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GENERAL PRINCIPLES OF invitum) because consent, which is an essential

element of contract, is absent. It has the power to
TAXATION destroy as it puts restraint on personal and
property rights.
It is the process or means by which the sovereign The two-fold nature of the power of taxation is
(independent State), through its law-making body inherent power and legislative power. It is
(legislative branch), raises income to defray the inherent because it is an exercise of sovereign
necessary expenses of the government. It is the powers and not granted by the Constitution. The
power by which the State raises revenue to defray primary purpose of taxation is to generate funds
the necessary expenses of the government. for the state to finance the needs of the citizens
and promote the common good. This is carried out
It is a destructive power which interferes with the by way of legislation.
personal and property rights of the people and
takes from them a portion of their property for the Features of A Sound Tax System (F-A-T)
support of the government. (Paseo Realty &  Fiscal Adequacy – it requires the sources of
Development Corporation v. CA, 2004) government revenues must be adequate to
meet government expenditures and their
Purpose of Taxation variations.
The purpose of taxation is fiscal when it raises  Administrative Feasibility – it should be
funds or regulatory when it seeks to achieve social capable of being effectively administered
or economic goals. and enforced with the least inconvenience
to the taxpayer.
Elements of Taxation  Theoretical Justice – it should be fair to the
 It is an enforced contribution from average taxpayer and should be based on
persons or properties ability to pay
 It is imposed by the State by virtue of its
sovereignty Non-observance of a canon of a sound tax system
 It is levied for the support of the (fiscal adequacy, theoretical justice and
government (PCGG vs. COCOFED, 2001) administrative feasibility) does not invalidate a tax
imposition unless some aspect of it is shown to
Characteristics of Taxation violate the Constitution. (Diaz v. Secretary, 2011)
 Inherent Power - it may be exercised
although not expressly granted by the Taxes
Constitution Enforced proportional contributions from persons
 Essentially a legislative function - only and property, levied by the State by virtue of its
the legislative can impose taxes sovereignty for the support of the government and
 Subject to inherent and constitutional for all its public needs.
limitations - not an absolute power
 For public purpose Essential Characteristics of Tax
 Subject to international treaty or comity  Forced charge, imposition or
 Generally payable in money contribution
 Territorial in scope  Pecuniary burden payable in money
 For public purpose
Nature of the taxing power of government  Pursuant to a legislative authority
The power to tax is inherent to the state but  Levied within territorial and legal
constitutional provisions limit the exercise thereof. jurisdiction of the State
Taxes are mandatory impositions and not a  Assessed in accordance with some
contract between the state and the taxpayer (in reasonable rule of apportionment
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The no-injunction rule applies to

Relevant Theories Governing the State’s Inherent national internal revenues taxes (Sec.
Power to Tax 218, NIRC). The underlying reason is
 Necessity Theory - The existence of the lifeblood theory which
government is a necessity; therefore it has underscores the policy of least
the right to compel citizens and property to interference to the collection of taxes
pay taxes. The power to tax is an attribute upon which the existence of the State
of sovereignty. It is a power emanating depends.
from necessity. It is a necessary burden to
preserve the State’s sovereignty and a The rule, however, has no counterpart
means to give the citizenry an army to in the Local Government Code
resist an aggression, a navy to defend its concerning local taxes. Thus, courts
shores from invasion, a corps of civil may issue writs to restrain local
servants to serve, public improvements governments from collecting taxes.
designed for the enjoyment of the citizenry (Angeles City v. Angeles Electric
and those which come within the State’s Corporation, 2010)
territory, and facilities and protection
which a government is supposed to Basis of Taxation
provide. (Phil. Guaranty Co., Inc, v.  Benefits–Protection Theory –
Commissioner of Int. Rev., 1965) payment of taxes allows a citizen to
enjoy benefits in an organized society.
The government cannot continue to serve The individual receives the equivalent
and protect its people without means to of the tax in the form of protection
pay its expenses. For this reason, the state and benefit he receives from the
has the right to compel all its citizens and government as such. (Churchill and
property within its limits to contribute. Tait v. Rafferty, 32 Phil. 580, No.
10572, December 21, 1915)
 Lifeblood Doctrine – taxes constitute the
lifeblood of the country and taxes support  Symbiotic Relationship Doctrine –
the operations of government and the Taxes are what we pay for civilized
public services extended to the people. society. Without taxes, the
Taxes are the lifeblood of the nation. Taxes government would be paralyzed.
are the lifeblood of the government, for Hence, every person who is able must
without taxes, the government can neither contribute his share in the burden of
exist nor endure. (National Power running the government. The
Corporation v. City of Cabanatuan, 2003) government, for its part, is expected
to respond in the form of tangible and
Manifestation of the Lifeblood Theory intangible benefits intended to
 No estoppel against the Government improve the state of living.
 Collection of taxes cannot be enjoined
by injunction Other Doctrines/ Rules in Taxation
 Taxes could not be the subject of  Equitable Recoupment - claim for refund
compensation or set-off which is prevented by prescription may
 A valid tax may result in the be allowed to be used as payment for
destruction of the taxpayer’s property unsettled tax liabilities if both taxes arise
from the same transaction in which
overpayment is made and
underpayment is due.
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The Supreme Court rejected this doctrine  Taxpayer Suit - a taxpayer suit can only
(University of Sto. Tomas v. Collector, 104 be allowed if the act involves a direct and
Phil 1062) saying that it was not illegal disbursement of public funds
convinced of the wisdom and propriety derived from taxation.
thereof, and that it may work to temp
both the collecting agency and the A taxpayer’s suit refers to a case where
taxpayer to delay and neglect their the act complained of directly involves
respective pursuits of legal action within the illegal disbursement of public funds
the periods set by law. derived from taxation. (Kilosbayan v.
Guingona, Jr., 1994)
 Set-off Taxes - taxes are not subject to
set-off or legal compensation because The plaintiff in a taxpayer's suit is in a
the government and the taxpayer are not different category from the plaintiff in a
mutual creditors and debtors of each citizen's suit. In the former, the plaintiff
other. is affected by the expenditure of public
funds, while in the latter, he is but the
As a general rule, internal revenue taxes mere instrument of the public concern.
cannot be the subject of set-off or (De Castro v. JBC, 2010)
Scope of The Taxing Power of the Legislative
a) The lifeblood theory requires that The Supreme Court held that the power of taxation
there should be no unnecessary is the most absolute of all the powers of the
impediments to the collection of taxes to government. It has the broadest scope of all the
make available to the government the powers of the government because in the absence
wherewithal to meet its legitimate of limitations, it is considered as comprehensive,
objectives; and unlimited, plenary, and supreme. (130 SCRA 654)

b) The payment of taxes is not a The matters within the competence of the
contractual obligation but arises out of a legislature include the determination of the
duty to pay, and in respect of the positive following:
acts of government, regarding the  Subject matter to be taxed
making and enforcing of taxes, the  Purpose of the tax
personal consent of the individual  Amount or rate of tax
taxpayer is not required. (Republic v.  Kind of tax
Mambulao Lumber Co., 1962; Caltex v.  Apportionment of tax
Commission on Audit, 1992; and Philex v.  Situs of taxation
CIR, 1998)  Manner or method of collection

However, there is a possibility that set- Sources of Tax Laws

off may arise, if the claims against the  The 1987 Constitution
government have been recognized and  Tax Treaties and Conventions with
an amount has already been Foreign Countries
appropriated for that purpose. Where  The Tax Code (RA No. 8424 - National
both claims have already become Internal Revenue Code, as amended),
overdue and demandable as well as fully Tariff and Customs Code, and portion of
liquidated, compensation takes place by the Local Government Code
operation of law under Article 1200 in  Statues and laws like RA No. 10963
relation to Articles 1279 and 1290 of the (TRAIN Law), RA No. 1125 (an Act
New Civil Code. (Domingo v. Garlitos, Creating the Court of Tax Appeals), RA
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No. 7716 (E-VAT Law), RA No. 8424 (Tax different from the facts on which the
Reform Act of 1997) ruling is based on
 Presidential Decrees and Executive 3. Where the taxpayer acted in bad faith
Orders (NIRC Sec 246)
 Court Decisions
 Revenue Regulations promulgated by the Stages of Taxation (L-A-P)
Department of Finance  Levying or Imposition - the passage of tax
 Administrative issuances of the Bureau laws or ordinances through the
of Internal Revenue and the Bureau of legislature.
Customs  Assessment and Collection - the act of
 BIR Rulings administration and implementation of
 Local Tax Ordinances tax laws by the executive through its
administrative agencies such as the
Interpretation of Tax Laws Bureau of Internal Revenue or Bureau of
In case of doubt as to whether a taxpayer is Customs.
covered by the tax or not, the doubt shall be  Payment of Tax - the act of compliance
resolved in favor of the taxpayer and strictly by the taxpayer in contributing his share
against the government. (CIR v. Friemans Ins. Co., to pay the expenses of the government.
Distinction Between the Power to Tax and The
However, doubts as to the validity of tax Exercise of Police Power
exemptions are resolved liberally in favor of the An imposition that is for revenue is generally a tax
government and strictly against the taxpayer, while an imposition that has another purpose such
except: as regulation is an exercise of police power.
 When the statute granting exemption
provides for liberal constructions thereof When the purpose of the imposition of a royalty
 Exemptions in favor of the government, fee upon an oil company is not for the purpose of
political subdivisions or instrumentalities generating revenue but a recognition that the oil
(Maceda v. Macaraig, 197 SCRA 771) industry is imbued with public interest, then the
 Exemptions in favor of exemptees royalty fee will be considered as a regulatory fee.
traditionally exempt such as churches and (Chevron v. BCDA and CDC)
educational institutions
 Special circumstances to special classes of LIMITATIONS ON THE
persons such as the granting of exemptions to
victims of the eruption of Mount Pinatubo TAXING POWER
Non-Retroactivity of Rulings Inherent Limitations
General Rule: Inherent limitations proceed from the very nature
Any revocation, modification, or reversal of rules of the taxing power itself. The taxing power has
and regulations of any of the rulings or circulars very distinct and positive limitations some of which
shall not be given retroactive application if inhere in its very nature and exist whether or not
prejudicial to the taxpayers. declared in the Constitution.

Exceptions: (MSB) Inherent Limitations of Taxation

1. Where the taxpayer deliberately (P-E-N-I-S)
misstates or omits material facts from  Public Purpose
his return or any document required o Proceed from the tax must be used for
of him by the BIR (a) the support of the government, (b)
2. Where the facts subsequently some of the recognized objects of the
gathered by the BIR are materially
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government, and (c) to promote the Constitutional Limitations

welfare of the community (N5-U-D-E3-P-V-C)
Limitations prescribed in the Constitution or
 Exemption of the Government implied from its provisions on the taxing power of
o Agencies performing governmental the government
functions are tax exempt unless
expressly taxed  Due Process
o Agencies performing proprietary (Sec. 1, Art. III, 1987 Constitution)
functions are subject to tax unless  Taxes which are excessive and beyond
expressly exempted the paying capacity of the taxpayers are
o GOCCs performing proprietary confiscatory, oppressive and could be
functions are subject to tax, except for unquestionably struck down as
GSIS, SSS, PHIC, PCSO and Local Water deprivation of the taxpayer’s property
Districts (RA 10026) without due process.

 Non-delegation of Taxing Power  Equal protection of law

o The power of taxation is purely (Sec. 1, Art. III, 1987 Constitution)
legislative; hence the power cannot  No person or class of persons hall be
be delegated either to the executive deprived of the same protection of laws
or judicial departments. enjoyed by other persons or other
classes in the same place and in like
 International Comity circumstances. (Phil. Rural Electric
o A State cannot tax another State Cooperative Association, Inc. v. DILG, 403
based on the principle of Sovereign SCRA 558)
Equality among States.
 Uniformity and equity in taxation
 Situs/Territoriality of Taxation (Sec. 28(1), Art. VI, 1987 Constitution)
o The taxing power of a country is  All the taxable persons or property of the
limited to the person and property same class shall be taxed at the uniform
within and subject to its jurisdiction. or same rate. There is uniformity of
o Factors to be considered in taxation when the tax operates within
determining the situs of taxation: the same force and effect on this subject
 Subject matter wherever found. (Churchill v.
 Nature of the tax Concepcion, 24 Phil 969)
 Citizenship
 Residence of the taxpayer  Progressive scheme of taxation
o An income is taxable if its generating (Sec. 28(1), Art. VI, 1987 Constitution)
source, the PROPERTY, ACTIVITY or  Tax the rate of which increases as the tax
SERVICE, is found in the Philippines base or bracket increases.
(but the RC and DC may be liable even
on incomes from sources outside the  Non-imprisonment for non-payment of poll
Philippines). (CIR v. BOAC, 1987) tax
(Sec. 20, Art. III, 1987 Constitution)

 Non-impairment of obligations and contracts

(Sec. 10, Art. III, 1987 Constitution)
 The obligation of contract is impaired
when its terms or conditions are changed
by law or by treaty without the consent
of the other, thereby weakening the
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position of the latter. (Edwards v.  Concurrence of a majority of all members of

Kearmey, 96 US 607) congress for the passage of a law granting tax
 Non-infringement of religious freedom (Sec. 28(4), Art. VI, 1987 Constitution)
(Sec. 5, Art. III, 1987 Constitution)
 To require such religious groups to pay  The president shall have the power to veto
taxes would impair their free exercise any particular item or items in a revenue or
and enjoyment of religious freedom and tariff bill
worship, as well as its rights and (Sec. 27(2), Art. VI, 1987 Constitution)
dissemination of religious beliefs.
(American Bible Society vs. City of  Non-impairment of the jurisdiction of the
Manila, 101 Phil 396) Supreme Court in tax cases
(Sec. 5(2), Art. VIII, 1987 Constitution)
 Non-appropriation of public funds or property
for the benefit of any church, sect, or system Effect on the tax-exempt status of a charitable
of religion etc. institution if it engages in activities conducted for
(Sec. 29(2), Art. VI, 1987 Constitution) profit
 The Constitution strictly prohibits public It does not lose its tax-exempt status for its non-
money from being appropriated, applied, profit activities. However, its income from
paid, or used, directly or indirectly, for activities conducted for profit, regardless of its
the use, benefit, or support of any sect, disposition, shall be subject to income tax. (RMC
church, denomination, sectarian 67-2012; CIR v. St. Luke’s, 2012)
institution, or system of religion.
Tax implication if a non-stock, non-profit
 Exemption of charitable institutions, educational institution leases a portion of its
churches, parsonages, or convents property to a third-party bookstore that is open to
appurtenant thereto, mosques, and non- the public. The rental income is used to pay its
profit cemeteries, and all lands, buildings and teachers.
improvements actually, directly and The rental income will be exempt from income tax.
exclusively used for religious, charitable or As long as the income is actually, directly, and
educational purposes exclusively used for educational purposes, it will be
(Sec. 28(3), Art. VI, 1987 Constitution) exempt from income tax. (Sec. 4 (3), Art XIV, 1987
 Charitable, educational and religious Constitution)
institutions are exempt from property
tax As to the portion leased out to the bookstore, it is
subject to the RPT since it is not used actually,
 Exemption from taxes of the revenues and directly and exclusively for educational purposes.
assets of non-profit, non-stock educational (Sec. 28(3), Art VI, 1987 Constitution)
institutions including grants, endowments,
donations or contributions for educational Income of non-stock, non-profit educational
purposes institution from property or activity conducted for
(Sec. 4(3 and 4), Art. XIV, Sec. 28, Art. VI, 1987 profit may be exempt from income tax and VAT (as
Constitution) well as local business tax) provided the school uses
 Non-stock, non-profit educational such income actually, directly and exclusively for
institutions are exempt from income tax, educational purposes. (Art. XIV, Sec. 4, par. 3, 1987
property tax, or customs duties; Constitution; CIR v. DLSU, 2016)
provided that donations or contributions
are actually, directly, and exclusively A proprietary non-profit educational institution
used for educational purposes enjoys tax privileges such as 10% lower income tax
on net income (hence, exempt from MCIT which is
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paid in lieu of regular income tax). It is also given be imposed on these properties since they are used
the option to deduct capital outlay (generally non- actually, directly and exclusively used for
deductible business expense) for expansion of educational purposes. (Section 28(3), Article
school facilities either as business expense or 6 ,1987 Constitution; Section 234, Local
depreciation expense. (Secs. 27(B), 34(A)(2), 34(F) Government Unit)
and 36(A)(2)(3), NIRC)
As to the land and buildings which are devoted for
Application of 10% Preferential Tax Rate On canteen and bookstore, there shall be levied real
Proprietary Educational Institutions property taxes on these properties since they
It will apply only if its gross income from related contribute to the development and essential usage
trade, business, or activity does not exceed 50% of of the industry or work. The same are not expressly
its total gross income. Otherwise, it will be subject mentioned by law to be exempt from real property
to the regular tax rate of 30%. (NIRC Sec 27) tax.
(B) Is the income earned by San Juan university for
Can a non-profit, non-stock educational the year 2017 subject to income tax?
institution refuse to settle the assessment of a
local government for its building permit? Yes, provided that the income derived shall be
No. The DPWH implements the Building Code used actually, directly and exclusively used for
through the Building Officials of all local educational purposes. This is pursuant to the
government units. While there is incidental provision of Article 14, section (3) Of the 1987
revenue to the local government unit, the constitution which prevails over Section 30 of the
imposition of a Building Permit partakes of a Tax Code.
regulatory nature. The imposition of Building
Permit fee is an exercise of police power to ensure Also, as held in a catena of cases that the
compliance with the standards under the Building determination of exemption from income tax on
Code to protect the public from any danger. income derived by a non-stock non-profit
(Angeles University Foundation v. City of Angeles) educational institution is the use of such income
and not the source. For as long as the income,
regardless of the source is actually, directly or
San Juan University is a non-stock, non-profit
adequately used for educational purposes, such
educational institution. It owns a piece of land in
income shall be exempt from income tax.
Caloocan City on which its three 2-storey school
buildings stood. Two of the buildings are devoted
to classrooms, laboratories, a canteen, a CLASSIFICATION OF TAXES
bookstore and administrative offices. The third
building is reserved as dormitory for student As to Subject Matter or Object (P-P-E)
athletes who are granted scholarships for a given  Personal, poll, or capitation
academic year. In 2017, San Juan university  Property
earned income from tuition fees and from leasing  Excise or privilege
a portion of its premises to various
concessionaires of food, books, and school Two concepts of ‘excise’ tax. As used in the NIRC,
supplies. excise taxes refer to taxes applicable to certain
specified goods or articles manufactured or
(A) Can the city treasurer of Caloocan city collect produced in the Philippines for domestic sale or
real property taxes on the land and building of San consumption or for any other disposition and to
Juan University? things imported into the Philippines. Excise tax is
With respect to the land and buildings that are essentially a tax on property. (Sec. 129, NIRC;
devoted to classrooms, laboratories, Chevron Philippines, Inc. v. CIR, 2016)
administrative offices and the dormitory for
student athletes who are granted scholarships for
a given academic year, no real property taxes shall
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As used in classifying taxes according to tax base, constitutional provision on uniformity

excise tax is “a tax upon the performance, carrying and equality.
on, or exercise of some right, privilege, activity,
calling or occupation.” Examples are income tax,  Indirect Double Taxation - taxation other
transfer tax, VAT, percentage tax and documentary than direct double taxation, extending to
stamp tax. all cases in which there is a burden of two
or more pecuniary impositions but
As to Who Bears the Burden imposed by different taxing authorities.
 Direct - tax is demanded from the person It is not legally objectionable.
who also shoulders the burden of the tax
 Indirect - tax is demanded from one In a long line of cases, the Supreme Court
person in the expectation and intention considered double taxation as not unconstitutional
that he shall indemnify himself at the although obnoxious. It is not in itself a valid
expense of another defense against the validity of a tax measure. But
The Relationship Between Impact, Shifting, And such taxation, while not forbidden is something not
Incidence of a Tax favored, that is why it should be avoided and
The impact is the initial phenomenon, the shifting prevented whenever possible to avoid injustice or
is the intermediate process, and the incidence is unfairness. (Pepsi Cola Bottling Co. v. Municipality
the result. Impact is the imposition of the tax; of Tanauan, 1976)
shifting is the transfer of the tax; while incidence is
the setting or coming to rest of the tax. Double Taxation as A Ground for Assailing an
As to Determination of Amount As opposed to assailing the levy of tax, double
(S-A) taxation is a ground for assailing a BIR assessment.
 Specific Essentially, the question relates to the
 Ad valorem reasonableness of the assessment.

As to Purpose (G-S) In Nursery Care Corp. v. Acevedo, 2014, the City of

 General, fiscal, or revenue Manila individually assessed the petitioners for
 Special or regulatory taxes either under Section 15 (Tax on Wholesalers,
Distributors or Dealers) or Section 17 (Tax on
As to Authority Imposing the Same (N-L) Retailers) of the Revenue Code of Manila. The city
 National also imposed additional taxes under Section 21
 Local or Municipal (Tax on Business Subject to the Excise, VAT or
percentage tax under the NIRC). It was held that
As to Graduation or Rate (P-P-R) the imposition under Section 21 constituted
 Proportional double taxation. Section 21 of the Revenue Code of
 Progressive Manila is based on Sec. 143 (h) of the LGC. Sec. 143
 Regressive (h) may be imposed only on businesses not
otherwise specified in the preceding paragraphs (a)
DOUBLE TAXATION to (g) of Sec, 143, LGC, such as the tax on
wholesalers, distributors or dealers (par. b) and tax
Kinds of Double Taxation on retailers (par. d).
 Direct Double Taxation - taxing twice for
the same purpose, by the same taxing Distinction Between Tax and Fee
authority, in the same jurisdiction, in the When the imposition is primarily regulatory in
same period, some of the property in the nature, not primarily for revenue-raising, it is not a
territory. It is objectionable and tax. If not a tax, then the procedure outlined in Sec.
prohibited because it violates the 187 of the LGC for questioning the validity of the
tax ordinance is not applicable. (Smart
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Communications, Inc. v. Municipality of Malvar, taxation of raw materials and the products
2014) resulting therefrom considered double taxation?

Also, if one imposition is a tax and the other is not, No. Stemmed leaf tobacco is subject to the specific
then the claim of prohibited double taxation fails. tax under Section 141 (b). It is a partially prepared
In Ferrer v. Bautista (2015), it was held that the tobacco. The removal of the stem or midrib from
imposition of the garbage fee falls within the police the leaf tobacco makes the resulting stemmed leaf
power to protect public health, safety, and welfare. tobacco a prepared or partially prepared tobacco.
Not being a tax, there is no double taxation. Since the Tax Code contained no definition of
“partially prepared tobacco,” then the term should
Modes of Eliminating International Double be construed in its general, ordinary, and
Taxation comprehensive sense x x x.” Finally, excise taxes
Double taxation usually takes place when a person are essentially taxes on property because they are
is resident of a contracting state and derives levied on certain specified goods or articles
income from, or owns capital in, the other manufactured or produced in the Philippines for
contracting state and both states impose tax on domestic sale or consumption or for any other
that income or capital. In order to eliminate double disposition, and on goods imported. In this case,
taxation, a tax treaty resorts to several methods. there is no double taxation in the prohibited sense
(CIR v. SC Johnson & Sons, Inc., 1999) despite the fact that they are paying the specific tax
 Allowing reciprocal exemption either by on the raw material and on the finished product in
law or by treaty; which the raw material was a part, because the
 Allowance of tax credit for foreign taxes specific tax is imposed by explicit provisions of the
paid; Tax Code on two different articles or products: (1)
 Allowance of deductions such as for on the stemmed leaf tobacco; and (2) on cigar or
foreign taxes paid, and vanishing cigarette. (La Suerte Cigar & Cigarette Factory v.
deductions in estate tax; or Court of Appeals and Commissioner of Internal
 Reduction of Philippine tax rate. Revenue, 2014)

The purpose of these international agreements is The City of Manila sought to enforce both sections
to reconcile the national fiscal legislations of the 14 and 21 of the Manila revenue code claiming
contracting parties in order to help the taxpayer that the former is a tax on manufacturers, etc.
avoid simultaneous taxation in two different While the latter applies to business subject to
jurisdictions. excise, VAT or percentage tax. Will the imposition
of both sections amount to invalid double
The apparent rationale for doing away with double taxation?
taxation is to encourage the free flow of goods and
services and the movement of capital, technology Yes. There is in fact double taxation since both
and persons between countries, conditions sections are being imposed on the same subject
deemed vital in creating robust and dynamic matter (privilege of doing business within the city),
economies. Foreign investments will only thrive in for the same purpose, by the same taxing
a fairly predictable and reasonable international authority, within the same taxing jurisdiction, for
investment climate and the protection against the same taxing period, and of the same kind or
double taxation is crucial in creating such a climate. character (a local business tax imposed on gross
(CIR v. SC Johnson & Sons, Inc.) sales or receipts). (Nursery Care Corporation;
Shoemart, Inc.; Star Appliance Center, Inc.; H&B,
The bureau of internal revenue assessed a Inc.; Supplies Station Inc.; And Hardware
cigarette manufacturing company separately for Workshop, Inc. v. Anthony Acevedo, in his capacity
the raw materials it used for manufacturing its as The Treasurer of Manila; and The City of Manila,
products and for its finished products. Is the 2014)
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FORMS OF ESCAPE FROM generally within the same taxing district

are obliged to pay
Tax Amnesty
Basic Forms of Escape It is an immunity from all criminal and civil
 Those that do not reduce the revenue obligations arising from nonpayment of taxes. It is
collection of the government (S-T-C) a general pardon given to all taxpayers; it applies
 Shifting - transfer of tax burden by one only to past periods, hence of retroactive
on whom the tax is assessed to another application.
 Capitalization - reduction in the selling
price of income-producing property by It is distinguished form tax exemption in the sense
an amount equal to the capitalized value that while tax amnesty is immunity from civil and
of future taxes that may be paid by the criminal obligations, tax exemption is immunity
purchaser from civil liability only. Moreover, tax exemption is
 Transformation - the manufacturer or prospective application, while tax amnesty is
producer upon whom the tax is imposed retroactive.
pays the tax and strives to recover such
expense through lower production cost
without sacrificing the quality of the
Gross Income
 Those that result in the loss of revenue to the
All income derived from whatever source,
government (A-X-E)
including, but not limited to: (Sec. 32, RA 8424)
 Tax Evasion - fraudulent or forbidden
 Compensation for services
schemes or devices designed to lessen or
 Gross income derived from the conduct
defeat taxes.
of trade or business or the exercise of a
According to the Supreme Court, tax
 Gains derived from dealing in property
evasion connotes the integration of
 Interests
three factors: (a) the end to be achieved,
 Rents
i.e. the payment of less than that known
 Royalties
by the taxpayer to be legally due, or the
 Dividends
non-payment of tax when it is shown that
 Annuities
a tax is due; (b) an accompanying state of
 Prizes and winnings
mind which is described as being evil, in
 Pensions
bad faith, willful, or “deliberate and not
 Partner’s distributive share from the net
accidental; and (c) a course of action or
income of the general professional
failure of action which is unlawful. (CIR v.
the Estate of Benigno Toda, Jr., 2004)
Taxable Income
 Tax Avoidance - exploitation by the
The pertinent items of gross income specified in
taxpayer of legally permissible
the Tax Code, less the deductions and/or personal
alternative tax rate or methods of
and additional exemptions, if any, authorized for
assessing taxable property or income in
such types of income by the Tax Code or other
order to reduce tax liability
special laws. (Sec. 31, NIRC of 1997)
 Exemption from taxation - grant of
Principle of Mobilia Sequuntur Personam in
immunity to particular persons or
Income Taxation
corporations or to persons or
Principle of Mobilia Sequuntur Personam in income
corporations of a particular class from a
taxation refers to the principle that taxation
tax which persons and corporations
S C B A R S T A G N O T E S [ 2018 ] Page 11 of 31

follows the property or person who shall be subject Final Tax vs. Creditable Withholding Tax
to the tax. A final tax is a full settlement of the income tax
liability corresponding to the income to which it is
Distinction Between Allowable Deductions and imposed. Consequently, such income would no
Personal Exemptions longer be forming part of the gross income of the
 As to amount — Allowable deductions taxpayer. On the other hand, a creditable
generally refer to actual expenses withholding tax is merely considered as an
incurred in the pursuit of trade, business advanced payment of whatever tax liability the
or practice of profession while taxpayer may incur during the year, hence, such
 As to nature — Allowable deductions income subject to creditable withholding tax
constitute business expenses while should be made part of the gross income of the
personal exemptions pertain to personal taxpayer.
 As to purpose — Deductions are allowed Tax Deduction vs. Tax Credit
to enable the taxpayer to recoup his cost A tax credit reduces the tax due, including -
of doing business while personal whenever applicable - the income tax that is
exemptions are allowed to cover determined after applying the corresponding tax
personal, family and living expenses. rates to taxable income. A tax deduction, on the
 As to claimants — Allowable deductions other, reduces the income that is subject to tax in
can be claimed by all taxpayers, order to arrive at taxable income. To think of the
corporate or otherwise, while personal former as the latter is to avoid, if not entirely
exemptions can be claimed only by confuse, the issue. A tax credit is used only after
individual taxpayers. the tax has been computed; a tax deduction,
Non-Deductible Items for Purposes of Income
Robin and Mariel are married taxpayers with
 Personal, living or family expenses;
three children all below 21 years of age. In 2011
 Any amount paid out for new buildings or
one of their children, Cocoy, then 18 years old
for permanent improvements, or
wed his long-time girlfriend, Beth. In the same
betterments made to increase the value
year, 2 of their children, Abe, 20 years old, and
of any property or estate;
Boboy, 19 years old, both unmarried, were
 Any amount expended in restoring
gainfully employed in A Corporation. In 2013, Abe
property of in making good the
and Boboy were terminated from A Co. and Cocoy
exhaustion thereof for which an
obtained a decree of nullity of his marriage with
allowance is or has been made; or
Beth. How much can robin claim as additional
 Premiums paid on any life insurance
exemption in 2013?
policy covering the life of any officer or
employee, or of any person financially
Robin can claim P50,000 as additional exemption in
interested in any trade or business
2013 provided Cocoy and Boboy can still be
carried on by the taxpayer, individual or
considered as dependents.
corporate, when the taxpayer is directly
or indirectly a beneficiary under such
policy; Withholding Tax System
 Illegal expenses; Three-fold purpose of the withholding tax system.
 Losses obtained from transactions (1) to provide the taxpayer with a convenient way
between related taxpayers. of paying his tax liability; (2) to ensure the
collection of tax, and (3) to improve the
government’s cash flow. (CREBA v. Executive
Secretary, 2010])
S C B A R S T A G N O T E S [ 2018 ] Page 12 of 31

There are usually two kinds: (a) Final Withholding amount of such liability to pay is already fixed in
Tax (FWT) which applies to all income payments 2007 when the services were rendered, and the
subject to final tax, and (b) Creditable Withholding amount of such liability is determinable with
Tax (CWT) which applies to some income payments reasonable accuracy in the same year. Hence the
subject to basic income tax. deduction should have been claimed in 2007 and
not in 2008. (CIR v. Isabela Cultural Corporation,
The withholding tax is used in income taxation and 2007)
in VAT (FWT of 5% on government procurement of
supplies and services). (Sec. 114[C], NIRC)
Can an income earner, whose earnings are subject
“Deposit Substitutes” That May Be Subjected to to final withholding tax at source, be liable for
The 20% Final Tax On Passive Income such if the payor failed to withhold the tax on such
These are alternative forms of obtaining funds income?
from the public, other than deposits, through the Yes. In a withholding tax system, the liability of the
issuance, endorsement, or acceptance of debt withholding agent is independent from that of the
instruments of the borrower’s own account, for the taxpayer. The withholding agent may be made
purpose of relending or purchasing of receivables liable due to his failure to perform his duty to
and other obligations. “Public” refers to 20 or more withhold the tax and remit the same to the
lenders at any one time. The phrase “at any one government. The liability for the tax, however,
time” for purposes of determining the “20 or more remains with the taxpayer because the gain was
lenders” would mean every transaction executed realized and receiver by him. While the payor can
in the primary and secondary market in connection be held accountable for its negligence in
with the sale of the bonds. (BDO vs. Republic, 2015) performing its duty to withhold the amount of tax
due on the transaction, the taxpayer which earned
Capital Gains Tax the income remains liable for the payment of tax as
A tax on passive income, it is the seller, not the the taxpayer shares the responsibility of making
buyer, who generally would shoulder the tax. As a certain that payment of the withholding tax due.
general rule, therefore, any of the parties to a Taxpayer cannot evade its liability for by shifting
transaction shall be liable for the full amount of the the blame on the payor as the withholding agent.
documentary stamp tax due, unless they agree
among themselves on who shall be liable for the
Ernesto, a Filipino citizen and a practicing lawyer,
same. (Republic of the Philippines, Represented by
filed his income tax return for 2007 claiming
the Department of Public Works and Highways v.
optional standard deductions. Realizing that he
Arlene R. Soriano, 2015)
has enough documents to substantiate his
profession connected expenses, he now plans to
Y corporation engaged the services of the file an amended income tax return for 2007, in
Manananggol law firm in 2006 to defend the order to claim itemized deductions, since no audit
corporation's title over a property used in the has been commenced by the BIR on the return he
business. For the legal services rendered in 2007, previously filed. Will Ernesto be allowed to amend
the law firm billed the corporation only in 2008. his return? Why or why not?
The corporation duly paid. No. Since Ernesto has elected to claim optional
standard deduction, said election is irrevocable for
Y corporation claimed this expense as a deduction the taxable year for which the return is made. (Sec
from gross income in its 2008 return, because the 34(L), NIRC)
exact amount of the expense was determined
only in 2008. Is Y’s claim of deduction proper?

No. The expense is deductible in the year it

complies with the all-events test. The test is
considered met if the liability is fixed, and the
S C B A R S T A G N O T E S [ 2018 ] Page 13 of 31

Calvin was a permits and licensing officer (rank- replacing funds that the employee already had paid
and-file) of Sta. Portia realty corporation (SPRC). rather than paying him something new.
He invited the regional director of the Housing
and Land Use Regulatory Board (HLURB) to lunch On April 30, 2015, Daryl resigned as the
at the Sulo Hotel in Quezon City to discuss the production manager of 52nd avenue, a television
approval of SPRC’s application for a development studio owned by S entertainment corporation.
permit in connection with its subdivision 52nd avenue issued to her a certificate of
development project in Pasig City. At breakfast withholding tax on compensation (BIR form no.
the following day, Calvin met a prospective client 2316), which showed that the tax withheld from
interested to enter into a joint venture with SPRC her compensation was equal to her income tax
for the construction of a residential condominium due for the period from January 2015 to April 30,
unit in Cainta, Rizal. 2015.
Calvin incurred expenses for the lunch and
breakfast meetings he had with the regional A month after her resignation, Daryl put up her
director of HLURB and the prospective client, own studio and started producing short films. She
respectively. The expenses were duly supported was able to earn a meager income from her short
by official receipts issued in his name. At month's films but did not keep record of her production
end, he requested the reimbursement of his expenses.
expenses, and SPRC granted his request.
Is Daryl qualified for substituted filing for taxable
(A) Can SPRC claim an allowable deduction for the year 2015?
expenses incurred by Calvin?
Yes. SPRC can claim as deduction the expenses Daryl is qualified for the substituted filing for the
incurred by Calvin. Under Section 34(A)(1) of the months of January to April 2015 but is not qualified
Tax Code, a taxpayer shall be allowed as deduction for such filing for May to December 2015.
from gross income all the ordinary and necessary
expenses paid or incurred during the taxable year Under the tax code, individual taxpayers receiving
in carrying on or which are directly attributable to purely compensation income, regardless of
the development, management, operation and/or amount, from only one employer in the Philippines
conduct of trade, business or exercise of for the calendar year, the income tax of which has
profession. In as much as the expenses incurred by been withheld correctly by the said employer (tax
Calvin which will be reimbursed by SPRC are due equals tax withheld) shall not be required to
ordinary and necessary expenses directly file an annual income tax return. The certificate of
attributable to the operation of the realty business withholding filed by the respective employers, duly
and are paid during the taxable year, such stamped 'received' by the BIR, shall be tantamount
expenses shall be claimed as allowable deduction to the substituted filing of income tax returns by
from the gross income of SPRC. said employees." (As implemented by Rev. Reg. 08-
(B) is the reimbursement received by Calvin from
SPRC subject to tax? Since only the months of January to April are
No. The reimbursements received by Calvin are covered by the certificate of withholding filed
not constitutive of income, hence not subject to Daryl’s employer, it goes to say that only in these
tax. In BIR Ruling No. DA-158-4-14-97 dated April months of the taxable year 2015 will Daryl be
14, 1997, citing BIR Ruling No. 202-81 dated eligible or qualified for substituted filing. He is not
October 22, 1981, it is discussed that that qualified for substituted filing for the months of
reimbursement of actual expenses being mere May to December, 2015.
return of capital and not return on capital does not
constitute income. These sums do not represent
any actual earnings because they are simply
S C B A R S T A G N O T E S [ 2018 ] Page 14 of 31

For purposes of imposing the improperly After experiencing substantial business losses,
accumulated earnings tax, the accumulation of Rosario company, a domestic corporation, was
profits for the reasonable needs of the business is dissolved. A deed of assignment was executed in
allowed. How can the "reasonable needs" of the favor of its majority stockholder Mr. KPR
business be determined? transferring a parcel of land located in Aguilar,
Pangasinan as liquidating dividend. Is the transfer
To determine the "reasonable needs" of the of property subject to tax?
business in order to justify an accumulation of
earnings, the Courts of the US have invented the No. During liquidation, the transfer of property by
so-called "immediacy test" which construed the the dissolving corporation to its stockholders by
words "reasonable needs of the business" to mean way of liquidating dividend is not a sale subject to
the immediate needs of the business, and it was income tax, Creditable Withholding Tax (CWT) and
generally held that if the corporation did not prove Documentary Stamp Tax (DST). However, it is
an immediate need for the accumulation of the deemed sale transaction for VAT purposes under
earnings and profits, the accumulation was not for Sec. 106 (3) (4) of the NIRC. On the part of the
the reasonable needs of the business, and the stockholder, any liquidating gain shall be treated as
penalty tax would apply. (Cyanamid Phil., Inc. vs a capital gain subject to regular income tax rates
CA, 2000) under the NIRC and not CGT. From the foregoing,
the deemed sale transaction be Rosario Company
Litigation expenses were spent by atlas mining for shall be subject to VAT but not to income tax while
the protection of its title over a mining property. the gain or loss sustained by Mr. KPR shall be
These expenses were declared by the taxpayer as subject to the regular income tax rates under the
a deduction, but the same was disallowed by the NIRC (BIR Ruling No. 363-2014, Sept. 22, 2014).
BIR. Comment on the action of the BIR.
The BIR is correct. Litigation expenses incurred in X took out a life insurance policy on his own life in
defense or protection of title are capital in nature the amount of P2 million. He designated his wife,
and not deductible, likewise it was ruled by the US y, as an irrevocable beneficiary to P1 million to his
Tax Court that expenditures in defense of title son z, to the balance of P1 million but, in the latter
property constitute a part of the cost of the designation but, in the latter designation,
property are not deductible as expense. (Atlas reserving his right to substitute him for another. X
Consolidated Mining & Development Corporation died and his wife and son went to collect the
v. Commissioner of Internal Revenue, 1981) proceeds of the life insurance policy. Are the
proceeds of the insurance subject to income tax?
Tax Benefit Rule No. The law explicitly provides that the proceeds of
The taxpayer is obliged to declare as taxable life insurance policies paid to the heirs and
income subsequent recovery of bad debts in the beneficiaries upon the death of the insured are
year they were collected to the extent of the tax excluded from gross income and is exempt from
benefit enjoyed by the taxpayer when the bad income taxation. The proceeds of life insurance
debts were written-off and claimed as a deduction received upon the death of the insured constitute
from income. It also applies to taxes previously a compensation for the loss of life, hence a return
deducted from gross income but which were of capital, which is beyond the scope of income
subsequently refunded or credited. The taxpayer is taxation (TAX CODE. Sec. 32 (B)(1)).
also required to report as taxable income the
subsequent tax refund or tax credit granted to the
extent of the tax benefit the taxpayer enjoyed
when such taxes were previously claimed as
deduction from income.
S C B A R S T A G N O T E S [ 2018 ] Page 15 of 31

Upon his retirement, Alfredo transferred his employee is separated from the service of the
savings derived from his salary as a marketing employer due to death, sickness, or other physical
assistant to a time deposit with AAB bank. The disability or for cause beyond the control of the
bank regularly deducted 20% final withholding tax said official or employee; and (2) the employer
on the interest income from the time deposit. pays benefits to the official or employee or his heirs
Alfredo contends that the 20% final tax on the as a consequence of such separation. Since the
interest income constituted double taxation separation of your employees due to partial
because his salary had been already subjected to cessation of Sumo Corporation’s commercial
withholding tax. Is Alfredo's contention correct? operations is beyond their control, any and all
No. Alfredo’s contention is not correct. There is amounts received by them as a result thereof are
direct double taxation when two or more taxes are exempt from all taxes.
imposed on the same subject of taxation for the
same purpose during the same period, by the same TRANSFER TAX
authority under the same jurisdiction.
Estate Tax
In the given case, the taxes were imposed on
Tax imposed on the privilege that a person is given
different subjects of taxation. On one hand, the
in controlling to a certain extent, the disposition of
creditable withholding tax was imposed on the
his property to take effect upon death. Estate tax is
salary of alfredo which is the subject of a scheduler
an excise tax imposed on the act of passing the
or tabular tax rates. On the other hand, the final
ownership of property at the time of death and not
income tax was imposed on the interest income
on the value of the property or right.
earned by alfredo from his investment in a time
deposit. Clearly there is no double taxation in the
instant case.
Mode of acquisition by virtue of which the
property, rights and obligations to the extent of the
The board of directors of Sumo corporation, a value of the inheritance, of a person are
company primarily engaged in the business of transmitted through his death to another or others
marketing and distributing pest control products, either by will or by operation of law. (Art. 774, NCC)
approved the partial cessation of its commercial
operations, resulting in the separation of 32 Taxpayer in Estate Tax
regular employees. Only half of the affected The estate of the decedent as a juridical person,
employees were notified of the board resolution. represented by the administrator, executor, or
Rule on the taxability of the separation pay and legal heirs.
indemnity that will be received by the affected
employees as the result of their separation from Law Governing the Imposition of the Estate Tax
service. The statute in force at the time of death of the
decedent shall govern the liability for estate tax.
The separation pay received by the affected The estate tax accrues as of the death of the
employees shall be exempt from tax. Pursuant to decedent and the accrual of the tax is distinct from
Section 332(b) (6) (B) of the Tax Code, as amended, the obligation to pay the same. Upon the death of
any amount received by an official or employee or the decedent, succession takes place and the right
by his heirs from his employer as a consequence of of the State to tax the privilege to transmit the
separation of such official or employee from the estate vests instantly upon death. For this reason,
service of the employer due to death, sickness, or properties should be valued at the moment of
other physical disability or for any cause beyond death.
the control of said official or employee is exempt
from taxes regardless of age or length of service.
The abovementioned law requires the presence of
these two conditions in order that the employee
benefits may be granted tax exemption: (1) the
S C B A R S T A G N O T E S [ 2018 ] Page 16 of 31

Gross Estate A, aged 90 years and suffering from incurable

Consists of all properties and interests in properties cancer, on august 1, 2001 wrote a will and, on the
of the decedent at the time of his death as well as same day, made several inter-vivos gifts to his
properties transferred during lifetime, but in children. Ten days later, he died. In your opinion,
substance was only transferred at the time of are the inter-vivos gifts considered transfers in
death. contemplation of death for purposes of
determining properties to be included in his gross
Properties Included in Valuation of the Estate estate?
For estate tax purpose, what are the properties
considered situated in the Philippines: Yes. When the donor makes his will within a short
 Franchise which must be exercised in the time of, or simultaneously with, the making of gifts,
Philippines the gifts are considered as having been made in
 Share, obligations or bonds issued by contemplation of death. (Roces v. Posadas, 58 Phil.
corporation or sociedad anonima 108). Obviously, the intention of the donor in
organized or constituted in the making the inter-vivos gifts is to avoid the
Philippines. imposition of the estate tax and since the donees
 Shares, obligations or bonds issued by a are likewise his forced heirs who are called upon to
foreign corporation eighty-five per inherit, it will create a presumption juris tantum
centum of the business of, which is that said donations were made mortis causa,
located in the Philippines. hence, the properties donated shall be included as
 Shares, obligations or bonds issued by a part of A's gross estate.
foreign corporation if such shares,
obligations or bonds have acquired a Exemptions and Exclusions from Gross Estate
business situs in the Philippines.  Sections 85-86, NIRC
 Shares or rights in any partnership,  Capital or exclusive property of the
business or industry established in the surviving spouse
Philippines. (Section 104, NIRC)
 Properties outside the Philippines of a
non-resident alien decedent
Donation Mortis Causa and Donation Inter Vivos
Donations inter vivos are subject to donor's gift tax  Intangible persona property in the
(Sec. 91 (a). Tax Code) while donations mortis Philippines of a non-resident alien when
causa are subject to estate tax (Sec. 77, Tax Code). the rule of Reciprocity applies
However, donations inter vivos, actually
constituting taxable lifetime like transfers in  Section 87, NIRC
contemplation of death or revocable transfers (Sec.  Merger of the usufruct in the owner of
78 (b) and (c), Tax Code) may be taxed for estate the naked title
tax purposes, the theory being that the transferor's  Transfer under Special Power of
control thereon extends up to the time of his Appointment - transmission from the
death. first heir, legatee or donee in favor of
another beneficiary in accordance with
Donations inter vivos are not subject to estate
the will of the predecessor.
taxes because the transfer of the property take
 Transmission or delivery of the
effect during the lifetime of the donor. The transfer
inheritance or legacy of the fiduciary heir
is therefore subject to the donor's tax. On the other
hand, donations mortis causa are subject to estate or legatee to the fideicomissary
taxes since the transfer of the properties takes  All bequests, devices, legacies, or
effect after the death of the decedent. Such transfers to social welfare, cultural, and
donated properties, real or personal, tangible or charitable institutions
intangible, shall form part of the gross estate.
S C B A R S T A G N O T E S [ 2018 ] Page 17 of 31

 No part of the net income of said However, the unpaid mortgage on her real
institutions inure to the benefit of properties can be claimed as deduction provided
any individual that the amount of the mortgaged property is
 Not more than 30% of such included in the gross estate and the mortgaged
transfers shall be used for loan complied with the requirements of Section 86
administration purposes of the Tax Code and related Rev. Regulations.

(B) may the heirs of Casimira file the estate

 Under special laws
tax return and pay the corresponding estate tax
beyond December 19, 2017 without incurring
On the first anniversary of the death of Y, his heirs interest and surcharge?
hosted a sumptuous dinner for his doctors, Yes. Section 91 (B) of the Tax Code permits the
nurses, and others who attended to Y during his extension of the filing of estate tax return and the
last illness. The cost of the dinner amounted to payment thereof for a period of 5 years in case of
P50,000.00. Compared to his gross estate, the judicial settlement and 2 years in case of
P50,000.00 did not exceed five percent of the extrajudicial settlement.
estate. Is the said cost of the dinner to
commemorate his one-year death anniversary Since Casimira’s heirs are still in the process of
deductible from his gross estate? making an inventory of her assets that can be used
No. This expense will not fall under any of the to pay the estate taxes, they may opt to settle the
allowable deductions from gross estate. Whether estate judicially or extra judicially in order that an
viewed in the context of either funeral expenses or extension for the filing of the estate tax return be
medical expenses, the same will not qualify as a granted.
deduction. Funeral expenses may include medical
expenses of the last illness but not expenses Vanishing Deductions
incurred after burial nor expenses incurred to Vanishing deductions or property previously taxed
commemorate the death anniversary. (De Guzman in estate taxation refers to the diminishing
V. De Guzman, 83 SCRA 256) deducibility/ exemption, at the rate of 20% over a
period of five (5) years until it is lost after the fifth
Medical expenses, on the other hand, are allowed year, of any property (situated in the Philippines)
only if incurred by the decedent within one year forming part of the gross estate, acquired by the
prior to his death. (Section 86(A)(6), NIRC). decedent from a prior decedent who died within a
period of five (5) years from the decedent's death.
Casimira died on June 19, 2017 after three weeks
of confinement due to an unsuccessful liver Residence for Purpose of Taxation of Estate
transplant. For her confinement, she had incurred Residence is synonymous with the term domicile.
substantial medical expenses that she financed The two terms may be used interchangeably
through personal loans secured by mortgages on without distinction. (Collector v. De Lara, 102 Phil
her real properties. Her heirs are still in the 813) To effect the abandonment of one's domicile,
process of making an inventory of her assets that there must be (1) a deliberate and provable choice
can be used to pay the estate taxes, if any, which of a new domicile, coupled with (2) actual
are due on December 19, 2017. residence in the place chosen, with (3) a declared
or provable intent that it should be one's fixed and
(A) Are the medical expenses, personal loans and permanent place of abode, one's home. (Velilla v.
mortgages incurred by Casimira deductible from Posadas, 62 Phil 624)
her gross estate?
The Medical Expenses can no longer be deducted
from the gross estate of Casimira since the same
were already paid using the personal loans secured
by mortgages on her real properties.
S C B A R S T A G N O T E S [ 2018 ] Page 18 of 31

Situs of Taxation for A Non-Resident Decedent VCC is the administrator of the estate of his
The value of the gross estate of a non-resident father NGC, in the estate proceedings pending
decedent who is a Filipino citizen at the time of his before the MM regional trial court. Last year, he
death shall be determined by including the value at received from the commissioner of internal
the time of his death of all property, real or revenue a deficiency tax assessment for the
personal, tangible or intangible, wherever situated estate in the amount of P1,000,000. But he
to the extent of the interest therein of the ignored the notice. Last month, the BIR effected
decedent at the time of his death (Sec. 85 (A), a levy on the real properties of the estate to pay
NIRC). These properties shall have a situs of the delinquent tax. VCC filed a motion with the
taxation in the Philippines hence subject to probate court to stop the enforcement and
Philippine estate taxes. collection of the tax on the ground that the BIR
should have secured first the approval of the
On the other hand, in the case of a non-resident probate court, which had jurisdiction over the
decedent who at the time of his death was not a estate, before levying on its real properties. Is
citizen of the Philippines, only that part of the VCC’s contention correct?
entire gross estate which is situated in the
Philippines to the extent of the interest therein of No. VCC's contention is not correct. The approval
the decedent at the time of his death shall be of the probate court is not necessary. Payment of
included in his taxable estate. Provided, that, with estate taxes is a condition precedent for the
respect to intangible personal property, we apply distribution of the properties of the decedent and
the rule of reciprocity. the collection of estate taxes is executive in nature
for which the court is devoid of any jurisdiction.
Date-Of-Death Valuation Rule Hence, the approval of the court, sitting in
The value of an estate of a decedent is based on its probate, or as a settlement tribunal is not a
value at the time of his death regardless of any mandatory requirement in the collection of estate
post-death development affecting its value (e.g., taxes (Marcos v. Court of Appeals, 1997).
subsequent settlement of a claim against the
estate for a lesser amount). (Dizon v. CTA, 2008) Donor’s Tax
It is a tax levied, assessed, collected and paid upon
Filing of Estate Tax Return the transfer by any person, resident or
Within six (6) months from the decedent’s death nonresident, of the property by gift.
(Sec. 90 (B), NIRC), provided that the Commissioner
of Internal Revenue shall have authority to grant in It is a tax imposed on the exercise of the donor’s
meritorious cases, a reasonable extension not right during lifetime to transfer property to others
exceeding thirty (30) days for filing the return (Sec. in the form of gift. Hence, donor’s tax is not a
90 (c), NIRC) property tax, but is an excise tax on the transfer of
property by way of gift inter vivos. (RR 12-2018)
Except in cases where the Commissioner of
Internal Revenue otherwise permits, the estate tax Gift in Relation to Donor’s Tax
return shall be filed with an authorized agent bank, It covers not only “direct gifts” but also “indirect
or Revenue District Officer, Collection Officer, or gifts.” Examples of indirect gifts are: condonation
duly authorized Treasurer City in which the of indebtedness due to mere liberality of the
decedent was domiciled at the time of his death. creditor; transfer of property without
(Sec. 90 (D). NIRC) consideration; sales, exchanges and other
dispositions of property for a consideration to the
extent that the value of the property transferred
exceeds the value in money or money’s worth of
the consideration received therefor; and
renunciation of an inheritance in favor of another
S C B A R S T A G N O T E S [ 2018 ] Page 19 of 31

Elements of Taxable Donation  Donations made to entities exempted under

 Capacity of the donor to transfer property special laws;
 Donative intent (not an absolute requirement;  Donations not exceeding P100,000 per
required only in direct gift) calendar year. [NIRC, Sec 99(A)]
 Delivery
 Acceptance of the gift by the donee Renunciation of Share in the Conjugal Partnership
or Absolute Community or Inheritance
Stranger in Relation to Donor’s Tax Renunciation by the surviving spouse of his/her
A person who is not a brother, sister (whether by share in the conjugal partnership or absolute
whole or half-blood), spouse, ancestor and lineal community after the dissolution of the marriage is
descendant or relative by consanguinity in the subject to donor’s tax whereas general
collateral line within the 4th civil degree. Note: renunciation by an heir, including tax surviving
donations between business organizations and spouse of his/her share in the hereditary estate left
those made between an individual and a business by the decedent is not subject to donor’s tax,
organization will be treated as donations to unless specifically and categorically done in favor
strangers. of identified heir’s to the exclusion of other co-
heirs in the estate. (R.R. 2-2003).
Transfers Subject to Donor’s Tax
 Direct gift Donor’s Tax; Donation to Non-Stock, Non-Profit
 Gift through creation of trust Private Educational Institutions
 Condonation of debt The following conditions must occur in order that
 Repudiation of inheritance if: all grants, donations and contributions to non-
 Specifically and categorically done in stock, non-profit private educational institutions
favor of identified heirs may be exempt from the donor's tax under Section
 To the exclusion or disadvantage of other 101 (a) of the Tax Code.
co-heirs  Not more than thirty percent (30%) of said
 Renunciation by the surviving spouse of gifts shall be used by such donee for
his/her share in the conjugal partnership or administration purposes;
absolute community after the dissolution of  The educational institution is incorporated
the marriage in favor of the heirs of the as a non-stock entity,
deceased spouse or any other person/s  paying no dividends,
 Transfer for insufficient consideration  governed by trustees who receive no
(exception: real property classified as capital compensation, and
asset)  devoting all its income, whether students'
fees or gifts, donations, subsidies or other
Exemptions from Gross Gifts forms of philanthropy, to the
 Gifts made on account of marriage by parents accomplishment and promotion of the
to their children before or within 1 year from purposes enumerated in its Articles of
its celebration, up to P10,000; Incorporation.
 Gifts to the Government or any of its political
subdivision or any entity created by its Are contributions to a candidate in an election
agencies which is not conducted for profit; subject to donor's tax? On the part of the
 Gifts to a nonprofit educational and/or contributor, is it allowable as a deduction from
charitable, religious, cultural or social welfare gross income?
institution, accredited NGO, trust,
philanthropic or research organization; No, provided the recipient candidate had complied
provided that not more than 30% shall be used with the requirement for filing of returns of
by the donee for administration purposes; contributions with the Commission on Elections as
 Encumbrances on the property donated if required under the Omnibus Election Code.
assumed by the donee:
S C B A R S T A G N O T E S [ 2018 ] Page 20 of 31

The contributor is not allowed to deduct the splitting the donation into two equal amounts of
contributions because the said expense is not P100,000 given on two different years will totally
directly attributable to, the development, relieve the donor from the donor’s tax because the
management, operation and/or conduct of a trade, first P100,000 donation in the graduated brackets
business or profession (Sec. 34(l)(a), NIRC). is exempt. (Section 99, NIRC). While the donor’s tax
Furthermore, if the candidate is an incumbent is computed on the cumulative donations, the
government official or employee, it may even be aggregation of all donations made by a donor is
considered as a bribe or a kickback (Sec. 34(l)(c), allowed only over one calendar year.
J owns a ring valued at P5m. He sold the ring to K
for an amount of P1m. Is there a gift tax Value-Added Tax
consequence? The value-added tax is an indirect tax and the
Yes. There was an indirect gift arising from a sale amount of tax may be shifted or passed on to the
for inadequate consideration. The material buyer, transferee or lessee of the goods, properties
difference in the fair market value and the or services.
consideration (Php4M) is equivalent to a gift, for
which donor’s tax should be paid. Indirect Tax
An “Indirect Tax” is a tax demanded in the first
J owns a residential land valued at P5m. He sold instance from one person in the expectation and
the land for an amount of P1m. Is there a gift tax intention that he can shift the burden to someone
consequence? else. It is one paid by a person who is not directly
liable therefor, and who may thereafter shift or
No. The liability for donor’s tax arising from an pass on the tax to another person or entity, which
indirect gift due to a sale for inadequate ultimately assumes the tax burden. The impact of
consideration is not applicable if what has been taxation is on the seller upon whom the tax has
sold is a real property classified as capital asset been imposed, while the incidence of taxation is on
(Section 100, NIRC). This is because the transaction the final consumer, the place at which the tax
is subject to the 6% capital gains tax; hence, comes to rest. (MAMALATEO, Value Added Tax in
regardless of the insufficiency in consideration, the the Philippines (2003), p. 8).
government will still be able to get the correct
amount of tax as the tax base is selling price or fair Export Sales (Transaction Subject to Zero-Rated
market value whichever is higher VAT)
 Sake and actual shipment of goods from
Your bachelor client, a Filipino residing in Quezon the Philippines to a foreign country, paid
city, wants to give his sister a gift of P 200,000.00. for in acceptable currency, and
He seeks your advice, for purposes of reducing if accounted for in accordance with the
not eliminating the donor’s tax on the gift, on rules and regulations of the BSP
whether it is better for him to give all of the  Sale of raw materials or packaging
P200,000.00 on Christmas 2001 or to give materials to a non-resident buyer for
P100,000.00 on Christmas 2001 and the other delivery to a resident local export-
P100,000.00 on January 1, 2002. Please explain oriented enterprise to be used in
your advice. manufacturing, processing, packing, or
repacking in the Philippines of the said
I would advise him to split the donation. Giving the buyer’s goods, paid for in acceptable
P200,000 as a one-time donation would mean that currency, and accounted for in
it will be subject to a higher tax bracket under the accordance with the rules and
graduated tax structure thereby necessitating the regulations of the BSP
payment of donor’s tax. On the other hand,  Sale of raw materials or packaging
materials to an export-oriented
S C B A R S T A G N O T E S [ 2018 ] Page 21 of 31

enterprise whose export sales exceed o Sale or importation of fertilizers,

70% of total annual production seeds, seedlings and fingerlings,
 Transactions considered constructively fish, prawn, livestock and poultry
exported under Art. 23 of EO 226 feeds
 Sale of gold to BSP o Sale, importation, printing or
 Sale of goods, supplies, equipment, and publication of books and
fuel to persons engaged in international newspaper or magazines
shipping or air transport operations appearing at regular intervals
with fixed prices for subscription
The validity of the VAT law was questioned for and which is not devoted
being contrary to article vi sec. 28 (1) of the principally to the publication of
constitution which provides that “the congress paid advertisements
shall evolve a progressive system of taxation.” It o Sale, importation, or lease of
is argued that since vat is regressive and therefore passenger or cargo vessels and
unconstitutional since the law imposes a flat rate aircraft
of 12% and thus places the tax burden on all  Sale:
taxpayers without regard to their ability to pay. Is o Sales by agricultural cooperatives
the vat law unconstitutional? duly registered with the CDA to
their members, and the sale of
No. Article VI, Sec. 28 (1) mandates Congress not to their produce to non-members,
prescribe, but to evolve, a progressive tax system. their importation of direct farm
The Constitution does not really prohibit the inputs, machineries and
imposition if indirect taxes which, like the VAT, are equipment to be used directly and
regressive. The Constitutional provision has been exclusively in the production
interpreted to mean simply that direct taxes are to and/or processing of their
be preferred and as much as possible, indirect produce
taxes should be minimized. Therefore, the VAT law o Sales by non-agricultural, non-
is constitutional. (Tolentino v. Secretary of Finance, electric and non-credit
1995). cooperatives duly registered with
the CDA, the share capital
Elements of Vat Taxable Transaction (P-S-B-P-E) contribution of each member
 It involves any Person. does not exceed P15,000
 There must be a Sale, barter exchange, o Export sales by not VAT-
lease rendering of service (including registered persons
deemed sale transactions); o Sale of the following real
 It must be made in the course trade or properties:
Business (except if importation) including  Not primarily hold for
incidental transactions; sale or lease in the
 The transaction is done in the Philippines, ordinary course of trade
and or business
 It must neither be zero-rated nor Exempt  Utilized for low-cost or
from VAT. (NIRC. Secs. 105-109) socialized housing
 Residential lot valued at
VAT-Exempt Transactions P 1,919,500 and below,
 Sale or importation: or house and lot and
o Sale or importation of agricultural other residential
and marine food products in their dwellings valued at
original state for human P3,199,200 and below
consumption; (as amended by RR No.
S C B A R S T A G N O T E S [ 2018 ] Page 22 of 31

 If two or more adjacent o Transport of cargo by

residential lots are sold international carriers is VAT-
or disposed in favor of exempt, but subject to
one buyer, for the percentage tax. (RR No. 15-2013)
purpose of utilizing the o Services of banks and other non-
lots as one residential lot. bank financial intermediaries
the sale shall be exempt o Money changers and pawnshops
from VAT only if the are VAT-exempt, but subject to
aggregate value of the percentage tax. (RR No. 4-2007)
lots do not exceed  Others:
P1,919.500 (as amended o Transactions exempt under
by RR No 16-2011) international agreements to
 Importation: which the Philippines is a
o Importation of personal and signatory except those under PD
household effects of residents 529 (Petroleum Exploration
returning from abroad and non- Concessionaires under the
resident citizens coming to Petroleum Act of 1949)
resettle in the Philippines o Gross receipts from lending
o Importation of domestic animals activities by credit or multi-
and personal household effects of purpose cooperatives registered
persons coming to settle in the with the CDA
Philippines for their own use o Lease of residential units where
o Importation of fuel, the monthly rental does not
goods and supplies by persons exceed P12,800
engaged in international shipping  If monthly rentals exceed
or air transport operations P12,800 per unit AND if
 Services: the aggregate annual
o Services subject to percentage tax gross receipts from said
o Services by agricultural contract units only (not including
growers and milling for others of the gross receipts from
palay into nee, corn into grits and units leased for not more
sugar into raw sugar than P 12,800) exceeds
o Medical, dental, hospital and P1,919,500 - subject to
veterinary services, except those VAT
rendered by professionals  If monthly rentals exceed
o Educational services rendered by P 12,800 per unit AND if
duly accredited private the aggregate annual
educational institutions and gross receipts do not
government educational exceed P1,919,500 = 3%
institutions percentage tax
o Services rendered pursuant to an o Sales to senior citizens (R.A. 9994)
employer-employee relationship o Sales to PWD of certain goods and
o Services rendered by regional or services. (IRR of R.A 10754)
area HQ established in the PH by o Sale or lease of goods or
multinational corporations which properties or the performance of
do not earn or derive income services other than the
from the Philippines aforementioned transactions, the
o Transport of passengers by gross annual sales and/or receipts
international carriers doing do not exceed P1.919,500. (NIRC,
business in the PH (RA. 10378)
S C B A R S T A G N O T E S [ 2018 ] Page 23 of 31

Sec. 109: RR No. 16-2005. as the purposes of VAT liability. A reading of Section
amended) 105 of the 1997 Tax Code would show that a
transaction “in the course of trade of business”
Transactions "Deemed Sales” includes “transactions incident thereto.”
 Transfer, use, or consumption not in the
course of business of goods originally Beauxbatons Inc., is a VAT-registered corporation
intended for sale or for use in the course and is engaged in the business of importing books
of business; and school supplies. In 2004, it imported 5m pesos
 Distribution or transfer to: worth of books, 2.5m worth of fountain pens and
o Shareholders or investors as 2.5m worth of bookstands. Is the transaction
share in the profits of VAT- subject to VAT?
registered persons; or Yes, but only as to fountain pens and bookstands.
o Creditors in payment of debt; The importation of books is a transaction exempt
 Consignment of goods if actual sale is not from VAT pursuant to Section 109 of the NIRC.
made within 60 days following the date
such goods were consigned; and
Magdalena motors Inc., a VAT-registered
 Retirement from or cessation of business,
corporation, leases its vans to its customers. What
with respect to inventories of taxable
tax is it subject to for the lease of the vehicles?
goods existing as of such retirement or
It is subject to 12% VAT pursuant to Section 108 of
the NIRC.

A vat-registered contractor performed services

Destination Principle
for his customer in 2010 and billed him P11.2
The destination principle means that the
million, broken down as follows: P10 million –
destination of the goods determines the taxation
cost of services, plus P1.2 million, 12% vat. Of the
or exemption from VAT. Goods and services are
contract price of P10 million, only P8 million plus
taxed only in the country where they are
VAT thereon was received from the customer in
2010, and the balance of p4 million plus vat was
received by the contractor in 2011. How much is
Difference Between Zero-Rated Entities and VAT-
the taxable gross receipts of the contractor in
Exempt Entities
2010, for VAT purposes?
Zero-rated: (1) It is a taxable transaction but does
P8 Million, the amount received from the
not result in an output tax, (2) The input VAT on the
customer in 2010 (Sec. 108, NIRC).
purchases of a VAT- registered person with zero-
rated sales may be allowed as tax credits or
Colossus Inc., a corporation engaged in firearms refunded, (3) Persons engaged in transactions
dealing is a VAT-registered company. Included in which are zero-rated, being subject to VAT, are
its roster of assets is a van that it uses to deliver required to register.
machine guns to AFP. The van being 10 years old
and dated, colossus decided to sell it to Sugarwax, VAT-exempt: (1) Not subject to output tax, (2) The
a corporation engaged in the business of seller in an exempt transaction is not entitled to
providing mobile waxing services to busy office any input tax on his purchases despite the issuance
women. The selling price of the van was way of a VAT invoice or receipt, (3) Registration is
below its acquisition cost. Is the sale of the van optional for VAT-exempt persons.
subject to VAT?
Availment of VAT-Refund
Yes, the sale of the van is vatable. According to One may avail of a VAT-refund when there are (1)
Mindanao Geothermal Partnership v. CIR, March zero-rated and effectively zero-rates sales or (2)
11, 2013, although the sale of the van is an isolated cancellation of VAT registration.
transaction, it does not follow that an isolates
transaction cannot be an incidental transaction for
S C B A R S T A G N O T E S [ 2018 ] Page 24 of 31

A claim for refund was filed by Apollo of unutilized the new Rule that incorporates the Cross-Border
input vat in the amount of P30.3 million paid on and Destination Principle despite the availment by
capital goods. The close of the taxable quarter the PEZA registered entity of this so called “Income
when the purchases were made was September Tax Holiday”. This new rule, as implemented by
30, 2000. Apollo filed with the BIR and RMC 74-99, deviates from the old rule which gives
administrative claim for refund of the unutilized a PEZA registered entity to choose between
input vat on December 11, 2000. The CIR had a payment (1)5% franchise tax in lieu of all taxes and
period of 120 days, or until April 10, 2001, to act (2) the availment of the so called income tax
on the claim. This 120-day period lapsed without holiday where the PEZA registered entity will no
any action by the BIR on the claim. Apollo filed a longer pay income tax but will have to pay VAT and
petition for review with the CTA on September 11, thereby removing the transaction from zero rated
2002. Decide. system.

The petition should be denied. The CIR’s failure to In the given case, although assuming that HP
act on the administrative claim should have been international opted to avail of the Income Tax
treated as a denial of the claim and Apollo would Holiday Scheme, the BIR should still grant the
have had 30 days from April 10, 2001, or until May application for the Zero-rating of SMZ’s sale of
10, 2001, to file a judicial claim with the CTA. But services to HP applying the Cross Border and
Apollo filed a petition for review with the CTA only Destination Principle.
on September 11, 20002. The judicial claim was Thus, the application of SMZ for the zero-rating of
thus filed late. (Rohm Apollo Semiconductor its sale of services to HP must be granted.
Philippines v. CIR, 2015)
Effect of a VAT-Registered Person Issuing a VAT
SMZ, Inc. is a vat-registered enterprise engaged in Invoice or VAT Receipt for a VAT-Exempt
the general construction business. HP Transaction, But Fails to Display Prominently on
international contracts the services of SMZ, Inc. the Invoice or Receipt the Term “VAT-Exempt
To construct HP international’s factory building Sale”
located in the Laguna techno park, a special The issuer shall be subject to VAT as if Sec. 109 did
economic zone. HP international is registered not apply.
with the Philippine Economic Zone Authority
(PEZA) as an ecozone export enterprise, and, as On what grounds can the commissioner suspend
such, enjoys income tax holiday pursuant to the the business operations? What are the limitations
special economic zone act of 1995. SMZ, Inc. Files to such temporary suspension order?
an application with the bureau of Internal
Revenue (BIR) for the vat zero-rating of its sale of In case of a VAT-registered person (1) Failure to
services to HP international. However, the BIR issue receipts or invoices; (2) Failure to file a VAT
denies SMZ, lnc.'s application on the ground that tax return; (3) Understatement of taxable sales or
HP international already enjoys income tax receipts by 30% or more of his correct taxable sales
holiday. Is the BIR correct in denying SMZ, lnc.'s or tax receipts for the taxable quarter. Or the
application? failure of any person to register under Sec. 236. The
temporary closure of the establishments shall be
No. The BIR’s contention is not correct applying the for the duration of not less that in five (5) days and
new rule which incorporates the Destination shall be lifted only upon compliance with whatever
Principle and Cross-Border Principle. requirements prescribed by the Commissioner on
the closure order. (Sec. 115)
The Supreme Court, in the recent case of Coral Bay
Nickel Mining Vs. Commissioner of Internal
Revenue ruled that the sale of goods or rendition
of services to a PEZA registered enterprise is
considered to be Effectively-Zero rated applying
S C B A R S T A G N O T E S [ 2018 ] Page 25 of 31

Rules for Filing VAT Returns local water districts and government-
Quarterly returns for every person liable to pay for owned or controlled corporations
VAT filed 25 days following the close of the taxable engaged in the supply and distribution of
quarter. For VAT-registered persons, they must pay water and/or generation and transmission
VAT on a monthly basis on the 20th day following of electric power;
the end of the month. (RR 16-2005)  All real property owned by duly registered
cooperatives as provided for under R.A
 Machinery and equipment used for
pollution control and environmental
Local Taxation: Coverage
The following taxes, aside from basic real estate
tax, may be imposed by:
Remedies Available to Local Government Units to
 Provincial Government
Enforce the Collection of Taxes, Fees, And Charges
o Printer's or publisher's tax
 Administrative Remedies of distraint of
o Franchise Tax
personal property of whatever kind
o Professional tax
whether tangible or intangible, and levy of
 City Government - may levy taxes which
real property and interest therein; and
the province or municipality are
 Judicial Remedy by institution of an
authorized to levy (Sec. 151, LGC)
ordinary civil action for collection with the
o Printer's or publisher's tax
regular courts of proper jurisdiction.
o Franchise tax
o Professional tax
 Municipalities in the Metro Manila Area – In order to raise revenue for the repair and
may levy taxes at rates which shall not maintenance of the newly constructed city hall of
exceed by 50% the maximum rates Makati, the city mayor ordered the collection of
prescribed in the Local Government P1.00, called “elevator tax”, every time a person
rides any of the high-tech elevators in the city hall
Persons Exempt to Pay the Community Tax during the hours of 8:00 a.m. to 10:00 a.m. and
 Diplomatic and consular representatives 4:00 p.m. to 6:00 p.m. is the “elevator tax” a valid
 Transient visitors when their stay in the imposition?
Philippines does not exceed three No. The imposition of a tax, fee or charge or the
months generation of revenue under the Local
Government Code, shall be exercised by the
Properties Are Exempt from Real Property Taxes SANGUNIAN of the local government unit
(Sec. 234, LGC) concerned through an appropriate ordinance
 Real property owned by the Republic of (Section 132 of the Local Government Code). The
the Philippines or any of its political city mayor alone could not order the collection of
subdivisions except when the beneficial the tax; as such, the “elevator tax” is an invalid
use thereof has been granted, for imposition.
consideration or otherwise, to a taxable
 All lands, buildings and improvements
actually, directly, and exclusively used for
religious, charitable or educational
purposes by charitable institutions,
churches, parsonages or convents
appurtenant thereto, mosques, nonprofit
or religious cemeteries;
 All machineries and equipment that are
actually, directly, and exclusively used by
S C B A R S T A G N O T E S [ 2018 ] Page 26 of 31

The real property of Mr. and Mrs. Angeles, Batas law is a general professional partnership
situated in a commercial area in front of the public operating in the city of Valenzuela. It regularly
market, was declared in their tax declaration as pays value-added tax on its services. All its
residential because it had been used by them as lawyers have individually paid the required
their family residence from the time of its professional tax for the year 2017. However, as a
construction in 1990. However, since January condition for the renewal of its business permit
1997, when the spouses left for the united states for the year 2017, the city treasurer of Valenzuela
to stay there permanently with their children, the assessed Batas law for the payment of percentage
property has been rented to a single proprietor business tax on its gross receipts for the year 2016
engaged in the sale of appliances and agri- in accordance with the revenue tax code of
products. The provincial assessor reclassified the Valenzuela.
property as commercial for tax purposes starting
January 1998. Mr. and Mrs. Angeles appealed to Is Batas law liable to pay the assessed percentage
the local board of assessment appeals, business tax?
contending that the tax declaration previously
classifying their property as residential is binding. No. Valenzuela City may not impose Percentage
How should the appeal be decided? Business Tax since as BATAS LAW, as a general
professional partnership, does not operate
The appeal should be decided against Mr. and Mrs. business.
Angeles. The law focuses on the actual use of the
property for classification, valuation and In Bureau of Local Government Finance Opinion
assessment purposes regardless of ownership. dated March 15, 2017 involving exact same facts as
Section 217 of the Local Government Code the instant case, it was discussed that following the
provides that "real property shall be classified, rules on taxation provided by the LGC, as well as
valued, and assessed on the basis of its actual use the relevant rulings of the Supreme Court, this
regardless of where located, whoever owns it, and Bureau in several occasions held that a GPP is not
whoever uses it". subject to business tax, as it is not engaged in any
trade or business, but is focused on the exercise of
Mr. Fermin, a resident of Quezon city, is a certified the profession of its individual partners.
public accountant-lawyer engaged in the practice
of his two professions. He has his main office in The contention of Batas Law that it must not be
Makati city and maintains a branch office in Pasig subject to percentage business tax based on gross
city. Mr. Fermin pays his professional tax as a CPA receipts exclusively on year 2017 must be upheld,
in Makati city and his professional tax as a lawyer without prejudice to the validity of the assessment
in Pasig city. made by the City Treasurer pursuant to the
May Makati city, where he has his main office, Revenue Code of Valenzuela.
require him to pay his professional tax as a
No. Makati City where Mr. Fermin has his main Importation
office may not require him to pay his professional Importation begins when the carrying vessel or
tax as a lawyer. Mr. Fermin has the option of paying aircraft enters the jurisdiction of the Philippines
his professional tax as a lawyer in Pasig City where with the intention to unload therein (TARIFF CODE,
he practices law or in Makati City where he Sec. 1202).
maintains his principal office. (Sec. 139[b], Local
Government Code) Importation is deemed terminated upon payment
of duties, taxes, and other charges due upon the
articles or secured to be paid at a port of entry, and
legal permit for withdrawal shall have been
S C B A R S T A G N O T E S [ 2018 ] Page 27 of 31

granted in case of dutiable goods or until they have Automatic review is intended to protect the
legally left the jurisdiction of the customs in case of interest of the Government in the collection of
duty-free goods. (TARIFF CODE, Sec. 1202, Carrara taxes and customs duties in seizure and protest
Marble Philippines, inc v. CIR, 1999) cases. Without such automatic review, neither the
Commissioner of Customs nor the Secretary of
Categories of Imports (F-R-P) Finance would know about the decision laid down
 "Freely importable commodities" or those by the Collector favoring the taxpayer. The power
commodities which are neither to decide seizure and protest cases may be abused
“regulated” nor “prohibited" and the if no checks are instituted. Automatic review is
importation of which may be effected necessary because nobody is expected to appeal
without any prior approval of or the decision of the Collector which is favorable to
clearance from any government agency. the taxpayer and adverse to the Government. This
 “Regulated commodities" or those is the reason why whenever the decision of the
commodities the importation of which Collector is adverse to the Government, the said
require clearances/permits from decision is automatically elevated to the
appropriate government agencies; and Commissioner for review; and if such decision is
 “Prohibited commodities” or those affirmed by the Commissioner, the same shall be
commodities the importation of which are automatically elevated to and be finally reviewed
not allowed by law. (Secretary of Finance by the Secretary of Finance (Yaokasin v.
v. Court of Tax Appeals, 2013) Commissioner of Customs, 1989).

"De Minimis" Importations Relief Consignment and the Applicable Duty and
These are importations with a value of P10,000 and Tax Treatment
below. No duties and taxes shall be collected on Relief consignment refers to goods such as food,
“de minimis'' importations. (CMTA. Sec 423) medicine, equipment and materials for shelter,
donated or leased to government institutions and
Technical Smuggling accredited private entities for free distribution to
the act of importing goods into the country by or use of victims of calamities. Relief consignment
means of fraudulent, falsified or erroneous shall be exempt from duties and taxes. (CMTA.
declaration of the goods to its nature, kind, quality, Secs. 120 & 121)
quantity or weight, for the purpose of reducing or
avoiding payment of prescribed taxes, duties and Does the RTC have jurisdiction over seizure and
other charges. forfeiture conducted by the Bureau of Customs?
No. The RTCs are devoid of competence and
Outright Smuggling authority. Pursuant to the Doctrine of Primary
the act of importing goods into the country without Jurisdiction, the BOC acquires exclusive jurisdiction
complete customs prescribed importation the moment imported goods are placed in their
documents, or without being cleared by customs or possession or control. (Agriex Co Ltd. v. Villanueva,
other regulatory government agencies, for the 2014)
purpose of evading payment of prescribed taxes,
duties and other government charges. (CMTA. Sec.
Mr. X, an OFW, sent a balikbayan box to his family
member in the Philippines. However, while in
customs custody, all balikbayan boxes, including
Whenever the decision of the collector of customs that of Mr. X, were subjected to 100%
is adverse to the government, it is automatically examination on September 21, 2015 by customs
elevated to the commissioner for review and, if it officers by opening the boxes. Mr. X’s wife
is affirmed by him, it is automatically elevated to questioned the propriety of the examination. Is
the secretary of finance for review. What is the the examination proper?
basis of the automatic review procedure in the
bureau of customs?
S C B A R S T A G N O T E S [ 2018 ] Page 28 of 31

No. Pursuant to Bureau of Customs (BOC) Revised contravene the nature of the Subic Bay Freeport as
Rules and Regulations on the Importation of a separate customs authority. Indeed, the
Balikbayan Boxes issued on September 2, 2015, investors can generally and freely engage in any
OFW’s balikbayan boxes shall not be subjected to kind of business as well as import into and export
random or arbitrary physical inspection. Instead out goods with minimum interference from the
they shall undergo mandatory X-ray scanning. For Government
balikbayan boxes without violation, it shall be Hence, the motion to quash must be denied for the
segregated and provisionally released to allow its reason that the Collector of Customs has
continuous processing. It is only when a balikbayan jurisdiction to enforce the TCC within the Freeport
box is placed under alert that it will be subjected to zone.
100% physical examination at the authorized
examination area to be conducted by a customs
examiner in the presence of apprehending officers.
Freight forwarder consolidator, representatives of
Tax Remedies
the Overseas Workers Welfare Administration
On the part of the government, courses of action
and/or designated officer of an OFW association
provided by or allowed in the law to implement the
should also be present.
tax laws or enforce tax collection.

On the basis of a warrant of seizure and detention On the part of the taxpayer, these are legal actions
issued by the collector of customs for the purpose which a taxpayer can avail of to seek relief from the
of enforcing the tariff and customs code, assorted undue burden or oppressive effect of tax laws, or
brands of liquor and cigarettes said to have been as a means to check possible excesses by revenue
illegally imported into the Philippines were seized officers in the performance of their duties.
from a store operating in a freeport zone. The
store owner moved for the quashal of the warrant Letter of Authority
on the ground that the collector of customs had An official document that empowers a Revenue
no jurisdiction to enforce it within the freeport Officer to examine and scrutinize a taxpayer’s book
zone. Should the motion to quash be granted? of accounts and other accounting records, in order
to determine the taxpayer’s correct internal
No. The motion to quash must be denied. revenue tax liabilities. In the absence of such an
authority, the assessment or examination is a
As held in the case of Agriex vs. Villanueva, the nullity. (CIR v. Sony Phils, Inc, 635 SCRA 234)
Supreme Court ruled that by virtue of R.A 7227, as
implemented by Customs Administrative Order No. Tax Cases that need not be Covered by a Letter of
4-93, also known as the Rules and Regulations for Authority
Customs Operations in the Subic Special Economic  Cases involving civil or criminal tax fraud
and Freeport Zone, both the SBMA and the Bureau which fall under the jurisdiction of the
of Customs have the power to seize and forfeit National Investigating Division under the
goods or articles entering the Subic Bay Freeport, Enforcement and Advocacy Services of
except that SBMA’s authority to seize and forfeit the BIR
goods or articles entering the Subic Bay Freeport  Policy cases under audit by the special
has been limited only to cases involving violations teams in the National Office
of RA No. 7227 or its IRR. There is no question
therefore, that the authority of the Bureau of Administrative Remedies for Assessment
Customs is larger in scope because it covers cases  After receipt of the Pre-Assessment
concerning violations of the customs laws. Notice, he must within fifteen (15) days
from receipt explain why no additional
The Court added that the authority of the Bureau taxes should be assessed against him.
of Customs to seize and forfeit goods and articles  If the Commissioner of Internal Revenue
entering the Subic Bay Freeport does not issues an assessment notice, the taxpayer
S C B A R S T A G N O T E S [ 2018 ] Page 29 of 31

must administratively protest or dispute Instances when the CIR may inquire into Bank
the assessment by filing a motion for Deposit Accounts (Es Comp Re)
reconsideration or reinvestigation within  A decedent to determine his gross estate
thirty (30) days from receipt of the notice  Any taxpayer who has filed an application
of assessment. (4th par.. Sec. 228, NIRC) for compromise based on financial
 Within sixty (60) days from filing of the incapacity; or
protest, the taxpayer shall submit all  Upon Request for the supply of tax
relevant supporting documents. information of specific taxpayers made by
a foreign tax authority pursuant to a tax
Mandatory Nature of Service of Preliminary treaty. (NIRC, Sec 6(F). as amended by Sec
Assessment Notice Prior to Final Assessment 3 of R.A 10021)
As a general rule, issuance of PAN prior to FAN is Requisites to Claim Refund for Excess Creditable
part of the due process requirement, the absence Withholding Tax
of which renders nugatory any assessment made  Filing the claim within the 2-year period.
by the tax authorities.  Establishing the fact of withholding with
copies of the CWT certificates; and
As an Exception, PAN is not Required in the  Showing that the income received was
following cases declared as part of gross income.
 The finding for any deficiency tax is the
result of mathematical error in the Taxpayer does not have to resubmit the quarterly
computation of the tax as appearing on ITR to support its claim. II is presumed that BIR
the face of the return already has the quarterly ITR on file. (Republic v.
 A discrepancy has been determined Team Energy Corporation and Mirant Energy
between the tax withheld and the Corporation, 2015)
amount actually remitted by the
withholding agent Grounds for Compromise
 A taxpayer who opted to claim a refund  Reasonable doubt as to the validity of the
or tax credit of excess creditable claim against the taxpayer
withholding tax for a taxable period was  Financial position of the taxpayer
determined to have carried over and demonstrates a clear inability to pay
automatically applied the same amount assessed tax
claimed against the estimated tax
liabilities for the taxable quarter or Grounds for Abatement or Cancellation of Tax
quarters of the succeeding taxable year Liability
 The excise tax due on excisable articles  The tax or any portion thereof appears to
has not been paid be unjustly or excessively assessed
 An article locally purchased or imported  The administration and collection costs
by an exempt person has been sold, involved do no justify the collection of the
traded, or transferred to non-exempt amount due
Does the Secretary of Justice have jurisdiction to
Matters that may be Appealed Straight to the CTA review disputed assessments from the CIR?
from the CIR No. The SOJ has no jurisdiction to review disputed
Decisions on disputed assessments, disputed assessments. The SOJ should instead refer it to the
refund; and other matters arising under the NIRC CTA. (CIR v. SOJ and PAGCOR. 2016)
and other tax laws. (NIRC, Sec. 4 & RA. 9282 Sec.
S C B A R S T A G N O T E S [ 2018 ] Page 30 of 31

The CIR has both the power to interpret tax laws On January 27, 2017, Ramon, the comptroller of
and the power to decide tax cases. Differentiate a Vantage point, Inc., executed a document entitled
taxpayer's mode of appeal in the exercise of the waiver of the statute of limitations in connection
CIR’s quasi-legislative and quasi-judicial with the BIR’s investigation of the tax liabilities of
functions. the company for the year 2012. However, the
Issuances and rulings by the CIR pursuant to its board of directors of Vantage point, Inc. Did not
quasi-legislative function, review by the Secretary adopt a board resolution authorizing Ramon to
of Finance. execute the waiver.

Quasi-judicial functions or the authority to decide On October 14, 2017, Vantage point, Inc. Received
disputed assessments, refunds, penalties and the a preliminary assessment notice from the BIR
like, exclusive appellate jurisdiction of the CTA. indicating its deficiency withholding taxes for the
(The Philippine American Life and General year 2012. Vantage point, Inc. Filed its protest. On
Insurance Company v. CIR, 2014) October 30, 2017, the BIR issued a formal letter of
demand and final assessment notice. Vantage
Remedies of A Taxpayer if the BIR does not act on point, Inc. Again filed a protest. The commissioner
his Protest within the 180-Day Period of internal revenue denied the protests and
A taxpayer can either: (1) file a petition for review directed the collection of the assessed deficiency
with the CTA within 30 days after the expiration of taxes.
the 180-day period; or (2) await the FDDA and
appeal such final decision to the CTA within 30 days Accordingly, Vantage point, Inc. filed a petition for
after receipt of a copy of such decision. These review in the CTA to seek the cancellation and
options are mutually exclusive and resort to one withdrawal of the assessment on the ground of
bars the application of the other. (Lascona Land Co. prescription.
Inc. v. CIR, 2012)
(A) What constitutes a valid waiver of the statute
To whom are adverse rulings of the secretary of of limitations for the assessment and collection of
finance appealed? taxes?
CTA. Its power to rule on decisions of the SOF is
covered by the phrase ‘other matters arising under A valid waiver of the statute of limitations under
the NIRC" CTA has jurisdiction to rule not only on paragraphs (b) and (d) of Section 223 of the Tax
the property of an assessment or tax treatment of Code of 1977, as amended, must be: (1) in writing;
a certain transaction, but also on the validity of the (2) agreed to by both the Commissioner and the
RR or RMC on which said assessment is based. (The taxpayer; (3) before the expiration of the ordinary
Philippine American Life and General Insurance prescriptive periods for assessment and collection;
Company v CIR, 2014) and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection.
Can a taxpayer raise the defense of prescription
The period agreed upon can still be extended by
for the first time on appeal?
subsequent written agreement, provided that it is
Yes. Even if the taxpayer raises the defense of
executed prior to the expiration of the first period
prescription for the first time on appeal to CTA En
agreed upon. The BIR had issued Revenue
Banc, it does not negate the applicability of the
Memorandum Order (RMO) No. 20-90 on 04 April
defense. (China Banking Corporation vs. CIR, 2015)
1990 to lay down an even more detailed procedure
for the proper execution of such a waiver. RMO No.
20-90 as modified by RDAO No. 05-01, mandates
that the procedure for execution of the waiver shall
be strictly followed, and any revenue official who
fails to comply therewith resulting in the
S C B A R S T A G N O T E S [ 2018 ] Page 31 of 31

prescription of the right to assess and collect shall Globesmart services, Inc. To post a surety bond
be administratively dealt with." equivalent to the deficiency assessment within 15
days from notice of the resolution. Globesmart
(B) Has the right of the government to assess and services, Inc. moved for the partial
collect deficiency taxes from Vantage point, Inc. reconsideration of the resolution and for the
For the year 2012 prescribed? reduction of the bond to an amount it could
obtain. The CTA division issued another resolution
Yes. The right of the Government to assess and reducing the amount of the surety bond to l24
collect deficiency taxes from Vantage Point, Inc. for million. The latter amount was still more than the
the year 2012 has already prescribed. net worth of Globesmart services, Inc. As reported
As held in the case of CIR vs. Stanley Works Sales in its audited financial statements.
(December 3, 2014; J. Sereno), the period to assess
and collect deficiency taxes may be extended only (A) May the collection of taxes be suspended?
upon a written agreement between the CIR and the
taxpayer prior to the expiration of the three-year Yes. Under Section 11 of RA 1125, when in the
prescribed period in accordance with Section 222 opinion of the Court, the collection by the Bureau
(b) of the NIRC. This is also one of the requisites of of Internal Revenue or the Commissioner of
a valid waiver of statute of limitation as Customs may jeopardize the interest of the
implemented by the foregoing BIR issuances. Government and/or the taxpayer, the Court at any
As the execution of the waiver of statute of stage of the proceeding may suspend the said
limitation dated January27, 2017 was made collection.
beyond the 3-year assessment period (from April
15, 2013 to April 15, 2016), said waiver is void. The (B) Is the CTA division justified in requiring
waiver did not comply with one of the requisites for Globesmart services, Inc. to post a surety bond as
valid waiver. This leads to the inevitable conclusion a condition for the suspension of the deficiency
that the assessment period was not extended. tax collection?
Hence, the right of the Government to assess and
collect deficiency taxes from Vantage Point, Inc. for No. The bond requirement should have been
the year 2012 has already prescribed. dispensed with.
Note: Even assuming that the principle of in pari
delicto as laid down by the Supreme Court in the The Supreme Court in the case of Tridharma
case of CIR vs. Next Mobile case applies in this case, Marketing Corporation v. CIR which involves
prescription still sets in since the execution of the similar facts as in the instant case, ruled that the
waiver was made beyond the 3-year assessment CTA in Division gravely abused its discretion under
period. Section 11 because it fixed the amount of the bond
at amount higher than the net worth of the
Globesmart services, Inc. received a final petitioner without conducting a preliminary
assessment notice with formal letter of demand hearing to ascertain whether there were grounds
from the BIR for deficiency income tax, value- to suspend the collection of the deficiency
added tax and withholding tax for the taxable assessment on the ground that such collection
year 2016 amounting to P48 million. Globesmart would jeopardize the interests of the taxpayer.
services, Inc. filed a protest against the Clearly, the requirement of bond which amounts to
assessment, but the commissioner of internal more than Globesmart’s net worth would
revenue denied the protest. Hence, Globesmart practically deny to it the meaningful opportunity to
services, Inc. Filed a petition for review in the CTA contest the validity of the assessments, and would
with an urgent motion to suspend the collection likely even impoverish it as to force it out of
of tax. business.

After hearing, the CTA division issued a resolution

granting the motion to suspend but required