000,000
Car which is being used by his brother in
Cavite
9
9
500,000
Proceeds of life insurance where he named
his estate as irrevocable beneficiary
Household furnitures and appliances
Claims against a cousin who has assets of
P10,000 and liabilities of P100,000
Shares of stock in ABC Corp, a domestic
enterprise
1,000,000
1,000,000
100,000
100,000
The expenses and charges on the estate are as follows:
Funeral Expenses
P 250,000
Legal fees for the settlement of the estate
500,000
Medical expenses of last illness
600,000
Claims against the estate
300,000
The compulsory heirs of Don Sebastian approach you and
seek your assistance in the settlement of his estate for which they
have agreed to the above-stated professional fees. Specifically,
they request you to explain and discuss with them the following
questions. You oblige:
A.
What are the properties and interests that should be included
in the computation of the gross estate of the decedent?
Explain. (2.5%)
B.
What is the net taxable estate of the decedent? Explain.
(2.5%)
C.
When is the due date for filing and payment of the applicable
tax return and tax? Are these dates extendible? If so, under
what conditions or requirements? (2.5%)
400
D.
TAX PRINCIPLES A N D R E M E D I E S
If X, one of the compulsory heirs, renounces his share in
the inheritance in favor of the other co-heirs, is there any
tax implication of X's renunciation? What about the other
coheirs? (2.5%)
XVI
A is a iravelling salesman working full time for Nu Skin
Products. He receives a monthly salary plus 3% commission on
his sales in a Southern province where he is based. He regularly
uses his own car to maximize his visits even to far flung areas.
One fine day a group of militants seized his car. He was
notified the following day by the police that the marines and the
militants had a bloody encounter and his car was completely
destroyed after a grenade hit it.
A wants to file a claim for casualty loss. Explain the legal
basis of your tax advice. (3%)
XVII
In 2009, Caruso, a resident Filipino citizen, received
dividend income from a U.S.-based corporation which owns
a chain of Filipino restaurants in the West Coast, U.S.A. The
dividend remitted to Caruso is subject to U.S. withholding tax
with respect to a non-resident alien like Caruso.
A.
What will be your advice to Caruso in order to lessen the
impact of possible double taxation on the same income?
(3%)
B.
Would your answer in A. be the same if Caruso became
a U.S. immigrant in 2008 and had become a non-resident
Filipino citizen? Explain the difference in treatment for
Philippine income tax purposes. (3%)
XVIII
ABC, a domestic corporation, entered into a software
license agreement with XYZ, a non-resident foreign corporation
based in the U.S. Under the agreement which the parties forged
in the U.S., XYZ granted ABC the right to use a computer system
program and to avail of technical know-how relative to such
APPENDIX " J "
BAR EXAMINATIONS QUESTIONS IN TAXATION
401
program. In consideration for such rights, ABC agreed to pay
5% of the revenues it receives from customers who will use and
apply the program in the Philippines.
Discuss the tax implication of the transaction. (5%)
2009 BAR EXAMINATION QUESTION
PARTI
I
TRUE or FALSE. Answer TRUE if the statement is true, or
FALSE if the statement is false. Explain your answer in not more
than two (2) sentences. (5%)
[a] A law that allows taxes to be paid either in cash or in
kind is valid.
[b] When the financial position of the taxpayer demonstrates a clear inability to pay the tax, the Commissioner of Internal Revenue may validly compromise the tax liability.
[c] The doctrine of equitable recoupment allows a taxpayer
whose claim for refund has prescribed to offset tax liabilities
with his claim of overpayment.
[d] A law imposing a tax on income of religious institutions
derived from the sale of religious articles is valid.
[e] A false return and a fraudulent return are one and the
same.
II
Enumerate the four (4) inherent limitations on taxation.
Explain each item briefly. (4%)
III
Melissa inherited from her father a 300-square-meter lot. At
the time of her father's death on March 14, 1995, the property
was valued at P720,000.00. On February 28, 1996, to defray the
cost of the medical expenses of her sick son, she sold the lot for
P600,000.00, on cash basis. The prevailing market value of the
property at the time of the sale was P3,000.00 per square meter.
402
TAX PRINCIPLES A N D R E M E D I E S
[a] Is Melissa liable to pay capital gains tax on the transaction? If so, how much and why? If not, why not? (4%)
[b] Is Melissa liable to pay Value Added Tax (VAT) on the
sale of the property? If so, how much and why? If not, why not?
(4%)
IV
International Technologies, Inc. (ITI) filed a claim for refund
for unutilized input VAT with the Court of Tax Appeals (CTA). In
the course of the trial, ITI engaged the services of an independent
Certified Public Accountant (CPA) who examined the voluminous
invoices and receipts of ITI. ITI offered in evidence only the
summary prepared by the CPA, without the invoices and the
receipts, and then submitted the case for decision.
Can the CTA grant ITI's claim for refund based only on the
CPA's summary? Explain. (4%)
V
Jessie brought into the Philippines a foreign-made luxury
car, and paid less than the actual taxes and duties due. Due
to the discrepancy, the Bureau of Customs instituted seizure
proceedings and issued a warrant of seizure and detention. The
car, then parked inside a pay parking garage, was seized and
brought by government agents to a government impounding
facility. The Collector of Customs denied Jessie's request for the
withdrawal of the warrant.
Aggrieved, Jessie filed against the Collector a criminal
complaint for usurpation of judicial functions on the ground that
only a judge may issue a warrant of search and seizure.
[a]
Resolve with reasons Jessie's criminal complaint. (4%)
[b] Would your answer be the same if the luxury car was
seized while parked inside the garage of Jessie's residence? Why
or why not? (4%)
VI
The Sangguniang Bayan of the Municipality of Sampaloc,
Quezon, passed an ordinance imposing a storage fee of ten
APPENDIX " J "
BAR EXAMINATIONS QUESTIONS IN TAXATION
403
centavos (P0.10) for every 100 kilos of copra deposited in any
bodega within the Municipality's jurisdiction. The Metropolitan
Manufacturing Corporation (MMC), with principal office
in Makati, is engaged in the manufacture of soap, edible oil,
margarine, and other coconut oil-based products. It has a
warehouse in Sampaloc, Quezon, used as storage space for the
copra purchased in Sampaloc and nearby towns before the same
is shipped to Makati. MMC goes to court to challenge the validity
of the ordinance, demanding the refund of the storage fees it paid
under protest. Is the ordinance valid? Explain your answer. (4%)
VII
Kenya International Airlines (KIA) is a foreign corporation,
organized under the laws of Kenya. It is not licensed to do
business in the Philippines. Its commercial airplanes do not
operate within Philippine territory, or service passengers
embarking from Philippine airports. The firm is represented in
the Philippines by its general agent, Philippine Airlines (PAL),
a Philippine corporation. KIA sells airplane tickets through
PAL, and these tickets are serviced by KIA airplanes outside the
Philippines. The total sales of airline tickets transacted by PAL
for KIA in 1997 amounted to P2,968,156.00. The Commissioner
of Internal Revenue assessed KIA deficiency income taxes at
the rate of 35% on its taxable income, finding that KIA's airline
ticket sales constituted income derived from sources within the
Philippines.
KIA filed a protest on the ground that the P2,968,156.00
should be considered as income derived exclusively from sources
outside the Philippines since KIA only serviced passengers
outside Philippine territory.
Is the position of KIA tenable? Reasons. (4%)
VIII
The City of Manila enacted Ordinance No. 55-66 which
imposes a municipal occupation tax on persons practicing
various professions in the city. Among those subjected to the
occupation tax were lawyers. Arty. Mariano Batas, who has a
law office in Manila, pays the ordinance-imposed occupation
404
TAX PRINCIPLES A N D R E M E D I E S
tax under protest. He goes to court to assail the validity of the
ordinance for being discriminatory. Decide with reasons. (3%)
IX
Republic Power Corporation (RPC) is a government-owned
and controlled corporation engaged in the supply, generation
and transmission of electric power. In 2005, in order to provide
electricity to Southern Tagalog provinces, RPC entered into an
agreement with Jethro Energy Corporation (JEC), for the lease of
JEC's power barges which shall be berthed at the port of Batangas
City. The contract provides that JEC shall own the power barges
and the fixtures, fittings, machinery, and equipment therein, all
of which JEC shall supply at its own cost, and that JEC shall
operate, manage and maintain the power barges for the purpose
of converting the fuel of RPC into electricity. The contract also
stipulates that all real estate taxes and assessments, rates and
other charges, in respect of the power barges, shall be for the
account of RPC.
In 2007, JEC received an assessment of real property taxes
on the power barges from the Assessor of Batangas City. JEC
sought reconsideration of the assessment on the ground that the
power barges are exempt from real estate taxes under Section 234
[c] of R.A. 7160 as they are actually, directly and exclusively used
by RPC, a government-owned and controlled corporation.
Furthermore, even assuming that the power barges are
subject to real property tax, RPC should be held liable therefor,
in accordance with the terms of the lease agreement. Is the
contention of JEC correct? Explain your answer. (4%)
X
ABCD Corporation (ABCD) is a domestic corporation with
individual and corporate shareholders who are residents of
the United States. For the 2nd quarter of 1983, these U.S.-based
individual and corporate stockholders received cash dividends
from the corporation. The corresponding withholding tax on
dividend income — 30% for individual and 35% for corporate
non-resident stockholders — was deducted at source and
remitted to the BIR.
APPENDIX "J"
BAR EXAMINATIONS QUESTIONS IN TAXATION
405
On May 15, 1984, ABCD filed with the Commissioner of
Internal Revenue a formal claim for refund, alleging that under
the RP-US Tax Treaty, the deduction withheld at source as tax on
dividends earned was fixed at 25% of said income. Thus, ABCD
asserted that it overpaid the withholding tax due on the cash
dividends given to its non-resident stockholders in the U.S. The
Commissioner denied the claim.
On January 17, 1985, ABCD filed a petition with the Court
of Tax Appeals (CTA) reiterating its demand for refund.
[a] Does ABCD Corporation have the legal personality to
file the refund on behalf of its non-resident stockholders? Why or
why not? (3%)
[b] Is the contention of ABCD Corporation correct? Why
or why not? (3%)
PART II
XI
Raffy and Wena, husband and wife, are both employed
by XXX Corporation. After office hours, they jointly manage a
coffee shop at the ground floor of their house. The coffee shop is
registered in the name of both spouses. Which of the following
is the correct way to prepare their income tax return? Write the
letter only. DO NOT EXPLAIN YOUR ANSWER. (2%)
[a] Raffy will declare as his income the salaries of both
spouses, while Wena will declare the income from the coffee
shop.
[b] Wena will declare the combined compensation income
of the spouses, and Raffy will declare the income from the coffee
shop.
[c] All the income will be declared by Raffy alone, because
only one consolidated return is required to be filed by the spouses.
[d] Raffy will declare his own compensation income and
Wena will declare hers. The income from the coffee shop shall be
equally divided between them.
406
TAX PRINCIPLES AND REMEDIES
Each spouse shall be taxed separately on their corresponding
taxable income to be covered by one consolidated return for the
spouses.
[e] Raffy will declare his own compensation income and
Wena will declare hers. The income from the coffee shop shall be
equally divided between them.
Raffy will file one income tax return to cover all the income
of both spouses, and the tax is computed on the aggregate taxable
income of the spouses.
XII
YYY Corporation engaged the services of the Manananggol
Law Firm in 2006 to defend the corporation's title over a property
used in Lne business. For the legal services rendered in 2007, the
law firm billed the corporation only in 2008. The corporation
duly paid.
YYY Corporation claimed this expense as a deduction
from gross income in its 2008 return, because the exact amount
of the expense was determined only in 2008. Is YYY's claim of
deduction proper? Reasons. (4%)
XIII
In 1999, Xavier purchased from his friend, Yuri, a painting
for P500,000.00. The fair market value (FMV) of the painting
at the time of the purchase was PI-million. Yuri paid all the
corresponding taxes on the transaction. In 2001, Xavier died.
In his last will and testament, Xavier bequeathed the painting,
already worth P1.5-million, to his only son, Zandro. The will
also granted Zandro the power to appoint his wife, Wilma, as
successor to the painting in the event of Zandro's death. Zandro
died in 2007, and Wilma succeeded to the property.
[a] Should the painting be included in the gross estate of
Xavier in 2001 and thus, be subject to estate tax? Explain. (3%)
[bj Should the painting be included in the gross estate of
Zandro in 2007 and thus, be subject to estate tax? Explain. (3%)
APPENDIX " J "
BAR EXAMINATIONS QUESTIONS IN TAXATION
407
[c] May a vanishing deduction be allowed in either or
both of the estates? Explain. (3%)
XIV
Emiliano Paupahan is engaged in the business of leasing out
several residential apartment units he owns. The monthly rental
for each unit ranges from P8,000.00 to P10,000.00. His gross rental
income for one year is Pl,650,000.00. He consults you on whether
it is necessary for him to register as a VAT taxpayer. What legal
advice will you give him, and why? (4%)
XV
Miguel, a citizen and resident of Mexico, donated
US$1,000.00 worth of stocks in Barack Motors Corporation,
a Mexican company, to his legitimate son, Miguelito, who is
residing in the Philippines and about to be married to a Filipino
girlfriend. Mexico does not impose any transfer tax of whatever
nature on all gratuitous transfers of property.
[a] Is Miguel entitled to claim a dowry exclusion? Why or
why not? (3%)
[b] Is Miguel entitled to the rule of reciprocity in order to be
exempt from the Philippine donor's tax? Why or why not? (3%)
XVI
Ernesto, a Filipino citizen and a practicing lawyer, filed his
income tax return for 2007 claiming optional standard deductions.
Realizing that he has enough documents to substantiate his
profession-connected expenses, he now plans to file an amended
income tax return for 2007, in order to claim itemized deductions,
since no audit has been commenced by the BIR on the return he
previously filed. Will Ernesto be allowed to amend his return?
Why or why not? (4%)
XVII
A final assessment notice was issued by the BIR on June
13, 2000, and received by the taxpayer on June 15, 2000. The
TAX P R I N C I P L E S A N D R E M E D I E S
taxpayer protested the assessment on July 31, 2000. The protest
was initially given due course, but was eventually denied by the
Commissioner of Internal Revenue in a decision dated June 15,
2005. The taxpayer then filed a petition for review with the Court
of Tax Appeals (CTA), but the CTA dismissed the same.
[a] Is the CTA correct in dismissing the petition for review?
Explain your answer. (4%)
[b] Assume that the CTA's decision dismissing the petition
for review has become final. May the Commissioner legally
enforce collection of the delinquent tax? Explain. (4%)
XVIII
A taxpayer received an assessment notice from the BIR on
February 3, 2009. The following day, he filed a protest, in the
form of a request for reinvestigation, against the assessment and
submitted all relevant documents in support of the protest. On
September 11, 2009, the taxpayer, apprehensive because he had
not yet received notice of a decision by the Commissioner on his
protest, sought your advice.
What remedy or remedies are available to the taxpayer?
Explain. (4%)
XIX
Johnny transferred a valuable 10-door commercial apartment
to a designated trustee, Miriam, naming in the trust instrument
Santino, Johnny's 10-year old son, as the sole beneficiary. The
trustee is instructed to distribute the yearly rentals amounting
to P720,000.00. The trustee consults you if she has to pay the
annual income tax on the rentals received from the commercial
apartment.
[a]
What advice will you give the trustee? Explain. (3%)
[b] Will your advice be the same if the trustee is directed to
accumulate the rental income and distribute the same only when
the beneficiary reaches the age of majority? Why or why not?
(3%)
APPENDIX " J "
BAR EXAMINATIONS QUESTIONS IN TAXATION
409
XX
Masarap Food Corporation (MFC) incurred substantial
advertising expenses in order to protect its brand franchise for
one of its line products. In its income tax return, MFC included the
advertising expense as deduction from gross income, claiming it
as an ordinary business expense. Is MFC correct? Explain. (3%)
2008 BAR EXAMINATION QUESTION
I
In January 1970, Juan Gonzales bought one hectare of
agricultural land in Laguna for PI00,000. This property has a
current fair market value of P10 million in view of the construction
of a concrete road traversing the property. Juan Gonzales agreed
to exchange his agricultural lot in Laguna for a one-half hectare
residential property located in Batangas, with a fair market
value of P10 million, owned by Alpha Corporation, a domestic
corporation engaged in the purchase and sale of real property.
Alpha Corporation acquired the property in 2007 for P9 million.
a) What is the nature of the real properties exchanged for
tax purposes — capital asset or ordinary asset? Explain. (3%)
b) Is Juan Gonzales subject to income tax on the exchange
of property? If so, what is the tax base and rate? Explain. (3%)
c) Is Alpha Corporation subject to income tax on the
exchange of property? If so, what is the tax base and rate?
Explain. (3%)
II
Jose Cernan, Filipino citizen, married to Maria Cernan, died
in a vehicular accident in NLEX on July 10, 2007. The spouses
owned, among others, a 100-hectare agricultural land in Sta.
Rosa, Laguna with current fair market value of P20 million,
which was the subject matter of a Joint Venture Agreement about
to be implemented with Star Land Corporation (SLC), a wellknown real estate development company. He bought the said
real property for P2 million fifty years ago. On January 5, 2008,
410
TAX PRINCIPLES A N D R E M E D I E S
the administrator of the estate and SLC jointly announced their
big plans to start conversion and development of the agricultural
lands in Sta. Rosa, Laguna, into first-class residential and
commercial centers. As a result, the prices of real properties in
the locality have doubled. The Administrator of the Estate of Jose
Ceman filed the estate tax return on January 9,2008, by including
in the gross estate the real property at P2 million. After 9 months,
the BIR issued deficiency estate tax assessment, by valuing the
real property at P40 million.
a) Is the BIR correct in valuing the real property at P40
million? Explain. (3%)
b) If you disagree, what is the correct value to use for
estate tax purposes? Explain. (3%)
III
DEF Corporation is a wholly owned subsidiary of DEF, Inc.,
California, USA. Starting December 15, 2004, DEF Corporation
paid annual royalties to DEF, Inc., for the use of the latter's
software, for which the former, as withholding agent of the
government, withheld and remitted to the BIR the 15% final tax
based on the gross royalty payments. The withholding tax return
was filed and the tax remitted to the BIR on January 10 of the
following year. On April 10,2007, DEF Corporation filed a written
claim for tax credit with the BIR, arising from erroneously paid
income taxes covering the years 2004 and 2005. The following
day, DEF Corporation filed a petition for review with the Court
of Tax Appeals involving the tax credit claim for 2004 and 2005.
a) As a BIR lawyer handling the case, would you raise the
defense of prescription in your answer to the claim for tax credit?
Explain. (4%)
b) Can the BIR lawyer raise the defense that DEF Corporation is not the proper party to file such claim for tax credit?
Explain. (3%)
rv
JKL Corporation is a domestic corporation engaged in the
importation and sale of motor vehicles in the Philippines and
- APPENDIX " ] "
BAR EXAMINATIONS QUESTIONS IN TAXATION
411
is duly registered with the Subic Bay Metropolitan Authority
(SBMA). In December 2007, it imported several second-hand
motor vehicles from Japan and Korea, which it stores in a
warehouse in Subic Bay. It sold these motor vehicles in April
2008, to persons residing in the customs territory.
a) Are the importations of motor vehicles from abroad
subject to customs duties and value added taxes? Explain. (4%)
b)
paid?
If they are taxable, when must the duties and taxes be
What are the bases for and purposes of computing customs
duties and VAT? To whom must the duties and VAT be paid?
Explain. (3%)
V
Maria Suerte, a Filipino citizen, purchased a lot in Makati
City in 1980 at a price of PI million. Said property has been
leased to MAS Corporation, a domestic corporation engaged in
manufacturing paper products, owned 99% by Maria Suerte. In
October 2007, EIP Corporation, a real estate developer, expressed
its desire to buy the Makati property at its fair market value of
P300 million, payable as follows: (a) P60 million downpayment;
and (b) balance, payable equally in twenty four (24) monthly
consecutive installments. Upon the advice of a tax lawyer, Maria
Suerte exchanged her Makati property for shares of stock of MAS
Corporation. A BIR ruling, confirming the tax-free exchange of
property for shares of stock, was secured from the BIR National
Office and a Certificate Authorizing Registration was issued
by the Revenue District Officer (RDO) where the property was
located. Subsequently, she sold her entire stockholdings in MAS
Corporation to EIP Corporation for P300 million. In view of
the tax advice, Maria Suerte paid only the capital gains tax of
P29,895,000 (P100,000 x 5% plus P298,900,000 x 10%), instead of
the corporate income tax of P104,650,000 (35% on P299 million
gain from sale of real property). After evaluating the capital gains
tax payment, the RDO wrote a letter to Maria Suerte, stating
that she committed tax evasion. Is the contention of the RDO
tenable? Or was it tax avoidance that Maria Suerte had resorted
to? Explain. (6%)
412
TAX P R I N C I P L E S A N D R E M E D I E S
VI
While driving his car to Baguio last month, Pedro Asuncion,
together with his wife Assunta, and only son, Jaime, met an
accident that caused the instantaneous death of Jaime. The
following day, Assunta also died in the hospital. The spouses
and their son had the following assets and liabilities at the time
of death:
Assunta
Exclusive
Cash
Conjugal
Jaime
Exclusive
P10,000,000. Pl,200,000.
Cars
P2,000,000.
500,000.
Land
5,000,000.
2,000,000.
Residential house
4,000,000.
Mortgage payable
2,500,000.
Funeral expenses
300,000.
a) Is the Estate of Jaime Asuncion liable for estate
tax? Explain. (4%)
b) Is vanishing deduction applicable to the Estate of
Assunta Asuncion? Explain. (4%)
VII
After examining the books and records of EDS Corporation,
the 2004 final assessment notice, showing basic tax of P1,000,000,
deficiency interest of P400,000, and due date for payment of April
30,2007, but without the demand letter, was mailed and released
by the BIR on April 15, 2007. The registered letter, containing the
tax assessment, was received by the EDS Corporation on April
25, 2007.
a) What is an assessment notice? What are the requisites
of a valid assessment? Explain. ( 3 % )
b) As tax lawyer of EDS Corporation, what legal defensefs)
would you raise against the assessment? Explain. ( 3 % )
APPENDIX "J"
413
BAR EXAMINATIONS QUESTIONS IN TAXATION
VIII
The City of Manila enacted an ordinance, imposing a 5%
tax on gross receipts on rentals of space in privately-owned
public markets. BAT Corporation questioned the validity of the
ordinance, stating that the tax is an income tax, which cannot be
imposed by the city government. Do you agree with the position
of BAT Corporation? Explain. (5%)
IX
William Antonio imported into the Philippines a luxury
car worth US$100,000. This car was, however, declared only for
US$20,000 and corresponding customs duties and taxes were
paid thereon.
Subsequently, the Collector of Customs discovered the
underdeclaration and he initiated forfeiture proceedings of the
imported car.
a) May the Collector of Customs declare the imported car
forfeited in favor of the government? Explain. (3%)
b) Are forfeiture proceedings of goods illegally imported
criminal in nature? Explain. (3%)
X
John McDonald, a U.S. citizen residing in Makati City,
bought shares of stock of a domestic corporation whose shares
are listed and traded in the Philippine Stock Exchange at the
price of P2 million.
Yesterday, he sold the shares of stock through his favorite
Makati stockbroker at a gain of P200,000.
a) Is John McDonald subject to Philippine income tax on
the sale of his shares through his stockbroker? Is he liable for any
other tax? Explain. (3%)
b) If John McDonald directly sold the shares to his best
friend, who is another U.S. citizen residing in Makati, at a gain of
P200,000, is he liable for Philippine income tax? If so, what is the
tax base and rate? (3%)
TAX PRINCIPLES A N D R E M E D I E S
414
XI
Pedro Manalo, a Filipino citizen residing in Makati City,
owns a vacation house and lot in San Francisco, California,
U.S.A, which he acquired in 2000 for PI5 million. On January
10, 2006, he sold said real property to Juan Mayaman, another
Filipino citizen residing in Quezon City, for P20 million. On
February 9, 2006, Manalo filed the capital gains tax return and
paid PI .2 million representing 6% capital gains tax. Since Manalo
did not derive any ordinary income, no income tax return was
filed by him for 2006. After the tax audit conducted in 2007, the
BIR officer assessed Manalo for deficiency income tax computed
as follows: P5 million (P20 million less P15 million) x 35% = PI .75
million, without the capital gains tax paid being allowed as tax
credit. Manalo consulted a real estate broker who said that the
PI .2 million capital gains tax should be credited from the PI .75
million deficiency income tax.
a)
Is the BIR officer's tax assessment correct? Explain.
(3%)
b) If you were hired by Manalo as his tax consultant, what
advice would you give him to protect his interest? Explain. (3%)
XII
Greenhills Condominium Corporation Incorporated in 2001
is a non-stock, non-profit association of unit owners in Greenhills
Tower, San Juan City. To be able to reduce the association dues
being collected from the unit owners, the Board of Directors of
the corporation agreed to lease part of the ground floor of the
condominium building to DEF Savings Bank for P120,000 a
month or PI .44 million for the year, starting January 2007.
a) Is the non-stock, non-profit association liable for value
added tax in 2007? If your answer is in the negative, is it liable for
another kind of business tax? (4%)
b) Will the association be liable for value added tax in
2008 if it increases the rental to P150,000 a month beginning
January 2008? Explain. (3%)
•APPENDIX "J"
BAR EXAMINATIONS QUESTIONS IN TAXATION
415
XIII
MNO Corporation was organized on July 1,2006, to engage
in trading of school supplies, with principal place of business in
Cubao, Quezon City. Its books of accounts and income statement
showing gross sales as follows:
July 1, 2006 to December 31, 2006
P 5,000,000.
January 1, 2007 to June 30, 2007
P 10,000,000.
July 1, 2007 to December 31, 2007
P 15,000,000.
Since MNO Corporation adopted fiscal year ending June 30
as its taxable year for income tax purposes, it paid its 2% business
tax for fiscal year ending June 30, 2007 based on gross sales of
P15 million.
However, the Quezon City Treasurer assessed the corporation for deficiency business tax for 2007 based on gross sales of
P25 million alleging that local business taxes shall be computed
based on calendar year.
a)
Is the position of the city treasurer tenable? Explain.
(3%)
b) May the deficiency business tax be paid in installments
without surcharge and interest? Explain. (3%)
XIV
Spouses Jose San Pedro and Clara San Pedro, both Filipino
citizens, are the owners of a residential house and lot in Quezon
City.
After the recent wedding of their son, Mario, to Maria,
the spouses donated said real property to them. At the time of
donation, the real property has a fair market value of P2 million.
a) Are Mario and Maria subject to income tax for the
value of the real property donated to them? Explain. (4%)
b) Are Jose and Clara subject to donor's tax? If so, how
much is the taxable gift of each spouse and what rate shall be
applied to the gift? Explain. (4%)
416
TAX P R I N C I P L E S A N D R E M E D I E S
XV
In 2007, spouses Renato and Judy Garcia opened peso and
dollar deposits at the Philippine branch of the Hong Kong Bank
in Manila.
Renato is an overseas worker in Hong Kong while Judy
lives and works in Manila. During the year, the bank paid interest
income of P10,000 on the peso deposit and US$1,000 on the dollar
deposit. The bank withheld final income tax equivalent to 20% of
the entire interest income and remitted the same to the BIR.
a) Are the interest incomes on the bank deposits of
spouses Renato and Judy Garcia subject to income tax? Explain.
(4%)
b) Is the bank correct in withholding the 20% final tax on
the entire interest income? Explain. (3%)
APPENDIX "K"
A.M. NO. 05-11-07-CTA
REVISED RULES OF THE COURT OF TAX APPEALS
Pursuant to Section 8 of Republic Act No. 1125, as further
amended by Republic Act No. 9282, the Court of Tax Appeals
(hereinafter referred to as the Court) hereby adopts and
promulgates the following Rules for the conduct of its business:
RULE 1
TITLE AND CONSTRUCTION
SECTION 1. Title of the Rules. — These Rules shall be known
and cited as the Revised Rules of the Court of Tax Appeals
(RRCTA). (RCTA, Rule 1, sec. la)
SEC. 2. Liberal construction. — The Rules shall be liberally
construed in order to promote their objective of securing a just,
speedy, and inexpensive determination of every action and
proceeding before the Court. (RCTA, Rule 1, sec. 2a)
SEC. 3. Applicability of the Rules of Court. - The Rules of
Court in the Philippines shall apply suppletorily to these Rules.
(n)
RULE 2
THE COURT, ITS ORGANIZATION AND FUNCTIONS
SECTION 1. Composition of the Court. — The Court is
composed of a presiding justice and five associate justices
appointed by the President of the Philippines. In appropriate
cases, the Court shall sit en banc, or in two Division© of three
justices each, including the presiding justice, who shall be the
Chairman of its First Division, (n)
417
418
TAX PRINCIPLES A N D R E M E D I E S
SEC. 2. Exercise of powers and functions. — The Court shall
exercise its adjudicative powers, functions and duties en banc or
in Divisions.
The Court shall sit en banc in the exercise of its administrative, ceremonial and non-adjudicative functions. Cn)
SEC. 3. Court en banc; quorum and voting. — The presiding
justice or, in his absence, the most senior justice in attendance
shall preside over the sessions of the Court en banc. The
attendance of four justices of the Court shall constitute a quorum
for its sessions en banc. The presence at the deliberation and the
affirmative vote of four justices of the Court en banc shall be
necessary for the rendition of a decision or resolution on any case
or matter submitted for its consideration. Where the necessary
majority vote cannot be had, the petition shall be dismissed; in
appealed cases, the judgment or order appealed from shall stand
affirmed; and on all incidental matters, the petition or motion
shall be denied.
No decision of a Division of the Court may be reversed or
modified except by the affirmative vote of four justices of the
Court en banc acting on the case.
Interlocutory orders or resolutions shall be acted upon
by majority vote of the justices present constituting a quorum.
(Rules of Court, Rule 56, sec. 7a)
SEC. 4. The Court in Divisions; quorum and voting. — The
chairman of the Division or, in his absence, its senior member
shall preside over the sessions of the Court in Divisions. The
attendance of at least two justices of the Court shall be necessary
to constitute a quorum for its sessions in Divisions. The presence
at the deliberation and the affirmative vote of at least two justices
shall be required for the pronouncement of a judgment or final
resolution of the Court in Divisions, (n)
SEC. 5. Hearings. — The Court en banc or in Divisions shall
conduct hearings on such days and at such times and at such
places as it may fix, with notice to the parties concerned. However,
the Friday of each week shall be devoted to hearing motions,
unless, for special reasons, the Court en banc or in Divisions shall,
APPENDIX " K "
A.M. NO. 05-11-07-CTA
419
motu proprio or upon motion of a party, fix another day for the
hearing of any motion. (RCTA, Rule 3, sec. 2a)
SEC. 6. Disqualification of justices.—
(a) Mandatory. — No justice or other officer or employee
of the Court shall intervene, directly or indirectly, in the
management or control of any private enterprise which in any
way may be affected by the functions of the Court. Justices of
the Court shall be disqualified from sitting in any case on the
same grounds provided under the first paragraph. Section 1,
Rule 137 of the Rules of Court. No person who has once served
in the Court either as presiding justice or as associate justice shall
be qualified to practice as counsel before the Court for a period
of one year from his retirement or resignation as such. (Rules of
Court, Rule 137, sec. 1, par. la)
(b) Disclosure and consent of parties and lawyers. — A justice
disqualified under the first paragraph. Section 1 of Rule 137 of
the Rules of Court, may, instead of withdrawing from a case or
proceeding, disclose on the records the basis of his disqualification. If, based on such disclosure, the parties and lawyers, independently of the justice's participation, all agree in writing that
the reason for the inhibition is immaterial or unsubstantial, the
justice may participate in the action or proceeding. The agreement, signed by all parties and lawyers, shall be incorporated in
the record of the action or proceeding. (Rules of Court, Rule 137,
sec. 1, par. la)
(c) Voluntary. — A justice of the Court may, in the exercise
of his sound discretion, disqualify himself from sitting in a case or
proceeding, for just or valid reasons other than those mentioned
above. (Rules of Court, Rule 137, sec. 1, par. 2a)
A justice of the Court who inhibits himself from sitting in
a case or proceeding shall immediately notify in writing the
presiding justice and the members of his Division, (n)
SEC. 7. Motion to inhibit a justice. — When a motion for
inhibition of a justice is filed, the Court, en banc or in Division,
shall act upon the motion. However, if the motion for inhibition
420
TAX PRINCIPLES A N D R E M E D I E S
is based on a discretionary ground, the Court shall refer the
motion to the justice involved for his appropriate action, (n)
RULE 3
PLACE OF OFFICE, SEAL AND OFFICE HOURS
SECTION 1. Place of office. — The Court shall have its
principal office in Metro Manila. (RCTA, Rule 3, sec. la)
SEC. 2. Court seal. — The seal of the Court shall be circular
in form and shall be of the usual size. It shall bear, in its center,
a design of the coat of arms of the Republic of the Philippines
with the words "BATAS AT BAYAN" immediately underneath
the design. On the upper margin running from left to right are
the words "COURT OF TAX APPEALS," and on its lower margin
the words "REPUBLIKA NG PILIPINAS." (RCTA, Rule 2, sec. la)
SEC. 3. Seal, where affixed. — The seal of the Court shall be
affixed to all summons, subpoena, notices, decisions, orders or
resolutions, certified copies of official records and such other
papers that the Court may require to be sealed, (n)
SEC. 4. Office hours. — The Office of the Clerk of Court shall
be open for the transaction of business and receiving petitions,
complaints, pleadings, motions, and other papers, during the
hours from eight o'clock in the morning to four-thirty o'clock
in the afternoon on Mondays to Fridays, except on such days
as may be designated by law or executive proclamation as nonworking official holidays. (RCTA, Rule 3, sec. 3a)
RULE 4
JURISDICTION OF THE COURT
SECTION 1. Jurisdiction of the Court. — The Court shall
exercise exclusive original jurisdiction over or appellate
jurisdiction to review by appeal the cases specified in Republic
Act No. 1125, Section 7, as amended by Republic Act No. 9282,
Section 7. (n)
SEC. 2. Cases within the jurisdiction of the Court en banc. —
The Court en banc shall exercise exclusive appellate jurisdiction
to review by appeal the following:
•APPENDIX " K "
A.M. NO. 05-11-07-CTA
421
(a) Decisions or resolutions on motions for reconsideration
or new trial of the Court in Divisions in the exercise of its exclusive
appellate jurisdiction over:
(1) Cases arising from administrative agencies —
Bureau of Internal Revenue, Bureau of Customs, Department
of Finance, Department of Trade and Industry, Department
of Agriculture;
(2) Local tax cases decided by the Regional Trial
Courts in the exercise of their original jurisdiction; and
(3) Tax collection cases decided by the Regional Trial
Courts in the exercise of their original jurisdiction involving
final and executory assessments for taxes, fees, charges and
penalties, where the principal amount of taxes and penalties
claimed is less than one million pesos;
(b) Decisions, resolutions or orders of the Regional Trial
Courts in local tax cases decided or resolved by them in the
exercise of their appellate jurisdiction;
(c) Decisions, resolutions or orders of the Regional Trial
Courts in tax collection cases decided or resolved by them in the
exercise of their appellate jurisdiction;
(d) Decisions, resolutions or orders on motions for
reconsideration or new trial of the Court in Division in the
exercise of its exclusive original jurisdiction over tax collection
cases;
(e) Decisions of the Central Board of Assessment Appeals
(CBAA) in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals;
(f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of
its exclusive original jurisdiction over cases involving criminal
offenses arising from violations of the National Internal Revenue
Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs;
TAX P R I N C I P L E S A N D R E M E D I E S
(g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of
its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; and
(h) Decisions, resolutions or orders of the Regional trial
Courts in the exercise of their appellate jurisdiction over criminal
offenses mentioned in subparagraph (f). (n)
SEC. 3. Cases within the jurisdiction of the Court in Divisions.
— The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review
by appeal the following:
(1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue
in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue
Code or other applicable law provides a specific period for
action: Provided, that in case of disputed assessments, the
inaction of the Commissioner of Internal Revenue within
the one hundred eighty day-period under Section 228 of the
National Internal Revenue Code shall be deemed a denial for
purposes of allowing the taxpayer to appeal his case to the
Court and does not necessarily constitute a formal decision
of the Commissioner of Internal Revenue on the tax case,
Provided, further, that should the taxpayer opt to await the
final decision of the Commissioner of Internal Revenue on
the disputed assessments beyond the one hundred eighty
day-period abovementioned, the taxpayer may appeal such
final decision to the Court under Section 3(a), Rule 8 of these
APPENDIX " K "
A.M. NO. 05-11-O7-CTA
423
Rules; and Provided, still further, that in the case of claims
for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior
to the expiration of the two-year period under Section 229
of the National Internal Revenue Code;
(3) Decisions, resolutions or orders of the Regional
Trial Courts in local tax cases decided or resolved by them
in the exercise of'their original jurisdiction;
(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 of other penalties in relation
thereto, or other matters arising under the Customs Law or
other laws administered by the Bureau of Customs;
(5) Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review from decisions of the Commissioner of Customs adverse to the Government under Section 2315 of the Tariff and Customs Code;
and
(6) 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;
(b) Exclusive jurisdiction over cases involving criminal
offenses, to wit:
(1) 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 of the Bureau of
Customs, where the principal amount of taxes and fees, ex-
424
TAX PRINCIPLES A N D R E M E D I E S
elusive of charges and penalties, claimed is one million pesos or more; and
(2) Appellate jurisdiction over appeals from the
judgments, resolutions or orders of trje Regional Trial Courts
in their original jurisdiction in 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 Bureau of Customs,
where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than one million pesos
or where there is no specified amount claimed;
(c)
Exclusive jurisdiction over tax collections cases, to wit:
(1) Original jurisdiction in tax collection cases
involving final and executory assessments for taxes, fees,
charges and penalties, where the principal amount of taxes
and fees, exclusive of charges and penalties, claimed is one
million pesos or more; and
(2) Appellate jurisdiction over appeals from the
judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them
within their respective territorial jurisdiction, (n)
RULE 5
FORM AND STYLE OF PAPERS
SECTION 1. Style. — All papers filed with the Court shall be
either printed or typewritten, and fastened on the upper left hand
corner. All such papers shall have a caption, date and signature,
and copies, as specified below. (RCTA, Rule 4, sec. la)
SEC. 2. Size and specifications. — Printed or typewritten
papers shall be typed doubled-spaced on good quality, unglazed
and plain white paper eight and a half inches wide by thirteen
inches long (legal-size), or eight and a quarter inches wide by
eleven and three-fourths inches long (A4-size), at least substance
twenty and printed on one side only without covers. There shall
be a margin at the left-hand side of each page of not less than one
APPENDIX " K "
A.M. NO. 05-11-07-CTA
425
and one-half inches in width and at the top, bottom and righthand side of each page of not less than one inch in width. (RCTA,
Rule 4, sec. 3a)
SEC. 3. Citations. — Citations shall be indented at least one
inch from the inside margin and typed single-spaced. (RCTA,
Rule 4, sec. 4a)
SEC. 4. Number of copies. — The parties shall file eleven signed
copies of every paper, for cases before the Court en banc and six
signed copies for cases before a Division of the Court in addition
to the signed original copy, except as otherwise directed by the
Court. Papers to be filed in more than one case shall include one
additional copy for each additional case. (RCTA, Rule 4, sec. 5a)
SEC. 5. Clear and legible copies. — All copies shall be clear
and legible. (RCTA, Rule 4, sec. 6a)
RULE 6
PLEADINGS FILED WITH THE COURT
SECTION 1. Complaint; contents. — The complaint shall
contain allegations showing jurisdiction of the Court and a
concise statement of the complete facts of the plaintiff's cause
or causes of action. The complaint shall be verified and must
contain a certification against forum shopping as provided in
Sections 4 and 5, Rule 7 of the Rules of Court, (n)
SEC. 2. Petition for review; contents. — The petition for review
shall contain allegations showing the jurisdiction of the Court, a
concise statement of the complete facts and a summary statement
of the issues involved in the case, as well as the reasons relied
upon for the review of the challenged decision. The petition
shall be verified and must contain a certification against forum
shopping as provided in Section 3, Rule 46 of the Rules of Court.
A clearly legible duplicate original or certified true copy of the
decision appealed from shall be attached to the petition, (RCTA,
Rule 5, sec. 2a)
SEC. 3. Payment of docket fees. — The Clerk of Court shall
not receive a petition for review for filing unless the petitioner
426
TAX PRINCIPLES A N D R E M E D I E S
submits proof of payment of the docket fees. Upon receipt of
the petition or the complaint, it will be docketed and assigned
a number, which shall be placed by the parties on all papers
thereafter filed in the proceeding. The Clerk of Court will then
issue the necessary summons to the respondent or defendant.
(RCTA, Rule 5, sec. 3a)
SEC. 4. Bill of particulars. —
(a) Requirement for bill of particulars. — The Court, on its
own initiative or upon motion of either party filed before responding to a pleading or, if no responsive pleading is permitted by
these Rules, within ten days after service of the pleading upon
him, may order a party to submit a detailed statement of the
nature of the claim or defense or of any matter stated in any
pleading, which is not averred with sufficient definiteness or
particularity. Such order or motion shall point out the defects
complained of and the details desired. After service of the bill of
particulars or of a more definite pleading, the moving or adverse
party may file his responsive pleading within ten days. (RCTA,
Rule 8, sec. la)
(b) Failure to comply. — If the order issued by the Court
pursuant to paragraph (a) above is not complied with within ten
days after notice of the order, or within such other time as the
Court may fix, the Court may strike out the pleading to which the
motion was directed or may make such other order as it deems
just. The Court may upon motion set aside the order, or modify
it in the interest of justice. (RCTA, Rule 8, sec. 2a)
Ir.'
(c) Motion for bill of particulars when not allowed. — No
motion for bill of particulars shall be allowed in cases falling
under Sections 3(a)(3) and 3(c)(2) of Rule 4 of these Rules, (n)
SEC. 5. Answer. —
(a) Time for filing and contents. — Within fifteen days after
service of summons, the respondent or the defendant shall file
an ansWer to the petition or complaint which shall include all
defenses in law and the specific provisions of law and applicable
jurisprudence and grounds for dismissal of the petition or
complaint, or which shall prevent and bar recovery. (Rule of
APPENDIX " K "
A.M. NO. 05-11-07-CTA
427
Procedure for Civil Forfeiture, Asset Preservation and Freeze Order,
Sec. 9, par. 2a; and RCTA, Rule 7, sec. la)
(b) Transmittal of records. — The respondent Commissioner
of Internal Revenue, Commissioner of Customs, the Secretary of
Finance, the Secretary of Agriculture, or the Secretary of Trade
and Industry, within ten days after his answer, the chairman
of the Central Board of Assessment Appeals and the presiding
judges of the Regional Trial Courts, within ten days from receipt
of notice, shall certify and forward to the Court all the records of
the case in their possession, with the pages duly numbered, and,
if the records are in separate folders, then the folders will also be
numbered. If there are no records, such fact shall be manifested
to the Court within the same period of ten days. The Court may,
on motion, and for good cause shown, grant an extension of
time within which to submit the aforesaid records of the case.
Failure to transmit the records within the time prescribed herein
or within the time allowed by the Court may constitute indirect
contempt of court. (RCTA, Rule 7, sec. 2a)
SEC. 6. Entry of appearance. — An attorney may enter his
appearance by signing the initial pleading. An attorney may
later enter his appearance only by filing an entry of appearance
with the written conformity of his client.
The initial pleading or entry of appearance shall show:
(1) The attorney's specific address which must not be
a Post Office Box number;
(2) His Roll of Attorney's Number;
(3) The date and number of his current membership
due in the Integrated Bar of the Philippines (IBP) per Official
Receipt, or Lifetime Member Number;
(4) Current Professional Tax Receipt (PTR) number
together with date and place of issuance; and
(5) MCLE certificate number and date of issue, unless
exempt.
The attorney or party entering his appearance shall serve
a copy of the entry of appearance upon the opposing party. An
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TAX PRINCIPLES A N D R E M E D I E S
attorney who appears in open court without previously having
filed his written appearance must give his business address to
the Clerk of Court and file his written appearance within fortyeight hours from such open court appearance. An attorney or
party who has filed his appearance and who changes his address
of record shall notify the Clerk of Court and the adverse party
of such change of address, and a separate notice of such change
of address shall be filed for each additional case. (RCTA, Rule 10,
sec. la)
RULE 7
PROCEDURE IN THE COURT OF TAX APPEALS
SECTION 1. Applicability of the Rules of the Court of Appeals,
exception. — The procedure in the Court en banc or in Divisions
in original and in appealed cases shall be the same as those in
petitions for review and appeals before the Court of Appeals
pursuant to the applicable provisions of Rules 42, 43, 44 and 46
of the Rules of Court, except as otherwise provided for in these
Rules, (n)
RULE 8
PROCEDURE IN CIVIL CASES
SECTION 1. Review of cases in the Court en banc. — In cases
falling under the exclusive appellate jurisdiction of the Court en
banc, the petition for review of a decision or resolution of the
Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division, (n)
SEC. 2. Review of cases in the Court in Division. — In appealed
cases falling under the jurisdiction of the Court in Division in
Sections 3(a)(1) to 3(a)(6) and 3(c)(2) of Rule 4, the party filing the
case shall be called the Petitioner and the party against whom the
case is filed shall be called the Respondent. The pleading shall be
entitled Petition for Review.
In tax collection cases originally filed with the Court under
Section 3(c)(1) of Rule 4, the party filing the case shall be called
the Plaintiff and the party against whom the case is filed shall be
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A.M. NO. 05-11-07-CTA
called the Defendant. The pleading shall be entitled Complaint.
In appealed tax collection cases, the original captions shall be
retained. The party filing the appeal shall be called the Appellant
and the party against whom the appeal is filed shall be called the
Appellee. (RCTA, Rule 5, Sec. la)
SEC. 3. Who may appeal; period to file petition. — (a) A party
adversely affected by a decision, ruling or the inaction of the
Commissioner of Internal Revenue on disputed assessments or
claims for refund of internal revenue taxes, or by a decision or
ruling of the Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry, the Secretary of Agriculture,
or a Regional Trial Court in the exercise of its original jurisdiction
may appeal to the Court by petition for review filed within
thirty days after receipt of a copy of such decision or ruling, or
expiration of the period fixed by law for the Commissioner of
Internal Revenue to act on the disputed assessments. In case
of inaction of the Commissioner of Internal Revenue on claims
for refund of internal revenue taxes erroneously or illegally
collected, the taxpayer must file a petition for review within the
two-year period prescribed by law from payment or collection of
the taxes, (n)
(b) A party adversely affected by a decision or resolution
of a Division of the Court on a motion for reconsideration or
new trial may appeal to the Court by filing before it a petition
for review within fifteen days from receipt of a copy of the
questioned decision or resolution. Upon proper motion and the
payment of the full amount of the docket and other lawful fees
and deposit for costs before the expiration of the reglementary
period herein fixed, the Court may grant an additional period
not exceeding fifteen days from the expiration of the original
period within which to file the petition for review. (Rules of Court,
Rule 42, sec. la)
(c) A party adversely affected by a decision or ruling
of the Central Board of Assessment Appeals and the Regional
Trial Court in the exercise of their appellate jurisdiction may appeal to the Court by filing before it a petition for review within
thirty days from receipt of a copy of the questioned decision or
ruling, (n)
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TAX P R I N C I P L E S A N D R E M E D I E S
SEC. 4. Where to appeal; mode of appeal. — (a) An appeal
from a decision or ruling or the inaction of the Commissioner of
Internal Revenue on disputed assessments or claim for refund
of internal revenue taxes erroneously or illegally collected, the
decision or ruling of the Commissioner of Customs, the Secretary
of Finance, the Secretary of Trade & Industry, the Secretary of
Agriculture, and the Regional Trial Court in the exercise of their
original jurisdiction, shall be taken to the Court by filing before it
a petition for review as provided in Rule 42 of the Rules of Court.
The Court in Division shall act on the appeal, (n)
(b) An appeal from a decision or resolution of the Court
in Division on a motion for reconsideration or new trial shall be
taken to the Court by petition for review as provided in Rule 43
of the Rules of Court. The Court en banc shall act on the appeal.
(n)
(c) An appeal from a decision or ruling of the Central
Board of Assessment Appeals or the Regional Trial Court in the
exercise of their appellate jurisdiction shall be taken to the Court
by filing before it a petition for review as provided in Rule 43 of
the Rules of Court. The Court en banc shall act on the appeal, (n)
RULE 9
PROCEDURE IN CRIMINAL CASES
SECTION 1. Review of cases in the Court — The review of
criminal cases in the Court en banc or in Division shall be governed
by the applicable provisions of Rule 124 of the Rules of Court, (n)
SEC. 2. Institution of criminal actions. — All criminal actions
before the Court in Division in the exercise of its original
jurisdiction shall be instituted by the filing of an information in
the name of the People of the Philippines. In criminal actions
involving violations of the National Internal Revenue Code
and other laws enforced by the Bureau of Internal Revenue, the
Commissioner of Internal Revenue must approve their filing. In
criminal actions involving violations of the Tariff and Customs
Code and other laws enforced by the Bureau of Customs, the
Commissioner of Customs must approve their filing. (Rules of
Court, Rule 110, sec. 2a; n)
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A.M. NO. 05-11-07-CTA
The institution of the criminal action shall interrupt the
running of the period of prescription. (Rules of Court, Rule 110,
sec. 1, par. 2a)
SEC. 3. Prosecution of criminal actions. — All criminal actions
shall be conducted and prosecuted under the direction and
control of the public prosecutor. In criminal actions involving
violation of the National Internal Revenue Code or other laws
enforced by the Bureau of Internal Revenue, and violations of the
Tariff and Customs Code or other laws enforced by the Bureau of
Customs, the prosecution may be conducted by their respective
duly deputized legal officers. (Rules of Court, Rule 110, sec. 5, par.
6a)
SEC. 4. Warrant of arrest. — Within ten days from the filing
of the information, the Division of the Court to which the case
was raffled shall evaluate the resolution of the public prosecutor
and its supporting evidence. The Division may immediately
dismiss the case if it finds that the evidence on record clearly
fails to establish probable cause. If the Division finds probable
cause, it shall issue a warrant of arrest signed by the Chairman of
the Division. In case of doubt on the existence of probable cause,
the Division may order the prosecutor to present additional
evidence, ex parte, within five days from notice. (Rules of Court,
Rule 112, sec. 6a)
SEC. 5. When search warrant may issue. — The Division may
issue a search warrant signed by its Chairman following the
requirements of Rule* 126 of the Rules of Court, (n)
SEC. 6. Bail, how amount fixed; approval. — The amount of
bail to be posted in a case filed with the Court shall be fixed
and approved by the Division to which the case is raffled:
Provided, however, that where the accused is arrested, detained
or otherwise placed in custody outside the Metropolitan Manila
area, any judge of the Regional Trial Court of the place where the
arrest is made may accept and approve the bail for fps release
and appearance before the Division to which his case is assigned.
The judge who accepted the bail and released the accused shall
inform the Division that issued the order of arrest of his action
432
TAX PRINCIPLES A N D R E M E D I E S
and forward to it the papers relative to the case. (Rules of Court,
Rule 114, sec. 17a)
SEC. 7. Conditions of the bail. — The conditions of the bail
are that the accused shall appear and answer the complaint or
information in the Division of the Court to which it is raffled
or transferred for trial and submit himself to its orders and
processes. If convicted, and the case is appealed to the Court en
banc or to the Supreme Court, he will surrender himself for the
execution of such judgment as the Court en banc or the Supreme
Court may render; or that, in the event the case is to be tried anew
or remained for a new trial, he shall appear before the Division to
which it may be remanded and submit himself to its orders and
processes. (Rules of Court, Rule 114, sec. 2a)
SEC. 8. Release order. — The Clerk of Court shall issue the
corresponding release order. (Rules of Court, Rule 114, sec. 3a)
SEC. 9. Appeal; period to appeal. — (a) An appeal to the
Court in criminal cases decided by a Regional Trial Court in the
exercise of its original jurisdiction shall be taken by filing a notice
of appeal pursuant to Sections 3(a) and 6, Rule 122 of the Rules of
Court within fifteen days from receipt of a copy of the decision
or final order with the court which rendered the final judgment
or order appealed from and by serving a copy upon the adverse
party. The Court in Division shall act on the appeal.
(b) An appeal to the Court en banc in criminal cases decided
by the Court in Division shall be taken by filing a petition for
review as provided in Rule 43 of the Rules of Court within fifteen
days from receipt of a copy of the decision or resolution appealed
from. The Court may, for good cause, extend the time for filing
of the petition for review for an additional period not exceeding
fifteen days.
(c) An appeal to the Court in criminal cases decided by the
Regional Trial Courts in the exercise of their appellate jurisdiction
shall be taken by filing a petition for review as provided in Rule
43 of the Rules of Court within fifteen days from receipt of a copy
of the decision or final order appealed from. The Court en banc
shall act on the appeal, (n)
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433
SEC. 10. Solicitor General as counsel for the Peopleand government
officials sued in their official capacity. — The Solicitor General shall
represent the People of the Philippines and government officials
sued in their official capacity in all cases brought to the Court
in the exercise of its appellate jurisdiction. He may deputized
the legal officers of the Bureau of Internal Revenue in cases
brought under the National Internal Revenue Code or other laws
enforced by the Bureau of Internal Revenue, or the legal officers
of the Bureau of Customs in cases brought under the Tariff and
Customs Code of the Philippines or other laws enforced by the
Bureau of Customs, to appear in behalf of the officials of said
agencies sued in their official capacity: Provided, however, such
duly deputized legal officers shall remain at all times under the
direct control and supervision of the Solicitor General, (n)
SEC. 11. Inclusion of civil action in criminal action. — In cases
within the jurisdiction of the Court, the criminal action and the
corresponding civil action for the recovery of civil liability for
taxes and penalties shall be deemed jointly instituted in the same
proceeding. The filing of the criminal action shall necessarily
carry with it the filing of the civil action. No right to reserve the
filing of such civil action separately from the criminal action shall
be allowed or recognized. (Rules of Court, Rule 111, sec. l[a], par.
la)
RULE 10
SUSPENSION OF COLLECTION OF TAX
)}.
SECTION 1. No suspension of collection of tax, except as herein
prescribed. — No appeal taken to the Court shall suspend the
payment, levy, distraint, or sale of any property of the taxpayer
for the satisfaction of his tax liability as provided under existing
laws, except as hereinafter prescribed, (n)
SEC. 2. Who may file. — Where the collection of the amount
of the taxpayer's liability, sought by means of a dfemand for
payment, by levy, distraint or sale of any property of the taxpayer,
or by whatever means, as provided under existing laws, may
jeopardized the interest of the Government or the taxpayer,
434
TAX PRINCIPLES A N D R E M E D I E S
an interested party may file a motion for the suspension of the
collection of the tax liability. (RCTA, Rule 12, sec. la)
SEC. 3. When to file. — The motion for the suspension of the
collection of the tax may be filed together with the petition for
review or with the answer, or in a separate motion filed by the
interested party at any stage of the proceedings. (RCTA, Rule 12,
sec. 2)
SEC. 4. Contents and attachments of the motion. — The motion
for the suspension of the collection of the tax shall be verified and
shall state clearly and distinctly the facts and the grounds relied
upon in support of the motion. Affidavits and other documentary
evidence in support thereof shall be attached thereto, which, if
unconrroverted, would be admissible in evidence as proof of the
facts alleged in the motion. (RCTA, Rule 12, sec. 3a)
SEC. 5. Opposition. — Unless a shorter period is fixed by the
Court because of the urgency of the motion, the adverse party
shall, within five days after receipt of a copy of the motion,
file an opposition thereto, if any, which shall state clearly and
distinctly the facts and the grounds relied upon in support of the
opposition. (RCTA, Rule 12, sec. 4)
SEC. 6. Hearing of the motion. — The movant shall, upon
receipt of the opposition, set the motion for hearing at the next
available motion day, and the Court shall give preference to the
motion over all other cases, except criminal cases. At the hearing,
both parties shall submit their respective evidence. If warranted,
the Court may grant the motion if the movant shall deposit with
the Court an amount in cash equal to the value of the property
or goods under dispute or filing with the Court of an acceptable
surety bond in an amount not more than double the disputed
amount or value. However, for the sake of expediency, the Court,
motu proprio or upon motion of the parties, may consolidate the
hearing of the motion for the suspension of the collection of the
tax with the hearing on the merits of the case. (RCTA, Rule 12,
sec. 5a)
SEC. 7. Corporate surety bonds. — In the selection and
qualification of surety companies, the parties and the Court
435
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A.M. NO. 05-11-07-CTA
shall be guided by Supreme Court Circular A.M. No. 04-7-02-SC,
dated July 20, 2004. (n)
RULE 11
PRE-TRIAL
SECTION 1. Applicability. — The rule on pre-trial under Rules
18 and 118 of the Rules of Court, as amplified in A.M. No. 03-109-SC dated July 13,2004 (Re: Rule on Guidelines to be Observed
by Trial Court Judges and Clerk of Court in the Conduct of PreTrial and Use of Deposition-Discovery Measures), shall apply
to all cases falling within the original jurisdiction of the Court,
except that the parties may not be allowed to compromise the
criminal liability or submit the case to mediation, arbitration or
other mode of alternative dispute resolution, (n)
SEC. 2. Mandatory pre-trial. — In civil cases, the Clerk of
Court shall set the case for pre-trial on the first available date
immediately following the tenth day after the filing of the answer.
In criminal cases, the Clerk of Court shall set the case for
pre-trial not later than ten days after arraignment, if the accused
is detained, nor later than thirty days if the accused is on bail.
(RCTA, Rule 11, sec. la)
SEC. 3. Setting for an earlier date. — Where, due to the
urgency of the case, either party desires that the pre-trial be set
on an earlier date, such party shall so state in his pleading, in
which event the Clerk of Court shall set the pre-trial on the first
available date imrrtediately after the filing of the answer. (RCTA,
Rule 11, sec. 2a)
SEC. 4. Duty of the Court. — The Court shall confer with
the parties in pre-trial conferences with a view to narrowing the
issues, making admissions of or stipulating on facts, simplifying
the presentation of evidence, or otherwise assisting in the
preparation for trial or possible disposition of the case in whole
or in part without trial, (n)
,fl!
SEC. 5. Procedure in civil cases. — In civil cases, the parties
shall submit, at least three days before the pre-trial, their
respective pre-trial briefs containing the following:
436
TAX PRINCIPLES A N D R E M E D I E S
(a) A statement of their willingness to compromise the
civil liability indicating its desired terms, except that the case
shall not be subject to referral to mediation, arbitration or other
mode of alternative dispute resolution;
(b) A summary of admitted facts and proposed stipulation
of facts;
(c)
The issues to be tried or resolved;
(d) The documents or exhibits to be presented, stating
their purpose. No evidence shall be allowed to be presented and
offered during the trial in support of a party's evidence-in-chief
other than those that had been pre-marked and identified, unless
allowed by the Court to prevent manifest injustice;
(e) A manifestation of their having availed themselves of
discovery procedures or referral to commissioners; and
(f) The numbers and names of the witnesses, the substance
of their testimonies and the approximate number of hours that
will be required by the parties for the presentation of their
respective witnesses.
The consequence on the party at fault shall be the same as
the effect of failure to appear.
Failure to file the pre-trial brief or to comply with its required
contents shall have the same effect as failure to appear at the pretrial. (Rules of Court, Rule 18, sec. 6a)
SEC. 6. Procedure in criminal cases. —
H-
(a) Before the preliminary conference. — Before the pre-trial
conference, the Court may issue an order referring the case to
the Division Clerk of Court for a preliminary conference of the
parties at least three days prior to the pre-trial:
(1) To mark the documents or exhibits to be presented
by the parties and copies to be attached to the records after
comparison;
(2) To consider other matters as may aid in its disposition; and
APPENDIX " K "
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437
(3) To inform the parties that no evidence shall be
allowed to be presented and offered during the trial other
than those identified and marked during the pre-trial unless
allowed by the Court to prevent manifest injustice. (Rule on
Guidelines to be Observed by Trial Court Judges and Clerks of
Court in the Conduct of Pre-trial and Use of Deposition-Discovery
Measures, Sec. W[2]a)
(b) During the preliminary conference. — The Division Clerk
of Court shall:
(1) Mark the documents to be presented as exhibits
and copies attached to the records after comparison;
(2) Ascertain from the parties the undisputed facts
and admission on the genuineness and due execution of
documents marked as exhibits; and
(3) Consider such other matters as may aid in the
prompt disposition of the case.
The proceedings during the preliminary conference shall be
recorded in the minutes of preliminary conference to be signed
by both parties and counsel. The Division Clerk of Court shall
attach the minutes of preliminary conference and the exhibits
to the case record before the pre-trial. (Rule on Guidelines to be
Observed by Trial Court Judges and Clerks of Court in the Conduct of
Pre-trial and Use of Deposition-Discovery Measures, Sec. IB[3Ja)
(c) During the pre-trial conference. — The Court at the pretrial conference shall consider the following:
(1)
Stipulation of facts and issues raised;
(2) Marking for identification of evidence of the
parties;
(3) Waiver of objections to admissibility of evidence;
(4) Modification of order of trial; and
(5) Such matters as will promote a fair and expeditious
trial of the criminal and civil aspects of the case. (Rules of
Court, Rule 118, sec. la).
438
TAX PRINCIPLES A N D R E M E D I E S
All agreements or admissions made or entered during the
pre-trial conference shall be in writing and signed by the accused
and counsel; otherwise, they cannot be used in evidence against
the accused. The agreements shall be subject to the approval of
the Court. (Rule on Guidelines to be Observed by Trial Court Judges
and Clerks of Court in the Conduct of Pre-trial and Use of DepositionDiscovery Measures, Sec. IB[8]a; and Rules of Court, Rule 118, sec. 2a)
The Court may impose appropriate sanctions or penalties
on the accused or counsel or the prosecutor who does not appear
at the pre-trial conference and does not offer an acceptable excuse
for his absence and lack of cooperation. (Rules of Court, Rule 118,
sec. 3a)
(d) Pre-trial order. — After the pre-trial conference, the
Court shall issue a pre-trial order reciting the actions taken, the
facts stipulated, the admissions made, evidence marked, and
such other matters covered during the pre-trial conference. The
order shall bind the parties, limit the trial to matters not disposed
of and control the course of the action during the trial, unless
modified by the Court to prevent manifest injustice. (Rules of
Court, Rule 118, sec. 4a)
RULE 12
TRIAL
SECTION 1. Procedure. — The Court shall conduct the trial
in accordance with Rule 30 of the Rules of Court in civil cases
and Rule 119 thereof in criminal cases, (n)
SEC. 2. Power of the Court to receive evidence. — The Court
may receive evidence in the following cases:
(a) In all cases falling within the original jurisdiction of the
Court in Division pursuant to Section 3, Rule 4 of these Rules;
and
(b) In appeals in both civil and criminal cases where the
Court grants a new trial pursuant to Section 2, Rule 53 and
Section 12, Rule 124 of the Rules of Court, (n)
SEC. 3. Taking of evidence by a justice. — The Court may,
motu proprio or upon proper motion, direct that a case, or any
APPENDIX " K "
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439
issue therein, be assigned to one of its members for the taking of
evidence, when the determination of a question of fact arises at
any stage of the proceedings, or when the taking of an account is
necessary, or when the determination of an issue of fact requires
the examination of a long account. The hearing before such
justice shall proceed in all respects as though the same had been
made before the Court.
Upon the completion of such hearing, the justice concerned
shall promptly submit to the Court a written report thereon,
stating therein his findings and conclusions. Thereafter, the
Court shall render its decision on the case, adopting, modifying,
or rejecting the report in whole or in part, or, the Court may, in its
discretion, recommit it to the justice with instructions, or receive
further evidence, (n)
SEC. 4. Taking of evidence by Court official. — In default or ex
parte hearings, or in any case where the parties agree in writing,
the Court may delegate the reception of evidence to the Clerk
of Court, the Division Clerks of Court, their assistants who
are members of the Philippine bar, or any Court attorney. The
reception of documentary evidence by a Court official shall be
for the sole purpose of marking, comparison with the original,
and identification by witnesses of such documentary evidence.
The Court official shall have no power to rule on objections to
any question or to the admission of exhibits, which objections
shall be resolved by the Court upon submission of his report and
the transcripts within ten days from termination of the hearing.
(Rules of Court, Rule 30, sec. 9a)
SEC. 5. Presentation of voluminous documents or long accounts.
— In the interest of speedy administration of justice, the following
rules shall govern the presentation of voluminous documents
or long accounts, such as receipts, invoices and vouchers, as
evidence to establish certain facts:
(a) Summary and CPA certification. — The party who desires
to introduce in evidence such voluminous documents or long
accounts must, upon motion and approval by the Court, refer
the voluminous documents to an independent Certified Public
Accountant (CPA) for the purpose of presenting:
440
TAX PRINCIPLES A N D R E M E D I E S
(1) a summary containing, among other matters, a
chronological listing of the numbers, dates and amounts
covered by the invoices or receipts and the amounts) of
taxes paid; and
(2) a certification of an independent CPA attesting to
the correctness of the contents of the summary after making
an examination, evaluation and audit of voluminous
receipts, invoices or long accounts.
The name of the Certified Public Accountant or partner of a
professional partnership of certified public accountants in charge
must be stated in the motion. The Court shall issue a commission
authorizing him to conduct an audit and, thereafter, testify
relative to such summary and certification.
(b)
Pre-marking and availability of originals. — The receipts,
invoices, vouchers or other documents covering the said accounts
or payment to be introduced in evidence must be pre-marked by
the party concerned and submitted to the Court in order to be
made accessible to the adverse party who desires to check and
verify the correctness of the summary and CPA certification. The
original copies of the voluminous receipts, invoices or accounts
must be ready for verification and comparison in case doubt on
its authenticity is raised during the hearing or resolution of the
formal offer of evidence, (n)
RULE 13
TRIAL BY COMMISSIONER
SECTION 1. Appointment of independent Certified Public
Accountant (CPA). — A party desiring to present voluminous
documents in evidence before the Court may secure the services
of an independent Certified Public Accountant (CPA) at its own
expense. The Court shall commission the latter as an officer of the
Court solely for the purpose of performing such audit functions
as the Court may direct, (n)
SEC. 2. Duties of independent CPA. — The independent CPA
shall perform audit functions in accordance with the generally
APPENDIX " K "
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441
accepted accounting principles, rules and regulations, which
shall include:
(a) Examination and verification of receipts, invoices,
vouchers and other long accounts;
(b) Reproduction of, and comparison of such reproduction
with, and certification that the same are faithful copies of original
documents, and pre-marking of documentary exhibits consisting
of voluminous documents;
(c) Preparation of schedules or summaries containing a
chronological listing of the numbers, dates and amounts covered
by receipts or invoices or other relevant documents and the
amount(s) of taxes paid;
(d) Making findings as to compliance with substantiation
requirements under pertinent tax laws, regulations and jurisprudence;
(e) Submission of a formal report with certification of
authenticity and veracity of findings and conclusions in the
performance of the audit;
(f)
Testifying on such formal report; and
(g) Performing such other functions as the Court may
direct.
SEC. 3. Findings of independent CPA. — The submission
by the independent CPA of pre-marked documentary exhibits
shall be subject "to verification and comparison with the
original documents, the availability of which shall be the
primary responsibility of the party possessing such documents
and, secondarily, by the independent CPA. The findings and
conclusions of the independent CPA may be challenged by the
parties and shall not be conclusive upon the Court, which may,
in whole or in part, adopt such findings and conclusions subject
to verification, in)
SEC. 4. Other referral to commissioner. — Whenever practicable
and convenient, the Court may apply the procedure prescribed
in Rule 32 of the Rules of Court. When the parties stipulate that
442
TAX P R I N C I P L E S A N D R E M E D I E S
a commissioner's findings of fact shall be final, only questions of
law shall thereafter be considered, (n)
SEC. 5. Compensation of Commissioner. — The Court shall
allow the commissioners such reasonable compensation as the
circumstances of the case may warrant. (Rules of Court, Rule 32,
sec. 13a)
RULE 14
JUDGMENT, ITS ENTRY AND EXECUTION
SECTION 1. Rendition of judgment. — The Court shall
decide the cases brought before it in accordance with Section
15, paragraph (1), Article VIII of the 1987 Constitution. The
conclusions of the Court shall be reached in consultation by the
Members on the merits of the case before its assignment to a
Member for the writing of the decision. The presiding justice or
chairman of the Division shall include the case in an agenda for a
meeting of the Court en banc or in Division, as the case may be, for
its deliberation. If a majority of the justices of the Court en banc or
in Division agree on the draft decision, the ponente shall finalize
the decision for the signature of the concurring justices and its
immediate promulgation. Any justice of the Court en banc or in
Division may submit a separate written concurring or dissenting
opinion within twenty days from the date of the voting on the
case. The concurring and dissenting opinions, together with the
majority opinion, shall be jointly promulgated and attached to
therollo.
bri
In deciding the case, the Court may not limit itself to the
issues stipulated by the parties but may also rule upon related
issues necessary to achieve an orderly disposition of the case.
(2002 Internal Rules of the Court of Appeals, Rule VI, sees. 9 and 10a;
and Rules of Court, Rule 51, sec. 2a)
SEC. 2. Form of decision. — Every decision or final resolution
of the Court shall be in writing, stating clearly and distinctly the
findings of fact and the conclusions of law on which it is based,
and signed by the justices concurring therein. Such findings and
conclusions shall be contained in the decision or final resolution
APPENDIX " K "
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A.M. NO. 05-11-07-CTA
itself. However, in appealed cases, the Court may adopt by
reference the findings and conclusions set forth in the decision,
order or resolution appealed from.
Every decision of the Court shall be accompanied by a
certification signed by the presiding justice or acting presiding
justice, chairman or most senior member as acting chairman of
the Court en banc or in Division in the following form:
"Pursuant to Article VIII, Section 13 of the Constitution,
it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court." (Rules of
Court, Rule 51, sec. 5a; and 2002 Internal Rules of the Court of
Appeals, Rule VI, sec. 11a)
SEC. 3. Amended decision. — Any action modifying or
reversing a decision of the Court en banc or in Division shall be
denominated as Amended Decision. (2002 Internal Rules of the
Court of Appeals, Rule VI, sec. 12a)
SEC. 4. Resolution. — Any disposition of the Court en banc
or in Divisions other than on the merits shall be embodied in a
Resolution. (2002 Internal Rules of the Court of Appeals, Rule VI,
sec. 12a)
SEC. 5. Promulgation and notice of decision and resolution. —
The Clerk of Court or Deputy Clerk of Court shall have the direct
responsibility for the promulgation of the decision and resolution
of the Court. He shall see to it that the decision and resolution are
properly signed by the concurring and dissenting justices and
the required certification is duly accomplished.
Promulgation consists of the filing of the decision or
resolution with the Clerk of Court or Division Clerk of Court,
who shall forthwith annotate the date and time of receipt and
attest to it by his signature thereon. He shall serve notice of
such decision or resolution upon the parties or their counsel,
furnishing them with certified true copies thereof. (2002 Internal
Rules of the Court of Appeals, Rule VI, sec. 13a; and Rules of Court,
Rule 51, sec. 9a)
TAX PRINCIPLES A N D R E M E D I E S
In criminal cases originally filed with and decided by
the Court in Division, the chairman shall cause the decision
or resolution to be filed with the Division Clerk of Court in a
sealed envelope, who shall schedule its promulgation, giving
notice to the prosecution, the accused personally or through his
bondsman or warden, and counsel requiring their presence at
the promulgation.
The promulgation shall consist of the reading by the
Division Clerk of Court of the dispositive portion of the decision
or resolution in the presence of the accused and a justice of the
Division that rendered the same. If the accused is detained, the
warden shall produce him before the Court. However, if he is
detained outside Metro Manila, the Court may authorize the
executive judge of the Regional Trial Court having territorial
jurisdiction over the place of detention to promulgate the decision
or resolution at such place. (Rules of Court, Rule 120, sec. 6a)
SEC. 6. Entry of judgment and final resolution. — If no appeal
or motion for reconsideration or new trial is filed within the time
provided in these Rules, the Clerk of Court shall forthwith enter
the judgment or final resolution in the book of judgment. The
date when the judgment or final resolution becomes executory
shall be deemed the date of its entry. The entry shall contain the
dispositive part of the judgment or final resolution and shall
be signed by the Clerk of Court, with a certification that such
judgment or resolution has become final and executory. (Rules of
Court, Rule 51, sec. 10a)
SEC. 7. Execution of judgment. — Upon the expiration of the
period to appeal from a judgment or order that disposes of the
action or proceeding and no appeal has been duly perfected,
execution shall issue as a matter of right, on motion.
If an appeal has been duly perfected and finally resolved,
execution may be forthwith applied for in the court of origin, on
motion of the judgment oblige, submitting therewith a certified
true copy of the judgment or final order sought to be enforced
and of its entry, with notice to the adverse party. (Rules of Court,
Rule 39, sec. la)
APPENDIX " K "
A.M. NO.05-11-07-CTA
445
RULE 15
MOTION FOR RECONSIDERATION
OR NEW TRIAL
SECTION 1. Who may and when to file motion. — Any
aggrieved party may seek a reconsideration or new trial of any
decision, resolution or order of the Court. He shall file a motion
for reconsideration or new trial within fifteen days from the date
he received notice of the decision, resolution or order of the Court
in question. (RCTA, Rule 13, sec. la)
SEC. 2. Opposition. — The adverse party may file an opposition to the motion for reconsideration or new trial within ten
days after his receipt of a copy of the motion for reconsideration or new trial of a decision, resolution or order of the Court.
(RCTA, Rule 13, sec. 2a)
SEC. 3. Hearing of the Motion. — The motion for reconsideration or new trial, as well as the opposition thereto, shall embody
all supporting arguments and the movant shall set the same for
hearing on the next available motion day. Upon the expiration
of the period set forth in the next preceding section, without any
opposition having been filed by the other party, the motion for
reconsideration or new trial shall be considered submitted for
resolution, unless the Court deems it necessary to hear the parties on oral argument, in which the case the Court shall issue the
proper order. (RCTA, Rule 13, sec. 3a)
SEC. 4. Effect of filing the motion. — The filing of a motion
for reconsideration or new trial shall suspend the running of the
period within which an appeal may be perfected. (RCTA, Rule
13, sec. 4a)
SEC. 5. Grounds of motion for new trial. — A motion for
new trial may be based on one or more of the following causes
materially affecting the substantial rights of the movant:
(a) Fraud, accident, mistake or excusable negligence
which ordinary prudence could not have guarded against and
by reason of which such aggrieved party has probably been
impaired in his rights; or
446
TAX PRINCIPLES AND REMEDIES
(b) Newly discovered evidence, which he could not, with
reasonable diligence, have discovered and produced at the trial
and, which, if presented, would probably alter the result.
A motion for new trial shall include all grounds then
available and those not included shall be deemed waived. (Rules
of Court, Rule 37, sec. la)
SEC. 6. Contents of motion for reconsideration or new trial and
notice. — The motion shall be in writing stating its grounds, a
written notice of which shall be served by the movant on the
adverse party.
A motion for new trial shall be proved in the manner
provided for proof of motions. A motion for the cause mentioned
in subparagraph (a) of the preceding section shall be supported
by affidavits of merits which may be rebutted by counteraffidavits. A motion for the cause mentioned in subparagraph
(b) of the preceding section shall be supported by affidavits of
the witnesses by whom such evidence is expected to be given,
or by duly authenticated documents which are proposed to be
introduced in evidence.
A motion for reconsideration or new trial that does not
comply with the foregoing provisions shall be deemed pro forma,
which shall not toll the reglementary period for appeal. (Rules of
Court, Rule 37, sec. 2a)
SEC. 7. No second motion for reconsideration or for new
trial. — No party shall be allowed to file a second motion for
reconsideration of a decision, final resolution or order; or for new
trial. (Rules of Court, Rule 52, sec. 2a)
SEC. 8. Ruling. — The Court shall resolve the motion for
reconsideration or new trial within three months from the time it
is deemed submitted for resolution. (Rules of Court, Rule 52, sec.
3a)
RULE 16
APPEAL
SECTION 1. Appeal to Supreme Court by petition for review on
certiorari. — A party adversely affected by a decision or ruling
APPENDIX " K "
A.M. NO. 05-11-07-CTA
447
of the Court en banc may appeal therefrom by filing with the
Supreme Court a verified petition for review on certiorari within
fifteen days from receipt of a copy of the decision or resolution, as
provided in Rule 45 of the Rules of Court. If such party has filed
a motion for reconsideration or for new trial, the period herein
fixed shall run from the party's receipt of a copy of the resolution
denying the motion for reconsideration or for new trial, (n)
SEC. 2. Effect of appeal. — The motion for reconsideration or
for new trial filed before the Court shall be deemed abandoned
if, during its pendency, the movant shall appeal to the Supreme
Court pursuant to Section 1 of this Rule. (2002 Internal Rules of the
Court of Appeals, Rule VI, sec. 15a)
RULE 17
LEGAL FEES AND COSTS
SECTION 1. Additional fees and costs. — In addition to the fees
prescribed in Rule 141 of the Rules of Court and all amendments
thereto, the following legal fees and costs shall be collected:
(a) For reception of evidence by a Court official pursuant
to Section 4, Rule 12 of these Rules five hundred pesos for each
day of actual sessions; and
(b) For any other services of the Clerk of Court and other
Court officials not provided for in Rule 141 of the Rules of Court,
two hundred pesos;.
RULE 18
EFFECTIVITY
SECTION 1. Effectivity of the Revised Rules. — These Rules
shall take effect on the fifteenth day of December 2005 following
their publication in a newspaper of general circulation in the
Philippines not later than 25 November 2005. (n)
TAX
PRINCIPLES
A
N
D
REMEDIES
by
JAPAR B. DIMAAMPAO
Associate Justice, Court of Appeals
Professor of Law and Bar Reviewer
FOURTH EDITION
2011
Published & Distributed by
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by
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in different electronic devices or in any other form, for
distribution or sale, without the written permission
of the author except brief passages in books, articles,
reviews, legal papers, and judicial or other official
proceedings with proper citation.
Any copy of this book without the
corresponding number and the signature of the author
on this page either proceeds from an illegitimate
source or is in possession of one who has no authority
to dispose of the same.
ALL RIGHTS RESERVED
BY THE AUTHOR
N?
1904
Printed by
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•
FOREWORD
Recently we have seen a tremendous multiplication of treatises on various legal fields. Despite this development, however,
few annotators have dared to tread the intricate pathways of
Taxation. As a result, we have a scarcity of legal resources on this
important yet little discussed subject. Taxes are the lifeblood of
State, and it is unfortunate that there are not enough dissertations
that can explain to lawyers and non-lawyers alike the entire
expanse of this subject.
This work by Judge Japar B. Dimaampao is thus a welcome
contribution to our country's growing legal atheneum. Having
taught the subject as a law professor and a Bar reviewer, Judge
Dimaampao truly knows Taxation like the back of his hand. His
ease with the subject is evident, and his confidence in discussing
tax issues is reassuring.
Like any good law book, this volume discusses the general
rules of Taxation, the exceptions to the rules, and then the
exceptions to the exceptions. The book goes the extra mile,
however, by integrating various sources of taxation principles,
including laws, local jurisprudence and foreign authorities. And
then there is the matter of the extensive breadth of the discussion,
which exhausts all.
The wealth of learning encased here can intimidate even the
keenest of readers, but the author's lucid explications facilitate the
comprehension of an exceedingly complex field of law. This is a
guidebook that no student of law should be left without. Indeed, it
would be helpful even to those who wish only to better understand
the workings of government.
I am much pleased that this expertly crafted commentary
is now part of our country's legal wealth. It deals with a subject
that must be understood by all, and it provides the means by
which such understanding may be had. The realization of justice
is expedited by knowledge of the law, and in this sense, I am
thankful that we have this book to help our countrymen realize
justice.
City of Manila, 11 July 2002.
HILARIO G. DAVIDE, JR.
PREFACE TO THE 2011 REVISED EDITION
The encomiastic reception of the book inspired this latest
edition. The simplified yet comprehensive approach of the book's
first three publications had been scrupulously adopted.
The core revisions in this edition consist of jurisprudential
pronouncements on tax principles, particularly the limitations
on the power to tax, exemption of instrumentalities of the
national government from taxation, progressive taxation vis-d-vis
regressive taxation and direct double taxation. For tax remedies,
this publication includes a discourse on recent cases delving on
tax refund and its two-fold purpose, computation of the two-year
prescriptive period for filing tax refund, and the proper party who
may seek refund of indirect tax. The 2010 case of Allied Banking
Corporation v. Commissioner of Internal Revenue, 611 SCRA 692, and
its resounding impact on the rule on exhaustion of administrative
remedies discernibly draw cognizance.
This oeuvre also contains considerable discussions on
assessment, collection, Best Evidence Rule as now envisaged under
Section 6 of the present NIRC, and the rationale behind the No
Injunction Rule. Notations on Republic Act No. 9503 reflecting
the increase in the composition of the Court of Tax Appeals from
a division of three Justices to three divisions of nine Justices,
the CTA's rules on documentary evidence and the purpose of
automatic review in customs cases are exigent additions to this
publication.
The author's earnest and unceasing desire is to unriddle the
complexities of taxation for lawyers, students and bar reviewees.
May this humble opus turn the vision into reality.
Las Pifias, 3 January 2011.
JBD
PREFACE TO THE 2008 R E V I S E D EDITION
This publication is yet another modest attempt to probe
through the labyrinth of taxation. In the years that have passed
since the last edition came out, the field of taxation has been
enriched by significant pronouncements of the Supreme Court.
This edition accentuates decisional rules on the Expanded
Senior Citizen's Act under Republic Act No. 9257, as well as the
Destination Principle under the Reformed Value Added Tax Law
or Republic Act No. 9337. It also includes a vital discussion on the
strict observance of the rule on valid assessment and tax refund.
The Revised Rules of the Court of Tax Appeals has been added
for better appreciation of the considerable role that this collegiate
court has taken in the adjudication of tax cases.
May this publication merit the same enthusiastic response
that it has previously enjoyed. It is the author's hope that this book
continue to be of help to lawyers, bar reviewees and law students
in their quest for knowledge.
Las Pinas, 28 February 2008.
JBD
PREFACE TO THE 2005 REVISED EDITION
This revised edition includes updates on various jurisprudence
involving tax principles and remedies recently pronounced bythe Supreme Court. The main addition, however, is the outlined
discussion on the salient features of R.A. 8292 which significantly
expanded the jurisdiction of the Court of Tax Appeals and
redefined its role and rank as a Collegiate Court in the Judiciary.
As with the first edition, the purpose this revised edition seeks
to achieve anchors on the author's desire to present the issues in
taxation in a comprehensive yet comprehensible manner.
JBD
ix
PREFACE TO THE 2002 EDITION
Taxation is one of the most difficult subjects in the Bar.
In a large sense, law students and bar candidates have found
the subject very technical, especially those who never had any
experience in taxation in their undergraduate studies.
As a Professor and a Bar Reviewer in Taxation, I have
observed that law students and bar candidates have some
difficulties understanding not only the intricacies of taxation law,
but also the fundamentals and basic structures involved in the
discipline.
This encouraged me to publish a book for the use and benefit
of bar reviewees and law students. To this end, "Tax Principles and
Remedies'' is intended to help law students and bar reviewees,
as well, to understand taxation law in a simplified manner.
Beyond this, this humble work aims to provide clarification
and understanding to frequently asked questions about taxation
law, in such a way that the answers could easily be grasped and
committed to memory by the law student, bar reviewee and tax
practitioner.
This book contains the author's synthesized lectures in Bar
Review classes; jurisprudential opinions of Judge Cooley, a noted
authority in Taxation; settled Tax Rules; and recent decisions of
the Supreme Court on the subject.
It is fervently hoped that this book would be of great
assistance to law students, bar reviewees, professors, lawyers,
and tax practitioners, in their pursuit of excellence in the noble
profession of law.
JBD
To
my parents,
for encouraging me to achieve
and pursue my dreams
and
my beloved wife, GIN A,
for inspiring me to reach the heights
of my destiny
ACKNOWLEDGMENTS
Time and again, I have been asked if it would be possible
to write a book on Taxation — one that is easy to grasp and
understand. Finally, words of encouragement and unwavering
support from my family, friends and colleagues have inspired me
to start and eventually finish this book.
It was once said that it takes a whole village to raise a child.
The writing of this book is a truism of this adage.
Thus, my deepest gratitude to:
Honorable Hilario G. Davide, Jr., Chief Justice of the Supreme
Court of the Philippines, who willingly gave the FOREWORD of
this first book, saying therein that my book, having been expertly
crafted, "is now part of our country's legal wealth."
Former Justice Secretary now Dean of the College of Law of
MLQU, Dean Artemio Tuquero, for reposing in me such trust and
confidence and for sharing in my belief that the task of conferring
knowledge is sacred. Thank you too, Sir, for all the years of
guidance and friendship;
Atty. Juliet M. Manalo and Ms. Fatima H. Magtibay, both
former students, for turning their nights into days to do an
extensive research on the subject;
Ms. Ynna F. Adalla, also a former student, for proofreading
every page of this book;
Dean Ed Vincent Albano, for continuously firing me up to
put my knowledge into writing;
Mrs. Cecille V. Dumdum, for tirelessly typing and encoding
the text;
Ms. Maia V. Dumdum, whose comments and suggestions,
being a student herself, did not fall on deaf ears instead taken and
used in the writing of the book;
Ms. Cecille B. Bulaong, for her indefatigable desire to finish
the typing and encoding the entirety of the book;
My former students, Cathy Cunanan, Mads Albano, Emer
Francia, who are all lawyers now, for their never ending support
and backing up;
My staff at Branch 208, RTC, Mandaluyong City, Norbie
Torres and Mhel Ballesteros for their technical support;
My friends, for airlifting me out of the many jams of writing
a book;
Rex Bookstore, Inc., its late Chairman Juanito F. Fontelera
and Arty. Ernesto C. Salao for their assistance;
All my students, for the confidence and faith they reposed
in me as their professor in Taxation;
and finally
to ALMIGHTY GOD, the ultimate source of knowledge and
wisdom.
Forever, I will be thankful.
JBD
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('US-7&4S')).
CONTENTS
CHAPTER I
GENERAL PRINCIPLES
I.
II.
Taxation Defined
Basis of Taxation
1
2
A.
2
Taxation and the Lifeblood Doctrine
Cases for Study
CIR v. BPI, 521 SCRA 373, 387-388
CIR v. Pineda, 21 SCRA 105
Vera v. Fernandez, 89 SCRA 199
CIR v. CTA, 234 SCRA 348
Commissioner v. Algue, Inc., 158 SCRA 9 .
YMCA v. CIR, 298 SCRA 83
Davao Gulf Lumber Corp. v. CIR,
293 SCRA 77
Marcos II v. CA, 273 SCRA 47
Reyes v. Almanzor, 196 SCRA 322
PB Com v. CIR, 302 SCRA 250
Phil. Guaranty, Co., Inc. v. CIR, 13 SCRA 775
Philex Mining Corp. v. CIR,
294 SCRA 687
North Camarines Lumber Co. v. CIR,
109 Phil. 511
ID.
2
3
4
5
6
7
8
8
9
9
10
10
10
B.
Theories on Taxation
11
C.
Liabilities Involved
12
Nature of the Taxing Power
A.
B.
Taxation as an Inherent Attribute
of Sovereignty
Taxation as Legislative in Character
xix
13
13
14
IV. Aspects, Processes, Phases of Taxation
A.
Levy/Imposition
Scope of the Legislative Power to Tax
14
14
15
Cases for Study
V.
Lutz v. Araneta, 98 Phil. 148
Gomez v. Palomar, 25 SCRA 827
Punsalan v. Mun. Board of the
City of Manila, 95 Phil. 46
Is the Power to Tax the Power to Destroy
Judicial Review of Taxation
15
16
B.
Assessment and Collection
21
C.
Payment
21
17
18
20
Purposes of Taxation
22
A.
B.
22
22
22
Primary Purpose: To Raise Revenues
Secondary Purposes
Reduction of Social Inequality
Encourage the Growth of Local
Industry
Protection of the Local Industry
As an Implement of the Police Power
VI. Extent of the Taxing Power
VII. Principles of a Sound Tax System
Fiscal Adequacy
Theoretical Justice
Administrative Feasibility
VIII. Taxation Distinguished from Other Inherent
Powers and Impositions
A. Police Power
B. Eminent Domain
C. Other Impositions
Special Assessment
License
Toll
Penalty
Debt
XX
23
23
23
26
27
27
27
27
28
28
29
29
29
30
31
31
32
Cases for Study
Francia v. IAC, 162 SCRA 753
Domingo v. Garlitos, 8 SCRA 443
Philex Mining Corp. v. CIR,
294 SCRA 687
LX.
Limitations on the Taxing Power
A.
Inherent Limitations
1.
Public Purpose
33
34
35
35
36
36
Cases for Study
2.
3.
Gomez v. Palomar, 25 SCRA 827
Lutz v. Araneta, 98 Phil. 148
Tio v. VRB, 151 SCRA 208
City of Baguio v. De Leon,
25 SCRA 938
Bagatsing v. Ramirez, 74 SCRA 306...
Pascual v. Secretary of Public
Works, 110 SCRA 331
International Comity
Territoriality
Mobilia Sequuntur Personam
Commissioner v. BOAC,
149 SCRA 395
38
39
40
40
41
41
42
43
44
46
Case for Study
Atlas Consolidated Mining and
Development Corp. v.
Commissioner of Internal
Revenue, 524 SCRA 731,103
4.
Non-Delegation of the Power to Tax
48
48
Cases for Study
Board of Assessment Appeals of
Laguna v. CTA, 8 SCRA 224
Pepsi-Cola Bottling Co. v. City of
Butuan,24SCRA789
Pepsi-Cola Bottling Co. v. Municipality
of Tanauan, 69 SCRA 460
xxi
50
50
50
5.
Osmena v. Orbos, 220 SCRA 703
Villegas v. Hiu Chiong Tsai Pao Ho,
86 SCRA 270
Gomez v. Palomar, 25 SCRA 827
Bagatsing v. Ramirez, 74 SCRA 306...
Exemption from Taxation of Government
Agencies/Instrumentalities
51
52
53
54
54
Cases for Study
Standard Oil Company of New
York v. Posadas, 55 Phil. 715
Board of Assessment Appeals v. CTA,
8 Phil. 227
National Development Co. v. Cebu
City, 215 SCRA 382
ESSO Standard Eastern, Inc. v.
Acting Commissioner of
Customs, 18 SCRA 488
B.
58
58
59
60
Constitutional Limitations
61
1.
62
Due Process of Law
Cases for Study
2.
Carlos Superdrug Corp. v. DSWD,
526 SCRA 130,140,143-145
Reyes v. Almanzor, 196 SCRA 322
Commissioner of Internal Revenue v.
CA, 261 SCRA 236
Equal Protection of the Law
68
69
70
71
Cases for Study
Gomez v. Palomar, 25 SCRA 827
Eastern Theatrical Co. v. Alfonso,
83 Phil. 852
Manila Race Horse Trainers Assn., Inc. v.
De la Fuente, 88 Phil. 60
Punsalan v. Mun. Board of the
City of Manila, 95 Phil. 46
City of Baguio v. De Leon,
25 SCRA 938
75
76
77
78
79
3.
Sison v. Ancheta, 130 SCRA 654.._
Juan Luna Subdivision, Inc. v.
Sarmiento, 91 Phil. 371
Association of Custom Brokers, Inc.
v. Mun. Board, City of Manila,
93 Phil. 107
Ormoc Sugar Co., Inc. v. Treasurer
of Ormoc City, 22 SCRA 603
Reyes v. Almanzor, 196 SCRA 322
Villegas v. Hsiu Chiong Chai Pao,
86 SCRA 270
Misamis Oriental Association of Coco
Traders, Inc. v. Department of
Finance Secretary, 238 SCRA 63.
Tolentino v. Secretary of Finance,
235 SCRA 630
Uniformity of Taxation
79
80
81
82
83
84
84
85
88
Case for Study
4.
5.
Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas v.
Tan, 163 SCRA 371
Progressive Taxation
Non-Impairment Clause
89
90
91
Cases for Study
Casanovas v. Hord, 8 Phil. 125
6.
7.
95
Tolentino v. Secretary of Finance,
235 SCRA 630
95
Cagayan Electric Power and Light
Co., Inc. v. Commissioner,
G.R. No. 60126, September 25,1985 96
Philippine Power and Development
Co. v. Commissioner, CTA
Case No. 1152, October 31,1965
96
Non-Imprisonment for Non-Payment
of Poll Tax
97
Bills to Originate from the House
of Representatives
97
Case for Study
8.
9.
10.
Tolentino v. Secretary of Finance,
235 SCRA 630
Veto Power of the President
President's Power to Tax
Taxation and the Freedom of the Press
97
101
102
103
Case for Study
Tolentino v. Secretary of Finance,
235 SCRA 630
11. Taxation and Freedom of Religion
12. Tax Exemption of Properties Used
for Religious, Charitable, and
Educational Purposes
Controlling Doctrine on Exemption from
Taxation of Real Property of Religious,
Charitable, and Educational
Institutions
103
104
105
106
Cases for Study
Abra Valley College, Inc. v. Aquino,
162 SCRA 106
Rev. Lladoc v. CIR, 14 Phil. 292
YMCA of Manila v. Collector of
Internal Revenue, 33 Phil. 217...
Bishop of Nueva Segovia v. Prov.
Board of Ilocos Norte, 51 Phil. 352
Herrera v. Quezon City Board of
Assessment Appeals, 3 SCRA 186
and Commissioner of Internal
Revenue v. Bishop of the
Missionary District,
14 SCRA 991
Province of Abra v. Hernando,
107 SCRA 104
13. Tax Exemptions Granted to Non-Stock,
Non-Profit Educational Institutions..
14. Appropriation of Public Money
15. Grant of Tax Exemptions
x»v
108
110
Ill
111
Ill
112
112
117
118
Cases for Study
ESSO Standard Eastern, Inc. v.
Acting Comm. of Customs,
18 SCRA 488
Misamis Oriental Association of Coco
Traders, Inc. v. Department
of Finance Secretary,
238 SCRA 63
16. Local Taxation
122
123
124
Cases for Study
X.
Villanueva v. City of Iloilo,
26 SCRA 578
Pepsi-Cola Bottling Co. v. Mun.
of Tanauan, Leyte, 69 SCRA 460
Pepsi-Cola Bottling Co. v. City
of Butuan, 24 SCRA 789
17. Special Fund
Case for Study
Osmena v. Orbos, 220 SCRA 703
18. Supreme Court's Jurisdiction Over
Tax Cases
Kinds of Taxes Differentiated
Direct and Indirect
Specific and Ad Valorem
General and Special
National and Local
Personal and Property
Progressive and Regressive
XI. Concept of Double Taxation
XII. Tax Evasion and Tax Avoidance
128
129
130
130
130
133
134
134
135
136
136
136
137
137
140
Case for Study
Ungab Doctrine Sustained in CIR v. Pascor,
309 SCRA 402
XIII. Doctrine of Imprescriptibility
XTV. Nature and Prospectivity of Tax Laws
XV. Taxpayer's Suit, Requisites
XXV
144
145
146
147
CHAPTER II
TAX REMEDIES
I.
Remedies of the Government
A. Assessment and Collection
Commissioner's Recommendation Letter
cannot be considered as Formal
Assessment of Tax Liability
Presumption of Regularity
of Assessment
148
148
149
150
Cases for Study
Commissioner of Internal Revenue v.
Court of Appeals, G.R. No. 104151....
Republic of the Philippines v. Court
of Appeals, 149 SCRA 351
Assessment Deemed Made
Meaning of Best Evidence
Existing Revenue Procedures and
Jurisprudence Governing Assessment
Assessment Based on Estimate
Networth Method of Investigation
B.
Remedies for Collection of Delinquent Taxes....
1.
Distraint and Levy
Procedure for Actual Distraint
150
152
153
154
155
156
157
157
158
161
Case for Study
Collector of Internal Revenue v.
Flores vda. de Codinera,
102 Phil. 1165
Procedure on Levy of Real
Property
164
165
Cases for Study
Cabrera v. Provincial Treasurer of
Tayabas, C.A. No. 502,
January 29,1946
Valencia v. Jimenez, No. 4406,
October 23,1908
168
169
2.
3.
Some Principles Governing Distraint
and Levy
Civil Action
A proceeding in Court after the
Collection of Tax may be
begun without assessment
Criminal Action
Criminal Complaint for Tax
Evasion Distinguished from
Assessment
171
173
174
177
178
Case for Study
Ungab v. Cusi, Jr.,
97 SCRA 877
4.
Compromise
Cases Which May Be
Compromised
Basis for Acceptance of
Compromise Settlement
Prescribed Minimum Percentages
of Compromise Settlement
Cases Which Cannot Be
Compromised
5. Tax Liens
Government's Claim Predicated on
a Tax Lien is Superior to
Claim Based on Judgment
6.
Forfeiture
7.
Civil Penalties
C. No Injunction to Restrain Tax Collection
Rationale of the No Injunction Rule
II.
179
180
181
182
185
188
189
190
190
191
192
192
Statute of Limitations
193
A.
Assessment of the Tax Liability
195
B.
Case for Study
Mambulao Lumber Company v. Republic,
132 SCRA 1
Collection of the Tax
196
197
xxvii
C.
Cases for Study
Fernandez Hermanos, Inc. v. Commissioner
of Internal Revenue, 29 SCRA 552
Republic v. Araneta, 2 SCRA 144
Marcos II v. Court of Appeals,
273 SCRA 47
Fraudulent or False Return
What Constitutes Fraud
Criminal Liability
Suspension of Prescriptive Periods
Case for Study
Republic v. Hizon, 320 SCRA 574
i n . Taxpayer's Remedies
A. Protest Against Assessment
Request for Reconsideration Distinguished
From Request for Reinvestigation
197
198
199
202
202
203
204
205
207
207
208
Case for Study
Commissioner of Internal Revenue
v. Villa, 22 SCRA 3
B. Claim for Refund
Two-fold Purpose of Tax Refund
Tax Refunds are not founded principally
On Legislative Grace
Tax Refund and Tax Credit Distinguished ....
Requirements for Refund Claims
Computation of the Two-Year Period
The Two-Year Prescriptive Period for
Filing of Tax Refund
210
213
214
214
215
215
219
222
CHAPTER III
THE NEW COURT OF TAX APPEALS
Salient Features of R.A. No. 9282
Expanded Jurisdiction of the CTA
Composition
Appeals
Assumption to Office
xxviii
229
229
230
230
230
CTA Proceedings
•••
Jurisdiction Over Both Civil and Criminal Aspects
CTA shall not be Governed by the Technical
Rules of Evidence
As a Court of Record, CTA is bound by the Rules on
Documentary Evidence
Outline of Jurisdiction
Exclusive Appellate Jurisdiction to Review by
Appeal
Criminal and Civil Cases
Exclusive Original Jurisdiction
Exclusive Appellate Jurisdiction
Who may Appeal?
What is the Mode of Appeal?
When distraint of Personal Property/Levy on
Real Property shall issue?
Appeal to the CTA shall not Suspend the Payment, Levy,
Distraint and Sale of Taxpayer's Property
Final Notice before Seizure
2 3 0
231
231
232
233
233
235
235
236
236
237
237
238
238
APPENDICES
APPENDIX "A"
Significant Jurisprudence and Doctrines
in Taxation
247
APPENDIX "B"
Revenue Regulations No. 12-99
294
APPENDIX "C"
Revenue Memorandum Circular No. 23-2000
303
APPENDIX "D"
Revenue Memorandum Circular No. 5-2001
315
APPENDIX "E"
Revenue Regulations No. 7-2001
318
APPENDIX "F"
Revenue Regulations No. 8-2004
326
APPENDIX "G"
Republic Act No. 1125, as amended by Republic
Act No. 3457
xxix
An Act Creating the Court of Tax Appeals
APPENDIX "H"
Republic Act No. 9282
APPENDIX "I"
2011 Bar Coverage for Taxation
APPENDIX ")"
Bar Examination Questions in Taxation
APPENDIX "K"
A.M. No. 05-11-07-CTA
Revised Rules of the Court of Tax Appeals
TAXATION
Birth determines personality. Upon birth, a child is bestowed his
rights as a member of society. He receives not merely the love and affection
of his natural parents but also the aid and protection of his parent State.
In return, every citizen is beholden with a correlative duty to
preserve the integrity of his parent State. The power of the State over its
citizens manifests itself in the form of taxation.