JURISTS BAR REVIEW CENTER
Pre-Week Reminders in Taxation Law
(With BAR Questions from 2010-2014)
Prepared by Atty. Noel M. Ortega
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A. BASIC TAXATION
Explain briefly the concept, purpose and nature of
taxation.
Concept
Taxation is the process or means by which the
sovereign, through its lawmaking body, raises income to
defray the necessary expenses of the government.
Purpose
The primary purpose is to generate funds for the
State to finance the needs of the citizenry and to advance
the common weal.1
Nature
Taxation is both an inherent power and a legislative
power. The power of taxation is an essential and
inherent2 attribute of sovereignty, belonging as a matter
of right to every independent government without being
expressly granted by the people.3
Explain briefly the theory and basis of taxation.
Theory
governmental functions as in matters pertaining to tax
exemptions. This is coupled by the growing inability of
the legislature to cope directly with the many problems
demanding its attention. The growth of society has
ramified its activities and created peculiar and
sophisticated problems that the legislature cannot be
expected reasonably to comprehend. Specialization even
in legislation has become necessary. To many of the
problems attendant upon present day undertakings, the
legislature may not have the competence, let alone the
interest and the time, to provide the required direct and
efficacious, not to say specific solutions. 8
What are the characteristics of a sound tax system?
The three principles that characterize a sound tax
system are the principles of fiscal adequacy, theoretical
justice and administrative feasibility.
The principle of fiscal adequacy simply means that
sources of revenues must be adequate to meet
government expenditures. The principle of equality or
theoretical justice means that the tax imposed must be
proportionate to taxpayer’s ability to pay. The principle of
administrative feasibility requires that the tax system
should be capable of being effectively administered and
enforced with the least inconvenience to the taxpayer.
Does non-observance of administrative feasibility, as a
principle of sound tax system, invalidate a tax
imposition? only when the imposition is contrary to the constitution
and statutory limitation
The power to tax is an attribute of sovereignty
emanating from necessity.4 Taxation is described as a
symbiotic relationship whereby in exchange of the
benefits and protection that the citizens get from the
government, taxes are paid.5
No, it will not render a tax imposition invalid except
to the extent that specific constitutional (or statutory
limitations in the case of local taxation) are impaired.9
How are statutory provisions granting tax exemptions
or deductions construed? State the basis for the rule.
Tax may be distinguished from license fee as follows:
It is an elementary rule in taxation that exemptions
are strictly construed against the taxpayer and liberally
in favor of the taxing authority—it is the taxpayer’s duty
to justify the exemption by words too plain to be
mistaken and too categorical to be misinterpreted. 6
The basis for the rule on strict construction to
statutory provisions granting tax exemptions or
deductions is to minimize differential treatment and
foster impartiality, fairness and equality of treatment
among taxpayers.7
State the rationale behind the permissible delegation of
legislative powers to specialized agencies like the
Secretary of Finance.
The latest in our jurisprudence indicates that delegation
of legislative power has become the rule and its nondelegation the exception. The reason is the increasing
complexity of modern life and many technical fields of
1Napocor
vs. Province of Albay, G.R. No. 87479, 4 June 1990.
2MCQ No. 4, 2012 Bar.
3Pepsi – Cola Bottling Co. of the Philippines, Inc. vs. Municipality of
Tanauan, Leyte, G.R. No. L-31156, 27 Feb 1976.
4Phil. Guaranty Co. Inc. vs. Commissioner of Internal Revenue, G.R. No. L22074, 30 April 1965); MCQ No. 3, 2012 Bar.
5CIR vs. Algue, Inc., G.R. No. L-28896, 17 Feb 1988.
6Radio Communications of the Philippines, Inc. (RCPI), vs. Provincial
Assessor of South Cotabato, 456 SCRA 1.
7Quezon City vs. ABS-CBN Broadcasting Corporation, 567 SCRA 496.
Distinguish tax from license fee.
Tax
Levied for revenue
Involves
exercise
of
taxing power
Amount is generally not
limited
Imposed on the right to
exercise a privilege as
well as to persons and
property
Enforced
contribution
assessed by sovereign
authority
to
defray
public expenses
Failure to pay does not
necessarily makes the
business illegal
License fee
Imposed for regulations
Involves an exercise of
police power
Amount
is
usually
limited to the necessary
expenses of regulation
Imposed on the right to
exercise a privilege
Legal compensation or
reward of an officer for
specific services
Failure to pay makes the
act or business illegal
Are toll fees considered taxes?
No. A tax is imposed under the taxing power of the
government principally for the purpose of raising
revenues to fund public expenditures. Toll fees, on the
other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in
8LaSuerteCigar&
Cigarette Factory vs. CA, G.R. No. 125346, November
11, 2014, EN BANC) citing Maceda v. Macaraig, Jr., 274 Phil. 1060 (1991).
9Diaz vs. Secretary.G.R. No. 193007, 19 July 2011.
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the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin
of income. Although toll fees are charged for the use of
public facilities, therefore, they are not government
exactions that can be properly treated as a tax.10
Give the sources of tax law.
The sources of tax laws are: (a) Constitution; (b)
statutes or laws; (c) presidential decrees; (d) revenue
regulation; (e) administrative rulings and opinions; (f)
judicial decisions; (g) provincial, city, municipal and
barangay ordinances; and (h) treaties or international
agreements.
What is meant by progressive taxation and what is its
basis?
Taxation is progressive when its rate goes up
depending on the resources of the person affected. It is
built on the principle of the taxpayer’s ability to pay.
What is double taxation? Is it unconstitutional?
Double taxation11 means taxing the same property
twice when it should be taxed only once, that is, taxing
the same person twice by the same jurisdiction for the
same thing.12
Double taxation is not expressly forbidden in our
Constitution, but the Court has recognized it as
obnoxious “where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same
jurisdiction for the same purpose.”13
How is the plaintiff in a taxpayer’s suit differentiated
from the plaintiff in a citizen’s suit?
The plaintiff in a taxpayer’s suit is in a different
category from the plaintiff in a citizen's suit – in the
former, the plaintiff is affected by the expenditure of
public funds, while in the latter, he is but the mere
instrument of the public concern.14
It has been said that the State can never be in estoppel,
and this is particularly true in matters involving
taxation. Explain the philosophy behind the
government's exception, as a general rule, from the
operation of the principle of estoppel.
The underlying basis is the lifeblood theory.
Upon taxation depends the Government’s ability to
serve the people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of
government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment
to the people, in the same manner as private persons
may be made to suffer individually on account of his
own negligence, the presumption being that they take
good care of their personal affair. This should not hold
overnment cannot be prevented or precluded from asserting its rights or
enforcing its laws merely because its agents or officials made statements,
promises, or mistakes
10Ibid.
11MCQ
No. 1, 2012 Bar; MCQ No. 3, 2013 Bar; MCQ No. 22, 2014 Bar.
of Internal Revenue vs. Bank of Commerce, 459 SCRA 638.
13AbakadaGuro Party List vs. Ermita, supra.
14David vs. Macapagal-Arroyo, 489 SCRA 160.
12Commissioner
2
true to government officials with respect to matters not
of their own personal concern.15
The cigarette manufacturers contend that for a long
time prior to the transactions herein involved, the
Collector of Internal Revenue had never subjected
their purchases and importations of stemmed leaf
tobacco to excise taxes. This prolonged practice
allegedly represents the official and authoritative
interpretation of the law by the Bureau of Internal
Revenue which must be respected.
HELD: In Philippine Long Distance Telephone Co. v.
Collector of Internal Revenue, the[Supreme Court] has
held that this principle is not absolute, and an erroneous
implementation
by an
officer based on a
misapprehension of law may be corrected when the true
construction is ascertained. x x xProlonged practice of
the Bureau of Internal Revenue in not collecting the
specific tax on stemmed leaf tobacco cannot validate
what is otherwise an erroneous application and
enforcement of the law. The government is never
estopped from collecting legitimate taxes because of the
error committed by its agents.16
B. INCOME TAXATION
B.1. Basic Concepts
What is income?
Income means all the wealth which flows into the
taxpayer other than a mere return on capital. It is gain
derived and severed from capital.
What are the requisites in order that income may be
taxable?
For income to be taxable, the following requisites
must exist:
when earning
process is complete
(a) there must be gain;
or when exchanged
(b) the gain must be realized or received and has taken place
(c) the gain must not be excluded by law or treaty
fromtaxation. (Commissioner of Internal Revenue v.
Court of Appeals, G.R. No. 108576, 20 January
1999, 301 SCRA 152, 181; BIR vs. CA, G.R. No.
160756, 9 March 2010)
When is income considered realized?
For income tax purposes, income is realized when
the earning process is complete or virtually complete
and an exchange has taken place. (Question No. 32, 2011
Bar)
What are the sources of income?
15Misael
P. Vera, et al. vs. Jose F. Fernandez, et al., G.R. No. L-31364,
March 30, 1979; Atlas Consolidated Mining & Development Corp. vs.
Commissioner of Internal Revenue, G.R. No. L-26911, January 27, 1981; La
Suerte Sugar & Cigarette Factory vs. CA, G.R. No. 125346, 11 November
2014, EN BANC.
16La Suerte Cigar, supra.
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In general, the sources of income are the property,
activity or service that produced the income.
Source of income as a test of taxability of income
Under Section 23 of the NIRC, all persons are
taxable only on income derived from sources within the
Philippines. But resident citizens and domestic
corporations are also taxable on income derived from
sources outside the Philippines.
When is the source of income considered from within the
Philippines?
In general, for the source of income to be considered
as coming from the Philippines, it is sufficient that the
income is derived from property, activity or service
within the Philippines.
In CIR vs. BOAC (1987), an off-line international
carrier maintained a sales agent in the Philippines who
sold tickets for flights flown outside the Philippines. The
Supreme Court considered the sale of tickets in the
Philippines as the activity that produced the income.
The test of taxability is the “source”; and the source of an
income is that activity which produced the income. Even
if the BOAC tickets that were sold covered the
“transport of passengers and cargo to and from foreign
cities”, it cannot alter the fact that income from the sale
of tickets was derived from the Philippines. Thus, BOAC
was made liable for revenue derived from the sale of the
tickets.
3
(a) For interest, it is the RESIDENCE of the payor of
such interest;
(b) For dividend paid by a domestic corporation,
the law treats the same as derived from sources
within the Philippines without further
qualifications; if paid by a foreign corporation, it
is the COMPOSITION OF GROSS INCOME OF
THE LAST THREE YEARS;
(c) For compensation, it is the PLACE WHERE
SERVICES ARE RENDERED;
(d) For rental or royalty, it is the PLACE WHERE
THE PROPERTY IS LOCATED, or WHERE THE
USE OR PRIVILEGE TO USE IS FOUND;
(e) For gain from sale of realty, it is the LOCATION
OF THE REAL PROPERTY; and
(f) For gain from sale of personal property, it is the
PLACE OF SALE, except for gain from sale of
shares in a domestic corporation where
regardless of the place of sale, the income is
always treated as income from sources within
the Philippines.24
2014 BAR
Triple Star, a domestic corporation, entered into a
Management Service Contract with Single Star, a nonresident foreign corporation with no property in the
Philippines. Under the contract, Single Star shall
provide managerial services for Triple Star’s Hongkong
branch. All said services shall be performed in
Hongkong.
What are incomes considered derived from sources
within the Philippines?
Is the compensation for the services of Single Star
taxable as income from sources within the Philippines?
Explain.
Sec. 42(A) of the Tax Code enumerates the items of
gross income from sources within the Philippines,
namely:
Suggested Answer:
(a)
(b)
(c)
(d)
(e)
(f)
Interests17
paid by residents of the Philippines,
corporate or otherwise;
Dividendspaid
by
domestic
corporations;orforeign corporations18,at least 50%
of theirgross income in the last three taxable
years coming from sources within the
Philippines.
Compensation19for services performed in the
Philippines;
Rentals and royalties20 from properties located in
the Philippines;
Gains from sale of real properties21 located in the
Philippines; and
Gains from sale of personal properties 22, the sale
taking place in the Philippines. 23
What determines the source of the incomes enumerated
in Sec. 42 of the NIRC?
Questions 31, 48, 2011 Bar.
Questions 21, 31, 48, 2011 Bar.
19 Questions 6 and 7, 2012 Bar; Question XI, 2014 Bar.
20 Question 31, 2011 Bar.
21 Question 31, 2011 Bar.
22 Questions 21, 48, 2011 Bar.
23But when the seller is also the manufacturer, the gain is treated as
partly from within and partly from without where place of
manufacture is different from place of sale.
17
18
The compensation income received by Single Star
came from sources outside the Philippines because the
services were performed outside the Philippines.
Consequently, it is not taxable in the Philippines because
a foreign corporation, like Single Star, is taxable only on
incomes derived from sources within the Philippines.
(Sections 23 and 42C3, NIRC)
Who are the income taxpayers?
In general, the income taxpayers are classified into
individual, estate, trust and corporation. (Sec. 22A,
NIRC)
Differentiate global system of taxation from schedular
system of taxation.
Under the global tax system, the tax treatment is
common to all categories of income. Thus, there is no
need to classify income. The rate applied is unitary but
may be progressive as in individuals or flat as in
corporate taxpayers. Under this system, all incomes are
reported in one income tax return.
24Subject
to the qualification in case the seller is at the same time the
manufacturer. See Note 21.
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Whereas, under the schedular tax system, the tax
treatment varies according to the kind or category of the
income. There is therefore a need to classify the incomes.
Different rates are applied to the different kinds of
income. Consequently, a different return is filed for each
kind of income subject to the tax.
(b) In the former, deductions and personal or
additional exemptions are allowed; in the latter,
no such deductions and personal or additional
exemptions are allowed;
(c) The tax base of the former is computed on the
basis of one taxable year; the tax base of the
latter is usually computed on a per transaction
basis;
(d) The former is usually paid at the end of the
taxable year; the latter is paid at source (through
withholding);
(e) In the former, liability for payment rests on the
payee; in the latter, liability for payment rests on
the payor;
(f) In the former, the payee is required to file an
income tax return; in the latter, the payee is no
longer required to file the return since it is to be
made by the payor;
(g) Creditable withholding tax is, in certain cases,
imposed on incomes subject to ordinary tax;
final withholding tax is usually imposed on
incomes subject to final tax.
What system of taxation was adopted under the NIRC
on income taxation?
Under the Philippine tax system, the global system
is adopted in ordinary taxation whereas the schedular
system is usually found in the application of final taxes.
The NIRC adopted a semi-global and semischedular tax system. (MCQ No. 5, 2012 Bar)
B.2 Individual Income Taxation
Who are the individual income taxpayers?
They are the resident citizen, nonresident citizen,
OCW and seamen, resident alien (Sec. 24A) and nonresident alien engaged in trade/business or exercise of
profession25 in the Philippines (Sec. 25A).
Distinguish final withholding tax from creditable
withholding tax.
The two may be distinguished as follows:
final tax
EXCLUDE non-resident alien NOT engaged in
trade/business or exercise of profession in the Philippines (Sec.
25A).
FWT
a) The
amount
of incometax withheld
by
the
withholding
agent is constituted as a
full and final payment of
the income tax due from
the payee on the said
income.26
How are the incomes of individuals taxed?
In general, individuals are taxed on the basis of their
taxable income, that is, gross income less deduction and
personal and additional exemption. This tax is referred
to as ordinary income tax or regular income tax. (Sec.
24A and 25A in relation to Sec. 31 and Sec. 32A, NIRC)
b) Liability for payment
of the tax rests primarily
on the payor as a
withholding agent.
By way of exception, final tax, instead of ordinary
tax, shall be imposed on certain kinds of passive income.
Subject to certain requisites, these are:
(a) Interests, royalties, prizes and winnings;
(b) Cash or property dividends;
(c) Capital gains derived from the sale of shares of
stocks; and
(d) Capital gains derived from the sale of realty.
(Sec. 24B1, 24B2, 24C, 24D1, 25A2 and 25A3,
NIRC)
Other incomes subject to final tax are:
(a) Fringe benefits (Sec. 33, NIRC) and
(b) Informer’s reward (Sec. 282, NIRC)
Distinguish ordinary tax from final tax.
Ordinary tax and final tax are distinguished as
follows:
(a) In the former, the tax base is taxable income; in
the latter, the tax base is the gross income;
25
Question 65, 2011 Bar.
ordinary income tax
CWT
a) Taxes withheld on
certain
income
payments are intended
to equal or at least
approximate the tax due
of the payee on said
income.
b) Payee of income is
required to report the
income and/or pay the
difference between the
tax withheld and the tax
due on the income. The
payee also has the right
to ask for a refund if the
tax withheld is more
than the tax due.
c) The payee is not
required to file an
income tax return for
the particular income.
c) The income recipient
is still required to file an
income tax return, as
prescribed in Sec. 51 and
Sec. 52 of the NIRC, as
amended.
(Revenue Regulation 2-98, Sec. 2.57A and Sec. 2.57B;
CREBA vs. Romulo, 9 March 2010)
Explain the purpose/s of the withholding tax system.
The purpose of the withholding tax system is threefold: (1) to provide the taxpayer with a convenient way
of paying his tax liability; (2) to ensure the collection of
26
Question 10, 2011 Bar.
Pre-Week Reminders in Taxation Law (2015 Bar Review)
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tax, and (3) to improve the government’s
cashflow.(CREBA vs. Romulo, 9 March 2010)
Income payment to realtors for the sale of realty. (Sec. 79,
NIRC and Sec. 2.57.2 of RR No 2-98, as amended)
In case of failure by the withholding agent to perform
his duty to withhold and remit tax, is the taxpayer
absolved of liability?
What is the proper tax treatment of interest incomes
earned by individuals?
[T]he liability of the withholding agent is
independent from that of the taxpayer. The former
cannot be made liable for the tax due because it is the
latter who earned the income subject to withholding tax.
The withholding agent is liable only insofar as he failed
to perform his duty to withhold the tax and remit the
same to the government. The liability for the tax,
however, remains with the taxpayer because the gain
was realized and received by him. x xx [The taxpayer]
remains liable for the payment of tax as [he] shares the
responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any
penalty that may arise from the non-payment of the
withholding tax due.27
What is passive income?28
It is income generated by the taxpayer’s assets. The
BIR defines passive income by stating what it is not: “if
the income is generated in the active pursuit and
performance of the corporation’s primary purposes, the
same is not passive income.”29
Are all passive incomes subject to withholding tax?
No. There are only certain kinds of passive income
that are subject to final tax and, consequently, to final
withholding tax. These are specifically enumerated in
various provisions of the NIRC (see Sec. 57A, NIRC). All
others are generally considered part of gross income
and, consequently, subject to ordinary tax wherein
creditable withholding tax is, in particular cases,
applicable. Under present regulations, creditable
withholding tax is usually applied to income payments
not involving passive income.
NOTE: From the above, it is clear that not only passive
incomes may be subject to withholding tax. Section
57(A) of the NIRC expressly states that final tax can be
imposed on certain kinds of income and enumerates
these as passive income. On the other hand, Section
57(B) provides that the Secretary (of Finance) can require
a CWT on “income payable to natural or juridical
persons, residing in the Philippines.” There is no
requirement that this income be passive income. If that
were the intent of Congress, it could have easily said
so.30
Give some examples of ordinary incomes subject to
CWT.
Some notable income payments that are subject to
CWT are (1) wages; (2) professional fees, (3) rentals of
realty, (4) Income payments to partners of GPPs and (5)
vs. CIR, G.R. No. 170257, 7 September 2011.
Question 18, 2011 Bar.
29CREBA vs. Romulo, G.R. No. 160756, 9 March 2010.
30see CREBA vs. Romulo (2010), supra.
As a rule, the interests earned by individuals shall
be included in gross income and, thus, subject to regular
income tax. This includes interest earned by a resident
citizen from sources abroad.
By way of exception, interest on bank deposit (or
monetary benefit from deposit and from trust funds
substitutes or similar arrangements) DERIVED FROM
SOURCES WITHIN shall be subject to final tax and,
correspondingly, final withholding tax. The rate of tax is
20% for Peso currency deposit account and 7.5% for any
foreign currency deposit account. (Sec. 24B1, NIRC)
What is meant by 'deposit substitutes'?
The term means an alternative form of obtaining
funds from the public (the term 'public' means
borrowing from twenty (20) or more individual or
corporate lenders at any one time) other than deposits.
(Sec. 22Y, NIRC)
What determines whether a debt instrument is subject to
final tax at 20%?
The number of lenders is determinative of whether
a debt instrument, such as bonds, should be considered
a deposit substitute and consequently subject to the 20%
final withholding tax.
Thus, when funds are simultaneously obtained from
20 or more lenders/investors, there is deemed to be a
public borrowing and the bonds at that point in time are
deemed deposit substitutes. Consequently, the seller is
required to withhold the 20% final withholding tax on
the imputed interest income from the bonds. (See BDO v.
Republic, G.R. No. 198756, 13 January 2015)
20 or more lender rule and meaning of the phrase "at any
one time"
The reckoning of “20 or more lenders/investors” is
made at any transaction in connection with the purchase
or sale of financial assets, such as subsequent sale or
trading by a bondholder to another lender/investor in
the secondary market usually through a broker or
dealer.31
What is the tax treatment of debt instruments that do
not qualify as deposit substitutes under the 1997
National Internal Revenue Code?
They are subject to the regular income tax.
Instances when the tax on interests from bank deposits
is not applicable
(a) when derived from sources abroad (the bank is
a non-resident), except those earned by resident
citizens;
27RCBC
28
31
See BDO v. Republic, G.R. No. 198756, 13 January 2015.
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6
(b) when earned by non-residents from foreign
currency deposit accounts; and
(c) when earned from long-term deposit or
investment certificate (with a maturity period of
not less than five (5) years)
The Bureau of Treasury (BOT) issued P35 billion worth
of 10-year zero-coupon treasury bonds denominated as
the Poverty Eradication and Alleviation Certificates or
the PEACe Bonds. The transactions executed for the sale
of the PEACe Bonds are:
1. The issuance of the P35 billion Bonds by the BOT to
RCBC/CODE-NGO at P10.2 billion; and
2. The sale and distribution by RCBC Capital
(underwriter) on behalf of CODE-NGO of the PEACe
Bonds to undisclosed investors at P11.996 billion.
EXCLUSION and, hence, exempt from tax (Sec.
32B7c, NIRC)
(d) when the prize or award is won by an athlete in
a local or international sports competition (i.e.,
the OLYMPICS) sanctioned by a recognized
national sports association; This is considered an
EXCLUSION and, hence, exempt from tax. (Sec.
32B7d, NIRC)
What is capital asset? What is capital gain?
The law defines capital asset in the negative, such
that, any property not falling under the following
enumeration (referred to as ordinary assets) is capital
asset:
(a) stock in trade or inventoriable asset;
(b) property primarily held for sale to customers in
the ordinary course of trade or business;
(c) depreciable asset; and
(d) real property used in trade or business (Sec. 39A,
NIRC)
Under the underwriting agreement, the settlement dates
for the sale and distribution by RCBC Capital of the
PEACe Bonds to various undisclosed investors fell on
the same day, October 18, 2001, when the PEACe Bonds
were supposedly issued to CODE-NGO/RCBC.
Describe the proper tax treatment of the discount or
interest income arising from the treasury bonds.
Should there have been a simultaneous sale to 20 or
more lenders/investors, the PEACe Bonds are deemed
deposit substitutes within the meaning of Section 22 (Y)
of the 1997 National Internal Revenue Code and RCBC
Capital/CODE-NGO would have been obliged to pay
the 20% final withholding tax on the interest or discount
from the PEACe Bonds. Further, the obligation to
withhold the 20% final tax on the corresponding interest
from the PEACe Bonds would likewise be required of
any lender/investor had the latter turned around and
sold said PEACe Bonds, whether in whole or part,
simultaneously to 20 or more lenders or investors.32
However, the interest income that may be received
by individuals from long-term deposits or investments
with a holding period of not less than five (5) years is
exempt from the final tax.
Instances when the final tax on prize is not applicable
(a) when earned from sources abroad, that is, when
the competition or contest was held abroad;
however, the prize or award received by a
resident citizen from sources abroad is still
included in gross income subject of ordinary
income taxation;
(b) when the amount does not exceed Php10,000.00,
in which case, the amount is included in gross
income and thus, subject to ordinary tax (Sec.
24B1, Sec. 32A, NIRC)
(c) when the prize or award is received primarily in
recognition of religious, charitable, educational,
artistic,
literary,
or
civic
achievement
PROVIDED (1) the recipient was selected
without any action on his part to enter the
contest; and (2) he is not required to render
substantial future services; This is considered an
32
See BDO v. Republic (2015), supra.
On the other hand, a capital gain is the gain, profit
or income realized from a sale or disposition of capital
asset.
What is the proper tax treatment on capital gain derived
from dealings in property?
Generally, a capital gain is included in gross income
subject of ordinary income taxation (Sec. 32A, NIRC). By
way of exceptions, the capital gains derived from the
sale of shares of stock issued by a domestic corporation
and sale of real property located in the Philippines are
subject to final tax. (Sec. 24C, 24D1, 25A3, NIRC)
In dealings involving capital assets, are gains to be
presumed?
No. Gains are not to be presumed from sale or
disposition of capital assets. However, in the case of sale
or other disposition of real property located in the
Philippines and held as capital asset, the gain is
presumed and such gain is equivalent to the amount of
the zonal value or gross selling price, whichever is
higher. (Sec. 24D1, Sec. 25A3, NIRC)
What are the tax base and the tax rate of the applicable
tax imposable on capital gains?
In general, the tax base of the income tax on capital
gain is the net capital gain or net income, whereas, the
tax rate is the graduated rate of 5%-32%.
For capital gain derived from the sale of share of
stock in a domestic corporation not traded through the
local stock exchange, the tax base is NET CAPITAL
GAIN and the tax rate is 5% for the first Php100,000.00
and 10% on any amount in excess thereof. (NOTE: If sale
is through the local stock exchange, the applicable tax is the
percentage tax, also referred to as the stock transaction tax,
under Sec. 127 of the NIRC. The basis is the GSP and the rate
is ½ of 1%.33 The payment of this tax is in lieu of income tax.)
33
Question 4, 2011 Bar; Question 10, 2012 Bar.
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For capital gain presumed to have been realized
from the sale of realty, the tax base is FMV or GSP,
whichever is higher, and the tax rate is 6%.
A dealer in securities sold unlisted shares of stocks of a
domestic corporation in 2010 and derived a gain of P1
Million therefrom. Is the gain taxable at 5%/10% capital
gains tax based on net capital gain OR at ½ of 1% stock
transaction tax based on the gross selling price or fair
market value, whichever is higher? (Question 10, 2012
Bar, Adapted)
Neither. The 5%/10% capital gains tax is not
applicable because the shares are NOT capital assets.
Shares of stock, like other securities, would be ordinary
assets to a dealer in securities or a person engaged in the
purchase and sale of, or an active trader (for his own
account) in, securities. (China Banking Corp. vs. CA, G.R.
No. 125508, July 19, 2000)
Likewise, the percentage tax, otherwise known as
the stock transaction tax, is not applicable because the
seller is a dealer in securities. In addition, the shares sold
are unlisted shares. The percentage tax applies on sale,
barter or exchange of shares of stock LISTED and
TRADED through the local stock exchange OTHER
THAN by a dealer in securities. (Sec. 127, NIRC, emphasis
supplied.)
A resident Filipino citizen (not a dealer in securities)
sold shares of stocks of a domestic corporation that are
listed and traded in the Philippine Stock Exchange.
(Question 13, 2012 Bar)
a) The sale is exempt from income tax but subject
to the ½ of 1% stock transaction tax;
b) The sale is subject to income tax computed at the
graduated income tax rates of 5% to 32% on net
taxable income;
c) The sale is subject to the stock transaction tax
and income tax;
d) The sale is both exempt from the stock
transaction tax and income tax.
Explanation:
Under Section 127 (D) of the NIRC, any gain derived
from the sale, barter, exchange or other disposition of
shares of stock subject to the percentage tax of ½ of 1%
shall be exempt from the final tax and from the regular
individual or corporate income tax.
May the liability for the 6% capital gains tax be legally
avoided? If in the affirmative, what are the
requirements?
Yes. The 6% capital gains tax may be legally avoided
if the subject matter of the sale is the PRINCIPAL
residence and the proceeds are to be used in acquiring or
establishing a new principal residence within eighteen
(18) calendar months from the date of sale. The seller
must inform the Commissioner of his intention to avail
of the exemption within 30 days from the date of sale.
(Sec. 24D2, NIRC)
7
Additionally, the revenue regulations require the 6%
capital gains tax to be deposited in an escrow account
with an authorized agent bank and shall only be
released to the transferor if the proceeds of the
sale/disposition have, in fact, been utilized in the
acquisition or construction of a new principal residence.
(RR No. 17-2003)
discussed!!!
Instances when the 6% capital gains tax will not apply
(a) when the real property is ordinary asset;
(b) when the real property, even though classified
as capital asset, is not located in the Philippines;
(c) when the real property is a principal residence
and the seller applies for exemption from the
tax;
(d) when the real property is sold to the
government and the seller exercises the option
to be taxed for ordinary tax under Sec. 24A.
(contained in the proviso under Sec. 24D1, NIRC)
Illustration of (a) above, i.e., when the real property is
ordinary asset. (Question 11, 2012 Bar)
An individual, who is a real estate dealer, sold a
residential lot in Quezon City at a gain of P100,000.00
(selling price of P900,000.00 and cost is P800,000.00). The
sale is subject to income tax as follows:
a) 6% capital gains tax on the gain;
b) 6% capital gains tax on the gross selling price of
fair market value, whichever is higher;
c) Ordinary income tax at the graduated rates of
5% to 32% of net taxable income;
d) 30% income tax on net taxable income.
Explanation:
It is safe to assume that the property is being held by
the seller, a real estate dealer, primarily for sale to
customers in the ordinary course of real estate business
and, as such, it is ordinary asset. Consequently, the
capital gains tax finds no application. Choice (d) is
incorrect because the flat rate of 30% applies not to an
individual but to a corporate taxpayer. Choice (c) is
correct as to the kind of tax (ordinary income tax), rate of
tax (graduated rate of 5% to 32% for individuals) and tax
base (net taxable income).
The source of confusion is the description of the
property as RESIDENTIAL and lack of any specification
that it is part of the seller’s inventory of saleable goods.
If this means that the lot is being used by the seller for
residential purposes and NOT being held for sale to
customers in the ordinary course of trade or business,
then it is properly classified as capital asset. Under such
interpretation, the correct answer is choice (b).
It is often contracted by parties that the capital gains
tax of 6% is to be paid by the buyer. Whose liability is
the tax?
As far as the government is concerned, the capital
gains tax remains a liability of the seller since it is a tax
on the seller’s gain from the sale of the real estate.(see
Republic vs. Soriano, G.R. No. 211666, 25 February 2015)
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What is the importance of the classification of assets
into ordinary and capital?
The importance lies on the application of the rules
on (1) holding period, (2) loss limitation and (3) carry-over of
the net capital loss. These rules are relevant only to
dealings in capital assets.
State the rules on holding period, loss limitation and
carry-over of net capital loss.
Pursuant to the rule on holding period, only fifty
percent (50%) of the capital gain, if any, is taxable; or
only 50% of the capital loss, is deductible, where the
property sold has been held for more than twelve (12)
months. If held in the short-term (less than 12 months),
one hundred percent (100%) of the gain or loss shall be
taxable or deductible, as the case may be. This rule
applies to individuals only. (Sec. 39B, NIRC)
Under the loss limitation rule, the capital loss shall
be deductible only to the extent of the capital gains
derived within the taxable year. This rule applies to both
individuals and corporations. (Sec. 39C in relation to Sec.
34D4, NIRC)
If during the taxable year, there is excess of capital
losses over capital gains, the excess (net capital loss) may
be carried over to and deducted from capital gains in the
succeeding taxable year. The privilege of carry-over of
net capital loss is available only to individuals. (Sec. 39D,
NIRC)
BAR 2011
In March 2009, Tonette, who is fond of jewelries,
bought a diamond ring for P750,000.00, a bracelet for
P250,000.00, a necklace for P500,000.00, and a brooch for
P500,000.00. Tonette derives income from the exercise of
her profession as a licensed CPA. In October 2009,
Tonette sold her diamond ring, bracelet, and necklace for
only P1.25 million incurring a loss of P250,000.00. She
used the P1.25 million to buy a solo diamond ring in
November 2009 which she sold for P1.5 million in
September 2010. Tonette had no other transaction in
jewelry in 2010. Which among the following describes
the tax implications arising from the above
transactions?
A. Tonette may deduct her 2009 loss only from her
2009 professional income.
B. Tonette may carry over and deduct her 2009 loss
only from her 2010 gain.
C. Tonette may carry over and deduct her 2009 loss
from her 2010 professional income as well as
from her gain.
D. Tonette may not deduct her 2009 loss from both
her 2010 professional income and her gain. (No.
39, 2011 Bar Examination)
8
purposes, the jewelries that Tonettesold are treated as
capital assets. Consequently, the rules on holding
period, loss limitation and carry-over of net capital loss
are relevant.
In this case, Tonette incurred a net capital loss for
the taxable year 2009 in the amount of Php250,000.00
(the excess of capital loss over capital gain of Php0.0). As
a professional, Tonette is allowed to claim the different
items of deduction under Sec. 34 which includes capital
loss (Sec. 34D4). In 2010, Tonette realized a short-term
capital gain from the sale of her solo diamond ring in the
amount of Php250,000.00. The gain is measured by the
excess of the amount realized (Php1.5 million) over the
basis for determining gain (cost of acquisition of Php1.25
million) (see Sec. 40A, Sec. 40B, NIRC).
Choice (A) is not a correct tax implication because
the loss limitation rule forbids an individual from
deducting a capital loss from any type of income
NOT capital gain.
Choice (C) is only partially correct. While the law
allows the carry-over of net capital loss incurred in a
taxable year to the succeeding taxable year, such net
capital loss may be deducted only from capital gain,
if any, in such succeeding taxable year pursuant to
the loss limitation rule.
Choice (D) is likewise incorrect.
Clearly, choice (B) is the correct answer. Tonette’s
2009 loss is her net capital loss for the year 2009.
Under the privilege of carry-over of net capital loss
in Sec. 39D of the NIRC, Tonette may carry over
such net capital loss to and applied as a deduction in
2010. However, the deduction shall only be to the
extent of the capital gain in 2010 pursuant to the loss
limitation rule. Here, Tonette has realized a capital
gain of Php250,000.00 in 2010.
Are the rules on holding period, loss limitation and
carry-over of net capital loss applicable in a sale or
disposition of real property (capital asset) located in the
Philippines?
No. By express exclusion under the law, the holding
period is inapplicable to a sale of real property where
the 6% capital gains tax applies. In this case, the gain is
presumed by law. The loss that may have been actually
incurred, if there be any, is not recognized.
Consequently, the rules on loss limitation and carry-over
of net capital loss also find no application. (See the
exception clause in Sec. 24D1, NIRC)
NOTE: The holding period rule is also not applicable to a sale
of shares of stock in a domestic corporation not traded through
the local stock exchange. This is also by express exclusion
under the law. (Sec. 24C and allied provisions, NIRC)
Explanation:
Explain the tax treatment on compensation income
received by persons who are employed.
The facts disclose that Tonette is a licensed CPA
who engaged in sales of jewelry merely on isolated
cases. There is no clear showing that she is engaged in
the business of buy and sell of jewelry. For income tax
As a rule, compensation for services in whatever
form paid, including, but not limited to fees, salaries,
wages, commissions, and similar items, is gross income
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subject to ordinary taxation. (Sec. 32A, Sec. 24A, Sec.
25A1, NIRC)
The tax on is collected at source via creditable
withholding tax (CWT) pursuant to Sec. 79 of the NIRC.
Consequently, it is the employer who is obliged to
return the income and pay the tax. If the employee earns
purely compensation income and has only one
employer, he is qualified for exemption from the
requirement of filing the annual income tax returnunder
the substituted filing system provided in Sec. 51(A)(2)(b)
of the NIRC.
Fringe benefits (compensation apart from the basic
salary and other allowances) are included in this kind of
treatment, EXCEPT those that are paid to or received by
non-rank and file employees. Under Sec. 33, a special
treatment is accorded to fringe benefits paid to
managerial and supervisory employees. The income is
subject to FINAL tax and, consequently, to final
withholding tax (FWT) under Sec. 57(A). The fringe
benefits paid to rank-and-file employees remain taxable
compensation income covered by ordinary taxation and
CWT.
However, the tax on fringe benefits under Sec. 33
does not apply if the fringe benefit is –
(1) required by the nature of, or necessary to the
trade, business or profession of the employer; or
(2) for the convenience or advantage of the
employer.34
The tax on fringe benefits, whether received by rankand-file employees or not, does not apply where the
benefit qualifies as a de minimisbenefit as defined by the
implementing rules. (RR 3-98, as amended; see also RR 52011)
Whenever de minimisbenefit paid to an employee
exceeds the ceiling provided by the rules, the excess is
generally taxable as part of gross compensation income.
But such excess may be treated as “Other benefits” under
Sec. 32(B)(7)(e)(iv) which is excludible from gross
income for as long as the total amount, together with the
13th month pay, does not exceed the ceiling of
Php30,000.00 (now Php82,000.00 beginning January 1,
2015). (see RA 10653; RR 3-2015)
In any event, the income tax, as well as the
withholding tax, cannot apply where the salary or wage
is below the statutory minimum wage. (see RA 9504; Sec,
79, NIRC)
What is the tax treatment of the distributable net
income of a general professional partnership (GPP)?
It is ultimately taxed to the partners comprising it.
Each partner shall report as gross income his distributive
share, actually or constructively received, in the net
income of the partnership. (Sec. 26, NIRC; RR 2-2010)
BAR 2014
9
A, B, and C, all lawyers, formed a partnership called
ABC Law Firm so that they can practice their profession
as lawyers. For the year 2012, ABC Law Firm received
earnings and paid expenses, among which are as
follows:
Earnings:
(1) Professional/legal fees from various clients
(2) Cash prize received from a religious society in
recognition of the exemplary service of ABC
Law Firm
(3) Gains derived from sale of excess computers and
laptops
Payments:
(1) Salaries of office staff
(2) Rentals for office space
(3) Representation expenses incurred in meetings
with clients
(A) What are the items in the above mentioned
earnings which should be included in the computation of
ABC Law Firm’s gross income? Explain.
(B) What are the items in the above-mentioned
payments which may be considered as deductions from
the gross income of ABC Law Firm? Explain.
(C) If ABC Law Firm earns net income in 2012,
what, if any, is the tax consequence on the part of ABC
Law Firm insofar as the payment of income tax is
concerned? What, if any, is the tax consequence on the
part of A, B, and C as individual partners, insofar as the
payment of income tax is concerned?
Suggested Answer:
(C) The net income of ABC Law Firm will not be
taxable since the law firm is a general professional
partnership which is exempt from taxes on corporations.
Instead, each partner, A, B and C, shall declare as gross
income the distributive share, actually or constructively
received,in the partnership’s net income.
BAR 2013
Atty. Gambino is a partner in a general professional
partnership. The partnership computes its gross
revenues, claims deductions allowed under the Tax
Code, and distributes the net income to the partners,
including Atty. Gambino, in accordance with its articles
of partnership.
In filing his own income tax return, Atty. Gambino
claimed deductions that the partnership did not claim,
such as purchase of law books, entertainment expenses,
car insurance and car depreciation. The BIR disallowed
the deductions.
Was the BIR correct?
Suggested Answer:
No. Apart from the expenses claimed by a GPP in
determining its net income, the individual partner can
34MCQ
No. X, 2014 Bar.
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still claim the deductions incurred or paid by him that
contributed to the earning of the income taxable to him.
In the given case, Atty. Gambino can claim the expenses
that he incurred as itemized deductions since they
appear as ordinary and necessary expenses for the
practice of profession and which were not claimed by
the GPP in computing its net income or distributable net
income during the year. (Sec. 26, NIRC; RR 2-2010)
B.3 Corporate Income Taxation
How is the term “corporation” defined?
Under the NIRC, the term “corporation”35 shall
include partnerships, no matter how created or
organized, joint stock companies, joint accounts,
association, or insurance companies, but does not
include:
(a) general professional partnership36 – partnership
formed by persons for the sole purpose of
exercising their common profession, no part of
the income of which is derived from engaging in
any trade or business;
(b) joint venture formed for the purpose of
undertaking construction projects; and
(c) joint venture formed for the purpose of
engaging in petroleum, coal, geothermal and
other energy operations pursuant to an
operating consortium agreement under a service
contract with the Government. (Sec. 22B, NIRC)
Who are the corporate taxpayers?
They are classified into domestic corporation (DC),
resident foreign corporation (RFC) and non-resident
foreign corporation (NRFC).
What is a resident foreign corporation? Give an
example.
It is a foreign corporation engaged in trade or
business in the Philippines (sec. 22H, NIRC). An example
is one organized under the laws of a foreign country that
engages in business in Makati City, Philippines.
(Question 9, 2012 Bar)
How are the corporations taxed?
In general, domestic corporations and resident
foreign corporations are taxed on their taxable income,
i.e. gross income less deductions; or in lieu thereof, the
Minimum Corporate Income Tax (MCIT).
By way of exceptions, final tax shall be imposed on
certain kinds of passive income such as interest on bank
deposits, royalties, capital gains from sale of shares of
stock and, for domestic corporations, capital gains from
sale or disposition of land or building located in the
Philippines. (Section 27D1, 27D2, 27D5; Section 28A7a,
28A7c)
Question 35, 2011 Bar.
Question 15, 2012 Bar; Question IV, 2013 Bar; Question No. XXIV,
2014 Bar.
35
36
10
For non-resident corporations, their incomes from
all sources within the Philippines are taxed via the final
withholding tax. The rate applied is 30%, except interest
on foreign loan (20%), dividend from domestic
corporations (15%, subject to condition) and capital gain
from sale of sharesof stock in a domestic corporation (5%
and 10%).
EXCLUDE Non-resident cinematographic film owner, lessor
or distributor (Sec. 28B2), Non-resident owner or lessor of
vessels chartered by Philippine nationals (Sec. 28B3), and
Non-resident owner or lessor of aircraft machineries and other
equipment (Sec. 28B4)
Give the tax bases and tax rates of the taxes applicable
to corporations (exclude NRFC).
Type of Income Tax
(a)
Normal/RegularCorporate
Income Tax (DC and RFC)
(b) MCIT (DC and RFC)
(c) Final Tax (DC and RFC)
(d)
Improperly
Accumulated Earnings Tax
(IAET) (DC only)
Tax Base
Taxable
Income
Gross
Income
Gross
income
Improperly
accumulated
taxable
income
Tax
Rate(s)
30%
2%
Various
10%
Are GOCCs, agencies and instrumentalities of the
government exempt from income tax?
Generally, no.However, under Sec. 27(C) of the
NIRC, the following are absolutely exempted from
income tax:
(a)
(b)
(c)
(d)
(e)
SSS
GSIS
PHIC
PCSO
Local water districts (R.A. No. 10026)
Aside from the GOCCs, agencies and instrumentalities
of the government expressly mentioned in Sec. 27(C),
who are the other corporations exempt from income tax?
Under Sec. 30 of the NIRC, certain kinds of nonstock and non-profit organizations/institutions are
exempt from income tax in respect to income derived by
them as such organizations/institutions. However, their
income from:
(1) property, real or personal, or
(2) any of their activities conducted for profit
regardless of the disposition made of such income, are
still taxable.
But a non-stock and non-profit educational
institution may be exempt from tax provided that its
income, regardless of source, is used actually, directly
and exclusively for educational purposes. (see par. 3, Sec.
4, Art. XIV, 1987 Constitution)
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A proprietary educational institution or hospital is
not exempted but it enjoys a preferential rate of tax at
10% based on taxable income PROVIDED not more than
fifty percent (50%) of its gross income comes from the
conduct of unrelated trade, business or other activity
(PRE-DOMINANCE TEST). (Sec. 27B, NIRC)
11
effective in addressing liquidity problems of the
government.39
Instances when the MCIT will not apply
(a) during the infant stages of the corporation; the
tax shall apply only beginning the fourth taxable
year immediately following the taxable year in
which such corporation commenced its business
operations;
BAR 2013
A group of philanthropists organized a non-stock,
non-profit hospital for charitable purposes to provide
medical services to the poor. The hospital also accepted
paying patients although none of its income accrued to
any private individual; all income were plowed back for
the hospital’s use and not more than 30% of its funds
were used for administrative purposes.
(b) when, by authority of the Secretary of Finance,
the imposition of the MCIT is suspended upon
submission of proof by the applicant
corporation that the corporation sustained
substantial losses
(1) on account of a prolonged labor dispute;
or
(2) because of “force majeure”; or
(3) because of legitimate business reverses;
Is the hospital subject to tax on its income? If it is,
at what rate?
Suggested Answer:
(c) when the corporation is not subject to normal
income tax (tax based on taxable income at the
normal rate of 30%), such as
(1) a proprietary educational institution or
hospital enjoying 10% tax on their
taxable income;
(2) an FCDU;
(3) an OBU;
(4) regional operating headquarter of a
multinational company (ROH);
(5) a firm that is taxed under a special tax
regime like an enterprise registered with
the PEZA Law (RA No. 7916) or Bases
Conversion and Development Act (RA
No. 7227).
Yes. Ordinarily a non-stock and non-profit
charitable institution is exempt from tax. But by
accepting paying patients, the hospital derived an
income from an activity conducted for profit and,
consequently, such income is subject to tax regardless of
how it is disposed of. However, as a proprietary hospital
whose dominant income is derived from hospital-related
activities, it is entitled to a preferential rate of 10%.37
Is ‘gross income’ for purposes of computing the
Minimum Corporate Income Tax (MCIT) the same as
‘gross income’ in computing basic corporate income tax?
No. Gross income, as the basis for MCIT, is given a
special definition under Section 27(E)(4) of the NIRC of
1997, different from the general one under Section 34 of
the same Code. It is more limited than the gross income
used in the computation of basic corporate income
tax.(CIR v. PAL, G.R. No. 179259, September 25, 2013)
What is the rationale behind the MCIT?
The MCIT came about as a result of the perceived
inadequacy of the self-assessment system in capturing
the true income of corporations. It was devised as a
relatively simple and effective revenue-raising
instrument compared to the normal income tax which is
more difficult to control and enforce. It is a means to
ensure that everyone will make some minimum
contribution to the support of the public sector.38
What are the perceived advantages of pegging the tax
base of the MCIT to a corporation’s gross income?
As a tax on gross income, the MCIT prevents tax
evasion and minimizes tax avoidance schemes achieved
through sophisticated and artful manipulations of
deductions and other stratagems. It is also simple and
See Sec. 27B, NIRC and CIR vs. St. Luke’s Medical Center, Inc., G.R.
Nos. 195909 and 195960, 26 September 2012.
38 CREBA vs. Romulo (2010), supra.
Explain the concept and rationale of the IAET.
Improperly Accumulated Earnings Tax
The IAET equal to 10% of the improperly
accumulated taxable income is imposed on corporations
formed or availed of for the purpose of avoiding the
income tax with respect to its shareholders or the
shareholders of any other corporation, by permitting the
earnings and profits of the corporation to accumulate
instead of dividing them among or distributing them to
the shareholders. The rationale is that if the earnings and
profits were distributed, the shareholders would then be
liable to income tax thereon, whereas if the distribution
were not made to them, they would incur no tax in
respect to the undistributed earnings and profits of the
corporation. (See Sec. 29, NIRC and Sec. 2, RR No. 2-2001)
Who are exempt from IAET?
The IAET shall not apply to the following
corporations:
(a) Banks and other non-bank financial
intermediaries;
(b) Insurance companies;
(c) Publicly-held corporations;
(d) Taxable partnerships;
(e) General professional partnerships;
37
39
see CREBA vs. Romulo (2010), supra.
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12
(f) Non- taxable joint ventures; and
(g) Enterprises duly registered with the Philippine
Economic Zone Authority (PEZA) under R.A.
7916, and enterprises registered pursuant to the
Bases Conversion and Development Act of 1992
under R.A. 7227, as well as other enterprises
duly registered under special economic zones
declared by law which enjoy payment of special
tax rate on their registered operations or
activities in lieu of other taxes, national or local.
(Sec. 29, NIRC and Sec. 4, RR No. 2-2001)
For covered corporations, how can liability for IAET be
avoided?
It may be avoided if the corporation has
accumulated income for the reasonable needs of the
business. By “reasonable needs of the business”, it
means the immediate needs of the business40, including
reasonably anticipated needs. (Sec. 3, RR No. 2-2001)
B.4 Deductions
The deductions are those found in Sec. 34 (items of
deduction or optional standard deduction) and in Sec. 35
(personal and additional exemptions) of the NIRC.
Special deductions are also provided for insurance
companies under Sec. 37 of the NIRC.
Who are entitled to deductions?
Individuals and corporations subject to the regular
income tax are entitled to claim deductions. Those who
may avail of the deductions are usually engaged in
trade/business or in the exercise of a profession.
However, only individuals may claim personal and
additional exemptions.
compensation
income
earners
claim
Yes, but only premium payments on health and/or
hospitalization insurance not to exceed Php2,400.00 per
annum (or Php200.00 per month) may be claimed as
deduction. All other items of deduction and the optional
standard deduction are not available to pure
compensation income earners. In addition, however,
they may claim personal and additional exemptions
under Sec. 35 of the NIRC.
What are the different items of deduction?
They are:
(a)
(b)
(c)
(d)
(e)
(f)
business expense;
interest expense;
tax;
loss;
bad debt;
depreciation;
depletion of oil and gas wells and mines;
charitable contribution41; !!!!
research and development; and
pension trust
Some income payments, which correspond to expenses of
payors, are subject to creditable withholding tax under
RR 2-98, as amended. On the part of the payor, what is
the effect of the non-withholding or under-withholding
of the income payment?
The expense, which is recognized as deduction for
tax purposes, may be disallowed if such was not
subjected to withholding tax. However, a deduction may
still be allowed despite non-withholding or underwithholding if at the time of the audit or investigation,
the withholding tax is paid.
During the audit conducted by the BIR official, it was
found that the rental income claimed by the corporation
was not subjected to expanded withholding tax. May
the claimed rental expense be allowed as deduction from
the gross income of the corporation?
Yes, provided that the 5% expanded withholding tax
is paid by the corporation during the audit.(Question 12,
2012 Bar, Adapted)
What are the deductions recognized under the law?
May pure
deductions?
(g)
(h)
(i)
(j)
State the rule on the optional treatment of interest
expense.
At the option of the taxpayer, interest incurred to
acquire property used in trade, business or exercise of a
profession may be allowed as a deduction or treated as a
capital expenditure.42(Sec. 34[B][3], NIRC)
The interest expense of a domestic corporation on a
bank loan in connection with the purchase of a
production equipment –
a) is not deductible from gross income of the
borrower-corporation;
b) is deductible from the gross income of the
borrower-corporation during the year or it may
be capitalized as part of cost of the equipment;
c) is deductible only for a period of five years from
date of purchase;
d) is deductible only if the taxpayer uses the cash
method of accounting.
(Question 16, 2012 Bar)
Amounts of income accrue where the right to receive
them become fixed, where there is created an enforceable
liability. Similarly, liabilities are accrued when fixed
and determinable in amount, without regard to
indeterminacy merely of time of payment. For a
taxpayer using the accrual method, when do the facts
present themselves in such a manner that the taxpayer
must recognize income or expense?
The accrual of income and expense is permitted
when the ALL-EVENTS TEST has been met. This test
requires: (1) fixing of a right to income or liability to pay;
and (2) the availability of the reasonable accurate
41Question
40
Question 15, 2011 Bar.
42Question
III, 2014 Bar.
XII, 2014 Bar.
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determination of such income or liability. The all-events
test requires the right to income or liability be fixed, and
the amount of such income or liability be determined
with reasonable accuracy.43
The "all events test" refers to:
a) A person who uses the cash method where all
sales have been fully paid by the buyers thereof;
b) A person who uses the installment sales method,
where the full amount of consideration is paid in
full by the buyer thereof within the year of sale;
c) A person who uses the accrual method, whereby
an expense is deductible for the taxable year in
which all the events had occurred which
determined the fact of the liability and the
amount thereof could be determined with
reasonable accuracy;
d) A person who uses the completed method,
whereby the construction project has been
completed during the year the contract was
signed.
(Question 17, 2012 Bar)
13
Under Sec. 36(A)(1) of the NIRC, personal, living
and family expenses are non-deductible expenses.
Exemptions under Sec. 35 are intended as substitutes for
personal and living expenses. They are roughly
equivalent to the minimum of subsistence (Madrigal vs.
Rafferty, 7 August 1918). Under prevailing law, the
amount fixed for personal exemption is Php50,000.00,
regardless of the status of the taxpayer (whether single,
head of the family or married), and additional
exemption in the amount of Php25,000.00 for each
qualified dependent up to a maximum of four.
Who is a qualified dependent?
A dependent means a legitimate, illegitimate or
legally adopted child chiefly dependent upon and living
with45 the taxpayer if such dependent is not more than
twenty-one (21) years of age, unmarried and not
gainfully employed or if such dependent, regardless of
age, is incapable of self-support because of mental or
physical defect.
B.5 Exclusions
What is the optional standard deduction (OSD) and
what are its advantages?
The Optional Standard Deduction44 is a privilege
available to a citizen, resident alien or corporation
subject to the normal income tax to deduct, in lieu of
itemized deduction, forty percent (40%) of taxpayer’s
gross sales or receipts (in the case of individual) or gross
income (in the case of corporation) in the computation of
taxable income.
The OSD has its advantages. As an alternative to
itemized deduction, it provides taxpayers with low
itemizable expenses a higher amount of deduction and,
thus, more tax savings. Also, its computation is
relatively simple and, unlike itemized deduction, the
OSD dispenses with the substantiation requirement.
This relieves taxpayers of the difficulty of computation
usually attendant to itemized deduction as well as the
added burden of record-keeping.
Important concepts relating to the OSD
(a) The OSD is available only to citizens, resident
aliens, and corporations subject to the regular
income tax (DC and RFC). Before the
amendment in RA 9504, corporations were not
entitled to OSD.
(b) The standard deduction is optional. If the
taxpayer does not elect OSD, he is considered as
having availed of the itemized deduction.
(c) The election for OSD shall be irrevocable for the
year in which it is made.
(d) Proof is not required.
(e) The rate has been increased from 10% to 40%
under the amendment in RA 9504.
Personal and Additional Exemptions
43
CIR vs. Isabela Cultural Corp., G.R. No. 172231, February 12, 2007.
34 (L), NIRC.
44Sec.
What is meant by the term “exclusions” and what is its
legal effect?
The term “exclusions” refers to items that are not
included in the determination of gross income because
(a) they represent return of capital, or are not income,
gain or profit; or (b) they are income, gain or profit that
are expressly exempt from income tax under the
constitution, tax treaty, Tax Code, or general or special
law.46 An item of exclusion reduces the gross income
(not net income).
What are the requirements in order that retirement
benefits received by an employee in the private sector
may be exempted from the tax?
The answer needs qualification, depending upon
whether retirement benefits are received under a BIRapproved retirement plan (R.A. No. 4917) or not (R.A.
No. 7641).
For retirement benefits received under R.A. No. 7641
to be exempted, the law requires that the retiring official
or employee must have rendered services to his
employer for at least five (5) years and that he be not less
than 60 but not more than 65 years of age at the time of
retirement.(Sec. 32B6a, NIRC)
On the other hand, retirement benefits received in
accordance with a reasonable private benefit plan
maintained by the employer (under R.A. No. 4917) are
exempted 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 50 years of age at the
time of his retirement. This benefit shall be availed of
only once.(Sec. 32B6a, NIRC)
45
Question 42, 2011 Bar.
Philippine Income Tax, 2010 Edition, p. 150.
46Mamalateo,
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Ma. Isabel Santos was the Human Resource
Manager of Servier Philippines, Inc. (Servier) since 1991.
In 1998, Santos suffered a sudden attack of “alimentary
allergy”. She fell into coma and was confined in the
hospital. After a year of medical treatment, evaluation
disclosed that she has not recovered mentally and
physically. Servier was constrained to terminate the
services of Santos effective 31 August 1999.Servier paid
disability retirement benefits but withheld a portion for
taxation purposes. Under the retirement plan of Servier,
employees are barred from claiming additional benefits
on top of that provided for in the Plan. Santos was 41
years of age at the time of her termination. Under the
circumstances, was the withholding of a portion of the
retirement benefits proper?
Suggested Answer:
Yes. Pursuant to the Tax Code provisions on
exclusion, retirement benefits received in accordance
with a reasonable private benefit plan maintained by the
employer (under R.A. No. 4917) are exempted 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 50 years of age at the time of his
retirement.
Here, Santos was qualified for disability retirement.
At the time of her retirement, she was only 41 years of
age; and had been in the service for more or less eight (8)
years. As such, the above exclusion is not applicable for
failure to comply with the age and length of service
requirements. Therefore, Servier cannot be faulted for
deducting a portion from Santos’s total retirement
benefits for taxation purposes.47
14
B.6 Taxation on Estates and Trusts
How shall the taxable income of an estate or trust be
computed?
The taxable income of the estate or trust shall be
computed in the same manner and on the same basis as
in the case of an individual.(Sec. 61, NIRC)
Who is liable for the payment of the tax on income from
property held in trust?
The income from property held in trust shall be paid
by the fiduciary, if the trust instrument is irrevocable
(Sec. 60C, NIRC); or the grantor, if the trust instrument is
revocable (Sec. 63, NIRC) or that the income is
distributed to or held for the benefit of the grantor (Sec.
64, NIRC).
BAR 2009
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.
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?
What is “de minimis” benefit48 and how is it treated
under the law?
It is a facility or privilege furnished to an employee
which is of relatively small value and designed to
promote contentment, health, efficiency and goodwill of
the employee. It is not taxable and, thus, excluded from
gross income. (RR 2-98 as amended; see also RR 5-2011)
But the excess of the amount of de minimisbenefit
paid to an employee over the ceiling provided in the
rules may qualify as “other benefits”entitled to exclusion
from gross compensation income.
Clarification on “other benefits” as one of the exclusions
from gross compensation income received by an
employee.
Together with the 13th month pay, the amount of
exclusion is now Php82,000.00 and shall in no case apply
to other compensation received by an employee under
an employer-employee relationship, such as basic salary
and other allowances. Further, it must be emphasized that
this exclusion from gross income is not applicable to
self-employed individuals and income generated from
business. (RR 3-2015)
See Santos vs. Servier Philippines, Inc., G.R. No. 166377, 28 November
2008.
48Question X, 2014 Bar.
47
Suggested Answer:
a.
I will advise Miriamthat the yearly rental
income distributed annually qualifies as a
deduction in computing the net income of the
trust. And since net income is zero after such
deduction, there is nothing to be paid as annual
income tax due from the trust. (Sec. 61A, NIRC)
b.
No. The trust may now have net income
determined at the end of each year as a result of
accumulating its income instead of distributing
the same to the beneficiary. The tax is payable
by the trust, as represented by the trustee, on the
basis of such net income. (Sec. 61A, NIRC)
In the case of the employee’s trust which forms part of a
pension, stock bonus or profit sharing plan of an
employer for the benefit of some or all of his employees,
wherein contributions are made to the trust by the
employer or employees, or both, for the purpose of
distributing to such employees the earnings and
principal of the fund accumulated by the trust in
accordance with such plan, what is the tax treatment of
(a) the contributions made to the trust by the
employer?
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(b) the retirement benefit paid to the employee
under the retirement trust?
(c) the income earned by the employee’s retirement
funds which are held in trust?
(d) the amount actually distributed to anonretiring employee during the year?
15
NOTE: The income of the foregoing shall be computed on the
basis of the calendar year (fiscal year is not applicable).
Suggested Answer:
How may a corporation recover the overpaid income tax
in case the sum total of quarterly tax payments (to
include payment through withholding) exceed the total
income tax due on the net income for the year?
(a) The contribution made to the pension trust by
the employer may be allowed as a deduction against his
gross income.(Sec. 34J, NIRC)
The corporation may (1) carry-over the excess credit,
or (2) be credited or refunded with the excess amount
paid. (Sec. 76, NIRC)
(b) The retirement benefit received by the employee
from the retirement fund of the trust shall be excluded in
his gross income and, thus, exempted from the
withholding tax.(Sec. 32B6a, NIRC)
BAR 2013
(c) The income earned by the retirement funds of
private employees held by the trustor in their behalf
shall be exempted from income tax.(Sec. 60B, NIRC)
(d) The amount actually distributed to the
employee shall be taxable to him in the year in which so
distributed to the extent that it exceeds the amount
contributed by such employee. (Sec. 60B, NIRC)
B.7 Compliance Requirements
Who among the following is/are taxable? Who among
them is/are required to file an income tax return?
(a) minimum wage earner
(b) pure compensation income earner whose
compensation income exceeds Php60,000.00
(c) general professional partnership
Suggested Answer:
A minimum wage earner shall be exempt from the
payment of the tax on taxable income. Such exemption
includes holiday pay, overtime pay, night shift
differential pay and hazard pay. Consequently, a
minimum wage earner is not required to file an income
tax return. (Sec. 24A and 51A2, NIRC as amended by R.A.
No. 9504)
A pure compensation income earner shall be liable
on his taxable compensation income. He is not required
to file an income tax return even though his
compensation income exceeds Php60,000.00, provided
that he is not deriving his compensation income
concurrently from two or more employers at any time
during the taxable year. (Sec. 24A and 51A2, NIRC as
amended by R.A. No. 9504)
A general professional partnership is not considered
a “corporation” liable for tax on its net income (Sec. 22B,
NIRC). The partners themselves, not the partnership, are
liable for the payment of income tax in their individual
capacity (Sec. 26, NIRC) computed on their respective
distributive shares of the partnership profits (Sec. 32A11,
NIRC). However, a general professional partnership is
required to return its income. (Sec. 55, NIRC)
In its final adjustment return for the 2010 taxable
year, ABC Corp. had excess tax credits arising from its
over-withholding of income payments. It opted to carry
over the excess tax credits to the following year.
Subsequently, ABC Corp. changed its mind and applied
for a refund of the excess tax credits.
Will the claim for refund prosper?
Suggested Answer:
No. After opting to carry over its excess tax credits,
ABC Corp. became barred from recovering such excess
income tax through cash refund or tax credit certificate.
Under the law, once the option to carry-over has been
made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed. (Sec.
76, NIRC)
Is there a prescriptive period for the carry-over of excess
creditable income tax?
No. Unlike Section 69 of the old NIRC, the carryover of excess income tax payments is no longer limited
to the succeeding taxable year. Unutilized excess income
tax payments may now be carried over to the succeeding
taxable years until fully utilized.49
May a corporation who exercised the irrevocable option
of carry-over still recover the excess creditable tax in the
event of cessation of business operations?
Yes. Where the corporation permanently ceases its
operations before full utilization of the tax credits it
opted to carry over, it may then be allowed to claim the
refund of the remaining tax credits. In such a case, the
remaining tax credits can no longer be carried over and
the irrevocability rule ceases to apply. Cessante ratione
legis, cessat ipse lex.50
C. TRANSFER TAXATION
C.1 Estate Tax
Belle Corp. vs. CIR, G.R. No. 181298, 10 January 2011.
Systra Philippines, Inc. vs. CIR, G.R. No. 176290, 21 September 2007;
Mindanao 1 Geothermal Partnership vs. CIR, CTA Case No. 8093, 26
March 2013.
49
50
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What is meant by transfer in contemplation of death?
It refers to the transfer or disposition of property
executed during the lifetime of the transferor but whose
main consideration is the transferor’s death. A transfer is
in contemplation of death where the full or naked
ownership of the property is to pass only because of the
transferor’s death.51
Under Section 85B of the NIRC, the transfer under
the following circumstances is considered a transfer in
contemplation of death:The decedent has retained for his
life or for any period which does not in fact end before
his death –
(1) the possession or enjoyment of, or the right to
the income from the property, or
(2) the right, either alone or in conjunction with any
person, to designate the person who shall
possess or enjoy the property or the income
therefrom.
BAR 2013
Mr. Agustin, 75 years old and suffering from an
incurable disease, decided to sell for valuable and
sufficient consideration a house and lot to his son. He
died one year later.
In the settlement of Mr. Agustin's estate, the BIR
argued that the house and lot were transferred in
contemplation of death and should therefore form part
of the gross estate for estate tax purposes.
16
Judicial expenses52 are expenses of administration.
Administration expenses, as an allowable deduction
from the gross estate of the decedent for purposes of
arriving at the value of the net estate, have been
construed by the federal and state courts of the United
States to include all expenses “essential to the collection
of the assets, payment of debts or the distribution of the
property to the persons entitled to it.” In other words,
the expenses must be essential to the proper settlement
of the estate.53
Expenditures which are not allowed to be deducted
Expenditures incurred for the individual benefit of
the heirs, devisees or legatees are not deductible.54
Tax is based on the value of property transmitted at the
time of predecessor's death.
A transmission by inheritance is taxable at the time
of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of
the estate by the beneficiary, and the tax measured by
the value of the property transmitted at that time
regardless of its appreciation or depreciation.55
Against whom should the notice of collection be issued
to satisfy the delinquent estate tax?
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 petitioner as heir of the deceased. 56
Is the BIR correct?
C.2 Donor’s Tax
Suggested Answer:
No. The totality of the circumstances do not
sufficiently show any transfer in contemplation of death.
The fact that at the time of the sale Mr. Agustin was
already old, suffering from incurable disease and that
the sale was so close to his death are not conclusive of
the sale being made in consideration of death. Besides,
the sale was for valuable and sufficient consideration, in
which case, there is no more gratuitous transfer that may
be subject to estate tax. (Sec. 85B, NIRC)
How is the Standard Deduction for estate tax purposes
differentiated from the Optional Standard Deduction for
income tax purposes?
(1) The former is automatic whereas the latter is
optional on the part of the taxpayer. (2) The former is a
fixed amount of Php1 million whereas the latter is fixed
at 40% of the taxpayer’s gross sales or gross receipts
(individual) or gross income (corporation). (3) The
former is a deduction available to estates of citizens or
residents of the Philippines whereas the latter is a
deduction available to income taxpayers who are
engaged in trade or business or exercise of profession.
The gift tax applies to indirect gifts. Illustrate.
In a sale of property for less than an adequate
consideration, the difference between the market value
and the consideration is deemed a gift made and, thus,
taxable. The exception is in the case of sale of real
property subject to the capital gains tax of 6%. (see Sec.
100, NIRC)
Similarly, a deemed gift made is also recognized in
case of renunciation by an heir of his/her share in the
inheritance, UNLESS the renunciation is general in
character, that is, no one is excluded or less benefitted
than the others by such renunciation (see RR 2-2003).57 In
case of general renunciation, the portion renounced is
transferred automatically to the other co-heirs by virtue
of accretion, and the inheritance is not deemed accepted
(Article 1050, par. 3, Civil Code). But in case of
renunciation by the surviving spouse of the share in the
conjugal or absolute community property, there always
52Question
Requirements for expenses to be deductible against gross
estate
51
See Ganuelas vs. Cawed, G.R. No. 123968, 24 April 2003.
XIV, 2014 Bar.
CIR vs. CA, et al., G.R. No. 123206, March 22, 2000.
54 CIR vs. CA, et al. (2000), supra.
55 Lorenzo vs. Posadas, Jr., G.R. No. 43082, June 18, 1937.
56 Ferdinand R. Marcos II vs. CA, et al., G.R. No. 120880, June 5, 1997.
57Question XV, 2010 Bar.
53
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17
arise a deemed gift made regardless of whether the
renunciation is general or not. (see RR 2-2003)
a) Maria Reyes is subject to donor’s tax in
because gross gift is P100,000.00;
b) Maria Reyes is exempt from donor’s tax in
because gross gift is P100,000.00;
c) Maria Reyes is exempt from donor’s tax in
only to the extent of P50,000.00;
d) Maria Reyes is exempt from donor’s tax in
because the donee is minor.
BAR 2013
In the settlement of the estate of Mr. Barbera who
died intestate, his wife renounced her inheritance and
her share of the conjugal property in favor of their
children. The BIR determined that there was a taxable
gift and thus assessed Mrs. Barbera as a donor.
Was the BIR correct?
Suggested Answer:
The BIR was only partially correct. By renouncing
her share of the conjugal property, Mrs. Barbera was
deemed to have made a donation of property in favor of
her children and, thus, she is liable for the gift tax.
However, as to her share in the inheritance, Mrs. Barbera
is not deemed to have accepted the same in view of the
general renunciation and, consequently, there cannot be
any donation of property for which she can be made
liable for a gift tax.
Another illustration of an indirect gift that is taxable.
BAR 2013
The spouses Jun and Elvira Sandoval purchased a
piece of land for P5,000,000 and included their two (2)
minor children as co-purchasers in the Deed of Absolute
Sale. The Commissioner of Internal Revenue (CIR) ruled
that there was an implied donation and assessed
donor’s taxes against the spouses.
2011
2011
2011
2011
What is gift splitting? Is it illegal?
It is a device to minimize, if not totally avoid, gift tax
liability by spreading the gifts into separate calendar
years in order to arrive at lower taxable bases. It is a
legally permissible scheme.
When is gift splitting, as a method of avoiding or
minimizing tax liability, considered relevant?
Gift splitting as a tax avoidance scheme is relevant
only in cases of gifts made in favor of persons who are
not strangers. This is in consequence of the applicability
of the graduated rates of tax only to donations intended
for relatives (not strangers).
Political contribution exempt from donor’s tax.
Campaign contributions58 to political candidate,
party, or coalition of parties is exempt provided that the
reportorial requirements under the Omnibus Election
Code, as amended, are complied with.
D. VALUE ADDED TAX
Rule on the CIR’s action.
(A) The CIR is wrong; a donation must be express;
(B) The CIR is wrong; financial capacity is not a
requirement for a valid sale;
(C) The CIR is correct; the amount involved is huge
and ultimately ends up with the children;
(D) The CIR is correct; there was animus donandi
since the children had no financial capacity to be
co-purchasers.
How is the gift tax computed?
The tax for each calendar year shall be computed on
the basis of the total net gifts made during the calendar
year.
For donations made in favor of persons who are
NOT strangers, the gift tax is zero if the net gift does not
exceed Php100,000.00. A graduated rate of 2%-15% tax is
then applied for net gifts exceeding such amount. For
gifts made in favor of strangers, a 30% tax is imposed on
the net gifts. (Sec. 99[A][B], NIRC)
BAR 2012
On January 10, 2011, Maria Reyes, single-mother,
donated cash in the amount of P50,000.00 to her
daughter Cristina, and on December 20, 2011, she
donated another P50,000.00 to Cristina. Which
statement is correct?
The VAT is both an indirect tax and a tax on
consumption.
The VAT is an indirect tax. As such, the amount of
tax paid on the goods, properties or services bought,
transferred, or leased may be shifted or passed on by the
seller, transferor, or lessor to the buyer, transferee or
lessee. Unlike a direct tax, such as the income tax, which
primarily taxes an individual's ability to pay based on
his income or net wealth, an indirect tax, such as the
VAT, is a tax on consumption of goods, services, or
certain transactions involving the same. The VAT, thus,
forms a substantial portion of consumer expenditures.59
Liability for the tax distinguished from burden of the
tax
In indirect taxation, there is a need to distinguish
between the liability for the tax and the burden of the
tax. The amount of tax paid may be shifted or passed on
by the seller to the buyer. What is transferred in such
instances is not the liability for the tax, but the tax
burden. In adding or including the VAT due to the
selling price, the seller remains the person primarily and
legally liable for the payment of the tax. What is shifted
only to the intermediate buyer and ultimately to the
final purchaser is the burden of the tax. Stated
58Question
59
II, 2014 Bar.
Contex Corp. vs. CIR, G.R. No. 151135, July 2, 2004.
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differently, a seller who is directly and legally liable for
payment of an indirect tax, such as the VAT on goods or
services is not necessarily the person who ultimately
bears the burden of the same tax. It is the final purchaser
or consumer of such goods or services who, although
not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax.60
What is meant by “in the course of trade or business”?
The phrase “in the course of trade or business”
means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental
thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members
or their guests), or government entity. (Sec. 105, NIRC;
Underscoring supplied.)
Commonwealth Management and Services Corporation
(COMASERCO) is an affiliate of Philippine American
Life Insurance Co. (Philamlife), organized by the latter
to perform collection, consultative and other technical
services, including functioning as an internal auditor of
Philamlife and its other affiliates. COMASERCO
rendered service to its affiliates and, in turn, the
affiliates paid the former reimbursement-on-cost which
means that it was paid the cost or expense that it
incurred although without profit. Is COMASERCO
liable to pay VAT?
Yes, services rendered for a fee even on
reimbursement-on-cost basis only and without realizing
profit are also subject to VAT.
It is immaterial whether the primary purpose of a
corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-oncost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As
long as the entity provides service for a fee,
remuneration or consideration, then the service
rendered is subject to VAT.61
BAR 2014
MasarapKumain, Inc. (MKI) is a Value-Added Tax
(VAT)-registered company which has been engaged in
the catering business for the past 10 years. It has
invested a substantial portion of its capital on flat
wares, table linens, plates, chairs, catering equipment,
and delivery vans. MKI sold its first delivery van,
already 10 years old and idle, to Magpapala Gravel and
Sand Corp. (MGSC), a corporation engaged in the
business of buying and selling gravel and sand. The
selling price of the delivery van was way below its
acquisition cost. Is the sale of the delivery van by MKI
to MGSC subject to VAT?
Suggested Answer:
Yes. For VAT purposes, a transaction “in the course
of trade or business” includes “transactions incidental
18
thereto.” In the course of its business, MKI bought and
eventually sold the delivery van. Prior to the sale, the
motor vehicle was used as part of MKI’s property, plant,
and equipment. Therefore, the sale of the delivery van is
an incidental transaction made in the course of MKI’s
business which should be liable for VAT regardless of
the fact that there was no profit realized from the sale
(Sec. 105, NIRC).62
Explain the concept of “destination principle”. How is it
relevant to the VAT system?
As a general rule, the VAT system uses the
destination principle as a basis for the jurisdictional
reach of the tax. Under this principle, goods and services
are taxed only in the country where they are consumed.
Thus, exports are zero-rated, while imports are taxed.63
Is the destination principle, as adopted under the VAT
system, absolute?
No. The law clearly provides for an exception to the
destination principle; that is, for a zero percent VAT rate
for services that are performed in the Philippines, “paid for
in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the [BSP]”.
(Sec. 108B2, NIRC)
BAR 2013
XYZ Law Offices, a law partnership in the
Philippines and a VAT-registered taxpayer, received a
query by e-mail from Gainsburg Corporation, a
corporation organized under the laws of Delaware, but
the e-mail came from California where Gainsburg has
an office. Gainsburg has no office in the Philippines and
does no business in the Philippines.
XYZ Law Offices rendered its opinion on the query
and billed Gainsburg US$1,000 for the opinion.
Gainsburg remitted its payment through Citibank which
converted the remitted US$1 ,000 to pesos and deposited
the converted amount in the XYZ Law Offices account.
What are the tax implications of the payment to
XYZ Law Offices in terms of VAT [and income taxes]?
Suggested Answer:
The payment is subject to VAT but at a zero-rate.
The zero-rating applies because the services were
rendered to a non-resident person who is engaged in
business outside the Philippines, the consideration for
which was paid for in acceptable foreign currency and
accounted for in accordance with the BSP
rules.Consequently, the law office is entitled to claim the
input tax attributable to such zero-rated sale as a credit
against its output tax or, at its option, apply for refund
or issuance of a tax credit certificate to the extent that
such input tax was not utilized as a credit against output
tax. (Sections 108B2, 110A1 and 112, NIRC; See also
Accenture, Inc. vs. CIR, G.R. No. 190102, 11 July 2012)
See also Mindanao II vs. CIR, G.R. No. 193301 and CIR v. CA, 385 Phil.
875 [2000].
63 CIR vs. American Express International, Inc., G.R. No. 152609, 29 June
2005.
62
60
61
Contex Corp. vs. CIR (2004), supra.
CIR v. CA, 385 Phil. 875 (2000).
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Requisites for the claim for refund or tax credit of input
tax
To claim refund or tax credit under Section 112 (A),
petitioner must comply with the following criteria: (1)
the taxpayer is VAT registered; (2) the taxpayer is
engaged in zero-rated or effectively zero-rated sales; (3)
the input taxes are due or paid; (4) the input taxes are
not transitional input taxes; (5) the input taxes have not
been applied against output taxes during and in the
succeeding quarters; (6) the input taxes claimed are
attributable to zero-rated or effectively zero-rated sales;
(7) for zero-rated sales under Section 106 (A) (2) (1) and
(2); 106 (B); and 108 (B) (1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted
for in accordance with BSP rules and regulations; (8)
where there are both zero-rated or effectively zero-rated
sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of
these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and (9) the claim
is filed within two years after the close of the taxable
quarter when such sales were made. (San Roque Power
Corp. vs. CIR, G.R. No. 180345, November 25, 2009)
BAR 2014
Gangwam Corporation (GC) filed its quarterly tax
returns for the calendar year 2012 as follows:
First quarter - April 25, 2012
Second quarter - July 23, 2012
Third quarter - October 25, 2012
Fourth quarter - January 27, 2013
On December 22, 2013, GC filed with the Bureau of
Internal Revenue (BIR) an administrative claim for
refund of its unutilized input Value-Added Tax (VAT)
for the calendar year 2012. After several months of
inaction by the BIR on its claim for refund, GC decided
to elevate its claim directly to the Court of Tax Appeals
(CTA) on April 22, 2014.
19
of two years from the close of the said quarter, the
judicial claim was timely filed within 30 days from the
inaction. (See CIR vs. Mindanao II Geothermal Partnership,
G.R. No. 191498, 15 January 2014)
(B) No. This time the CTA would be correct in
denying the claim. However, the denial is not premised
upon the filing of the judicial claim beyond the two-year
prescriptive period but on the ground that it was
prematurely filed, which means non-exhaustion of the
120-day period for the Commissioner to act on an
administrative claim. As a rule, the 120-day waiting
period is both mandatory and jurisdictional. (see CIR v.
San Roque Power Corporation, G.R. No. 187485, 12
February 2013)
The withholding of tax under Sec. 114 is now final, no
longer creditable.
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.64
E. REMEDIES
Cite the instances when the Commissioner of Internal
Revenue may be authorized to inquire into the bank
deposits of a taxpayer.
The instances are: (1) for the purpose of determining
the gross estate of a decedent and (2) when a taxpayer
files an application for compromise of his tax liability by
reason of financial incapacity to pay his tax liability. (Sec.
6[F], NIRC)
The Commissioner of Internal Revenue may NOT
inquire into the bank deposits of a taxpayer, except:
a) When the taxpayer files a fraudulent return;
b) When the taxpayer offers to compromise the
assessed tax based on erroneous assessment;
c) When the taxpayer offers to compromise the
assessed tax based on financial incapacity to pay
and he authorizes the Commissioner in writing
to look into his bank records;
d) When the taxpayer did not file his income tax
return for the year.
(Question 44, 2012 Bar)
In due time, the CTA denied the tax refund relative
to the input VAT of GC for the first quarter of 2012,
reasoning that the claim was filed beyond the two-year
period prescribed under Section 112(A) of the National
Internal Revenue Code (NIRC).
(A) Is the CTA correct?
(B) Assuming that GC filed its claim before the CTA
on February 22, 2014, would your answer be the
same?
Suggested Answer:
(A) No. It is settled that under Sec. 112 of the NIRC,
it is only the administrative claim that must be filed
within the two-year prescriptive period; the judicial
claim need not fall within the two-year prescriptive
period. What is necessary is that the judicial claim is
filed within 30 days either from decision or inaction after
the lapse of 120 days from the filing of the
administrative claim. In this case, the judicial claim
relative to the input VAT for the 1st quarter of 2012 was
filed due to inaction of the CIR. Although filed outside
Mandamus not a remedy to compel the Commissioner to
impose a tax assessment.
Since the office of the Commissioner of Internal
Revenue is charged with the administration of revenue
laws, which is the primary responsibility of the
executive branch of the government, mandamus may
not lie against the Commissioner to compel him to
impose a tax assessment not found by him to be due or
proper for that would be tantamount to a usurpation of
executive functions. Such discretionary power vested in
the proper executive official, in the absence of
CIR vs. Ironcon Builders and Development Corp., G.R. No. 180042,
February 8, 2010.
64
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arbitrariness or grave abuse so as to go beyond the
statutory authority, is not subject to the contrary
judgment or control of others.65
When is an assessment deemed made? Is it void when
received by the taxpayer outside of the prescriptive
period?
The assessment is deemed made when notice to this
effect is released, mailed or sent by the Commissioner of
Internal Revenue to the taxpayer, and it is not required
that the notice be received by the taxpayer within the
prescriptive period (3 years).66
On April 15, 2011, the Commissioner of Internal
Revenue mailed by registered mail the final assessment
notice and the demand letter covering the calendar year
2007 with the QC Post Office. Which statement is
correct?
a) The assessment notice is void because it was
mailed beyond the prescriptive period;
b) The assessment notice is void because it was not
received by the taxpayer within the three-year
period from the date of filing of the tax return;
c) The assessment notice is void if the taxpayer can
show that the same was received only after one
(1) month from date of mailing;
d) The assessment notice is valid even if the
taxpayer received the same after the three-year
period from the date of filing of the tax return.
(Question 46, 2012 Bar)
Is an assessment based on estimates valid?
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.67
What must be contained in a notice of assessment?68
The law requires that the legal and factual bases of
the assessment be stated in the formal letter of demand
and assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Section 228 of the
NIRC and RR No. 12-99 would be rendered nugatory.69
What is the effect of a notice of assessment that fails to
state the factual and legal bases of the assessment?
State the rationale of the law.
The notice is VOID. Without complying with the
unequivocal mandate of first informing the taxpayer of
Meralco Securities Corp. vs. Victorino Savellano, et al., G.R. No. L-36181,
October 23, 1982.
66 see Basilan Estates vs. CIR, G.R. No. L-22492, September 5, 1967.
67 Ferdinand R. Marcos II vs. CA, et al., G.R. No. 120880, June 5, 1997.
68Question No. V, 2014 Bar.
69 CIR vs. Enron Subic Power Corp., G.R. No. 166387, January 19, 2009; In
this case, the Supreme Court considered the alleged “factual bases” in
the advice, preliminary letter and “audit working papers” as
insufficient. It explained that there was no going around the mandate
of the law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment
notice.”
65
20
the government's claim, there can be no deprivation of
property, because no effective protest can be made. 70
Attached to the PAN is the detailed explanation of the
particular provision of law and revenue regulation
violated. However, the FAN and demand letter issued to
the taxpayer were not accompanied by a written
explanation of the legal and factual bases of the
deficiency taxes. Is the assessment valid?
Yes, there was substantial compliance of the
requirement of Section 228 of the NIRC. The PAN with
the attached detailed explanation enabled the latter to
file an “effective” protest. (see Samar-I Electric
Cooperative v. CIR, G.R. No. 193100, 10 December 2014.)
The 30-day period for filing an appeal with the Court of
Tax Appeals is jurisdictional.
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.71
Alternative remedies of a taxpayer in case the
Commissioner fails to act on a disputed assessment
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 180day 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.72
BAR 2014
On March 27, 2012, the Bureau of Internal Revenue
(BIR) issued a notice of assessment against Blue Water
Industries Inc. (BWI), a domestic corporation, informing
the latter of its alleged deficiency corporate income tax
for the year 2009. On April 20, 2012, BWI filed a letter
protest before the BIR contesting said assessment and
demanding that the same be cancelled or set aside.
CIR v. Enron, supra.
RCBC vs. CIR, G.R. No. 168498, April 24, 2007.
72 RCBC vs. CIR (2007), supra; see also Lascona Land Co., Inc. vs. CIR, G.R.
No. 171251, March 5, 2012.
70
71
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However, on May 19, 2013, that is, after more than a
year from the filing of the letter protest, the BIR
informed BWI that the latter’s letter protest was denied
on the ground that the assessment had already become
final, executory and demandable. The BIR reasoned that
its failure to decide the case within 180 days from filing
of the letter protest should have prompted BWI to seek
recourse before the Court of Tax Appeals (CTA) by filing
a petition for review within thirty (30) days after the
expiration of the 180-day period as mandated by the
provisions of the last paragraph of Section 228 of the
National Internal Revenue Code (NIRC). Accordingly,
BWI’s failure to file a petition for review before the CTA
rendered the assessment final, executory and
demandable. Is the contention of the BIR correct?
Explain.
Suggested answer:
In case of the inaction of the CIR on the protested
assessment, the taxpayer has two options, either: (1) file
a petition for review with the CTA within 30 days after
the expiration of the 180-day period; or (2) await the
final decision of the Commissioner on the disputed
assessment and appeal such final decision to the CTA
within 30 days after the receipt of a copy of such
decision. In arguing that the assessment became final
and executory by the sole reason that BWI failed to
appeal the inaction of the Commissioner within 30 days
after the 180-day reglementary period, the BIR, in effect,
limited the remedy of BWI, as a taxpayer, under Section
228 of the NIRC to just one, that is - to appeal the
inaction of the Commissioner on its protested
assessment after the lapse of the 180-day period. This is
incorrect.73
The taxpayer received an assessment notice on April 15,
2011 and filed its request for reinvestigation against the
assessment on April 30, 2011. Additional documentary
evidence in support of its protest was submitted by it on
June 30, 2011. If no denial of the protest was received by
the taxpayer, when is the last day for the filing of its
appeal to the CTA?
a)
b)
c)
d)
November 30, 2011;
December 30, 2011;
January 30, 2012;
February 28, 2012.
(Question 49, 2012 Bar)
Explanation:
From the submission of the supporting documents, a
period of 180-days runs within which the CIR may act
on the protest. In this case, inaction arose on December
30, 2011. The appeal to the CTA may be made within 30
days thereafter, or until January 30, 2012.
Using the same facts in the immediately preceding
number, but assuming that the final decision on the
disputed assessment was received by the taxpayer on
July 30, 2011, when is the last day for filing of the
appeal to the CTA?
a) August 30, 2011;
73
See Lascona Land Co., Inc. vs. CIR, G.R. No. 171251, March 5, 2012.
21
b) September 30, 2011;
c) December 30, 2011;
d) January 30, 2012.
(Question 50, 2012 Bar)
"Best evidence obtainable" rule, when applicable
The law is specific and clear. The rule on the "best
evidence obtainable" applies when a tax report required
by law for the purpose of assessment is not available or
when the tax report is incomplete or fraudulent. Thus,
the persistent failure of the decedent and the taxpayer to
present their books of accounts for examination for the
taxable years involved left the Commissioner of Internal
Revenue no other legal option except to report to the
power conferred upon him under Section 16 of the Tax
Code.74
What is the “Expenditure Method” as a method used in
reconstructing income?
A method commonly used by the government is the
expenditure method, which is a method of
reconstructing a taxpayer's income by deducting the
aggregate yearly expenditures from the declared yearly
income. The theory of this method is that when the
amount of the money that a taxpayer spends during a
given year exceeds his reported or declared income and
the source of such money is unexplained, it may be
inferred that such expenditures represent unreported or
undeclared income.75
Purpose of zonal valuation made by the Commissioner
of Internal Revenue
[T]the same is for the purpose of computing internal
revenue taxes.76
Authority of the Commissioner to delegate powers,
exception
Under Section 7 of the NIRC, the Commissioner is
authorized to delegate to his subordinates the powers
vested in him except, among others, the power to issue
rulings of first impression.77
Taxes are personal to the corporate taxpayer. It cannot
be enforced against its officers and stockholders.
Taxes being personal to the taxpayer, it can only be
enforced against petitioner because the payment of
unpaid customs duties and taxes are the personal
obligation of the petitioner as a corporate taxpayer, thus,
it cannot be imposed on its corporate officers, much so
on its individual stockholders, for this will violate the
principle that a corporation has personality separate and
distinct from the persons constituting it.78
Bonifacia Sy Po vs. CTA, et al., G.R. No. L-81446, August 18, 1988.
vs. CA, G.R. No. 197590, November 24, 2014 citing Collector v.
Jamir, 114 Phil. 650, 651-652 [1962]
76 Capitol Steel Corp. vs. Phividec Industrial Authority, G.R. No. 169453,
December 6, 2006.
77 Secretary of Finance, et al. vs. La Suerte Cigar and Cigarette Factory, et al.,
G.R. No. 166498 , June 11, 2009.
78 Proton Pilipinas Corp. vs. Republic of the Phil., G.R. No. 165027, October
16, 2006.
74
75BIR
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Waiver of the statute of limitations not a waiver of the
right to invoke the defense of prescription.
The waiver of the statute of limitations is not a
waiver of the right to invoke the defense of prescription
as erroneously held by the Court of Appeals. It is an
agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is
extended to a date certain. The waiver does not mean
that the taxpayer relinquishes the right to invoke
prescription unequivocally particularly where the
language of the document is equivocal.79
What is the rationale for requiring a written claim for
refund to be filed before the Commissioner?
A claimant must first file a written claim for refund,
categorically demanding recovery of overpaid taxes
with the CIR, before resorting to an action in court. This
obviously is intended, first, to afford the CIR 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.80
No injunction rule applicable even if the tax assessment
is disputed.
It is clear that the word “tax,” as used in the
provision prohibiting injunctions, means a tax even if it
is disputed by the taxpayer, for otherwise it would be
sufficient to dispute a tax in order to take it out from the
provisions of said section, rendering them practically
nugatory.81
The BIR legal officers may institute or commence
judicial actions but the Solicitor General shall appear
for the government in appellate proceedings.
The Solicitor General, being the principal law officer
and legal defender of the state, its agencies and
instrumentalities, is aptly the office that can bring a case
on appeal to the Court of Appeals or the Supreme Court.
The institution or commencement before a proper court
of civil and criminal actions and proceedings arising
under the Tax Reform Act which "shall be conducted by
legal officers of the Bureau of Internal Revenue" is not in
dispute. An appeal from such court, however, is not a
matter of right. Section 220 of the Tax Reform Act must
not be understood as overturning the long established
procedure before this Court in requiring the Solicitor
General to represent the interest of the Republic. This
pronouncement finds justification in the various laws
defining the Office of the Solicitor General, beginning
with Act No. 135, which took effect on 16 June 1901, up
to the present Administrative Code of 1987.82
Rationale for requiring taxpayer to submit a claim for
refund before resorting to courts.
Philippine Journalists, Inc. vs. CIR, G.R. No. 162852, December 16,
2004.
80 CIR vs. Rosemarie Acosta, G.R. No. 154068, August 3, 2007.
81 David vs. Ramos, et al., G.R. No. L-4300, October 31, 1951.
82 CIR vs. La Suerte Cigar and Cigarette Factory, G.R. No. 144942, June 28,
2001.
22
The law clearly stipulates that after paying the tax,
the citizen 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 corrected is a doctrine consistently applied
here and in the United States.83
How is the two-year prescriptive period computed for
purposes of the claim for refund?
The rule is that the two-year prescriptive period is
reckoned from the filing of the final adjusted return. But
how should the two-year prescriptive 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.84
Does the withholding agent have a legal right to file a
claim for refund?
A withholding agent has a legal right to file a claim
for refund for two reasons. First, he is considered a
“taxpayer” under the NIRC as he is personally liable for
the withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the
amount of the tax withheld be finally found to be less
than the amount that should have been withheld under
law. Second, as an agent of the taxpayer, his authority to
file the necessary income tax return and to remit the tax
withheld to the government impliedly includes the
authority to file a claim for refund and to bring an action
for recovery of such claim.85
Is the person upon whom the burden of an indirect tax is
shifted the proper party to seek a refund?
No. The proper party to question, or seek a refund
of, an indirect tax is the statutory taxpayer, the person
79
Bermejo vs. Collector, G.R. No. L-3029, July 25, 1950.
CIR vs. Primetown Property Group, Inc., G.R. No. 162155, August 28,
2007.
85 CIR vs. Smart Communication, Inc., G.R. Nos. 179045-46, August 25,
2010.
83
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on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another.86
Instance when BIR rulings have no retroactive effect
The rule is that the BIR rulings have no retroactive
effect where a grossly unfair deal would result to the
prejudice of the taxpayer.87
F. LOCAL TAXATION and REAL PROPERTY
TAXATION
F.1 Local Tax
What is the nature of the taxing power of the provinces,
municipalities and cities? How will the local
government units be able to exercise their taxing
powers? (2007 Bar)
The power of a province, municipality and city to
tax is limited to the extent that such power is delegated
to it either by the Constitution or by statute. Such power,
however, is not inherent for provinces, cities and
municipalities as they are not the sovereign; rather, they
are mere “territorial and political subdivisions of the
Republic of the Philippines”.88
The taxing powers may be exercised by the
sanggunianof the local government unit through an
appropriate ordinance. (Sec. 132, LGC)
For purposes of local taxation (including real property
taxes), what may be the significance of the distinction
between an agency or instrumentality of the government
AND a government owned or controlled corporation
(GOCC)?
An agency or instrumentality of the national
government is exempt from local taxes, fees and charges
while a GOCC is not so exempt.
In the imposition and collection of the specific taxes
enumerated in the LGC, is there still a need for an
ordinance to be enacted, or may the appropriate LGU
merely rely on the provisions of the LGC?
No. Reference to the local tax ordinance is vital, for
the power of local government units to impose local
taxes is exercised through the appropriate ordinance
enacted by the sanggunian, and not by the Local
Government Code alone.89
Which LGU has the broadest taxing powers?
The cities may be said to have the broadest taxing
powers among the LGUs. Under Section 151 of the Local
Government Code, cities are authorized to levy the same
Silkair (Singapore) Pte, Ltd. v. CIR, G.R. No. 173594, February 6, 2008,
544 SCRA 100, 112.
87 CIR vs. Phil. Health Care Providers, Inc., G.R. No. 168129, April 24, 2007.
88 See Pelizloy Realty Corporation vs. Province of Benguet, G.R. No. 183137,
10 April 2013.
89 see Yamane vs. BA Lepanto Condominium Corporation, G.R. No. 154993,
25 October 2005.
86
23
taxes fees and charges as provinces and municipalities.
In addition, the rate of taxes that they may levy may
exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except
professional and amusement taxes.
Among the different LGUs, who is/are authorized to
levy and impose business tax?
Only municipalities and cities are granted the power
to levy and impose local business tax. (Sec. 143 and 151,
LGC)
The tax may be imposed on:
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Manufacturers
Wholesalers
Exporters
Retailers
Contractors90
Banks and other financial institutions
Peddlers, and
ANY OTHER businesses not specified above
Note: Provinces are authorized to levy specific taxes that affect
certain types of businesses.These include the tax on the
business of printing and publication, franchise tax, tax on
sand, gravel and other quarry resources, amusement tax and
tax on delivery trucks or vans. (See Secs. 136 to 141, LGC)
BAR 2013
ABC Corporation is registered as a holding
company and has an office in the City of Makati. It has
no actual business operations. It invested in another
company and its earnings are limited to dividends from
this investment, interests on its bank deposits, and
foreign exchange gains from its foreign currency account.
The City of Makati assessed ABC Corporation as a
contractor or one that sells services for a fee.
Is the City of Makati correct?
Suggested Answer:
No. A “contractor” is one whose activity consists
essentially of the sale of all kinds of services for a fee. As
the facts would show, ABC Corp. is not actually
engaged in business operations but merely derives
income from passive investment. Thus, it cannot be
made liable for the tax as a contractor or one who sells
services for a fee. (Sec. 131h, LGC)
May a local government unit impose business tax on
persons or entities engaged in the sale of petroleum
products given that an excise tax is already imposed on
the same under the NIRC?
No. [A]tax on a business is distinct from a tax on the
article itself, or for that matter, that a business tax is
distinct from an excise tax. However, such distinction is
immaterial insofar as the latter part of Section 133 (h) is
concerned, for the phrase “taxes, fees or charges on
petroleum products” does not qualify the kind of taxes,
fees or charges that could withstand the absolute
902013
Bar, Question No. III.
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prohibition imposed by the provision...The absence of
such a qualification leads to the conclusion that all sorts
of taxes on petroleum products, including business
taxes, are prohibited by Section 133 (h). Where the law
does not distinguish, we should not distinguish.91
except when the beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands,
buildings, and improvements actually, directly,
and exclusively used for religious, charitable or
educational purposes;
Who may impose tax on admission fees of theaters and
cinemas?
The local government retained the power to impose
amusement tax on proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement at a rate of not more than
thirty percent (30%)* of the gross receipts from
admission fees under Section 140 thereof. In the case of
theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and
paid to the local government before the gross receipts
are divided between said proprietors, lessees, or
operators and the distributors of the cinematographic
films. However, the provision in the Local Tax Code
expressly excluding the national government from
collecting tax from the proprietors, lessees, or operators
of theaters, cinematographs, concert halls, circuses and
other places of amusements was no longer included.92
(c) All machineries and equipment that are actually,
directly and exclusively used by local water
districts and government-owned or – controlled
corporations engaged in the supply and
distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided under R.A. No. 6938;
and
(e) Machinery and equipment used for pollution
control and environmental protection. (Sec. 234,
LGC)
* Now 10% under the amendment in R.A. No. 9640.
Beneficial use principle96
Procedure for approval and effectivity of tax ordinances
and revenue measures; mandatory public hearings
It is true that said Sec. 234 (a) . . . exempts from real
estate taxes real property owned by the Republic, unless
the beneficial use of the property is, for consideration,
transferred to a taxable person. . . . This exemption,
however, must be read in relation with Sec. 133 (o) of the
LGC, which prohibits LGUs from imposing taxes or fees
of any kind on the national government, its agencies,
and instrumentalities . . . Thus read together, the
provisions allow the Republic to grant the beneficial use
of its property to an agency or instrumentality of the
national government. Such grant does not necessarily
result in the loss of the tax exemption. The tax
exemption the property of the Republic or its
instrumentality carries ceases only if, as stated in Sec.
234 (a) of the LGC of 1991, “beneficial use thereof has
been granted, for a consideration or otherwise, to a
taxable person.” GSIS, as a government instrumentality,
is not a taxable juridical person under Sec. 133 (o) of the
LGC.97
It is categorical that a public hearing be held prior to
the enactment of an ordinance levying taxes, fees, or
charges; and that such public hearing be conducted as
provided under Section 277 of the Implementing Rules
and Regulations of the Local Government Code. 93
May a writ of injunction (or TRO) 94 be issued to enjoin
the collection of local taxes?
Yes. The prohibition on the issuance of a writ of
injunction to enjoin the collection of taxes applies only to
national internal revenue taxes, and not to local taxes.95
F.2 Real Property Tax (RPT)
Is the real property tax (RPT) a national tax or a local
tax? Who is the taxing authority?
MIAA not a GOCC but an instrumentality of the
government and, hence, exempt from real property tax
The RPT is a local tax and the repository of taxing
power is the province, city or municipality within Metro
Manila.
[M]IAA is not a government-owned or controlled
corporation but a government instrumentality which is
exempt from any kind of tax from the local
governments. Indeed, the exercise of the taxing power of
local government units is subject to the limitations
enumerated in Section 133 of the Local Government
Code. Under Section 133 (o) of the Local Government
Code, local government units have no power to tax
instrumentalities of the national government like the
What are the real properties exempt from real estate
tax?
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
Petron Corporation vs. Tiangco, G.R. No. 158881, April 16, 2008.
CIR vs. SM Prime Holdings, Inc., et al., G.R. No. 183505, February 26,
2010.
93 Ongsuco, et al. vs. Malones, G.R. No. 182065, October 27, 2009.
94Question VII, 2014 Bar.
95 Angeles City vs. Angeles City Electric Corporation, G.R. No. 166134, 29
June 2010.
91
92
96Question
VIII, 2013 Bar.
GSIS vs. City Treasurer of Manila, et al., G.R. No. 186242, December 23,
2009.
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MIAA. Hence, MIAA is not liable to pay real property
tax for the NAIA Pasay properties.98
BAR 2013
Mr. Amado leased a piece of land owned by the
Municipality of Pinagsabitan and built a warehouse on
the property for his business operations. The Municipal
Assessor assessed Mr. Amado for real property taxes on
the land and the warehouse. Mr. Amado objected to the
assessment, contending that he should not be asked to
pay realty taxes on the land since it is municipal
property.
Was the assessment proper?
Suggested Answer:
Yes. While the subject property is owned by a
political subdivision who is ordinarily not liable for local
taxes such as real property tax, the beneficial use was
granted to a taxable person. Consequently, the property
is no longer exempt from real property tax. (Sec. 234a,
LGC)
Is Mactan Cebu International Airport Authority
(MCIAA) liable for real property taxes on its airport
terminal buildings, airfield, runways and taxiways?
Suggested Answer:
No. In the recent case of MCIAA v. City of LapuLapu, 15 June 2015, the Supreme Court held that MCIAA
is an instrumentality of the government; thus, its
properties actually, solely and exclusively used for
public purposes, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on
which they are situated, are not subject to real property
tax.99
What is the tax base of the real property tax?
The tax base is assessed value. It is NOT the zonal
value or the fair market value.
When is “payment under protest” required?
The protest contemplated under Section 252 is
required where there is a question as to the
reasonableness or correctness of the amount assessed.
Hence, if a taxpayer disputes the reasonableness of an
increase in a real property tax assessment, he is required
to “first pay the tax” under protest. Otherwise, the city
or municipal treasurer will not act on his protest.100
By providing that real property not declared and
proved as tax-exempt shall be included in the
assessment roll, [Section 206 of the Local Government
Code of 1991] implies that the local assessor has the
Manila International Airport Authority vs. City of Pasay, et al., G.R. No.
163072, April 2, 2009.
99In this case of MCIAA v. Lapu-Lapu, the Court stated that the 2006
case of MIAA v. Paranaque in effect reversed the 1996 case of MCIAA v.
Marcos which held that MCIAA is a GOCC, not an instrumentality of
the government.
100 NAPOCOR vs. Province of Quezon, et al., G.R. No. 171586, January 25,
2010.
25
authority to assess the property for realty taxes, and any
subsequent claim for exemption shall be allowed only
when sufficient proof has been adduced supporting the
claim. Since Napocor was simply questioning the
correctness of the assessment, it should have first
complied with Section 252, particularly the requirement
of payment under protest. Napocor's failure to prove
that this requirement has been complied with thus
renders its administrative protest under Section 226 of
the LGC without any effect. No protest shall be
entertained unless the taxpayer first pays the tax.101
BAR 2014
Madam X owns real property in Caloocan City. On
July 1, 2014, she received a notice of assessment from the
City Assessor, informing her of a deficiency tax on her
property. She wants to contest the assessment.
(A) What are the administrative remedies available
to Madam X in order to contest the assessment and their
respective prescriptive periods?
(B) May Madam X refuse to pay the deficiency tax
assessment during the pendency of her appeal?
Suggested Answer:
(A) Madam X must first pay the real property tax
under protest. Within 30 days from payment of the tax,
she may file a protest against the assessment. Should the
Madam X find the action on the protest unsatisfactory,
she may appeal with the Local Board of Assessment
Appeals within 60 days from receipt of the decision on
the protest. If she is still unsatisfied after appealing with
the Local Board of Assessment Appeals, she may appeal
with the Central Board of Assessment Appeals within 30
days from receipt of the Local Board’s decision (Sections
252, 226 and 229, LGC).102
(B) No. The law emphatically directs that the
taxpayer/real property owner questioning the
assessment should first pay the tax due before his
protest can be entertained. As a matter of fact, the words
“paid under protest” shall be annotated on the tax
receipts. Consequently, only after such payment has
been made by the taxpayer may he file a protest in
writing. In no case shall the protest be entertained unless
the tax due has been paid.103
Is there a distinction between an “erroneous”
assessment and an “illegal” assessment? If so, what
may be the significance of such distinction?
Yes. An erroneous assessment “presupposes that the
taxpayer is subject to the tax but is disputing the
correctness of the amount assessed.” On the other hand,
an assessment is illegal if it was made without authority
under the law.
98
NAPOCOR vs. Province of Quezon, et al. (2010), supra.
See City of Lapu-Lapu vs. PEZA, G.R. No. 184203 and 187583, 26
November 2014.
103 See Camp John Hay Development Corporation vs. CBAA, G.R. No.
169234, 2 October 2013.
101
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26
The nature of the assessment, whether erroneous or
illegal, will determine the proper remedy of a taxpayer.
Thus, in case of an erroneous assessment, the taxpayer
must exhaust the administrative remedies provided
under the Local Government Code before resorting to
judicial action –
First, pay the real property tax under protest;
Second, appeal with the LBAA within 60 days from
receipt of an adverse decision on the protest; and
intention to unlade therein. Importation is deemed
terminated upon payment of the duties, taxes and other
charges due upon the articles, or secured to be paid, at a
port of entry and the legal permit for withdrawal shall
have been granted, or in case said articles are free of
duties, taxes and other charges, until they have legally
left the jurisdiction of the customs. (Section 1202 of the
TCCP)
Importation of goods is deemed terminated:
a) When the customs duties are paid, even if the
goods remain within the customs premises;
b) When the goods are released or withdrawn from
the customs house upon payment of the customs
duties or with legal permit to withdraw;
c) When the goods enter Philippines territory and
remain within the customs house within thirty
(30) days from date of entry;
d) When there is part payment of duties on the
imported goods located in the customs area.
(Question 71, 2012 Bar)
Third, appeal with the CBAA within 30 days from
receipt of the Local Board’s decision.
In case of an illegal assessment, the taxpayer may
directly resort to judicial action without paying under
protest the assessed tax and filing an appeal with the
Local and Central Board of Assessment Appeals. (See
City of Lapu-Lapu v. PEZA, G.R. Nos. 184203 and G.R.
No. 187583, 26 November 2014)
In case of “illegal” assessment for RPT, may the
taxpayer file a petition for declaratory relief with the
RTC? If not, what should be the proper remedy?
No. A petition for declaratory relief is not the proper
remedy once a notice of assessment was already issued.
Instead of a petition for declaratory relief, the
taxpayer should directly resort to a judicial action, like a
complaint for injunction, the “appropriate ordinary civil
action” to enjoin the Province or City from enforcing its
demand and collecting the assessed taxes. After all, a
declaratory judgment is useless unless the LGU is
enjoined from enforcing its demand.
Note: A complaint for injunction concerning local
taxation is not violative of the so-called “no-injuction
rule”. The rule applies only in respect to internal revenue
taxes.
Who may appeal an assessment for real property taxes?
Under Section 226 of the LGC, any owner or person
having legal interest in the property may appeal an
assessment for real property taxes to the LBAA. Since
Section 250 adopts the same language in enumerating
who may pay the tax, we equated those who are liable to
pay the tax to the same entities who may protest the tax
assessment. A person legally burdened with the
obligation to pay for the tax imposed on the property
has the legal interest in the property and the personality
to protest the tax assessment.104
The Bureau of Customs has jurisdiction so long as
importation has not ended.
In order for an importation to be deemed
terminated, the payment of the duties, taxes, fees and
other charges of the item brought into the country must
be in full. For as long as the importation has not been
completed, the imported item remains under the
jurisdiction of the BOC.105
What is smuggling?106
This is committed by a person who –
(1) fraudulently imports or brings into the
Philippines, or assist in doing so, any article contrary to
law, or
(2) receives, buy, sell, or in any manner facilitate the
transportation, concealment, or sale of such article after
importation, knowing the same to have been imported
contrary to law. (Sec. 3601, TCC)
BAR 2013
Mr. Z made an importation which he declared at the
Bureau of Customs (BOC) as "Used Truck Replacement
Parts". Upon investigation, the container vans
contained 15 units of Porsche and Ferrari cars.
Characterize Mr. Z's action. (1%)
(A) Mr. Z committed smuggling.
(B) Mr. Z did not commit smuggling because he
submitted his shipment to BOC examination.
(C) Mr. Z only made a misdeclaration, but did not
commit smuggling.
(D) Mr. Z did not commit smuggling because the
shipment has not left the customs area.107
G. TARIFF AND CUSTOMS LAW
When does
terminated?
importation
begin
and
when
is
it
Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
NAPOCOR vs. Province of Quezon, et al., G.R. No. 171586, January 25,
2010.
104
See: Papa v. Mago, G.R. No.L-27360, February 28, 1968, 22 SCRA 865;
Viduya v. Berdiago, G.R. No.L-29218, October 29, 1976, 73 SCRA 553.
106Question VI, 2014 Bar.
107 See Rieta v. People, G.R. No. 147817, 12 August 2004.
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May a search, seizure of goods and arrest be made even
without a warrant therefor?
Under the Tariff and Customs Code, a search,
seizure and arrest may be made even without a warrant
for purposes of enforcing customs and tariff laws.
Without mention of the need to priorly obtain a judicial
warrant, the Code specifically allows police authorities
to enter, pass through or search any land, enclosure,
warehouse, store or building that is not a dwelling
house; and also to inspect, search and examine any
vessel or aircraft and any trunk, package, box or
envelope or any person on board; or to stop and search
and examine any vehicle, beast or person suspected of
holding or conveying any dutiable or prohibited article
introduced into the Philippines contrary to law.108
Who acquires jurisdiction over imported goods when no
warrant of seizure or detention (WSD was previously
issued?
27
The entry, passage free of duty,or final adjustments of
duties becomes final and conclusive after the expiration
of three (3) years from the date of the final payment of
duties, unless the liquidation of the import entry was
merely tentative.
2013 BAR
On October 15, 2005, ABC Corp. imported 1,000
kilos of steel ingots and paid customs duties and VAT to
the Bureau of Customs on the importation. On February
17, 2009, the Bureau of Customs, citing provisions of the
Tariff and Customs Code on post-audit, investigated
and assessed ABC Corp. for deficiency customs duties
[and VAT].
Is the Bureau of Customs correct?
Suggested Answer:
The rule is that from the moment imported goods
are actually in the possession or control of the Customs
authorities, even if no warrant for seizure or detention
had previously been issued by the Collector of Customs
in connection with the seizure and forfeiture
proceedings, the BOC acquires exclusive jurisdiction
over such imported goods for the purpose of enforcing
the customs laws, subject to appeal to the Court of Tax
Appeals whose decisions are appealable to this Court. 109
No. More than 3 years had already elapsed from the
entry of and payment of the duties on the imported steel
ingots. Since there is no showing that the liquidation of
the import entry in 2005 was merely tentative, such
liquidation became final and conclusive as of 2008.
What is the rationale of the law granting the
Commissioner of Customs the power of automatic
review over the decision of the Collector of Customs in
protest and seizure cases?
Scope of the of the CTA’s jurisdiction under Section 7 of
Republic Act (R.A.) No. 9282
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.110
(a) Exclusive appellate jurisdiction to review by appeal,
as herein provided:
Without the automatic review by the Commissioner
of Customs and the Secretary of Finance, a collector in
any of our country's far-flung ports, would have
absolute and unbridled discretion to determine whether
goods seized by him are locally produced, hence, not
dutiable, or of foreign origin, and therefore subject to
payment of customs duties and taxes. His decision,
unless appealed by the aggrieved party (the owner of
the goods), would become final with no one the wiser
except himself and the owner of the goods. 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. (Ibid.)
H. THE COURT OF TAX APPEALS
Sec. 7. Jurisdiction. — The CTA shall exercise:
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
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 monetary charges, seizure, detention or
Finality of liquidation
Rieta v. People, supra.
Agriex Co., Ltd. vs. Villanueva, G.R. No. 158150, September 10, 2014
citing Subic Bay Metropolitan Authority v. Rodriguez, G.R. No. 160270,
April 23, 2010, 619 SCRA 176.
110 Yaokasin vs. Commissioner of Customs, et. al. G.R. No. 84111,
December 22, 1989.
108
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release of property affected, fines, forfeitures or
other penalties in relation thereto, or other
matters arising under the Customs Laws 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 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 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;
xxx
What cases originating from the Commissioner of
Internal Revenue are within the jurisdiction of the CTA?
These are (1) cases involving disputed assessments,
(2) refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or (3) other matters
arising under the NIRC111 or other laws administered by
the BIR. (Sec.7[a][1][2], RA 1125, as amended)
BAR 2014
The City of Liwliwa assessed local business taxes
against Talin Company. Claiming that there is double
taxation, Talin Company filed a Complaint for Refund
or Recovery of Illegally and/or Erroneously-collected
Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of Preliminary
Injunction with the Regional Trial Court (RTC). The
RTC denied the application for a Writ of Preliminary
Injunction. Since its motion for reconsideration was
denied, Talin Company filed a special civil action for
certiorari with the Court of Appeals (CA). The
government lawyer representing the City of Liwliwa
prayed for the dismissal of the petition on the ground
that the same should have been filed with the Court of
Tax Appeals (CTA). Talin Company, through its lawyer,
Atty. Frank, countered that the CTA cannot entertain a
petition for certiorari since it is not one of its powers
and authorities under existing laws and rules.Decide.
28
authority of the CTA to take cognizance of petitions for
certiorari questioning interlocutory orders issued by the RTC
in a local tax case is included in the powers granted by the
Constitution as well as inherent in the exercise of its appellate
jurisdiction. (City of Manila vs. Grecia-Cuerdo, G.R. No.
175723, 4 February 2014, EN BANC)
May the CTA pass on questions relating to the validity
of rules and regulations issued by administrative
agencies?
Suggested Answer:
Yes. The CTA can now rule not only on the
propriety of an assessment or tax treatment of a certain
transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which
the said assessment is based. (see Philam Life v. Secretary
of Finance, November 24, 2014)
Who has jurisdiction to review BIR Rulings?
Suggested Answer:
What is involved is the Commissioner’s power
under the first paragraph of Sec. 4 of the NIRC – the
power to interpret tax laws, and, thus, the ruling is
subject to review by the Secretary of Finance. 112
Where does one seek immediate recourse from the
adverse ruling of the Secretary of Finance in its exercise
of its power of review under Sec. 4?
Suggested Answer:
The CTA has jurisdiction over the petition as “other
matters” arising under the NIRC or other laws
administered by the BIR under Sec. 7(a)(1) of RA 1125.
Even though the provision suggests that it only covers
rulings of the Commissioner, nonetheless, it is sufficient
enough to include appeals from the Secretary’s review
under Sec. 4 of the NIRC. 113
A complaint for injunction was filed with the RTC
praying that the trial court nullify the notice of
assessment of real property tax. A direct resort to the
RTC was made as no questions of fact were involved.
In case the RTC renders a decision, what remedy may
the affected party take and before what court?
Suggested Answer:
The CTA. The party unsatisfied with the decision of
the Regional Trial Court shall file an appeal, not a
petition for certiorari, before the Court of Tax Appeals,
the complaint being a local tax case decided by the
Regional Trial Court (see R.A. No. 1125, as amended by
R.A. No. 9282, Sec. 7 [a] [3]).114
To GOD be all the glory, honor and power!
Suggested Answer:
The petition before the CA should be dismissed as
jurisdiction belongs to the CTA. It is now settled that the
* * * GOOD LUCK! * * *
Philam Life v. Secretary of Finance (2014), supra.
Philam Life v. Secretary of Finance, supra.
114 See also City of Lapu-Lapu v. PEZA (2014), supra.
112
113See
111
Question 51, 2012 Bar.